UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 2, 2010

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-3834

Continental Materials Corporation

(Exact name of registrant as specified in its charter)

Delaware		36-2274391
(State or other jurisdiction		(I.R.S. Employer Identification No.)
of incorporation or organization)

200 South Wacker Drive, Suite 4000, Chicago, Illinois		60606
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code 312-541-7200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock - $0.25 par value		NYSE Amex

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 and Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o

Non-accelerated filer o		Smaller reporting company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The aggregate market value (based on June 30, 2009 closing price) of voting stock held by non-affiliates of registrant: Approximately $6,971,000.

Number of common shares outstanding at April 9, 2010: 1,598,278.

Incorporation by reference: Portions of registrant’s definitive proxy statement for the 2010 Annual Meeting of stockholders to be held May 26, 2010 into Part III of this Form 10-K. The definitive proxy statement is expected to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Form 10-K.

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TABLE OF CONTENTS

	Page

Special Note Regarding Forward Looking Statements	3

PART I.

Item 1. Business	3
Item 1A. Risk Factors	7
Item 1B. Unresolved Staff Comments	7
Item 2. Properties	7
Item 3. Legal Proceedings	7
Item 4. Removed and Reserved	8

PART II.

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities	8
Item 6. Selected Financial Data	8
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 7A. Quantitative and Qualitative Disclosures about Market Risk	19
Item 8. Financial Statements and Supplementary Data	19
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosures	39
Item 9A(T). Controls and Procedures	39
Item 9B Other Information	40

Part III.

Items 10 through 14 have been omitted from this 10-K Report because the registrant expects to file, not later than 120 days following the close of its fiscal year ended January 2, 2010, its definitive 2010 proxy statement. The information required by Items 10 through 14 of Part III will be included in that proxy statement and such information is hereby incorporated by reference.	40

Part IV.

Item 15. Exhibits, Financial Statement Schedules	40

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FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements are based on the beliefs of the Company’s management as well as on assumptions made by and information available to the Company at the time such statements were made. When used in this Report, words such as “anticipates,” “believes,” “contemplates,” “estimates,” “expects,” “plans,” “projects” and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of factors including but not limited to: weather, interest rates, availability of raw materials and their related costs, economic conditions and competitive forces in the regions where the Company does business, and the ability of the Company to obtain credit on commercially reasonable terms. Changes in accounting pronouncements could also alter projected results. Forward-looking statements speak only as of the date they were made and we undertake no obligation to publicly update them.

PART I

Item 1. BUSINESS

Continental Materials Corporation (the Company) is a Delaware corporation, incorporated in 1954. The Company operates primarily within two industry groups, Heating, Ventilation and Air Conditioning (HVAC) and Construction Products. The Company has identified two reportable segments in each of the two industry groups: the Heating and Cooling segment and the Evaporative Cooling segment in the HVAC industry group and the Concrete, Aggregates and Construction Supplies segment and the Door segment in the Construction Products industry group.

The Heating and Cooling segment produces and sells gas-fired wall furnaces, console heaters and fan coils from the Company’s wholly-owned subsidiary, Williams Furnace Co. (WFC) of Colton, California. The Evaporative Cooling segment produces and sells evaporative coolers from the Company’s wholly-owned subsidiary, Phoenix Manufacturing, Inc. (PMI) of Phoenix, Arizona. Concrete, Aggregates and Construction Supplies (CACS) are offered from numerous locations along the Southern portion of the Front Range of Colorado operated by the Company’s wholly-owned subsidiaries Castle Concrete Company and Transit Mix Concrete Co., of Colorado Springs and Transit Mix of Pueblo, Inc. of Pueblo (the three companies collectively referred to as TMC). Doors are fabricated and sold along with the related hardware, including electronic access hardware, from the Company’s wholly-owned subsidiary, McKinney Door and Hardware, Inc. (MDHI), which operates out of facilities in Pueblo and Colorado Springs, Colorado.

In addition to the above reporting segments, an “Unallocated Corporate” classification is used to report the unallocated expenses of the corporate office which provides treasury, insurance and tax services as well as strategic business planning and general management services and an “Other” classification is used to report a real estate operation. Expenses related to the corporate information technology group are allocated to all locations, including the corporate office.

During the past three years the only change in the Company’s business was the sale of Rocky Mountain Ready Mix Concrete, Inc. (RMRM) of Denver. The Company completed the sale of all of the outstanding capital stock of RMRM, a Colorado corporation to Campbells C-Ment Contracting, Inc., a Colorado corporation (Buyer), on July 17, 2009. RMRM operated a ready mix concrete business in the Denver metropolitan area and had been included in the CACS reporting segment. See Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8 — Financial Statements and Supplementary Data for further details.

Overall, sales in the CACS segment have been significantly reduced due to the very low level of construction activity along the Southern Front Range of Colorado. The nationwide depressed construction activity has also affected the sales volume of the Door segment. Sales of the Heating and Cooling segment and the Evaporative Cooling segment have been less affected except for the fan coil product line of the Heating and Cooling Segment which has declined significantly as construction, especially in the commercial sector has also exhibited significant weakness. Additional financial information relating to industry segments appears in Note 14 of this Form 10-K. References to a “Note” are to the “Notes to Consolidated Financial Statements.”

MARKETING

The HVAC industry group markets its products throughout North America through plumbing, heating and air conditioning wholesale distributors as well as directly to major retail home-centers and other retail outlets. Some of the products are also sold to HVAC installing contractors and equipment manufacturers for commercial applications. The Company contracts independent manufacturers’ representatives for all of its products while also employing and utilizing a staff of sales and sales

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support personnel. Sales of furnaces and evaporative coolers are predominantly in the United States and are concentrated in the Western and Southwestern states. Sales of furnaces and console heaters usually increase in the months of September through January. Sales of evaporative coolers have historically been higher in the months of March through July. Sales of the fan coil product line are throughout the United States, Canada and the Caribbean and are more evenly distributed throughout the year although the highest volume typically occurs during the late spring and summer. In order to enhance sales of wall furnaces and evaporative coolers during the off season, extended payment terms, also referred to as dating programs, are offered to some customers.

The Construction Products industry group markets its products primarily through its own direct sales personnel and, except for doors and related hardware, confines its sales to the Southern portion of the Front Range area in Colorado. Sales are primarily made to general and sub-contractors, government entities and individuals. Sales are affected by the general economic conditions and weather conditions in the areas serviced (as it relates to construction). Revenues usually decline in the winter months as the pace of construction slows. Sales of doors and the related hardware are made throughout the United States although sales are primarily within Colorado and adjacent states.

During 2009, no customer accounted for 10% or more of the total sales of the Company.

CUSTOMER SERVICE AND SUPPORT

The HVAC industry group maintains parts departments and help lines to assist contractors, distributors and end users in servicing the products. The Company does not currently perform installation services, nor are maintenance or service contracts offered. In addition, training and product information sessions for the furnace, fan coil and evaporative cooler product lines are offered at our plants and other sites for distributors, contractors, engineers, utility company employees and other customers. The HVAC industry group does not derive any revenue from after-sales service and support other than from parts sales.

The personnel in the CACS segment routinely take a leadership role in formulation of the products to meet the specifications of customers. The Company is not involved in setting forms or performing finishing work on any of its concrete products. The Door segment offers doors, frames and hardware, including electronic access systems. Doors, frames and hardware are installed by independent contractors engaged by the general contractor or building owner. Electronic access systems are installed by the Company’s technicians.

BACKLOG

At January 2, 2010, the Heating and Cooling segment had a backlog of approximately $3,252,000 ($6,784,000 at January 3, 2009) primarily relating to orders that are expected to be filled during the first half of 2010 although some fan coil projects may extend past this timeframe. The decrease is primarily due to the reduction of fan coil orders which is directly related to the nationwide decline in construction activity.

At January 2, 2010, the Evaporative Cooling segment had a backlog of approximately $489,000 ($284,000 at January 3, 2009) primarily due to preseason orders placed prior to year end. This backlog is expected to be filled during the first quarter of 2010 and is not necessarily indicative of the sales level that will be realized during 2010.

At January 2, 2010, the CACS segment had a backlog of approximately $12,436,000 ($8,900,000 at January 3, 2009, not including the backlog of RMRM) primarily relating to construction contracts awarded and expected to be filled during 2010. The increase in backlog is primarily due to a contract to supply concrete to a large Fort Carson job that the Company was awarded in the latter part of 2009 and not indicative of an improvement in construction activity.

At January 2, 2010, the Door segment had a backlog of approximately $2,767,000 ($5,048,000 at January 3, 2009) primarily relating to orders that are expected to be filled during 2010. The lower backlog is primarily due to the reduced level of bidding related to the overall slow economy and the decline in construction.

RESEARCH AND DEVELOPMENT/PATENTS

In general, the Company relies upon, and intends to continue to rely upon, unpatented proprietary technology and information. However, research and development activities in the HVAC industry group have resulted in a patent being issued to PMI related to the Power Cleaning System (expiring January 2014) used in evaporative coolers and a patent issued to WFC entitled “Wall Furnace With Side Vented Draft Hood” (expiring November 2011) for a process that increased the heat transference efficiency in our furnaces above that previously offered by the Company and its competitors. The amounts expended on research and development are not material and are expensed as incurred. The Company believes its interests in its patents, as well as its proprietary knowledge, are sufficient for its businesses as currently conducted.

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MANUFACTURING

The Company conducts its manufacturing operations through a number of facilities as more completely described in Item 2. Properties below.

Due to the seasonality of the HVAC businesses and to balance production throughout the year, furnaces and evaporative coolers are built during their off seasons in order for the Company to have adequate supplies to sell during the season. Although sales are made throughout the year, sales volume is generally higher from August through January for furnaces while sales volume of evaporative coolers is generally higher from March through July.

In general, the Company can obtain the raw materials required by our operations in all segments from various sources in the quantities desired. The Company’s CACS segment has historically purchased most of its cement requirements from a single supplier in order to obtain favorable volume related pricing. Although there have been times during heavy construction periods that there has been some scarcity of cement supply, the Company does not expect to encounter this situation in the foreseeable future due to the decline in construction activity and the completion of a new cement mill near Pueblo, Colorado during 2008. The Company has no long-term supply contracts and does not consider itself to be dependent on any individual supplier. MDHI is an authorized distributor of a major manufacturer of hollow metal doors and hardware. MDHI has historically purchased the majority of its hardware primarily from this supplier in order to obtain favorable volume related pricing; however, other suppliers are available.

The Company mines aggregates (rock, gravel and sand) from various owned and leased properties in Colorado. Colorado mining permits require permit holders to perform reclamation work in order to return the mined areas to a beneficial use. These requirements are similar in nature to those included in the mining permits of our competitors. Reclamation costs have increased since the mid-1990’s as the Company has engaged in enhanced reclamation projects that exceed the stated requirements. The enhanced reclamation efforts are being performed, in part, to establish community goodwill. The Company performs the majority of the reclamation work using existing production employees and equipment primarily at times when production is curtailed due to inclement weather or decreased demand for our products. Consequently, the reclamation work to date has had a minimal impact on our capital expenditures. In addition to the effect of the slow construction markets, operating results at the Pikeview Quarry were adversely affected by a shutdown in December 2008 due to a landslide. The Colorado Division of Reclamation, Mining and Safety (DRMS) ordered that the quarry be shut down until such time as the Company submits a new mining and reclamation plan. The DRMS has given the Company until May 13, 2010 to submit a revised plan. The Company and its consultants are working on a new mining and reclamation plan for the Pikeview Quarry which must be approved by the DRMS before the Company can resume production. The Company believes that ultimately an acceptable plan for mining and reclamation will be developed and that the quarry will be reopened during 2011. The impact that reopening the Pikeview Quarry might have on future capital expenditures has not been determined, however, management expects that the total incurred will be less than $1,000,000. See the discussion on the Results of Operations for information on the effect of the Pikeview shutdown on the CACS segment results.

COMPETITIVE CONDITIONS

Heating and Cooling — The Company is one of three principal companies producing wall furnaces (excluding units sold to the recreational vehicle industry) and gas-fired console heaters. The wall furnace and console heater markets are only a small component of the heating industry. The Company serves its market from a plant in Colton, California. The sales force consists of in-house sales personnel and independent manufacturers’ representatives. The heating industry is dominated by a few manufacturers which are substantially larger than the Company. These manufacturers sell diversified lines of heating and air conditioning units directed primarily toward central heating and cooling systems. All of the producers, including the Company, compete primarily on a basis of price, product features and performance, service and timeliness of delivery.

Fan coils are also produced at the Colton plant. The Company generally obtains contracts for larger jobs based upon a competitive bidding process. The contracts are typically awarded based upon the competitive factors noted below. International Environmental Corp., a subsidiary of LSB Industries, Inc. is the largest manufacturer and competitor in this market. There are five other large competitors as well as a number of smaller companies that produce fan coils. All of the producers compete primarily on the basis of price, ability to meet customers’ specific design and performance requirements and timeliness of delivery.

Evaporative Cooling — The Company manufactures evaporative air coolers at a plant in Phoenix, Arizona. The other principal competitor is Essick Air Products, Inc. and its subsidiary Champion Cooler Corp. All producers of evaporative air coolers typically compete aggressively on the basis of price, product features and product availability during the cooling

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season. During 2008 a principal competitor exited the U.S. market. The long-term effect of this situation is still uncertain although the Company was able to obtain some new customers during 2009.

Concrete, Aggregates and Construction Supplies — This segment operates in highly competitive markets along the Southern Front Range of Colorado. The Company competes with a large multinational producer as well as regional and small local producers. The Company is one of four companies producing ready mix concrete in the Colorado Springs area and one of three companies producing ready mix concrete in the Pueblo area. Because of the relatively high transportation costs associated with concrete, the level of competition is heavily influenced by the distance from production facilities to markets served. Price, plant location, transportation costs, service, product quality and reputation are major factors that affect competition among the ready mix concrete producers. The Company is one of five producers of aggregates in the Colorado Springs and Pueblo marketing areas although three other producers ship product into these two markets. All producers compete on the basis of price, quality of material and service.

The Company’s sales of rebar and other construction supplies in the Colorado Springs and Pueblo metropolitan areas are subject to intense competition from three larger companies in Denver, three companies in Colorado Springs and one in Pueblo although a number of small local competitors are also in the market. However, the Company believes it can compete effectively because many of our customers also purchase concrete and aggregates from us whereas our competitors for these particular product lines do not offer concrete or aggregates. In addition, the Company believes its Pueblo location has a slight competitive advantage with respect to the three Denver companies based upon delivery costs.

Door — The Company sells hollow metal doors, door frames and other hardware throughout the United States although sales are primarily in Colorado and adjacent states. There are numerous competitors which compete aggressively based on price and delivery times.

EMPLOYEES

The Company employed 644 people as of January 2, 2010. Employment varies throughout the year due to the seasonal nature of the businesses. A breakdown of the current and prior year’s employment at year-end by segment was:

	2009	2008
Heating and Cooling	225	287
Evaporative Cooling	131	138
Concrete, Aggregates and Construction Supplies	229	312
Door	43	47
Corporate Office	16	14
Total	644	798

All segments reported lower headcounts primarily due to the decline in sales. The reduction was largely in the direct and indirect labor categories although office personnel and supervisory personnel were also affected. The decline in the CACS segment also reflects the sale of RMRM on July 17, 2009. The small increase at the Corporate Office was related to the Information Technology (IT) group and was the result of converting a full-time consultant to employee status and the addition of person for the Help Desk. Two IT employees previously included in the Heating and Cooling segment were released and not replaced.

The factory employees at the Colton, California plant are represented by the Carpenters Local 721 Union under a contract that expires April 30, 2011. The Company considers relations with its employees and with their union to be good. There are no unions at any of the Company’s other operations.

ENVIRONMENTAL MATTERS

Our operations involve the use, release, discharge, disposal and clean up of substances regulated under federal, state and/or local environmental protection laws and regulations, including those related to reclamation of mined areas. We strive not only to maintain compliance with all applicable environmental laws and regulations, but to exceed the minimum requirements of those laws and regulations where practicable.

In 2009, our capital expenditures and remediation expenses for environmental matters, except those expenses related to our mining reclamation efforts, were not material to our financial condition. Because of the complexity and ever-changing nature of environmental laws and regulations, we cannot predict whether capital expenditures and remediation expenses for future environmental matters will materially affect our financial condition, results of operations or liquidity.

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AVAILABLE INFORMATION

The Company electronically files various reports and other information with the Securities and Exchange Commission (SEC) including this annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding the Company. Access to this information is available free of charge at the SEC’s website at http://www.sec.gov. The Company does not maintain a corporate website; however, we will provide electronic or paper copies of our filings, free of charge, upon electronic request to InvRel@contmtl.com or written request to Mark S. Nichter, Secretary and Corporate Controller, Continental Materials Corporation, 200 South Wacker Drive, Suite 4000, Chicago, Illinois 60606.

Item 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such, are not required to provide the information under this item.

Item 1B. Unresolved Staff Comments.

None.

Item 2. PROPERTIES

The Heating and Cooling segment operates out of an owned facility in Colton, California. This facility is, in the opinion of management, in good condition and sufficient for the Company’s current needs. Production capacity exists at the Colton plant such that the Company could exceed the highest volumes achieved in prior years or expected in the foreseeable future and maintain timely delivery.

The Evaporative Cooling segment operates out of a leased facility in Phoenix, Arizona. This facility is also, in the opinion of management, in good condition and sufficient for the Company’s current needs. Production capacity exists at the Phoenix plant such that the Company could exceed the highest volumes achieved in prior years or expected in the foreseeable future and maintain timely delivery.

The CACS segment serves the Colorado ready-mix concrete market from seven owned batch plants. In addition, the Company currently operates aggregate processing facilities on three owned and two leased mining properties. All but one of the mining properties are located in or near Colorado Springs or Pueblo. These properties presently provide the aggregate requirements of our Colorado Springs and Pueblo ready mix concrete business as well as selling product to independent customers. During 2008 the Pikeview Quarry experienced a landslide that closed the quarry for the remainder of 2008 and all of 2009. For further information, see the CACS segment in Management’s Discussion and Analysis of Financial Condition and Results of Operations below. In general, the leased mining properties are on long-term leases with payment based upon the number of tons mined. The lease of an aggregates property in Pueblo, Colorado also requires minimum annual royalty payments. See Note 9 for the schedule of future minimum payments. Construction supplies are sold from owned facilities adjacent to the main batch plants in Colorado Springs and Pueblo. All of the CACS segment’s facilities are located along the Southern Front Range in Colorado and, in the opinion of management, are in good condition and sufficient for the Company’s current needs. The Company also leases or owns other aggregate deposits along the Southern Front Range that are not currently in production. In the opinion of management, the owned and leased properties contain permitted and mineable reserves sufficient to service customers’ and our own sand, rock and gravel requirements for the foreseeable future.

In 2007 the Company purchased an existing building near its previous door fabrication facility. The newly acquired facility was first occupied at the beginning of 2008. The Door segment operates out of this owned facility in Colorado Springs and a leased facility in Pueblo, Colorado. The facilities are, in the opinion of management, in good condition and sufficient for the Company’s current needs.

Product volumes at all of the facilities of the Company are subject to seasonal fluctuations, but in the opinion of management, the facilities are generally well utilized. The current extreme reduction in construction activity throughout the country and particularly along the Southern Front Range has reduced product volumes such that the facilities of the CACS segment has lead to an underutilization of our facilities and equipment. Similarly, the downturn in construction, especially commercial construction, has reduced the utilization of the facility and equipment used in production of our fan coil product in the Heating and Cooling segment.

The corporate office operates out of leased office space in Chicago, Illinois.

Item 3. LEGAL PROCEEDINGS

The Company is involved in litigation matters related to its continuing business, principally product liability matters related to the gas-fired heating products in the Heating and Cooling segment. In the Company’s opinion, none of these proceedings, when concluded, will have a material adverse effect on the Company’s consolidated results of operations or financial

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condition as the Company has established adequate accruals for known occurrences which represent management’s best estimate of the future liability related to these claims up to the associated deductible. See Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 6.

Item 4. REMOVED AND RESERVED

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Common stock of Continental Materials Corporation is traded on the NYSE Amex, formerly known as the American Stock Exchange (AMEX) under the symbol CUO. Market sales prices for the fiscal quarters of the past two years are:

		High		Low
2009	Fourth Quarter	$	13.25	$	9.71
	Third Quarter	11.07		7.72
	Second Quarter	14.59		11.07
	First Quarter	16.86		13.60

2008	Fourth Quarter	$	20.59	$	16.00
	Third Quarter	22.56		20.25
	Second Quarter	23.90		22.56
	First Quarter	26.62		23.38

At April 1, 2010, the Company had approximately 265 shareholders of record (including non-objecting beneficial owners).

The Company has never paid, nor does it currently intend to declare, any dividends. The Company’s policy of reinvesting earnings from operations is reviewed periodically by the Board of Directors.

The Company has not purchased any of its common stock to become treasury stock during the period October 3, 2009 through January 2, 2010.

The Company established an open-ended program to repurchase its common stock under which the Board authorized purchases up to a maximum amount of $2,750,000. Repurchases may be made on the open market or in block trades at the discretion of management. The Company has not repurchased any of its common stock during the period October 3, 2009 through January 2, 2010. As of January 2, 2010, $1,307,404 of the authorized amount remains available for stock repurchases.

On April 16, 2009, the Company entered into a credit agreement with a bank which contains certain restrictions on the Company’s ability to repurchase its stock. Amendments to the new credit agreement have retained these restrictions. See further discussion in the “Financial Condition, Liquidity and Capital Resources” section of Item 7 below.

Item 6. SELECTED FINANCIAL DATA

Per Item 301 of Regulation S-K, a Smaller Reporting Company is not required to provide this information.

Item 7. MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(References to a “Note” are to the Notes to Consolidated Financial Statements contained elsewhere in this report)

COMPANY OVERVIEW

As discussed in Item 1.- Business, the Company operates primarily in two industry groups, HVAC and Construction Products. Within each of these two industry groups, the Company has identified two reportable segments: the Heating and Cooling segment and the Evaporative Cooling segment in the HVAC industry group and the Concrete, Aggregates and Construction Supplies segment and the Door segment in the Construction Products industry group.

The Heating and Cooling segment produces and sells gas-fired wall furnaces, console heaters and fan coils from the Company’s wholly-owned subsidiary, WFC of Colton, California. The Evaporative Cooling segment produces and sells evaporative coolers from the Company’s wholly-owned subsidiary, PMI of Phoenix, Arizona. Sales of these two segments are nationwide, but are concentrated in the southwestern United States. Concrete, Aggregates and Construction Supplies are

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offered from numerous locations along the Southern Front Range of Colorado operated by the Company’s wholly-owned subsidiaries collectively referred to as TMC. The Company sold its concrete operations in the Denver market, RMRM on July 17, 2009. The operations of RMRM are reported as discontinued operations for both of the reported years. Doors are fabricated and sold along with the related hardware from Colorado Springs and Pueblo through the Company’s wholly-owned subsidiary, MDHI of Pueblo, Colorado. Sales of these two segments are highly concentrated in the Front Range area in Colorado although door sales are also made throughout the United States.

Sales of all four segments are affected by the level of construction activity in the areas served and general economic conditions; however sales of furnaces and evaporative coolers are less affected by the level of construction activity as a large portion of their sales are for replacements. Weather conditions in the areas served also affect sales. Although sales in all four segments were affected by these factors in 2008, the effect was much more pronounced in 2009.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash provided from operations in 2009 was $7,219,000 even though the Company recorded a net loss of $1,442,000. The principal source of cash flow from operations was a reduction in net working capital. Inventories were reduced by $6,878,000 in total as all of the Company’s business segments reduced inventories in response to a weak economy and more specifically lower sales in all but the Evaporative Cooling segment. The most significant inventory reduction was in the Heating and Cooling segment in response to a significant reduction in fan coil demand, a reduced production schedule for furnaces and stronger than expected furnace sales in the fourth quarter of 2009. Inventories were reduced here by $5,235,000. As a result of the lower sales, accounts receivable decreased by $4,107,000. The accounts receivable and inventory reduction were offset to some extent by a $4,404,000 reduction in accounts payable and accrued expenses. This change is also reflective of the lower level of sales. Investing activities in 2009 generated a net positive cash flow of $1,966,000. Cash proceeds from the sale of property and equipment were $2,250,000 including $2,026,000 received from the sale of a portion of the Company’s sand property in Colorado Springs (See discussion under Results of Operations).

The Company sold its Denver-based ready mix business, RMRM in July 2009 for total consideration of $2,385,000. Cash of $1,905,000 and a note receivable of $480,000 were received at the closing. After deducting $41,000 cash retained by RMRM at the time of the closing the net cash proceeds from the sale were $1,864,000. Capital expenditures in 2009 were $2,148,000. Most of the capital spending in 2009 was in the CACS segment. Net cash used in financing activities was $9,601,000. Funded debt, consisting of long-term debt and a revolving bank loan, was reduced by a total of $4,172,000. Long-term debt was reduced by $3,622,000 including scheduled principal repayments of $1,164,000. In addition $2,100,000 of the proceeds from the sale of RMRM and the Colorado Springs sand property were used to pay down the long-term debt. The remaining $358,000 reduction in long-term debt was paid at the time of the April 16, 2009 refinancing with proceeds from the revolving bank loan. The revolving bank loan was reduced by a net amount of $550,000 including the $358,000 borrowed to pay down the long-term debt. In 2009 the Company deposited cash of $4,840,000 with its casualty insurer to secure self-insured claims under its casualty insurance program. Previously, these claims were secured by a bank letter-of credit. The Company paid $589,000 in financing fees and other expenses associated with the refinancing. Cash balances declined from $1,097,000 at the end of 2008 to $681,000 at the end of 2009.

The sale of RMRM also affected working capital in that the sale of the stock of RMRM included the following balance sheet items: accounts receivable - $761,000; inventories - $254,000; prepaid expenses - $29,000; net book value of property, plant and equipment - $1,429,000; net book value of non-compete with previous owner - $168,000; allocated goodwill of $600,000 accounts payable and accruals - $597,000 and net deferred tax liabilities of $73,000.

Cash provided by operations in 2008 was $522,000. The net loss in 2008 was $40,000. Inventories increased by $4,199,000 in 2008. Most of the increase in inventories occurred at the Company’s two HVAC businesses. Inventories in the Evaporative Cooling segment increased in anticipation of increased sale volume as a principal competitor went out of business in the latter part of 2008. Inventories in the Heating and Cooling segment also were higher as furnace sales during the peak selling season (September through January) were less than expected. Investing activities in 2008 provided net cash of $797,000. Proceeds from the sale of property and equipment were $2,807,000 including $2,114,000 from the sale of a portion of the Company’s Colorado Springs sand property. (See discussion under Results of Operations) In addition the Company sold a small aggregate operation in the first quarter of 2008 for a total consideration of $720,000 including the assumption by the buyer of $85,000 in liabilities associated with the operation. This operation did not supply aggregates to the Company’s ready mix concrete business and management did not consider it to be a strategic part of its business. Net cash used in financing

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activities in 2008 was $3,548,000 including scheduled long-term debt payments of $2,029,000 and a reduction in revolving credit of $1,500,000. Cash balances decreased by $2,229,000 from $3,326,000 at the end of 2007 to $1,097,000 at the end of 2008.

Capital expenditures in 2009 and 2008 were $2,148,000 and $2,175,000 (including $165,000 that was included in accounts payable at January 3, 2009) respectively. In both years the capital spending was predominantly in the Concrete, Aggregates and Construction Supplies segment. In 2009 expenditures in this segment were $1,665,000 including $598,000 to purchase two aggregates plants that were previously leased, $541,000 to complete the slurry wall associated with the new mining phase at the Pueblo aggregates operation, $193,000 to purchase mixer trucks that were previously leased and $167,000 for the land movement monitoring system for the Pikeview Quarry. The Door segment spent $175,000 in 2009 for a new roof for its Colorado Springs fabrication and office facility. Capital expenditures in 2008 included approximately $1,500,000 for the slurry wall and other expenditures related to the new mining phase at the Pueblo aggregates operation.

Budgeted capital spending for 2010 is approximately $1,650,000. Projected depreciation, depletion and amortization are approximately $4,200,000. Planned capital expenditures for the CACS segment are approximately $700,000 including $300,000 for the purchase of three front-end loaders currently under lease. The Company is working on a new mining plan for the Pikeview Quarry. This effort will require some time and planning on the part of management in developing a mining and reclamation plan and obtaining the required permits from the State of Colorado. Some outside consulting fees will also likely be necessary. However, the Company does not expect that significant capital expenditures will be required at the Pikeview Quarry should the Company obtain the permits to resume mining operations. The two HVAC businesses are planning on spending approximately $900,000 for various production equipment, tooling and dies and facilities improvements. The Company intends to limit capital spending in 2010 to essential items. The Company expects to fund the planned capital expenditures from operating cash flow or funds available from the revolving credit facility.

Sales of the Company’s HVAC products are seasonal except for fan coils. Sales of furnaces, heaters and evaporative coolers are sensitive to weather conditions particularly during the peak selling season. Fan coil sales are, to a significant extent, dependent on commercial construction, particularly for hotels. Revenues in the CACS segment are primarily dependent on the level of construction activity along the Front Range in southern Colorado. The level of construction activity over the past two years has substantially subsided due to the economic downturn and turmoil in the financial markets that has prevailed throughout most of the United States. Price competition tends to intensify in this segment when demand is weak. Inclement weather during the winter months in southern Colorado can result in significantly reduced sales in those months even under robust economic conditions. Sales for the Door segment are not as seasonal nor are they much affected by weather conditions. Historically, the Company has experienced operating losses during the first quarter except when the weather is mild and demand strong along the Front Range. Operating results typically improve in the second and third quarters reflecting more favorable weather conditions in southern Colorado and the seasonal sales of the Evaporative Cooling segment. Fourth quarter results can vary based on weather conditions in Colorado as well as in the principal markets for the Company’s heating equipment. The Company typically experiences operating cash flow deficits during the first half of the year reflecting operating results, the use of sales dating programs (extended payment terms) related to the Evaporative Cooling segment and payments of the prior year’s accrued incentive bonuses and Company profit-sharing contributions, if any. As a result, the Company’s borrowings against its revolving credit facility tend to peak during the second quarter and then decline over the remainder of the year.

Revolving Credit and Term Loan Agreement

On April 16, 2009 the Company entered into a secured credit agreement (Credit Agreement) under which the bank lender initially provided a total credit facility of $30,000,000, consisting of a $20,000,000 revolving credit facility (reduced by letters of credit that may be issued by the lender on the Company’s behalf) and a $10,000,000 term loan facility. Borrowings under the Credit Agreement are secured by the Company’s accounts receivable, inventories, machinery, equipment, vehicles, certain real estate and the common stock of all of the Company’s subsidiaries. Borrowings under the revolving credit facility are limited to 80% of eligible accounts receivable and 50% of eligible inventories. Inventory borrowings are limited to a maximum of $7,500,000 ($6,750,000 after April 15, 2010). Borrowings under the Credit Agreement bear interest based on a performance based LIBOR or prime rate option. For purposes of computing the performance based rate, the base LIBOR rate will not be less than 2% and the base prime rate will not be less than 4%. At January 2, 2010 the Company’s effective interest rate under the LIBOR option was 5% and 4.75% under the prime rate option. The Company also paid certain underwriting and arrangement fees at the time of closing. The Credit Agreement requires the Company to maintain certain levels of tangible net worth, EBITDA (earnings before interest, income taxes, depreciation and amortization), debt service coverage and to maintain certain ratios of consolidated debt to cash flow (as defined). The Credit Agreement places a limit on the amount of annual capital expenditures. Additional borrowings, acquisition of stock of other companies, purchase of treasury shares and payment of cash dividends are either limited or require prior approval by the lender. Payment of accrued interest is due monthly or at the end of the applicable LIBOR period on both the revolving credit borrowings and the term debt

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borrowings. Principal payments under the term loan are due quarterly with a final payment of all remaining unpaid principal originally due April 16, 2012. On November 18, 2009 the Credit Agreement was amended reducing the revolving credit facility to $15,000,000. On April 15, 2010 a Second Amendment to the Credit Agreement accelerated the final payment of all remaining unpaid principal borrowings to August 1, 2011. The quarterly principal payment amounts were not changed from those set forth in the Credit Agreement. The Second Amendment also revised some of the financial covenants as discussed more fully in Note 5 to the financial statements.

Outstanding borrowings under the revolving credit facility as of January 2, 2010 were $5,850,000. The highest balance outstanding on the revolving credit facility during 2009 was $14,734,000. Average outstanding revolving credit during the year was $7,090,000. The weighted average interest rates on the outstanding revolving credit and term debt in 2009 and 2008 were 4.8% and 6.1%, respectively. The 4.8% rate for 2009 includes the effect of the interest rate swap discussed below. At all times since the inception of the Credit Agreement, the Company had sufficient qualifying assets such that the maximum revolving credit facility was immediately available and is expected to be available for the foreseeable future.

The lender required the Company to enter into an interest rate swap transaction to hedge the interest rate on $5,000,000 of term debt. On May 29, 2009 the Company entered into an interest rate swap transaction for a notional amount of $5,000,000 whereby the Company pays a fixed rate of 3.07% on $5,000,000 and receives a floating rate equivalent to the 30 day LIBOR rate but not less than 2.0%. Since the inception of this agreement the 30 day LIBOR rate has remained below 2.0%. Hence, the effect of the transaction has been, thus far, to increase the Company’s effective interest rate by 1.07%. The notional amount decreases as follows:

·	September 30, 2011	$	500,000
·	December 31, 2011	$	500,000
·	March 31, 2012	$	500,000

The interest rate swap transaction terminates on April 16, 2012.

In April 2009 the Company deposited cash of $4,840,000 with its casualty insurance carrier to serve as collateral for the self-insured obligations under the Company’s casualty insurance program. Previously these obligations were secured by a bank letter of credit. This deposit was funded with borrowings under the revolving credit line.

At the end of the period ended January 2, 2010 the Company was not in compliance with the minimum adjusted EBITDA and fixed charge coverage covenants of the Credit Agreement. As a result, effective January 1, 2010 the default rate provision of the Credit Agreement increases the interest rate on all outstanding revolving and long-term debt by 2%. Non-compliance with the financial covenants in the Credit Agreement constitutes an event of default under the agreement. Upon the occurrence of an event of default, the lenders may, among other things, terminate their lending commitments, in whole or in part, declare all or any part of the Company’s borrowings to be due and payable, and/or require the Company to collateralize with cash any or all letters of credit provided by the lender. A waiver of the event of default relating to compliance with the minimum adjusted EBITDA and fixed charge coverage covenants was granted and a second amendment to the Credit Agreement was entered into on April 15, 2010. The second amendment provides for the following:

· The covenants regarding the fixed charge coverage and the maximum leverage ratio have been eliminated for the duration of the amended Credit Agreement.

· The Company must maintain a minimum tangible net worth of $32,000,000 plus 50% of future net income. At January 2, 2010, the minimum tangible net worth, as defined, was $38,250,000.

· Annual capital expenditures may not exceed $3,500,000.

· The maximum revolving credit facility line will remain at $15,000,000 until October 1, 2010 when it will then be reduced to $13,500,000.

· The maturity date of the credit facility is August 1, 2011.

· The interest rate for the remaining term of the amended Credit Agreement will be 4.0% over LIBOR but with a LIBOR floor of 2.0% (the Company’s effective LIBOR borrowing rate will be 6.0%). The margin on the “base” or prime rate option will be the base plus 1.75% with a base rate floor of 4% (the Company’s effective borrowing rate will be 5.75%).

· The interest rate swap transaction will remain in effect.

The Credit Agreement as amended on April 15, 2010 requires the Company to maintain certain financial covenants as disclosed in the table below (amounts in thousands):

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Financial Covenant	Date Required	Required Amount or Ratio
Minimum tangible net worth	At all times	> $32,000
Minimum adjusted quarterly EBITDA	Quarter ended July 3, 2010	$2,100
	Quarter ended October 2, 2010	$2,000
	Quarter ended January 1, 2011	$500
	Quarter ended April 2, 2011	$(600	)
	Quarter ended July 2, 2011	$2,100
Maximum capital expenditures	Trailing 12 months	< $3,500

Definitions under the Credit Agreement as amended are as follows:

· Tangible net worth is defined as net worth plus subordinated debt minus intangible assets (goodwill, intellectual property, prepaid expenses and deferred charges) minus all obligations owed to the Company or any of its subsidiaries by any affiliate or any or its subsidiaries and minus all loans owed by its officers, stockholders, subsidiaries or employees (Note: there are no loans owed by any of the referenced parties at January 2, 2010 or as of the date of this filing ).

