10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended October 31, 2008

OR

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

For the transition period from              to             

Commission file number 1-6357

ESTERLINE TECHNOLOGIES CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	13-2595091
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

500 108th Avenue NE Bellevue, Washington	98004
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code                 425/453-9400

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

Title of each class	Name of each exchange on which registered
Common Stock ($.20 par value)	New York Stock Exchange
Preferred Stock Purchase Rights	New York Stock Exchange

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 in Rule 405 of the Securities Act.        Yes  x        No  ¨

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          X    No

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.            X    Yes                  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this 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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨    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          X    No

As of December 19, 2008, 29,689,453 shares of the Registrant’s common stock were outstanding. The aggregate market value of shares of common stock held by non-affiliates as of May 2, 2008 was $1,651,288 (based upon the closing sales price of $55.99 per share).

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PART I

This Report includes a number of forward-looking statements that reflect the Company’s current views with respect to future events and financial performance. Please refer to the section addressing forward-looking information on page 12 for further discussion. In this report, “we,” “our,” “us,” “Company,” and “Esterline” refer to Esterline Technologies Corporation and subsidiaries, unless otherwise noted or context otherwise indicates.

Item 1. Business

(a) General Development of Business.

Esterline, a Delaware corporation formed in 1967, is a leading specialized manufacturing company principally serving aerospace and defense customers. We design, manufacture and market highly engineered products and systems for application within the industries we serve.

Our strategy is to maintain a leadership position in niche markets for the development and manufacture of highly engineered products that are essential to our customers. We are concentrating our efforts to expand selectively our capabilities in these markets, to anticipate the global needs of our customers and to respond to such needs with comprehensive solutions. Our current business and strategic growth plan focuses on the continuous development of these products in three key technology segments – avionics and controls, sensors and systems, and advanced materials including thermally engineered components and specialized high-performance elastomers and other complex materials, principally for aerospace and defense markets. Our products are often mission-critical equipment, which have been designed into particular military and commercial platforms and in certain cases can only be replaced by products of other manufacturers following a formal certification process. As part of our implementation of this growth plan, we focus on, among other things, expansion of our capabilities as a more comprehensive supplier to our customers, which in fiscal 2007 included the acquisition of CMC Electronics (CMC). In addition, subsequent to October 31, 2008, we acquired NMC Group, Inc. and disposed of a non-core business operating as Muirhead Aerospace and Traxsys Input Products. On December 15, 2008, we acquired NMC Group, Inc. (NMC) for approximately $90.0 million in cash. NMC designs and manufacturers specialized light weight fasteners principally for commercial aviation applications. On December 21, 2008, we entered into Share Sale and Purchase Agreement to acquire Racal Acoustics Global Ltd. (Racal) for U.K. £115.0 million or $172.0 million, subject to certain governmental approvals and customary closing conditions. Racal develops and manufactures high technology ruggedized personal communication equipment for the defense and avionics market segment. These acquisitions and divestiture are described in more detail in the “Overview” section of Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations contained in Item 7 of this report.

Our products have a long history in the aerospace and defense industry and are found on most military and commercial aircraft, helicopters, and land-based systems. For example, our products are used on the majority of active and in-production U.S. military aircraft and on every Boeing commercial aircraft platform manufactured in the past 65 years. In addition, our products are supplied to Airbus, all of the major regional and business jet manufacturers, and the major aircraft engine manufacturers. We differentiate ourselves through our engineering and manufacturing capabilities and our reputation for quality, on-time delivery, reliability, and innovation—all embodied in the Esterline Performance System, our way of approaching business that ensures all employees are focused on continuous improvement. We work closely with original equipment manufacturers (OEMs) on new, highly engineered product designs which often results in our products being designed into their platforms; this integration often results in sole-source positions for OEM production and aftermarket business. In fiscal 2008, we estimate that 35% of our sales to commercial and military aerospace customers were derived from aftermarket business. Our aftermarket sales, including retrofits, spare parts, and repair services, historically carry a higher gross

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margin and have more stability than sales to OEMs. In many cases, aftermarket sales extend well beyond the OEM production period, supporting the platform during its entire life cycle.

Our sales are diversified across three broad markets: defense, commercial aerospace, and general industrial. For fiscal 2008, we estimate we derived approximately 40% of our sales from the defense market, 45% from the commercial aerospace market and 15% from the general industrial market.

(b) Financial Information About Industry Segments.

A summary of net sales to unaffiliated customers, operating earnings and identifiable assets attributable to our business segments for fiscal years 2008, 2007 and 2006 is reported in Note 15 to the Company’s Consolidated Financial Statements for the fiscal year ended October 31, 2008, and appears in Item 8 of this report.

(c) Narrative Description of Business.

Avionics & Controls

Our Avionics & Controls business segment designs and manufactures high-technology electronics systems for military and commercial aircraft and land- and sea-based military vehicles, secure communications systems, specialized medical equipment, and other industrial applications.

We are a market leader in global positioning systems (GPS), head-up displays, enhanced vision systems, and electronic flight management systems that are used in a broad variety of control and display applications. For example, our high-performance GPS systems are installed on over 16,500 aircraft world-wide. In addition, we develop, manufacture and market sophisticated high reliability technology interface systems for commercial and military aircraft. These products include lighted push-button and rotary switches, keyboards, lighted indicators, panels and displays. Over the years, our products have been integrated into many existing aircraft designs, including every Boeing commercial aircraft platform currently in production. Our large installed base provides us with a significant spare parts and retrofit business. We are a Tier 1 supplier on the Boeing 787 program to design and manufacture all of the cockpit overhead panels and embedded software for these systems. We manufacture control sticks, grips and wheels, as well as specialized switching systems. In this area, we primarily serve commercial and military aviation, and airborne and ground-based military equipment manufacturing customers. For example, we are a leading manufacturer of pilot control grips for most types of military fighter jets and helicopters. Additionally, our software engineering center supports our customers’ needs with such applications as primary flight displays, flight management systems, air data computers and engine control systems.

Our proprietary products meet critical operational requirements and provide customers with significant technological advantages in such areas as night vision compatibility and active-matrix liquid-crystal displays (a technology enabling pilots to read display screens in a variety of light conditions as well as from extreme angles). Our products are incorporated in a wide variety of platforms ranging from military helicopters, fighters and transports, to commercial wide-body, regional and business jets. In fiscal 2008, some of our largest customers for these products included The Boeing Company, Sikorsky, Honeywell, Lockheed Martin, Rockwell Collins, BAE Systems, U.S. Department of Defense, and General Electric.

We are also a supplier in custom input integration with a full line of keyboard, switch and input technologies for specialized medical equipment, communications systems and comparable equipment for military applications. These products include custom keyboards, keypads, and input devices that

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integrate cursor control devices, bar-code scanners, displays, video, and voice activation. We also produce instruments that are used for point-of-use and point-of-care in vitro diagnostics. We have developed a wide variety of technologies, including plastic and vinyl membranes that protect high-use switches and fully depressible buttons, and backlit elastomer switch coverings that are resistant to exposure from harsh chemicals. These technologies now serve as the foundation for a small but growing portion of our product line. In fiscal 2008, some of our largest customers for these products included General Electric, Philips, IDEXX Laboratories, Inc., Roche, Siemens, DRS, and Biosite.

Sensors & Systems

Our Sensors & Systems business segment produces high-precision temperature, pressure and speed sensors, electrical power switching, control and data communication devices, and other related systems principally for aerospace and defense customers. We are a market leader for these products in Europe with growing positions in the United States. For example, we are the sole-source supplier of temperature probes for use on all versions of the General Electric/Snecma CFM-56 jet engine. The CFM-56 has an installed base of nearly 19,000 engines, is standard equipment on new generation Boeing 737 aircraft and was selected as the engine for approximately 45% of all Airbus aircraft delivered to date. We are contracted to design and manufacture the 787’s sensors for the environmental control system and the primary power distribution assembly for the new Airbus A400M military transport. Additionally, we have secured a Tier 1 position with Rolls Royce for the complete suite of sensors for the engine that will power the A400M. The principal customers for our products in this business segment are jet engine manufacturers and airframe manufacturers. In fiscal 2008, some of our largest customers for these products included SAFRAN, Flame, The Boeing Company, Dassault, Honeywell, Pratt & Whitney, Bombardier, and Eurocopter.

Advanced Materials

Our Advanced Materials business segment develops and manufactures high-performance elastomer products used in a wide range of commercial aerospace, space, and military applications, and combustible ordnance for military applications. We also develop and manufacture highly engineered thermal components for commercial aerospace and industrial applications.

Specialized High-Performance Applications. We specialize in the development of proprietary formulations for silicone rubber and other elastomer products. Our elastomer products are engineered to address specific customer requirements where superior performance in high temperature, high pressure, caustic, abrasive and other difficult environments is critical. These products include clamping devices, thermal fire barrier insulation products, sealing systems, tubing and coverings designed in custom-molded shapes. Some of the products include proprietary elastomers that are specifically designed for use on or near a jet engine. We are a leading U.S. supplier of high-performance elastomer products to the aerospace industry, with our primary customers for these products being jet and rocket engine manufacturers, commercial and military airframe manufacturers, as well as commercial airlines. In fiscal 2008, some of the largest customers for these products included The Boeing Company, Alliant Techsystems, KAPCO, Honeywell, Northrop Grumman, Lockheed Martin, and Pattonair. We also develop and manufacture high temperature lightweight insulation systems for aerospace and marine applications. Our commercial aerospace programs include the 737, A320, and A380 series aircraft and the V2500 and BR710 engines. Our insulation material is used on diesel engine manifolds for earthmover and agricultural applications. In addition, we specialize in the development of thermal protection for petrochemical fire protection systems and

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nuclear insulation. We design and manufacture high temperature components for industrial and marine markets. Our manufacturing processes consist of cutting, pressing, welding stainless steel, Inconel and titanium fabrications. In fiscal 2008, some of the largest customers of these products included Rolls Royce, Airbus, and Spirit AeroSystems.

Other Defense Applications. We develop and manufacture combustible ordnance and electronic warfare countermeasure devices for military customers. We manufacture molded fiber cartridge cases, mortar increments, igniter tubes and other combustible ordnance components primarily for the U.S. Department of Defense. We are currently the sole supplier of combustible casings utilized by the U.S. Armed Forces. Sales are made either directly to the U.S. Department of Defense or through prime contractors, Alliant Techsystems and General Dynamics. These products include the combustible case for the U.S. Army’s new generation 155mm Modular Artillery Charge System, the 120mm combustible case used with the main armament system on the U.S. Army and Marine Corps’ M1-A1/2 tanks, and the 60mm, 81mm and 120mm combustible mortar increments. We are currently the only U.S. supplier of radar countermeasure chaff and one of two suppliers to the U.S. Army of infrared decoy flares used by aircraft to help protect against radar and infrared guided missiles.

