May 2, 2005
Via Facsimile and U.S. Mail
James G. Gidwitz
Chief Executive Officer
Continental Materials Corporation
200 South Wacker Drive, Suite 4000
Chicago, IL 60606
RE: Continental Materials Corporation
Schedule TO-I filed April 22, 2005
File No. 005-20723
Dear Mr. Gidwitz:
We have the following comments on the above-referenced
filing.
General
1. Edgar does not, at present, reflect the receipt of a Schedule
13E-3 for the instant transaction. The checking of the going-private
transaction box on Schedule TO-T by the filing persons does not
obviate the need to properly identify the filing with appropriate
header tags. Edgar will not accept the addition of Schedule 13E-3
to the original Schedule TO-T header tag. The filing persons must
either jointly file the original Schedule TO-T and Schedule 13E-3
with appropriate header tags and request a date adjustment to the
original April 22 filing date or file an exclusive Schedule 13E-3
without such a date adjustment request as soon as possible. Date
adjustment requests are not automatically granted. Contact Sylvia
J.Pilkerton in the Office of Edgar and Information Analysis by
facsimile at 202.942.9542 to request guidance on resubmitting the
filing with appropriate header tags or to ask for a date
adjustment.
2. We note the comment letter issued by this Division on April 22,
2005 with respect to your annual report on Form 10-K for the year
ended January 1, 2005. Please tell us whether you plan to extend
the expiration date of your offer until such time as those comments
have been cleared.
Schedule TO-I
Cover Page
3. We note that Mr. Gerald Gidwitz is a managing partner in the
CMC Partnership, that this partnership holds more than 50% of your
outstanding shares of common stock, and that Mr. G. Gidwitz shares
voting and dispositive authority with respect to the shares of
your common stock held by that partnership with the remaining
managing partners of the partnership. Please advise us why
Mr. G. Gidwitz has not also been identified as an offeror in this
tender offer and as a filing person in a Schedule 13E-3. Note further
that any new offerors in the tender offer must ensure that they
independently satisfy the timing, signatory and dissemination
requirements of Schedule TO.
Offer to Purchase
Summary Term Sheet - Q10: What are the most significant
Conditions of the offer? - Page iii
4. The second to the last bullet indicates that if a lawsuit
results or has the potential to result in a material adverse effect
on the company or the offer, as determined by the company in its "sole
judgment," the offer may be terminated. Please revise to include
a reasonableness standard. The ability of the company to determine,
in its sole discretion, whether a condition has occurred may render
the offer illusory.
Background and Purpose of the Offer - Page 3
5. Expand to describe the alternatives considered by the board and
the reasons such alternatives were rejected. As an example only,
we note the references at the bottom of page three and the top of
page 4 to alternatives considered, however, it is unclear whether
the disclosure addresses these alternatives.
6. Describe the presentations and analyses of Mesirow in some
amount of detail, quantifying such discussions to the extent possible.
See Item 1015 of Regulation M-A.
7. Please revise to explain how your independent directors
determined the price range of the tender offer. Also explain how the
number of shares tendered for was determined and who made that
determination.
8. Please revise the section entitled "Certain Effects of the
Offer" to explain how the interest in net earnings and net book value
after the offer is calculated from those figures prior to the offer.
Fairness of the Offer - Page 11
9. Refer to your discussion of the net book value per share.
Explain how your board of directors believes that the price range
selected for the offer is fair in light of the fact that the highest
price in the range is lower than your net book value as of
January 1, 2005.
10. We note your statement that the offer is procedurally fair
because it gives your stockholders a chance to sell their shares
at a fair and reasonable price in relation to current market prices.
Please explain how the offer is procedurally fair given that you
have conducted a stock repurchase program and intend to continue
repurchasing stock under the plan shortly after the expiration of
this tender offer.
11. Your fairness discussion should also address the fairness of
the structure of the modified Dutch auction issuer tender offer. In
this regard, we note that this structure may involve pro rationing,
thus preventing some shareholders from "cashing out" entirely unless
they are willing to tender conditionally and take the chance that none
of their shares will be purchased. Thus, if the offer is
oversubscribed, all tendering shareholders will remain as equity
owners of illiquid securities. Also, because of the modified
Dutch auction structure, a shareholder who tenders above the offer
price and who would like the company to repurchase his or her shares
will not have any shares purchased. Discuss the basis for your belief
in procedural and substantive fairness given these issues associated
with the Dutch auction structure.
Reports, Opinions and Appraisals - Page 19
12. Please revise to expand upon the qualifications of Mesirow
Financial, pursuant to Item 1015(b)(2) of Regulation M-A, that led
to your retention of that firm.
Procedures for Tendering Shares - Page 24
13. It appears, based on your Letter of Transmittal, that
stockholders must submit multiple letters of transmittal if they
determine to tender shares at different prices. Please revise
this section to clarify this and the Withdrawal Rights section to
clarify whether holders must submit multiple requests to withdraw
if they wish to withdraw shares tendered at different prices.
Conditions to the Offer - Page 32
14. We note that the company may terminate the offer if the board
concludes that, in the exercise of its fiduciary duties, it is
necessary. This condition as currently represented may be so
broad as to render the offer illusory. Please expand to describe
under what circumstances the company may terminate the offer if this
condition is triggered. For example, would it require an opinion
of counsel as to a potential breach of fiduciary duty?
Source and Amount of Funds - Page 35
15. Please disclose the effective interest rate of the term loan
as of the most practicable recent date.
Letter of Transmittal
16. We note that beginning on page 6 of the Letter of Transmittal
you require tendering stockholders to certify that they "understand"
specific terms of the offer and the effect of the stockholders`
actions within the offer. The form improperly asks option holders
to certify that they "understand" the terms of the offer. Please
revise to delete the requirement that option holders certify that
they "understand" the offer. Alternatively, amend the form to
include a legend in bold typeface that indicates Continental
Materials neither views the certification made by stockholders
that they understand the offer materials as a waiver of liability
and that Continental Materials promises not to assert that this
provision constitutes a waiver of liability.
Closing Comments
Please amend your filing promptly to comply with our
comments. If you do not agree with a comment, please tell us why in
your response. If the information you provide in response to our
comments materially changes the information that you have already
provided to unit holders, disseminate the revised materials in a
manner reasonably calculated to inform them of the new information.
Depending upon your response to these comments, a supplement may
need to be sent to unit holders.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be certain that they have provided all information investors require
for an informed decision. Since the bidder is in possession of all
facts relating to its disclosure, it is responsible for the accuracy
and adequacy of the disclosures it has made.
In connection with responding to our comments, please
provide, in writing, a statement from the offeror(s) acknowledging that:
* the offeror(s) is (are) responsible for the adequacy and
accuracy of the disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
* the offeror(s) may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement has access to all information you provide to the staff
of the Division of Corporation Finance in our review of your filing
or in response to our comments on your filing.
Please direct any questions to me at (202) 551-3619 or, in
my absence, to Pamela Carmody, Special Counsel, at (202) 551-3265.
You may also contact me via facsimile at (202) 770-9203. Please send
all correspondence to us at the following ZIP code: 20549-0303.
Sincerely,
Daniel F. Duchovny
Attorney-Advisor
Office of Mergers &
Acquisitions
cc: Rachel Mantz, Esq. (via fax: (312) 849-8133))