Document:

Exhibit 10.2

 

INDEPENDENT
CONTRACTOR AGREEMENT

 

This Independent
Contractor Agreement (“Agreement”) is made effective June 6, 2005 (“Effective
Date”), between Cornell Companies, Inc., a Delaware corporation (“Cornell
Companies”), whose address is 1700 West Loop South, Suite 1500, Houston,
Texas 77027, and Luis A. Collazo, an individual (“Consultant”), whose
address is 15511 Terrace Oaks, Houston, Texas 77068.

 

In consideration of the
mutual covenants herein contained, the parties hereby agree as follows:

 

1.             Services.  Consultant
agrees to provide the services specified in the Project Schedule attached to
this Agreement as Exhibit A (the “Services”) and hereby made a
part hereof.

 

2.             Term and Termination. 
This Agreement shall continue as per the terms within the Exhibit A.

 

3.             Payment for Services.  As
full compensation for the Services to be provided by Consultant pursuant to
this Agreement, Cornell Companies agrees to pay Consultant the fees in the
amounts and in the manner set forth in the Project Schedule.

 

4.             Relationship of the Parties; Independent Contractor; Taxes.  It is understood and agreed that Consultant
shall perform the Services as an independent contractor and not as an employee,
agent or representative of Cornell Companies. 
Consultant agrees that it shall be personally responsible for any and
all taxes and other payments due on payments received by it from Cornell
Companies hereunder.

 

5.             Cornell Companies’ Proprietary Rights.  “Work Product” means the resulting
product (including, without limitation, all writings, information, data,
formulas, photographs, training materials, workbooks, and the like, and all
deliverables created, developed and/or prepared on behalf of Cornell Companies
by Consultant and in furtherance of the Services.  Work Product does not include any
pre-existing product owned by Consultant or by any third party and incorporated
or embedded into the Work Product (the “Proprietary Product”).

 

(a)           All
Work Product is, shall be and shall remain the sole and exclusive property of
Cornell Companies and may not be used by Consultant or its employees for any
other purpose except for the benefit of Cornell Companies.  Consultant shall not sell, transfer, publish,
disclose, display, license or otherwise make available to others any part of
such Work Product or copies thereof.

 

The terms of this Section
5  shall survive any expiration or termination of this Agreement.

 

1

 

6.             Confidential Information.

 

(a)           Acknowledgment
of Confidentiality.  Consultant
hereby acknowledges that it may be exposed to confidential and proprietary
information of Cornell Companies including, without limitation, Work Product
and other technical information, business information, and other information
designated as confidential expressly or by the circumstances in which it is
provided (“Confidential Information”). 
Confidential Information does not include (i) information already known
or independently developed by the recipient; (ii) information in the public
domain through no wrongful act of the recipient, or (iii) information received
by the recipient from a third party who was free to disclose it.

 

(b)           Covenant
Not to Disclose.  Consultant hereby
agrees that during the term and at all times thereafter it shall not use,
commercialize or disclose such Confidential Information to any person or
entity.  Consultant shall not alter or
remove from any materials owned or provided by Cornell Companies.  Consultant shall use at least the same degree
of care in safeguarding Cornell Companies’ Confidential Information as it uses
in safeguarding its own confidential information.

 

(c)           Survival.  The obligations imposed by this Section 6
shall survive any expiration or termination of this Agreement.

 

7.             Compliance with Laws. 
Consultant agrees to comply with the provisions of all applicable
federal, state, county, or municipal laws, regulations or ordinances.  Consultant hereby releases and agrees to hold
harmless Cornell Companies for any liability of whatsoever nature arising out of
Consultant’s violation of any law or the provisions of this Section.

 

8.             Injunctive Relief. 
Consultant acknowledges that violation by Consultant of the provisions
of Section 5 (“Cornell Companies’ Proprietary Rights”), Section 6
(“Confidential Information”), or Section 7 (Compliance with Laws) would
cause irreparable harm to Cornell Companies not adequately compensable by
monetary damages.  In addition to other
relief, it is agreed that injunctive relief shall be available to prevent any
actual or threatened violation of such provisions.

 

9.             Liability.  Cornell
Companies and Consultant each agree that each party is fully responsible and
liable for its own actions and/or inactions and for all resulting costs,
including all costs and damages of the claims, charges and/or lawsuits that may
arise from them.  Likewise, in the event
that one party becomes the subject of a claim, charge, and/or lawsuit for the
actions and/or inactions of the other party, said other party agrees it will
affirmatively subject itself to the claim, charge, and/or lawsuit and take all
steps necessary to affirmatively release the subjected party from said claim,
charge, and/or lawsuit.