A summary of product lines contributing sales of 10% or more of total sales for fiscal years 2008, 2007 and 2006 is reported in Note 15 to the Consolidated Financial Statements for the fiscal year ended October 31, 2008, and appears in Item 8 of this report.

Marketing and Distribution

We believe that a key to continued success is our ability to meet customer requirements both domestically and internationally. We have and will continue to improve our world-wide sales and distribution channels in order to provide wider market coverage and to improve the effectiveness of our customers’ supply chain. For example, our medical device assembly operation in Shanghai, China, serves our global medical customers. In addition, our service center in Singapore has improved our capabilities in Asia for our temperature sensor customers. Other enhancements include combining sales and marketing forces of our operating units where appropriate, cross-training our sales representatives on multiple product lines, and cross-stocking our spares and components.

In the technical and highly engineered product segments in which we compete, relationship selling is particularly appropriate in targeted marketing segments where customer and supplier design and engineering inputs need to be tightly integrated. Participation in industry trade shows is an effective method of meeting customers, introducing new products, and exchanging technical specifications. In addition to technical and industry conferences, our products are supported through direct internal international sales efforts, as well as through manufacturer representatives and selected distributors. As of October 31, 2008, 234 sales people, 277 representatives, and 170 distributors support our operations internationally.

Backlog

Backlog at October 31, 2008 was $1.1 billion, compared with $958.0 million at October 26, 2007. We estimate that approximately $388.1 million of backlog is scheduled to be shipped after fiscal 2009.

Backlog is subject to cancellation until delivered, and therefore, we cannot assure that our backlog will be converted into revenue in any particular period or at all. Backlog does not include the total

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contract value of cost-plus reimbursable contracts, which are funded as we incur the costs. Except for the released portion, backlog also does not include fixed-price multi-year contracts.

Competition

Our products and services are affected by varying degrees of competition. We compete with other companies in most markets we serve, many of which have far greater sales volumes and financial resources. Some of our competitors are also our customers on certain programs. The principal competitive factors in the commercial markets in which we participate are product performance, on-time delivery service and price. Part of product performance requires expenditures in research and development that lead to product improvement. The market for many of our products may be affected by rapid and significant technological changes and new product introductions. Our principal competitors include Eaton, ECE, EMS, Gables Engineering, GE Aerospace, Honeywell, Otto Controls, Rockwell Collins, Thales, Ultra Electronics, Telephonics, and Universal Avionics Systems Corporation in our Avionics & Controls segment; Ametek, Meggitt, Deutsch, Tyco, MPC Products, ECE and Goodrich in our Sensors & Systems segment; and Kmass, ULVA, Doncasters, Hitemp, Meggitt (including Dunlop Standard Aerospace Group), Chemring, JPR Hutchinson and Parker in our Advanced Materials segment.

Research and Development

Our product development and design programs utilize an extensive base of professional engineers, technicians and support personnel, supplemented by outside engineering and consulting firms when needed. In fiscal 2008, approximately $86.8 million was expended for research, development and engineering, compared with $66.9 million in fiscal 2007 and $49.1 million in fiscal 2006. We believe continued product development is key to our long-term growth, and consequently, we consistently invest in research and development. Examples include research and development projects relating to a ground fault interrupter for aircraft applications, insulation material for various rocket and missile programs, high temperature, low observable material for military applications, and kinematic countermeasure flares for military applications. Our more recent aerospace program wins have resulted in increased company-funded research and development. These programs included the A400M power distribution assembly, TP400 engine sensors, 787 overhead control panel and 787 environmental control system programs. As a result of the acquisition of CMC in fiscal 2007, we are funding the development of the integrated avionics system for the T-6B. In addition, we actively participate in customer-funded research and development programs, including applications on the new MMA aircraft, joint strike fighter, UH-60M Blackhawk, VH-71 Presidential Helicopter and Russian Regional Jet.

Foreign Operations

Our principal foreign operations consist of manufacturing facilities located in France, Germany, Canada, the United Kingdom, Mexico, and China, and include sales and service operations located in Singapore and China. For further information regarding foreign operations, see Note 15 to the Consolidated Financial Statements under Item 8 of this report.

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U.S. Government Contracts and Subcontracts

As a contractor and subcontractor to the U.S. government (primarily the U.S. Department of Defense), we are subject to various laws and regulations that are more restrictive than those applicable to private sector contractors. Approximately 10% of our sales were made directly to the U.S. government in fiscal 2008. In addition, we estimate that our subcontracting activities to contractors for the U.S. government accounted for approximately 16% of sales during fiscal 2008. Therefore, we estimate that approximately 26% of our sales during the fiscal year were subject to U.S. government contracting regulations. Such contracts may be subject to termination, reduction or modification in the event of changes in government requirements, reductions in federal spending, and other factors.

Historically, our U.S. government contracts and subcontracts have been predominately fixed-price contracts. Generally, fixed-price contracts offer higher margins than cost-plus contracts in return for accepting the risk that increased or unexpected costs may reduce anticipated profits or cause us to sustain losses on the contracts. The accuracy and appropriateness of certain costs and expenses used to substantiate our direct and indirect costs for the U.S. government under both cost-plus and fixed-price contracts are subject to extensive regulation and audit by the Defense Contract Audit Agency, an arm of the U.S. Department of Defense. The contracts and subcontracts to which we are a party are also subject to profit and cost controls and standard provisions for termination at the convenience of the U.S. government. Upon termination, other than for our default, we will normally be entitled to reimbursement for allowable costs and to an allowance for profit. To date, none of our significant fixed-price contracts have been terminated.

Patents and Licenses

Although we hold a number of patents and licenses, we do not believe that our operations are dependent on our patents and licenses. In general, we rely on technical superiority, continual product improvement, exclusive product features, superior lead-time, on-time delivery performance, quality and customer relationships to maintain competitive advantage.

Seasonality

The timing of our revenues is impacted by the purchasing patterns of our customers and as a result we do not generate revenues evenly throughout the year. Moreover, our first fiscal quarter, November through January, includes significant holiday vacation periods in both Europe and North America. This leads to decreased order and shipment activity; consequently, first quarter results are typically weaker than other quarters and not necessarily indicative of our performance in subsequent quarters.

Sources and Availability of Raw Materials and Components

Due to our diversification, the sources and availability of certain raw materials and components are not as critical as they would be for manufacturers of a single product line. However, certain components, supplies and raw materials for our operations are purchased from single sources. In such instances, we strive to develop alternative sources and design modifications to minimize the effect of business interruptions.

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Environmental Matters

We are subject to federal, state, local and foreign laws, regulations and ordinances that (i) govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for solid and hazardous waste, and (ii) impose liability for the costs of cleaning up, and certain damages resulting from, sites or past spills, disposals or other releases of hazardous substances.

At various times we have been identified as a potentially responsible party pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), and analogous state environmental laws, for the cleanup of contamination resulting from past disposals of hazardous wastes at certain sites to which we, among others, sent wastes in the past. CERCLA requires potentially responsible persons to pay for cleanup of sites from which there has been a release or threatened release of hazardous substances. Courts have interpreted CERCLA to impose strict, joint and several liability on all persons liable for cleanup costs. As a practical matter, however, at sites where there are multiple potentially responsible persons, the costs of cleanup typically are allocated among the parties according to a volumetric or other standard.

We have accrued liabilities for environmental remediation costs expected to be incurred by our operating facilities. Environmental exposures are provided for at the time they are known to exist or are considered reasonably probable and estimable. No provision has been recorded for environmental remediation costs that could result from changes in laws or other circumstances we have not currently contemplated.

Employees

We had 9,699 employees at October 31, 2008, of which 5,042 were based in the United States, 3,009 in Europe, 1,148 in Canada, 381 in Mexico and 119 in Asia. Approximately 17% of the U.S.-based employees were represented by a labor union. Our European operations are subject to national trade union agreements and to local regulations governing employment.

(d) Financial Information About Foreign and Domestic Operations and Export Sales.

See risk factor below entitled “Political and economic changes in foreign countries and markets, including foreign currency fluctuations, may have a material adverse impact on our operating results” under Item 1A of this report and Note 15 to the Consolidated Financial Statements under Item 8 of this report.

(e) Available Information of the Registrant.

You can access financial and other information on our website, www.esterline.com. We make available through our website, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the Securities and Exchange Commission. Our Corporate Governance Guidelines and charters for our board committees are available on our website, www.esterline.com/governance/default.stm and our Code of Business Conduct and Ethics, which includes a code of ethics applicable to our accounting and financial employees, including our Chief

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Executive Officer and Chief Financial Officer, is available on our website at

www.esterline.com/governance/ethics.stm. Each of these documents is also available in print (at no charge) to any shareholder upon request. Our website and the information contained therein or connected thereto are not incorporated by reference into this Form 10-K.

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Executive Officers of the Registrant

The names and ages of all executive officers of the Company and the positions and offices held by such persons as of December 22, 2008 are as follows:

Name	Position with the Company	Age
Robert W. Cremin	Chairman, President and Chief Executive Officer	68
Robert D. George	Vice President, Chief Financial Officer,     Secretary and Treasurer	52
Marcia J. M. Greenberg	Vice President, Human Resources	56
Frank E. Houston	Group Vice President	57
Larry A. Kring	Group Vice President	68
Stephen R. Larson	Vice President, Strategy & Technology	64
Richard B. Lawrence	Group Vice President	61

Mr. Cremin has been Chairman since January 2001. In addition, he has served as Chief Executive Officer and President since January 1999 and September 1997, respectively. Mr. Cremin has an M.B.A. from the Harvard Business School and a B.S. degree in Metallurgical Engineering from Polytechnic Institute of Brooklyn. He has been a director of the Company since 1998.

Mr. George has been Vice President, Chief Financial Officer, Secretary and Treasurer since July 1999. Mr. George has an M.B.A. from the Fuqua School of Business at Duke University and a B.A. degree in Economics from Drew University.

Ms. Greenberg has been Vice President, Human Resources since March 1993. Ms. Greenberg has a J.D. degree from Northwestern University School of Law and a B.A. degree in Political Science from Portland State University.

Mr. Houston has been Group Vice President since March 2005. Previously, he was President of Korry Electronics Co., part of Esterline’s Avionics & Controls segment, since October 2002. Mr. Houston has an M.B.A. from the University of Washington and a B.A. degree in Political Science from Seattle Pacific University.

Mr. Kring will retire from the Company effective December 31, 2008, as Group Vice President. Previously, he was Senior Group Vice President from February 2005 to March 2008 and Group Vice President from August 1993 to February 2005. Mr. Kring has an M.B.A. from California State University at Northridge and a B.S. degree in Aeronautical Engineering from Purdue University.

Mr. Larson has been Vice President, Strategy & Technology since January 2000. Mr. Larson has an M.B.A. from the University of Chicago and a B.S. degree in Electrical Engineering from Northwestern University.

