Item 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Board Composition and Qualifications
|
Name
|
|
Served as Director
Since
|
|
|
Position with the Company or Committee Memberships
|
|
Age
|
|
|
Directors Continuing in Office
Until the 2022 Annual Meeting of Stockholders
|
|
Steve Gidwitz
|
|
|
2018
|
|
|
Director, Member of the Compensation Committee and Nominating Committee
|
|
|
62
|
|
|
James G. Gidwitz
|
|
|
1978
|
|
|
Chairman of the Board, Chief Executive Officer
|
|
|
73
|
|
|
Director Continuing in Office
Until the 2021 Annual Meeting of Stockholders
|
|
Scott Gidwitz
|
|
|
2018
|
|
|
Director, Member of the Audit Committee and Nominating Committee
|
|
|
32
|
|
|
Directors Continuing in Office
Until the 2020 Annual Meeting of Stockholders
|
|
Ralph W. Gidwitz
|
|
|
1984
|
|
|
Director, Member of the Compensation Committee
|
|
|
84
|
|
|
Theodore R. Tetzlaff
|
|
|
1981
|
|
|
Director
|
|
|
76
|
|
Steve Gidwitz has served on the Board since
2018. Steve began his career in 1980 after graduating from Tulane University in New Orleans with a B.A. in Business Management.
He worked for Consolidated Packaging for several years in various positions before becoming an administrative manager at Riverwood
International, a global leader in developing innovative packaging solutions. In 1991, Steve worked for Corson Manufacturing as
vice president of operations, then as president, before becoming vice president of NCAComp in 2002, Chief Operating Officer in
2011 and President in 2014. Over the course of his career, his job responsibilities have included: human resources, purchasing,
inside sales, sales management, quality control, accident prevention, plant management, and full company management. In addition,
Steve has served as a board member and vice president of the Group Self-Insurance Association of New York (“GSIANY”)
and served on a WCB/GSIANY committee to assist in rewriting the rules and regulations of self-insurance groups in the state of
New York. Mr. Gidwitz is also a member of the board of managers of Bee Street Holdings LLC (“Bee Street”), the
Company’s majority stockholder.
James G. Gidwitz is the son of one of the
founders of the Company and has served on the Board since 1978. He has served as the Chairman of the Board and its Chief Executive
Officer since 1983. Mr. Gidwitz also serves on the Boards of several non-profit institutions involved in such diverse activities
as medical research and political analysis. Mr. Gidwitz served as Chairman of the Endowment Committee of The Hotchkiss School
where he continues to serve on the Committee. Mr. Gidwitz also formerly served on the Board of the Hoover Institution, an
organization associated with Stanford University. The Board has concluded that Mr. Gidwitz possesses strong leadership experience
and knowledge of the Company and its business obtained through his long tenure with the Company. Mr. Gidwitz is also a member
of the board of managers of Bee Street.
Scott
Gidwitz has served on the Board since 2018. Scott is a Senior Vice
President of the investments group at The John Buck Company and serves as a member of the Investment Committee. His primary responsibilities
include the evaluation, underwriting, and due diligence of new residential and commercial acquisition and development opportunities.
Currently, Mr. Gidwitz serves as asset manager for 3Eleven, a 245-unit residential development opening in Chicago’s River
North neighborhood, and 333 S. Wabash Ave., a 1.2 million square foot office tower in Chicago’s East Loop. Prior to joining
The John Buck Company, Mr. Gidwitz was an Analyst at Siebert Branford Shank, L.L.C., a boutique investment bank specializing in
municipal finance. While at Siebert, Mr. Gidwitz provided quantitative and analytical support to senior bankers, as well as technical
support on over $210 million in senior managed financings, and over $3 billion of co-senior and co-managed transactions. Mr. Gidwitz
earned his J.D. from Northwestern University School of Law, M.B.A. from Northwestern University’s Kellogg School of Management,
and B.A. from University of Pennsylvania. Mr. Gidwitz is also a member of the board of managers of Bee Street.
Ralph W. Gidwitz is the son of one of the
founders of the Company and has served on the Board since 1984. Mr. Gidwitz is retired having previously started Capital Results
LLC, a financial consulting company, for which he also served as the Managing Partner and Chief Executive Officer until 2009. Mr. Gidwitz
has also served as the President and Chief Executive Officer of a private company engaged in manufacturing. Mr. Gidwitz served
on the Board of Trustees for a local college as well as serving as its Treasurer and Chairman of its Finance and Investment Committees
from 2006 to 2013. He currently serves on the Executive Committee of the Board of Governors of the City of Hope, a large research
driven hospital and health care organization, and as 1st Vice President of a Los Angeles based cultural group. He also
served as a Director for three community associations and as Chairman and a Governor for a Chicago cultural group. The Board has
concluded that Mr. Gidwitz adds invaluable and extensive business and financial experience as well as possessing experience
in mergers and acquisitions. Mr. Gidwitz is also a member of the board of managers of Bee Street.