 

10.           Duties upon Termination. 
Upon termination of this Agreement prior to the completion of the Services,
Consultant agrees to reasonably cooperate and provide such assistance and
information as may be reasonably requested by Cornell Companies.  In addition, Consultant shall

 

2

 

immediately deliver to
Cornell Companies all materials of any nature which are in Consultant’s
possession or control and which are or contain Confidential Information, or
Work Product, or which are otherwise the property of Cornell Companies, and no
copies thereof shall be retained by Consultant or its employees without the
prior written consent of Cornell Companies.

 

11.           Governing Law.  This
contract will be governed by and construed in accordance with the laws of the
State of Texas (without regard to Texas’ principles of conflicts of laws).

 

12.           Legal Proceedings; Venue. 
The prevailing party in any legal proceedings brought by or against the
other party to enforce any provision or term of this Agreement shall be
entitled to recover against the non-prevailing party the reasonable attorneys’
fees, court costs and other expenses incurred by the prevailing party.  Suit to enforce any provision of this
Agreement or to obtain any remedy with respect hereto shall be brought in the
applicable state or federal courts of Harris County, Texas.

 

13.           Consent to Breach Not Waiver.  No term or provision hereof shall be deemed
waived and no breach excused, unless such waiver or consent be in writing and
signed by the party claimed to have waived or consented.  No consent by any party to, or waiver of, a
breach by the other party shall constitute a consent to, waiver of, or excuse
of any other different or subsequent breach.

 

14.           Severability.  If any
term or provision of this Agreement should be declared invalid by a court of
competent jurisdiction, (i) the remaining terms and provisions of this
Agreement shall be unimpaired, and (ii) the invalid term or provision shall be
replaced by such valid term or provision as comes closest to the intention
underlying the invalid term or provision.

 

15.           Time is of the Essence. 
As regards any act to be performed under this Agreement, time is of the
essence.

 

16.           Entire Agreement. 
This Agreement constitutes the complete and exclusive statement of the
agreement between the parties with regard to the matters set forth herein, and
it supersedes all other agreements, proposals, and representations, oral or
written, express or implied, with regard thereto.

 

IN
WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year set forth above.

 

	
  Consultant

  	
  Cornell Companies, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Luis A. Collazo

  	
   

  	
  By:

  	
  /s/ Patrick N. Perrin

  
	
  Luis A. Collazo

  	
   

  	
  Patrick N. Perrin, Sr.
  V.P.

  
	
   

  	
   

  	
  Chief Administrative
  Officer

  
				

 

3

 

EXHIBIT A

 

PROJECT
SCHEDULE

 

Attached to and made a
part of the Independent Contractor Agreement between Cornell Companies and
Consultant effective June 6, 2005.

 

1.                                      Project
Description:

 

The goal of the project is for Consultant to provide a
smooth transition of Consultant’s former position responsibilities and to
complete certain projects during said transition period as Consultant
reasonably understands them to be as well as by specific request of John
Nieser, C.F.O.

 

3.                                      Fees/Charges:

 

a)              $12,996.67 per month for three (3) months,
payable at the end of each month within the term of this Agreement.

 

b)             A one-time, lump-sum bonus in the amount of $           
to be paid immediately following August 31, 2005, upon determination by the
Chief Financial Officer that all Consultant’s functions have been satisfactorily
transitioned.

 

c)              If Consultant is requested to be available
after August 31, 2005, for more than a de
minimis consultation (e.g., a telephone call or the like),
Consultant will be compensated additionally at the rate of $599.85 per day,
plus reasonable expenses.

 

Payment is contingent, in
addition to the other terms and conditions in this Agreement, upon the
following:

 

•                  Consultant
will complete, sign, and return an IRS Form W-9 for generation of a Form 1099
at end of the calendar year.

 

d)              Special Terms:

 

a)              This Agreement is
anticipated to expire on August 31, 2005, or immediately following payment for
the final requested per diem assistance outlined in Item 3(c),
Fees/Charges, above, whichever is sooner.

 

b)             Consultant agrees
that Consultant will provide services on a daily basis, five days per week,
throughout the term of this Agreement. 
Thereafter, Consultant will provide per diem services upon request and
mutual agreement of the Parties.

 

c)              Notwithstanding
4(b), immediately above, if Cornell Companies determines that Consultant’s
position has been sufficiently transitioned prior to the expiration of the full
three (3) months contemplated in this Agreement, Consultant shall be required
to provide services only on an “as needed” basis during the balance of the
term.  Cornell Companies agrees that said
diminishment in services provided will, in no way, diminish Consultant’s right
to the full three (3) months’ payment.