· The adjusted EBITDA is defined as net income plus interest, income taxes, depreciation, depletion and amortization plus other non-cash charges approved by the lender.

The Company has prepared a projection of cash sources and uses for the next 12 months. Under this projection, the Company believes that its existing cash balance, anticipated cash flow from operations and borrowings available under the Credit Agreement, will be sufficient to cover expected cash needs, including servicing debt and planned capital expenditures for the next twelve months. The Company also expects to be in compliance with all debt covenants, as amended, during this period.

Reconciliation of Fair Value of Reporting Units to Market Capitalization

The Company estimates that the aggregate fair value of its four reporting units as of January 2, 2010 is approximately $60,100,000. The fair value of the CACS reporting unit was determined as described in the Critical Accounting Policies discussion of Goodwill and Other Intangible Assets below. The fair value of all other reporting units was estimated by management based on a discounted cash flow valuation using a 16% discount rate in all cases. After deducting all outstanding funded debt, which totaled $13,000,000 as of January 2, 2010, the calculation yields a net fair value of the equity of the reporting units of $47,100,000. The Company’s market capitalization as of January 2, 2010 was approximately $17,818,000 based on a year-end 2009 share price of $11.15 and 1,598,000 common shares outstanding. It is the Company’s opinion that its share price reflects the negative impact of its corporate office expenses as many of these would not be required to run the individual companies. It is also the Company’s opinion that the value of it operating businesses is not diminished as a result of the corporate expenses. Therefore, in the Company’s opinion, in reconciling the fair value of the operating units to the market capitalization an adjustment to the market capitalization for the corporate expenses is appropriate. Using the five year average corporate office expenses after the related income tax benefit and applying a 16% capitalization rate results in an adjusted market capitalization of $29,130,000 as of January 2, 2010. In the Company’s opinion, the difference between the net fair value of the reporting units and the adjusted market capitalization represents the value of the control premium. As of January 2, 2010 the control premium is approximately 61.7% of the adjusted market capitalization. The Company believes this level of control premium is reasonable and falls within a range based upon actual control premiums involving merger transactions of companies in the SIC codes under which we operate. A reconciliation of the fair value of the reporting units to the adjusted market capitalization is shown in the table below. Amounts are in thousands except share data.

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	Market Capitalization			Market Capitalization
	Based on			Based on the highest
	December 31, 2009			2010 year-to-date
	Closing Price			Closing Price of
	$11.15 Per Share			$16.46 Per Share
Estimated Fair Value of Reporting Units	$	60,100		$	60,100
Less outstanding funded debt as of 1/2/2010 and 3/18/2010	13,000			12,900
Net Fair Value of Reporting Units	$	47,100		$	47,200

Market capitalization - 1,598,000 common shares outstanding	$	17,818		$	26,303
Adjustment for corporate expenses after income tax effect	11,312			11,312
Adjusted Market Capitalization	29,130			37,615
Control Premium	17,970			9,585
Fair Value of Reporting Units as determined above	$	47,100		$	47,200
Control Premium as a percentage of Adjusted Market Capitalization	61.7		%	25.5		%

A significant portion of the Company’s common stock is closely held. The three largest shareholders and other officers and directors together own approximately 76.5% of the outstanding shares. The remaining shares (“available float”) represent only 23.5% of the outstanding shares. Generally, there is limited trading activity in the Company’s shares. On some trading days there is no trading activity. The Company’s share price is subject to sharp volatility on trades of a few hundred shares or less. For these reasons, it is the opinion of the Company that its market capitalization at any given time is not indicative of the aggregate fair value of the reporting units.

Insurance Policies

The Company maintained insurance policies since March 31, 2009 with the following per incident deductibles and policy limits:

	Deductible		Policy Limits
Product liability	$	250,000	$	2,000,000
General liability	250,000		5,000,000
Workers’ compensation	350,000		Statutory
Auto and truck liability	100,000		2,000,000

Should the aggregate out-of-pocket payments related to the above policies exceed $4,126,000 during a policy year, deductibles on future claims are waived and the policies pay all amounts up to the policy limits. Should any, or all policy limits be exceeded, an umbrella policy is maintained which covers the next $25,000,000 of claims.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements that would be likely to have a material current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

RESULTS OF OPERATIONS

In the ensuing discussions of the results of operations we define the term gross profit as the amount determined by deducting cost of sales before depreciation, depletion and amortization from sales. The gross profit ratio is gross profit divided by sales.

DISCUSSION OF CONSOLIDATED RESULTS FROM CONTINUING OPERATIONS

2009 vs. 2008

Consolidated sales in 2009 were $113,461,000, a $32,253,000 (22%) decline compared to 2008. The lower sales were the result principally of a depressed level of construction along the Front Range in southern Colorado and a slowdown in hotel construction. The weak construction market in southern Colorado lead to a $24,408,000 (38%) decline in sales in the CACS segment. Also contributing to the lower sales in this segment was the shutdown of operations at the Pikeview Quarry in Colorado Springs. The operations at the Pikeview Quarry were shutdown after a landslide in December 2008 made for unsafe conditions. A substantial reduction in hotel construction, a primary market for fan coils, lead to a $9,382,000 (22%) decrease in sales in the Heating and Cooling segment. Door sales are also influenced by the level of construction both within the State of Colorado and to a lesser extent on a nation-wide basis. Sales in the Door segment in 2009 were down $757,000 (5%) compared to the prior year. In spite of the weak economy, sales in the Evaporative Cooling segment increased by $2,296,000 (10%) as the result of a primary competitor exiting the domestic market in late 2008.

The consolidated gross profit ratio in 2009 was 17.4%, an increase of 0.7% compared to 2008. Normally the gross profit ratio would have decreased with such a significant decline in sales. However, the net increase in the gross profit ratio was the result of varying experiences for each of the Company’s reporting segments. The gross profit percentage in the CACS segment decreased by 3.1% from 14.7% to 11.6%. This was the result of the diminished sales volume and the shutdown of the Pikeview Quarry. The Door segment’s gross profit ratio decreased from 27.0% to 24.6% due to more competitive pricing

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and lower sales volume. The gross profit rate in the Heating and Cooling segment was 0.5% higher in 2009. The Evaporative Cooling segment achieved a significant improvement in its gross profit ratio from 15.4% to 22.9%. This improvement was the result of reduced steel costs, higher production volume and modest selling price increases.

Depreciation, depletion and amortization in 2009 totaled $4,472,000 compared to $4,368,000 in 2008. The increase is primarily due to amortization of the deferred development costs at one of our aggregates operations.

Selling and administrative expenses were $587,000 less in 2009 compared to 2008. This decrease reflects cost reduction actions taken throughout the year in response to the lower sales volume in all but the Evaporative Cooling segment. Some sales related expenses such as commissions in the Heating and Cooling segment and sales managers incentive compensation in the Door segment were less in 2009 as a result of diminished revenues. As a percentage of consolidated sales, selling and administrative expenses were 15.9% in 2009 compared to 12.8% in the prior year. The higher percentage reflects the fixed nature of many of these expenses. The administrative expenses of the corporate office increased by $532,000. Charges related to unfunded supplemental profit-sharing obligations to certain officers accounted for approximately $420,000 of this increase. These obligations are increased or decreased, with a corresponding charge or credit to earnings, for deemed earnings or losses on the unfunded supplemental profit-sharing balances. In 2009 the Company recorded a charge of $175,000 for deemed earnings. In 2008 the Company recorded a credit of $245,000 for the deemed loss on the supplemental profit-sharing account balances.

The gain on disposition of property and equipment in 2009 and 2008 includes gains on the sale of a portion of the Company’s sand property in Colorado Springs in the amounts of $2,026,000 and $1,947,000, respectively. In December 2008 the Company entered into a Possession and Use Agreement with the City of Colorado Springs Pikes Peak Regional Transportation Authority. Under the Agreement the City received an irrevocable right to possess and use the property in exchange for a cash payment of $2,110,000 in December 2008. The payment was based upon the City’s initial appraised value of the property. The Company did not agree with the City’s initial appraised value. The City and the Company agreed to continue negotiations to determine the final fair market value. The City acknowledged that the final fair market value would not be less than the $2,110,000 paid in December 2008 thus the Company recorded a gain of $1,947,000 in 2008 after deducting the $163,000 cost basis of the property. The Company and City concluded their negotiations regarding the fair market value during June 2009 and agreed upon a total final price of $4,140,000, or $2,026,000 in excess of the amount previously paid. The Real Estate Purchase Agreement was signed on July 2, 2009 and the Company appropriately recorded the additional proceeds of $2,026,000 as a gain in the second quarter of 2009. As consideration for the Possession and Use Agreement had already been exchanged as of the 2008 year-end, the profit on the transaction was determinable and collectability was not a factor. Furthermore, as of December 17, 2008, the City received the full risks and rewards of the land through the irrevocable possession and use agreement. After December 17, 2008, the Company had no further obligation or continuing involvement with the property such as preparing the land for sale; therefore, the earnings process was complete with regards to the original transaction. While there was a potential for additional consideration from the sale of the land in the future, such additional amounts were not determinable as of the 2008 year-end. As a result, the additional proceeds were recorded when the final amount was determined. Prior to July 2, 2009, any anticipated additional proceeds would have been considered a gain contingency. Gain on sale of property and equipment in 2008 also included a gain of $344,000 from the sale of a small aggregate operation that the Company determined was not a strategic part of its business.

Net interest expense related to continuing operations in 2009 was $956,000 compared to $1,161,000 in 2008. Average outstanding funded debt was $4,951,000 less in 2009 and the weighted average interest rate in 2009 was approximately 4.8% compared to 6.1% in 2008. However, at year end 2009, the average interest rate on outstanding funded debt was approximately 6.1%. The results from discontinued operations include approximately $71,000 and $133,000 of interest expense for 2009 and 2008, respectively.

The Company’s effective income tax rate reflects federal and state statutory income tax rates adjusted for non-deductible expenses, tax credits and other tax items. The effective income tax rate related to the loss from continuing operations in 2009 was a benefit of 48.7%. The principal difference between the effective income tax rate for 2009 and the federal statutory rate of 34% is due to the reversal of previously recorded tax contingencies related to tax returns that have been audited by the IRS and closed.

The Company has filed a business interruption claim with regard to the incident that lead to the cessation of operations at the Pikeview Quarry. The claim is currently being reviewed by the insurance company. No recovery has been anticipated or recorded in the 2009 results of operations.

DISCONTINUED OPERATION

The results of discontinued operations reflect the operations of RMRM, a former subsidiary that was sold on July 17, 2009. The 2009 loss includes a loss from operations before income tax benefits of $1,778,000 and a loss before income tax benefit

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on the sale of the stock of the subsidiary of approximately $221,000. The income tax benefits associated with the discontinued operation in 2009 were approximately $1,138,000. In 2008 the net loss from the operations of RMRM was $1,797,000 net of the income tax benefit of $989,000.

The Company operates four businesses in two industry groups. The businesses are seasonal, weather sensitive and subject to cyclical factors. The following addresses various aspects of operating performance focusing on the reportable segments within each of the two industry groups.

Construction Products Industry Group

The table below presents a summary of operating information for the two reportable segments within the Construction Products industry group for the fiscal years 2009 and 2008 (amounts in thousands).

	Concrete, Aggregates and Construction Supplies			Door
2009
Revenues from external customers	$	40,421		$	14,616
Segment gross profit	4,693			3,591
Gross profit as percent of sales	11.6		%	24.6		%
Segment operating (loss) income	(2,759		)	1,090
Operating (loss) income as a percent of sales	(6.8		)%	7.5		%
Segment assets	$	35,791		$	6,374
Return on assets	(7.7		)%	17.1		%

2008
Revenues from external customers	$	64,829		$	15,373
Segment gross profit	9,529			4,150
Gross profit as percent of sales	14.7		%	27.0		%
Segment operating income	2,142			1,455
Operating income as a percent of sales	3.3		%	9.5		%
Segment assets	$	34,699		$	6,276
Return on assets	6.2		%	23.2		%

Concrete, Aggregates and Construction Supplies Segment

2009 vs. 2008

Sales in the Concrete, Aggregates and Construction Supplies segment fell by $24,409,000 (38%) due to the weak construction market. Housing starts in the served market area were at or near record lows. The preponderance of the sales in 2009 was from commercial, military or public construction projects. Ready mix concrete volume was 36% lower in 2009 compared to 2008. In the concrete business, gross profit on a per unit (cubic yard) basis improved in 2009 due to lower fuel and cement costs and some higher concrete prices on certain high specification jobs that were completed in the first half of 2009. However, the gross profit of the concrete business fell by nearly $1,000,000 due to the lower sales volume. Sales of aggregates (sand, crushed limestone and gravel), including aggregates consumed in the segment’s concrete business were 45% less in 2009 compared to the prior year. The lower level of construction activity and the cessation of operations at the Pikeview Quarry accounted for the lower volume. In recent years the Pikeview Quarry has been the principal source of rock for this segment’s concrete business. A nominal amount of sales from existing inventory were made from the Pikeview Quarry in 2009. Sales from the Pikeview Quarry, including internal consumption, were approximately $4,700,000 less in 2009 compared to 2008. The gross loss from the Pikeview Quarry in 2009 was $727,000 compared to a gross profit of $972,000 in 2008. As previously mentioned, the Company has filed a business interruption claim with its insurance carrier with regard to the incident that lead to the cessation of operations at the Pikeview Quarry. No recovery has been anticipated or recorded in the 2009 results of operations. Net sales, including internal consumption, from all of the other aggregate locations decreased by 18%. The gross profit from all other aggregate operations combined was approximately $1,100,000 less in 2009 compared to 2008 due principally to the lower sale volume. The gross profit of the Pueblo aggregate operation improved in 2009 as the result of lower cash operating costs due to the opening of a new gravel deposit site with a more beneficial blend of rock and sand. The Company reopened its Black Canyon limestone quarry near Colorado Springs to offset some of the lost production of the Pikeview Quarry. However, operations at the Black Canyon quarry did not begin until mid-year and due to start up costs the Black Canyon operation generated a loss in 2009. Sales of construction supplies in 2009 dropped by $3,709,000 (51%) compared to 2008. The gross profit from construction supplies declined by approximately $1,000,000 from the prior year due to the lower sales volume. Depreciation, depletion and amortization for this segment

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increased by $175,000 in 2009. The increase was due to the depreciation of deferred development costs at the segment’s Pueblo aggregate operation.

The prices of two commodities, cement and diesel fuel, can have a significant effect on the results of operations of this segment. The Company negotiates cement prices with producers who have production facilities in or near the concrete markets that we serve. The Company may negotiate separate cement prices for large construction projects depending on the demand for and availability of cement from the local producers. The Company buys diesel fuel from local distributors. It may from time to time enter into a short term arrangement with a distributor whereby the price of diesel fuel is fixed for a period of up to six months. The Company does not otherwise hedge diesel fuel prices. Changes in the cost of these two commodities has a direct dollar for dollar effect on the results of operations depending upon whether competitive conditions prevailing in the marketplace enables the Company to adjust its selling prices to recover the increased costs.

Door Segment

2009 vs. 2008

Door sales in 2009 were $757,000 (5%) less than the previous year. The decline in sales is related to the general economic recession and the lower level of new construction particularly within Colorado. The slower sales pace resulted in sharper bidding on those job opportunities that were available. The lower sales volume and more competitive bidding environment lead to a decrease in gross profits for this segment of approximately $560,000. Selling and administrative expenses, particularly sales managers’ compensation and profit-sharing and incentive compensation for all of this segment’s employees were reduced in 2009 compared to 2008. In total, selling and administrative expenses were approximately $230,000 lower in 2009 compared to 2008.

The Door segment sales backlog at the end of 2009 was approximately $2,767,000 compared to approximately $5,048,000 at the end of 2009.

HVAC Industry Group

The table below presents a summary of operating information for the two reportable segments within the HVAC industry group for the fiscal years 2009 and 2008 (amounts in thousands).

	Heating and Cooling			Evaporative Cooling
2009
Revenues from external customers	$	32,784		$	25,281
Segment gross profit	5,507			5,794
Gross profit as percent of sales	16.8		%	22.9		%
Segment operating (loss) income	(503		)	2,397
Operating (loss) income as a percent of sales	(1.5		)%	9.5		%
Segment assets	$	17,208		$	13,165
Return on assets	(2.9		)%	18.2		%

2008
Revenues from external customers	$	42,166		$	22,985
Segment gross profit	6,890			3,577
Gross profit as percent of sales	16.3		%	15.6		%
Segment operating income	85			458
Operating income as a percent of sales	.2		%	2.0		%
Segment assets	$	23,521		$	14,241
Return on assets	.4		%	3.2		%

Heating and Cooling Segment

2009 vs. 2008

Sales in the Heating and Cooling segment fell by $9,382,000 (22%) compared to 2008. Virtually all of the decrease was the result of a 48% decline in fan coils sales. The lower fan coil sales reflect the slowdown in hotel construction in particular and commercial construction in general. Sales of furnaces and heaters in 2009 were about the same as in 2008. The segment’s gross profit was $1,383,000 lower due to the lower sales. The gross profit ratio increased by .5% in spite of lower production volume. Reduced steel and other commodity costs offset the effect of the volume reduction and its impact on factory overhead absorption. In response to the business slowdown, selling and administrative expenses were reduced by approximately $782,000 in 2009 compared to 2008. The prices of two commodities, steel and copper fuel, can have a significant effect on the results of operations of this segment. We have not entered into any formal hedging arrangements

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with regard to steel. On one occasion in 2008 we entered into a hedging contract (fixed price swap) where we fixed the price of copper for a period of approximately 10 months for a stated amount of copper. We did not elect hedge accounting for this transaction. The overall effect of the fixed price swap transaction was insignificant. We are not currently a party to any hedging arrangements with regard to copper, steel or any other commodity.

Evaporative Cooling Segment

2009 vs. 2008

Sales of evaporative coolers increased approximately 10% in 2009 consisting of a 7% increase in unit volume and selling price increases of approximately 3%. The increased unit volume was primarily due to Adobe Air, formerly the largest producer serving the U. S. market, exiting the business in late 2008. The higher sales and production volume coupled with lower steel prices (see comment regarding steel in the Heating and Cooling Segment discussion above) resulted in substantially improved gross profits. Gross profit for this segment increased by approximately $2,200,000 compared to 2008. Due to sales related expenses that typically vary with sales volume and increased bonus and profit-sharing provisions selling and administrative expenses increased by approximately $340,000.

OUTLOOK

Overall the Company expects sales in 2010 to be at nearly the same level experienced in 2009. The construction market along the Front Range in southern Colorado is not expected to substantially improve in 2010. While there has recently been an increase in the number of housing starts in the southern Colorado area, the current level of housing construction is still at a very low level. The Company believes that price competition will remain sharp in the Construction Products Industry Group as it typically does when the construction market is slow. The Company is working on a mining and reclamation plan to reopen the Pikeview Quarry. The plan requires the approval of the Department of Natural Resources of the State of Colorado. If such approval is obtained, and there is no assurance that it will be obtained, the Company anticipates resuming operations at the Pikeview Quarry in 2011.

Sales in the HVAC Industry Group are also expected to be essentially unchanged from 2009. Hotel construction is expected to remain at a low level. This will be a negative influence on fan coil sales. Sales of furnaces, heaters and evaporative coolers are primarily for replacement purposes and therefore are not reliant on new construction. However, a continuing high level of unemployment could reduce demand for these products.

The Company has taken a number of cost reduction actions in 2009 and will continue to endeavor to reduce expenses especially if sales do not improve. Capital spending in 2010 will be limited to essential items and is expected to be well below the $3,500,000 limit imposed by the covenant in our Credit Agreement.

CRITICAL ACCOUNTING POLICIES

The Securities and Exchange Commission requires all registrants, including the Company, to include a discussion of “critical” accounting policies or methods used in the preparation of financial statements. We believe the following are our critical accounting policies and methods.

Goodwill and Other Intangible Assets

The Company annually assesses goodwill for potential impairment as of the last day of its fiscal year. In addition, to the extent that events occur, either involving the relevant reporting unit or in their industries, the Company revisits its assessment of the recorded goodwill to determine if impairment has occurred and should be recognized. As of January 2, 2010 the Company has recorded $7,229,000 of goodwill consisting of $6,229,000 related to the CACS reporting unit and $1,000,000 related to the Door reporting unit. In 2009 the Company charged $600,000 against earnings from discontinued operations representing the allocable portion of goodwill related to RMRM which was sold in July 2009.

For purposes of measuring the fair value of the CACS reporting unit the Company engages the services of an independent investment banking firm. The fair value of this reporting unit is determined by applying three valuation methods. These are 1) discounted cash flow (“DCF”) valuation, 2) an analysis of comparable transactions within the industry and 3) comparable enterprise valuations of other public companies in the industry. The DCF valuation involves projecting future cash flows. The cash flow projection entails key assumptions with regard to unit sales volumes, gross profit rate per unit or per sales dollar, capital expenditures and the discount rate. The cash flow projection assumes a gradual recovery in construction activity along the Front Range in southern Colorado, the reporting unit’s principal market area. However, projected unit volumes do not reach levels achieved in this reporting unit during the peak of the previous business cycle. The projections assume that the Company will resume operations at the Pikeview Quarry in 2011 or will be able to increase production at its other aggregate operations. The cash flow projections assume some increase in gross profit rates compared to current levels due to an increase in volume, an improvement in the relationship of selling prices for concrete relative to cement unit costs and some

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cost reductions. The projected gross profit rates do not exceed levels previously attained. Projected capital expenditures are compatible with the projected unit sales volume. The cash flow forecasts are adjusted by a discount rate that takes into consideration both the time value of money and the investment risk. The discount rate used to determine the DCF valuation as of January 2, 2010 was 16%. The comparable transactions method estimates value based on select transactions in the construction materials industry. Transactions occurring in the years 2003 to 2009 were considered in this analysis. Transactions involving companies significantly larger than this reporting unit were excluded. The comparable transaction value range was determined by applying a multiple indicated in the transaction market to the reporting unit’s 10 year average EBITDA. The comparison to other public companies is based on their enterprise values (equity value plus funded debt) in relation to their last twelve months EBITDA. This value range was determined by applying an EBITDA multiple indicated by the enterprise values of the publicly held companies in the industry to the adjusted EBITDA for this reporting unit in 2009. EBITDA for this reporting unit in 2009 was adjusted for the expenses associated with the Pikeview Quarry which was not in operation in 2009 due to a landslide in a portion of the quarry. This assessment indicates a fair value for the reporting unit that exceeds the carrying value of the net assets by 8%.

The fair value of the Door reporting unit is estimated by the Company based on its own discounted cash flow (“DCF”) projection. The cash flow projection involves key assumptions regarding sales, costs, expenses and capital expenditures. Management believes that the projections are reasonable and the projected cash flows approximate prior experience. The discount rate used to determine the DCF valuation as of January 2, 2010 was 16%. The estimated fair value based on the discounted cash flow projection indicates a fair value for the reporting unit that exceeds the carrying value of the net assets in the reporting unit by 17%.

Management believes that the assumptions and estimates used to determine the estimated fair values are reasonable; however, a prolonged period of depressed construction activity along the Front Range in southern Colorado, inability to resume production at the Pikeview Quarry or alternatively if the Company is unable to increase production at its other aggregate operations or changes in the aforementioned assumptions and estimates, as well as the effects of unpredictable future events or circumstances could materially affect the estimated fair value.

Long-lived Assets (other than Goodwill and Intangible Assets)

The Company reviews long-lived assets by asset group for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the amount and useful life over which cash flows will occur and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available given the Company’s historical experience and internal business plans. The Company has determined that there was no impairment of such long-lived assets in 2009.

Liabilities

The Company purchases insurance coverage for workers’ compensation, general product and automobile liability, retaining certain levels of risk (self-insured portion). See the above section titled “Insurance Policies” for information related to per incident deductibles and policy limits. Provision for workers’ compensation claims is estimated by Management based on information provided by the independent third party administrator and periodic review of all outstanding claims. The Company’s independent claims administrator tracks all claims and assigns a liability to each individual claim based upon facts known at the time of estimation. In addition, Management periodically reviews each individual claim with both the third party claims administrator and legal counsel and the third party administrator revises the estimated liability accordingly. The Company also retains an independent expert who applies actuarial methodology to the claims data provided by the Company’s independent claims administrator to estimate the ultimate aggregate settlement amount of the claims using specific loss development factors based on the Company’s prior experience. The Company then establishes its reserve for workers’ compensation claims based upon the actuarial evaluation and Management’s knowledge of the outstanding claims. Management tracks changes to the incurred and paid amounts of individual workers compensation claims up to the date of final closure. In recent years, the net amounts that the claims have ultimately settled for have indicated that the reserve recorded by the Company has been sufficient.

With regard to product liability, provisions for both claims and unasserted claims that would be covered under the self-insured portion of the policies are reviewed at least annually and are recorded in accordance with accounting guidance on contingent liabilities provided in the FASB Accounting Standards Codification (Codification). Management also incorporates information from discussions with legal counsel handling the individual claims when revising its estimates. Provision for automobile claims is estimated based upon information provided by the Company’s independent claims administrator and the Company’s own experience. The number of automobile claims and the amounts involved are not material. Historically, there

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have not been many instances of significant variances between actual final settlements and our estimates regarding automobile and product liability claims.

The Company maintains a reserve for future reclamation work to be performed at its various aggregate operations based upon an estimate of the total expense that will be incurred to reclaim the disturbed areas. Actual reclamation costs are charged to expense. The adequacy of the recorded reserve is assessed annually. The assessment may be done more frequently if events or circumstances arise that may indicate a change in estimated costs, recoverable material or the period of mining activity. For the annual assessment of the reserve, Company engages an independent professional to assist in reevaluating the estimates of both the quantities of recoverable material and the cost of reclamation. Our assessment of the adequacy of the reclamation reserves is based on management’s assumptions with the assistance of the independent professional. The analysis requires the use of significant assumptions and estimates about the mining plans, homogeneity of the deposits, third party costs to perform work, method of reclamation to be used, etc. Management believes that the assumptions and estimates used to determine the reserve are reasonable; however, changes in the aforementioned assumptions and estimates, as well as the effects of unknown future events or circumstances, including legislative requirements, could materially affect estimated costs, the quantities of recoverable material or the period of mining. Depletion of rock and sand deposits and amortization of deferred development costs are computed by the units-of-production method based upon estimated recoverable quantities of rock and sand.

Sales

The Company recognizes revenue as products are shipped to customers. Sales are recorded net of estimates of applicable provisions for discounts, volume incentives, returns and allowances based upon current program terms and historical experience. At the time of revenue recognition, the Company also provides an estimate of potential bad debt and warranty expense as well as an amount anticipated to be granted to customers under cooperative advertising programs based upon current program terms and historical experience. Additionally, the HVAC companies offer discounts for early payment of amounts due under dating and other extended payment programs. The companies record a reserve for this discount based upon historical experience.

Guidance provided by the Codification that cash consideration (including sales incentives) given by a vendor to a customer is presumed to be a reduction of the selling prices of the vendor’s products or services unless both of the following conditions are met: a) the vendor receives an identifiable benefit in exchange for the consideration and the vendor can reasonably estimate the fair value of the benefit. Under this guidance, volume incentives and customer discounts provided to our customers are presumed to be a reduction in the selling price of our products and accordingly we record these as a reduction of gross sales. We require that our customers submit proof of both the advertisement and the cost of the advertising expenditure before we allow a deduction for cooperative advertising. Since the Company receives an identifiable and quantifiable benefit, these costs are recorded as selling and administrative expenses. These programs did not have a material effect of the operations of 2009 compared to 2008.

Recently Issued Accounting Standards

The “Recently Issued Accounting Pronouncements” section of Note 1 to the Consolidated Financial Statements discusses new accounting policies adopted by the Company since 2008 and the expected impact of accounting pronouncements recently issued but not yet required to be adopted. To the extent the adoption of new accounting standards has an affect on financial condition, results of operations or liquidity, the impacts are discussed in the applicable notes to the consolidated financial statements.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Per Item 301 of Regulation S-K, a Smaller Reporting Company is not required to provide this information.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

		PAGE
Financial Statements and Financial Statement Schedule of Continental Materials Corporation and Reports of Independent Registered Public Accounting Firms thereon:

Consolidated statements of operations for fiscal years 2009 and 2008		21

Consolidated statements of cash flows for fiscal years 2009 and 2008		22

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Consolidated balance sheets as of January 2, 2010 and January 3, 2009		23

Consolidated statements of shareholders’ equity for fiscal years 2009 and 2008		24

Notes to consolidated financial statements		25-36

Reports of Independent Registered Public Accounting Firms		37

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Continental Materials Corporation

Consolidated Statements of Operations

For Fiscal Years 2009 and 2008

(Amounts in thousands, except per share data)

	2009			2008

Sales	$	113,461		$	145,714
Costs and expenses
Cost of sales (exclusive of depreciation, depletion and amortization)	93,753			121,442
Depreciation, depletion and amortization	4,472			4,368
Selling and administrative	18,060			18,647
Gain on disposition of property and equipment	(2,212		)	(2,349		)
Operating (loss) income	(612		)	3,606
Interest expense	(956		)	(1,161		)
Other income, net	4			50
(Loss) income from continuing operations before income taxes	(1,564		)	2,495
Benefit (provision) for income taxes	762			(738		)
Net (loss) income from continuing operations	(802		)	1,757
Loss from discontinued operation net of income tax benefit of $1,138 and $989	(640		)	(1,797		)
Net loss	$	(1,442	)	$	(40	)

Net (loss) income per basic and diluted share:
Continuing operations	$	(.50	)	$	1.09
Discontinued operation	(.40		)	(1.12		)
Net loss per basic and diluted share	$	(.90	)	$	(.03	)

Average shares outstanding	1,598			1,599

The accompanying notes are an integral part of the consolidated financial statements.

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Continental Materials Corporation

Consolidated Statements of Cash Flows For Fiscal Years 2009 and 2008

(Amounts in thousands)

	2009			2008
Operating activities
Net loss	$	(1,442	)	$	(40	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, depletion and amortization	4,958			5,135
Long-lived asset impairment charge	—			784
Deferred income tax provision	(770		)	(205		)
Provision for doubtful accounts	288			142
Gain on disposition of property and equipment	(2,212		)	(2,349		)
Loss on sale of discontinued operation	221			—
Changes in working capital items:
Receivables	4,107			448
Inventories	6,878			(4,199		)
Prepaid expenses	56			1,050
Prepaid royalties	(154		)	(15		)
Accounts payable and accrued expenses	(4,404		)	(860		)
Income taxes	(609		)	104
Other	302			527
Net cash provided by operating activities	7,219			522

Investing activities
Capital expenditures	(2,148		)	(2,010		)
Cash proceeds from sale of discontinued operation	1,864			—
Cash proceeds from sale of property and equipment	2,250			2,807
Net cash provided by investing activities	1,966			797

Financing activities
Repayments on refinanced revolving credit line, net	(6,400		)	(1,500		)
Payment of deferred financing fees related to new credit facility	(589		)	—
Net borrowings under new revolving credit facility	5,850			—
Repayment of refinanced long-term debt	(10,772		)	(2,029		)
Borrowings under new long-term debt	10,000			—
Repayments of new long-term debt	(2,850		)	—
Cash deposit for self-insured claims	(4,840		)	—
Payments to acquire treasury stock	—			(19		)
Net cash (used in) financing activities	(9,601		)	(3,548		)

Net (decrease) in cash and cash equivalents	(416		)	(2,229		)

Cash and cash equivalents
Beginning of year	1,097			3,326
End of year	$	681		$	1,097

Supplemental disclosures of cash flow items
Cash paid (received) during the year
Interest	$	770		$	1,409
Income taxes, net	(520		)	(151		)
Supplemental disclosures of noncash investing and financing activities
Note received as partial consideration on sale of discontinued operation	$	480		$	—
Capital expenditures purchased on account	—			165
Buyer’s assumption of liabilities	74			85

The accompanying notes are an integral part of the consolidated financial statements.

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Continental Materials Corporation

Consolidated Balance Sheets As of January 2, 2010 and January 3, 2009

(Amounts in thousands except share data)

	January 2, 2010			January 3, 2009
ASSETS
Current assets
Cash and cash equivalents	$	681		$	1,097
Receivables less allowance of $576 and $445	16,905			22,062
Current portion of long-term note receivable	96			—
Receivable for insured losses	684			1,604
Inventories	16,295			23,426
Prepaid expenses	1,582			1,259
Refundable income taxes	1,012			654
Deferred income taxes	3,116			2,341
Total current assets	40,371			52,443

Property, plant and equipment
Land and improvements	1,984			2,311
Buildings and improvements	18,551			20,190
Machinery and equipment	79,040			81,539
Mining properties	6,385			6,622
Less accumulated depreciation and depletion	(78,868		)	(79,706		)
	27,092			30,956

Other assets
Goodwill	7,229			7,829
Amortizable intangible assets, net	479			872
Prepaid royalties	1,223			1,069
Cash deposit for self-insured claims	4,840			—
Long-term note receivable	384			—
Other	494			497
	$	82,112		$	93,666

LIABILITIES
Current liabilities
Current portion of long-term debt	$	1,375		$	1,164
Accounts payable	4,618			9,542
Income taxes	—			148
Accrued expenses
Compensation	1,642			1,641
Reserve for self-insured losses	2,973			3,095
Liability for unpaid claims covered by insurance	684			1,604
Profit sharing	346			268
Reclamation	115			260
Other	2,437			2,326
Total current liabilities	14,190			20,048

Revolving bank loan payable	5,850			6,400
Long-term debt	5,775			9,607
Deferred income taxes	3,243			3,414
Accrued reclamation	1,020			845
Other long-term liabilities	848			724
Commitments and contingencies (Note 6)

SHAREHOLDERS’ EQUITY
Common shares, $.25 par value; authorized 3,000,000 shares; issued 2,574,264 shares	643			643
Capital in excess of par value	1,830			1,830
Retained earnings	65,328			66,770
Treasury shares, at cost	(16,615		)	(16,615		)
	51,186			52,628
	$	82,112		$	93,666

The accompanying notes are an integral part of the consolidated financial statements.

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Continental Materials Corporation

Consolidated Statements of Shareholders’ Equity

For Fiscal Years 2009 and 2008

(Amounts in thousands except share data)

	Common shares	Common shares amount		Capital in excess of par		Retained earnings			Treasury shares	Treasury shares cost
Balance at December 29, 2007	2,574,264	$	643	$	1,830	$	66,810		972,170	$	16,596
Net (loss)	—	—		—		(40		)	—	—
Purchase of treasury shares	—	—		—		—			3,816	19
Balance at January 3, 2009	2,574,264	643		1,830		66,770			975,986	16,615
Net (loss)	—	—		—		(1,442		)	—	—
Balance at January 2, 2010	2,574,264	$	643	$	1,830	$	65,328		975,986	$	16,615

The accompanying notes are an integral part of the consolidated financial statements.

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Notes to Consolidated Financial Statements

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include Continental Materials Corporation and all of its subsidiaries (the Company). Intercompany transactions and balances have been eliminated. All subsidiaries of the Company are wholly owned.

RECLASSIFICATIONS

Certain reclassifications have been made to the fiscal 2008 Consolidated Statement of Operations to conform to the 2009 financial statement presentation of discontinued operations. These reclassifications had no effect on net earnings.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

On July 1, 2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting Standards Codification (Codification) which became effective for interim and annual reporting periods ending after September 15, 2009. On that date, the Codification officially became the single source of authoritative nongovernmental accounting principles generally accepted in the United States of America (GAAP); however, Securities and Exchange Commission (SEC) registrants must also consider rules, regulations and interpretive guidance issued by the SEC or its staff. Previous authoritative GAAP was a proliferation of thousands of standards established by a variety of standard setters over the past 50-plus years. All existing standards that were used to create the Codification became superseded. The Codification does not change GAAP and therefore had no impact on the Company’s consolidated financial position, results of operations or cash flows; however, references to authoritative accounting literature will henceforth refer to the topics and guidance in the Codification.

In September 2006, the FASB issued new accounting guidance on fair value measurements and disclosures. The new guidance defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. In February 2008, the FASB issued further guidance, which provided a one-year deferral of the effective date for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. This guidance applies under other accounting pronouncements that require or permit fair value measurements, as the FASB previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this guidance does not require any new fair value measurements. The new guidance is effective for financial statement issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The adoption of the new guidance in 2008 and the further guidance in 2009 did not have a material effect on the Company’s consolidated financial statements. See further discussion of Fair Value of Financial Instruments below.