Mr. Lawrence has been Group Vice President since January 2007. From September 2002 to January 2007, he was President of Advanced Input Systems, part of Esterline’s Avionics & Controls segment. Mr. Lawrence has an M.B.A from the University of Pittsburgh and a B.S. degree in Business Administration from Pennsylvania State University.

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Forward-Looking Statements

This annual report on Form 10-K includes forward-looking statements. These statements may be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should” or “will” or the negative thereof or other variations thereon or comparable terminology. In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance contained in this report under the headings “Risks Relating to Our Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations” and “Business” are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed in this report under the headings “Risks Relating to Our Business and Our Industry,” “Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations” and “Business” may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations are:

• A significant downturn in the aerospace industry;

• A significant reduction in defense spending;

• A decrease in demand for our products as a result of competition, technological innovation or otherwise;

• Our inability to integrate acquired operations or complete acquisitions; and

• Loss of a significant customer or defense program.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included or incorporated by reference into this report are made only as of the date hereof. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments.

Item 1A. Risk Factors

Risks Relating to Our Business and Our Industry

The current capital and credit market conditions may adversely affect our access to capital, cost of capital and business operations.

Recently, the general economic and capital market conditions in the United States and other parts of the world have deteriorated significantly and have adversely affected access to capital and increased the cost of capital. If these conditions continue or become worse, our future cost of debt and equity capital and access to capital markets could be adversely affected. Any inability to obtain adequate financing from debt and equity sources could force us to self-fund strategic initiatives or even forgo some opportunities, potentially harming our financial position, results of operations and liquidity.

Economic conditions may impair our customers’ business and markets, which could adversely affect our business operations.

As a result of the current economic downturn and macro-economic challenges currently affecting the economy of the United States and other parts of the world, the businesses of some of our customers may not generate sufficient revenues. Customers may choose to delay or postpone purchases from us until the economy and their businesses strengthen. Decisions by current or future customers to forego or defer purchases and/or our customers’ inability to pay us for our products may adversely affect our earnings and cash flow.

Implementing our acquisition strategy involves risks, and our failure to successfully implement this strategy could have a material adverse effect on our business.

One of our key strategies is to grow our business by selectively pursuing acquisitions. Since 1996 we have completed over 30 acquisitions, and we are continuing to actively pursue additional acquisition opportunities, some of which may be material to our business and financial performance. Although we have been successful with this strategy in the past, we may not be able to grow our business in the future through acquisitions for a number of reasons, including:

• Acquisition financing not being available on acceptable terms or at all;

• Encountering difficulties identifying and executing acquisitions;

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• Increased competition for targets, which may increase acquisition costs;

• Consolidation in our industry reducing the number of acquisition targets; and

• Competition laws and regulations preventing us from making certain acquisitions.

In addition, there are potential risks associated with growing our business through acquisitions, including the failure to successfully integrate and realize the expected benefits of an acquisition. For example, with any past or future acquisition, there is the possibility that:

• The business culture of the acquired business may not match well with our culture;

• Technological and product synergies, economies of scale and cost reductions may not occur as expected;

• Management may be distracted from overseeing existing operations by the need to integrate acquired businesses;

• We may acquire or assume unexpected liabilities;

• Unforeseen difficulties may arise in integrating operations and systems;

• We may fail to retain and assimilate employees of the acquired business;

• We may experience problems in retaining customers and integrating customer bases; and

• Problems may arise in entering new markets in which we may have little or no experience.

Failure to continue implementing our acquisition strategy, including successfully integrating acquired businesses, could have a material adverse effect on our business, financial condition and results of operations.

Our future financial results could be adversely impacted by asset impairment charges.

Under Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (Statement No. 142), we are required to test both acquired goodwill and other indefinite-lived intangible assets for impairment on an annual basis based upon a fair value approach, rather than amortizing them over time. We have chosen to perform our annual impairment reviews of goodwill and other indefinite-lived intangible assets during the fourth quarter of each fiscal year. We also are required to test goodwill for impairment between annual tests if events occur or circumstances change that would more likely than not reduce our enterprise fair value below its book value. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in an entity’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business, or other factors. If the fair market value is less than the book value of goodwill, we could be required to record an impairment charge. The valuation of reporting units requires judgment in estimating future cash flows, discount rates and estimated product life cycles. In making these judgments, we evaluate the financial health of the business, including such factors as industry performance, changes in technology and operating cash flows. As we have grown through acquisitions, we have accumulated $576.9 million of goodwill, and have $50.1 million of indefinite-lived intangible assets, out of total assets of $1.9 billion at October 31, 2008. As a result, the amount of any annual or interim impairment could be significant and could have a material adverse effect on our reported financial results for the period in which the charge is taken. We performed our impairment review for fiscal 2008 as of August 1, 2008, and our Step One analysis indicates that no impairment of goodwill and other indefinite-lived assets exist at any of our reporting units. Our CMC reporting unit’s margin in passing the Step One analysis was not as large as our other reporting units. CMC’s operating performance has been impacted by the effect of the weakening U.S. dollar relative to the Canadian dollar for most of the period we have owned the business. In addition, operating results have been impacted by higher than expected costs related to certain long-term development contracts, including

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the T-6B. During the fourth quarter of fiscal 2008, the U.S. dollar has strengthened against the Canadian dollar and if this relationship continues, CMC’s results of operations will be favorably impacted. We expect that the T-6B development will be successful and that CMC’s operations will continue to improve due to recent contract wins, operational productivity improvements and a continued stronger U.S. dollar relative to the Canadian dollar. It is possible, however, that as a result of events or circumstances, we could conclude at a later date that goodwill of $203.3 million at CMC may be considered impaired. We also may be required to record an earnings charge or incur unanticipated expense if, due to a change in strategy or other reason, we determine the value of other assets has been impaired. These other assets include net deferred income tax assets of $9.4 million, trade names of $22.6 million and intangible assets of $72.1 million.

We account for the impairment of long-lived assets to be held and used in accordance with Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets” (Statement No. 144). Statement No. 144 requires that a long-lived asset to be disposed of be reported at the lower of its carrying amount or fair value less cost to sell. An asset (other than goodwill and indefinite-lived intangible assets) is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is not deemed recoverable, the asset is adjusted to its estimated fair value. Fair value is generally determined based upon estimated discounted future cash flows. As we have grown through acquisitions, we have accumulated $240.4 million of definite-lived intangible assets. As a result, the amount of any annual or interim impairment could be significant and could have a material adverse effect on our reported financial results for the period in which the charge is taken.

The amount of debt we have outstanding, as well as any debt we may incur in the future, could have an adverse effect on our operational and financial flexibility.

As of October 31, 2008, we had $401.8 million of debt outstanding, of which $388.2 million is long-term debt. Our primary U.S. dollar credit facility as of October 31, 2008, totaled $200.0 million and is made available through a group of banks. In fiscal 2006, we borrowed U.K. £57.0 million under our credit facility, of which U.K. £21.7 million or $34.9 million was outstanding at October 31, 2008. Up to $50.0 million in letters of credit may be drawn in U.K. pounds or euros in addition to U.S. dollars. The credit agreement is secured by substantially all of the Company’s assets and interest is based on standard inter-bank offering rates. In addition, we have unsecured foreign currency credit facilities that have been extended by foreign banks for up to $27.7 million. Available credit under the above credit facilities was $212.6 million at October 31, 2008, when reduced by outstanding foreign bank borrowings of $5.2 million and letters of credit of $9.9 million.

The indentures governing our outstanding $175.0 million 7.75% senior subordinated notes and $175.0 million 6.625% senior notes and other debt agreements limit, but do not prohibit, us from incurring additional debt in the future. Our level of debt could have significant consequences to our business, including the following:

• Depending on interest rates and debt maturities, a substantial portion of our cash flow from operations could be dedicated to paying principal and interest on our debt, thereby reducing funds available for our acquisition strategy, capital expenditures or other purposes;

• A significant amount of debt could make us more vulnerable to changes in economic conditions or increases in prevailing interest rates;

• Our ability to obtain additional financing for acquisitions, capital expenditures or for other purposes could be impaired;

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• The increase in the amount of debt we have outstanding increases the risk of non-compliance with some of the covenants in our debt agreements which require us to maintain specified financial ratios; and

• We may be more leveraged than some of our competitors, which may result in a competitive disadvantage.

The loss of a significant customer or defense program could have a material adverse effect on our operating results.

Some of our operations are dependent on a relatively small number of customers and defense programs, which change from time to time. Significant customers in fiscal 2008 included the U.S. Department of Defense, The Boeing Company, General Dynamics, Flame, Rolls Royce, Honeywell, Lockheed Martin and G.E. Aerospace. There can be no assurance that our current significant customers will continue to buy our products at current levels. The loss of a significant customer or the cancellation of orders related to a sole-source defense program could have a material adverse effect on our operating results if we were unable to replace the related sales.

Our operating results are subject to fluctuations that may cause our revenues to decline.

Our business is susceptible to seasonality and economic cycles, and as a result, our operating results have fluctuated widely in the past and are likely to continue to do so. Our revenue tends to fluctuate based on a number of factors, including domestic and foreign economic conditions and developments affecting the specific industries and customers we serve. For example, it is possible that the current recession could result in a downturn in commercial aviation and defense. It is also possible that in the future our operating results in a particular quarter or quarters will not meet the expectations of securities analysts or investors, causing the market price of our common stock, senior subordinated notes or senior notes to decline. We believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance and should not be relied upon to predict our future performance.

Political and economic changes in foreign countries and markets, including foreign currency fluctuations, may have a material effect on our operating results.

Foreign sales were approximately 54% of our total sales in fiscal 2008, and we have manufacturing facilities in a number of foreign countries. A substantial portion of our Avionics & Controls operations are based in Canada and a substantial portion of our Sensors & Systems operations are based in the U.K. and France. We also have manufacturing operations in Mexico and China. Doing business in foreign countries is subject to numerous risks, including political and economic instability, restrictive trade policies of foreign governments, economic conditions in local markets, health concerns, inconsistent product regulation or unexpected changes in regulatory and other legal requirements by foreign agencies or governments, the imposition of product tariffs and the burdens of complying with a wide variety of international and U.S. export laws and differing regulatory requirements. To the extent that foreign sales are transacted in a foreign currency, we are subject to the risk of losses due to foreign currency fluctuations. In addition, we have substantial assets denominated in foreign currencies, primarily the Canadian dollar, U.K. pound and euro, that are not offset by liabilities denominated in those foreign currencies. These net foreign currency investments are subject to material changes in the event of fluctuations in foreign currencies against the U.S. dollar.

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Among other things, we are subject to the Foreign Corrupt Practices Act, or FCPA, which generally prohibits U.S. companies and their intermediaries from bribing foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment. In particular, we may be held liable for actions taken by our strategic or local partners even though our partners are not subject to the FCPA. Any determination that we have violated the FCPA could result in sanctions that could have a material adverse effect on our business, financial condition and results of operations.