 

 

d)             CORNELL acknowledges
that, during the term of this Agreement, Consultant may require a reasonable
amount of time away from work to pursue other endeavors.  When such time away from work is scheduled in
advance and is not anticipated to cause a detriment to the Company (e.g., in
meeting statutory deadlines, etc.), such request will not be unreasonably
denied.Exhibit 10.1

 

SECOND AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT

 

This Second
Amendment to Revolving Credit and Term Loan Agreement (this “Second Amendment”)
is made and entered into as of the 14th
day of April, 2005, by and among Continental Materials Corporation, a
Delaware corporation (“Borrower”), LaSalle Bank National Association, a
national banking association, as administrative agent and as a lender (LaSalle
in its capacity as administrative agent referred to in this Agreement as “Agent”
and in its capacity as a lender as “LaSalle”) and Fifth Third Bank (Chicago), a
Michigan banking corporation, as a lender (“Fifth Third”) (LaSalle and Fifth
Third are each referred to individually in this Second Amendment as a “Lender”
and collectively as the “Lenders”).

 

W I T N E S S E T
H:

 

Whereas,
prior hereto, Lenders provided certain loans, extensions of credit and other
financial accommodations to Borrower pursuant to (a) that certain Revolving
Credit and Term Loan Agreement dated as of September 5, 2003, as amended by
that certain First Amendment to Revolving Credit and Term Loan Agreement dated
as of May 29, 2004, each by and among Lenders, Borrower and Agent
(collectively, the “Credit Agreement”), and (b) the other documents, agreements
and instruments referenced in the Credit Agreement or executed and delivered
pursuant thereto;

 

Whereas,
Borrower desires Lenders to increase the principal amount of the Term Loan by $12,500,000 to fund Borrower’s
repurchase of its stock (collectively, the “Additional Financial Accommodations”);
and

 

Whereas,
Lenders are willing to provide the Additional Financial Accommodations, but
solely on the terms and subject to the provisions set forth in this Second
Amendment and the other agreements, documents and instruments referenced herein
or executed and delivered pursuant hereto.

 

NOW, THEREFORE, in
consideration of the foregoing, the mutual promises and understandings of the
parties hereto set forth herein, and other good and valuable consideration, the
receipt and sufficiency of such consideration is hereby acknowledged, the
parties hereto hereby agree as set forth in this Second Amendment.

 

I.              Definitions:

 

A.            Use of Defined Terms.  Except as expressly set forth in this Second
Amendment, all terms which have an initial capital letter where not required by
the rules of grammar are defined in the Credit Agreement.

 

B.            Amended Definitions.  Effective as of the date of this Second
Amendment, Section 1.1 of the Credit Agreement is hereby amended by deleting
the definitions of “Applicable LIBOR Margin” and “Total Commitment Amount” and
substituting therefor the following, respectively:

 

 

“Applicable
LIBOR Margin” for purposes of determining the interest rate on:

 

(i)            a Revolving LIBOR
Loan, shall mean (a) prior to the first quarterly adjustment pursuant to clause
(b) of this subparagraph (i), 1.25% (the “Normal Revolving LIBOR Margin”);
and (b) the Normal Revolving LIBOR Margin as modified by quarterly adjustments
(such adjusted Normal Revolving LIBOR Margin, the “Applicable Revolving
LIBOR Margin”) determined based upon the ratio of Borrower’s consolidated
Funded Debt (measured on the date of the calculation) to EBITDA (calculated on
a rolling four quarters basis) as follows:

 

	
  If Funded Debt to EBITDA is:

  	
   

  	
  Applicable Revolving LIBOR Margin is:

  	
   

  
	
  Greater than or equal to 2.50 to 1.0

  	
   

  	
  2.00

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Less than 2.50 to 1.0 and greater than or
  equal to 2.00 to 1.0

  	
   

  	
  1.75

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Less than 2.00 to 1.0 and greater than or
  equal to 1.5 to 1.0

  	
   

  	
  1.50

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Less than 1.50 to 1.0

  	
   

  	
  1.25

  	
  %

  

 

(ii)           a Term LIBOR Loan,
shall mean (a) prior to the first quarterly adjustment pursuant to clause (b)
of this subparagraph (ii), 1.50% (the “Normal Term LIBOR Margin”); and
(b) the Normal Term LIBOR Margin as modified by quarterly adjustments (such
adjusted Normal Term LIBOR Margin, the “Applicable Term LIBOR Margin”)
determined based upon the ratio of Borrower’s consolidated Funded Debt
(measured on the date of the calculation) to EBITDA (calculated on a rolling
four quarters basis) as follows:

 

	
  If Funded Debt to EBITDA is:

  	
   

  	
  Applicable Term LIBOR Margin is:

  	
   

  
	