In December 2007, the FASB issued new guidance on business combinations and consolidation, which significantly changed the financial accounting and reporting of business combination transactions and noncontrolling (or what were previously described as minority) interests in consolidated financial statements. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company did not participate in any transactions or noncontrolling interests covered by this new guidance during either fiscal 2009 or 2008; therefore the new guidance did not have a material effect on the Company’s consolidated financial statements.

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In March 2008, the FASB issued new accounting guidance that expanded disclosure about an entity’s derivative instruments and hedging activities. The new disclosure requirements became effective for the Company on January 4, 2009. At January 2, 2010, the Company did not have any material derivative or hedging activities that required disclosure under these new accounting standards.

In April 2008, the FASB amended the list of factors an entity should consider in developing renewal of extension assumptions used to determine the useful life of a recognized intangible asset. The new guidance applies to intangible assets that are acquired individually or with a group of assets and intangible assets acquired in both business combinations and asset acquisitions. The requirement that an entity consider whether the renewal or extension can be accomplished without substantial cost or material modification of the existing terms and conditions associated with the asset was removed. Instead, an entity should now consider its own experience in renewing similar arrangements. The entity should consider market participant assumptions regarding renewal if no such relevant experience exits. The new guidance became effective for the Company beginning January 4, 2009, the first day of fiscal 2009, and did not have a material impact on its consolidated financial statements.

In September 2009, the FASB issued new accounting guidance on revenue recognition. Under the new guidance, arrangement consideration in a multiple element arrangement may now be allocated in a manner that more closely reflects the structure of the transaction. Also under the new guidance, tangible products that contain software components that are essential to the functionality of the tangible product will no longer be subject to software revenue recognition guidance and will now be subject to other revenue guidance. The Company does not have any sales or transactions covered by this new guidance during either fiscal 2009 or 2008; therefore the new guidance did not have a material effect on the Company’s consolidated financial statements.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of January 2, 2010 and January 3, 2009 and the reported amounts of revenues and expenses during both of the two years in the period ended January 2, 2010. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly-liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value of the Company’s long-term debt is estimated based on the borrowing rates currently available to the Company for bank loans with similar terms, maturities and credit risks. The carrying amount of long-term debt represents a reasonable estimate of the corresponding fair value as the Company’s long-term debt is held at variable interest rates.

INVENTORIES

Inventories are valued at the lower of cost or market and are reviewed periodically for excess or obsolete stock with a provision recorded, where appropriate. Cost for inventory in the HVAC industry group is determined using the last-in, first-out (LIFO) method. These inventories represent approximately 78% of total inventories at both January 2, 2010 and January 3, 2009. The cost of all other inventory is determined by the first-in, first-out (FIFO) or average cost methods. Some commodity prices such as copper, steel, cement and diesel fuel have experienced significant fluctuations in recent years, generally higher. Steel prices and copper prices are principally relevant to the inventories of our two HVAC businesses. These two businesses use the LIFO costing method for inventory valuation purposes. The general effect of using LIFO is that the higher steel and copper prices are not reflected in the inventory carrying value. Those higher current costs are principally reflected in the cost of sales. Cement and fuel are relevant to our construction materials business. These businesses use either FIFO or an average costing method for valuing inventories. These inventories turn over frequently and at any point in time the amount of cement or fuel inventory is not significant. Due to these circumstances, the commodity fluctuations have primarily affected the cost of sales with little effect on the valuation of inventory. We believe that our inventory valuation reserves are not material. Inventory reserves were approximately 1% of the total inventory value. Due to the nature of our products obsolescence is not typically a significant exposure. Our HVAC businesses will from time to time contend with some slow-moving inventories or parts that are no longer used due to engineering changes. The recorded reserves are intended for such items.

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PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are carried at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method as follows:

Land improvements	5 to 31 years
Buildings and improvements	10 to 31 years
Leasehold improvements	Shorter of the term of the lease or useful life
Machinery and equipment	3 to 20 years

Depletion of rock and sand deposits and amortization of deferred development costs are computed by the units-of-production method based upon estimated recoverable quantities of rock and sand. The estimated recoverable quantities are periodically reassessed.

The cost of property sold or retired and the related accumulated depreciation, depletion and amortization are removed from the accounts and the resulting gain or loss is reflected in operating income. Maintenance and repairs are charged to expense as incurred. Major renewals and betterments are capitalized and depreciated over their estimated useful lives.

The Company recorded a long-lived asset impairment charge of $758,000 at January 3, 2009 against the property, plant and equipment of Rocky Mountain Ready Mix Concrete, Inc. (RMRM).

OTHER ASSETS

As of January 2, 2010, the Company has recorded $7,229,000 of goodwill consisting of $6,229,000 related to the Concrete, Aggregates and Construction Supplies segment and $1,000,000 related to the Door segment. The Company annually assesses goodwill for potential impairment at the end of each year. In addition, if events occur or circumstances change in the relevant reporting segments or in their industries, the Company will then reassess the recorded goodwill to determine if impairment has occurred. No goodwill impairment was recognized for any of the periods presented. In 2009, the Company charged $600,000 against earnings from discontinued operations representing the allocable portion of goodwill related to RMRM which was sold in July 2009.

Amortizable intangible assets consist of a non-compete-agreement, a restrictive land covenant and customer relationships related to certain acquisitions. The non-compete agreement and the restrictive land covenant are being amortized on a straight-line basis over their respective lives of five and ten years, respectively. The customer relationships amount is being amortized over its estimated life of ten years using the sum-of-the-years digits method.

The Company is party to three aggregate property leases which require royalty payments. The leases call for minimum annual royalty payments. Prepaid royalties relate to payments made for aggregate materials not yet extracted.

RETIREMENT PLANS

The Company and certain subsidiaries have various contributory profit sharing retirement plans for specific employees. The plans allow qualified employees to make tax deferred contributions pursuant to Internal Revenue Code Section 401(k). The Company matches employee contributions up to 3%. Further, the Company may make additional annual contributions, at its discretion, based primarily on profitability. In addition, any individuals whose compensation is in excess of the amount eligible for the Company matching contribution to the 401(k) plan as established by Section 401 of the Internal Revenue Code, participates in an unfunded Supplemental Profit Sharing Plan. This plan accrues an amount equal to the difference between the amount the person would have received as Company matching contributions to his account under the 401(k) plan had there been no limitations and the amount the person will receive under the 401(k) plan giving effect to the limitations. Costs under the plans are charged to operations as incurred.

RESERVE FOR SELF-INSURED AND INSURED LOSSES

The Company’s risk management program provides for certain levels of loss retention for workers’ compensation, automobile liability, medical plan coverage and general and product liability claims. The components of the reserve for self-insured losses have been recorded in accordance with the Codification requirements that an estimated loss from a loss contingency shall be accrued if information available prior to issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated. The recorded reserve represents management’s best estimate of the future liability related to these claims up to the associated deductible.

The Codification also requires an entity to accrue the gross amount of a loss even if the entity has purchased insurance to cover the loss. Therefore the Company has recorded losses for workers’ compensation, automobile liability, medical plan coverage and general and product liability claims in excess of the deductible amounts, i.e., amounts covered by insurance contracts, in “Liability for unpaid claims covered by insurance” with a corresponding “Receivable for insured losses” on the

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balance sheet. The components of the liability represent both unpaid settlements and management’s best estimate of the future liability related to open claims. Management has evaluated the credit worthiness of our insurance carriers and determined that recovery of the recorded losses is probable and, therefore, the receivable from insurance has been recorded for the full amount of the insured losses.

RECLAMATION

In connection with permits to mine properties in Colorado, the Company is obligated to reclaim the mined areas whether the property is owned or leased. The Company records a reserve for future reclamation work to be performed at its various aggregate operations based upon an estimate of the total expense that a third party would incur to reclaim the disturbed areas. Reclamation expense is provided during the interim periods using the units-of-production method. The adequacy of the recorded reserve is assessed quarterly. At each fiscal year-end, a more formal and complete analysis is performed and the expense and reserve is adjusted to reflect the estimated cost to reclaim the then disturbed and unreclaimed areas. The assessment of the reclamation liability may be done more frequently if events or circumstances arise that may indicate a change in estimated costs, recoverable material or period of mining activity. As part of the year-end analysis, the Company engages an independent specialist to assist in reevaluating the estimates of both the quantities of recoverable material and the cost of reclamation. Most of the reclamation on any mining property is generally performed soon after each section of the deposit is mined. The Company’s reserve for reclamation activities was $1,135,000 at January 2, 2010 and $1,105,000 at January 3, 2009. The Company classifies a portion of the reserve as a current liability, $115,000 at January 2, 2010 and $260,000 at January 3, 2009, based upon a rolling four-year average of actual reclamation spending.

REVENUE RECOGNITION

The Company recognizes revenue as products are shipped to customers. Sales are recorded net of applicable provisions for discounts, volume incentives, returns and allowances. At the time of revenue recognition, the Company also provides an estimate of potential bad debt and warranty expense as well as an amount anticipated to be granted to customers under cooperative advertising programs based upon current program terms and historical experience. In addition, the revenues received for shipping and handling are included in sales while the costs associated with shipping and handling are reported as cost of sales.

The Company is responsible for warranty related to the manufacture of its HVAC products. The Company does not perform installation services except for installation of electronic access systems in the Door segment, nor are maintenance or service contracts offered. Changes in the aggregated product warranty liability for the fiscal years 2009 and 2008 were as follows (amounts in thousands):

	2009			2008
Beginning balance	$	100		$	100
Warranty related expenditures	(325		)	(413		)
Warranty expense accrued	397			413
Ending balance	$	172		$	100

INCOME TAXES

Income taxes are accounted for under the asset and liability method that requires deferred income taxes to reflect the future tax consequences attributable to differences between the tax and financial reporting bases of assets and liabilities. Deferred tax assets and liabilities recognized are based on the tax rates in effect in the year in which differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, based on available positive and negative evidence, it is “more likely than not” (greater than a 50% likelihood) that some or all of the net deferred tax assets will not be realized.

Income tax returns are subject to audit by the Internal Revenue Service (IRS) and state tax authorities. The amounts recorded for income taxes reflect our tax positions based on research and interpretations of complex laws and regulations. We accrue liabilities related to uncertain tax positions taken or expected to be taken in our tax returns.

CONCENTRATIONS

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables and temporary cash investments. The Company invests its excess cash in commercial paper of companies with strong credit ratings. The Company has not experienced any losses on these investments.

The Company performs ongoing credit evaluations of its customers and generally does not require collateral. In many instances in the Concrete, Aggregates and Construction Supplies segment and in the Heating and Cooling segment (as it relates to the fan coil product line), the Company retains lien rights on the properties served until the receivable is collected. The Company maintains allowances for potential credit losses based upon the aging of accounts receivable and historical

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experience and such losses have been within management’s expectations. See Note 13 for a description of the Company’s customer base.

Substantially all of the Heating and Cooling Segment’s factory employees are covered by a collective bargaining agreement through the Carpenters Local 721 Union under a contract that expires on April 30, 2011.

IMPAIRMENT OF LONG-LIVED ASSETS

In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability would be performed. If an evaluation were required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset’s carrying amount to determine if a write-down to market value or discounted cash flow value is required. The Company has determined that there was no impairment of the long-lived assets as of January 2, 2010.

FISCAL YEAR END

The Company’s fiscal year end is the Saturday nearest December 31. Fiscal 2009 and 2008 each consisted of 52 weeks.

2. BUSINESS DISPOSITIONS

On July 17, 2009, the Company completed the sale of all of the outstanding capital stock of RMRM, a Colorado corporation to Campbells C-Ment Contracting, Inc., a Colorado corporation (Buyer). RMRM operated a ready mix concrete business in the Denver metropolitan area and had been included in the CACS reporting segment.

The Company received $1,864,000 in cash (net of cash of $41,000 that remained with RMRM) at closing and a Promissory Note of $480,000 representing the closing date net working capital of RMRM. The Promissory Note bears interest at 5% per annum. The initial principal payment is due September 30, 2010, with final principal payment due June 30, 2012. Principal payments will commence earlier if the Buyer achieves certain sales volume levels.

The Company and its wholly-owned subsidiary TMC also entered into a Non-Competition, Non-Disclosure and Non-Solicitation Agreement with the Buyer for a period of six years. In consideration of the covenants made by the Company and TMC, beginning in 2010 the Company will receive compensation if certain sales volume or operating profit thresholds are reached by the Buyer. There is no assurance that the future operating results of the Buyer will be such that any future consideration will be due to the Company under this Agreement, accordingly no value was recorded related to this agreement at the time of the sale.

The Company allocated a portion of the goodwill of the reporting unit to RMRM based on the relative fair value of all of the assets of the CACS segment. As a result of this analysis, $600,000 of goodwill was allocated to the net assets of RMRM.

Assets are required to be recorded at the lower of carrying value or fair value less costs to sell. As noted above, the carrying value assigned to RMRM included $600,000 of goodwill. Management concluded that as of July 4, 2009, the fair value of the assets of RMRM, less costs to sell, was lower than the carrying value, resulting in the recording of a pre-tax impairment charge for book purposes of $647,000 during the quarter ended July 4, 2009. The $647,000 was recorded as a loss from discontinued operations.

The sale of RMRM resulted in a capital loss for tax purposes of approximately $6,500,000 and a related deferred tax asset of approximately $2,450,000. This loss can be utilized to offset current and future capital gains with a Federal carry forward period limited to five years. The Company has limited capital gains and as a result a valuation allowance of approximately $1,700,000 has been established against the deferred tax asset related to the capital loss in excess of that which is expected to be utilized to offset the capital gain realized during 2009.

The revenue and pretax loss from RMRM is reported as discontinued operation for the fiscal years ended January 2, 2010 and January 3, 2009, respectively, and is summarized as follows (amounts in thousands):

	2009			2008
Revenue	$	3,740		$	12,166
Pretax Loss	(1,778		)	(2,786		)

3. INVENTORIES

Inventories consisted of the following (amounts in thousands):

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	January 2, 2010		January 3, 2009
Finished goods	$	6,898	$	9,421
Work in process	763		1,477
Raw materials and supplies	8,634		12,528
	$	16,295	$	23,426

If inventories valued on the LIFO basis were valued at current costs, inventories would be higher by $4,591,000 and $6,407,000 at January 2, 2010 and January 3, 2009, respectively.

Reductions in inventory quantities during 2009 at two locations resulted in liquidation of LIFO inventory layers carried at costs lower than the costs of current purchases. The effect totaled approximately $316,000 for the year.

4. GOODWILL AND AMORTIZABLE INTANGIBLE ASSETS

As of January 2, 2010 the Company has recorded $7,229,000 of goodwill consisting of $6,229,000 related to the CACS segment and $1,000,000 related to the Door segment. The Company annually assesses goodwill for potential impairment at the end of each year. For the CACS segment, the Company engages the services of an investment banking firm to determine the fair value of the reporting unit. For the Door segment, the Company prepares a discounted cash flow analysis to estimate the fair value of the reporting unit. In addition, if events occur or circumstances change in the relevant reporting segments or in their industries the Company will then reassess the recorded goodwill to determine if impairment has occurred. No goodwill impairment was recognized for any of the periods presented. In 2009 the Company charged $600,000 of goodwill against earnings from discontinued operations, representing the allocable portion of goodwill related to RMRM which was sold in July 2009. The valuation of goodwill and other intangibles is considered a significant estimate. Continued or protracted economic conditions could negatively impact the value of the business which could trigger an impairment that would materially impact earnings.

Changes in recorded goodwill for the year ended January 2, 2010 (there were no changes to recorded goodwill during the year ended January 3, 2009) are as follows (amounts in thousands):

	CACS			Door		Total
Balance as of January 3, 2009	$	6,829		$	1,000	$	7,829
Goodwill allocated to RMRM	(600		)	—		(600		)
Balance as of January 2, 2010	$	6,229		$	1,000	$	7,229

Identifiable intangible assets consist of the following (amounts in thousands):

	January 2, 2010				January 3, 2009
	Gross				Gross
	carrying		Accumulated		carrying		Accumulated
	amount		amortization		amount		amortization
Amortized intangible assets:
Non-compete agreements	$	290	$	203	$	1,640	$	1,247
Restrictive land covenant	350		123		350		87
Customer relationships	370		205		370		154
	$	1,010	$	531	$	2,360	$	1,488

The above intangible assets include a non-compete agreement signed at the time the Company acquired the assets of ASCI (June 30, 2006). Amortization of the non-compete agreement is recorded on a straight line basis over the agreement’s period of ten years. During the year ended January 3, 2009 (fiscal year 2008) the Company recorded an asset impairment charge of $26,000 against the non-compete agreement related to the purchase of RMRM which was sold on July 17, 2009. Also included are a restrictive land covenant and the customer relationships related to the ASCI acquisition. Amortization of the restrictive land covenant is computed on the straight-line basis over the agreement’s period of ten years. Amortization of the customer relations value is computed on the sum-of-the-years digits method over its estimated life of ten years. Amortization expense of intangible assets was $113,000 for 2009 (including the final $25,000 of a non-compete agreement related to the purchase of CSSL by the Door division) and $176,000 for 2008. The estimated amortization expense for the five subsequent fiscal years is as follows: 2010 — $137,000; 2011 — $101,000; 2012 — $65,000; 2013 — $59,000 and 2014 - $52,000.

5. REVOLVING BANK LOAN AND LONG-TERM DEBT

Outstanding long-term debt consisted of the following (amounts in thousands):

	January 2, 2010			January 3, 2009
Secured term loan	$	7,150		$	10,771
Less current portion	(1,375		)	(1,164		)
Total long-term debt	$	5,775		$	9,607

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· September 30, 2011	$	500,000
· December 31, 2011	$	500,000
· March 31, 2012	$	500,000

The interest rate swap transaction terminates on April 16, 2012.

· The covenants regarding the fixed charge coverage and the maximum leverage ratio have been eliminated for the duration of the amended Credit Agreement.

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· The Company must maintain a minimum tangible net worth of $32,000,000. At January 2, 2010, the minimum tangible net worth, as defined, was $38,250,000.

· Annual capital expenditures may not exceed $3,500,000.

· The maximum revolving credit facility line will remain at $15,000,000 until October 1, 2010 when it will then be reduced to $13,500,000.

· The maturity date of the credit facility is August 1, 2011.

· The interest rate swap transaction will remain in effect.

The Credit Agreement as amended on April 15, 2010 requires the Company to maintain certain financial covenants as disclosed in the table below (amounts in thousands except for ratios):

Financial Covenant	Date Required	Required Amount or Ratio
Minimum tangible net worth	At all times	$32,000
Minimum adjusted quarterly EBITDA	Quarter ended July 3, 2010	$2,100
	Quarter ended October 2, 2010	$2,000
	Quarter ended January 1, 2011	$500
	Quarter ended April 2, 2011	$(600	)
	Quarter ended July 2, 2011	$2,100
Maximum capital expenditures	Trailing 12 months	< $3,500

Definitions under the Credit Agreement as amended are as follows:

· The adjusted EBITDA is defined as net income plus interest, income taxes, depreciation, depletion and amortization plus other non-cash charges approved by the lender.

Term loan payments and the amortization of deferred financing fees are scheduled as follows (amounts in thousands):

			Amortization
	Term Loan		of Deferred
	Payments		Financing Fees
2010	$	1,375	$	261
2011	5,775		210
	$	7,150	$	471

6. COMMITMENTS AND CONTINGENCIES

The Company is involved in litigation matters related to its business, principally product liability matters related to the gas-fired heating products in the Heating and Cooling segment. In the Company’s opinion, none of these proceedings, when concluded, will have a material adverse effect on the Company’s consolidated results of operations, cash flows or financial condition as the Company has established adequate accruals for matters that are probable and estimable. The Company does not accrue estimated amounts for future legal costs related to the defense of these matters but rather expenses them as incurred.

7. SHAREHOLDERS’ EQUITY

Four hundred thousand shares of preferred stock ($.50 par value) are authorized and unissued.

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8. EARNINGS PER SHARE

The Company does not have any common stock equivalents, warrants or other convertible securities outstanding therefore there are no differences between the calculation of basic and diluted EPS for the fiscal years 2009 or 2008.

9. RENTAL EXPENSE, LEASES AND COMMITMENTS

The Company leases certain of its facilities and equipment and is required to pay the related taxes, insurance and certain other expenses. Rental expense was $2,907,000 and $3,206,000 for 2009 and 2008, respectively.

Future minimum rental commitments under non-cancelable operating leases for 2010 and thereafter are as follows: 2010 — $1,653,000; 2011 — $1,580,000; 2012 — $1,443,000; 2013 — $1,205,000; 2014 — $915,000 and thereafter — $23,889,000. Included in these amounts is $521,000 per year and approximately $23,437,000 in the “thereafter” amount related to minimum royalty payments due on an aggregates property lease in conjunction with the Pueblo, Colorado operation. Also included in these amounts is $235,000 per year and approximately $412,000 in the “thereafter” amount related to a ground lease upon which the Company owns a building leased to a third party for approximately $344,000 per year. The ground lease runs through October 1, 2016 and contains a renewal clause. The building lease runs through January 31, 2013.

10. RETIREMENT PLANS

As discussed in Note 1, the Company maintains defined contribution retirement benefit plans for eligible employees. Total plan expenses charged to continuing operations were $1,017,000 and $707,000 in 2009 and 2008, respectively.

11. CURRENT ECONOMIC CONDITIONS

The current protracted economic decline continues to present manufacturers with difficult circumstances and challenges, which in some cases have resulted in large and unanticipated declines in the fair value of assets, declines in the volume of business, constraints on liquidity and difficulty obtaining financing. The financial statements have been prepared using values and information currently available to the Company.

Current economic and financial market conditions could adversely affect our results of operations in future periods. The current instability in the financial markets may make it difficult for certain of our customers to obtain financing, which may significantly impact the volume of future sales which could have an adverse impact on the Company’s future operating results.

In addition, given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments in allowances for accounts and notes receivable, net realizable value of inventory, realization of deferred tax assets and valuation of intangibles and goodwill that could negatively impact the Company’s ability to meet debt covenants or maintain sufficient liquidity.

12. INCOME TAXES

The provision (benefit) for income taxes for continuing operations is summarized as follows (amounts in thousands):

		2009			2008
Federal:	Current	$	(26	)	$	(11	)
	Deferred	(693		)	515
State:	Current	38			60
	Deferred	(81		)	174
		$	(762	)	$	738

Note that the percentage effect of an item on the statutory tax rate in a given year will fluctuate based upon the magnitude of the pre-tax profit or loss in that year. The difference between the tax rate for continuing operations on income or loss for financial statement purposes and the federal statutory tax rate was as follows:

	2009		2008
Statutory tax rate	(34.0	)%	34.0	%
Percentage depletion	(2.5	)	(7.8	)
Non-deductible expenses	2.1		1.3
FIN 48 change in reserves	(9.4	)	(1.0	)
Valuation allowance for tax assets	4.1		1.8
State income taxes, net of federal benefit	(10.0	)	1.6
Other	1.0		(.3	)
	(48.7	)%	29.6	%

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For financial statement purposes, deferred tax assets and liabilities are recorded at a blend of the current statutory federal and states’ tax rates — 37.96%. The principal temporary differences and their related deferred taxes are as follows (amounts in thousands):

	2009			2008
Reserves for self-insured losses	$	919		$	854
Accrued reclamation	431			419
Deferred compensation	336			194
Asset valuation reserves	363			563
Future state tax credits	760			760
Net state operating loss carryforwards	214			88
Federal AMT carryforward	102			151
Federal NOL carryforward	226			—
Approximate long-term capital loss carryforward	1,721			—
Other	1,075			671
Valuation allowance	(1,950		)	(220		)
Total deferred tax assets	4,197			3,480

Depreciation	2,547			3,008
Deferred development	717			475
Prepaid royalty	464			406
Other	596			664
Total deferred tax liabilities	4,324			4,553
Net deferred tax liability	$	(127	)	$	(1,073	)

At both January 2, 2010 and January 3, 2009, the Company established a valuation reserve of $229,000 related to the carryforward of charitable contributions deductions arising in the current and prior years due to the uncertainty that the Company will be able to utilize these deductions prior to the expiration of their carry forward periods. At January 2, 2010, the Company also established a valuation reserve of $1,721,000 related to the carry forward of the long-term capital loss related to the sale of the stock of RMRM due to the uncertainty that the Company will be able to generate offsetable long-term capital gains prior to the expiration of the carry forward period. For Federal purposes, Net Operating Losses can be carried forward for a period of 20 years while Alternative Minimum Tax credits can be carried forward indefinitely. For State purposes, Net Operating Losses can be carried forward for periods ranging from 5 to 20 years for the states that the Company is required to file in. The $760,000 of state tax credits all relate to California Enterprise Zone hiring credits earned in prior years. These credits may be carried forward indefinitely.

The net current deferred tax assets are $3,116,000 and $2,341,000 at year-end 2009 and 2008, respectively.

The Company accounts for uncertainty in income taxes recognized in its financial statements by applying the Codification’s recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The financial statement effects of a tax position are initially recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold should initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon effective settlement with a taxing authority.

The gross amount of unrecognized tax benefits at January 2, 2010 was $47,000 compared to $431,000 at January 3, 2009. Of these totals, the amounts that would affect the effective tax rates were $0 and $81,000, respectively.

We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense. Accrued interest of $33,000 and penalties of $0 were included in our total liability for unrecognized tax benefits as of January 2, 2010 compared to interest of $110,000 and penalties of $16,000 as of January 3, 2009.

We file income tax returns in the United States Federal and various state jurisdictions. The Internal Revenue Service has completed examinations for periods through 2007. Federal tax years 2008 and 2009 remain subject to examination. Various state income tax returns also remain subject to examination. There are no tax positions expected to be resolved within 12 months of this reporting date.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (amounts in thousands):

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	2009			2008
Balance at Beginning of Year	$	431		$	328
Additions for tax positions related to the current year	47			122
Reductions for statute of limitations	—			(8		)
Reductions for tax positions of prior years	(431		)	(11		)
Settlements	—			—
Balance at End of Year	$	47		$	431

13. UNAUDITED QUARTERLY FINANCIAL DATA

The following table and footnotes provide summarized unaudited fiscal quarterly financial data for 2009 and 2008 (amounts in thousands, except per share amounts):

	First			Second			Third			Fourth
	Quarter (c)			Quarter			Quarter			Quarter
2009
Sales	$	30,910		$	28,682		$	25,834		$	28,035
Depreciation, depletion and amortization	1,119			1,227			1,064			1,062
Net (loss) income
Continuing operations	(79		)	1,178		(a)	(700		)	(1,201		)
Discontinued operations	(411		)	(38		)	(282		)	91
Net (loss) income	(490		)	1,140			(982		)	(1,110		)
Basic and Diluted (loss) income per share
Continuing operations	(.05		)	.74			(.44		)	(.75		)
Discontinued operations	(.26		)	(.03		)	(.17		)	.06
	(.31		)	.71			(.61		)	(.69		)

	First			Second			Third			Fourth
	Quarter (c)			Quarter (c)			Quarter (c)			Quarter (c)
2008
Sales	$	31,938		$	37,729		$	38,362		$	37,685
Depreciation, depletion and amortization	1,142			1,125			1,079			1,022
Net (loss) profit:
Continuing operations	(749		)	99			673			1,734		(b)
Discontinued operations	(382		)	(366		)	(323		)	(726		)(b)
Net (loss) income	(1,131		)	(267		)	350			1,008
Basic and Diluted (loss) income per share
Continuing operations	(.47		)	.06			.42			1.08
Discontinued operations	(.24		)	(.23		)	(.20		)	(.45		)
	(.71		)	(.17		)	.22			.63

(a)	Second quarter 2009 results include a pre-tax gain of $2,026 on the sale of land in Colorado Springs. On July 2, 2009 (July 3, 2009 was the last day of the Company’s fiscal second quarter), the Company and the buyer of the property reached an agreement on the final purchase price for the property. The Company received the cash during the third quarter of 2009.
(b)	Fourth quarter 2008 results include a pre-tax gain on the sale of land of $1,947 recorded in continuing operations and a pre-tax impairment charge for long-lived assets of $784 recorded in discontinued operations.
(c)	The indicated quarter has been restated from its original presentation to reflect the discontinued operation.

Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share may not equal the total for the year.

14. INDUSTRY SEGMENT INFORMATION

The Company operates primarily in two industry groups, HVAC and Construction Products. The Company has identified two reportable segments in each of the two industry groups: the Heating and Cooling segment and the Evaporative Cooling segment in the HVAC industry group and the Concrete, Aggregates and Construction Supplies segment (CACS) and the Door segment in the Construction Products industry group. The Heating and Cooling segment produces and sells gas-fired wall furnaces, console heaters and fan coils from the Company’s wholly-owned subsidiary, Williams Furnace Co. of Colton, California. The Evaporative Cooling segment produces and sells evaporative coolers from the Company’s wholly-owned

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subsidiary, Phoenix Manufacturing, Inc. of Phoenix, Arizona. Sales of these two segments are nationwide, but are concentrated in the southwestern United States. Concrete, aggregates and construction supplies are offered from numerous locations along the Southern Front Range of Colorado operated by the Company’s wholly-owned subsidiaries Castle Concrete Company and Transit Mix Concrete Co., of Colorado Springs and Transit Mix of Pueblo, Inc. of Pueblo. Rocky Mountain Ready Mix Concrete, Inc. of Denver, formerly included in the CACS segment was sold on July 17, 2009 and is not included in the segment information presented in the table below but rather has been reported as a discontinued operation. Doors are fabricated and sold along with the related hardware from Colorado Springs and Pueblo through the Company’s wholly-owned subsidiary, McKinney Door and Hardware, Inc. of Pueblo, Colorado. Sales of these two segments are highly concentrated in the Southern Front Range area in Colorado although door sales are also made throughout the United States.

The Company evaluates the performance of its segments and allocates resources to them based on a number of criteria including operating income, return on investment and other strategic objectives. Operating income is determined by deducting operating expenses from all revenues. In computing operating income, none of the following has been added or deducted: unallocated corporate expenses, interest, other income or loss or income taxes.

The following table presents information about reported segments for the fiscal years 2009 and 2008 along with the items necessary to reconcile the segment information to the totals reported in the financial statements (amounts in thousands):

	Construction Products Industry								HVAC Industry
	Concrete, Aggregates & Construction Supplies			Doors		Combined Construction Products			Heating and Cooling			Evaporative Cooling		Combined HVAC		Unallocated Corporate (a)			Other (b)		Total
2009
Revenues from external customers	$	40,421		$	14,616	$	55,037		$	32,784		$	25,281	$	58,065	$	14		$	345	$	113,461
Depreciation, depletion and amortization	3,402			173		3,575			373			450		823		74			—		4,472
Operating (loss) income	(2,759		)	1,090		(1,669		)	(503		)	2,397		1,894		(946		)	109		(612		)
Segment assets	36,007			6,509		42,516			17,101			13,141		30,242		9,291			63		82,112
Capital expenditures	1,665			175		1,840			167			109		276		32			—		2,148

	Construction Products Industry						HVAC Industry
	Concrete, Aggregates & Construction Supplies		Doors		Combined Construction Products		Heating and Cooling		Evaporative Cooling		Combined HVAC		Unallocated Corporate (a)			Other (b)		Total
2008
Revenues from external customers	$	64,829	$	15,373	$	80,202	$	42,166	$	22,985	$	65,151	$	17		$	344	$	145,714
Depreciation, depletion and amortization	3,228		134		3,362		389		539		928		78			—		4,368
Operating income (loss)	2,142		1,455		3,597		85		458		543		(643		)	109		3,606
Segment assets	46,410		6,276		56,686		23,521		14,241		37,762		3,195			23		93,666
Capital expenditures (c)	1,708		112		1,820		60		140		200		6			—		2,026

(a) Includes unallocated corporate office expenses and assets which consist primarily of cash and cash equivalents, prepaid expenses, property, plant and equipment and in 2009, a $4,840 cash deposit with the Company’s insurer to secure the self-insured portion of claims under the Company’s casualty insurance program.

(b) Includes a real estate operation.

(c) The 2008 capital expenditures for the Concrete, Aggregates & Construction Supplies segment include $165 of additions purchased on account.

There are no differences in the basis of segmentation or in the basis of measurement of segment profit or loss from the last annual report except as discussed above regarding RMRM.

All long-lived assets are in the United States. No customer accounted for 10% or more of total sales of the Company in fiscal 2009 or 2008.

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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Continental Materials Corporation

Chicago, Illinois

We have audited the accompanying consolidated balance sheet of Continental Materials Corporation as of January 2, 2010, and the related consolidated statements of operations, shareholders’ equity and cash flows for the year then ended. Our audit also included the Year 2009 information on the financial statement schedule listed in the Index at Part IV, Item 15(a)2. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Continental Materials Corporation as of January 2, 2010, and the results of its operations and its cash flows for the year than ended, in conformity with accounting principles generally accepted in the United States of America.

We also audited the adjustments related to the discontinued operation more fully described in Note 2 that were applied to restate the 2008 financial statements. In our opinion, such adjustments are appropriate and have been properly applied.

/s/ BKD, LLP

Indianapolis, Indiana

April 19, 2010

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Continental Materials Corporation:

We have audited, before the effects of the retrospective adjustments for the discontinued operations discussed in Note 2 to the consolidated financial statements, the consolidated balance sheet of Continental Materials Corporation and subsidiaries (the “Company”) as of January 3, 2009, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year ended January 3, 2009 (the January 3, 2009 consolidated statement of operations before the effects of the retrospective adjustments discussed in Note 2 to the consolidated financial statements are not presented herein). Our audit also included the financial statement schedule for the year ended January 3, 2009 listed in the Index at Part IV, Item 15(a) 2. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements as of and for the year ended January 3, 2009, before the effects of the retrospective adjustments for the discontinued operations discussed in Note 2 to the consolidated financial statements, present fairly, in all material respects, the financial position of Continental Materials Corporation and subsidiaries as of January 3, 2009, and the results of their operations and their cash flows for the year ended January 3, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.

We were not engaged to audit, review, or apply any procedures to the retrospective adjustments for discontinued operations discussed in Note 2 to the consolidated financial statements and, accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.

/s/ Deloitte & Touche LLP

Chicago, Illinois

April 19, 2010

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Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On September 18, 2009, the Board of Directors of Continental Materials Corporation, on the recommendation of the Audit Committee, dismissed Deloitte & Touche LLP as its independent registered public accounting firm and appointed BKD LLP as the Company’s independent registered public accounting firm to audit its consolidated statements for the year ending January 2, 2010. With regard to Deloitte & Touche LLP, during the two most recent fiscal years and through September 18, 2009, there have been no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

Item 9A(T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer and Chief Financial Officer, with the participation of management, have evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended( Exchange Act) as of January 2, 2010. The Chief Executive Officer and Chief Financial Officer, based on that evaluation, concluded that our disclosure controls and procedures are still not effective in that the Company has not yet completed the remediation process needed to establish adequate controls over inventory accounting in its Heating and Cooling Segment. The material weakness relates to the appropriate accounting for inventory and related cost of sales of this segment. This weakness was first discovered in October 2008 and is discussed in more detail in Item 9A of the Company’s 2008 Annual Report on Form 10-K. The lack of adequate controls over inventory accounting is considered a material weakness in internal controls over financial reporting as defined under standards established by the Public Company Accounting Oversight Board (United States).

Management’s Report on Internal Control Over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act . The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of January 2, 2010. Management based this assessment on criteria for effective internal control over financial reporting described in Internal Control — Integrated Framework issue by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of its internal control over financial reporting. Based on this assessment, management has concluded that its internal control over financial reporting is not operating effectively as of January 2, 2010 because of the material weakness discussed below. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Management’s assessment as of January 2, 2010 concluded that the material weakness in our internal control over financial reporting related to its inventory accounting in its Heating and Cooling Segment identified during October 2008 has not yet been adequately remediated.

The Company implemented an Enterprise Resource Planning (ERP) system for the Heating and Cooling Segment at the end of the third quarter of 2007. The Company performed a physical inventory for this segment at the end of October 2008 which resulted in an adjustment to decrease the inventory balance and a corresponding charge to cost of sales as of the end of the third quarter of 2008. These adjustments to the Company’s financial statements were reflected in the Company’s fiscal third quarter interim financial statements on Form 10-Q. The deficiencies in internal controls that lead to the material weakness primarily related to inaccurate bills of materials associated with the production of the Heating and Cooling Segment’s products and insufficient cycle counting during the interim periods. This deficiency was considered to be a material weakness in the design of our internal control over financial reporting that existed as of the end of the third quarter of 2008. The information specified by Item 304 of Regulation S-K was provided to the Securities and Exchange Commission under Item 4 of Form 10-Q filed by the Company on November 23, 2009 for the quarterly period ended October 3, 2009.