A downturn in the aircraft market could adversely affect our business.

The aerospace industry is cyclical in nature and affected by periodic downturns that are beyond our control. The principal markets for manufacturers of commercial aircraft are the commercial and regional airlines, which are adversely affected by a number of factors, including the current recession, fuel and labor costs, intense price competition, outbreak of infectious disease and terrorist attacks, as well as economic cycles, all of which can be unpredictable and are outside our control. Commercial aircraft production may increase or decrease in response to changes in customer demand caused by the current recession and the perceived safety and ease of airline travel.

The military aircraft industry is dependent upon the level of equipment expenditures by the armed forces of countries throughout the world, and especially those of the United States. Although the war on terror has increased the level of equipment expenditures by the U.S. armed forces, this level of spending may not be sustainable in light of government spending priorities by the U.S. In addition, in the past this industry has been adversely affected by a number of factors, including the reduction in military spending since the end of the Cold War. Decreases in military spending could depress demand for military aircraft.

Any decrease in demand for new aircraft or use of existing aircraft will likely result in a decrease in demand of our products and services, and correspondingly, our revenues, thereby adversely affecting our business, financial condition and results of operations.

We may not be able to compete effectively.

Our products and services are affected by varying degrees of competition. We compete with other companies and divisions and units of larger companies in most markets we serve, many of which have greater sales volumes or financial, technological or marketing resources than we do. Our principal competitors include: Eaton, ECE, EMS, Gables Engineering, GE Aerospace, Honeywell, Otto Controls, Rockwell Collins, Thales, Ultra Electronics, Telephonics, and Universal Avionics Systems Corporation in our Avionics & Controls segment; Ametek, Meggitt, Deutsch, Tyco, MPC Products, ECE and Goodrich in our Sensors & Systems segment; and Kmass, ULVA, Doncasters, Hitemp, Meggitt (including Dunlop Standard Aerospace Group), Chemring and Parker in our Advanced Materials segment. The principal competitive factors in the commercial markets in which we participate are product performance, service and price. Maintaining product performance requires expenditures in research and development that lead to product improvement and new product introduction. Companies with more substantial financial resources may have a better ability to make such expenditures. We cannot assure that we will be able to continue to successfully compete in our markets, which could adversely affect our business, financial condition and results of operations.

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Our backlog is subject to modification or termination, which may reduce our sales in future periods.

We currently have a backlog of orders based on our contracts with customers. Under many of our contracts, our customers may unilaterally modify or terminate their orders at any time. In addition, the maximum contract value specified under a government contract awarded to us is not necessarily indicative of the sales that we will realize under that contract. For example, we are a sole-source prime contractor for many different military programs with the U.S. Department of Defense. We depend heavily on the government contracts underlying these programs. Over its lifetime, a program may be implemented by the award of many different individual contracts and subcontracts. The funding of government programs is subject to congressional appropriation.

Changes in defense procurement models may make it more difficult for us to successfully bid on projects as a prime contractor and limit sole-source opportunities available to us.

In recent years, the trend in combat system design and development appears to be evolving towards the technological integration of various battlefield components, including combat vehicles, command and control network communications, advanced technology artillery systems and robotics. If the U.S. military procurement approach continues to require this kind of overall battlefield combat system integration, we expect to be subject to increased competition from aerospace and defense companies who have significantly greater resources than we do. This trend could create a role for a prime contractor with broader capabilities that would be responsible for integrating various battlefield component systems and potentially eliminating or reducing the role of sole-source providers or prime contractors of component weapon systems.

If we were unable to protect our intellectual property rights adequately, the value of our products could be diminished.

Our success is dependent in part on obtaining, maintaining and enforcing our proprietary rights and our ability to avoid infringing on the proprietary rights of others. While we take precautionary steps to protect our technological advantages and intellectual property and rely in part on patent, trademark, trade secret and copyright laws, we cannot assure that the precautionary steps we have taken will completely protect our intellectual property rights. Because patent applications in the United States are maintained in secrecy until either the patent application is published or a patent is issued, we may not be aware of third-party patents, patent applications and other intellectual property relevant to our products that may block our use of our intellectual property or may be used in third-party products that compete with our products and processes. In the event a competitor successfully challenges our products, processes, patents or licenses or claims that we have infringed upon their intellectual property, we could incur substantial litigation costs defending against such claims, be required to pay royalties, license fees or other damages or be barred from using the intellectual property at issue, any of which could have a material adverse effect on our business, operating results and financial condition.

In addition to our patent rights, we also rely on unpatented technology, trade secrets and confidential information. Others may independently develop substantially equivalent information and techniques or otherwise gain access to or disclose our technology. We may not be able to protect our rights in unpatented technology, trade secrets and confidential information effectively. We require each of our employees and consultants to execute a confidentiality agreement at the commencement of an employment or consulting relationship with us. However, these agreements may not provide

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effective protection of our information or, in the event of unauthorized use or disclosure, they may not provide adequate remedies.

We may lose money or generate less than expected profits on our fixed-price contracts.

Our customers set demanding specifications for product performance, reliability and cost. Some of our government contracts and subcontracts provide for a predetermined, fixed price for the products we make regardless of the costs we incur. Therefore, we must absorb cost overruns, notwithstanding the difficulty of estimating all of the costs we will incur in performing these contracts and in projecting the ultimate level of sales that we may achieve. Our failure to anticipate technical problems, estimate costs accurately, integrate technical processes effectively or control costs during performance of a fixed-price contract may reduce the profitability of a fixed-price contract or cause a loss. While we believe that we have recorded adequate provisions in our financial statements for losses on our fixed-price contracts as required under GAAP, we cannot assure that our contract loss provisions will be adequate to cover all actual future losses. Therefore, we may incur losses on fixed-price contracts that we had expected to be profitable, or such contracts may be less profitable than expected.

We depend on the continued contributions of our executive officers and other key management, each of whom would be difficult to replace.

Our future success depends to a significant degree upon the continued contributions of our senior management and our ability to attract and retain other highly qualified management personnel. We face competition for management from other companies and organizations. Therefore, we may not be able to retain our existing management personnel or fill new management positions or vacancies created by expansion or turnover at our existing compensation levels. Although we have entered into change of control agreements with some members of senior management, we do not have employment contracts with our key executives, nor have we purchased “key-person” insurance on the lives of any of our key officers or management personnel to reduce the impact to our company that the loss of any of them would cause. Specifically, the loss of any of our executive officers would disrupt our operations and divert the time and attention of our remaining officers. Additionally, failure to attract and retain highly qualified management personnel would damage our business prospects.

The market for our products may be affected by our ability to adapt to technological change.

The rapid change of technology is a key feature of all of the markets in which our businesses operate. To succeed in the future, we will need to design, develop, manufacture, assemble, test, market, and support new products and enhancements to our existing products in a timely and cost-effective manner. Historically, our technology has been developed through internal research and development expenditures, as well as customer-sponsored research and development programs. There is no guarantee that we will continue to maintain, or benefit from, comparable levels of research and development in the future. In addition, our competitors may develop technologies and products that are more effective than those we develop or that render our technology and products obsolete or noncompetitive. Furthermore, our products could become unmarketable if new industry standards emerge. We cannot assure that our existing products will not require significant modifications in the future to remain competitive or that new products we introduce will be accepted by our customers, nor can we assure that we will successfully identify new opportunities and continue to have the needed financial resources to develop new products in a timely or cost-effective manner.

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Our business is subject to government contracting regulations, and our failure to comply with such laws and regulations could harm our operating results and prospects.

We estimate that approximately 26% of our sales in fiscal 2008 were attributable to contracts in which we were either the prime contractor to, or a subcontractor to a prime contractor to, the U.S. government. As a contractor and subcontractor to the U.S. government, we must comply with laws and regulations relating to the formation, administration and performance of federal government contracts that affect how we do business with our clients and may impose added costs on our business. For example, these regulations and laws include provisions that contracts we have been awarded are subject to:

• Protest or challenge by unsuccessful bidders; and

• Unilateral termination, reduction or modification in the event of changes in government requirements.

The accuracy and appropriateness of certain costs and expenses used to substantiate our direct and indirect costs for the U.S. government under both cost-plus and fixed-price contracts are subject to extensive regulation and audit by the Defense Contract Audit Agency, an arm of the U.S. Department of Defense. Responding to governmental audits, inquiries or investigations may involve significant expense and divert management attention. Our failure to comply with these or other laws and regulations could result in contract termination, suspension or debarment from contracting with the federal government, civil fines and damages, and criminal prosecution and penalties, any of which could have a material adverse effect on our operating results.

A significant portion of our business depends on U.S. government contracts, which contracts are often subject to competitive bidding, and a failure to compete effectively or accurately anticipate the success of future projects could adversely affect our business.

We obtain many of our U.S. government contracts through a competitive bidding process that subjects us to risks associated with:

• The frequent need to bid on programs in advance of the completion of their design, which may result in unforeseen technological difficulties and/or cost overruns;

• The substantial time and effort, including design, development and marketing activities, required to prepare bids and proposals for contracts that may not be awarded to us; and

• The design complexity and rapid rate of technological advancement of defense-related products.

In addition, in order to win the award of developmental programs, we must be able to align our research and development and product offerings with the government’s changing concepts of national defense and defense systems. The government’s termination of, or failure to fully fund, one or more of the contracts for our programs would have a negative impact on our operating results and financial condition. Furthermore, we serve as a subcontractor on several military programs that, in large part, involve the same risks as prime contracts.

Overall, we rely on key contracts with U.S. government entities for a significant portion of our sales and business. A substantial reduction in these contracts would materially adversely affect our operating results and financial position.

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The airline industry is heavily regulated and if we fail to comply with applicable requirements, our results of operations could suffer.

Governmental agencies throughout the world, including the U.S. Federal Aviation Administration, or the FAA, prescribe standards and qualification requirements for aircraft components, including virtually all commercial airline and general aviation products, as well as regulations regarding the repair and overhaul of aircraft engines. Specific regulations vary from country to country, although compliance with FAA requirements generally satisfies regulatory requirements in other countries. We include, with the replacement parts that we sell to our customers, documentation certifying that each part complies with applicable regulatory requirements and meets applicable standards of airworthiness established by the FAA or the equivalent regulatory agencies in other countries. In order to sell our products, we and the products we manufacture must also be certified by our individual OEM customers. If any of the material authorizations or approvals qualifying us to supply our products is revoked or suspended, then the sale of the subject product would be prohibited by law, which would have an adverse effect on our business, financial condition and results of operations.

From time to time, the FAA or equivalent regulatory agencies in other countries propose new regulations or changes to existing regulations, which are usually more stringent than existing regulations. If these proposed regulations are adopted and enacted, we may incur significant additional costs to achieve compliance, which could have a material adverse effect on our business, financial condition and results of operations.