  Greater than or equal to 2.50 to 1.0

  	
   

  	
  2.25

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Less than 2.50 to 1.0 and greater than or
  equal to 2.00 to 1.0

  	
   

  	
  2.00

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Less than 2.00 to 1.0 and greater than or
  equal to 1.5 to 1.0

  	
   

  	
  1.75

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Less than 1.50 to 1.0

  	
   

  	
  1.50

  	
  %

  

 

Not later than
twenty (20) days after the Agent’s receipt of the quarterly financial
statements required by Section 6.2(a) hereof for each of Borrower’s fiscal
quarters,

 

2

 

accompanied by
a certificate of the chief accounting officer or Treasurer of Borrower
reflecting the ratio of Borrower’s Funded Debt to EBITDA for the period of the
four fiscal quarters ending on the same date, Agent will determine whether such
financial information indicates that the change in the ratio would justify a
change in the Applicable LIBOR Margin and shall then notify Borrower and the
Lenders 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
as of the first day of the month after the Agent provides notice to Borrower
and the Lenders of any change in the Applicable LIBOR Margin, and with such new
Applicable LIBOR Margin to continue in effect until the effectiveness of the
next re-determination thereof. Any determination by Agent of the ratio of
Borrower’s Funded Debt to EBITDA shall be conclusive and binding upon Borrower
and the Lenders provided that it has been made reasonably and in good faith,
absent manifest error. If 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.

 

“Total Commitment Amount” means Thirty-One Million and no/100
Dollars ($31,000,000.00).

 

C.            New Definitions.  Effective as of the date of this Second
Amendment, Section 1.1 is hereby amended by adding the following new
definitions thereto in appropriate alphabetical order:

 

“Additional Commitment – Term Loan” shall mean each such amount
set forth below across from the name of each Lender:

 

	
  Lender

  	
   

  	
  Amount

  	
   

  
	
  LaSalle

  	
   

  	
  $

  	
  7,500,000

  	
   

  
	
  Fifth Third

  	
   

  	
  $

  	
  5,000,000

  	
   

  

 

“Additional Commitment – Term Loan Draw Date” shall mean the
date upon which the portion of the Term Loan represented by the Additional
Commitment – Term Loan is advanced, in
whole or in part, by Lenders to Borrower.

 

“Applicable Prime Rate Margin” for purposes of determining the
interest rate on:

 

(i)            a Revolving Prime Rate
Loan, shall mean zero percent (0%); and

 

(ii)           a Term Prime Rate Loan,
shall mean (a) prior to the first quarterly adjustment pursuant to clause (b)
of this subparagraph (ii), 0% (the “Normal Term Prime Rate Margin”); and
(b) the Normal Term Prime Rate Margin as modified by quarterly adjustments
(such adjusted Normal Term Prime Rate Margin, the “Applicable Term Prime
Rate Margin”) determined based upon the ratio of Borrower’s consolidated
Funded

 

3

 

Debt (measured
on the date of the calculation) to EBITDA (calculated on a rolling four
quarters basis) as follows:

 

	
  If Funded Debt to EBITDA is:

  	
   

  	
  Applicable Term Prime Rate Margin is:

  	
   

  
	
  Greater than or equal to 2.50 to 1.0

  	
   

  	
  0.25

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Less than 2.50 to 1.0 and greater than or
  equal to 2.00 to 1.0

  	
   

  	
  0

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Less than 2.00 to 1.0 and greater than or
  equal to 1.5 to 1.0

  	
   

  	
  0

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  Less than 1.50 to 1.0

  	
   

  	
  0

  	
  %

  

 

Not later than twenty (20) days after the Agent’s receipt of the
quarterly financial statements required by Section 6.2(a) hereof for each of
Borrower’s fiscal quarters, accompanied by a certificate of the chief
accounting officer or Treasurer of Borrower reflecting the ratio of Borrower’s
Funded Debt to EBITDA for the period of the four fiscal quarters ending on the
same date, Agent will determine whether such financial information indicates
that the change in the ratio would justify a change in the Applicable Prime
Rate Margin and shall then notify Borrower and the Lenders of such
determination and of any change in the Applicable Prime Rate Margin resulting
therefrom. Any change in the Applicable Prime Rate Margin, and in the rate of
interest applicable to Prime Rate Loans resulting therefrom, shall be effective
as of the first day of the month after the Agent provides notice to Borrower
and the Lenders of any change in the Applicable Prime Rate Margin, and with
such new Applicable Prime Rate Margin to continue in effect until the
effectiveness of the next re-determination thereof. Any determination by Agent
of the ratio of Borrower’s Funded Debt to EBITDA shall be conclusive and
binding upon Borrower and the Lenders provided that it has been made reasonably
and in good faith, absent manifest error. If Borrower fails to timely submit
the quarterly financial statements and certificate referred to above, the rate
of interest applicable to Prime Rate Loans as of the next determination date of
the Applicable Prime Rate Margin shall be determined and based upon the Default
Rate.