Theodore
R. Tetzlaff has served on the Board since 1981. Mr. Tetzlaff is an attorney at law and principal of Tetzlaff Law Offices,
LLC. He was previously of counsel to the law firm of Ungaretti & Harris LLP from 2005 to 2012. He has also been a partner
at other law firms where he served as the Managing Partner of one firm’s Chicago office and as a member of another firm’s
Executive Committee. He served as General Counsel of Tenneco, Inc., a large publicly traded oil and gas company from 1992
to 1999 and General Counsel for Peoples Energy Corporation, a large publicly traded diversified energy company from 2003 to 2006.
Mr. Tetzlaff has also served as Chairman of the Board of a large Chicago civic organization. The Board has concluded
that Mr. Tetzlaff’s experience adds invaluable and extensive business experience as well as an in-depth understanding
of legal issues that have affected or may affect the Company.
Until his resignation effective April 18,
2020, Peter E. Thieriot had served on the Board since 2001. He is currently the Managing Member of Elk Mountain Holdings, a Delaware
LLC and a privately owned land and livestock company. He has served in that capacity since 2006 and from 1993 to 2006 for its predecessor
company, Elk Mountain Ranch Company, LLC. Mr. Thieriot possesses extensive and diverse experience having served in numerous
capacities for The Chronicle Publishing Company (“The Chronicle”), a closely held, family, national media company.
His roles have included President, Vice President, Publisher and Station Manager for newspapers and television stations owned by
The Chronicle. Over the years, Mr. Thieriot has served as a director or trustee for numerous cultural, civic and other types
of non-profit organizations as well as serving as a director of The Chronicle from 1977 to 1993. Prior to his resignation, the
Board had concluded that Mr. Thieriot’s diverse experience in various industries, including The Chronicle, adds a unique
perspective to many of the issues and tasks that are the responsibility of the Company’s Board.
Until his resignation effective April 18,
2020, Darrell M. Trent had served on the Board since 1997. Mr. Trent has served as Chairman of the Board of Directors and
Chief Executive Officer of Acton Development Company, Inc., a privately held real estate development and property management
company since 1988. Mr. Trent was also Chairman of the Board and Chief Executive Officer of Clean Earth Technologies, Inc.,
an environmental management venture from 1992 to 1994. Mr. Trent took a leave of absence for part of 2003 to serve as a volunteer
with the Coalition Provisional Authority in Iraq. Mr. Trent, a former U.S. Undersecretary of Transportation, was in Iraq to
oversee the re-creation of Iraq’s Ministry of Transportation. Prior to his resignation, the Board had concluded that Mr. Trent
brings invaluable and extensive business experience in real estate development, a segment of the economy that directly impacts
the Company’s Construction Materials segment business as well as affecting other products offered by the Company. He also
provides a unique insider’s experience with the federal government.
Until his resignation effective November
18, 2019, Thomas H. Carmody had served on the Board since 1994. Mr. Carmody is the Chief Executive Officer of Summit International,
LLC, a sports marketing and distribution company he founded in 1999. He has also served as the Chairman of the Board of Ameridream,
a charitable organization providing housing down payment assistance for qualifying individuals, since 2003. Mr. Carmody has
also served as Vice President of U.S. Operations and Vice President of the Sports Division of Reebok International, Ltd., a publicly
traded footwear, apparel and fitness company. Prior to his resignation, the Board had concluded that Mr. Carmody adds invaluable
and extensive marketing and business experience, as well as adding an entrepreneurial approach to situations that the Company has
faced or may face in the future.
Family Relationships
James G. Gidwitz and Ralph W. Gidwitz are
cousins. Steve Gidwitz and Scott Gidwitz are both nephews of James G. Gidwitz. James G. Gidwitz, together with his siblings
and all descendants, and Ralph W. Gidwitz, together with all descendants, including those of their deceased sibling, are herein
referred to as the “Gidwitz Family.”
Code of Ethics
In furtherance of its corporate governance
responsibilities, during April 2004, the Board adopted a formal Code of Ethics for the Chief Executive Officer and Senior
Financial Officers and a formal General Code of Business Conduct and Ethics which is intended to provide guidelines regarding the
actions of all of the Company’s directors, officers and employees. A copy of the Code of Ethics for the Chief Executive Officer
and Senior Financial Officers, as well as the Code of Business Conduct and Ethics, are available free of charge at the Company’s
website at www.continental-materials.com in the Investors section. Should an amendment to or a waiver from the provisions
of the Code of Ethics for the Chief Executive Officer and Senior Financial Officers that apply to its executive officers occur,
the Company intends to satisfy the disclosure requirements by posting such information on its website at www.continental-materials.com.