Future asbestos claims could harm our business.

We are subject to potential liabilities relating to certain products we manufactured containing asbestos. To date, our insurance has covered claims against us relating to those products. Commencing November 1, 2003, insurance coverage for asbestos claims has been unavailable. However, we continue to have some insurance coverage for exposure to asbestos contained in our products prior to that date.

We continue to manufacture for one customer a product that contains asbestos. We have an agreement with the customer for indemnification for certain losses we may incur as a result of asbestos claims relating to that product, but we cannot assure that this indemnification agreement will fully protect us from losses arising from asbestos claims.

To the extent we are not insured or indemnified for losses from asbestos claims relating to our products, asbestos claims could adversely affect our operating results and our financial condition.

Environmental laws and regulations may subject us to significant liability.

Our business and our facilities are subject to a number of federal, state, local and foreign laws, regulations and ordinances governing, among other things, the use, manufacture, storage, handling and disposal of hazardous materials and certain waste products. Among these environmental laws are rules by which a current or previous owner or operator of land may be liable for the costs of investigation, removal or remediation of hazardous materials at such property. In addition, these laws typically impose liability regardless of whether the owner or operator knew of, or was responsible for, the presence of any hazardous materials. Persons who arrange for the disposal or treatment of hazardous materials may be liable for the costs of investigation, removal or remediation of such

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substances at the disposal or treatment site, regardless of whether the affected site is owned or operated by them.

Because we own and operate a number of facilities that use, manufacture, store, handle or arrange for the disposal of various hazardous materials, we may incur costs for investigation, removal and remediation, as well as capital costs, associated with compliance with environmental laws. At the time of the acquisition of Wallop Defence Systems Limited, we and the seller agreed that some environmental remedial activities may need to be carried out and these activities are currently on-going. Under the terms of the Stock Purchase Agreement, a portion of the costs of any environmental remedial activities will be reimbursed by the seller if the cost is incurred within five years of the consummation of the acquisition. Additionally, at the time of our asset acquisition of the Electronic Warfare Passive Expendables Division of BAE Systems North America, certain environmental remedial activities were required under a Part B Permit issued to the infrared decoy flare facility by the Arkansas Department of Environmental Quality under the Federal Resource Conservation and Recovery Act. The Part B Permit was transferred to our subsidiary, Armtec, along with the remedial obligations. Under the terms of the asset purchase agreement, BAE Systems agreed to perform and pay for these remedial obligations at the infrared decoy flare facility up to a maximum amount of $25.0 million. Although environmental costs have not been material in the past, we cannot assure that these matters, or any similar liabilities that arise in the future, will not exceed our resources, nor can we completely eliminate the risk of accidental contamination or injury from these materials.

We may be required to defend lawsuits or pay damages in connection with the alleged or actual harm caused by our products.

We face an inherent business risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in harm to others or to property. For example, our operations expose us to potential liabilities for personal injury or death as a result of the failure of an aircraft component that has been designed, manufactured or serviced by us. We may incur significant liability if product liability lawsuits against us are successful. While we believe our current general liability and product liability insurance is adequate to protect us from future product liability claims, we cannot assure that coverage will be adequate to cover all claims that may arise. Additionally, we may not be able to maintain insurance coverage in the future at an acceptable cost. Any liability not covered by insurance or for which third-party indemnification is not available could have a material adverse effect on our business, financial condition and results of operations.

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Item 2. Properties

The following table summarizes our properties that are greater than 100,000 square feet or related to a principal operation, including identification of the business segment, as of October 31, 2008:

Location	Type of Facility	Business Segment	Approximate Square     Footage	Owned or      Leased
Brea, CA	Office, Plant & Warehouse	Advanced Materials	429,000	Owned
Québec, Canada	Office & Plant	Avionics & Controls	269,000	Owned
Seattle, WA	Office & Plant	Avionics & Controls	200,000	Leased
Stillington, U.K.	Office & Plant	Advanced Materials	186,000	Owned
East Camden, AR	Office & Plant	Advanced Materials	175,000	Leased
Coachella, CA	Office & Plant	Advanced Materials	115,000	Owned
Buena Park, CA	Office & Plant	Sensors & Systems	110,000	Owned*
Bourges, France	Office & Plant	Sensors & Systems	109,000	Leased
Farnborough, U.K.	Office & Plant	Sensors & Systems	108,000	Leased
Milan, TN	Office & Plant	Advanced Materials	100,000	Leased
Sylmar, CA	Office & Plant	Avionics & Controls	96,000	Leased
Ontario, Canada	Office & Plant	Avionics & Controls	94,000	Leased
Coeur d’Alene, ID	Office & Plant	Avionics & Controls	94,000	Leased
Valencia, CA	Office & Plant	Advanced Materials	88,000	Owned
Hampshire, U.K.	Office & Plant	Advanced Materials	82,000	Owned
Gloucester, U.K.	Office & Plant	Advanced Materials	59,000	Leased
Everett, WA	Land	Avionics & Controls	14 acres	Leased**

*   The building is located on a parcel of land covering 16.1 acres that is leased by the Company.

** The land is being leased for the construction of a leased manufacturing facility. The facility is expected to be completed in 2009.

In total, we own approximately 1,700,000 square feet and lease approximately 1,700,000 square feet of manufacturing facilities and properties.

Item 3. Legal Proceedings

From time to time we are involved in legal proceedings arising in the ordinary course of our business. We believe we have adequately reserved for these liabilities and that there is no litigation pending that could have a material adverse effect on our results of operations and financial condition.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year ended October 31, 2008.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Price of Esterline Common Stock

In Dollars

For Fiscal Years	2008				2007
		High		Low		High		Low
Quarter
First	$	55.13	$	42.68	$	41.84	$	36.74
Second		56.97		44.58		43.07		38.15
Third		62.90		44.67		52.00		41.73
Fourth		58.00		26.83		59.20		45.10

Principal Market – New York Stock Exchange

At the end of fiscal 2008, there were approximately 451 holders of record of the Company’s common stock. On December 19, 2008, there were 446 holders of record of our common stock.

No cash dividends were paid during fiscal 2008 and 2007. We are restricted from paying dividends under our current credit facility, and so we do not anticipate paying any dividends in the foreseeable future.

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Item 6.  Selected Financial Data

Selected Financial Data

In Thousands, Except Per Share Amounts

For Fiscal Years		2008			2007			2006			2005			2004
Operating Results1
Net sales	$	1,483,172		$	1,207,033		$	920,447		$	774,605		$	567,009
Cost of sales		992,853			833,973			633,427			528,115			385,185
Selling, general and administrative		239,282			199,826			152,068			129,820			110,090
Research, development and engineering		86,798			66,891			49,077			37,857			21,279
Other (income) expense		86			24			(490	)		514			(509	)
Insurance recovery		—			(37,467	)		(4,890	)		—			—
Gain on sale of product line		—			—			—			—			(3,434	)
Interest income		(4,374	)		(3,093	)		(2,575	)		(3,994	)		(1,867	)
Interest expense		29,922			35,299			21,288			18,157			17,330
Gain on derivative financial instrument		(1,850	)		—			—			—			—
Loss on extinguishment of debt		—			1,100			2,156			—			—
Income from continuing operations before income taxes		140,455			110,480			70,386			64,136			38,935
Income tax expense		26,563			22,565			15,910			16,398			9,543
Income from continuing operations		113,509			87,762			53,611			47,403			29,370
Income from discontinued operations, net of tax		7,024			4,522			2,004			10,623			10,213
Net earnings		120,533			92,284			55,615			58,026			39,583
Earnings per share – diluted:
Continuing operations	$	3.80		$	3.34		$	2.08		$	1.87		$	1.36
Discontinued operations		0.23			0.18			0.07			0.42			0.48
Earnings per share – diluted		4.03			3.52			2.15			2.29			1.84

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Selected Financial Data

In Thousands, Except Per Share Amounts

For Fiscal Years		2008		2007		2006		2005		2004
Financial Structure
Total assets	$	1,922,102	$	2,039,059	$	1,290,451	$	1,115,248	$	935,348
Long-term debt, net		388,248		455,002		282,307		175,682		249,056
Shareholders’ equity		1,026,341		1,121,826		707,989		620,864		461,028
Weighted average shares outstanding – diluted		29,908		26,252		25,818		25,302		21,539
1   Operating results reflect the segregation of continuing operations from discontinued operations. See Note 3 to the Consolidated Financial Statements. Operating results include the acquisitions of CMC in March 2007, Wallop in March 2006, and Darchem in December 2005. See Note 14 to the Consolidated Financial Statements.
For Fiscal Years		2008		2007		2006		2005		2004
Other Selected Data2
EBITDA from continuing operations	$	227,597	$	196,579	$	131,362	$	111,100	$	81,562
Capital expenditures		40,665		30,467		26,540		23,776		22,126
Interest expense		29,922		35,299		21,288		18,157		17,330
Depreciation and amortization from continuing operations		63,444		52,793		40,107		32,801		27,164

² EBITDA from continuing operations is a measurement not calculated in accordance with GAAP. We define EBITDA from continuing operations as operating earnings from continuing operations plus depreciation and amortization (excluding amortization of debt issuance costs). We do not intend EBITDA from continuing operations to represent cash flows from continuing operations or any other items calculated in accordance with GAAP, or as an indicator of Esterline’s operating performance. Our definition of EBITDA from continuing operations may not be comparable with EBITDA from continuing operations as defined by other companies. We believe EBITDA is commonly used by financial analysts and others in the aerospace and defense industries and thus provides useful information to investors. Our management and certain financial creditors use EBITDA as one measure of our leverage capacity and debt servicing ability, and is shown here with respect to Esterline for comparative purposes. EBITDA is not necessarily indicative of amounts that may be available for discretionary uses by us. The following table reconciles operating earnings from continuing operations to EBITDA from continuing operations.

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In Thousands

For Fiscal Years	2008	2007	2006	2005	2004
Operating earnings from continuing operations	$    164,153	$    143,786	$      91,255	$      78,299	$    54,398
Depreciation and amortization from continuing operations	63,444	52,793	40,107	32,801	27,164
EBITDA from continuing operations	$    227,597	$    196,579	$    131,362	$    111,100	$    81,562

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations

OVERVIEW

We operate our businesses in three segments: Avionics & Controls, Sensors & Systems and Advanced Materials. The Avionics & Controls segment designs and manufactures integrated cockpit systems, technology interface systems for military and commercial aircraft and land- and sea-based military vehicles, secure communications systems, specialized medical equipment, and other industrial applications. The Sensors & Systems segment produces high-precision temperature and pressure sensors, electrical power switching, and other related systems, principally for aerospace and defense customers. The Advanced Materials segment develops and manufactures thermally engineered components and high-performance elastomer products used in a wide range of commercial aerospace and military applications, combustible ordnance components and electronic warfare countermeasure devices for military customers. All segments include sales to domestic and international, defense and commercial customers.