 

II.            Amendment to Credit Agreement.  Effective as of the date of this Second
Amendment, the Credit Agreement is hereby amended as follows:

 

A.            Additional Term Loan Funding.  Sections 2.4 and 2.5 of the Credit Agreement
are hereby amended by deleting Sections 2.4 and 2.5 in their entirety and
substituting therefor the following:

 

4

 

“2.4         TERM
LOAN.

 

Prior hereto, each Lender, severally and not jointly, lent to Borrower,
and Borrower borrowed from each Lender, the amount of each Lender’s Commitment
- Term Loan (the “Original Term Loan”), which Original Term Loan has an outstanding principal balance of $8,500,000.00 as of April 14, 2005.  Subject to the terms and conditions of this
Agreement, each Lender, severally and not jointly, agrees to lend to Borrower,
and Borrower agrees to borrow from each Lender, up to the amount of each Lender’s Pro Rata Share of the Additional
Commitment - Term Loan (the Original Term Loan, together with such Additional
Commitment - Term Loan is the “Term Loan”).  The Additional Commitment - Term Loan shall
be funded in a single draw which shall
be made after April 14, 2005, but on or before September 30, 2005. 
The proceeds of the Additional Commitment - Term Loan may and
shall be used solely for the purpose of repurchasing Borrower’s capital stock,
which repurchase shall occur not later than September 30, 2005. 
Borrower shall provide Lender written notice of its intention to make
the draw on the Additional Commitment - Term Loan and the amount of such draw
not less than five (5) business days prior to the proposed date of funding the
Additional Commitment – Term Loan.  Any
amount of the Term Loan repaid may not be reborrowed.

 

2.5           TERM.

 

(A)          
The Term Loan shall be evidenced by term notes (collectively the “Term Note”),
substantially in the form of Exhibit B, with appropriate insertions,
dated as of April 14, 2005,
payable to the order of each Lender, in the current principal amount of each
Lender’s Pro Rata Share of the Term Loan. 
Prior to the Additional Commitment – Term Loan Draw Date or if the
Additional Commitment – Term Loan is not funded for any reason, the principal
balance of the Term Loan is payable in thirteen
(13) quarterly principal
payments as follows: (a) five (5) quarterly payments in the amount of
$500,000 each, due on the last day of each fiscal quarter beginning June 30, 2005 and continuing through and including June 30, 2006, and
(b) eight (8) quarterly payments in the amount of $750,000 each, due on the
last day of each fiscal quarter beginning September 30, 2006 and continuing
through and including June 28, 2008.

 

(B)           Provided
the Additional Commitment - Term Loan Draw Date is on or before June 30, 2005, then, on and after the Additional
Commitment – Term Loan Draw Date, the principal balance of the Term Loan
is payable in twenty-four
(24) quarterly principal payments as follows: (a) four (4) quarterly payments
in the amount of $750,000 each, due on the last day of each fiscal quarter
beginning June 30, 2005 and continuing through and including March 31, 2006,
(b) sixteen (16) quarterly payments in the amount of $875,000 each, due on the
last day of each fiscal quarter beginning June 30, 2006 and continuing through
and including March 31, 2010, and (c) four (4) quarterly payments in the amount
of $1,000,000 each, due on the last day of each fiscal quarter beginning June
30, 2010 and continuing through and including March 31, 2011.

 

5

 

(C)           Provided
the Additional Commitment - Term Loan Draw Date is after June 30, 2005, but on
or before September 30, 2005, then, on and after the Additional Commitment –
Term Loan Draw Date, the principal balance of the Term Loan is payable in
twenty-four (24) quarterly principal payments as follows: (a) one (1) payment
in the amount of $1,000,000, due on September 30, 2005, (b) two (2) quarterly
payments in the amount of $750,000 each, due on December 31, 2005 and March 31,
2006, (c) sixteen (16) quarterly payments in the amount of $875,000 each, due
on the last day of each fiscal quarter beginning June 30, 2006 and continuing
through and including March 31, 2010, and (d) four (4) quarterly payments in the
amount of $1,000,000 each, due on the last day of each fiscal quarter beginning
June 30, 2010 and continuing through and including March 31, 2011.

 

(D)          If
the Additional Commitment – Term Loan is not fully funded, Term Loan principal
payments shall be made as set forth in (B) or (C) above, as applicable, until
such time as the Term Loan is paid in full.”