Audit Committee
The Board has established an Audit Committee
in accordance with section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Thomas
H. Carmody was, until his resignation effective November 18, 2019, and Peter E. Thieriot and Darrell M. Trent were, until their
resignations effective April 18, 2020, the only members of the Audit Committee. After Messrs. Thieriot’s and Trent’s
resignations, the Board elected Scott Gidwitz, effective April 20, 2020, as the sole member of the Audit Committee pursuant to
an exemption from the NYSE American requirement that the Audit Committee include only directors whom have been affirmatively determined
to be independent as defined by the NYSE American corporate governance rules. The Board had determined that, until his resignation
effective April 18, 2020, Mr. Thieriot qualified as an "audit committee financial expert" as defined by the Securities
and Exchange Commission. Since Mr. Thieriot’s resignation, the Board has determined it does not have such an “audit
committee financial expert” serving on the Audit Committee because the Nominating Committee has had insufficient time since
Mr. Thieriot’s resignation on April 18, 2020, to identify and interview potential director candidates who would be qualified
to serve in that role.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange
Act generally requires the Company’s directors, executive officers and owners of more than 10% of a registered class of the
Company’s equity securities to file with the Securities and Exchange Commission (the “Commission”) reports of
beneficial ownership and changes in ownership, on Forms 3, 4 and 5, generally within two business days of the date of a purchase
or sale transaction. Such officers, directors and 10% owners are required by Commission regulations to furnish to the Company copies
of all Section 16(a) reports that they file. To the Company’s knowledge, based solely on review of copies of such
reports furnished to the Company and representations that no other reports were required to be filed during the fiscal year ended
December 28, 2019, all executive officers, directors and 10% owners of the Company complied with the Section 16(a) filing
requirements during fiscal year 2019.
Executive Officers and Qualifications
|
Name
|
|
Positions and Offices; Term of Office
|
|
Age
|
|
|
James G. Gidwitz
|
|
Chairman and Chief Executive Officer (since 1983)
|
|
|
73
|
|
|
Ryan M. Sullivan
|
|
President and Chief Operating Officer (since 2018)
|
|
|
46
|
|
|
Paul A. Ainsworth
|
|
Vice President, Chief Financial Officer and Secretary (since 2018)
|
|
|
49
|
|
Please see above, under ‘Board Composition and Qualifications’,
for Mr. Gidwitz’s background and qualifications.
Ryan M. Sullivan has served as the President
and Chief Operating Officer of the Company since 2018. Mr. Sullivan has over twenty years of professional engineering experience
in manufacturing operations and other industries. From 2017 until joining the Company, Mr. Sullivan served as the North American
President and Managing Director of Kingspan Insulation LLC, a manufacturer of energy efficiency and moisture management products.
Prior to Kingspan Insulation LLC, from 2004 until 2016, Mr. Sullivan was with James Hardie Building Products, Inc., a
manufacturer of fiber-cement building materials for new home construction projects and home remodeling. At James Hardie Building
Products, Inc., Mr. Sullivan held various management positions including serving as the President of the North America
division from 2015 until 2016, the Executive General Manager, Southern Division from 2013 until 2015 and the General Manager, ColorPlus
Business Unit from 2011 until 2013. Mr. Sullivan graduated from Carnegie Mellon in 1995 earning a Bachelor’s of Science
in Mechanical Engineering. He also earned a Master of Science in Electrical Engineering in 1999 and a Master of Business Administration
in 2004 from the University of Pittsburgh.
Paul A. Ainsworth has served as Vice President,
Chief Financial Officer and Secretary of the Company since 2018. Mr. Ainsworth has over twenty years of professional finance and
accounting experience in manufacturing operations and other industries. From 2014 until he joined the Company, Mr. Ainsworth served
as the Chief Financial Officer of Precision Holding LLC, an engineering group providing precision machining services to the oil
and gas, rail, armaments, and heavy-duty engine sectors. Prior to his role at Precision Holding LLC, Mr. Ainsworth was the Chief
Financial Officer and President of MD SolarSciences Corp., a manufacturer of luxury skincare products. Mr. Ainsworth has also served
as Vice President of Corporate Development at HomeServe PLC, a public marketer of consumer warranty products, and as an Investment
Director at Barclays Bank PLC. Mr. Ainsworth spent nearly 10 years as a Senior Manager and Director of Arthur Andersen LLP. Ainsworth
earned his B.S. in Molecular Biology and Biochemistry from Durham University in Durham, United Kingdom in 1992 and became a Chartered
Accountant, the British equivalent of a CPA, in 1996. In 1998 he earned his Securities and Investments Diploma from the Securities
Institute, the British equivalent of a CFA, in 1999 he earned his Advanced Corporate Finance Diploma from INSEAD, and was awarded
the Business and Finance Professional qualification in 2019. He has been a member of the AICPA since 2013.
Item 11. EXECUTIVE
COMPENSATION
EXECUTIVE SUMMARY COMPENSATION TABLE
The following table summarizes the compensation
of the Company’s principal executive officer and its other named executive officers for 2019 and 2018. The amounts shown
include all compensation for services to the Company and its subsidiaries in all capacities.