During the fourth quarter of 2008, the Company began a process to address this material weakness in internal controls. As part of this process, the Company identified the causes which resulted in the inventory accounting errors and developed an action plan to address each of these causes. The action plan includes ensuring the accuracy of the bills of materials, reviewing inventory variances, accounting for scrap in the manufacturing process and implementing cycle count procedures. The Company performed a physical inventory for this segment during the first week of November 2009 which again resulted in a

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downward adjustment to inventory and a corresponding charge to cost of sales. Offsetting adjustments to reduce compensation accruals directly related to the decreased operating results largely negated the overall effect of the inventory adjustment such that the effect on the quarter was immaterial. The Company analyzed the effect of the prior two quarters and since the compensation accruals had been accrued over the prior nine months, the Company concluded that the book to physical adjustment recorded in the third quarter of 2009 did not have a material impact, either quantitatively or qualitatively, on the previously reported results of the first or second quarters of 2009.

As of January 2, 2010, the Company was not an “accelerated filer” as defined in Rule 12b-2 under the Exchange Act. Accordingly, pursuant to SEC rules and regulations, the Company is not required to include, and this Annual Report does not include, an attestation report of our independent registered public accounting firm regarding internal control over financial reporting in this Annual Report on Form 10-K. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only Management’s report in this Annual Report on Form 10-K. We are required to annually reassess our status as a “smaller reporting company” as of the end of our fiscal year to determine whether we will be required to provide Management’s Annual Report on Internal Control Over Financial Reporting and the associated report of our independent registered public accounting firm in our Annual Report on Form 10-K.

b. Changes in Internal Control Over Financial Reporting

The Company continually reassesses our internal control over financial reporting and makes changes as deemed prudent. As noted above, the Company began a process to improve the internal control over financial reporting related to inventory accounting during the fourth quarter of 2008 to address this material weakness. The process of reviewing the bills of material for all of our products is a time-intensive endeavor which was temporarily delayed by the death of the project leader and the subsequent replacement of both him and other members of the team. For these reasons, the Company has not yet completed the task. Management therefore performed additional analysis and other post-closing procedures to ensure that the Heating and Cooling Segment’s inventory was accounted for properly in the Company’s consolidated year-end financial statements. The Company intends to complete its review of the bills of material as well as other operational and cost accounting procedures. The cycle counts have begun on raw materials and finished goods; however better procedures need to be implemented to assure that these counts are accurate. Management believes that at the completion of this project, the controls will appropriately address the material weakness related to the accounting for inventory in the Heating and Cooling segment.

During the quarter ended January 2, 2010, there were no other material weaknesses identified in our review of internal control over financial reporting and no other significant changes in the Company’s internal control over financial reporting occurred during the quarter that would materially affect, or be reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. OTHER INFORMATION

Registrant does not have any information, not already reported, that is required to be reported on Form 8-K during the fourth quarter of the year covered by this Form 10-K.

PART III

Items 10 through 14 of Part III have been omitted from this 10-K Report because the registrant expects to file, not later than 120 days following the close of its fiscal year ended January 2, 2010, its definitive 2010 proxy statement. The information required by Items 10 through 14 of Part III will be included in that proxy statement and such information is hereby incorporated by reference.

PART IV

Item 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1	The following financial statements are included in Item 8 of Part II:
	Consolidated statements of operations for fiscal years 2009 and 2008
	Consolidated statements of cash flows for fiscal years ended 2009 and 2008
	Consolidated balance sheets as of January 2, 2010 and January 3, 2009
	Consolidated statements of shareholders’ equity for fiscal years ended 2009 and 2008

(a) 2	The following is a list of financial statement schedules filed as part of this Report:

	Schedule II Valuation and Qualifying Accounts & Reserves For the Fiscal Years 2009 and 2008

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All other schedules are omitted because they are not applicable or the information is shown in the financial statements or notes thereto.

(a) 3 The following is a list of all exhibits filed as part of this Report:

Exhibit 3		Restated Certificate of Incorporation dated May 28, 1975, as amended on May 24, 1978, May 27, 1987 and June 3, 1999 filed as Exhibit 3 to Form 10-K for the year ended January 1, 2005, incorporated herein by reference.

Exhibit 3a		Registrant’s By-laws as amended September 19, 1975 filed as Exhibit 6 to Form 8-K for the month of September 1975, incorporated herein by reference.

Exhibit 10		Credit Agreement dated April 16, 2009 among Continental Materials Corporation, as the Company, The Various Financial Institutions Party Hereto, as Lenders, and The PrivateBank and Trust Company, as Administrative Agent and Arranger filed as Exhibit 10f to Form 10-K for the year ended January 3, 2009, incorporated herein by reference; First Amendment thereto dated as of November 18, 2009 (filed herewith as Exhibit 10.1); and Second Amendment thereto dated April 15, 2010 (filed herewith as Exhibit 10.2).

Exhibit 10a		Fee Sand and Gravel Lease Between Valco, Inc. And Continental Materials Corporation filed as Exhibit 2C to Form 8-K filed November 4, 1996, incorporated herein by reference.

Exhibit 10b		Form of Supplemental Deferred Compensation Agreement filed as Exhibit 10 to Form 10-Q for the quarter ended July 1, 1983, incorporated herein by reference.*

Exhibit 10c		Continental Materials Corporation Employees Profit Sharing Retirement Plan, 2009 Amendment and Restatement (filed herewith).*

Exhibit 10d		Williams Furnace Co. Employees Profit Sharing Retirement Plan, 2009 Amendment and Restatement (filed herewith).*

Exhibit 14		Continental Materials Corporation Code of Business Conduct and Ethics filed as Exhibit 14 to Form 10-K/A (Amendment No. 1) for the year ended January 3, 2004, incorporated herein by reference.

Exhibit 21		Subsidiaries of Registrant (filed herewith).

Exhibit 23		Consents of Independent Registered Public Accounting Firms (filed herewith).

Exhibit 31.1		Rule 13a-14(a)/15d-14(a) and Rule 13a-14(d)/15d-14(d) Certification of Chief Executive Officer (filed herewith).

Exhibit 31.2		Rule 13a-14(a)/15d-14(a) and Rule 13a-14(d)/15d-14(d) Certification of Chief Financial Officer (filed herewith).

Exhibit 32		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer (filed herewith).

* - Compensatory plan or arrangement

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		CONTINENTAL MATERIALS CORPORATION
		Registrant

	By:	/S/Joseph J. Sum
		Joseph J. Sum, Vice President and Chief Financial Officer

Date: April 19, 2010

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE	CAPACITY(IES)	DATE

/S/ James G. Gidwitz	Chief Executive Officer and a Director
James G. Gidwitz	(Principal Executive Officer)	April 19, 2010

/S/ Joseph J. Sum	Vice President, Chief Financial Officer
Joseph J. Sum	(Principal Financial Officer)	April 19, 2010

/S/ Mark S. Nichter	Secretary and Controller
Mark S. Nichter	(Principal Accounting Officer)	April 19, 2010

/S/ William D. Andrews
William D. Andrews	Director	April 19, 2010

/S/ Thomas H. Carmody
Thomas H. Carmody	Director	April 19, 2010

/S/ Betsy R. Gidwitz
Betsy R. Gidwitz	Director	April 19, 2010

/S/ Ralph W. Gidwitz
Ralph W. Gidwitz	Director	April 19, 2010

/S/ Ronald J. Gidwitz
Ronald J. Gidwitz	Director	April 19, 2010

/S/ Theodore R. Tetzlaff
Theodore R. Tetzlaff	Director	April 19, 2010

/S/ Peter E. Thieriot
Peter E. Thieriot	Director	April 19, 2010

/S/ Darrell M. Trent
Darrell M. Trent	Director	April 19, 2010

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CONTINENTAL MATERIALS CORPORATION

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (c) (e)

for the fiscal years 2009 and 2008

COLUMN A	COLUMN B		COLUMN C(1)		COLUMN D			COLUMN E
Description	Balance at Beginning of Period		Additions Charged to Costs and Expenses		Deductions - Describe			Balance at End of Period

Year 2009
Allowance for doubtful accounts (c)	$	445,000	$	288,000	$	157,000	(a)	$	576,000
Inventory valuation reserve (c)	$	255,000	$	205,000	$	76,000	(b)	$	384,000
Reserve for self-insured losses	$	3,283,000	$	2,930,000	$	3,240,000	(d)	$	2,973,000

Year 2008
Allowance for doubtful accounts (c)	$	530,000	$	142,000	$	227,000	(a)	$	445,000
Inventory valuation reserve (c)	$	123,000	$	268,000	$	136,000	(b)	$	255,000
Reserve for self-insured losses	$	4,277,000	$	3,936,000	$	4,930,000	(d)	$	3,283,000

Notes:

(a) Accounts written off, net of recoveries.

(b) Amounts written off upon disposal of assets.

(d) Payments of self-insured claims including healthcare claims accrued and paid in connection with the Company’s self-insured employee healthcare benefit plan.

(e) Column C (2) has been omitted as the answer would be “none”.

Exhibit 10.1

Execution Version

FIRST AMENDMENT TO CREDIT AGREEMENT

THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the “ Amendment ”), dated as of November 18, 2009, is entered into by and among CONTINENTAL MATERIALS CORPORATION, a Delaware corporation (the “ Company ”), the financial institutions that are or may from time to time become parties to the Credit Agreement referenced below (together with their respective successors and assigns, the “ Lenders ” and each, a “ Lender ”) and THE PRIVATEBANK AND TRUST COMPANY, an Illinois state chartered bank as Administrative Agent for each Lender (the “ Administrative Agent ”). Capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Credit Agreement referenced below.

WHEREAS, pursuant to the Credit Agreement, the Lender previously (i) made available to the Company a revolving credit facility in the amount of $20,000,000 and (ii) funded a term loan in the original principal amount of $10,000,000;

WHEREAS, the parties to this Amendment desire to amend the Credit Agreement to, among other things, (i) reduce the Revolving Commitment to $15,000,000, (ii) modify the definition of Adjusted EBITDA to exclude the operating results of discontinued operations (profit or loss), (iii) modify the definition of Borrowing Base to reduce the inventory cap from $10,000,000 to $7,500,000, (iv) increase the Non-Use Fee Rate from 0.250% to 0.375%, (v) modify the minimum Adjusted EBITDA requirements, and (vi) modify the calculation of the Fixed Charge Coverage Ratio for the Computation Period ending June 30, 2010, in each case, all on the terms and conditions set forth herein; and

WHEREAS, as of the date of this Amendment, there exists an Event of Default under and as defined in the Credit Agreement as a result of the Company’s failure to comply with the minimum Adjusted EBITDA requirement in Section 13.1.1 of the Credit Agreement for the period ended September 30, 2009 (the “ Existing Covenant Default ”).

NOW, THEREFORE, in consideration of the premises, to induce the Lender and Administrative Agent to enter into this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed by the parties hereto as follows:

Section 1. Incorporation of Recitals . The foregoing recitals are hereby incorporated into and made a part of this Amendment.

Section 2. Amendment of the Credit Agreement . It is hereby agreed and understood that, subject to the complete fulfillment and performance of the conditions precedent set forth in Section 6 of this Amendment, the Credit Agreement is hereby amended and modified as follows:

A. Section 1.1 . Section 1.1 of the Credit Agreement is hereby amended as follows:

(1) The definition of “ Adjusted EBITDA ” is hereby deleted in its entirety and replaced with the following:

“ Adjusted EBITDA means EBITDA for the applicable Computation Period plus any gains from Asset Dispositions, any extraordinary gains and any gains from discontinued operations (in each case, any gains shall be net of all costs and expenses incurred in connection therewith and such gains shall only be included to the extent such gains were subtracted in the calculation of EBITDA). Notwithstanding anything to the contrary contained in this Agreement or any other Loan Document, the calculation of Adjusted EBITDA shall exclude the operating results of discontinued operations (profit or loss).”

(2) The inventory cap (originally set at $10,000,000) contained in the definition of “ Borrowing Base ” is hereby reduced to $7,500,000.

(3) The Non-Use Fee Rate (originally set at 0.250%) contained in the definition of “ Applicable Margin ” is hereby deleted in its entirety and replaced with 0.375%.

(4) The definition of “ Revolving Commitment ” is hereby deleted in its entirety and replaced with the following:

“ Revolving Commitment means $15,000,000, as reduced from time to time pursuant to Section 6.1 .”

B. Section 11.13.1 . Section 11.13.1 (Minimum Adjusted EBITDA) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

“11.13.1 Minimum Adjusted EBITDA . Not permit Adjusted EBITDA for any Computation Period to be less than the applicable amount set forth below for such Computation Period:

Computation Period Ending	Adjusted EBITDA

June 30, 2009	$	7,500,000

September 30, 2009	$	8,150,000

December 31, 2009	$	4,500,000

March 31, 2010	$	4,000,000

June 30, 2010	$	3,250,000

September 30, 2010	$	5,250,000

December 31, 2010 and each Fiscal Quarter end thereafter	$	6,500,000	”

C. Section 11.13.2 . Section 11.13.2 (Minimum Fixed Charge Coverage Ratio) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

“11.13.2 Minimum Fixed Charge Coverage Ratio . Not permit the Fixed Charge Coverage Ratio for any Computation Period to be less than 1.30 to 1.00 for such Computation Period. Notwithstanding the foregoing, the Fixed Charge Coverage Ratio (and each of the components thereof) for the Computation Period ending June 30, 2010 will be calculated on a year-to-date basis (as opposed to a trailing twelve month basis).”

Section 3. Waiver . It is hereby agreed and understood that, subject to the complete fulfillment and performance of the conditions precedent set forth in Section 6 of this Amendment, the Lender hereby waives the Existing Covenant Default and all of its rights and remedies with respect to the Existing Covenant Default. The waiver hereunder will not in any way operate as (i) an amendment or modification of the Credit Agreement or any related agreement, (ii) a waiver of repayment by the Company of any portion of the outstanding Obligations under the Credit Agreement, or (iii) a waiver of, or consent with respect to, any existing or future Event of Default, or a waiver or abandonment to any right or remedy available to the Lender with respect to any such Event of Default, all of which rights are reserved.

Section 4. Revolving Loan Note and Term Loan Note . It is hereby agreed and understood that the Revolving Loan Note and the Term Loan Note remain in full force and effect and that the Obligations evidenced thereby remain due and payable on the terms set forth therein and in the Credit Agreement, except that the face amount of the Revolving Loan Note shall be reduced from $20,000,000 to $15,000,000 upon the effectiveness of this Amendment. The Revolving Loan Note shall be deemed amended to reflect such reduction upon the effectiveness of this Amendment.

Section 5. Amendment of the Loan Documents . It is hereby agreed and understood by the Lender and the Company that, subject to the complete fulfillment and performance of the conditions precedent set forth in Section 6 of this Amendment and effective as of the effective date of this Amendment, each reference to the Credit Agreement, the Revolving Loan, the Term Loan, the Revolving Loan Note, the Term Loan Note, and/or any other defined terms or any Loan Documents in any Loan Documents shall be deemed to be a reference to any such defined terms or such agreements as such terms or agreements are amended or modified by this Amendment. Any breach of any representation, warranty, covenant or agreement contained in

this Amendment shall be deemed to be an Event of Default for all purposes of the Credit Agreement.

Section 6. Conditions Precedent . The effectiveness of this Amendment and the obligations of the Lender hereunder are subject to the satisfaction, or waiver by the Lender, of the following conditions precedent on or before the date hereof (unless otherwise provided or agreed to by the Lender) in addition to the conditions precedent specified in Section 12.2 of the Credit Agreement:

A. The Company shall have (i) paid to the Lender a waiver and amendment fee of $20,000, and (ii) paid and/or reimbursed all reasonable fees, costs and expenses relating to this Amendment and owed to the Lender pursuant to the Credit Agreement in connection with this Amendment.

B. The Company shall have delivered, or caused to be delivered, original fully completed, dated and executed originals of (i) this Amendment, and (ii) such other certificates, instruments, agreements or documents as the Lender may reasonably request (each of the foregoing certificates, instruments, agreements and documents described in this Section 6(B) (other than this Amendment) which constitute Loan Documents are hereinafter referred to collectively as the “ Other Documents ”).

C. The following statements shall be true and correct and the Company, by executing and delivering this Amendment to the Lender and the Administrative Agent, hereby certifies that the following statements are true and correct as of the date hereof:

(1) Other than as expressly contemplated by this Amendment, since the date of the most recent financial statements furnished by the Company to the Lender (which financial statements were true and correct in all material respects and otherwise conformed to the requirements set forth in the Credit Agreement for such financial statements), there shall have been no change which has had or will have a material adverse effect on the business, operations, properties, condition (financial or otherwise) or prospects of the Loan Parties taken as a whole;

(2) The representations and warranties of the Company set forth in the Credit Agreement and the other Loan Documents (as amended by this Amendment) are true and correct in all respects on and as of the date of this Amendment with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, and no Unmatured Event of Default or Event of Default (other than the Existing Covenant Default waived in this Amendment) has occurred and is continuing; and

(3) No consents, licenses or approvals are required in connection with the execution, delivery and performance by the Company of this Amendment or the Other Documents or the validity or enforceability against the Company of this

Amendment or the Other Documents which have not been obtained and delivered to the Lender.

Section 7. Miscellaneous .

A. Except as expressly amended and modified by this Amendment, the Credit Agreement and the other Loan Documents are and shall continue to be in full force and effect in accordance with the terms thereof.

B. This Amendment may be executed by the parties hereto in counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

C. This Amendment shall be construed in accordance with and governed by the internal laws, and not the laws of conflict, of the State of Illinois.

D. The headings contained in this Amendment are for ease of reference only and shall not be considered in construing this Amendment.

[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to Credit Agreement to be duly executed as of the day and year first above written.

	COMPANY:

	CONTINENTAL MATERIALS CORPORATION

	By:	/s/ Joseph J Sum
		Joseph J. Sum
		Chief Financial Officer


	ADMINISTRATIVE AGENT AND LENDER:


	THE PRIVATEBANK AND TRUST COMPANY

	By:	/s/ Steven M. Cohen
		Steven M. Cohen
		Managing Director & Senior Vice President

ACKNOWLEDGMENT, AGREEMENT, CONSENT

AND REAFFIRMATION OF LOAN PARTIES

Each of the undersigned Loan Parties, for good and valuable consideration, receipt of which is hereby acknowledged: (a) hereby acknowledges receipt of a copy of the foregoing Amendment, acknowledges that such Loan Party has read and reviewed the terms thereof, and acknowledges that such Loan Party has been afforded an adequate opportunity to have the foregoing Amendment reviewed by such Loan Party’s counsel; (b) hereby consents to the terms and conditions of the foregoing Amendment; and (c) hereby acknowledges and agrees that such Loan Party’s duties, obligations and liabilities to the Administrative Agent and/or the Lender under the Guaranty and Collateral Agreement shall be continuing and shall remain in full force and effect against such Loan Party irrespective of the amendments to the Credit Agreement contained in the foregoing Amendment or any other amendments or modifications to any of the other Loan Documents.

In addition to the foregoing, each of the undersigned Loan Parties (i) hereby ratifies, reaffirms and confirms its pledge, hypothecation, and grant of a continuing lien and first priority security interest in favor of the Administrative Agent in all of the assets of such Loan Party pledged to the Administrative Agent under the Guaranty and Collateral Agreement (subject to the terms and conditions set forth therein), and (ii) hereby acknowledges that such pledge shall continue in full force and effect securing the Secured Obligations under and as defined in the Guaranty and Collateral Agreement notwithstanding the execution and delivery of the foregoing Amendment.

IN WITNESS WHEREOF, each of the undersigned Loan Parties has duly executed this Acknowledgment, Agreement, Consent and Reaffirmation of Loan Parties to the First Amendment to Credit Agreement as of November 18, 2009.

	MCKINNEY DOOR AND HARDWARE, INC.


	By:	/s/ Joseph J Sum
		Joseph J. Sum
		Treasurer

	TRANSIT MIX CONCRETE CO.


	By:	/s/ Joseph J Sum
		Joseph J. Sum
		Treasurer

	TRANSIT MIX OF PUEBLO, INC.


	By:	/s/ Joseph J Sum
		Joseph J. Sum
		Chief Financial Officer

	WILLIAMS FURNACE CO.


	By:	/s/ Joseph J Sum
		Joseph J. Sum
		Treasurer

	PHOENIX MANUFACTURING, INC.


	By:	/s/ Joseph J Sum
		Joseph J. Sum
		Treasurer

	CASTLE CONCRETE COMPANY


	By:	/s/ Joseph J Sum
		Joseph J. Sum
		Treasurer

	EDENS INDUSTRIAL PARK INC.


	By:	/s/ Joseph J Sum
		Joseph J. Sum
		Treasurer

Exhibit 10.2

Execution Version

WAIVER AND SECOND AMENDMENT TO CREDIT AGREEMENT

THIS WAIVER AND SECOND AMENDMENT TO CREDIT AGREEMENT (this “ Amendment ”), dated as of April 15, 2010, is entered into by and among CONTINENTAL MATERIALS CORPORATION, a Delaware corporation (the “ Company ”), the financial institutions that are or may from time to time become parties to the Credit Agreement referenced below (together with their respective successors and assigns, the “ Lenders ” and each, a “ Lender ”) and THE PRIVATEBANK AND TRUST COMPANY, an Illinois state chartered bank as Administrative Agent for each Lender (the “ Administrative Agent ”). Capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Credit Agreement referenced below.

WHEREAS, the Lender previously made available to the Company a credit facility pursuant to the terms and conditions of that certain Credit Agreement, dated as of April 16, 2009, by and among the Company, the Lender and the Administrative Agent, as amended by that certain First Amendment to Credit Agreement, dated as of November 18, 2009, by and among the Company, the Lender and the Administrative Agent (the “ First Amendment ”) (as further amended, restated or supplemented from time to time, the “ Credit Agreement ”);

WHEREAS, pursuant to the Credit Agreement, the Lender previously (i) made available to the Company a revolving credit facility in the amount of $20,000,000 (reduced to $15,000,000 pursuant to the First Amendment), and (ii) funded a term loan in the original principal amount of $10,000,000;

WHEREAS, the parties to this Amendment desire to amend the Credit Agreement to, among other things, (i) reduce the Revolving Commitment to $13,500,000 from and after October 1, 2010, (ii) shorten the maturity date of the Revolving Loan and Term Loan to August 1, 2011, (iii) modify certain financial covenants, eliminate certain financial covenants and eliminate the requirement to test the financial covenants on April 3, 2010, (iv) modify the definition of Borrowing Base to reduce the inventory cap from $7,500,000 to $6,750,000, (v) modify the pricing applicable to the Revolving Loan and Term Loan, and (vi) modify the definition of Eligible Accounts to exclude any Dating Program Accounts that are more than sixty (60) days past due, in each case, all on the terms and conditions set forth herein; and

WHEREAS, as of the date of this Amendment, there exist Events of Default under and as defined in the Credit Agreement as a result of the Company’s failure to comply with the minimum Adjusted EBITDA requirement in Section 11.13.1 of the Credit Agreement and the Fixed Charge Coverage Ratio requirement in Section 11.13.2 of the Credit Agreement, in each case, for the period ended January 2, 2010 (the “ Existing Covenant Defaults ”).

Section 1. Incorporation of Recitals . The foregoing recitals are hereby incorporated into and made a part of this Amendment.

Section 2. Amendment of the Credit Agreement . It is hereby agreed and understood that, subject to the complete fulfillment and performance of the conditions precedent set forth in Section 7 of this Amendment, the Credit Agreement is hereby amended and modified as follows:

A. Section 1.1 . Section 1.1 of the Credit Agreement is hereby amended as follows:

(1) The definition of “ Applicable Margin ” is hereby deleted in its entirety and replaced with the following (and Annex C of the Credit Agreement is hereby eliminated):

“ Applicable Margin means, for any day, the rate per annum set forth below, it being understood that the Applicable Margin for (i) LIBOR Loans shall be the percentage set forth under the column “LIBOR Margin”, (ii) Base Rate Loans shall be the percentage set forth under the column “Base Rate Margin”, (iii) the Non-Use Fee Rate shall be the percentage set forth under the column “Non-Use Fee Rate” and (iv) the L/C Fee shall be the percentage set forth under the column “L/C Fee Rate”:

Revolving Loan and Term Loan
LIBOR Margin		Base Rate Margin		Non-Use Fee Rate		L/C Fee Rate
4.0	%	1.75	%	0.375	%	1.50	%”

(2) The inventory cap (currently set at $7,500,000) contained in the definition of “ Borrowing Base ” is hereby reduced to $6,750,000.

(3) The definition of “ Computation Period ” is hereby deleted in its entirety and replaced with the following:

“ Computation Period means (a) with respect to each financial covenant contained in Section 11.13 (other than the minimum Adjusted EBITDA covenant contained in Section 11.13.1 ), each period of four consecutive Fiscal Quarters ending on the last day of a Fiscal Quarter, and (b) with respect to the minimum Adjusted EBITDA covenant contained in Section 11.13.1 , each period of three consecutive months ending on the last day of a Fiscal Quarter, commencing with the Fiscal Quarter ending July 3, 2010.”

(4) Clause (k) of the definition of “ Eligible Account ” is hereby deleted in its entirety and replaced with the following:

“(k) such Account is evidenced by an invoice delivered to the related Account Debtor and is not more than (i) sixty (60) days past the due date thereof as reflected in the original invoice therefor, or (ii) one-hundred (120) days past the original invoice date therefor ( provided , however, the requirement set forth in item (ii) of this clause (k) shall not apply to the Dating Program Accounts to the extent the applicable Account Debtors are in compliance with the terms and conditions of the Dating Program with respect to the applicable Dating Program Accounts and a Senior Officer certifies in the applicable Borrowing Base Certificate that to his or her knowledge such Account Debtors are in compliance with the Dating Program and that such Dating Program Accounts (including any portion thereof) are not more than sixty (60) days past due);”

(5) The definition of “ Revolving Commitment ” is hereby deleted in its entirety and replaced with the following:

“ Revolving Commitment means (a) $15,000,000 at all times prior to October 1, 2010, and (b) $13,500,000 at all times from and after October 1, 2010, as reduced from time to time pursuant to Section 6.1 .”

(6) The definition of “ Term Loan Maturity Date ” is hereby deleted in its entirety and replaced with the following:

“ Term Loan Maturity Date means the earlier of (a) August 1, 2011 or (b) the Termination Date.”

(7) The definition of “ Termination Date ” is hereby deleted in its entirety and replaced with the following:

“ Termination Date means the earlier to occur of (a) August 1, 2011 or (b) such other date on which the Commitments terminate pursuant to Section 6 or Section 13 .”

B. Section 11.13.1 . Section 11.13.1 (Minimum Adjusted EBITDA) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:

“11.13.1 Minimum Adjusted EBITDA . Not permit Adjusted EBITDA for any Computation Period to be less than the applicable amount set forth below for such Computation Period:

Computation Period Ending	Adjusted EBITDA

July 3, 2010	$	2,100,000

October 2, 2010	$	2,000,000

January 1, 2011	$	500,000

April 2, 2011	$	(600,000	)

July 2, 2011	$	2,100,000	”

C. Section 11.13.2 . Section 11.13.2 (Minimum Fixed Charge Coverage Ratio) of the Credit Agreement is hereby deleted in its entirety and replaced with the following (and such financial covenant is hereby removed from the Credit Agreement):

“11.13.2 [ Intentionally Deleted ].”

D. Section 11.13.4 . Section 11.13.4 (Maximum Adjusted Total Cash Flow Leverage) of the Credit Agreement is hereby deleted in its entirety and replaced with the following (and such financial covenant is hereby removed from the Credit Agreement):

“11.13.4 [ Intentionally Deleted ].”

E. Sections 11.13.3 and 11.13.5 . Notwithstanding the test dates set forth in Section 11.13.3 (Minimum Tangible Net Worth) and Section 11.13.5 (Capital Expenditures), such financial covenants shall not be tested for the Computation Period ended April 3, 2010, it being agreed that the next test date for both such financial covenants after April 3, 2010 shall be July 3, 2010. Other than eliminating the April 3, 2010 test date for both such financial covenants, the requirements and test dates for such financial covenants shall continue in full force and affect.

Section 3. Borrowing Base . The Company acknowledges and agrees that, as provided in the most recent field audit report, effective as of the date hereof, the following reserves will be implemented in respect of the Eligible Inventory component of the Borrowing Base: (i) a reserve for slow-moving Inventory in the amount of $3,115,000, and (ii) a test count reserve equal to seven percent (7.0%) of the Eligible Inventory of Williams Furnace. As a condition to the effectiveness of this Amendment, the Company will deliver a pro forma Borrowing Base Certificate setting forth the Borrowing Base as of April 3, 2010 (giving effect to the modifications and the reserves set forth in this Amendment). Notwithstanding anything to the contrary contained herein, the Administrative Agent shall not be restricted from implementing additional reserves or increasing any reserves with respect to the Borrowing Base, which the Administrative Agent deems necessary in its reasonable discretion.

Section 4. Waiver . It is hereby agreed and understood that, subject to the complete fulfillment and performance of the conditions precedent set forth in Section 7 of this Amendment, the Administrative Agent and each Lender hereby waives the Existing Covenant Defaults and all of their respective rights and remedies with respect to the Existing Covenant Defaults. The waiver hereunder will not in any way operate as (i) an amendment or modification of the Credit Agreement or any related agreement, (ii) a waiver of repayment by the Company of any portion of the outstanding Obligations under the Credit Agreement, or (iii) a waiver of, or consent with respect to, any existing or future Event of Default, or a waiver or abandonment to any right or remedy available to the Lender with respect to any such Event of Default, all of which rights are reserved.

Section 5. Revolving Loan Note and Term Loan Note . It is hereby agreed and understood that the Revolving Loan Note and the Term Loan Note remain in full force and effect and that the Obligations evidenced thereby remain due and payable on the terms set forth therein and in the Credit Agreement (as modified by this Amendment).

Section 6. Amendment of the Loan Documents . It is hereby agreed and understood by the Administrative Agent, each Lender and the Company that, subject to the complete fulfillment and performance of the conditions precedent set forth in Section 7 of this Amendment and effective as of the effective date of this Amendment, each reference to the Credit Agreement, the Revolving Loan, the Term Loan, the Revolving Loan Note, the Term Loan Note, and/or any other defined terms or any Loan Documents in any Loan Documents shall be deemed to be a reference to any such defined terms or such agreements as such terms or agreements are amended or modified by this Amendment. Any breach of any representation, warranty, covenant or agreement contained in this Amendment shall be deemed to be an Event of Default for all purposes of the Credit Agreement.

Section 7. Conditions Precedent . The effectiveness of this Amendment and the obligations of the Administrative Agent and each Lender hereunder are subject to the satisfaction, or waiver by the Administrative Agent, of the following conditions precedent on or before the date hereof (unless otherwise provided or agreed to by the Administrative Agent) in addition to the conditions precedent specified in Section 12.2 of the Credit Agreement:

A. The Company shall have (i) paid to the Administrative Agent, for its benefit and the ratable benefit of each Lender, a waiver and amendment fee of $20,000, and (ii) paid and/or reimbursed all reasonable fees, costs and expenses relating to this Amendment and owed to the Lender pursuant to the Credit Agreement in connection with this Amendment.

B. The Company shall have delivered, or caused to be delivered, original fully completed, dated and executed originals of (i) this Amendment, (ii) a pro forma Borrowing Base Certificate setting forth the Borrowing Base as of April 3, 2010 (giving effect to the modifications and the reserves set forth in this Amendment), and (iii) such other certificates, instruments, agreements or documents as the Administrative Agent may reasonably request (each of the foregoing certificates, instruments, agreements and documents described in this Section 7(B) (other than this Amendment) which constitute Loan Documents are hereinafter referred to collectively as the “ Other Documents ”).

C. The following statements shall be true and correct and the Company, by executing and delivering this Amendment to the Lender and the Administrative Agent, hereby certifies that the following statements are true and correct as of the date hereof:

(1) Other than as expressly contemplated by this Amendment, since the date of the most recent financial statements furnished by the Company to the Administrative Agent (which financial statements were true and correct in all material respects and otherwise conformed to the requirements set forth in the Credit Agreement for such financial statements), there shall have been no change which has had or will have a material adverse effect on the business, operations, properties or financial condition of the Loan Parties taken as a whole;

(2) The representations and warranties of the Company set forth in the Credit Agreement and the other Loan Documents (as amended by this Amendment) are true and correct in all respects on and as of the date of this Amendment with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date, and no Unmatured Event of Default or Event of Default (other than the Existing Covenant Defaults waived in this Amendment) has occurred and is continuing; and

(3) No consents, licenses or approvals are required in connection with the execution, delivery and performance by the Company of this Amendment or the Other Documents or the validity or enforceability against the Company of this Amendment or the Other Documents which have not been obtained and delivered to the Lender.

Section 8. Miscellaneous .

A. Except as expressly amended and modified by this Amendment, the Credit Agreement and the other Loan Documents are and shall continue to be in full force and effect in accordance with the terms thereof.

B. This Amendment may be executed by the parties hereto in counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

C. This Amendment shall be construed in accordance with and governed by the internal laws, and not the laws of conflict, of the State of Illinois.

D. The headings contained in this Amendment are for ease of reference only and shall not be considered in construing this Amendment.

[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF, the parties hereto have caused this Waiver and Second Amendment to Credit Agreement to be duly executed as of the day and year first above written.

	COMPANY:

	CONTINENTAL MATERIALS CORPORATION

	By:	/s/ Joseph J. Sum
		Joseph J. Sum
		Chief Financial Officer


	ADMINISTRATIVE AGENT AND LENDER:


	THE PRIVATEBANK AND TRUST COMPANY

	By:	/s/ Steven M. Cohen
		Steven M. Cohen
		Managing Director & Senior Vice President

ACKNOWLEDGMENT, AGREEMENT, CONSENT

AND REAFFIRMATION OF LOAN PARTIES

IN WITNESS WHEREOF, each of the undersigned Loan Parties has duly executed this Acknowledgment, Agreement, Consent and Reaffirmation of Loan Parties to the Waiver and Second Amendment to Credit Agreement as of April 15, 2010.

	MCKINNEY DOOR AND HARDWARE, INC.


	By:	/s/ Joseph J. Sum
		Joseph J. Sum
		Treasurer

	TRANSIT MIX CONCRETE CO.


	By:	/s/ Joseph J. Sum
		Joseph J. Sum
		Treasurer

	TRANSIT MIX OF PUEBLO, INC.


	By:	/s/ Joseph J. Sum
		Joseph J. Sum
		Chief Financial Officer

	WILLIAMS FURNACE CO.


	By:	/s/ Joseph J. Sum
		Joseph J. Sum
		Treasurer

	PHOENIX MANUFACTURING, INC.


	By:	/s/ Joseph J. Sum
		Joseph J. Sum
		Treasurer

	CASTLE CONCRETE COMPANY


	By:	/s/ Joseph J. Sum
		Joseph J. Sum
		Treasurer

	EDENS INDUSTRIAL PARK INC.