 

B.            Prime Interest Rate.  Section 3.1(a) of the Credit Agreement is
hereby amended by deleting Section 3.1(a) in its entirety and substituting
therefor the following:

 

“(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) or
conversion to a LIBOR Loan at a rate per annum equal to the sum of the
Applicable Prime Rate Margin from time to time in effect plus the Prime Rate.”

 

C.            Manner of Borrowing.  Section 4.2 of the Credit Agreement is hereby
amended by deleting Section 4.2 in its entirety and substituting therefor the
following:

 

“4.2         MANNER
OF BORROWING.

 

Borrower shall give the Agent irrevocable written or telephonic notice
(a “Borrowing Notice”) by 11:00 a.m., Chicago, Illinois time, (a) on the
date at least two (2) Business Days prior to the date of each requested
Borrowing of LIBOR Loans, and (b) on the date of any requested Borrowing of
Prime Rate Loans. Each such notice shall specify the proposed 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. The
Agent will then promptly notify the Lenders in writing or by telephone (which
such notice in the case of Fifth Third, if it relates to Revolving Credit Loan
Borrowings constituting Prime Rate Loans, may be made before or after LaSalle
has funded its Pro Rata Share of such requested Loans) and, if such notice
requests the Lenders to make LIBOR Loans, the Agent shall give notice to
Borrower and to the Lenders of the interest rate applicable thereto promptly
after the Agent has made such determination. The Lenders, on the date of
Borrowing any Revolving Credit Loan, shall each remit their Pro Rata Share of
any requested Revolving Credit Loan to Borrower’s account maintained with
Agent, except to the extent such Borrowing is either a reborrowing, in whole or
in

 

6

 

part, of the
principal amount of an outstanding 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 LaSalle has made a Revolving Credit Loan, Fifth Third shall
fund its Pro Rata Share of such Revolving Credit Loan and the obligation to
remit to LaSalle on such day its Pro Rata Share of the Revolving Credit Loan
shall be absolute and irrevocable. Each Borrowing from the Lenders under this
Agreement shall be made in accordance with each Lender’s Pro Rata Share of the
Commitment - Revolving Credit, Commitment - Term Loan and Additional Commitment
– Term Loan.  Each payment and prepayment
made by Borrower shall be made to the Lenders in accordance with each Lender’s
Pro Rata Share of the respective amounts of the Loans outstanding immediately
prior to such payment or prepayment. 
Unless Borrower notifies the Agent to the contrary, upon the expiration
of any Interest Period for a LIBOR Loan, such LIBOR Loan shall automatically
convert to a Prime Rate Loan.  Each LIBOR
Loan shall mature and become due and payable by Borrower on the last day of the
Interest Period applicable thereto.”

 

D.            Financial Covenants.  At all times prior to the Additional
Commitment – Term Loan Draw Date, or, if either (i) the portion of the Term
Loan represented by the Additional Commitment – Term Loan is not funded for any
reason, or (ii) the cost of
Borrower’s stock repurchased with the proceeds of the Additional Commitment –
Term Loan is $2,000,000 or less as
of September 30, 2005, the financial covenants set forth in Section
6.4 of the Credit Agreement shall remain unchanged.  If the cost of Borrower’s stock repurchased
with proceeds of the Additional Commitment - Term Loan is greater than $2,000,000
but less than $12,000,000, as of
September 30, 2005, Lenders and Borrower shall renegotiate in good faith the
financial covenants set forth in Section 6.4 of the Credit Agreement based upon
the actual amount borrowed under the Additional Commitment - Term Loan.  If Lenders and Borrower are unable to agree
upon the new financial covenants on or before October 31, 2005, then the
financial covenants set forth in Section 6.4 of the Credit Agreement shall
remain unchanged.  Effective upon the
Additional Commitment – Term Loan Draw Date, provided neither subsection (i)
nor (ii) of this paragraph D. are applicable and the cost of Borrower’s stock repurchased with proceeds of the
Additional Commitment - Term Loan is $12,000,000 or more as of September 30, 2005, Section 6.4 of the Credit
Agreement shall be amended by deleting Section 6.4 in its entirety and
substituting therefor the following:

 

“6.4         FINANCIAL
REQUIREMENTS.