|
Name and
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Option
|
|
|
All Other
|
|
|
|
|
|
Principal Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Awards (1)
|
|
|
Awards (2)
|
|
|
Compensation (3)
|
|
|
Total
|
|
|
James G. Gidwitz
|
|
|
2019
|
|
|
$
|
602,500
|
|
|
|
75,000
|
|
|
|
-
|
|
|
|
645,587
|
|
|
|
27,731
|
|
|
$
|
1,350,818
|
|
|
Chairman and Chief
|
|
|
2018
|
|
|
|
595,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53,941
|
|
|
|
649,441
|
|
|
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ryan M. Sullivan
|
|
|
2019
|
|
|
|
334,077
|
|
|
|
170,000
|
|
|
|
1,388,050
|
|
|
|
645,587
|
|
|
|
37,290
|
|
|
|
2,575,004
|
|
|
President and Chief
|
|
|
2018
|
|
|
|
168,541
|
|
|
|
138,462
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51,669
|
|
|
|
358,672
|
|
|
Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul A. Ainsworth
|
|
|
2019
|
|
|
|
292,500
|
|
|
|
85,000
|
|
|
|
-
|
|
|
|
239,181
|
|
|
|
25,774
|
|
|
|
642,455
|
|
|
Vice President and
|
|
|
2018
|
|
|
|
60,741
|
|
|
|
39,462
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,500
|
|
|
|
101,703
|
|
|
Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For Mr. Sullivan, represents the grant date fair value of 85,000 units of Phantom Equity granted under the VCIP. Refer to footnote
22 ‘Fair Value Measurement’ to the financial statements included in Item 8 of this Annual Report regarding the assumptions
made in the valuation of such units of Phantom Equity.
|
|
|
(2)
|
For each of Mr. Gidwitz and Mr. Sullivan, represents the grant date fair value of 85,000 units of Phantom Equity Appreciation
Rights granted under the VCIP. For Mr. Ainsworth, represents the grant date fair value of 34,000 units of Phantom Equity Appreciation
Rights granted under the VCIP. Refer to footnote 22 ‘Fair Value Measurement’ to the financial statements included in
Item 8 of this Annual Report regarding the assumptions made in the valuation of such units of Phantom Equity Appreciation Rights.
|
|
|
(3)
|
All Other Compensation includes other compensation not required to be included in any other column. The items comprised by
these totals are set forth in the following table:
|
|
Name
|
|
Year
|
|
|
Contributions
to 401(k) Plan
|
|
|
Contributions to
Supplemental
Profit Sharing
Plan (1)
|
|
|
Company
Provided Auto
or Auto
Allowance (2)
|
|
|
Total
|
|
|
James G. Gidwitz
|
|
2019
|
|
$
|
11,200
|
|
|
16,531
|
|
|
-
|
|
|
27,731
|
|
|
|
|
2018
|
|
|
8,250
|
|
|
13,200
|
|
$
|
32,491
|
|
|
53,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ryan M. Sullivan
|
|
2019
|
|
|
11,200
|
|
|
11,690
|
|
|
14,400
|
|
|
37,290
|
|
|
|
|
2018
|
|
|
-
|
|
|
43,269
|
|
|
8,400
|
|
|
51,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul A. Ainsworth
|
|
2019
|
|
|
11,200
|
|
|
5,874
|
|
|
8,700
|
|
|
25,774
|
|
|
|
|
2018
|
|
|
-
|
|
|
-
|
|
|
1,500
|
|
|
1,500
|
|
|
|
(1)
|
The contributions made to Mr. Sullivan of $43,269 relate
to the 2018 year but were paid into the Supplemental Profit Sharing Plan in March 2019
|
|
|
(2)
|
The amounts paid to Mr. Gidwitz represent payments to him from which he, in turn, reimbursed the Company for the annual amount
expended for the leased cars, and, the 2018, the amount includes a gross-up for taxes of $14,393.
|
NARRATIVE DISCLOSURE OF EXECUTIVE COMPENSATION
Compensation Committee Governance and Compensation Philosophy
The Compensation Committee makes recommendations
to the Board concerning compensation for the named executive officers and determines compensation for other officers. The Compensation
Committee also oversees benefit plans in which the named executive officers participate.
The Company believes that executive compensation
should be closely linked to corporate performance. Accordingly, in years in which performance goals are achieved or exceeded, executive
compensation should be higher than in years in which the performance is below expectations. At the same time, the Compensation
Committee is cognizant of its need to offer compensation that is competitive. By providing the opportunity for compensation that
is comparable to the levels offered by other similarly situated companies, the Company is able to attract and retain key executives.
The Compensation Committee regularly reviews the Company’s compensation programs to ensure that pay levels and incentive
opportunities are competitive and reflect the performance of the Company. The Committee periodically engages an independent compensation
consulting firm to assist it in determining the competitiveness of the Company’s overall compensation structure. Compensation
is reviewed from a base salary standpoint as well as considering the total compensation package received by each executive. A written
report of the conclusions of the independent compensation consulting firm is provided to management and the Compensation Committee.
In years that compensation is not reviewed by an independent compensation consultant, the Compensation Committee tends to consider
the consumer price index as a benchmark for base salary increases.
Compensation Program Components
To achieve its compensation goals, the executive
compensation program consists primarily of the following components:
|
|
·
|
long term value creation plan;
|
|
|
·
|
defined contribution profit sharing plan; and
|
|
|
·
|
perquisites and other benefits.
|
All components are reviewed annually, individually
and in the aggregate, considering corporate performance and individual initiative and performance. While each component is discussed
in more detail below, the Compensation Committee considers base salaries commensurate with those paid by companies of similar size
and complexity, while providing the named executive officers with the ability to receive a significant portion of their total compensation
through the Company’s bonus program, which is contingent on meeting corporate and personal performance goals related to the
Company’s operations. This places a large percentage of their compensation at risk while more closely aligning their interests
with the interests of the Company’s stockholders. The employee benefits and perquisites offered by the Company have generally
been established in response to competitive offerings and also with the goal of enabling the executives to focus on their job duties.