Our current business and strategic plan focuses on the continued development of our products principally for aerospace and defense markets. We are concentrating our efforts to expand our capabilities in these markets and to anticipate the global needs of our customers and respond to such needs with comprehensive solutions. These efforts focus on continuous research and new product development, acquisitions and establishing strategic realignments of operations to expand our capabilities as a more comprehensive supplier to our customers across our entire product offering. On March 14, 2007, we acquired CMC Electronics Inc. (CMC) a manufacturer of high technology avionics including global positioning systems, head-up displays, enhanced vision systems and electronic flight management systems. The acquisition significantly expands the scale of our existing Avionics & Controls business. CMC is included in the Avionics & Controls segment and the results of its operations were included from the effective date of the acquisition. We acquired Wallop Defence Systems Limited (Wallop) and FR Countermeasures on March 24, 2006 and December 23, 2005, respectively. Wallop and FR Countermeasures are manufacturers of military pyrotechnic countermeasure devices. The acquisitions strengthen our international and U.S. position in countermeasure devices. Wallop and FR Countermeasures are included in our Advanced Materials segment. On December 16, 2005, we acquired Darchem Holdings Limited (Darchem), a manufacturer of thermally engineered components for critical aerospace, marine and petro-chemical applications. Darchem holds

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a leading position in its niche market and fits our engineered-to-order model and is included in our Advanced Materials segment.

On November 3, 2008, we sold Muirhead Aerospace (Muirhead) and Traxsys Input Products Limited (Traxsys) for $64.4 million, which resulted in an after tax gain of approximately $15.8 million. Muirhead and Traxsys were included in the Sensors & Systems segment. The results of operations of Muirhead and Traxsys were accounted for as a discontinued operation in the consolidated financial statements.

On December 15, 2008, the Company acquired NMC Group, Inc. (NMC) for approximately $90.0 million in cash. NMC designs and manufactures specialized light-weight fasteners principally for commercial aviation applications. NMC will be included in our Advanced Materials segment. On December 21, 2008, we entered into a Share Sale and Purchase Agreement to acquire Racal Acoustics Global Ltd. (Racal) for U.K. £115.0 million or $172.0 million, subject to certain governmental approvals an customary closing conditions. Racal develops and manufactures high technology ruggedized personal communication equipment for the defense and avionics market segment. Racal will be included in our Avionics & Controls segment.

Income from continuing operations for fiscal 2008 was $113.5 million, or $3.80 per diluted share, compared with $87.8 million, or $3.34 per diluted share in fiscal 2007. Income from continuing operations in fiscal 2007 included a $26.2 million, net of tax, or $1.00 per diluted share, insurance recovery. In fiscal 2008, Avionics & Controls performance was robust compared to the prior-year period, reflecting the effect of a stronger U.S. dollar compared to the Canadian dollar and solid results across all operating units. Results in Sensors & Systems improved and Advanced Materials earnings reflected strong sales and earnings in fiscal 2008 over the prior-year period, offset by the insurance recovery recorded in fiscal 2007. Interest expense decreased $5.4 million over the prior-year period, reflecting reduced borrowings. Income from continuing operations for fiscal 2008 reflected an effective tax rate of 18.9% compared to 20.4% for the prior-year period. Net earnings for fiscal 2008 were $120.5 million or $4.03 per diluted share compared to $92.3 million or $3.52 per diluted share in fiscal 2007.

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Results of Continuing Operations

Fiscal 2008 Compared with Fiscal 2007

Sales for fiscal 2008 increased 22.9% over the prior year reflecting incremental sales from the CMC acquisition in the second quarter of fiscal 2007, strong sales across all segments and a 53 week year in fiscal 2008 compared to a 52 week year in fiscal 2007. Sales by segment were as follows:

Dollars In Thousands	Increase (Decrease) From Prior Year	2008		2007
Avionics & Controls	32.4%	$	611,467	$	461,990
Sensors & Systems	21.4%		384,180		316,485
Advanced Materials	13.8%		487,525		428,558
Total		$	1,483,172	$	1,207,033

The 32.4% increase in Avionics & Controls reflected incremental sales from the CMC acquisition and higher sales of cockpit controls and medical equipment devices from new OEM programs as well as strong after-market sales. Comparing the fourth fiscal quarter of 2008 to the prior-year period, Avionics & Controls sales increased 14.4%, reflecting increased sales of cockpit avionics, controls and medical control panels.

The 21.4% increase in Sensors & Systems principally reflected growth in OEM programs for power distribution devices and strong after-market sales of temperature and pressure sensors, as well as the effect of exchange rates. Sales through much of fiscal 2008 reflected a stronger euro relative to the U.S. dollar. The average exchange rate for the euro increased from 1.34 in fiscal 2007 to 1.50 in fiscal 2008. This relationship changed significantly in the fourth fiscal quarter of 2008 when the spot rate declined from 1.55 at August 1, 2008, to 1.27 at October 31, 2008. Comparing the fourth fiscal quarter of 2008 to the prior-year period, Sensors & Systems sales increased 6.7%, principally reflecting increased sales of power distribution devices.

The 13.8% increase in Advanced Materials reflected strong sales across the segment and reflected higher sales at our thermally engineered components and elastomer operations due to increased demand from commercial aviation customers. Additionally, sales of combustible ordnance and flare countermeasure devices at our U.K. operations were strong in fiscal 2008. These increases were partially offset by lower sales of flare countermeasure devices at our U.S. operations. Comparing the fourth quarter of fiscal 2008 to the prior-year period, Advanced Materials sales increased 17.7%, reflecting strong sales of combustible ordnance and flare countermeasure devices.

Sales to foreign customers, including export sales by domestic operations, totaled $808.0 million and $612.9 million, and accounted for 54.5% and 50.8% of our sales for fiscal 2008 and 2007, respectively.

Overall, gross margin as a percentage of sales was 33.1% and 30.9% in fiscal 2008 and 2007, respectively. Avionics & Controls segment gross margin was 35.0% and 32.2% for fiscal 2008 and 2007, respectively, principally reflecting the effect of exchange rates on our Canadian operations in the fourth fiscal quarter of 2008.

The U.S. dollar strengthened against the Canadian dollar from 1.03 at the end of our third fiscal quarter of 2008 to 1.21 at the end of our fourth fiscal quarter. Changes in exchange rates mainly affected CMC’s U.S. dollar-denominated accounts receivable, foreign exchange contracts and backlog. The impact of exchange rates on U.S. dollar-denominated accounts receivable, backlog and

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forward exchange contracts favorably impacted gross margin in the fourth fiscal quarter of 2008 by approximately $5.0 million compared to a $2.0 million loss in the prior-year period. The effect of foreign exchange on CMC’s gross margin was a gain of approximately $7.0 million in fiscal 2008 and a loss in fiscal 2007 of approximately $5.0 million.

Approximately $213.4 million of CMC’s U.S. dollar-denominated backlog at October 31, 2008 is covered by forward exchange contracts, which are accounted for as a cash flow hedge. Approximately $54.1 million of backlog covered by forward exchange contracts were executed before the strengthening of the U.S. dollar against the Canadian dollar. Accordingly, the strengthening of the U.S. dollar against the Canadian dollar will not be realized on U.S. dollar-denominated sales covered by forward contracts executed before the dollar began to strengthen against the Canadian dollar.

CMC’s gross margins in fiscal 2008 were also enhanced by an improved recovery of fixed overhead due to higher sales volumes, cost reductions and productivity improvements. The increase in CMC’s gross margin was partially offset by a $5.0 million ($3.4 million, net of tax, or $0.11 per diluted share) estimate to complete adjustment for long-term contracts recorded in the third fiscal quarter of 2008. The adjustment was principally due to higher engineering costs as a result of resource constraints, increased scope and additional certification requirements to develop upgraded commercial aviation flight management systems. Excluding CMC, Avionics & Controls gross margin was 35.6% and 35.4% for fiscal 2008 and 2007, respectively, reflecting increased after-market spares sales and pricing strength on certain cockpit control devices, partially offset by an increase in excess and obsolete inventory reserves and a $1.2 million and a $2.0 million unfavorable estimate to complete adjustment on certain firm fixed-price long-term contracts for the development and manufacture of secure military communications products in fiscal 2008 and 2007, respectively.

Sensors & Systems segment gross margin was 35.3% and 35.1% for fiscal 2008 and 2007, respectively. Gross margins mainly reflected strong after-market sales, partially offset by the effect of a weaker U.S. dollar compared with the euro on U.S.-denominated sales and euro-denominated cost of sales for most of fiscal 2008. The impact of exchange rates on forward foreign exchange contracts impacted gross margin at our euro-based operations by a gain of approximately $2.8 million and $3.0 million in fiscal 2008 and 2007, respectively. Forward exchange contracts at our non-U.S. Sensor & Systems units are principally accounted for as a cash flow hedge and, accordingly, unrealized gains or losses are recognized upon settlement of the forward exchange contract.

Advanced Materials segment gross margin was 28.9% and 26.5% for fiscal 2008 and 2007, respectively. The increase in Advanced Materials gross margin was due to increased gross margins at our combustible ordnance and U.K.-flare operations as well as our elastomer and thermally engineered component operations resulting from pricing strength on certain products and an improved recovery of overhead due to higher product sales and a more favorable mix of product shipments.

Selling, general and administrative expenses (which include corporate expenses) increased to $239.3 million in fiscal 2008 compared with $199.8 million in fiscal 2007. The increase in selling, general and administrative expenses mainly reflected incremental selling, general and administrative expenses from the CMC acquisition, which was acquired in March 2007, higher incentive compensation expense, and the effect of exchange rates at our non-U.S. operations. The effect of exchange rates on cash held by the corporate office and certain intercompany advances denominated in currencies other than the U.S. dollar resulted in an exchange loss of $1.4 million in fiscal 2008 compared to a $0.6 million gain in fiscal 2007. As a percentage of sales, selling, general and administrative expenses were 16.1% and 16.6% in fiscal 2008 and 2007, respectively.

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Research, development and related engineering spending increased to $86.8 million, or 5.9% of sales, in fiscal 2008 compared with $66.9 million, or 5.5% of sales, in fiscal 2007. The increase in research, development and engineering principally reflected incremental spending from the CMC acquisition and increased spending on the development of the integrated cockpit system for the T-6B military trainer. Research, development and engineering expense in fiscal 2008 and 2007 is net of $5.2 million and $6.7 million, respectively, in government assistance. CMC is currently negotiating a new government assistance arrangement with Canada, which will likely be accounted for as a loan rather than a reduction in research, development and related engineering expense.

Segment earnings (which exclude corporate expenses and other income and expense) increased 12.7% during fiscal 2008 to $200.0 million compared to $177.5 million in the prior year. Segment earnings as a percent of sales were 13.5% and 14.7% in fiscal 2008 and 2007, respectively. The decrease in segment earnings as a percent of sales from fiscal 2007 reflects business insurance recoveries of $37.5 million recorded in fiscal 2007.