 

Unless at any time both Lenders shall otherwise expressly consent in
writing, until all of the obligations of Borrower under this Agreement and the
Notes are fully paid and performed, Borrower shall:

 

(a)           Fixed Charge
Coverage Ratio.  Not permit the Fixed
Charge Coverage Ratio, determined as of July
2, 2005 and as of the end of each fiscal quarter thereafter, in all
instances for the period of the four fiscal quarters then ending, to be less
than 1.1 to

 

7

 

1.0;

 

(b)           Current Ratio.  Not permit the ratio of Borrower’s
consolidated current assets to current liabilities determined as of the end of
each fiscal quarter of Borrower’s fiscal year, to be less than 1.50:1.0;

 

(c)           Tangible Net Worth.  Not permit Borrower’s consolidated Tangible
Net Worth to be less than (i) $24,000,000 as of July 2, 2005, or October 1,
2005, or (ii) $24,000,000 plus fifty percent (50%) of Borrower’s cumulative
consolidated net income (disregarding cumulative consolidated net loss) for all
periods from and after January 1, 2005, in each case calculated as of December
31, 2005, and as of the last day of each calendar quarter thereafter.

 

(d)           Leverage Ratio.  Not permit Borrower’s ratio of (i)
consolidated Funded Debt as of the end of each fiscal quarter of Borrower’s
fiscal year, to (ii) EBITDA for the Measurement Period ending as of the last
day of such quarter calculated on a rolling four (4) quarters basis, to exceed
(i) 3.25 to 1.0 as of July 2, 2005 or October 1, 2005, (ii) 3.00 to 1.0 as of
December 31, 2005, April 1, 2006, July 1, 2006, or September 30, 2006, (iii)
2.75 to 1.0 as of December 30, 2006, March 31, 2007, June 30, 2007, or
September 29, 2007, or (iv) 2.50 to 1.0 as of December 29, 2007, or as of the
end of any fiscal quarter thereafter.”

 

E.             Capital Structure and Dividends.  Section 6.7 of the Credit Agreement is hereby
amended by deleting Section 6.7 in its entirety and substituting therefor the
following:

 

“SECTION
6.7       CAPITAL STRUCTURE AND
DIVIDENDS.

 

Neither Borrower nor any Subsidiary shall
purchase or redeem, or obligate itself to purchase or redeem, any shares of
Borrower’s capital stock, of any class, issued and outstanding from time to
time, provided, however, that Borrower may, (a) on or before September 30, 2005, purchase an amount
of Borrower’s capital stock in a total amount not to exceed $12,500,000 in the aggregate from the proceeds of the Additional
Commitment – Term Loan (as determined for the period beginning April 14, 2005 and ending on September 30, 2005), (b) purchase an amount of Borrower’s
capital stock in a total amount not to exceed $2,000,000 in the aggregate from
funds other than the proceeds of the Additional Commitment - Term Loan (as
determined for the period beginning April 14, 2005 and ending on the
Termination Date), or (c) declare
or pay any dividend (other than dividends payable in its own common stock or to
Borrower) or make any other distribution in respect of such shares other than
to Borrower.  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 Borrower.

 

F.             Tender Offers and Going Private.  Section 6.10(b) of the Credit Agreement is
hereby amended by deleting Section 6.10(b) in its entirety and substituting
therefor the following:

 

8

 

“(b)         Tender Offers and
Going Private.  Neither 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.  Notwithstanding the
forgoing, Borrower may use the proceeds of the Additional Commitment - Term
Loan to repurchase shares of Borrower’s capital stock, provided that (i)
Borrower files all appropriate documentation with the Securities and Exchange
Commission, (ii) Borrower complies with all state and federal laws relating to
such repurchase, and (iii) Borrower provides Lender with any documentation
requested by Lender relating to
the foregoing.”

 

G.            Set-Off.  Section 10.12 of the Credit Agreement is
hereby amended by deleting Section 10.12 in its entirety and substituting
therefor the following:

 

“SECTION 10.12            SET-OFF.

 

At any time after an Event of Default or at any time after any
liabilities owed to either Lender under any Loan Document becomes past due, 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 remit to the other Lender an amount necessary to maintain each Lender’s
Pro Rata Share of the Commitment - Revolving Credit, Commitment - Term Loan or
Additional Commitment – Term Loan, 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.

 

H.            Schedule I.  The Credit Agreement is hereby amended by
deleting Schedule I attached to the Credit Agreement and substituting therefor
Schedule I attached to this Second Amendment.

 

III.           Conditions Precedent. Lenders’
obligation to provide the Additional Financial Accommodations to Borrower is
subject to the full and timely performance of the following covenants prior to
or contemporaneously with the execution of this Second Amendment:

 

A.            Borrower
executing and delivering, or causing to be executed and delivered to Agent and
Lenders, the following documents, each of which shall be in form and substance
acceptable to Agent and Lenders:

 

9

 

(i)            A
fully executed original of a Company General Certificate executed and delivered
by Borrower to Agent and Lenders;

 

(ii)           A
fully executed original of a Term Note for each Lender in the principal amount
of such Lender’s Pro-Rata Share of the sum of the current outstanding Term
Loan, plus the Additional Commitment – Term Loan.