As noted above, the Compensation Committee considers the written report from the independent compensation consulting firm in years
when a formal review is performed although the recommendations of the Chief Executive Officer and the Compensation Committee’s
own discretion are the primary considerations in establishing both the base salaries and total compensation packages for the executives.
Base Salaries
Base salaries are used to provide annual
cash income to executives to compensate them for services rendered during the fiscal year. The Compensation Committee establishes
salaries annually based on a review of each officer’s individual responsibilities, performance and through comparisons with
companies of similar size and complexity. Officer salaries are typically reviewed and adjusted each year at the Compensation Committee’s
meeting in either March or May. The Compensation Committee awarded salary increases of $15,000 to the Chief Executive Officer,
$20,000 to the Chief Operating Officer and $15,000 to the Chief Financial Officer, all with effect from July 1, 2019. The last
independent compensation review commissioned by the Committee was delivered to the Company in April 2019 and included a formal
review of the base salaries and total compensation levels of three management personnel at the Company.
Cash Bonuses
The annual bonus program is intended to
provide an opportunity to receive additional cash compensation but only if it is earned through achievement of specified performance
goals. At the beginning of each year, the Compensation Committee establishes the annual target goals for earnings and return on
net investment considering the Company’s annual business plan and the Company’s prior year’s performance. In
this context, “return on net investment” is defined as earnings before interest and income taxes as a percentage of
the sum of the average shareholders’ equity plus the average funded debt for the year. Other Company-wide goals and personal
goals may also be considered to the extent these goals further the objectives of the Company. The Committee relies primarily on
mathematical formulae in calculating the portion of the bonuses to be granted related to the goals established for earnings and
return on net investment. The level of achievement of personal goals, if considered, is more subjective and is often based on the
successful achievement of certain transactions or other goals which may be measured by the Committee on a discretionary, non-quantifiable
basis. The Committee also considers the Company’s liquidity and capital resources. The Committee believes that these performance
measures serve to align the interests of executives with the interests of stockholders.
Under the bonus program effective for 2019,
the bonus criteria were weighted as follows: earnings goal – 60%; return on net investment goal – 40%. The three executives
were eligible to earn bonus awards as a percentage of their base salaries as follows:
|
Name
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
James G. Gidwitz
|
|
|
30
|
%
|
|
|
60
|
%
|
|
|
120
|
%
|
|
Ryan M. Sullivan
|
|
|
30
|
%
|
|
|
60
|
%
|
|
|
120
|
%
|
|
Paul A. Ainsworth
|
|
|
30
|
%
|
|
|
60
|
%
|
|
|
120
|
%
|
To illustrate hypothetically by way of example,
assuming achievement of the threshold level for the earnings goal and target level on the net investment goal, Mr. Gidwitz’
bonus would be calculated as follows: 30% x 60%, or 18% awarded for the earnings performance and 60% x 40%, or 24%, for the net
investment goal. This would yield a total award of 42% of Mr. Gidwitz’s 2019 base salary.
The Committee’s policy and belief
is that eligible employees should have a reasonable likelihood of achieving the target level of performance such that, over time,
the bonuses paid should be at or near the target level. In early 2020, the Committee reviewed the Company’s performance against
the established targets for earnings and for the percentage return on net investment for the prior year and concluded that the
return on net investment goal and the earnings goal targets were not met. As calculated under the formula, the Committee awarded
no bonus to Mr. Gidwitz, Mr. Sullivan or Mr. Ainsworth.
During the year, the Committee approved
discretionary bonuses relating to exceptional personal performance of $75,000 to Mr. Gidwitz, $170,000 to Mr. Sullivan and $85,000
to Mr. Ainsworth.
Long Term Value Creation Plan
The Company adopted the Continental Materials
Corporation Value Creation Incentive Plan (“VCIP”) effective July 1, 2019. The VCIP is designed to attract and retain
key management personnel by providing an incentive and reward for selected executive officers and employees of the Company. The
VCIP involves only the payment of cash, not the issuance of common stock, based on value of the Phantom Equity or Phantom Equity
Appreciation Rights (“PE” or “PEAR”s, respectively) of the Company, over a certain period of time. The
awards vest over a period of four or five years and are payable over a three-year period following vesting.
The Committee sets the entry valuation level
for the PEARs, based on a combination of the average stock price for the Company in the 30 days following the end of the fiscal
year and the enterprise value of the Company’s future cash flows, conducted by an independent financial advisor annually.