Avionics & Controls segment earnings were $77.9 million or 12.7% of sales in fiscal 2008 compared with $47.8 million or 10.4% of sales in fiscal 2007, reflecting strong earnings from our avionics, cockpit control and medical equipment devices operations, partially offset by the shipment in fiscal 2007 of acquired inventory of CMC, which was valued at fair value at acquisition. In addition, CMC’s earnings in fiscal 2008 were favorably affected by the effect of a stronger U.S. dollar compared with the Canadian dollar, particularly in the fourth quarter, which resulted in a foreign currency transaction gain on U.S. dollar-denominated accounts receivable and backlog in the fourth quarter of fiscal 2008. Avionics & Controls earnings were impacted by significant research and development expenses, principally related to the development of the T-6B at CMC, and a gross profit reduction of $6.2 million due to an estimate to complete adjustment on long-term contracts accounted for under SOP 81-1 compared to a $2.0 million adjustment in the prior-year period. The prior period was also impacted by $3.4 million in contract overruns and additional research and development expense at a small unit which manufactures precision gears and data concentrators.

CMC’s results of operations are not in accordance with our expectations since acquisition. As indicated above, CMC’s results of operations were impacted by the weak U.S. dollar relative to the Canadian dollar for most of the period since our acquisition of the business and higher than expected research and development expenses related to the T-6B development. Recognizing the impact of these issues, management is focused on a broad array of initiatives designed to improve CMC’s results of operations.

Sensors & Systems segment earnings were $43.4 million or 11.3% of sales in fiscal 2008 compared with $32.4 million or 10.2% of sales in fiscal 2007. The increase in Sensors & Systems earnings reflected strong results across all operations helped by increased sales from new OEM programs, as well as strong after-market sales. Sensors & Systems segment earnings in the fourth quarter for fiscal 2008 and 2007 were $8.6 million and $9.2 million, respectively. The decrease in segment earnings principally reflected lower gross margin due to start-up costs of a manufacturing operation in a low-cost country, a less favorable product mix and the purchase of a technology license, which was recorded as research and development expense. Certain temperature, pressure, and speed sensors are not achieving profit margins the Company projects for the long term. Management is focused on improving its operational efficiency and negotiating with customers to increase pricing where price increases can be justified. The impact of exchange rates on U.S. dollar-denominated accounts receivable and foreign exchange contracts impacted Sensors & Systems earnings by a gain of approximately $2.5 million and $4.0 million in fiscal 2008 and 2007, respectively.

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Advanced Materials segment earnings were $78.6 million or 16.1% of sales in fiscal 2008 compared with $97.3 million or 22.7% of sales in fiscal 2007, principally reflecting $37.5 million in business interruption insurance recoveries in fiscal 2007. The impact of exchange rates on U.S. dollar-denominated accounts receivable and forward foreign exchange contracts impacted Advanced Material earnings at our U.K. operations by a loss of approximately $2.9 million and $1.2 million in fiscal 2008 and 2007, respectively.

On June 26, 2006, an explosion occurred at the Company’s Wallop facility, which resulted in one fatality and several minor injuries. The incident destroyed an oven complex for the production of advanced flares and significantly damaged a portion of the facility. The advanced flare facility has been closed due to the requirements of the Health and Safety Executive (HSE) to review the cause of the accident, but normal operations are continuing at unaffected portions of the facility. The HSE investigation will not be completed until the Coroner’s Inquest is filed. Although it is not possible to determine the results of the HSE investigation or how the Coroner will rule, management does not expect to be found in breach of the Health and Safety at Work Act related to the accident and, accordingly, no amounts have been recorded for any potential fines that may be assessed by the HSE. The construction of the new flare facility is expected to be completed and in full production, following customary start-up and commissioning activities, late in fiscal 2009.

Excluding the business insurance recovery, results of operations at our U.K. flare countermeasure operation improved by $7.4 million over fiscal 2007. This trend is expected to continue; however, poor product mix in fiscal 2008 resulted in our U.S. and U.K. flare countermeasure operations recording an operating loss. Accordingly, management is focused on completing the advanced flare facility in the U.K., developing more advanced flares with higher gross margins and improving margins on existing products. The decrease in earnings described above was partially offset by strong earnings from our thermally engineered components, elastomer and combustible ordnance operations.

Interest expense decreased to $29.9 million during fiscal 2008 compared with $35.3 million in the prior year, reflecting reduced borrowings.

Non-operating expenses included a $1.9 million gain from a terminated interest rate swap on our £57.0 million term loan, resulting from a £33.2 million or $68.0 million repayment.

Non-operating expenses in fiscal 2007 included a $1.1 million write off of debt issuance costs as a result of the prepayment of our $100.0 million U.S. term loan.

The effective income tax rate for fiscal 2008 was 18.9% compared with 20.4% in fiscal 2007. The effective tax rate was lower than the statutory rate, as both years benefited from various tax credits and certain foreign interest expense deductions. In addition, in fiscal 2008, we recognized $6.5 million in discrete tax benefits. The $6.5 million in discrete tax adjustments were the result of five items. The first item was the settlement of an examination of the U.S. income tax returns for fiscal years 2003 through 2005, which resulted in a $2.8 million reduction of previously estimated income tax liabilities. The second item was the enactment of tax laws reducing the Canadian statutory corporate income tax rate, which resulted in a $4.1 million net reduction of deferred income tax liabilities. The third item was the accrual of $0.7 million of tax reserves and interest related to the finalization of CMC’s FIN 48 analysis. The fourth item was recording $0.8 million of tax expense associated with the reconciliation of fiscal 2007’s U.S. income tax return provision for income taxes. The fifth item was the recording of $1.2 million of tax benefits associated with the extension of the U.S. Research Experimentation tax credit. In fiscal 2007, we recognized $2.6 million in net discrete tax benefits. The $2.6 million in net discrete tax benefits were the result of three items. The

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first item was the enactment of tax laws reducing U.K., Canadian, and German statutory corporate income tax rates which resulted in a $2.8 million net reduction in deferred income tax liabilities. The second item was the retroactive extension of the U.S. Research Experimentation tax credit, which resulted in a $1.0 million tax benefit. The third item was recording $1.2 million of additional income tax resulting from the reconciliation of fiscal 2007’s U.S. and foreign income tax returns to the provisions for income taxes.

New orders for fiscal 2008 were $1.6 billion compared with $1.5 billion for fiscal 2007. Avionics & Controls orders for fiscal 2008 increased 3.4% from the prior-year period. Avionics & Controls orders in fiscal 2007 included CMC’s acquired backlog at March 14, 2007 of $264.8 million. Sensors & Systems orders for fiscal 2008 increased 16.8% from the prior-year period. Advanced Materials orders for fiscal 2008 decreased 0.4% from the prior-year period due to the timing of receiving defense system orders. Backlog at the end of fiscal 2008 was $1.1 billion compared with $958.0 million at the end of the prior year. Approximately $388.1 million is scheduled to be delivered after fiscal 2009. Backlog is subject to cancellation until delivery.

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Fiscal 2007 Compared with Fiscal 2006

Sales for fiscal 2007 increased 31.1% over the prior year. Sales by segment were as follows:

Dollars In Thousands	Increase (Decrease) From Prior Year	2007		2006
Avionics & Controls	61.0%	$	461,990	$	286,936
Sensors & Systems	14.0%		316,485		277,504
Advanced Materials	20.4%		428,558		356,007
Total		$	1,207,033	$	920,447

The 61.0% increase in Avionics & Controls reflected incremental sales from the CMC acquisition in the second quarter of fiscal 2007 and higher sales of cockpit controls and medical equipment devices from new OEM programs as well as strong after-market sales.

The 14.0% increase in Sensors & Systems principally reflected growth in OEM programs for temperature sensors and power distribution devices as well as the effect of exchange rates. Sales in fiscal 2007 reflected a stronger U.K. pound and euro relative to the U.S. dollar, as the average exchange rate from the U.K. pound and euro increased from 1.81 and 1.23, respectively, in fiscal 2006, to 1.98 and 1.34, respectively, in fiscal 2007.

The 20.4% increase in Advanced Materials reflected strong sales across the segment. While combustible ordnance sales were up modestly compared with the prior year, sales of flare countermeasures and elastomer material were strong, reflecting new OEM programs. Sales of flare countermeasures from our Wallop facility were higher in fiscal 2007 compared to fiscal 2006, but less than our expectations due to the continued shut-down in a portion of the facility.

Sales to foreign customers, including export sales by domestic operations, totaled $612.9 million and $385.2 million, and accounted for 50.8% and 41.8% of our sales for fiscal 2007 and 2006, respectively.

Overall, gross margin as a percentage of sales was 30.9% and 31.2% in fiscal 2007 and 2006, respectively. Avionics & Controls segment gross margin was 32.2% and 34.7% for fiscal 2007 and 2006, respectively, reflecting the shipment of acquired inventory of CMC, which was valued at fair value at acquisition. In addition, CMC’s gross margins were impacted by the effect of a weaker U.S. dollar compared to the Canadian dollar on U.S. dollar-denominated sales and Canadian-denominated cost of sales. Excluding CMC, Avionics & Controls gross margin was 36.4% and 35.3% for fiscal 2007 and 2006, respectively, reflecting increased after-market spares sales and pricing strength on certain cockpit control devices, partially offset by a $2.0 million unfavorable estimate to complete adjustment on certain firm fixed-price long-term contracts for the development and manufacture of secure military communications products. Additionally, gross margin in fiscal 2007 was impacted by a $2.1 million contract overrun at a small unit which manufactures precision gears and data concentrators.

Sensors & Systems segment gross margin was 35.1% and 35.9% for fiscal 2007 and 2006, respectively. The decrease in Sensors & Systems gross margin from fiscal 2006 reflected lower sales of high-margin pressure sensors and the effect of a weaker U.S. dollar compared with the U.K. pound and euro on U.S.-denominated sales and U.K. pound- and euro-denominated cost of sales.

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These decreases were partially offset by improved operating efficiencies at our U.K. temperature and pressure sensor operations and pricing strength at our U.S. manufacturer of power distribution devices.

Advanced Materials segment gross margin was 26.5% and 24.7% for fiscal 2007 and 2006, respectively. The increase in Advanced Materials gross margin was due to strong gross margins at our U.S. flare operations resulting from a more favorable mix of product shipments and improved operating efficiencies at our Arkansas countermeasure flare operation. Additionally, gross margins improved at our elastomer material operations, reflecting increased recovery of fixed expenses due to strong OEM sales and a shift in sales mix to higher margin space and defense products. Comparing fiscal 2007 to 2006, the increase in gross margin also reflected the impact of the shipment of acquired inventories at Darchem, which were valued at fair market at acquisition in 2006. Gross margin in fiscal 2007 was impacted by the continued shut-down of our advanced flare operations at Wallop as a result of the 2006 explosion and the start-up costs at our FR Countermeasures unit acquired in 2005.