 

(iii)          A
fully executed original Reaffirmation of Guaranties executed and delivered to
Agent and Lenders by each of the Borrower’s Subsidiaries that executed the
Subsidiary Guaranties; and

 

(iv)          such
other agreements, documents and instruments as Agent or Lenders may reasonably
request;

 

B.            No
Event of Default or Unmatured Event of Default exists under the Credit
Agreement, as amended by this Second Amendment, or the other Loan Documents;

 

C.            No
claims, litigation, arbitration proceedings or governmental proceedings not
disclosed in writing to Agent prior to the date hereof shall be pending or
known to be threatened against Borrower and no known material development not
so disclosed shall have occurred in any claims, litigation, arbitration
proceedings or governmental proceedings so disclosed which in the opinion of
Agent is likely to materially and adversely affect the financial position or
business of Borrower or the capability of Borrower to pay its obligations and
liabilities to Lenders; and

 

D.            There
shall have been no material or adverse change in the business, financial
condition or results of operations since the date of Borrower’s most recently
delivered financial statements to Agent and Lenders.

 

IV.           Conflict.  If, and to the extent, the terms and
provisions of this Second Amendment contradict or conflict with the terms and
provisions of the Credit Agreement, the terms and provisions of this Second
Amendment shall govern and control; provided, however, to the extent the terms
and provisions of this Second Amendment do not contradict or conflict with the
terms and provisions of the Credit Agreement, the Credit Agreement, as amended
by this Second Amendment, shall remain in and have its intended full force and
effect, and Lenders, Borrower and the Agent hereby affirm, confirm and ratify
the same.

 

V.            Severability.  Wherever possible, each provision of this
Second Amendment shall be interpreted in such manner as to be valid and
enforceable under applicable law, but if any provision of this Second Amendment
is held to be invalid or unenforceable by a court of competent jurisdiction,
such provision shall be severed herefrom and such invalidity or
unenforceability shall not affect any other provision of this Second Amendment,
the balance of which shall remain in and have its intended full force and
effect.  Provided, however, if such
provision may be modified so as to be valid and enforceable as a matter of law,
such provision shall be deemed to be modified so as to be valid and enforceable
to the maximum extent permitted by law.

 

10

 

VI.           Reaffirmation.  Borrower hereby reaffirms and remakes all of
its representations, warranties, covenants, duties, obligations and liabilities
contained in the Credit Agreement, as amended hereby.

 

VII.          Fees, Costs and Expenses.

 

A.            Contemporaneously
herewith, Borrower agrees to pay to the Agent for the ratable benefit of the
Lenders a fully-earned, non-refundable loan fee in the amount of $37,500.  Lenders shall divided [sic] such fee based
upon each Lender’s Pro-Rata Share of the Additional Commitment – Term Loan.

 

B.            Borrower
agrees to pay, upon demand, all fees, costs and expenses of Lenders, including,
but not limited to, reasonable attorneys’ fees, in connection with the
preparation, execution, delivery and administration of this Second Amendment
and the other agreements, documents and instruments executed and delivered in
connection herewith or pursuant hereto.

 

VIII.        Choice of Law.  This Second Amendment shall be governed by
and construed in accordance with the laws of the State of Illinois, regardless
of the laws that might otherwise govern under applicable principles of
conflicts of law as to all matters, including matters of validity,
construction, effect, performance and remedies.

 

[signature page follows]

 

11

 

In Witness Whereof,
Lenders, Borrower and Agent have caused this Second Amendment to be executed
and delivered by their duly authorized officers as of the date first set forth
above.

 

 

	
   

  	
   

  	
   

  	
   

  	
   

  	
  Continental Materials Corporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Joseph
  J. Sum

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Joseph J.
  Sum, Vice President

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  LaSalle Bank National Association,

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  as Agent and
  a Lender

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Henry
  Munez

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Its:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Fifth Third Bank (Chicago),

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  as a Lender

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Susan M.
  Kaminski

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Its:

  	
  Susan M.
  Kaminski, Vice President

  
											

 

12

 

Schedule I

Lenders’ Total Commitment Amount

 

	
  Lender

  	
   

  	
  Total Commitment Amount

  	
   

  	
  Pro Rata Share

  	
   

  
	
  Total

  	
   

  	
  $

  	
  (31,000,000

  	
  )

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  LaSalle Bank National Association

  	
   

  	
  $

  	
  18,600,000

  	
   

  	
  60.00

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Fifth Third Bank (Chicago)

  	
   

  	
  $

  	
  12,400,000

  	
   

  	
  40.00

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
								

 

13

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