With effect from July 1, 2019, the Committee
awarded Phantom Equity Appreciation Rights with an entry price of $15.56/unit as follows:
Mr. Gidwitz 85,000 units with a five year
ratable vesting period
Mr. Sullivan 85,000 units with a five year
ratable vesting period
Mr. Ainsworth 34,000 units with a four year
ratable vesting period
With effect from July 1, 2019, the Committee
awarded Phantom Equity as follows:
Mr. Sullivan 85,000 units with four year ratable
vesting period
Profit Sharing Plan, Benefits and Perquisites
The named executive officers participate
in each of the benefit plans or arrangements that are made available to all salaried employees generally, including health club
allowances, cell phone reimbursement, medical and dental benefits, disability insurance, and the profit sharing plan, which is
qualified under Internal Revenue Code Section 401(k). The Compensation Committee considers all of these plans and benefits
when reviewing total compensation of the named executive officers. With respect to life insurance, the named executive officers
also receive coverage of three and a half times their salaries to a maximum of $650,000. The premium associated with this coverage
is added to the individual’s taxable wages. Life insurance in excess of those amounts is at the discretion of the employee
and the associated premiums are paid by the employee. Prior to and including fiscal year 2018, any employee whose compensation
is in excess of the amount eligible for the Company’s matching contribution to the profit sharing plan, as established by
the Internal Revenue Service, participated in an unfunded supplemental profit sharing plan (the “Supplemental Plan”)
as described in more detail below. As described below, the Supplemental Plan was ‘frozen’ to new credits in lieu of
Company profit sharing contributions at the end of 2018, and the Compensation Committee determined for fiscal year 2019 to replace
such credits to the Supplemental Plan with an annually-determined, unfunded discretionary credit to the named executive officers’
accounts under the Company’s Deferred Compensation Plan (described below).
The Company provides a company-leased car
to Mr. Gidwitz for his use. An annual payment is made to him and included in his individual taxable wages, which is used to reimburse
the Company for the lease expense incurred for the year. This payment, which is included in All Other Compensation, is grossed
up for the related taxes. In providing the leased car to Mr. Gidwitz, the Compensation Committee considered the frequency that
he found it necessary to work outside of normal business hours when other forms of transportation were less available or convenient.
Mr. Sullivan and Mr. Ainsworth received a car allowance in lieu of a company-leased car.
The Company has, on occasion, provided the
named executive officers with an insignificant amount of tax or legal services. During 2019, no such services were incurred by
any of the named officers. The Company does not provide any other perquisites to the named executive officers such as country club
memberships or personal travel.
Stock Option and Long-Term Equity Plans
There are no equity compensation plans,
whether approved by security holders or not, existing as of December 28, 2019 related to the named executive officers. The Compensation
Committee believes that equity compensation plans are not a necessary component of executive compensation at the present time due
to the number of shares currently held by affiliates of the Company and the limited market liquidity for the Company’s Common
Stock.
The Committee further believes that the
implementation of the VCIP (noted above) provides a long term incentive for executive officers to be aligned with the shareholders
of the Company.
Retirement Benefits
Profit
Sharing Plan: The Company has a contributory profit sharing retirement plan qualified pursuant to Internal Revenue
Code Section 401(k) for the benefit of qualifying employees, including the named executives. Company contributions, if
any, are determined at the discretion of the Compensation Committee together with management after the review of all the relevant
factors, primarily profitability, at year-end.
Unfunded
Supplemental Profit Sharing Plan: The Company also maintains the Supplemental Plan for salaried employees which enables
the Company to pay to any person whose contribution to the Profit Sharing Plan has been restricted as a result of the limitations
imposed by Section 401 of the Internal Revenue Code, an amount equal to the difference between the amount the person would
have received as Company matching contributions to his/her account under the Profit Sharing Plan had there been no limitations
and the amount the person will actually receive under the Profit Sharing Plan giving effect to the limitations. Qualifying employees
can elect to defer receipt of a portion of their compensation, which is treated as an unfunded obligation of the Company under
the Plan.
The Supplemental Plan provides for the employees’
balances to be credited or charged with a gain or loss determined by applying the same rate of return to the deferred balances
as the employees realized on their Profit Sharing Plan investments.
The Supplemental Plan is unfunded and amounts
owed to the employees covered thereby are considered to be general obligations of the Company. The Supplemental Plan was ‘frozen’,
and participants’ accounts ceased to accrue new credits in lieu of matching contributions from the Company, on December 31,
2018, but participants’ existing balances under the Supplemental Plan at the time of such freeze have continued and will
continue to be credited or charged with gain or loss in reference to the participants’ respective deferred balances under
their Profit Sharing Plan investments.
Deferred
Compensation Plan: On January 1, 2019, the Company established a Deferred Compensation Plan for qualified employees
that enables the Company to credit the participants’ deferred compensation account on a discretionary basis in accordance
with Section 409A of the Internal Revenue Code and the regulations promulgated thereunder. In addition, qualifying employees can
elect to defer receipt of a portion of their compensation, which is treated as an unfunded obligation of the Company under the
Plan.
The Deferred Compensation Plan provides
for the employees’ balances to be credited or charged with a gain or loss determined by applying the same rate of return
to the deferred balances as the employees realized on their Profit Sharing Plan investments. The Deferred Compensation Plan
is unfunded and amounts owed to the employees covered thereby are considered to be general obligations of the Company.