	By:	/s/ Joseph J. Sum
		Joseph J. Sum
		Treasurer

Exhibit 10c

CONTINENTAL MATERIALS CORPORATION

EMPLOYEES PROFIT SHARING RETIREMENT PLAN

2009 Amendment and Restatement

CONTINENTAL MATERIALS CORPORATION

EMPLOYEES PROFIT SHARING RETIREMENT PLAN

WHEREAS, Continental Materials Corporation (hereinafter referred to as the “Employer”) heretofore adopted the Continental Materials Corporation Employees Profit Sharing Retirement Plan (hereinafter referred to as the “Plan”) for the benefit of its eligible Employees, effective as of January 1, 1965; and

WHEREAS, the Employer reserved the right to amend the Plan; and

WHEREAS, the Employer wishes to amend the Plan in order to comply with changes permitted or required by the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), technical corrections made by the Job Creation and Worker Assistance Act of 2002 (“JCWAA”), and other regulations and guidance published by the Internal Revenue Service that are effective after December 31, 2001, including final regulations issued under Section 415 of the Internal Revenue Code of 1986, as amended (the “Code”); and

WHEREAS, it is intended that the Plan is to continue to be a qualified profit sharing plan under Section 401(a) and 501(a) of the Code for the exclusive benefit of the Participants and their Beneficiaries; and

WHEREAS, it is intended that the cash or deferral arrangement forming part of the Plan is to continue to qualify under Section 401(k) of the Code;

NOW, THEREFORE, the Plan is hereby amended by restating the Plan, effective as of January 1, 2009, except where the provisions of the Plan (or the requirements of applicable law) shall otherwise specifically provide, in its entirety as follows:

TABLE OF CONTENTS

ARTICLE ONE—DEFINITIONS

1.1 Account

1.2 Administrator

1.3 Beneficiary

1.4 Break in Service

1.5 Code

1.6 Company Stock

1.7 Compensation

1.8 Disability

1.9 Effective Date

1.10 Employee

1.11 Employer

1.12 Employment Date

1.13 Fail-Safe Contribution

1.14 Highly-Compensated Employee

1.15 Hour of Service

1.16 Leased Employee

1.17 Nonhighly-Compensated Employee

1.18 Normal Retirement Date

1.19 Participant

1.20 Plan

1.21 Plan Year

1.22 Trust

1.23 Trustee

1.24 Valuation Date

1.25 Year of Service

ARTICLE TWO—SERVICE DEFINITIONS AND RULES

2.1 Year of Service

2.2 Break in Service

2.3 Leave of Absence

2.4 Rule of Parity on Return to Employment

2.5 Service in Excluded Job Classifications or with Related Companies

ARTICLE THREE—PLAN PARTICIPATION

3.1 Participation

3.2 Re-employment of Former Participant

3.3 Termination of Eligibility

3.4 Compliance with USERRA

ARTICLE FOUR—ELECTIVE DEFERRALS, EMPLOYER CONTRIBUTIONS, ROLLOVERS AND TRANSFERS FROM OTHER PLANS

4.1 Elective Deferrals

4.2 Employer Contributions

4.3 Rollovers and Transfers of Funds from Other Plans

4.4 Timing of Contributions

4.5 Employee After-Tax Contributions

4.6 Allocation of Service Credit

ARTICLE FIVE—ACCOUNTING RULES

5.1 Investment of Accounts and Accounting Rules

ARTICLE SIX—VESTING AND RETIREMENT BENEFITS

6.1 Vesting

6.2 Forfeiture of Nonvested Balance

6.3 Distribution of Less than Entire Vested Account Balance

6.4 Normal Retirement

6.5 Disability

ARTICLE SEVEN—MANNER AND TIME OF DISTRIBUTING BENEFITS

7.1 Manner of Payment

7.2 Time of Commencement of Benefit Payments

7.3 Furnishing Information

7.4 Minimum Distribution Requirements

7.5 Amount of Death Benefit

7.6 Designation of Beneficiary

7.7 Distribution of Death Benefits

7.8 Eligible Rollover Distributions

ARTICLE EIGHT—LOANS AND IN-SERVICE WITHDRAWALS

8.1 Loans

8.2 Hardship Distributions

8.3 Withdrawals After Age 59½

8.4 Withdrawals of After-Tax Contributions

8.5 Withdrawals of Rollover Contributions

8.6 Withdrawals of Employer Contributions for other Financial Needs: For Former Williams Furnace Plan Participants

ARTICLE NINE—ADMINISTRATION OF THE PLAN

9.1 Plan Administration

9.2 Claims Procedure

9.3 Trust Agreement

ARTICLE TEN—SPECIAL COMPLIANCE PROVISIONS

10.1 Distribution of Excess Elective Deferrals

10.2 Limitations on 401(k) Contributions

10.3 Nondiscrimination Test for Employer Matching Contributions and After Tax Contributions

ARTICLE ELEVEN—LIMITATION ON ANNUAL ADDITIONS

11.1 Rules and Definitions

ARTICLE TWELVE—AMENDMENT AND TERMINATION

12.1 Amendment

12.2 Termination of the Plan

ARTICLE THIRTEEN—TOP-HEAVY PROVISIONS

13.1 Applicability

13.2 Definitions

13.3 Allocation of Employer Contributions and Forfeitures for a Top-Heavy Plan Year

13.4 Vesting

ARTICLE FOURTEEN—MISCELLANEOUS PROVISIONS

14.1 Plan Does Not Affect Employment

14.2 Successor to the Employer

14.3 Repayments to the Employer

14.4 Benefits not Assignable

14.5 Merger of Plans

14.6 Investment Experience not a Forfeiture

14.7 Construction

14.8 Governing Documents

14.9 Governing Law

14.10 Headings

14.11 Counterparts

14.12 Location of Participant or Beneficiary Unknown

14.13 Distribution to Minor or Legally Incapacitated

ARTICLE ONE—DEFINITIONS

For purposes of the Plan, unless the context or an alternative definition specified within another Article provides otherwise, the following words and phrases shall have the definitions provided:

1.1 “ACCOUNT” shall mean the individual bookkeeping accounts maintained for a Participant under the Plan which shall record (a) the Participant’s allocations of Employer contributions and forfeitures, (b) amounts of Compensation deferred to the Plan pursuant to the Participant’s election, (c) any amounts transferred to this Plan under Section 4.3 from another qualified retirement plan, or from another qualified plan in connection with a plan merger, (d) any after-tax contributions previously made to the Plan, and (e) the allocation of Trust investment experience.

1.2 “ADMINISTRATOR” shall mean the Plan Administrator appointed from time to time in accordance with the provisions of Article Nine hereof.

1.3 “BENEFICIARY” shall mean any person, trust, organization, or estate entitled to receive payment under the terms of the Plan upon the death of a Participant.

1.4 “BREAK IN SERVICE” shall have the meaning set forth in Article Two.

1.5 “CODE” shall mean the Internal Revenue Code of 1986, as amended from time to time.

1.6 “COMPANY STOCK” shall mean shares of common stock of Continental Materials Corporation.

1.7 “COMPENSATION” shall mean the compensation paid to a Participant by the Employer for the Plan Year, but exclusive of any program of deferred compensation or additional benefits payable other than in cash and exclusive of any compensation received prior to his becoming a Participant in the Plan. Compensation shall include any amounts deferred under a salary reduction agreement in accordance with Section 4.1 or a Code Section 125 plan maintained by the Employer.

Notwithstanding the foregoing, Compensation shall exclude nonqualified moving expense reimbursements, taxable fringe benefits, excess group term life insurance, and taxable medical or disability benefits.

Any Compensation paid after the Participant’s severance from employment with the Employer (except for Compensation attributable to the pay period in which the severance from employment occurred) shall not be treated as Compensation for purposes of Section 4.1 and Section 4.2.

In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, the annual Compensation of each Participant taken into account under the Plan shall not exceed $245,000 for the 2009 calendar year, and shall be adjusted annually by the Secretary of the Treasury or his delegate for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding twelve (12) months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than twelve (12) months, the annual compensation limit shall be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is twelve (12).

For purposes of determining who is a Highly-Compensated Employee, Compensation shall mean “Compensation” as defined above. However, in the event, the definition of Compensation excludes commission paid salesmen, compensation for services on the basis of a percentage for profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and/or reimbursements or expense allowances under a nonaccountable plan (as described in Regulation Section 1.62-2(c)), such excluded amounts shall be taken into account.

For purposes of applying the limitations described in Section 11.1, and for purposes of defining compensation under Section 1.14 and Article Thirteen of the Plan, compensation paid or made available during such limitations years (or Plan Years) shall include elective amounts that are not includible in the gross income of the Employee by reason of Section 125, 132(f)(4), 402(g)(3), 402(h)(1)(B), 457(b) or 403(b) of the Code.

1.8 “DISABILITY” shall mean a “permanent and total” disability incurred by a Participant while in the employ of the Employer. A Participant shall be deemed “disabled” if, in the opinion of the Administrator and based upon appropriate medical advice and examination, he is unable to perform his normal work for the Employer or any other work for which he is qualified by reason of education, training, or experience by reason of a medically determinable physical or mental impairment.

1.9 “EFFECTIVE DATE.” The Plan’s initial Effective Date was January 1, 1965. The Effective Date of this restated Plan, on and after which it supersedes the terms of the existing Plan document, is January 1, 2009, except where the provisions of the Plan (or the requirements of applicable law) shall otherwise specifically provide. The rights of any Participant who terminated employment with the Employer prior to the applicable date shall be established under the terms of the Plan and Trust as in effect at the time of the Participant’s termination from employment, unless the Participant subsequently returns to employment with the Employer, or unless otherwise provided under the terms of the Plan. Rights of spouses and Beneficiaries of such Participants shall also be governed by those documents.

1.10 “EMPLOYEE” shall mean a common law employee of the Employer. The term “Employee” shall also include any Leased Employee deemed to be an Employee of the Employer.

1.11 “EMPLOYER” shall mean Continental Materials Corporation and any subsidiary or affiliate which is a member of its “related group” (as defined in Section 2.5) which has adopted the Plan (a “Participating Affiliate”), and shall include any successor(s) thereto which adopt this Plan. Any such subsidiary or affiliate of Continental Materials Corporation may adopt the Plan with the approval of its board of directors (or noncorporate counterpart) subject to the approval of Continental Materials Corporation. The provisions of this Plan shall apply equally to each Participating Affiliate and its Employees except as specifically set forth in the Plan; provided, however, notwithstanding any other provision of this Plan, the amount and timing of contributions under Article 4 to be made by any Employer which is a Participating Affiliate shall be made subject to the approval of Continental Materials Corporation. For purposes hereof, each Participating Affiliate shall be deemed to have appointed Continental Materials Corporation as its agent to act on its behalf in all matters relating to the administration, amendment, termination of the Plan and the investment of the assets of the Plan. For purposes of the Code and ERISA, the Plan as maintained by Continental Materials Corporation and the Participating Affiliates shall constitute a single plan rather than a separate plan of each Participating Affiliate. All assets in the Trust shall be available to pay benefits to all Participants and their Beneficiaries.

1.12 “EMPLOYMENT DATE” shall mean the first date as of which an Employee is credited with an Hour of Service, provided that, in the case of a Break in Service, the Employment Date shall be the first date thereafter as of which an Employee is credited with an Hour of Service.

1.13 “FAIL-SAFE CONTRIBUTION” shall mean a qualified nonelective contribution which is a contribution (other than matching contributions or Qualified Matching Contributions (within the meaning of Section 10.2)) made by the Employer and allocated to Participants’ accounts that the Participants may not elect to receive in cash until distribution from the Plan; that are nonforfeitable when made; and that are distributable only in accordance with the distribution provisions under Section 401(k) of the Code and the regulations promulgated thereunder.

1.14 “HIGHLY-COMPENSATED EMPLOYEE” shall mean any Employee of the Employer who:

(a) was a five percent (5%) owner of the Employer (as defined in Section 416(i)(1)) of the Code at any time during the “determination year” or “look-back year”; or

(b) earned more than $105,000 of Compensation from the Employer during the “look-back year” and was in the top twenty percent (20%) of Employees by Compensation for such year. The $105,000 amount shall be adjusted at the same time and in the same manner as under Section 415(d) of the Code.

An Employee who terminated employment prior to the “determination year” shall be treated as a Highly-Compensated Employee for the “determination year” if such Employee was a Highly-Compensated Employee when such Employee terminated employment, or was a Highly-Compensated Employee at any time after attaining age fifty-five (55).

For purposes of this Section, the “determination year” shall be the Plan Year for which a determination is being made as to whether an Employee is a Highly-Compensated Employee.

The “look-back year” shall be the twelve (12) month period immediately preceding the “determination year”.

1.15 “HOUR OF SERVICE” shall have the meaning set forth below:

(a) An Hour of Service is each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer, during the applicable computation period.

(b) An Hour of Service is each hour for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence. Notwithstanding the preceding sentence,

(i) No more than five hundred and one (501) Hours of Service shall be credited under this paragraph (b) to any Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period). Hours under this paragraph will be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations which is incorporated herein by reference;

(ii) An hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed shall not be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable workmen’s compensation, or unemployment compensation or disability insurance laws; and

(iii) Hours of Service shall not be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee.

For purposes of this paragraph (b), a payment shall be deemed to be made by or due from the Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate.

(c) An Hour of Service is each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same Hours of Service shall not be credited both under paragraph (a) or paragraph (b), as the case may be, and under this paragraph (c). Thus, for example, an Employee who receives a back pay award following a determination that he was paid at an unlawful rate for Hours of Service previously credited shall not be entitled to additional credit for the same Hours of Service. Crediting of Hours of Service for back pay awarded or agreed to with respect to periods described in paragraph (b) shall be subject to the limitations set forth in that paragraph.

(d) Hours of Service under this Section shall be determined under the terms of the Family and Medical Leave Act of 1993 and the Uniformed Services Employment and Reemployment Rights Act of 1994.

In crediting Hours of Service, the “weeks of employment” method shall be utilized. Under this method, an Employee shall be credited with forty-five (45) Hours of Service for each week for which the Employee would be required to be credited with at least one (1) Hour of Service pursuant to the provisions enumerated above.

Hours of Service shall be credited for employment with other members of an affiliated service group (under Section 414(m) of the Code), a controlled group of corporations (under Section 414(b) of the Code), or a group of trades or businesses under common control (under Section 414(c) of the Code) of which the Employer is a member, and any other entity required to be aggregated under Section 414(o) of the Code.

Hours of Service shall be credited for any individual considered an Employee for purposes of this Plan under Section 414(n) or Section 414(o) of the Code.

1.16 “LEASED EMPLOYEE” shall mean any person (other than an employee of the recipient) who, pursuant to an agreement between the recipient Employer and any other person or organization, has performed services for the recipient Employer (determined in accordance with Section 414(n)(6) of the Code) on a substantially full-time basis for a period of at least one (1) year and where such services are performed under the primary direction and control of the recipient Employer. A person shall not be considered a Leased Employee if the total number of Leased Employees does not exceed twenty percent (20%) of the Nonhighly-Compensated Employees employed by the recipient Employer, and if any such person is covered by a money purchase pension plan providing (a) a nonintegrated employer contribution rate of at least ten percent (10%) of compensation, as defined in Section 11.1(b)(2) of the Plan but including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee’s gross income under Sections 125, 402(e)(3), 402(g), 402(h)(1)(B), 403(b), or 457(b) of the Code, and shall also include elective amounts that are not includible in the gross income of the Employee by reason of Section 132(f) of the Code, (b) immediate participation, and (c) full and immediate vesting.

1.17 “NONHIGHLY-COMPENSATED EMPLOYEE” shall mean an Employee of the Employer who is not a Highly-Compensated Employee.

1.18 “NORMAL RETIREMENT DATE” shall mean the Participant’s sixtieth (60 th ) birthday. The date on which the Participant attains age sixty (60) shall also be the Participant’s Normal Retirement Age.

1.19 “PARTICIPANT” shall mean any Employee who has satisfied the eligibility requirements of Article Three and who is participating in the Plan.

1.20 “PLAN” shall mean the Continental Materials Corporation Employees Profit Sharing Retirement Plan, as set forth herein and as may be amended from time to time.

1.21 “PLAN YEAR” shall mean the twelve (12)-consecutive month period beginning January 1 and ending December 31.

1.22 “TRUST” shall mean the Trust Agreement entered into between the Employer and the Trustee forming part of this Plan, together with any amendments thereto. “Trust Fund” shall mean any and all property held by the Trustee pursuant to the Trust Agreement, together with income therefrom.

1.23 “TRUSTEE” shall mean the Trustee or Trustees appointed by the Employer, and any successors thereto.

1.24 “VALUATION DATE” shall mean each day on which the New York Stock Exchange is open for business.

1.25 “YEAR OF SERVICE” or “SERVICE” and the special rules with respect to crediting Service are in Article Two of the Plan.

ARTICLE TWO—SERVICE DEFINITIONS AND RULES

Service is the period of employment credited under the Plan. Definitions and special rules related to Service are as follows:

2.1 YEAR OF SERVICE. For purposes of determining an Employee’s eligibility to participate in the Plan, an Employee shall be credited with a Year of Service if he completes at least one thousand (1,000) Hours of Service during the twelve (12)-consecutive month period commencing on his Employment Date. If an Employee fails to be credited with at least one thousand (1,000) Hours of Service during that computation period, he shall be credited with a Year of Service if he is credited with at least one thousand (1,000) Hours of Service in any Plan Year commencing on or after his Employment Date. For purposes of determining an Employee’s nonforfeitable right to that portion of his Account attributable to Employer contributions under the schedule set forth in Section 6.1, an Employee shall be credited with a Year of Service for each Plan Year in which he is credited with at least one thousand (1,000) Hours of Service. For eligibility purposes, an Employee shall be credited with a Year of Service as of the last day of each such twelve (12) month period. For vesting purposes, an Employee shall be credited with a Year of Service upon completion of the one thousandth (1,000 th ) hour in each such twelve (12)-month period.

Any Employee who was a participant in the Phoenix Manufacturing, Inc. Employees Profit Sharing Retirement Plan (the “Phoenix Plan”) and whose account balance thereunder was transferred to the Plan in connection with the merger of the Phoenix Plan as of October 1, 1997, shall be credited with any “Year(s) of Service” earned under the Phoenix Plan. In addition, any Employee who was employed by Rocky Mountain Ready Mix Concrete, Inc., Colorado State Safe and Lock or ASCI as of the date of such company’s acquisition by the Employer, shall be credited with any prior service with such company in determining such Employee’s Year(s) of Service.

2.2 BREAK IN SERVICE. A Break in Service shall be a twelve (12)-month computation period (as used for measuring Years of Service for vesting purposes) in which an Employee or Participant is not credited with at least five hundred and one (501) Hours of Service.

2.3 LEAVE OF ABSENCE. A Participant on an unpaid leave of absence pursuant to the Employer’s normal personnel policies shall be credited with Hours of Service at his regularly-scheduled weekly rate while on such leave, provided the Employer acknowledges in writing that the leave is with its approval. These Hours of Service shall be credited only for purposes of determining if a Break in Service has occurred and, unless specified otherwise by the Employer in writing, shall not be credited for eligibility to participate in the Plan, vesting, or qualification to receive an allocation of Employer contributions and forfeitures. Hours of Service during a paid leave of absence shall be credited as provided in Section 1.15.

For any individual who is absent from work for any period by reason of the individual’s pregnancy, birth of the individual’s child, placement of a child with the individual in connection with the individual’s adoption of the child, or by reason of the individual’s caring for the child for a period beginning immediately following such birth or adoption, the Plan shall treat as Hours of

Service, solely for determining if a Break in Service has occurred, the following Hours of Service:

(a) the Hours of Service which otherwise normally would have been credited to such individual but for such absence; or

(b) in any case where the Administrator is unable to determine the Hours of Service, on the basis of an assumed eight (8) hours per day.

In no event shall more than five hundred and one (501) of such hours be credited by reason of such period of absence. The Hours of Service shall be credited in the computation period (used for measuring Years of Service for vesting purposes) which starts after the leave of absence begins. However, the Hours of Service shall instead be credited in the computation period in which the absence begins if it is necessary to credit the Hours of Service in that computation period to avoid the occurrence of a Break in Service.

2.4 RULE OF PARITY ON RETURN TO EMPLOYMENT. An Employee who returns to employment after a Break in Service shall retain credit for his pre-Break Years of Service, subject to the following rules:

(a) If a Participant incurs five (5) or more consecutive Breaks in Service, any Years of Service performed thereafter shall not be used to increase the nonforfeitable interest in his Account accrued prior to such five (5) or more consecutive Breaks in Service.

(b) If when a Participant incurred a Break in Service, he was not vested in any portion of his Account derived from Employer contributions, his pre-Break Years of Service shall be disregarded if his consecutive Breaks in Service equal or exceed five (5). Effective for Plan Years beginning on and after January 1, 2006, the words “derived from Employer contributions” shall be removed from the preceding sentence.

Subject to the preceding paragraphs of this Section, an Employee’s pre-Break Years of Service and post-Break Years of Service shall count in determining the vested percentage of the Employee’s Account derived from all Employer contributions (i.e., Employer contributions attributable to employment before and after the Employee’s Break in Service).

2.5 SERVICE IN EXCLUDED JOB CLASSIFICATIONS OR WITH RELATED COMPANIES

(a) Service while a Member of an Ineligible Classification of Employees . An Employee who is a member of an ineligible classification of Employees shall not be eligible to participate in the Plan while a member of such ineligible classification. However, if any such Employee is transferred to an eligible classification, such Employee shall be credited with any prior periods of Service completed while a member of such an ineligible classification both for purposes of determining his Years of Service under Section 2.1 and his “Months of Service” under Section 3.1. For this purpose, an Employee shall be considered a member of an ineligible classification of Employees for any period during

which he is employed in a job classification which is excluded from participating in the Plan under Section 3.1 below.

(b) Service with Related Group Members . Subject to Section 2.1, for each Plan Year in which the Employer is a member of a “related group”, as hereinafter defined, all Service of an Employee or Leased Employee (hereinafter collectively referred to as “Employee” solely for purposes of this Section 2.5(b)) with any one or more members of such related group shall be treated as employment by the Employer for purposes of determining the Employee’s Years of Service under Section 2.1 and his Months of Service under Section 3.1. The transfer of employment by any such Employee to another member of the related group shall not be deemed to constitute a retirement or other termination of employment by the Employee for purposes of this Section, but the Employee shall be deemed to have continued in employment with the Employer for purposes of determining the Employee’s Years of Service and his Months of Service. For purposes of this subsection (b), “related group” shall mean the Employer and all corporations, trades or businesses (whether or not incorporated) which constitute a controlled group of corporations with the Employer, a group of trades or businesses under common control with the Employer, or an affiliated service group which includes the Employer, within the meaning of Section 414(b), Section 414(c), or Section 414(m), respectively, of the Code or any other entity required to be aggregated under Code Section 414(o).

(c) Construction . This Section is included in the Plan to comply with the Code provisions regarding the crediting of Service, and not to extend any additional rights to Employees in ineligible classifications other than as required by the Code and regulations thereunder.

ARTICLE THREE—PLAN PARTICIPATION

3.1 PARTICIPATION. All Employees participating in the Plan prior to the Plan’s restatement shall continue to participate, subject to the terms hereof.

Subject to the following provisions of this Section 3.1, each other Employee shall become a Participant under the Plan, for all purposes, except for eligibility to share in any additional Employer matching contributions made under Section 4.2(b), as of the first day of the calendar month coincident with or next following his completion of one (1) Month of Service. Each other Employee shall become a Participant, for purposes of being eligible to share in any additional Employer matching contributions made under Section 4.2(b), effective as of the first day of the calendar month coincident with or next following the completion of one (1) Year of Service.

For purposes of this Section 3.1, an Employee shall be credited with a Month of Service for each thirty (30)-day period commencing on his Employment Date and ending on the date he separates from Service for any reason.

Notwithstanding the foregoing, an Employee who is not in an otherwise excluded class of Employees under the Plan as described below and is employed in a job classification where the customary period of employment is less than one thousand (1,000) Hours of Service in a calendar year shall become a Participant for all purposes as of the January 1 st or July 1 st coincident with or next following his completion of a Year of Service.

In no event, however, shall any Employee (or other individual) participate under the Plan while he is: (i) included in a unit of Employees covered by a collective bargaining agreement between the Employer and the Employee representatives under which retirement benefits were the subject of good faith bargaining, unless the terms of such bargaining agreement expressly provides for the inclusion in the Plan; (ii) employed as an independent contractor on the payroll records of the Employer (regardless of any subsequent reclassification by the Employer, any governmental agency or court); or (iii) employed as a Leased Employee.

3.2 RE-EMPLOYMENT OF FORMER PARTICIPANT. A vested Participant (or a nonvested Participant whose prior Service cannot be disregarded) whose participation ceased because of termination of employment with the Employer shall resume participating upon his reemployment as an eligible Employee; provided, however, that such an individual shall be entitled to commence elective deferrals (within the meaning of Section 4.1) as soon as administratively possible following his return to participation in the Plan.

3.3 TERMINATION OF ELIGIBILITY. In the event a Participant is no longer a member of an eligible class of Employees and he becomes ineligible to participate, such Employee shall resume participating upon his return to an eligible class of Employees; provided, however, that such an individual shall be entitled to commence elective deferrals (within the meaning of Section 4.1) as soon as administratively possible following his return to participation in the Plan.

In the event an Employee who is not a member of an eligible class of Employees becomes a member of an eligible class, such Employee shall participate upon becoming a member of an eligible class of Employees, if such Employee has otherwise satisfied the eligibility requirements of Section 3.1 and would have otherwise previously become a Participant; provided, however, that such an individual shall be entitled to commence elective deferrals (within the meaning of Section 4.1) as soon as administratively possible following his becoming a Participant.

3.4 COMPLIANCE WITH USERRA. Notwithstanding any provision of this Plan to the contrary, Participants shall receive service credit and be eligible to make deferrals and receive Employer contributions with respect to periods of qualified military service (within the meaning of Section 414(u)(5) of the Code) in accordance with Section 414(u) of the Code.

ARTICLE FOUR—ELECTIVE DEFERRALS, EMPLOYER CONTRIBUTIONS, ROLLOVERS AND TRANSFERS FROM OTHER PLANS

4.1 ELECTIVE DEFERRALS

(a) Elections . A Participant may elect to defer a portion of his Compensation for a Plan Year on a pre-tax basis. The amount of a Participant’s Compensation contributed in accordance with the Participant’s election shall be withheld by the Employer from the Participant’s Compensation on a ratable basis throughout the Plan Year. Notwithstanding the foregoing, a Participant may elect to contribute all or a portion of any bonus payments paid to him during the Plan Year. For purposes of making elective deferrals pursuant to this Section, only Compensation earned while eligible to make such deferrals shall be considered. The amount deferred on behalf of each Participant shall be contributed by the Employer to the Plan and allocated to the portion of the Participant’s Account consisting of pre-tax contributions.

Each Participant who is a Nonhighly-Compensated Employee may elect to contribute from one percent (1%) to fifty percent (50%) of such Participant’s Compensation as a pre-tax contribution. Each Participant who is a Highly-Compensated Employees may elect to contribute from one percent (1%) to fifteen percent (15%) of such Participant’s Compensation as a pre-tax contribution.

Notwithstanding the foregoing, any Employee, upon first becoming eligible to participate in the Plan pursuant to Section 3.1, who fails to affirmatively make any deferral election (including an election to contribute zero percent (0%) of his Compensation to the Plan) within the time prescribed by the Administrator, shall be deemed to have elected to defer three percent (3%) of his Compensation as a pre-tax contribution (“deemed elective deferral”). The Administrator shall provide to each Employee a notice of his right to receive the amount of the deemed elective deferral in cash and his right to increase or decrease his rate of elective deferrals. The Administrator shall also provide each such Employee a reasonable period to exercise such right before the date on which the cash is currently available.

(b) Changes in Election . A Participant may prospectively elect to change or revoke the amount (or percentage) of his elective deferrals during the Plan Year by filing a written election with the Employer, or via such other method as permitted by applicable law.

(c) Limitations on Deferrals . Except to the extent permitted under Section 4.1(e), no Participant shall be permitted to make elective deferrals during any taxable year in excess of the dollar limitation contained in Section 402(g) of the Code in effect for such taxable year.

(d) Administrative Rules . All elections made under this Section 4.1, including the amount and frequency of deferrals, shall be subject to the rules of the Administrator which shall be consistently applied and which may be changed from time to time.

(e) Catch-up Contributions . All Participants who are eligible to make elective deferrals under Section 4.1(a) and who have attained age fifty (50) before the close of the taxable year shall be eligible to make catch-up contributions in accordance with, and subject to the limitations of, Section 414(v) of the Code. The dollar limit on Catch-up Contributions under Section 414(v)(2)(B)(i) of the Code is $1,000 for taxable years beginning in 2002, increasing by $1,000 for each year thereafter up to $5,500 for taxable years beginning in 2009 and later years. After 2009, the $5,500 limit will be adjusted by the Secretary of the Treasury for cost-of-living increases under Section 414(v)(2)(C) of the Code. Any such adjustments will be in multiples of $500.

Such catch-up contributions shall not be taken into account for purposes of the provisions of the Plan implementing the required limitations of Section 402(g) and 415 of the Code. The Plan shall not be treated as failing to satisfy the requirements of the Plan implementing the requirements of Section 401(k)(3), 401(k)(11), 401(k)(12), 402A, 410(b), or 416 of the Code, as applicable, by reason of the making of such catch-up contributions.

4.2 EMPLOYER CONTRIBUTIONS

(a) Employer Matching Contributions . For each payroll period, the Employer may contribute to the Plan, on behalf of each Participant, a discretionary matching contribution equal to a percentage (as determined by the Employer’s board of directors) of the elective deferrals (within the meaning of Section 4.1) made by each such Participant; provided, however, that the amount of such Employer matching contribution for any Participant in a Plan Year shall not exceed three percent (3%) of the Participant’s Compensation for the period during which elective deferrals are made by the Participant. The Employer’s board of directors may also determine to suspend or reduce its contributions under this Section for any Plan Year or any portion thereof. Allocations under this Section shall be subject to the special rules of Section 13.3 in any Plan Year in which the Plan is a Top-Heavy Plan (as defined in Section 13.2(b)).

Notwithstanding the foregoing provisions of this Section 4.2(a), if a Participant’s elective deferrals for a Plan Year reach the maximum amount set out in Section 4.1(c) (or such other Plan imposed limit) and, as a result, the Participant is not eligible to make elective deferrals to the Plan for the balance of such year, or if the Participant varies the rate of his elective deferrals during a Plan Year and, as a result, fails to receive the full available matching contribution for the year, such Participant may be entitled to receive a supplemental Employer matching contribution to the extent required to ensure that such Participant receives the same rate of matching contribution for the Plan Year as any other Participant with the same rate of elective deferrals for such Plan Year. Any such supplemental matching contributions shall be made at the sole discretion of the Employer’s board of directors. The supplemental Employer matching contributions received by any such Participant for the Plan Year shall, however, be limited to the extent required to comply with the requirements of applicable Federal law. To be eligible for any supplemental Employer matching contribution made for a Plan Year, the Participant must be employed by the Employer on the last day of the Plan Year; provided, however, that if the Participant’s failure to be employed on the last day the Plan Year is due to the

Participant’s being on Disability, death or retirement on or after his Normal Retirement Date during the Plan Year, such Participant shall nevertheless be entitled to share in the allocation of any such supplemental matching contributions made for the Plan Year.

(b) Additional Employer Matching Contributions . For each Plan Year, the Employer may contribute to the Plan, on behalf of the Participants under each participating Employer eligible under Section 4.2(c), such amount, if any, as may be determined by the board of directors of each participating Employer. Such contribution shall be allocated among the Accounts of such eligible Participants employed by the applicable Employer in accordance with the ratio that each such eligible Participant’s Compensation bears to the total Compensation of all such eligible Participants employed by such Employer for the Plan Year. Provided, however, that for such purposes, a Participant’s Compensation shall be taken into account only for the period during which the Participant made elective deferrals for the Plan Year. In this regard, the rate of Employer contribution, if any, may vary among the participating Employers.

(c) Eligibility for Additional Employer Matching Contributions . To be eligible for a share of additional Employer matching contributions made for a Plan Year under Section 4.2(b), a Participant must (1) have been credited with at least one thousand (1,000) Hours of Service in the Plan Year, and (2) be employed by the Employer on the last day of the Plan Year; provided, however, that if the Participant’s failure to be credited with at least one thousand (1,000) Hours of Service and/or to be employed by the Employer on the last day of the Plan Year is due to the Participant’s being on Disability, death or retirement on or after his Normal Retirement Date during the Plan Year, such Participant shall nevertheless be entitled to share in the allocation of any additional matching contributions made for such Plan Year.

4.3 ROLLOVERS AND TRANSFERS OF FUNDS FROM OTHER PLANS. With the approval of the Administrator, there may be paid to the Trustee amounts which have been held under the following types of plans:

(1) a qualified plan described in Section 401(a) or 403(a) of the Code, excluding after-tax employee contributions and excluding designated Roth contributions under Section 402A of the Code;

(2) an annuity contract described in Section 403(b) of the Code, excluding after-tax employee contributions and excluding designated Roth contributions under Section 402A of the Code;

(3) an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state, excluding after-tax employee contributions; and

(4) an individual retirement account which was used solely as a conduit from a qualified plan described in Section 401(a) of the Code.

Any amounts so transferred on behalf of any Employee shall be nonforfeitable and shall be maintained under a separate Plan account, to be paid in addition to amounts otherwise payable under this Plan. The amount of any such account shall be equal to the fair market value of such account as adjusted for income, expenses, gains, losses, and withdrawals attributable thereto.

An Employee who would otherwise be eligible to participate in the Plan but for the failure to satisfy the service requirement for participation as set forth under Section 3.1, shall be eligible to complete a rollover to the Plan. Such an Employee shall also be eligible to obtain a loan or withdrawal in accordance with the provisions of Article Eight prior to satisfying such service requirement.

4.4 TIMING OF CONTRIBUTIONS. Employer contributions shall be made to the Plan no later than the time prescribed by law for filing the Employer’s federal income tax return (including extensions) for its taxable year ending with or within the Plan Year. Elective deferrals under Section 4.1 shall be paid to the Plan as soon as administratively possible, but no later than the fifteenth (15 th ) business day of the month following the month in which such deferrals would have been payable to the Participant in cash, or such later date as permitted or prescribed by the Department of Labor.

4.5 EMPLOYEE AFTER-TAX CONTRIBUTIONS. No Employee after-tax contributions shall be permitted after August 1, 2005. A Participant shall, at all times, have a nonforfeitable interest in the value of that portion of his Account attributable to any Employee after-tax contributions previously made to the Plan. Such portion of a Participant’s Account, if any, shall be distributed at the same time and in the same manner as other vested benefits are distributed under this Plan.

ARTICLE FIVE—ACCOUNTING RULES

5.1 INVESTMENT OF ACCOUNTS AND ACCOUNTING RULES

(a) Investment Funds . The investment of Participants’ Accounts shall be made in a manner consistent with the provisions of the Trust. The Administrator, in its discretion, may allow the Trust to provide for separate funds for the directed investment of each Participant’s Account, including a Company Stock fund. In connection therewith, it is hereby provided that more than ten percent (10%) of the fair market value of the Plan’s assets may be invested in the Company Stock fund. It is also hereby provided that a portion of the Company Stock fund shall be invested in cash and cash equivalents for liquidity purposes.

(b) Participant Direction of Investments . In the event Participants’ Accounts are subject to their investment direction, each Participant (including, for this purpose, any former Employee, Beneficiary, or “alternate payee” (within the meaning of Section 14.4 below) with an Account balance) may direct how his Account (or such portion thereof which is subject to his investment direction) is to be invested among the available investment funds in the percentage multiples established by the Administrator. In the event a Participant fails to make an investment election, with respect to all or any portion of his Account subject to his investment direction, the Trustee shall invest all or such portion of his Account in the investment fund to be designated by the Administrator. A Participant may change his investment election, with respect to future contributions and, if applicable, forfeitures, and/or amounts previously accumulated in the Participant’s Account in accordance with procedures established by the Administrator. Any such change in a Participant’s investment election shall be effective at such time as may be prescribed by the Administrator. However, where it deems appropriate, and subject to the requirements of applicable law, the Administrator may decline to implement, or otherwise limit the frequency by which a Participant may direct the investment of his Account. If the Plan’s recordkeeper or investments are changed, the Administrator may apply such administrative rules and procedures as are necessary to provide for the transfer of records and/or assets, including without limitation, the suspension of Participant’s investment directions, withdrawals and distributions for such period of time as is necessary, and the transfer of Participants’ Accounts to designated funds or an interest bearing account until such change has been completed.

Notwithstanding the foregoing, if, pursuant to Section 4.02 of the Trust, an investment manager (within the meaning of Section 3(38) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)) is appointed by a named fiduciary pursuant to Section 402(c)(3) of ERISA, a Participant may elect to have such investment manager direct the investment of his Account in accordance with the provisions of the preceding paragraph.

such fund shall be apportioned among Participants’ Accounts within the fund based upon the value of each Account within the fund as of the preceding Valuation Date.

(d) Allocation of Contributions . Employer contributions shall be allocated to the Account of each eligible Participant as of the last day of the period for which the contributions are made, or as soon as administratively possible thereafter. Forfeitures which arise in a Plan Year shall be allocated as of the last day of such Plan Year, or as soon as administratively possible thereafter.

(e) Manner and Time of Debiting Distributions . For any Participant who is entitled to receive a distribution from his Account, such distribution shall be made in accordance with the provisions of Section 7.1 and Section 7.2. The amount distributed shall be based upon the fair market value of the Participant’s vested Account as of the Valuation Date preceding the distribution.