OUTSTANDING EQUITY AWARDS AT DECEMBER
28, 2019
|
|
|
Option awards
|
|
|
Stock awards
|
|
|
Name
|
|
Number of
securities
underlying
unexercised
options (#) unexercisable
(1)
|
|
|
Option
exercise
price
($) (2)
|
|
|
Option
expiration
date
|
|
|
Number of
shares or
units of stock
that have not
vested
(#) (3)
|
|
|
Market value
of shares of
units of stock
that have not
vested
($) (4)
|
|
|
James G. Gidwitz
|
|
|
85,000
|
|
|
$
|
15.56
|
|
|
|
n/a
|
|
|
|
-
|
|
|
|
-
|
|
|
Ryan M. Sullivan
|
|
|
85,000
|
|
|
$
|
15.56
|
|
|
|
n/a
|
|
|
|
85,000
|
|
|
$
|
637,500
|
|
|
Paul A. Ainsworth
|
|
|
34,000
|
|
|
$
|
15.56
|
|
|
|
n/a
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
For each named executive officer, awards reported are units of Phantom Equity Appreciation Rights (PEARs) under the VCIP. Mr.
Gidwitz’s 85,000 units and Mr. Sullivan’s 85,000 units vest ratably over five years from the grant date (7/1/2019).
Mr. Ainsworth’s 34,000 units vest ratably over four years from the grant date (7/1/2019). PEARs are not exercisable at the
respective executive’s discretion but, instead, are payable over a three-year period following vesting.
|
|
|
(2)
|
Represents the entry price for the respective award of PEARs under the VCIP.
|
|
|
(3)
|
Mr. Sullivan’s awards reported are units of Phantom Equity under the VCIP and vest ratably over four years from the grant
date (7/1/2019).
|
|
|
(4)
|
Phantom Equity under the VCIP valued at a per-unit price equal to the closing price of $7.50 per share of Common Stock on December
28, 2019.
|
Equity Compensation Plans
The Company has no equity compensation plans
for its employees, whether approved by security holders or not, existing as of December 29, 2018; however effective December 30,
2010, the 2010 Non-Employee Directors Stock Plan was established after being approved by a majority of the security holders. The
principal features of the plan are described below.
DIRECTOR COMPENSATION
The table below summarizes the compensation
paid by the Company to non-employee directors for the fiscal year ended December 28, 2019. The Company does not currently compensate
the Board members except as discussed below.
|
Name (1)
|
|
Total Fees Earned
or Paid
in Cash (2)
|
|
|
Total Fees Earned
or Paid
in Stock (3)
|
|
|
Total
|
|
|
Thomas H. Carmody
|
|
|
9,750
|
|
|
|
62,970
|
|
|
$
|
72,720
|
|
|
Ralph W. Gidwitz
|
|
|
30,250
|
|
|
|
84,218
|
|
|
|
114,468
|
|
|
Theodore R. Tetzlaff
|
|
|
39,250
|
|
|
|
84,218
|
|
|
|
123,468
|
|
|
Peter E. Thieriot
|
|
|
40,000
|
|
|
|
84,218
|
|
|
|
124,218
|
|
|
Darrell M. Trent
|
|
|
39,250
|
|
|
|
84,218
|
|
|
|
123,468
|
|
|
Steve Gidwitz
|
|
|
30,250
|
|
|
|
84,218
|
|
|
|
114,468
|
|
|
Scott Gidwitz
|
|
|
30,250
|
|
|
|
84,218
|
|
|
|
114,468
|
|
|
|
(1)
|
James G. Gidwitz, Chief Executive Officer and Chairman of the Board, is not included in this table as he is an employee of
the Company and receives no additional compensation for his service as director. Mr. Gidwitz’s compensation is shown
in the above Executive Summary Compensation Table.
|
|
|
(2)
|
None of the directors received perquisites or other personal benefits.
|
|
|
(3)
|
Represents 3,000 shares at $20.99 per share issued February 7th, 2019 and 2,833 shares at $7.50 per share issued
December 13th, 2019.
|
The Board’s policy is to pay each
director who is not an officer or employee of the Company an annual retainer (as described below) plus the following fees:
|
|
·
|
$750 for each Board meeting attended;
|
|
|
·
|
$750 for each committee meeting attended;
|
|
|
·
|
$6,000 Audit Committee chair retainer fee; and
|
|
|
·
|
$3,000 retainer fee for all other committee chairs.
|
In December 2010, the holders of shares
representing a majority of the voting power of the Common Stock gave their written consent to a resolution by the Company’s
Board of Directors adopting the Company’s Non-Employee Director Stock Plan (the “Plan”), pursuant to which the
non-employee directors of the Company receive their annual base retainer payment in the form of Common Stock, instead of cash.
Notice of this resolution was sent to all shareholders by the mailing of a copy of the “Information Statement Pursuant to
Section 14 of the Securities Exchange Act of 1934 and Regulation 14C and Schedule 14C Thereunder” together with a cover
letter on December 10, 2010. The Plan, which became effective December 30th, 2010, reserved 150,000 treasury
shares as the maximum number of shares that could be issued under the Plan.
In March 2019, the Compensation Committee
approved a grant of 3,000 shares of Common Stock to each qualifying director for 2019 service. The grant date was set as February
7th, 2019. The fair market value of this grant, determined by reference to the closing price of the Common Stock as
quoted on the NYSE American exchange as of February 7th, 2019, was $62,970.
In December 2019, the Compensation
Committee approved an additional grant of 2,833 shares of Common Stock to each qualifying director for 2020 service. The grant
date was set as December 13th, 2019. The fair market value of this grant, determined by reference to the closing price
of the Common Stock as quoted on the NYSE American exchange as of December 13th, 2019, was $21,248. A total of 2 shares
remain available for issuance under the Plan.