ARTICLE SIX—VESTING AND RETIREMENT BENEFITS

6.1 VESTING. A Participant shall at all times have a nonforfeitable (vested) right to his Account derived from elective deferrals (within the meaning of Section 4.1), after-tax contributions previously made to the Plan, Employer Fail-Safe Contributions, “Qualified Matching Contributions” (within the meaning of Section 10.2 below), and rollovers or transfers from other plans, as adjusted for investment experience. Except as otherwise provided with respect to Normal Retirement, Disability, or death, a Participant shall have a nonforfeitable (vested) right to a percentage of the value of his Account derived from Employer matching contributions under Section 4.2 as follows:

Years of Service	Vested Percentage

Less than 1 year	0	%
1 year but less than 2	20	%
2 years but less than 3	30	%
3 years but less than 4	40	%
4 years but less than 5	60	%
5 years but less than 6	80	%
6 years and thereafter	100	%

6.2 FORFEITURE OF NONVESTED BALANCE. The nonvested portion of a Participant’s Account, as determined in accordance with Section 6.1, shall be forfeited as of the earlier of (i) as soon as administratively practical following the date on which the Participant receives distribution of his vested Account or (ii) as soon as administratively practical after the last day of the Plan Year in which the Participant incurs five (5) consecutive Breaks in Service. However, no forfeiture shall occur solely as a result of a Participant’s withdrawal of Employee after-tax contributions. The amount forfeited shall be used to pay Plan administrative expenses, used to reduce Employer contributions under Section 4.2, or used to restore previously forfeited amounts under this Section 6.2.

If the Participant returns to the employment of the Employer prior to incurring five (5) consecutive Breaks in Service, and prior to receiving distribution of his vested Account, the nonvested portion shall remain in the Participant’s Account. However, if the nonvested portion of the Participant’s Account was allocated as a forfeiture as the result of the Participant receiving distribution of his vested Account balance (including a “deemed” distribution under Section 7.2), the nonvested portion shall be restored if:

(a) the Participant resumes employment prior to incurring five (5) consecutive Breaks in Service; and

(b) the Participant repays to the Plan, as of the earlier of (i) the date which is five (5) years after his reemployment date or (ii) the date which is the last day of the period in which the Participant incurs five (5) consecutive Breaks in Service, an amount equal to the total distribution derived from Employer contributions under Section 4.2 and, if applicable, Section 13.3.

Upon repayment, the Employer-derived benefit required to be restored by this Section shall not be less than in the account balance of the Employee, both the amount distributed and the amount forfeited, unadjusted by any subsequent gains or losses. The amount required to be restored shall be made by a special Employer contribution or from the next succeeding Employer contribution and forfeitures, as appropriate.

Any Years of Service for which a Participant received a cash-out shall be recognized for purposes of vesting and eligibility under the Plan.

6.3 DISTRIBUTION OF LESS THAN ENTIRE VESTED ACCOUNT BALANCE. If a distribution (including a withdrawal) of any portion of a Participant’s Account is made to the Participant at a time when he has a vested percentage in such Account equal to less than one-hundred percent (100%), a separate record shall be maintained of said Account balance. The Participant’s vested interest at any time in this separate account shall be an amount equal to the formula P(AB+D)-D, where P is the vested percentage at the relevant time, AB is the Account balance at the relevant time, and D is the amount of the distribution (or withdrawal) made to the Participant.

6.4 NORMAL RETIREMENT. A Participant who is in the employment of the Employer at his Normal Retirement Age shall have a nonforfeitable interest in one hundred percent (100%) of his Account, if not otherwise one hundred percent (100%) vested under the vesting schedule in Section 6.1. A Participant who continues employment with the Employer after his Normal Retirement Age shall continue to participate under the Plan.

6.5 DISABILITY. If a Participant incurs a Disability, the Participant shall have a nonforfeitable interest in one hundred percent (100%) of his Account, if not otherwise one hundred percent (100%) vested under the vesting schedule in Section 6.1. Payment of such Participant’s Account balance shall be made at the time and in the manner specified in Article Seven, following receipt by the Administrator of the Participant’s written distribution request.

ARTICLE SEVEN—MANNER AND TIME OF DISTRIBUTING BENEFITS

7.1 MANNER OF PAYMENT. The Participant’s vested Account shall be distributed to the Participant (or to the Participant’s Beneficiary in the event of the Participant’s death) in a single lump-sum payment. However, any portion of the Participant’s Account invested in the Company Stock fund (as described in Section 5.1(a)) may, at the election of the Participant or, as the case may be, the Participant’s Beneficiary, be distributed in the form of Company Stock, provided, however, that any fractional shares, and the cash and cash equivalent portions of such fund, shall be distributed in cash.

7.2 TIME OF COMMENCEMENT OF BENEFIT PAYMENTS. Subject to the following provisions of this Section, unless the Participant elects otherwise, distribution of the Participant’s vested Account shall normally be made or commence no later than the sixtieth (60) day after the later of the close of the Plan Year in which: (a) the Participant attains age sixty-five (65) (or Normal Retirement Date, if earlier), (b) occurs the tenth (10 th ) anniversary of the year in which the Participant commenced participation in the Plan, or (c) the Participant severs employment with the Employer. Distribution shall not be made to a Participant without his consent (and spouse’s consent, if required) if his vested Account exceeds $5,000 and such Account is immediately distributable (within the meaning of Section 1.411(a)-11(c)(4) of the IRS Regulations).

Notwithstanding the foregoing, upon the Administrator’s actual knowledge of a pending divorce or divorce proceeding, or the issuance (or possible issuance) of a domestic relations order regarding a Participant’s Account, such Account shall be frozen to prevent the Participant from taking withdrawals, loans or distributions against the portion of the Account, subject to, or potentially subject to, the domestic relations order. This freeze shall be removed promptly following the qualification of the domestic relations order in accordance with the Plan’s procedures or at such earlier time as the Administrator may reasonably determine.

Notwithstanding the foregoing, if the Participant’s vested Account does not exceed $5,000, the Participant’s entire vested Account shall be normally distributed to the Participant (or, in the event of the Participant’s death, his Beneficiary) in a lump-sum payment as soon as administratively practicable following the date the Participant retires, dies or otherwise terminates from employment. However, in the event of a mandatory distribution to a Participant whose vested Account is greater than $1,000, if the Participant does not elect to have such automatic distribution paid directly to an eligible retirement plan specified by the Participant in a direct rollover or to receive the distribution directly in accordance with Section 7.1, then the Plan Administrator shall pay the distribution in a direct rollover to an individual retirement plan designated by the Plan Administrator.

A Participant who is not vested in any portion of his Account shall be deemed to have received distribution of such portion of his Account as of the end of the Plan Year following the Plan Year in which he terminates from employment.

In no event shall distribution of the Participant’s vested Account be made or commence later than the April 1st following the end of the calendar year in which the Participant attains age seventy

and one-half (70½), or, except for a Participant who is a five percent (5%) owner of the Employer (within the meaning of Section 401(a)(9)(C) of the Code), if later, the April 1st following the calendar year in which the Participant retires from employment with the Employer (the “required beginning date”).

Notwithstanding the foregoing, the provisions of this paragraph shall be subject to any prior election complying with the provisions of Section 242(b) of TEFRA.

Notwithstanding the provisions of Section 7.1, in the event distribution is required to be made while the Participant is employed by the Employer, the Participant may elect to receive the minimum amount required to be distributed pursuant to the provisions of Section 401(a)(9) of the Code and the regulations thereunder.

7.3 FURNISHING INFORMATION. Prior to the payment of any benefit under the Plan, each Participant or Beneficiary may be required to complete such administrative forms and furnish such proof as may be deemed necessary or appropriate by the Employer, Administrator, and/or Trustee.

7.4 MINIMUM DISTRIBUTION REQUIREMENTS.

(a) General Rules.

(1) Effective Date . The provisions of this Article will apply for purposes of determining required minimum distributions. Unless otherwise specified, the provisions of this Article will apply to calendar years beginning after December 31, 2002.

(2) Precedence . The requirements of this Article will take precedence over any inconsistent provisions of the Plan; provided, however, that this Article shall not require the Plan to provide any form of benefit, or any option, not otherwise provided under Section 7.1.

(3) Requirements of Treasury Regulations Incorporated . All distributions required under this Article will be determined and made in accordance with the Treasury regulations under Section 401(a)(9) of the Code and the minimum distribution incidental benefit requirement of Section 401(a)(9)(G) of the Code.

(b) Time and Manner of Distribution

(1) Required Beginning Date . The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s required beginning date.

(2) Death of Participant Before Distributions Begin . If the Participant dies before distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:

(A) If the Participant’s surviving spouse is the Participant’s sole designated Beneficiary, distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70½, if later.

(B) If the Participant’s surviving spouse is not the Participant’s sole designated Beneficiary, and if distribution is to be made over the life or over a period certain not exceeding the life expectancy of the designated Beneficiary (if permitted under Section 7.1 of the Plan), distribution to the designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.

(C) If there is no designated Beneficiary as of September 30 of the year following the year of the Participant’s death, or if the provisions of subsection (A) and (B) do not otherwise apply, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(D) If the Participant’s surviving spouse is the Participant’s sole designated Beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this Section 7.4(b), other than Section 7.4(b)(2)(A), will apply as if the surviving spouse were the Participant.

For purposes of Sections 7.4(b) and 7.4(d), unless Section 7.4(b)(2)(D) applies, distributions are considered to begin on the Participant’s required beginning date. If Section 7.4(b)(2)(D) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section 7.4(b)(2)(A). If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s required beginning date (or to the Participant’s surviving spouse before the date distributions are required to begin to the surviving spouse under Section 7.4(b)(2)(A)), the date distributions are considered to begin is the date distributions actually commence.

(3) Forms of Distribution . Unless the Participant’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year, distributions will be made in accordance with Sections 7.4(c) and (d). If the Participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Section 401(a)(9) of the Code and the Treasury regulations.

(1) Amount of Required Minimum Distribution for Each Distribution Calendar Year . During the Participant’s lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:

(A) the quotient obtained by dividing the Participant’s vested Account balance by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9, Q&A-2, of the Treasury regulations, using the Participant’s age as of the Participant’s birthday in the distribution calendar year; or

(B) if the Participant’s sole designated Beneficiary for the distribution calendar year is the Participant’s spouse, the quotient obtained by dividing the Participant’s vested Account balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9, Q&A-3, of the Treasury regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the distribution calendar year.

(2) Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death . Required minimum distributions will be determined under this Section 7.4(c) beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the Participant’s date of death.

(d) Required Minimum Distributions After Participant’s Death.

(1) Death On or After Date Distributions Begin .

(A) Participant Survived by Designated Beneficiary . Subject to the provisions of this Article, if the Participant dies on or after the date distributions begin and there is a designated Beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s vested Account balance by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of the Participant’s designated Beneficiary, determined as follows:

(i) The Participant’s remaining life expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

(ii) If the Participant’s surviving spouse is the Participant’s sole designated Beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year. For distribution calendar years after the year of the surviving spouse’s

death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

(iii) If the Participant’s surviving spouse is not the Participant’s sole designated Beneficiary, the designated Beneficiary’s remaining life expectancy is calculated using the age of the Beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.

(B) No Designated Beneficiary . If the Participant dies on or after the date distributions begin and there is no designated Beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s vested Account balance by the Participant’s remaining life expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

(2) Death Before Date Distributions Begin .

(A) Participant Survived by Designated Beneficiary . If the Participant dies before the date distributions begin and there is a designated Beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s vested Account balance by the remaining life expectancy of the Participant’s designated Beneficiary, determined as provided in Section 7.4(d)(1).

(B) No Designated Beneficiary . If the Participant dies before the date distributions begin and there is no designated Beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

(C) Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin . If the Participant dies before the date distributions begin, the Participant’s surviving spouse is the Participant’s sole designated Beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under Section 7.4(b)(2)(A), this Section 7.4(d) will apply as if the surviving spouse were the Participant.

(e) Definitions.

(1) Designated Beneficiary . The individual who is designated as the Beneficiary under Section 7.6 of the Plan and is the designated Beneficiary under Section 401(a)(9) of the Code and Section 1.401(a)(9)-4, of the Treasury regulations.

(2) Distribution Calendar Year . A calendar year for which a minimum distribution is required. For distributions beginning before the Participant’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant’s required beginning date. For distributions beginning after the Participant’s death, the first distribution calendar year is the calendar year in which distributions are required to begin under Section 7.4(b)(2). The required minimum distribution for the Participant’s first distribution calendar year will be made on or before the Participant’s required beginning date. The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the Participant’s required beginning date occurs, will be made on or before December 31 of that distribution calendar year.

(3) Life Expectancy . Life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9, Q&A-1, of the Treasury regulations.

(4) Participant’s Vested Account Balance . The vested Account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the vested Account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. The vested Account balance for the valuation calendar year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.

(5) Required Beginning Date . The date specified in Section 7.2 of the Plan.

(f) TEFRA Section 242(b)(2) Elections.

(1) Notwithstanding the other requirements of this Article, distribution on behalf of any Employee, including a 5-percent owner, who has made a designation under Section 242(b) of the Tax Equity and Fiscal Responsibility Act (a “Section 242(b)(2) Election”) may be made in accordance with all of the following requirements (regardless of when such distribution commences):

(A) The distribution by the Plan is one which would not have disqualified such Plan under Section 401(a)(9) of the Code as in effect prior to amendment by the Deficit Reduction Act of 1984.

(B) The distribution is in accordance with a method of distribution designated by the Employee whose interest in the Plan is being distributed or, if the Employee is deceased, by a Beneficiary of such Employee.

(D) The Employee had accrued a benefit under the Plan as of December 31, 1983.

(E) The method of distribution designated by the Employee or the Beneficiary specifies the time at which distribution will commence, the period over which distributions will be made, and in the case of any distribution upon the Employee’s death, the Beneficiaries of the Employee listed in order of priority.

(2) A distribution upon death will not be covered by this transitional rule unless the information in the designation contains the required information described above with respect to distributions to be made upon the death of the Employee.

(3) For any distribution which commences before January 1, 1984, but continues after December 31, 1983, the Employee, or the Beneficiary, to whom such distribution is being made, will be presumed to have designated the method of distribution under which the distribution is being made if the method of distribution was specified in writing and the distribution satisfied the requirements in subsections (A) and (E) above.

(4) If a designation is revoked, any subsequent distribution must satisfy the requirements of Section 401(a)(9) of the Code and the regulations thereunder. If a designation is revoked subsequent to the date distributions are required to begin, the Plan must distribute by the end of the calendar year following the calendar year in which the revocation occurs the total amount not yet distributed which would have been required to have been distributed to satisfy Section 401(a)(9) of the Code and the regulations thereunder, but for the Section 242(b)(2) Election. For calendar years beginning after December 31, 1988, such distributions must meet the minimum distribution incidental benefit requirements. Any changes in the designation will be considered to be a revocation of the designation. However, the mere substitution or addition of another Beneficiary (one not named in the designation) under the designation will not be considered to be a revocation of the designation, so long as such substitution or addition does not alter the period over which distributions are to be made under the designation, directly or indirectly (for example, by altering the relevant measuring life).

(5) In the case in which an amount is transferred or rolled over from one plan to another plan, the rules in Section 1.401(a)(9)-8, Q&A-14 and 15, of the Treasury regulations shall apply.

7.5 AMOUNT OF DEATH BENEFIT

(a) Death Before Termination of Employment . In the event of the death of a Participant while in the employ of the Employer, vesting in the Participant’s Account shall be one

hundred percent (100%), if not otherwise one hundred percent (100%) vested under Section 6.1, with the credit balance of the Participant’s Account being payable to his Beneficiary.

(b) Death After Termination of Employment . In the event of the death of a former Participant after termination of employment, but prior to the complete distribution of his vested Account balance under the Plan, the undistributed vested balance of the Participant’s Account shall be paid to the Participant’s Beneficiary.

7.6 DESIGNATION OF BENEFICIARY. Each Participant shall designate a Beneficiary in a manner acceptable to the Administrator to receive payment of any death benefit payable hereunder if such Beneficiary should survive the Participant. However, no Participant who is married shall be permitted to designate a Beneficiary other than his spouse unless the Participant’s spouse has signed a written consent witnessed by a Plan representative or a notary public, which provides for the designation of an alternate Beneficiary.

Subject to the above, Beneficiary designations may include primary and contingent Beneficiaries, and may be revoked or amended at any time in similar manner or form, and the most recent designation shall govern. A designation of a Beneficiary made by a Participant shall cease to be effective upon his marriage or remarriage. In addition, a spousal Beneficiary designation shall cease to be effective upon written notification to the Administrator of the divorce of the Participant and such spouse. In the absence of an effective designation of Beneficiary, or if no designated Beneficiary is surviving as of the date of the Participant’s death, any death benefit shall be paid to the surviving spouse of the Participant, or, if no surviving spouse, to the Participant’s surviving issue, by right of representation or, if none, to the Participant’s estate. Notification to Participants of the death benefits under the Plan and the method of designating a Beneficiary shall be given at the time and in the manner provided by regulations and rulings under the Code.

In the event a Beneficiary survives the Participant, but dies before receipt of all payments due that Beneficiary hereunder, any benefits remaining to be paid to the Beneficiary shall be paid to the Beneficiary’s estate.

7.7 DISTRIBUTION OF DEATH BENEFITS. Subject to the provisions of Section 7.2, the Beneficiary shall be allowed to designate the mode of receiving benefits in accordance with Section 7.1, unless the Participant had designated a method in writing and indicated that the method was not revocable by the Beneficiary.

(a) Distribution Beginning Before Death - If the Participant dies after distribution of his vested Account has commenced, any survivor’s benefit must be paid at least as rapidly as under the method of payment in effect at the time of the Participant’s death.

(b) Distribution Beginning After Death - If the Participant dies before distribution of his vested Account has commenced, distribution of the Participant’s vested Account shall be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death, except as provided below:

(i) if any portion of the Participant’s vested Account is payable to a designated Beneficiary, and if distribution is to be made over the life or over a period certain not greater than the life expectancy of the designated Beneficiary (if permitted under Section 7.1 above) such payments shall commence on or before December 31 of the calendar year immediately following the calendar year in which the Participant died;

(ii) if the designated Beneficiary is the Participant’s surviving spouse, the date distribution is required to begin shall not be earlier than the later of (A) December 31 of the calendar year immediately following the calendar year in which the Participant died and (B) December 31 of the calendar year in which the Participant would have attained age seventy and one-half (70½).

For purposes of this paragraph (b), if the surviving spouse dies after the Participant, but before payments to such spouse begin, the provisions of this paragraph, with the exception of paragraph (ii) herein, shall be applied as if the surviving spouse were the Participant.

Notwithstanding the foregoing, if the Participant has no designated Beneficiary (within the meaning of Section 401(a)(9) of the Code and the regulations thereunder), distribution of the Participant’s vested Account must be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.

Nothing within this Section shall, however, invalidate any Participant’s previous designation of a mode of paying death benefits, provided such designation was made prior to January 1, 1984 and was in accordance with all requirements announced by the Internal Revenue Service with respect to the transitional rule established under Section 242(b) of TEFRA. No modification of the mode set out in any such election shall be allowed, however, unless it is in compliance with this Section 7.7.

7.8 ELIGIBLE ROLLOVER DISTRIBUTIONS. Notwithstanding the foregoing provisions of this Article Seven, the provisions of this Section 7.8 shall apply to distributions made under the Plan after December 31, 2001.

(a) A “distributee” (as hereinafter defined) may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an “eligible rollover distribution” (as hereinafter defined) paid directly to an eligible retirement plan specified by the distributee in a direct rollover.

(b) Definitions:

life expectancies) of the distributee and the distributee’s designated Beneficiary, or for a specified period of ten (10) years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and any hardship distribution described in Section 8.2. A portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be transferred only to an individual retirement account or annuity described in Section 408(a) or (b) of the Code (or described in Section 408A of the Code for “designated Roth contributions” (within the meaning of Section 402A of the Code)), or to a qualified defined contribution plan described in Section 401(a) or 403(a) of the Code that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible and, if applicable, as required under Section 402A of the Code.

(ii) Eligible Retirement Plan . An eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, a qualified trust described in Section 401(a) of the Code, an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan, that accepts the distributee’s eligible rollover distribution. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code.

If any portion of an eligible rollover distribution is attributable to payments or distributions from a designated Roth account, an eligible retirement plan with respect to such portion shall include only another designated Roth account of the individual from whose account the payments or distributions were made, or a Roth IRA of such individual.

(iii) Distributee . A distributee includes an Employee or former Employee. In addition, the Employee’s or former Employee’s surviving spouse, and the Employee’s or former Employee’s spouse or former spouse who is an alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse.

(iv) Direct Rollover . A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee.

(c) If a distribution is one to which Sections 401(a)(11) and 417 of the Code do not apply, such distribution may commence less than thirty (30) days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that:

(i) the Administrator clearly informs the Participant that the Participant has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and

(ii) the Participant, after receiving the notice, affirmatively elects a distribution.

ARTICLE EIGHT—LOANS AND IN-SERVICE WITHDRAWALS

8.1 LOANS

(a) Permissible Amount and Procedures . Upon the application of a Participant, the Administrator may, in accordance with a uniform and nondiscriminatory policy, direct the Trustee to grant a loan to the Participant, which loan shall be secured by the Participant’s vested Account balance. The Participant’s signature shall be required on a promissory note. The rate of interest on any such loan shall be equal to the “Prime Rate” (as reported in The Wall Street Journal on the date the loan is initiated) plus one percent (1%). Participant loans shall be treated as segregated investments, and interest repayments shall be credited only to the Participant’s Account.

(b) Limitation on Amount of Loans . A Participant’s loan shall not exceed the lesser of:

(1) $50,000, which amount shall be reduced by the highest outstanding loan balance during the preceding twelve (12)-month period; or

(2) one-half (½) of the vested value of the Participant’s Account, determined as of the Valuation Date preceding the date of the Participant’s loan.

Any loan must be repaid within five (5) years (or such longer period permitted by law), unless made for the purpose of acquiring the primary residence of the Participant, in which case such loan may be repaid over a longer period of time not to exceed fifteen (15) years. The repayment of any loan must be made in at least quarterly installments of principal and interest; provided, however, that this requirement shall not apply for a period, not longer than one year, or such longer period as may apply under Section 414(u) of the Code, that a Participant is on a leave of absence (“Leave”), either without pay from the Employer or at a rate of pay (after income and employment tax withholding) that is less than the amount of the installment payments required under the terms of the loan. However, the loan must be repaid by the latest date permitted under Sections 72(p)(2)(B) and 414(u) of the Code and the installments due after the Leave ends (or, unless Section 414(u) of the Code applies, if earlier, upon the expiration of the first year of the Leave) must not be less than those required under the terms of the original loan.

If a Participant defaults on any outstanding loan, the unpaid balance, and any interest due thereon, shall become due and payable in accordance with the terms of the underlying promissory note; provided, however, that such foreclosure on the promissory note and attachment of security shall not occur until a distributable event occurs in accordance with the provisions of Article Seven.

If a Participant terminates employment while any loan balance is outstanding, the unpaid balance, and any interest due thereon, shall become due and payable in accordance with the terms of the underlying promissory note. If such amount is not paid to the Plan, it shall be charged against the amounts that are otherwise payable to the Participant or the Participant’s Beneficiary under the provisions of the Plan.

In the case of a Participant who has loans outstanding from other plans of the Employer (or a member of the Employer’s related group (within the meaning of Section 2.5(b)), the Administrator shall be responsible for reporting to the Trustee the existence of said loans in order to aggregate all such loans within the limits of Section 72(p) of the Code.

8.2 HARDSHIP DISTRIBUTIONS. In the case of a financial hardship resulting from a proven immediate and heavy financial need, a Participant may receive a distribution not to exceed the lesser of (i) the vested value of the Participant’s Account, without regard to earnings received on elective deferrals (within the meaning of Section 4.1), and without regard to any Fail-Safe Contributions or Qualified Matching Contributions (within the meaning of Section 10.2 below), or (ii) the amount necessary to satisfy the financial hardship. The amount of any such immediate and heavy financial need may include any amounts necessary to pay Federal, state or local income taxes reasonably anticipated to result from the distribution. Such distribution shall be made in accordance with nondiscriminatory and objective standards and procedures consistently applied by the Administrator. In this regard, any such withdrawal shall first be made from any after-tax contributions, then from any rollover contributions, then from any Employer contributions made pursuant to Section 4.2, and then from elective deferrals.

Hardship distributions under this Section shall be deemed to be the result of an immediate and heavy financial need if such distribution is to: (a) pay expenses for (or to obtain) medical care that would be deductible under Section 213(d) of the Code determined without regard to whether the expenses exceed seven and one-half percent (7.5%) of adjusted gross income; (b) purchase the principal residence of the Participant (excluding mortgage payments); (c) pay tuition and related educational fees for the next twelve (12) months of post-secondary education for the Participant, Participant’s spouse, or any of the Participant’s dependents (as defined in Section 152 of the Code, and without regard to Section 152(b)(1), (b)(2) and (d)(1)(B) of the Code); (d) prevent the eviction of the Participant from his principal residence or foreclosure on the Participant’s principal residence; (e) pay funeral or burial expenses for the Participant’s deceased parent, spouse, children or dependents (as defined in Section 152 of the Code, and without regard to Section 152(d)(1)(B) of the Code); or (f) repair damage to the Participant’s principal residence that would qualify for a casualty loss deduction under Section 165 of the Code (determined without regard to whether the loss exceeds ten percent (10%) of adjusted gross income). Distributions paid pursuant to this Section shall be deemed to be made as of the Valuation Date immediately preceding the hardship distribution, and the Participant’s Account shall be reduced accordingly.

A distribution shall not be treated as necessary to satisfy an immediate and heavy financial need of a Participant to the extent the amount of the distribution is in excess of the amount required to relieve the financial need or to the extent the need may be satisfied from other resources that are reasonably available to the Participant. This determination shall generally be made on the basis of all relevant facts and circumstances. For purposes of this paragraph, the Participant’s resources shall be deemed to include those assets of the Participant’s spouse and minor children that are reasonably available to the Participant. A distribution generally shall be treated as necessary to satisfy a financial need if the Administrator relies upon the Participant’s written representation, unless the Administrator has actual knowledge to the contrary, that the need cannot reasonably be relieved:

(1) Through reimbursement or compensation by insurance or otherwise;

(2) By liquidation of the Participant’s assets;

(3) By cessation of elective deferrals (within the meaning of Section 4.1) and any after-tax contributions under Section 4.5; or

(4) By other distributions or nontaxable (at the time of the loan) loans from plans maintained by the Employer or by any other employer, or by borrowing from commercial sources on reasonable commercial terms, in an amount sufficient to satisfy the need.

For purposes of the foregoing paragraph, a need cannot reasonably be relieved by one of the actions listed above if the effect would be to increase the amount of the need. In making such determination, the Administrator may rely upon the Participant’s written representation to such effect, unless the Administrator has actual knowledge to the contrary.

8.3 WITHDRAWALS AFTER AGE 59½. After attaining age fifty-nine and one-half (59½), a Participant may withdraw from the Plan a sum (a) not in excess of the credit balance of his vested Account and (b) not less than such minimum amount as the Administrator may establish from time to time to facilitate administration of the Plan. Any such withdrawals shall be made in accordance with nondiscriminatory and objective standards and procedures consistently applied by the Administrator.

8.4 WITHDRAWALS OF AFTER-TAX CONTRIBUTIONS. A Participant may withdraw from the Plan a sum (a) not in excess of the credit balance of the Participant’s Account attributable to any after-tax contributions previously made to the Plan and (b) not less than such minimum amount as the Administrator may establish from time to time to facilitate administration of the Plan. Any such withdrawals shall be made in accordance with nondiscriminatory and objective standards and procedures consistently applied by the Administrator.

8.5 WITHDRAWALS OF ROLLOVER CONTRIBUTIONS. A Participant may withdraw from the Plan a sum (a) not in excess of the credit balance of the Participant’s Account attributable to any rollover contributions made to the Plan and (b) not less than such minimum amount as the Administrator may establish from time to time to facilitate administration of the Plan. Any such withdrawals shall be made in accordance with nondiscriminatory and objective standards and procedures consistently applied by the Administrator.

8.6 WITHDRAWALS OF EMPLOYER CONTRIBUTIONS FOR OTHER FINANCIAL NEEDS: FOR FORMER WILLIAMS FURNACE PLAN PARTICIPANTS. The provisions of this Section 8.6 shall apply only to a Participant who has a portion of his Account transferred from the Williams Furnace Co. Employees Profit Sharing Retirement Plan (the “Williams Furnace Plan”). Where funds are needed to complete a major renovation to such Participant’s principal residence, or in the event of any other bona fide financial emergency from time to time established by the Administrator, the Participant may receive a distribution not to exceed the

lesser of (i) the vested value of the Participant’s Account derived from any Employer contributions transferred from the Williams Furnace Plan and any Employer contributions made under Section 4.2, determined as of the Valuation Date immediately preceding such withdrawal request, or (ii) the amount necessary to satisfy such financial need. The amount of such financial need may, however, include any amounts necessary to pay Federal, state or local income taxes or penalties reasonably anticipated to result form the distribution. Such distribution shall be made in accordance with non-discretionary and objective standards consistently applied by the Administrator.

ARTICLE NINE —ADMINISTRATION OF THE PLAN

9.1 PLAN ADMINISTRATION. The Employer shall be the Plan Administrator, hereinbefore and hereinafter called the Administrator, and a “named fiduciary” (for purposes of Section 402(a)(1) of the Employee Retirement Income Security Act of 1974, as amended from time to time (“ERISA”)) of the Plan, unless the Employer, by action of its board of directors, shall designate a person or committee of persons to be the Administrator. The Employer, by action of its board or directors, may also designate a person, a committee of persons, and/or other entity as a named fiduciary or named fiduciaries. The administration of the Plan, as provided herein, including a determination of the payment of benefits to Participants and their Beneficiaries, shall be the responsibility of the Administrator; provided, however, that the Administrator may delegate any of its powers, authority, duties or responsibilities to any person or committee of persons, such delegation to be in accordance with ERISA Section 405. The Administrator shall have full discretion to interpret the terms of the Plan, to determine factual questions that arise in the course of administering the Plan, to adopt rules and regulations regarding the administration of the Plan, to determine the conditions under which benefits become payable under the Plan, and to make any other determinations that the Administrator believes are necessary and advisable for the administration of the Plan. Any determination made by the Administrator shall be final and binding on all parties, and shall be given the maximum deference allowed by law.

In the event more than one party shall act as Administrator, all actions shall be made by majority decisions. In the administration of the Plan, the Administrator may (a) employ agents to carry out nonfiduciary responsibilities (other than Trustee responsibilities), (b) consult with counsel, who may be counsel to the Employer, and (c) provide for the allocation of fiduciary responsibilities (other than Trustee responsibilities) among its members. Actions dealing with fiduciary responsibilities shall be taken in writing and the performance of agents, counsel and fiduciaries to whom fiduciary responsibilities have been delegated shall be reviewed periodically.

The expenses of administering the Plan and the compensation of all employees, agents, or counsel of the Administrator, including accounting fees, recordkeeper’s fees, and the fees of any benefit consulting firm, shall be paid by the Plan, or shall be paid by the Employer if, and to the extent, the Employer so elects. To the extent required by applicable law, compensation may not be paid by the Plan to full-time Employees of the Employer.

In the event the Employer pays the expenses of administering the Plan, the Employer may seek reimbursement from the Plan for the payment of such expenses. Reimbursement shall be permitted only for Plan expenses paid by the Employer within the last twelve (12)-month period.

The Administrator shall obtain from the Trustee, not less often than annually, a report with respect to the value of the assets held in the Trust Fund, in such form as may be required by the Administrator.

The Administrator shall administer the Plan and adopt such rules and regulations as, in the opinion of the Administrator, are necessary or advisable to implement and administer the Plan and to transact its business. As a named fiduciary, the Administrator is required to discharge its duties with respect to the Plan solely in the interest of the Participants and Beneficiaries and with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent

man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.

9.2 CLAIMS PROCEDURE

The provisions of paragraph (a) below shall apply to all benefit claims under the Plan, except as provided in paragraph (b) below.

(a) Pursuant to procedures established by the Administrator, claims for benefits under the Plan made by a Participant or Beneficiary (the “claimant”) must be submitted in writing to the Administrator. Approved claims shall be processed and instructions issued to the Trustee or custodian authorizing payment as claimed.

If a claim is denied in whole or in part, the Administrator shall notify the claimant within ninety (90) days after receipt of the claim (or within one hundred eighty (180) days, if special circumstances require an extension of time for processing the claim, and provided written notice indicating the special circumstances and the date by which a final decision is expected to be rendered is given to the claimant within the initial ninety (90) day period).

The notice of the denial of the claim shall be written in a manner calculated to be understood by the claimant and shall set forth the following:

(i) the specific reason or reasons for the denial of the claim;

(ii) the specific references to the pertinent Plan provisions on which the denial is based;

(iii) a description of any additional material or information necessary to perfect the claim, and an explanation of why such material or information is necessary;

(iv) a statement that any appeal of the denial must be made by giving to the Administrator, within sixty (60) days after receipt of the denial of the claim, written notice of such appeal, such notice to include a full description of the pertinent issues and basis of the claim; and

(v) a statement about the claimant’s right to bring civil action under Section 502(a) under ERISA if the claim is denied on review.

Upon denial of a claim in whole or part, the claimant (or his duly authorized representative) shall have the right to submit a written request to the Administrator for a full and fair review of the denied claim, to be permitted to review documents (free of charge) pertinent to the denial, and to submit issues and comments in writing. Any appeal of the denial must be given to the Administrator within the period of time prescribed under (a)(iv) above. If the claimant (or his duly authorized representative) fails to appeal the denial to the Administrator within the prescribed time, the Administrator’s adverse determination shall be final, binding and conclusive.

The Administrator may hold a hearing or otherwise ascertain such facts as it deems necessary and shall render a decision which shall be binding upon both parties. The Administrator shall advise the claimant of the results of the review within sixty (60) days after receipt of the written request for the review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible but not later than one hundred twenty (120) days after receipt of the request for review. If such extension of time is required, written notice of the extension shall be furnished to the claimant prior to the commencement of the extension. The decision of the review shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision, specific references to the pertinent Plan provisions on which the decision is based, the claimant’s right to receive free of charge upon written request, reasonable access to and copies of, all Plan documents, records, and other information relevant to the claim, and a statement about the claimant’s right to bring a civil action under Section 502(a) of ERISA. The decision of the Administrator shall be final, binding and conclusive.

(b) The provisions of this subsection (b) shall apply to a claim involving a determination by the Administrator of a Participant’s Disability.

Such a claim for Disability benefits must be submitted in writing to the Director of Human Resources. Approved claims shall be processed and instructions issued to the Trustee or custodian authorizing payment as claimed.

If such a claim is denied in whole or in part, the Director of Human Resources shall notify the claimant within forty-five (45) days after receipt of the claim (or within seventy-five (75) days, if special circumstances require an extension of time for processing the claim, and provided written notice indicating the special circumstances and the date by which a final decision is expected to be rendered is given to the claimant within the initial forty-five (45) day period).

If, prior to the end of the seventy five (75) day extended period, the Director of Human Resources determines that a decision cannot be rendered within the initial extension period due to special circumstances, the period for making a determination may be extended for up to an additional thirty (30) days, provided written notice indicating the special circumstances and the date by which a final decision is expected to be rendered is given to the claimant within the originally extended seventy-five (75) day period.

The notice of the denial of the claim shall be written in a manner calculated to be understood by the claimant and shall set forth the following:

(i) the specific reason or reasons for the denial of the claim;

(ii) the specific references to the pertinent Plan provisions on which the denial is based;

(iii) a description of any additional materials or information necessary to perfect the claim, and an explanation of why such material or information is necessary;

(iv) a statement that any appeal of the denial must be made by giving to the Administrator, within one hundred eighty (180) days after receipt of the denial of the claim, written notice of such appeal, such notice to include a full description of the pertinent issues and basis of the claim;

(v) a statement about the claimant’s right to bring a civil action under Section 502(a) of ERISA if the claim is denied on review; and

(vi) to the extent that an internal rule, guideline, protocol, or other similar criterion was relied upon in the denial, the notification shall set forth the specific rule, guideline, protocol, or criterion or indicate that such was relied upon and that a copy will be provided free of charge to the claimant upon request.

Upon denial of a claim in whole or in part, the claimant (or his duly authorized representative) shall have the right to submit a written request to the Administrator for a full and fair review of the denied claim, to be permitted to review documents (free of charge) pertinent to the denial, and to submit issues and comments in writing. Any appeal of the denial must be given to the Administrator within the period of time prescribed under (b)(iv) above. If the claimant (or his duly authorized representative) fails to appeal the denial to the Administrator within the prescribed time, the Director of Human Resource’s initial adverse determination shall be final, binding and conclusive.

The Administrator shall consider the full record of the claimant’s appeal without deference to the initial determination and, if the determination is based in whole or in part on a medical judgment, shall consult with a health care professional experienced in the field of medicine involved in the medical judgment. The health care professional consulted on the appeal shall be an individual who was not consulted in connection with the initial denied claim (nor a subordinate of any individual consulted in connection with the initial denied claim) and whose identity shall be disclosed to the claimant upon written request of the claimant, regardless of whether the health care professional’s advice was relied upon in making the subsequent claim determination.

The Administrator shall render a decision that shall be binding upon both parties. The Administrator shall advise the claimant of the results of their review within forty-five (45) days after receipt of the written request for the review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible but not later than ninety (90) days after receipt of the request for review. If such extension of time is required, written notice of the extension shall be furnished to the claimant prior to the commencement of the extension. The decision of the review shall be written in a manner calculated to be understood by the claimant and shall set forth the following:

(A) the specific reason or reasons for the denial of the claim;

(B) the specific references to the pertinent Plan provisions on which the denial is based;

(C) the claimant’s right to receive free of charge, upon written request, reasonable access to and copies of, all Plan documents, records, and other information relevant to the claim;

(D) a statement about the claimant’s right to bring a civil action under Section 502(a) of ERISA; and

(E) to the extent that an internal rule, guideline, protocol, or other similar criterion was relied upon in the denial, the notification shall set forth the specific rule, guideline, protocol, or criterion or indicate that such was relied upon and that a copy will be provided free of charge to the claimant upon request.

The decision of the Administrator shall be final, binding and conclusive.

9.3 TRUST AGREEMENT. The Trust Agreement entered into by and between the Employer and the Trustee, including any supplements or amendments thereto, or any successor Trust Agreement, is incorporated by reference herein.

ARTICLE TEN—SPECIAL COMPLIANCE PROVISIONS

10.1 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS. Notwithstanding any other provision of the Plan, “Excess Elective Deferrals” (as defined below) (and income or loss allocable thereto, including all earnings, expenses and appreciation or depreciation in value, whether or not realized) shall be distributed no later than each April 15 to Participants who claim Excess Elective Deferrals for the preceding calendar year.

“Excess Elective Deferrals” shall mean the amount of Elective Deferrals (as defined below) for a calendar year that the Participant designates to the Plan pursuant to the following procedure. The Participant’s designation: shall be submitted to the Administrator in writing no later than March 1; shall specify the Participant’s Excess Elective Deferrals for the preceding calendar year; and shall be accompanied by the Participant’s written statement that if the Excess Elective Deferrals is not distributed, it will, when added to amounts deferred under other plans or arrangements described in Section 401(k), 408(k) or 403(b) of the Code, exceed the limit imposed on the Participant by Section 402(g) of the Code for the year in which the deferral occurred. Excess Elective Deferrals shall mean those Elective Deferrals that are includible in a Participant’s gross income under Section 402(g) of the Code to the extent such Participant’s Elective Deferrals for a taxable year exceed the dollar limitation under such Code section.

An Excess Elective Deferral, and the income or loss allocable thereto, may be distributed before the end of the calendar year in which the Elective Deferrals were made. A Participant who has an Excess Elective Deferral for a taxable year, taking into account only his Elective Deferrals under the Plan or any other plans of the Employer (including any member of the Employer’s related group (within the meaning of Section 2.5(b)), shall be deemed to have designated the entire amount of such Excess Elective Deferral.

Excess Elective Deferrals shall be adjusted for any income or loss up to the date of distribution. For purposes of this Section 10.1, whenever reference is made to the income or loss allocable to an Excess Elective Deferral, such income or loss shall be determined as follows. The income or loss allocable to Excess Elective Deferrals allocated to each Participant is the sum of: (i) income or loss allocable to the Participant’s deferred amounts for the Plan Year multiplied by a fraction, the numerator of which is the Excess Elective Deferrals made on behalf of the Participant for the Plan Year, and the denominator of which is the sum of the Participant’s Account balances attributable to the Participant’s Elective Deferrals on the last day of the Plan Year; and (ii) ten percent (10%) of the amount determined under (i) multiplied by the number of whole calendar months between the end of the Plan Year and the date of distribution, counting the month of distribution if distribution occurs after the fifteenth (15 th ) of such month.

Section 457 of the Code, any plan described under Section 501(c)(18) of the Code, and any Employer contributions made on behalf of a Participant for the purchase of an annuity contract under Section 403(b) of the Code pursuant to a salary reduction agreement. Elective Deferrals shall not include any deferrals properly distributed as excess annual additions.

10.2 LIMITATIONS ON 401(k) CONTRIBUTIONS

(a) Actual Deferral Percentage Test (“ADP Test”) . Amounts contributed as elective deferrals under Section 4.1(a) and, if so elected by the Employer, “Qualified Matching Contributions” (as defined below) and any Fail-Safe Contributions made under this Section, are considered to be amounts deferred pursuant to Section 401(k) of the Code. For purposes of this Section, these amounts are referred to as the “deferred amounts.” For purposes of the “actual deferral percentage test” described below, (i) such deferred amounts must be made before the last day of the twelve (12)-month period immediately following the Plan Year to which the contributions relate, and (ii) the deferred amounts relate to Compensation that either (A) would have been received by the Participant in the Plan Year but for the Participant’s election to make deferrals, or (B) is attributable to services performed by the Participant in the Plan Year and, but for the Participant’s election to make deferrals, would have been received by the Participant within two and one-half (2½) months after the close of the Plan Year. The Employer shall maintain records sufficient to demonstrate satisfaction of the actual deferral percentage test and the deferred amounts used in such test.

For purposes of this Section, “Qualified Matching Contributions” shall mean matching contributions which are subject to the distribution and nonforfeitability requirements under Section 401(k) of the Code and satisfy Section 1.401(k)-2(a)(6) of the IRS Treasury regulations.

As of the last day of each Plan Year, the deferred amounts for the Participants who are Highly-Compensated Employees for the Plan Year shall satisfy either of the following tests:

(1) The actual deferral percentage for the eligible Participants who are Highly-Compensated Employees for the Plan Year shall not exceed the actual deferral percentage for eligible Participants who are Nonhighly-Compensated Employees for the Plan Year multiplied by 1.25; or

(2) The actual deferral percentage for eligible Participants who are Highly-Compensated Employees for the Plan Year shall not exceed the actual deferral percentage of eligible Participants who are Nonhighly-Compensated Employees for the Plan Year multiplied by two (2), provided that the actual deferral percentage for eligible Participants who are Highly-Compensated Employees for the Plan Year does not exceed the actual deferral percentage for eligible Participants who are Nonhighly-Compensated Employees by more than two (2) percentage points.

Notwithstanding the foregoing, if elected by the Employer by Plan amendment, the foregoing percentage tests shall be applied based on the actual deferral percentage of the Nonhighly-Compensated Employees for the prior Plan Year; provided, however, the change in testing methods complies with the requirements set forth in the Final 401(k) and 401(m) Regulations and any other superseding guidance.

In the event the Plan changes from the current year testing method to the prior year testing method, then, for purposes of the first testing year for which the change is effective, the actual deferral percentage for Nonhighly-Compensated Employees for the prior year shall be determined by taking into account only elective deferrals (within the meaning of Section 4.1) for those Nonhighly-Compensated Employees that were taken into account for purposes of the actual deferral percentage test (and not the actual contribution percentage test) under the current year testing method for the prior year.

For purposes of the above tests, the “actual deferral percentage” shall mean for a specified group of Participants for a Plan Year, the average of the ratios (calculated separately for each Participant in such group) of (1) deferred amounts actually paid over to the Trust on behalf of such Participant for the Plan Year to (2) the Participant’s compensation (within the meaning of Section 1.7 of the Plan) or, if the Employer chooses, Participant’s compensation determined by using any other definition of compensation that satisfies the nondiscrimination requirements of Section 414(s) of the Code and the regulations thereunder. For purposes hereof, the Participant’s compensation shall be referred to as “414(s) Compensation.” An Employer may limit the period taken into account for determining 414(s) Compensation to that part of the Plan Year or calendar year in which an Employee was a Participant in the component of the Plan being tested. The period used to determine 414(s) Compensation must be applied uniformly to all Participants for the Plan Year. Deferred amounts on behalf of any Participant shall include (1) any Elective Deferrals made pursuant to the Participant’s deferral election (including Excess Elective Deferrals of Highly Compensated Employees), but excluding (a) Excess Elective Deferrals of Nonhighly-Compensated Employees that arise solely from Elective Deferrals made under the Plan or plans of this Employer and (b) Elective Deferrals that are taken into account in the actual contribution percentage test (provided the actual deferral percentage test is satisfied both with and without exclusion of these Elective Deferrals); and (2) Qualified Matching Contributions and Fail-Safe Contributions. For purposes of computing Actual Deferral Percentages, an Employee who would be a Participant but for failure to make Elective Deferrals shall be treated as a Participant on whose behalf no Elective Deferrals are made.

percentage of eligible Participants as if all such plans were a single plan. If the Employer elects by Plan amendment to use the prior year testing method, any adjustments to the Nonhighly-Compensated Employee actual deferral percentage for the prior year shall be made in accordance with the Final 401(k) and 401(m) Regulations. Plans may be aggregated in order to satisfy Section 401(k) of the Code only if they have the same Plan Year and use the same average actual deferral percentage testing method.

The determination and treatment of deferred amounts and the actual deferral percentage of any Participant shall be subject to the prescribed requirements of the Secretary of the Treasury.

In the event the actual deferral percentage test is not satisfied for a Plan Year, the Employer, in its discretion, may make a Fail-Safe Contribution for eligible Participants who are Nonhighly-Compensated Employees, equal to a specified percentage of compensation; provided, however such percentage does not exceed the greater of five percent (5%) or two times the Plan’s “representative contribution rate.” For purposes of this paragraph:

(1) “compensation” - shall mean compensation used for the actual deferral percentage test.

(2) “representative contribution rate” — shall mean the greater of:

(A) the lowest applicable contribution rate (defined below) of any eligible Nonhighly-Compensated Employee among a group of eligible Nonhighly-Compensated Employees that consists of at least fifty percent (50%) of the total eligible Nonhighly-Compensated Employees for the Plan Year, or

(B) the lowest applicable contribution rate of any eligible Nonhighly-Compensated in the group of all eligible Nonhighly-Compensated Employees for the Plan Year and who is employed by the Employer on the last day of the Plan Year.

The applicable contribution rate for an eligible Nonhighly-Compensated Employee is the sum of the qualified matching contribution taken into account for the eligible Nonhighly-Compensated Employee for the Plan Year and the Fail-Safe Contribution made for the eligible Nonhighly-Compensated Employee for the Plan Year, divided by the eligible Nonhighly-Compensated Employee’s compensation for the same period.

(b) Distributions of Excess Contributions .

(1) In General . If the actual deferral percentage test of Section 10.2(a) is not satisfied for a Plan Year, then the “excess contributions”, and income allocable thereto, shall be distributed, to the extent required under Treasury regulations, no later than the last day of the Plan Year following the Plan Year for which the excess contributions were made. However, if such excess contributions are distributed later than two and one-half (2½) months following the last day of the Plan Year in

which such excess contributions were made, a ten percent (10%) excise tax shall be imposed upon the Employer with respect to such excess contributions.

(2) Excess Contributions . For purposes of this Section, “excess contributions” shall mean, with respect to any Plan Year, the excess of:

(A) The aggregate amount of Employer contributions actually taken into account in computing the numerator of the actual deferral percentage of Highly-Compensated Employees for such Plan Year, over

(B) The maximum amount of such contributions permitted by the ADP Test under Section 10.2(a) (determined by hypothetically reducing contributions made on behalf of Highly-Compensated Employees in order of the actual deferral percentages, beginning with the highest of such percentages).

Excess contributions shall be allocated to the Highly-Compensated Employees with the highest dollar amounts of contributions taken into account in calculating the actual deferral percentage test for the year in which the excess arose, beginning with the Highly-Compensated Employee with the highest dollar amount of such contributions and continuing in descending order until all the excess contributions have been allocated. For purposes of the preceding sentence, the “highest dollar amount” is determined after distribution of any excess contributions. To the extent a Highly-Compensated Employee has not reached his catch-up contribution limit (set forth in Section 4.1(e) of the Plan), excess contributions allocated to such Highly-Compensated Employee are catch-up contributions and will not be treated as excess contributions.

(3) Determination of Income . Excess contributions shall be adjusted for any income or loss up to the date of distribution. The income or loss allocable to excess contributions allocated to each Participant is the sum of: (i) income or loss allocable to the Participant’s deferred amounts for the Plan Year multiplied by a fraction, the numerator of which is the excess contributions made on behalf of the Participant for the Plan Year, and the denominator of which is the sum of the Participant’s Account balances attributable to the Participant’s deferred amounts on the last day of the Plan Year; and (ii) ten percent (10%) of the amount determined under (i) multiplied by the number of whole calendar months between the end of the Plan Year and the date of distribution, counting the month of distribution if distribution occurs after the fifteenth (15 th ) of such month.

(4) Accounting for Excess Contributions . Excess contributions shall be distributed from that portion of the Participant’s Account attributable to such deferred amounts to the extent allowable under Treasury regulations.

10.3 NONDISCRIMINATION TEST FOR EMPLOYER MATCHING CONTRIBUTIONS AND AFTER-TAX CONTRIBUTIONS

(a) Average Contribution Percentage Test (“ACP Test”) . To the extent required by applicable law, the provisions of this Section shall apply if Employer matching contributions are made in any Plan Year under Section 4.2(a) and such matching contributions are not used to satisfy the actual deferral percentage test of Section 10.2 and/or in the event Employee after-tax contributions are made to the Plan under Section 4.5. Any Employee after-tax contributions that are used to satisfy the average contribution percentage test shall satisfy the requirements of Section 1.401(m)-2(a)(6) of the IRS Treasury Regulations.

As of the last day of each Plan Year, the average contribution percentage for Highly-Compensated Employees for the Plan Year shall satisfy either of the following tests:

(1) The average contribution percentage for eligible Participants who are Highly-Compensated Employees for the Plan Year shall not exceed the average contribution percentage for eligible Participants who are Nonhighly-Compensated Employees for the Plan Year multiplied by 1.25; or

(2) The average contribution percentage for eligible Participants who are Highly-Compensated Employees for the Plan Year shall not exceed the average contribution percentage for eligible Participants who are Nonhighly-Compensated Employees for the Plan Year multiplied by two (2), provided that the average contribution percentage for eligible Participants who are Highly-Compensated Employees for the Plan Year does not exceed the average contribution percentage for eligible Participants who are Nonhighly-Compensated Employees by more than two (2) percentage points.

Notwithstanding the foregoing, if elected by the Employer by Plan amendment, the foregoing percentage tests shall be applied based on the average contribution percentage of the Nonhighly-Compensated Employees for the prior Plan Year; provided, however, the change in testing methods complies with the requirements set forth in the Final 401(k) and 401(m) Regulations and any other superseding guidance.

In the event the Plan changes from the current year testing method to the prior year testing method, then, for purposes of the first testing year for which the change is effective, the average contribution percentage for Nonhighly-Compensated Employees for the prior year shall be determined by taking into account only (a) after-tax contributions for those Nonhighly-Compensated Employees for the prior year, and (b) matching contributions for those Nonhighly-Compensated Employees that were taken into account for purposes of the average contribution percentage test (and not the average actual deferral percentage test) under the current year testing method for the prior year.

bears to the eligible Participant’s compensation (within the meaning of Section 1.7 of the Plan) or, if the Employer chooses, Participant’s compensation determined by using any other definition of compensation that satisfies the nondiscrimination requirements of Section 414(s) of the Code and the regulations thereunder. For purposes hereof, the Participant’s compensation shall be referred to as “414(s) Compensation.” An Employer may limit the period taken into account for determining 414(s) Compensation to that part of the Plan Year or calendar year in which an Employee was a Participant in the component of the Plan being tested. The period used to determine 414(s) Compensation must be applied uniformly to all Participants for the Plan Year. Such average contribution percentage shall be determined without regard to matching contributions that are used either to correct excess contributions hereunder or because contributions to which they relate are excess deferrals under Section 10.1 or excess contributions under Section 10.2. “Eligible Participant” shall mean each Employee who is eligible to receive Employer matching contributions or make after-tax contributions.

For purposes of this Section 10.3, the contribution percentage for any eligible Participant who is a Highly-Compensated Employee for the Plan Year and who is eligible to have Employer matching contributions, elective deferrals and/or after-tax contributions allocated to his account under two (2) or more plans described in Section 401(a) of the Code or under arrangements described in Section 401(k) of the Code that are maintained by the Employer or any member of the Employer’s related group (within the meaning of Section 2.5(b)), shall be determined as if all such contributions were made under a single plan.

In the event that this Plan satisfies the requirements of Section 401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one (1) or more other plans, or if one (1) or more other plans satisfy the requirements of such Sections of the Code only if aggregated with this Plan, then the provisions of this Section 10.3 shall be applied by determining the contribution percentages of eligible Participants as if all such plans were a single plan. If the Employer elects by Plan amendment to use the prior year testing method, any adjustments to the Nonhighly-Compensated Employee actual contribution percentage for the prior year shall be made in accordance with the Final 401(k) and 401(m) Regulations. Plans may be aggregated in order to satisfy Section 401(m) of the Code only if they have the same Plan Year and use the same average contribution percentage testing method.

The determination and treatment of the contribution percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury.

(b) Distribution of Excess Employer Matching Contributions .

(1) In General . If the nondiscrimination tests of Section 10.3(a) are not satisfied for a Plan Year, then the “excess aggregate contributions”, and any income allocable thereto, shall be forfeited, if otherwise forfeitable, no later than the last day of the Plan Year following the Plan Year for which the nondiscrimination tests are not satisfied, and shall be used to reduce Employer matching contributions under Section 4.2. To the extent that such “excess aggregate contributions” are nonforfeitable, such excess contributions shall be distributed to the Participant on whose behalf the excess contributions were made no later than the last day of the

Plan Year following the Plan Year for which such “excess aggregate contributions” were made. However, if such excess aggregate contributions are distributed later than two and one-half (2½) months following the last day of the Plan Year in which such excess aggregate contributions were made, a ten percent (10%) excise tax shall be imposed upon the Employer with respect to such excess aggregate contributions. For purposes of the limitations of Section 11.1(b)(1) of the Plan, excess aggregate contributions shall be considered annual additions.

(2) Excess Aggregate Contributions . For purposes of this Section, “excess aggregate contributions” shall mean, with respect to any Plan Year, the excess of:

(A) The aggregate amount of Employer matching contributions and, if applicable, Employee after-tax contributions, and elective deferrals under Section 4.1 (to the extent not used to satisfy the actual deferral percentage test of Section 10.2) actually taken into account in computing the numerator of the actual contribution percentage of Highly-Compensated Employees for such Plan Year, over

(B) The maximum amount of such contributions permitted by the ACP Test under Section 10.3(a) (determined by hypothetically reducing contributions made on behalf of Highly-Compensated Employees in order of the actual contribution percentages, beginning with the highest of such percentages).

Excess contributions shall be allocated to the Highly-Compensated Employee with the largest “contribution percentage amounts” (as defined below) taken into account in calculating the average contribution percentage test for the year in which the excess arose, beginning with the Highly-Compensated Employee with the largest amount of such contribution percentage amounts and continuing in descending order until all the excess aggregate contributions have been allocated. For purposes of the preceding sentence, the “largest amount” is determined after distribution of any excess aggregate contributions.

For purposes of the preceding paragraph, “contribution percentage amounts” shall mean the sum of Employer matching contributions and, if applicable, Employee after-tax contributions, and elective deferrals (to the extent not used to satisfy the actual deferral percentage test of Section 10.2) made under the Plan on behalf of the Participant for the Plan Year.

(3) Determination of Income . Excess aggregate contributions shall be adjusted for an income or loss up to the date of distribution. The income or loss allocable to excess contributions allocated to each Participant is the sum of: (i) income or loss allocable to the Employer matching contributions and, if applicable, Employee after-tax contributions, and such elective deferrals for the Plan Year multiplied by a fraction, the numerator of which is the excess aggregate contributions on behalf of the Participant for the Plan Year, and the denominator of which is the sum of the Participant’s Account balances attributable to Employer matching contributions and, if applicable, Employee after-tax contributions, and such

elective deferrals (to the extent not used to satisfy the average actual percentage test of Section 10.2) on the last day of the Plan Year; and (ii) ten percent (10%) of the amount determined under (i) multiplied by the number of whole calendar months between the end of the Plan Year and the date of distribution, counting the month of distribution if distribution occurs after the fifteenth (15 th ) of such month.

Notwithstanding the foregoing, to the extent otherwise required to comply with the requirements of Section 401(a)(4) of the Code and the regulations thereunder, vested matching contributions may be forfeited.

To the extent permitted by applicable law, the Plan may be disaggregated under Section 1.410(b)-7(c) of the Income Tax Regulations, in which case the testing provisions of Sections 10.2 and 10.3 above may separately apply to the disaggregated plans.

ARTICLE ELEVEN—LIMITATION ON ANNUAL ADDITIONS

11.1 RULES AND DEFINITIONS

(a) Rules . The following rules shall limit additions to Participants’ Accounts for limitation years and Plan Years beginning on or after July 1, 2007:

(1) If the Participant does not participate, and has never participated, in another qualified plan maintained by the Employer, the amount of annual additions which may be credited to the Participant’s Account for any limitation year shall not exceed the lesser of the “maximum permissible” amount (as hereafter defined) or any other limitation contained in this Plan. If the Employer contribution that would otherwise be allocated to the Participant’s Account would cause the annual additions for the limitation year to exceed the maximum permissible amount, the amount allocated shall be reduced so that the annual additions for the limitation year shall equal the maximum permissible amount.

(2) Prior to determining the Participant’s actual compensation for the limitation year, the Employer may determine the maximum permissible amount for a Participant on the basis of a reasonable estimation of the Participant’s compensation for the limitation year, uniformly determined for all Participants similarly situated.

(3) As soon as is administratively feasible after the end of the limitation year, the maximum permissible amount for the limitation year shall be determined on the basis of the Participant’s actual compensation for the limitation year.

(4) If the limitations of Section 415 of the Code are exceeded, such excess amount shall be corrected in accordance with the requirements of applicable law, including pursuant to the Employee Plans Compliance Resolution System.

(5) If, in addition to this Plan, the Participant is covered under another defined contribution plan maintained by the Employer, or a welfare benefit fund, as defined in Code Section 419(e), maintained by the Employer, or an individual medical account, as defined in Code Section 415(1)(2), maintained by the Employer which provides an annual addition, the annual additions which may be credited to a Participant’s account under all such plans for any such limitation year shall not exceed the maximum permissible amount. Benefits shall be reduced under any discretionary defined contribution plan before they are reduced under any defined contribution pension plan. If both plans are discretionary contribution plans, they shall first be reduced under this Plan. Any excess amount attributable to this Plan shall be disposed of in the manner described in Section 11.1(a)(4).

(b) Definitions .

(1) Annual additions : The following amounts credited to a Participant’s Account for the limitation year shall be treated as annual additions:

(A) Employer contributions;

(B) Elective deferrals (within the meaning of Section 4.1);

(D) Forfeitures, if any; and

(E) Amounts allocated after March 31, 1984 to an individual medical account, as defined in Section 415(l)(2) of the Code, which is part of a pension or annuity plan maintained by the Employer. Also, amounts derived from contributions paid or accrued after December 31, 1985 in taxable years ending after such date which are attributable to post-retirement medical benefits allocated to the separate account of a Key Employee, as defined in Section 419A(d)(3), and amounts under a welfare benefit fund, as defined in Section 419(e), maintained by the Employer, shall be treated as annual additions to a defined contribution plan.

Employer and employee contributions taken into account as annual additions shall include “excess contributions” as defined in Section 401(k)(8)(B) of the Code, “excess aggregate contributions” as defined in Section 401(m)(6)(B) of the Code, and “excess deferrals” as defined in Section 402(g) of the Code, regardless of whether such amounts are distributed, recharacterized or forfeited, unless such amounts constitute excess deferrals that were distributed to the Participant no later than April 15 of the taxable year following the taxable year of the Participant in which such deferrals were made.

For this purpose, any excess amount applied under Section 11.1(a)(4) in the limitation year to reduce Employer contributions shall be considered annual additions for such limitation year.

(2) Compensation : For purposes of determining maximum permitted benefits under this Section, compensation shall include all of a Participant’s earned income, wages, salaries, and fees for professional services, and other amounts received for personal services actually rendered in the course of employment with the Employer, including, but not limited to, commissions paid to salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses, elective deferrals (as defined in Section 402(g)(3) of the Code) made by an Employee to the Plan and any amount contributed or deferred by an Employee on an elective basis and not includable in the gross income of the Employee under Section 125, 132(f), or 457 of the Code. Notwithstanding the foregoing, Compensation for purposes of this Section shall exclude the following:

contributed, or Employer contributions under a simplified employee pension plan (funded with individual retirement accounts or annuities) to the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensation;

(B) Amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by the Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture;

(D) Other amounts which received special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) toward the purchase of an annuity described in Section 403(b) of the Code (whether or not the amounts are actually excludable from the gross income of the Employee); and

(E) Amounts in excess of the applicable Code Section 401(a)(17) limit.

Compensation shall be measured on the basis of compensation paid in the limitation year.

Any compensation described in this Section 11.1(b)(2) does not fail to be Compensation merely because it is paid after the Participant’s severance from employment with the Employer, provided the Compensation is paid by the later of 2½ months after severance from employment with the Employer or the end of the limitation year that includes the date of severance from employment. In addition, payment for unused bona fide sick, vacation or other leave shall be included as Compensation if (i) the Participant would have been able to use the leave if employment had continued, (ii) such amounts are paid by the later of 2½ months after severance from employment with the Employer or the end of the Plan Year that includes the date of severance from employment and (iii) such amounts would have been included as Compensation if they were paid prior to the Participant’s severance from employment with the Employer.

(3) Defined contribution dollar limitation : This shall mean $40,000, as adjusted under Section 415(d) of the Code.

(4) Employer : This term refers to the Employer that adopts this Plan, and all members of a controlled group of corporations (as defined in Section 414(b) of the Code, as modified by Section 415(h)), commonly-controlled trades or businesses (as defined in Section 414(c), as modified by Section 415(h)), or affiliated service groups (as defined in Section 414(m)) of which the Employer is a part, or any other entity required to be aggregated with the Employer under Code Section 414(o).

(5) Limitation year : This shall mean the Plan Year, unless the Employer elects a different twelve (12) consecutive month period. The election shall be made by the

adoption of a Plan amendment by the Employer. If the limitation year is amended to a different twelve (12) consecutive month period, the new limitation year must begin on a date within the limitation year in which the amendment is made.

(6) Maximum permissible amount : Except to the extent permitted under Section 4.1(e) and Section 414(v) of the Code, if applicable, this shall mean an amount equal to the lesser of the defined contribution dollar limitation or one hundred percent (100%) of the Participant’s compensation for the limitation year. If a short limitation year is created because of an amendment changing the limitation year to a different twelve (12)-consecutive month period, the maximum permissible amount shall not exceed the defined contribution dollar limitation multiplied by the following fraction:

Number of months in the short limitation year

ARTICLE TWELVE—AMENDMENT AND TERMINATION

12.1 AMENDMENT. The Employer reserves the right to amend, or modify the Plan at any time, or from time to time, in whole or in part. To the extent permitted by board resolutions of the Employer, any amendment may be adopted by action of a named fiduciary appointed pursuant to Section 9.1 to which the Employer as Administrator has delegated the authority to amend the Plan. If any such amendment, however, has a material financial impact on the cost of the Plan, such amendment shall be adopted by resolution of the Employer’s board of directors. Any such amendment shall become effective under its terms upon adoption by the Employer, or named fiduciary, as the case may be. However, no amendment affecting the duties, powers or responsibilities of the Trustee may be made without the written consent of the Trustee. No amendment shall be made to the Plan which shall:

(a) make it possible (other than as provided in Section 14.3) for any part of the corpus or income of the Trust Fund (other than such part as may be required to pay taxes and administrative expenses) to be used for or diverted to purposes other than the exclusive benefit of the Participants or their Beneficiaries;

(b) decrease a Participant’s account balance or eliminate an optional form of payment (unless permitted by applicable law) with respect to benefits accrued as of the later of (i) the date such amendment is adopted, or (ii) the date the amendment becomes effective; or

(c) alter the schedule for vesting in a Participant’s Account with respect to any Participant with three (3) or more Years of Service for vesting purposes without his consent or deprive any Participant of any nonforfeitable portion of his Account.

Notwithstanding the other provisions of this Section or any other provisions of the Plan, any amendment or modification of the Plan may be made retroactively if necessary or appropriate within the remedial amendment period to conform to or to satisfy the conditions of any law, governmental regulation, or ruling, and to meet the requirements of the Employee Retirement Income Security Act of 1974, as it may be amended.

If any corrective amendment (within the meaning of Section 1.401(a)(4)-11(g) of the IRS Treasury Regulations) is made after the end of a Plan Year, such amendment shall satisfy the requirements of Section 1.401(a)(4)-11(g)(3) and (4) of the IRS Treasury Regulations.

Participants’ Account shall be made at such time and in such manner as though the Plan had not terminated, or by any other appropriate method, including rollover into Individual Retirement Accounts. Upon distribution of the Trust Fund, the Trustee shall be discharged from all obligations under the Trust and no Participant or Beneficiary shall have any further right or claim therein. In the event of the partial termination of the Plan, the Accounts of all affected Participants shall become fully vested and nonforfeitable.

In the event of the termination of the Plan, any amounts to be distributed to Participants or Beneficiaries who cannot be located shall be handled in accordance with the provisions of applicable law (which may include the establishment of an account for such Participant or Beneficiary).

ARTICLE THIRTEEN—TOP-HEAVY PROVISIONS

13.2 DEFINITIONS. For purposes of this Article, the following definitions shall apply:

(a) “Key Employee” : “Key Employee” shall mean any Employee or former Employee (including any deceased Employee) who, at any time during the Plan Year that includes the determination date, was an officer of the Employer having annual compensation greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002), a five percent (5%) owner of the Employer, or a one percent (1%) owner of the Employer having annual compensation of more than $150,000. For this purpose, annual compensation shall mean compensation as defined in Section 11.1(b)(2) of the Plan. The determination of who is a Key Employee (including the terms “5% owner” and “1% owner”) shall be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder.

(b) “Top-Heavy Plan”:

(1) The Plan shall constitute a “Top-Heavy Plan” if any of the following conditions exist:

(A) The top-heavy ratio for the Plan exceeds sixty percent (60%) and the Plan is not part of any required aggregation group or permissive aggregation group of plans; or

(B) The Plan is part of a required aggregation group of plans (but is not part of a permissive aggregation group) and the top-heavy ratio for the group of plans exceeds sixty percent (60%); or

(C) The Plan is a part of a required aggregation group of plans and part of a permissive aggregation group and the top-heavy ratio for the permissive aggregation group exceeds sixty percent (60%).

(2) If the Employer maintains one (1) or more defined contribution plans (including any simplified employee pension plan funded with individual retirement accounts or annuities) and the Employer maintains or has maintained one (1) or more defined benefit plans which have covered or could cover a Participant in this Plan, the top-heavy ratio is a fraction, the numerator of which is the sum of account balances under the defined contribution plans for all Key Employees and the actuarial equivalents of accrued benefits under the defined benefit plans for all Key Employees, and the denominator of which is the sum of the account balances under the defined contribution plans for all Participants and the actuarial

equivalents of accrued benefits under the defined benefit plans for all Participants. Both the numerator and denominator of the top-heavy ratio shall include any distribution of an account balance or an accrued benefit made in the one (1)-year period ending on the determination date and any contribution due to a defined contribution pension plan but unpaid as of the determination date. However, in the case of any distribution made for a reason other than severance from employment, death, or disability, this provision shall be applied by substituting a five (5)-year period for a one (1)-year period. In determining the accrued benefit of a non-Key Employee who is participating in a plan that is part of a required aggregation group, the method of determining such benefit shall be either (i) in accordance with the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Employer or any member of the Employer’s related group (within the meaning of Section 2.5(b)), or (ii) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional accrual rate of Code Section 411(b)(1)(C).

(3) For purposes of (1) and (2) above, the value of account balances and the actuarial equivalents of accrued benefits shall be determined as of the most recent Valuation Date that falls within or ends with the twelve (12)-month period ending on the determination date. The account balances and accrued benefits of a Participant who is not a Key Employee but who was a Key Employee in a prior year shall be disregarded. The accrued benefits and account balances of Participants who have performed no service with any Employer maintaining the plan for the one (1)-year period ending on the determination date shall be disregarded. The calculations of the top-heavy ratio, and the extent to which distributions, rollovers, and transfers are taken into account shall be made under Section 416 of the Code and regulations issued thereunder. Deductible Employee contributions shall not be taken into account for purposes of computing the top-heavy ratio. When aggregating plans, the value of account balances and accrued benefits shall be calculated with reference to the determination dates that fall within the same calendar year.

(4) Definition of terms for Top-Heavy status :

(A) “Top-heavy ratio” shall mean the following:

(1) If the Employer maintains one or more defined contribution plans (including any simplified employee pension plan funded with individual retirement accounts or annuities) and the Employer has never maintained any defined benefit plans which have covered or could cover a Participant in this Plan, the top-heavy ratio is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the determination date, and the denominator of which is the sum of the account balances of all Participants as of the determination date. Both the numerator and the denominator shall be increased by any contributions due but unpaid to a defined contribution pension plan as of the determination date.

(B) “Permissive aggregation group” shall mean the required aggregation group of plans plus any other plan or plans of the Employer which, when considered as a group with the required aggregation group, would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code.

(C) “Required aggregation group” shall mean (i) each qualified plan of the Employer (including any terminated plan) in which at least one Key Employee participates, and (ii) any other qualified plan of the Employer which enables a plan described in (i) to meet the requirements of Section 401(a)(4) or 410 of the Code.

(D) “Determination date” shall mean, for any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, “determination date” shall mean the last day of that Plan Year.

(E) “Valuation Date” shall mean the last day of the Plan Year.

(F) “Actuarial equivalence” shall be based on the interest and mortality rates utilized to determine actuarial equivalence when benefits are paid from any defined benefit plan. If no rates are specified in said plan, the following shall be utilized: pre- and post-retirement interest — five percent (5%); post-retirement mortality based on the Unisex Pension (1984) Table as used by the Pension Benefit Guaranty Corporation on the date of execution hereof.

13.3 ALLOCATION OF EMPLOYER CONTRIBUTIONS AND FORFEITURES FOR A TOP-HEAVY PLAN YEAR.

(a) Except as otherwise provided below, in any Plan Year in which the Plan is a Top-Heavy Plan, the Employer contributions and forfeitures allocated on behalf of any Participant who is a non-Key Employee shall not be less than the lesser of three percent (3%) of such Participant’s compensation (as defined in Section 11.1(b)(2) and as limited by Section 401(a)(17) of the Code) or the largest percentage of Employer contributions and, elective deferrals (within the meaning of Section 4.1), and forfeitures as a percentage of the Key Employee’s compensation (as defined in Section 11.1(b)(2) and as limited by Section 401(a)(17) of the Code), allocated on behalf of any Key Employee for that Plan Year. This minimum allocation shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive an allocation or would have received a lesser allocation for the Plan Year because of insufficient Employer contributions under Section 4.2, the Participant’s failure to complete one thousand (1,000) Hours of Service, the Participant’s failure to make elective deferrals under Section 4.1 or compensation is less than a stated amount.

(b) The minimum allocation under this Section shall not apply to any Participant who was not employed by the Employer on the last day of the Plan Year.

(c) Elective deferrals may not be taken into account for the purpose of satisfying the minimum allocation. However, Employer matching contributions may be taken into account for the purpose of satisfying the minimum allocation.

(d) For purposes of the Plan, a non-Key Employee shall be any Employee or Beneficiary of such Employee, any former Employee, or Beneficiary of such former Employee, who is not or was not a Key Employee during the Plan Year ending on the determination date.

(e) If no defined benefit plan has ever been part of a permissive or required aggregation group of plans of the Employer, the contributions and forfeitures under this step shall be offset by any allocation of contributions and forfeitures under any other defined contribution plan of the Employer with a Plan Year ending in the same calendar year as this Plan’s Valuation Date.

(f) There shall be no duplication of the minimum benefits required under Code Section 416. Benefits shall be provided under defined contribution plans before under defined benefit plans. If a defined benefit plan (active or terminated) is part of the permissive or required aggregation group of plans, the allocation method of subparagraph (a) above shall apply, except that “3%” shall be increased to “5%.”