In December 2019 the Compensation Committee
also approved an additional cash bonus of $25,000 to each qualifying director and a $50,000 annual cash supplemental retainer,
to be paid quarterly, commencing in 2020.
Item 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
Bee Street, itself controlled by the Gidwitz
Family, is the parent company of the Company and owns approximately 89.2% of the voting securities of the Company. As affiliates,
Bee Street and the Company are insured under a joint program of directors and officers insurance. At the commencement of such joint
program, Bee Street prepaid in full the entire incremental annual premium of approximately $130,000 in connection with such joint
program of insurance.
The Company has historically purchased insurance
coverage for workers’ compensation, property and excess liability with another company controlled by the Gidwitz Family to
minimize insurance costs and to obtain other more favorable terms. The cost of such insurance is allocated based upon a formula
that considers, among other things, nature of risk, loss history and size of operations. From time to time, the Company will advance
payments to the insurance carriers on behalf of the other company. The Company invoices the other company its respective share
of each payment. This arrangement ended in March 2019. In the period since the beginning of fiscal year 2018, the other company
generally paid its respective share within thirty days of the date the Company invoiced them.
The Company leases office space at 440 South
LaSalle Street, Chicago, Illinois that is used as its corporate headquarters. In the period since the beginning of fiscal year
2018, the Company subleased some of the office space to two companies controlled by the Gidwitz Family as well as one of the Company’s
directors. The office address of Bee Street, the Company’s largest stockholder, is in care of one of those companies. The
lease expense is allocated using a formula based primarily upon the square footage occupied by each of the tenants. Common space
within the office is allocated based upon the ratio of the square footage occupied by each of the tenants to the total square footage
under lease. In management’s opinion, the Company participation in this lease arrangement has resulted in its ability to
lease space at more favorable rates than had it sought to lease a smaller space on its own.
Theodore R. Tetzlaff has served as a director
of the Company since 1981. Mr. Tetzlaff formed Tetzlaff Law Offices, LLC in April 2012 and has been engaged to represent
the Company in various legal matters since that time. In fiscal years 2018 and 2019, Tetzlaff Law Offices represented the Company
in its lawsuit against Valco, Inc. seeking, among other things, to rescind its Pueblo, Colorado sand and gravel lease. The suit
against Valco, Inc. was settled in October 2019. During 2018 and 2019 fiscal years, the Company was billed approximately $474,000
and $826,000 respectively for services provided by Tetzlaff Law Offices, LLC.
Director Independence
Under NYSE American rules, no director qualifies
as independent until the Board makes an affirmative determination to that effect. In making this determination, the Board must
affirmatively conclude that the director does not have a material relationship with the Company that would interfere with the exercise
of his or her independent judgment in carrying out the responsibilities of a director. The Board considers, among other factors:
(a) the director’s current and historic relationships with the Company and its competitors, suppliers, customers and
auditors, including compensation directly or indirectly paid to the director; (b) the director’s professional and family
relationships with management and other directors; and (c) the relationships that the director’s current and former
employers may have with the Company.
The Company qualifies as a “controlled
company” under the NYSE American corporate governance listing standards because more than 50% of the voting power is held
by Bee Street, itself controlled by the Gidwitz Family, and the Company has elected controlled company status.
As a controlled company, the Company is
exempted from certain rules otherwise applicable to companies whose securities are listed on NYSE American stock exchange,
including: (a) the requirement that the Company have a majority of independent directors; (b) the requirement that nominations
to the Company’s Board be either selected or recommended by a nominating committee consisting solely of independent directors;
and (c) the requirement that the Company’s officers’ compensation be either determined or recommended by a compensation
committee consisting solely of independent directors. In reliance on the exemption for controlled companies, Steve Gidwitz and
Ralph Gidwitz are, and Theodore Tetzlaff has been, members of the Compensation Committee, and Steve Gidwitz and Scott Gidwitz are
members of the Nominating Committee, but have not been affirmatively determined to be independent as defined by the NYSE American
corporate governance rules.
The Board had affirmatively determined that
Thomas H. Carmody was, until his resignation effective November 18, 2019, and Peter E. Thieriot and Darrell M. Trent were, until
their resignations effective April 18, 2020, independent directors as defined by the NYSE American corporate governance rules.
After Messrs. Thieriot’s and Trent’s resignations, the Board elected Scott Gidwitz, effective April 20, 2020, as the
sole member of the Audit Committee pursuant to an exemption from the NYSE American requirement that the Audit Committee include
only directors whom have been affirmatively determined to be independent as defined by the NYSE American corporate governance rules.
Mr. Gidwitz is a member and board member of Bee Street, our largest shareholder, and the nephew of James Gidwitz, our Chairman
and Chief Executive Officer. Because of those relationships, the Board has not affirmatively determined that Scott Gidwitz is independent
as defined by the NYSE American corporate governance standards. Nevertheless, the Board determined, under the exceptional and limited
circumstances arising from Messrs. Thieriot’s and Trent’s resignations, that Mr. Gidwitz’s membership on the
Audit Committee is required by the best interests of the Company and its shareholders.