13.4 VESTING. The provisions contained in Section 6.1 relating to vesting shall continue to apply in any Plan Year in which the Plan is a Top-Heavy Plan, and apply to all benefits within the meaning of Section 411(a)(7) of the Code except those attributable to Employee contributions and elective deferrals under Section 4.1, including benefits accrued before the effective date of Section 416 and benefits accrued before the Plan became a Top-Heavy Plan.

Payment of a Participant’s vested Account balance under this Section shall be made in accordance with the provisions of Article Seven.

ARTICLE FOURTEEN—MISCELLANEOUS PROVISIONS

14.1 PLAN DOES NOT AFFECT EMPLOYMENT. Neither the creation of this Plan, any amendment thereto, the creation of any fund nor the payment of benefits hereunder shall be construed as giving any legal or equitable right to any Employee or Participant against the Employer, its officers or Employees, or against the Trustee. All liabilities under this Plan shall be satisfied, if at all, only out of the Trust Fund held by the Trustee. Participation in the Plan shall not give any Participant any right to be retained in the employ of the Employer, and the Employer hereby expressly retains the right to hire and discharge any Employee at any time with or without cause, as if the Plan had not been adopted, and any such discharged Participant shall have only such rights or interests in the Trust Fund as may be specified herein.

14.2 SUCCESSOR TO THE EMPLOYER. In the event of the merger, consolidation, reorganization or sale of assets of the Employer, under circumstances in which a successor person, firm, or corporation shall carry on all or a substantial part of the business of the Employer, and such successor shall employ a substantial number of Employees of the Employer and shall elect to carry on the provisions of the Plan, such successor shall be substituted for the Employer under the terms and provisions of the Plan upon the filing in writing with the Trustee of its election to do so.

14.3 REPAYMENTS TO THE EMPLOYER. Notwithstanding any provisions of this Plan to the contrary:

(a) Any monies or other Plan assets attributable to any contribution made to this Plan by the Employer because of a mistake of fact shall be returned to the Employer within one (1) year after the date of contribution.

(b) Any monies or other Plan assets attributable to any contribution made to this Plan by the Employer shall be refunded to the Employer, to the extent such contribution is predicated on the deductibility thereof under the Code and the income tax deduction for such contribution is disallowed. Such amount shall be refunded within one (1) taxable year after the date of such disallowance or within one (1) year of the resolution of any judicial or administrative process with respect to the disallowance. All Employer contributions hereunder are expressly contributed based upon such contributions’ deductibility under the Code.

14.4 BENEFITS NOT ASSIGNABLE. Except as provided in Section 414(p) of the Code with respect to “qualified domestic relations orders,” or except as provided in Section 401(a)(13)(C) of the Code with respect to certain judgments and settlements, the rights of any Participant or his Beneficiary to any benefit or payment hereunder shall not be subject to voluntary or involuntary alienation or assignment.

With respect to any “qualified domestic relations order” relating to the Plan, the Plan shall permit distribution to an alternate payee under such order at any time, irrespective of whether the

Participant has attained his “earliest retirement age” (within the meaning of Section 414(p)(4)(B) of the Code) under the Plan. A distribution to an alternate payee prior to the Participant’s attainment of his earliest retirement age shall, however, be available only if the order specifies distribution at that time or permits an agreement between the Plan and the alternate payee to authorize an earlier distribution. Nothing in this paragraph shall, however, give a Participant a right to receive distribution at a time otherwise not permitted under the Plan nor does it permit the alternate payee to receive a form of payment not otherwise permitted under the Plan or under said Section 414(p) of the Code.

14.5 MERGER OF PLANS. In the case of any merger or consolidation of this Plan with, or transfer of the assets or liabilities of the Plan to, any other plan, the terms of such merger, consolidation or transfer shall be such that each Participant would receive (in the event of termination of this Plan or its successor immediately thereafter) a benefit which is no less than what the Participant would have received in the event of termination of this Plan immediately before such merger, consolidation or transfer.

14.6 INVESTMENT EXPERIENCE NOT A FORFEITURE. The decrease in value of any Account due to adverse investment experience shall not be considered an impermissible “forfeiture” of any vested balance.

14.7 CONSTRUCTION. Wherever appropriate, the use of the masculine gender shall be extended to include the feminine and/or neuter or vice versa; and the singular form of words shall be extended to include the plural; and the plural shall be restricted to mean the singular.

14.8 GOVERNING DOCUMENTS. A Participant’s rights shall be determined under the terms of the Plan as in effect at the Participant’s date of termination from employment, or, if later, and to the extent permitted by applicable law, as determined under the terms of the Plan.

14.9 GOVERNING LAW. The provisions of this Plan shall be construed under the laws of the state of the situs of the Trust, except to the extent such laws are preempted by Federal law.

14.10 HEADINGS. The Article headings and Section numbers are included solely for ease of reference. If there is any conflict between such headings or numbers and the text of the Plan, the text shall control.

14.11 COUNTERPARTS. This Plan may be executed in any number of counterparts, each of which shall be deemed an original; said counterparts shall constitute but one and the same instrument, which may be sufficiently evidenced by any one counterpart.

14.12 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN. In the event that all or any portion of the distribution payable to a Participant or to a Participant’s Beneficiary hereunder shall, at the expiration of five (5) years after it shall become payable, remain unpaid solely by reason of the inability of the Administrator to ascertain the whereabouts of such Participant or Beneficiary, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, the amount so distributable shall be forfeited and reallocated in the same manner as a forfeiture under Section 6.2 pursuant to this Plan. In the event a Participant or Beneficiary is located subsequent to the forfeiture of his Account balance, such Account balance shall be restored.

14.13 DISTRIBUTION TO MINOR OR LEGALLY INCAPACITATED. In the event any benefit is payable to a minor or to a person deemed to be incompetent or to a person otherwise under legal disability, or who is by sole reason of advanced age, illness, or other physical or mental incapacity incapable of handling the disposition of his property, the Administrator, may direct the Trustee to make payment of such benefit to the minor’s or legally incapacitated person’s court appointed guardian, person designated in a valid power of attorney, or any other person authorized under state law. The receipt of any such payment or distribution shall be a complete discharge of liability for Plan obligations.

IN WITNESS WHEREOF, the Employer, by its duly authorized officer, has caused this Plan to be executed on the 18th day of December, 2009.

	CONTINENTAL MATERIALS CORPORATION


	By:	/s/ Joseph J. Sum
		Authorized Officer

Exhibit 10d

WILLIAMS FURNACE CO.

EMPLOYEES PROFIT SHARING RETIREMENT PLAN

2009 Amendment and Restatement

WILLIAMS FURNACE CO.

EMPLOYEES PROFIT SHARING RETIREMENT PLAN

WHEREAS, Williams Furnace Co. (hereinafter referred to as the “Employer”) heretofore adopted the Williams Furnace Co. Employees Profit Sharing Retirement Plan (hereinafter referred to as the “Plan”) for the benefit of its eligible Employees, effective as of January 1, 1982; and

WHEREAS, the Employer reserved the right to amend the Plan; and

WHEREAS, it is intended that the Plan is to continue to be a qualified profit sharing plan under Section 401(a) and 501(a) of the Internal Revenue Code for the exclusive benefit of the Participants and their Beneficiaries; and

WHEREAS, it is intended that the cash or deferral arrangement forming part of the Plan is to continue to qualify under Section 401(k) of the Internal Revenue Code;

TABLE OF CONTENTS

ARTICLE ONE—DEFINITIONS
1.1	Account
1.2	Administrator
1.3	Beneficiary
1.4	Break in Service
1.5	Code
1.6	Compensation
1.7	Disability
1.8	Effective Date
1.9	Employee
1.10	Employer
1.11	Employment Date
1.12	Fail-Safe Contribution
1.13	Highly-Compensated Employee
1.14	Hour of Service
1.15	Leased Employee
1.16	Nonhighly-Compensated Employee
1.17	Normal Retirement Date
1.18	Participant
1.19	Plan
1.20	Plan Year
1.21	Trust
1.22	Trustee
1.23	Valuation Date
1.24	Year of Service

ARTICLE TWO—SERVICE DEFINITIONS AND RULES
2.1	Year of Service
2.2	Break in Service
2.3	Leave of Absence
2.4	Rule of Parity on Return to Employment
2.5	Service in Excluded Job Classifications or with Related Companies

ARTICLE THREE—PLAN PARTICIPATION
3.1	Participation
3.2	Re-employment of Former Participant
3.3	Termination of Eligibility
3.4	Compliance with USERRA

ARTICLE FOUR—ELECTIVE DEFERRALS, EMPLOYER CONTRIBUTIONS, ROLLOVERS AND TRANSFERS FROM OTHER PLANS
4.1	Elective Deferrals
4.2	Employer Contributions
4.3	Rollovers and Transfers of Funds from Other Plans
4.4	Timing of Contributions
4.5	Employee After-Tax Contributions
4.6	Allocation of Service Credit

ARTICLE FIVE—ACCOUNTING RULES
5.1	Investment of Accounts and Accounting Rules

ARTICLE SIX—VESTING AND RETIREMENT BENEFITS
6.1	Vesting
6.2	Forfeiture of Nonvested Balance
6.3	Distribution of Less than Entire Vested Account Balance
6.4	Normal Retirement
6.5	Disability

ARTICLE SEVEN—MANNER AND TIME OF DISTRIBUTING BENEFITS
7.1	Manner of Payment
7.2	Time of Commencement of Benefit Payments
7.3	Furnishing Information
7.4	Minimum Distribution Requirements
7.5	Amount of Death Benefit
7.6	Designation of Beneficiary
7.7	Distribution of Death Benefits
7.8	Eligible Rollover Distributions

ARTICLE EIGHT—LOANS AND IN-SERVICE WITHDRAWALS
8.1	Loans
8.2	Hardship Distributions
8.3	Withdrawals After Age 59½ 65
8.4	Withdrawals of After-Tax Contributions
8.5	Withdrawals of Rollover Contributions
8.6	Withdrawals of Employer Contributions for Other Financial Needs

ARTICLE NINE—ADMINISTRATION OF THE PLAN
9.1	Plan Administration
9.2	Claims Procedure
9.3	Trust Agreement

ARTICLE TEN—SPECIAL COMPLIANCE PROVISIONS
10.1	Distribution of Excess Elective Deferrals
10.2	Limitations on 401(k) Contributions
10.3	Nondiscrimination Test for Employer Matching Contributions

ARTICLE ELEVEN—LIMITATION ON ANNUAL ADDITIONS
11.1	Rules and Definitions

ARTICLE TWELVE—AMENDMENT AND TERMINATION
12.1	Amendment
12.2	Termination of the Plan

ARTICLE THIRTEEN—TOP-HEAVY PROVISIONS
13.1	Applicability
13.2	Definitions
13.3	Allocation of Employer Contributions and Forfeitures for a Top-Heavy Plan Year
13.4	Vesting

ARTICLE FOURTEEN—MISCELLANEOUS PROVISIONS
14.1	Plan Does Not Affect Employment
14.2	Successor to the Employer
14.3	Repayments to the Employer
14.4	Benefits not Assignable
14.5	Merger of Plans
14.6	Investment Experience not a Forfeiture
14.7	Construction
14.8	Governing Documents
14.9	Governing Law
14.10	Headings
14.11	Counterparts
14.12	Location of Participant or Beneficiary Unknown
14.13	Distribution to Minor or Legally Incapacitated

ARTICLE ONE—DEFINITIONS

For purposes of the Plan, unless the context or an alternative definition specified within another Article provides otherwise, the following words and phrases shall have the definitions provided:

1.1 “ACCOUNT” shall mean the individual bookkeeping accounts maintained for a Participant under the Plan which shall record (a) the Participant’s allocations of Employer contributions and forfeitures, (b) amounts of Compensation deferred to the Plan pursuant to the Participant’s election, (c) any amounts transferred to this Plan under Section 4.3 from another qualified retirement plan, or from another qualified plan in connection with a plan merger, (d) any after-tax contributions made to the Plan under Section 4.5, and (e) the allocation of Trust investment experience.

1.2 “ADMINISTRATOR” shall mean the Plan Administrator appointed from time to time in accordance with the provisions of Article Nine hereof.

1.3 “BENEFICIARY” shall mean any person, trust, organization, or estate entitled to receive payment under the terms of the Plan upon the death of a Participant.

1.4 “BREAK IN SERVICE” shall have the meaning set forth in Article Two.

1.5 “CODE” shall mean the Internal Revenue Code of 1986, as amended from time to time.

1.6 “COMPENSATION” shall mean the compensation paid to a Participant by the Employer for the Plan Year, but exclusive of any program of deferred compensation or additional benefits payable other than in cash and exclusive of any compensation received prior to his becoming a Participant in the Plan. Compensation shall include any amounts deferred under a salary reduction agreement in accordance with Section 4.1 or under a Code Section 125 plan maintained by the Employer.

In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, the annual Compensation of each Participant taken into

account under the Plan shall not exceed $245,000 for the 2009 calendar year, and shall be adjusted annually by the Secretary of the Treasury or his delegate for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding twelve (12) months, over which Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than twelve (12) months, the annual compensation limit shall be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is twelve (12).

For purposes of applying the limitations described in Section 11.1, and for purposes of defining compensation under Section 1.13 and Article Thirteen of the Plan, compensation paid or made available during such limitations years (or Plan Years) shall include elective amounts that are not includible in the gross income of the Employee by reason of Section 125, 132(f)(4), 402(g)(3), 402(h)(1)(B), 457(b) or 403(b) of the Code.

1.7 “DISABILITY” shall mean a “permanent and total” disability incurred by a Participant while in the employ of the Employer. A Participant shall be deemed “disabled” if, in the opinion of the Administrator and based upon appropriate medical advice and examination, he is unable to perform his normal work for the Employer or any other work for which he is qualified by reason of education, training or experience.

1.8 “EFFECTIVE DATE.” The Plan’s initial Effective Date was January 1, 1982. The Effective Date of this restated Plan, on and after which it supersedes the terms of the existing Plan document, is January 1, 2009, except where the provisions of the Plan (or the requirements of applicable law) shall otherwise specifically provide. The rights of any Participant who terminated employment with the Employer prior to the applicable date shall be established under the terms of the Plan and Trust as in effect at the time of the Participant’s termination from employment, unless the Participant subsequently returns to employment with the Employer, or unless otherwise provided under the terms of the Plan. Rights of spouses and Beneficiaries of such Participants shall also be governed by those documents.

1.9 “EMPLOYEE” shall mean a common law employee of the Employer. The term “Employee” shall also include any Leased Employee deemed to be an Employee of the Employer provided in Section 414(n) or 414(o) of the Code.

1.10 “EMPLOYER” shall mean Williams Furnace Co. and any subsidiary or affiliate which is a member of its “related group” (as defined in Section 2.5) which has adopted the Plan (a “Participating Affiliate”), and shall include any successor(s) thereto which adopt this Plan. Any such subsidiary or affiliate of Williams Furnace Co. may adopt the Plan with the approval of its board of directors (or noncorporate counterpart) subject to the approval of Williams Furnace Co. The provisions of this Plan shall apply equally to each Participating Affiliate and its Employees except as specifically set forth in the Plan; provided, however, notwithstanding any other provision of this Plan, the amount and timing of contributions under Article 4 to be made by any Employer which is a Participating Affiliate shall be made subject to the approval of Williams Furnace Co. For purposes hereof, each Participating Affiliate shall be deemed to have appointed Williams Furnace Co. as its agent to act on its behalf in all matters relating to the administration, amendment, termination of the Plan and the investment of the assets of the Plan. For purposes of the Code and ERISA, the Plan as maintained by Williams Furnace Co. and the Participating Affiliates shall constitute a single plan rather than a separate plan of each Participating Affiliate. All assets in the Trust shall be available to pay benefits to all Participants and their Beneficiaries.

1.11 “EMPLOYMENT DATE” shall mean the first date as of which an Employee is credited with an Hour of Service, provided that, in the case of a Break in Service, the Employment Date shall be the first date thereafter as of which an Employee is credited with an Hour of Service.

1.12 “FAIL-SAFE CONTRIBUTION” shall mean a qualified nonelective contribution which is a contribution (other than matching contributions or Qualified Matching Contributions (within the meaning of Section 10.2)) made by the Employer and allocated to Participants’ accounts that the Participants may not elect to receive in cash until distribution from the Plan; that are nonforfeitable when made; and that are distributable only in accordance with the distribution provisions under Section 401(k) of the Code and the regulations promulgated thereunder.

1.13 “HIGHLY-COMPENSATED EMPLOYEE” shall mean any Employee of the Employer who:

(a) was a five percent (5%) owner of the Employer (as defined in Section 416(i)(1)) of the Code) at any time during the “determination year” or “look-back year”; or

(b) earned more than $105,000 of Compensation from the Employer during the “look-back year” and was in the top twenty percent (20%) of Employees by Compensation for such year. The $80,000 amount shall be adjusted at the same time and in the same manner as under Section 415(d) of the Code.

For purposes of this Section, the “determination year” shall be the Plan Year for which a determination is being made as to whether an Employee is a Highly-Compensated Employee.

The “look-back year” shall be the twelve (12) month period immediately preceding the “determination year”.

1.14 “HOUR OF SERVICE” shall have the meaning set forth below:

(a) An Hour of Service is each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer, during the applicable computation period.

(iii) Hours of Service shall not be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee.

(d) Hours of Service under this Section shall be determined under the terms of the Family and Medical Leave Act of 1993 and the Uniformed Services Employment and Reemployment Rights Act of 1994.

Hours of Service shall be credited for any individual considered an Employee for purposes of this Plan under Section 414(n) or Section 414(o) of the Code.

1.15 “LEASED EMPLOYEE” shall mean any person (other than an employee of the recipient) who, pursuant to an agreement between the recipient Employer and any other person or organization, has performed services for the recipient Employer (determined in accordance with Section 414(n)(6) of the Code) on a substantially full-time basis for a period of at least one (1) year and where such services are performed under the primary direction and control of the recipient Employer. A person shall not be considered a Leased Employee if the total number of Leased Employees does not exceed twenty percent (20%) of the Nonhighly-Compensated Employees employed by the recipient Employer, and if any such person is covered by a money purchase pension plan providing (a) a nonintegrated employer contribution rate of at least ten percent (10%) of compensation, as defined in Section 11.1(b)(2) of the Plan but including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee’s gross income under Sections 125, 402(e)(3), 402(g), 402(h)(1)(B), 403(b), or 457(b) of the Code, and shall also include elective amounts that are not includible in the gross income of the Employee by reason of Section 132(f) of the Code, (b) immediate participation, and (c) full and immediate vesting.

1.16 “NONHIGHLY-COMPENSATED EMPLOYEE” shall mean an Employee of the Employer who is not a Highly-Compensated Employee.

1.17 “NORMAL RETIREMENT DATE” shall mean the Participant’s sixtieth (60th) birthday. The date on which the Participant attains age sixty (60) shall be the Participant’s Normal Retirement Age.

1.18 “PARTICIPANT” shall mean any Employee who has satisfied the eligibility requirements of Article Three and who is participating in the Plan.

1.19 “PLAN” shall mean the Williams Furnace Co. Employees Profit Sharing Retirement Plan, as set forth herein and as may be amended from time to time.

1.20 “PLAN YEAR” shall mean the twelve (12)-consecutive month period beginning January and ending December 31.

1.21 “TRUST” shall mean the Trust Agreement entered into between the Employer and the Trustee forming part of this Plan, together with any amendments thereto. “Trust Fund” shall mean any and all property held by the Trustee pursuant to the Trust Agreement, together with income therefrom.

1.22 “TRUSTEE” shall mean the Trustee or Trustees appointed by the Employer, and any successors thereto.

1.23 “VALUATION DATE” shall mean each day on which the New York Stock Exchange is open for business.

1.24 “YEAR OF SERVICE” or “SERVICE” and the special rules with respect to crediting Service are in Article Two of the Plan.

ARTICLE TWO—SERVICE DEFINITIONS AND RULES

Service is the period of employment credited under the Plan. Definitions and special rules related to Service are as follows:

(a) the Hours of Service which otherwise normally would have been credited to such individual but for such absence; or

(b) in any case where the Administrator is unable to determine the Hours of Service, on the basis of an assumed eight (8) hours per day.

(b) If when a Participant incurred a Break in Service, he was not vested in any portion of his Account derived from Employer contributions, his pre-Break Years of Service shall be

disregarded if his consecutive Breaks in Service equal or exceed five (5). Effective for Plan Years beginning on and after January 1, 2006, the words “derived from Employer contributions” shall be removed from the preceding sentence.

2.5 SERVICE IN EXCLUDED JOB CLASSIFICATIONS OR WITH RELATED COMPANIES

ARTICLE THREE—PLAN PARTICIPATION

3.1 PARTICIPATION. Subject to the following provisions of this Section 3.1 , a ll Employees participating in the Plan prior to the Plan’s restatement shall continue to participate, subject to the terms hereof.

Each other eligible Employee shall become a Participant under the Plan effective as of the first day of the calendar month coincident with or next following the Employee’s completion of one (1) Year of Service (effective as of January 1, 2009, coincident with or next following his completion of one (1) Month of Service).

In no event, however, shall any Employee (or other individual) participate under the Plan unless he is included in a unit of Employees covered by a collective bargaining agreement between the Employer and the Employee representatives which bargaining agreement expressly provides for inclusion in the Plan. Provided, however, that no otherwise eligible Employee participate under the Plan while he is (i) employed as an independent contractor on the payroll records of the Employer (regardless of any subsequent reclassification by the Employer, any governmental agency or court); or (ii) employed as a Leased Employee;

Notwithstanding the foregoing, if a Participant is no longer covered by a collective bargaining agreement and, as a result, becomes eligible to participate in the Continental Materials Corporation Employees Profit Sharing Retirement Plan (the “Continental Materials Plan”), his Account under the Plan shall be transferred to the Continental Materials Plan and his Years of Service under the Plan shall be credited to the Continental Materials Plan. Correspondingly, if a

Participant in the Continental Materials Plan becomes covered by a collective bargaining agreement and, as a result, becomes eligible to participate in the Plan, his account under the Continental Materials Plan shall be transferred to the Plan and his “years of service” under the Continental Materials Plan shall be credited to the Plan.

ARTICLE FOUR—ELECTIVE DEFERRALS, EMPLOYER CONTRIBUTIONS, AND ROLLOVERS AND TRANSFERS FROM OTHER PLANS

4.1 ELECTIVE DEFERRALS

(a) Elections . A Participant may elect to defer a portion of his Compensation for a Plan Year on a pre-tax basis. The amount of a Participant’s Compensation contributed in accordance with the Participant’s election shall be withheld by the Employer from the Participant’s Compensation on a ratable basis throughout the Plan Year. Notwithstanding the foregoing, a Participant may elect to contribute all or a portion of any bonus payments paid to him during the Plan Year. For purposes of making elective deferrals pursuant to this Section, only Compensation earned while eligible to make such deferrals shall be considered. The amount deferred on behalf of each Participant shall be contributed by the Employer to the Plan and allocated to the portions of the Participant’s Account consisting of pre-tax contributions.

Each Participant who is a Nonhighly-Compensated Employee may elect to contribute from one percent (1%) to fifty percent (50%) of such Participant’s Compensation as a pre-tax contribution. Each Participant who is a Highly-Compensated Employees may elect to contribute one percent (1%) to fifteen percent (15%) of such Participant’s Compensation as a pre-tax contribution.

(e) Catch-up Contributions . All Participants who are eligible to make elective deferrals under Section 4.1(a) and who have attained age fifty (50) before the close of the taxable year shall be eligible to make catch-up contributions in accordance with, and subject to the limitations of, Section 414(v) of the Code. The dollar limit on Catch-up Contributions under Section 414(v)(2)(B)(i) of the Code is $1,000 for taxable years beginning in 2002, increasing by $1,000 for each year thereafter up to $5,000 for taxable years beginning in 2006 and later years. After 2006, the $5,000 limit will be adjusted by the Secretary of the Treasury for cost-of-living increases under Section 414(v)(2)(C) of the Code. Any such adjustments will be in multiples of $500.

4.2 EMPLOYER CONTRIBUTIONS

(a) Employer Matching Contributions . For each Plan Year, the Employer may contribute to the Plan, on behalf of each Participant eligible under Section 4.2(b), such amount, if any, as may be determined by the Employer’s board of directors of the Employer, as the case may be. Any such contribution shall be allocated among the Accounts of such eligible Participants employed by the applicable Employer in accordance with the ratio that each such eligible Participant’s Compensation bears to the total Compensation of all such eligible Participants employed by the applicable Employer for the Plan Year. Provided, however, that for such purposes, a Participant’s Compensation shall be taken into account only for the period during which the Participant made elective deferrals for the Plan Year. In this regard, the rate of Employer contribution, if any, may vary among the Participating Affiliates.

(b) Eligibility for Employer Matching Contributions . To be eligible for a share of Employer matching contributions under Section 4.2(a), a Participant must (1) have been credited with at least one thousand (1,000) Hours of Service in the Plan Year, and (2) be employed by the Employer on the last day of the Plan Year for which such matching contribution is made to the Plan ; provided, however, that if the Participant’s failure to be credited with at least one thousand (1,000) Hours of Service and/or to be employed by the Employer on the last day of the Plan Year is due to the Participant’s Disability, death or retirement on or after his Normal Retirement Date during the Plan Year, such Participant shall nevertheless be entitled to share in the allocation of any matching contributions for such Plan Year.

(1) a qualified plan described in Section 401(a) or 403(a) of the Code, including after-tax employee contributions and excluding designated Roth contributions under Section 402A of the Code;

(2) an annuity contract described in Section 403(b) of the Code, including after-tax employee contributions and excluding designated Roth contributions under Section 402A of the Code;

(4) an individual retirement account which was used solely as a conduit from a qualified plan described in Section 401(a) of the Code.

4.5 EMPLOYEE AFTER-TAX CONTRIBUTIONS. A Participant shall be permitted to make after-tax contributions to the Plan in accordance with procedures established by the Administrator which shall be consistently applied and which may be changed from time to time. A Participant may prospectively elect to change or revoke the amount (or percentage) of his after-tax contributions during the Plan Year in accordance with procedures established by the Administrator.

Employee after-tax contributions shall be subject to the limitations under Section 10.3 and Section 11.1 and shall not exceed ten percent (10%) of the Participant’s Compensation for the Plan Year.

Any after-tax contributions made by a Participant shall be contributed by the Employer to the Plan and allocated to the portion of the Participant’s Account consisting of after-tax contributions. A Participant shall have a nonforfeitable interest at all times in that portion of his Account attributable to any after-tax contributions made to the Plan pursuant to this Section 4.5. Any such after-tax contributions shall be distributed at the same time as other vested benefits would be distributed under the Plan.

ARTICLE FIVE—ACCOUNTING RULES

5.1 INVESTMENT OF ACCOUNTS AND ACCOUNTING RULES

Notwithstanding the foregoing, if, pursuant to Section 4.02 of the Trust, an investment manager (within the meaning of Section 3(38) of the Employee Retirement Income

Security Act of 1974, as amended (“ERISA”)) is appointed by a named fiduciary pursuant to Section 402(c)(3) of ERISA, a Participant may elect to have such investment manager direct the investment of his Account in accordance with the provisions of the preceding paragraph.

(c) Allocation of Investment Experience . As of each Valuation Date, the investment fund(s) of the Trust shall be valued at fair market value, and the income, loss, appreciation and depreciation (realized and unrealized), and any paid expenses of the Trust attributable to such fund shall be apportioned among Participants’ Accounts within the fund based upon the value of each Account within the fund as of the preceding Valuation Date.

ARTICLE SIX—VESTING AND RETIREMENT BENEFITS

6.1 VESTING. A Participant shall at all times have a nonforfeitable (vested) right to his Account derived from elective deferrals (within the meaning of Section 4.1), after-tax contributions (under Section 4.5), Employer Fail-Safe Contributions, “Qualified Matching Contributions” (within the meaning of Section 10.2 below), and rollovers or transfers from other plans, as adjusted for investment experience. Except as otherwise provided with respect to Normal Retirement, Disability, or death, a Participant shall have a nonforfeitable (vested) right to a percentage of the value of his Account derived from Employer matching contributions under Section 4.2 as follows:

Years of Service	Vested Percentage
Less than 1 year	0	%
1 year but less than 2	20	%
2 years but less than 3	30	%
3 years but less than 4	40	%
4 years but less than 5	60	%
5 years but less than 6	80	%
6 years and thereafter	100	%

distribution of his vested Account or (ii) as soon as administratively practical after the last day of the Plan Year in which the Participant incurs five (5) consecutive Breaks in Service. However, no forfeiture shall occur solely as a result of a Participant’s withdrawal of Employee after-tax contributions. The amount forfeited shall be used to pay Plan administrative expenses, used to reduce Employer contributions under Section 4.2(a), or used to restore previously forfeited amounts under this Section 6.2.

If the Participant returns to the employment of the Employer prior to incurring five (5) consecutive one (1)-year Breaks in Service, and prior to receiving distribution of his vested Account, the nonvested portion shall remain in the Participant’s Account. However, if the nonvested portion of the Participant’s Account was allocated as a forfeiture as the result of the Participant receiving distribution of his vested Account balance (including a “deemed” distribution under Section 7.2), the nonvested portion shall be restored if:

(a) the Participant resumes employment prior to incurring five (5) consecutive Breaks in Service; and

Any Years of Service for which a Participant received a cash-out shall be recognized for purposes of vesting and eligibility under the Plan.

Section 6.1. A Participant who continues employment with the Employer after his Normal Retirement Age shall continue to participate under the Plan.

ARTICLE SEVEN—MANNER AND TIME OF DISTRIBUTING BENEFITS

In no event shall distribution of the Participant’s vested Account be made or commence later than the April 1st following the end of the calendar year in which the Participant attains age seventy

7.4 MINIMUM DISTRIBUTION REQUIREMENTS.

(a) General Rules.

(b) Time and Manner of Distribution

(1) Required Beginning Date . The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s required beginning date.

(d) Required Minimum Distributions After Participant’s Death.

(1) Death On or After Date Distributions Begin .

(i) The Participant’s remaining life expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.

distribution calendar years after the year of the surviving spouse’s death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.

(2) Death Before Date Distributions Begin .

(e) Definitions.

(3) Life Expectancy . Life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9, Q&A-1, of the Treasury regulations.

(5) Required Beginning Date . The date specified in Section 7.2 of the Plan.

7.5 AMOUNT OF DEATH BENEFIT

(a) Death Before Termination of Employment . In the event of the death of a Participant while in the employ of the Employer, vesting in the Participant’s Account shall be one hundred percent (100%), if not otherwise one hundred percent (100%) vested under Section 6.1, with the credit balance of the Participant’s Account being payable to his Beneficiary.

(b) Death After Termination of Employment . In the event of the death of a former Participant after termination of employment, but prior to the complete distribution of his vested

Account balance under the Plan, the undistributed vested balance of the Participant’s Account shall be paid to the Participant’s Beneficiary.

Subject to the above, Beneficiary designations may include primary and contingent Beneficiaries, and may be revoked or amended at any time in similar manner or form, and the most recent designation shall govern. A designation of a Beneficiary made by a Participant shall cease to be effective upon his marriage or remarriage. In addition, a spousal Beneficiary designation shall cease to be effective upon written notification to the Administrator of the divorce of the Participant and such spouse. In the absence of an effective designation of Beneficiary, or if no designated Beneficiary is surviving as of the date of the Participant’s death, any death benefit shall be paid to the surviving spouse of the Participant, or, if no surviving spouse, to the Participant’s surviving issue, by right of representation, or, to the Participant’s estate. Notification to Participants of the death benefits under the Plan and the method of designating a Beneficiary shall be given at the time and in the manner provided by regulations and rulings under the Code.

7.7 DISTRIBUTION OF DEATH BENEFITS. The Beneficiary shall be allowed to designate the mode of receiving benefits in accordance with Section 7.1, unless the Participant had designated a method in writing and indicated that the method was not revocable by the Beneficiary.

31 of the calendar year immediately following the calendar year in which the Participant died;

(b) Definitions:

(i) Eligible Rollover Distribution . An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee’s designated Beneficiary, or for a specified period of ten (10) years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and any hardship distribution described in Section 8.2. A portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions which are not includible in gross income. However, such portion may be transferred only to an individual retirement account or annuity described in Section 408(a) or (b) of the Code (or described in Section 408A of the Code for “designated Roth contributions” (within the meaning of Section 402A of the Code)), or to a qualified defined contribution plan described in Section 401(a) or 403(a) of the Code that agrees to separately account

for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible and, if applicable, as required under Section 402A of the Code.

(iv) Direct Rollover . A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee.

(ii) the Participant, after receiving the notice, affirmatively elects a distribution.

ARTICLE EIGHT—LOANS AND IN-SERVICE WITHDRAWALS

8.1 LOANS

(a) Permissible Amount and Procedures . Upon the application of a Participant, the Administrator may, in accordance with a uniform and nondiscriminatory policy, direct the Trustee to grant a loan to the Participant, which loan shall be secured by the Participant’s vested Account balance. The Participant’s signature shall be required on a promissory note. The rate of interest on any such loan shall be equal to the “Prime Rate” (as reported in The Wall Street Journal on the date the loan is initiated) plus one percent 1%. Participant loans shall be treated as segregated investments, and interest repayments shall be credited only to the Participant’s Account.

(b) Limitation on Amount of Loans . A Participant’s loan shall not exceed the lesser of:

(1) $50,000, which amount shall be reduced by the highest outstanding loan balance during the preceding twelve (12)-month period; or

(2) one-half (½) of the vested value of the Participant’s Account, determined as of the Valuation Date preceding the date of the Participant’s loan.

Any loan must be repaid within five (5) years, unless made for the purpose of acquiring the primary residence of the Participant, in which case such loan may be repaid over a longer period of time not to exceed fifteen (15) years. The repayment of any loan must be made in at least quarterly installments of principal and interest; provided, however, that this requirement shall not apply for a period, not longer than one year, or such longer period as may apply under Section 414(u) of the Code, that a Participant is on a leave of absence (“Leave”), either without pay from the Employer or at a rate of pay (after income and employment tax withholding) that is less than the amount of the installment payments required under the terms of the loan. However, the loan must be repaid by the latest date permitted under Sections 72(p)(2)(B) and 414(u) of the Code and the installments due after the Leave ends (or, unless Section 414(u) of the Code applies, if earlier, upon the expiration of the first year of the Leave) must not be less than those required under the terms of the original loan.

(1) Through reimbursement or compensation by insurance or otherwise;

(2) By liquidation of the Participant’s assets;

(3) By cessation of elective deferrals (within the meaning of Section 4.1) and any after-tax contributions under Section 4.5; or

8.4 WITHDRAWALS OF AFTER-TAX CONTRIBUTIONS. A Participant may withdraw from the Plan a sum (a) not in excess of the credit balance of the Participant’s Account attributable to any after-tax contributions made to the Plan and (b) not less than such minimum amount as the Administrator may establish from time to time to facilitate administration of the Plan. Any such withdrawals shall be made in accordance with nondiscriminatory and objective standards and procedures consistently applied by the Administrator.

8.6 WITHDRAWALS OF EMPLOYER CONTRIBUTIONS FOR OTHER FINANCIAL NEEDS. Where funds are needed to complete a major renovation to a Participant’s principal residence, or in the event of any other bona fide financial emergency as determined by the Administrator, the Participant may receive a distribution not to exceed the lesser of (i) the vested value of the Participant’s Account derived from Employer contributions under Section 4.2,

determined as of the Valuation Date immediately preceding such withdrawal request, or (ii) the amount necessary to satisfy such financial need. The amount of such financial need may, however, include any amounts necessary to pay Federal, state or local income taxes or penalties reasonably anticipated to result from the distribution. Such distribution shall be made in accordance with non-discretionary and objective standards consistently applied by the Administrator.

ARTICLE NINE —ADMINISTRATION OF THE PLAN

9.2 CLAIMS PROCEDURE

The provisions of paragraph (a) below shall apply to all benefit claims under the Plan, except as provided in paragraph (b) below.

The notice of the denial of the claim shall be written in a manner calculated to be understood by the claimant and shall set forth the following:

(i) the specific reason or reasons for the denial of the claim;

(ii) the specific references to the pertinent Plan provisions on which the denial is based;

(iii) a description of any additional material or information necessary to perfect the claim, and an explanation of why such material or information is necessary;

(v) a statement about the claimant’s right to bring civil action under Section 502(a) under ERISA if the claim is denied on review.

(b) The provisions of this subsection (b) shall apply to a claim involving a determination by the Administrator of a Participant’s Disability.

special circumstances and the date by which a final decision is expected to be rendered is given to the claimant within the originally extended seventy-five (75) day period.