Selling, general and administrative expenses (which include corporate expenses) increased to $199.8 million in fiscal 2007 compared with $152.1 million in fiscal 2006. The increase in selling, general and administrative expenses primarily reflected incremental selling, general and administrative expenses from the CMC, Wallop, and FR Countermeasures acquisitions. The increase in corporate expense principally reflected bank fees associated with the modification of our 2013 note indenture, increased incentive compensation, professional fees, and the cost of an option to buy Canadian dollars to cover a portion of the purchase price of CMC. Post-retirement benefit expense increased $2.2 million reflecting the acquisition of CMC and an adjustment to post-retirement benefit expense of $1.6 million at our temperature and pressure sensor operations. These increases were partially offset by a $2.4 million decrease in pension expense. In fiscal 2006, pension expense included a $1.2 million increase in the Leach pension obligation existing as of the acquisition of Leach in August 2004, which was identified during an audit of its pension plan. Additionally, in fiscal 2006, selling, general and administrative expense included a $1.0 million charge as a result of a customer contract termination. As a percentage of sales, selling, general and administrative expenses were 16.6% and 16.5% in fiscal 2007 and 2006, respectively.

Research, development and related engineering spending increased to $66.9 million, or 5.5% of sales, in fiscal 2007 compared with $49.1 million, or 5.3% of sales, in fiscal 2006. The increase in research, development and related engineering largely reflects spending on the T-6B, A400M primary power distribution assembly, TP400 engine sensors, 787 overhead panel control and 787 environmental control programs. Research, development and engineering expense in fiscal 2007 and 2006 is net of $6.7 million and $5.2 million, respectively, in government assistance.

Segment earnings (which exclude corporate expenses and other income and expense) increased 50.3% during fiscal 2007 to $177.5 million compared to $118.1 million in the prior year. Segment earnings as a percent of sales were 14.7% and 12.8% in fiscal 2007 and 2006, respectively. Business interruption insurance recoveries of $37.5 million were a contributor to this growth, partially offset by losses of $7.6 million at CMC.

Avionics & Controls segment earnings were $47.8 million or 10.4% of sales for fiscal 2007 compared with $45.4 million or 15.8% of sales in fiscal 2006 and reflected strong earnings from our cockpit control and medical equipment devices operations, partially offset by the shipment of acquired inventory of CMC, which was valued at fair value at acquisition. CMC’s earnings were impacted by the effect of a weaker U.S. dollar compared with the Canadian dollar on U.S. dollar-denominated

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sales and Canadian-denominated cost of sales. The U.S. dollar relative to the Canadian dollar has declined 18.2% from the date of CMC’s acquisition to year end. Approximately $94.0 million of CMC’s sales of $128.0 million were denominated in U.S. dollars. Additionally, CMC’s earnings were impacted by significant research and development expenses, principally related to the T-6B program. Avionics & Controls earnings were also impacted by $3.4 million in contract overruns and additional research and development expense at a small unit which manufactures precision gears and data concentrators.

Sensors & Systems segment earnings were $32.4 million or 10.2% of sales for fiscal 2007 compared with $26.3 million or 9.5% of sales in fiscal 2006. Operating earnings at our power distribution operation reflected improved results from increased sales from new OEM programs, a $1.0 million reimbursement of research, development and engineering expense negotiated with a customer and price increases, which were partially offset by higher research, development and engineering expenses on the A400M program. Earnings at our temperature and pressure sensors operations increased from 2006, reflecting the benefit of reduced indirect labor and research, development and engineering costs, and improved operating efficiencies, partially offset by a post-retirement benefit adjustment of $1.6 million. Comparing fiscal 2007 to 2006, Sensors & Systems earnings in fiscal 2006 were impacted by a $1.2 million increase in the Leach pension obligation explained above and manufacturing inefficiencies and incremental direct labor costs incurred to reduce delinquent shipments at our temperature and pressure sensors operations. Sensors & Systems earnings also reflected the impact of a weaker U.S. dollar relative to the euro and the U.K. pound on U.S. dollar-denominated sales and euro- and U.K. pound-based operating expenses.

Advanced Materials segment earnings were $97.3 million or 22.7% of sales for fiscal 2007 compared with $46.5 million or 13.1% of sales for fiscal 2006, principally reflecting $37.5 million in business interruption insurance recoveries, incremental earnings from our Darchem acquisition and improved earnings from our elastomer and Arkansas countermeasure flare operations. Earnings in both years were impacted by start-up costs at our FR Countermeasures unit and low sales at our Wallop operations. The $37.5 million recovery was related to an explosion that occurred at Wallop on June 26, 2006. Although a portion of the facility is expected to be closed for about two years due to the requirements of the Health Safety Executive (HSE) to review the cause of the accident, normal operations are continuing at unaffected portions of the facility. The $37.5 million insurance recovery reimbursed the Company for the loss of earnings and damage to a portion of the facility.

Interest expense increased to $35.3 million during fiscal 2007 compared with $21.3 million in the prior year, reflecting increased borrowings to finance the CMC acquisition.

Non-operating expenses in the fourth fiscal quarter of 2007 included a $1.1 million write off of debt issuance costs as a result of the prepayment of our $100.0 million U.S. term loan. Non-operating expense in the first fiscal quarter of 2006 included a $2.2 million prepayment penalty arising from the $40.0 million prepayment of our 6.77% Senior Notes. Both prepayments were recorded as a loss on extinguishment of debt.

The effective income tax rate for fiscal 2007 was 20.4% compared with 22.6% in fiscal 2006. The effective tax rate was lower than the statutory rate, as both years benefited from various tax credits and certain foreign interest expense deductions. In addition, in fiscal 2007, we recognized a $2.6 million reduction of previously estimated income tax liabilities, which was the result of the following items: a $2.8 million net reduction in deferred income tax liabilities as a result of the enactment of tax laws reducing U.K., Canadian and German statutory corporate income tax rates and a $1.0 million tax benefit as a result of the retroactive extension of the U.S. Research and

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Experimentation tax credit that was signed into law on December 21, 2006. These benefits were offset by $1.2 million of additional income tax resulting from the reconciliation of prior-years’ U.S. and foreign income tax returns to the provisions for income taxes. The effective tax rate for fiscal 2007 also reflected CMC’s tax credits and other tax efficiencies. In fiscal 2006, we recognized a $4.5 million reduction of previously estimated tax liabilities, which was the result of the following items: $1.6 million due to the expiration of the statute of limitations and adjustments resulting from a reconciliation of the prior year’s U.S. income tax return to the U.S. provision for income taxes, $2.0 million as a result of receiving a Notice of Proposed Adjustment (NOPA) from the State of California Franchise Tax Board covering, among other items, the examination of research and development tax credits for fiscal years 1997 through 2002, and $0.9 million as a result of a favorable conclusion of a tax examination.

New orders for fiscal 2007 were $1.5 billion compared with $1.1 billion for fiscal 2006. Avionics & Controls orders for fiscal 2007 increased 118.7% from the prior-year period, principally reflecting the CMC acquisition. Sensors & Systems orders for fiscal 2007 increased 28.8% from the prior-year period. Advanced Materials orders for fiscal 2007 decreased 4.0% from the prior-year period due to the timing of receiving orders. Backlog at the end of fiscal 2007 was $958.0 million compared with $631.7 million at the end of the prior year.

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Liquidity and Capital Resources

Working Capital and Statement of Cash Flows

Cash and cash equivalents at the end of fiscal 2008 totaled $160.6 million, an increase of $13.6 million from the prior year. Net working capital increased to $456.2 million at the end of fiscal 2008 from $417.7 million at the end of the prior year. Sources of cash flows from operating activities principally consist of cash received from the sale of products offset by cash payments for material, labor and operating expenses.

Cash flows from operating activities were $118.9 million and $121.7 million in fiscal 2008 and 2007, respectively. The decrease principally reflected lower cash receipts from customers and higher payments for inventory and income taxes. Additionally, cash flow from operating activities in fiscal 2007 included cash received from our insurance carrier. This decrease was partially offset by an increase in net earnings and lower payments for interest on our debt.

Cash flows used by investing activities were $30.1 million and $382.3 million in fiscal 2008 and 2007, respectively. The decrease in the use of cash for investing activities mainly reflected cash paid for acquisitions in fiscal 2007.

Cash flows used by financing activities were $63.3 million in fiscal 2008 and cash flows provided by financing activities were $361.9 million in fiscal 2007. Cash used by financing activities in fiscal 2008 principally reflected a $68.0 million or £33.2 million principal payment on our GBP term loan. Cash provided by financing activities in fiscal 2007 reflected the issuance of $175.0 million Senior Notes due 2017, a $100.0 million U.S. term loan, and the sale of $187.1 million of common stock.

Capital Expenditures

Net property, plant and equipment was $204.5 million at the end of fiscal 2008 compared with $217.4 million at the end of the prior year. Capital expenditures for fiscal 2008 and 2007 were $40.7 million and $30.5 million, respectively (excluding acquisitions) and included machinery and equipment and enhancements to information technology systems. Capital expenditures are anticipated to approximate $100.0 million for fiscal 2009. Fiscal 2009 capital expenditures will include the construction of a new factory for Korry Electronics, which is included in our Avionics & Controls segment, and a new factory at our U.K. countermeasure operations. We will continue to support expansion through investments in infrastructure including machinery, equipment, buildings and information systems.

Acquisitions

On December 15, 2008, we acquired NMC Group, Inc. (NMC) for approximately $90.0 million in cash. NMC designs and manufactures specialized light weight fasteners principally for commercial aviation applications. NMC will be included in our Advanced Materials segment.

On December 21, 2008, we entered into a Share Sale and Purchase Agreement to acquire Racal Acoustics Global Ltd., (Racal) for U.K. £115.0 million or $172.0 million, subject to certain governmental approvals and customary closing conditions. Racal develops and manufactures high technology ruggedized personal communication equipment for the defense and avionics market segment. Racal will be included in our Avionics & Controls segment.

Debt Financing

Total debt decreased $74.0 million from the prior year to $401.8 million at the end of fiscal 2008. Total debt outstanding, including the fair value of the interest rate swap at the end of fiscal 2008, consisted of $175.0 million of Senior Notes due in 2017, $176.6 million of Senior Subordinated Notes due in 2013, $34.9 million of the GBP Term Loan and $15.3 million in borrowings under our credit facility and various foreign currency debt agreements, including capital lease obligations. The Senior Notes are due March 1, 2017 and bear an interest rate of 6.625%. The Senior Notes are general unsecured senior obligations of the Company. The Senior Notes are guaranteed, jointly and severally on a senior basis, by all the existing and future domestic subsidiaries of the Company unless

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designated as an “unrestricted subsidiary,” and those foreign subsidiaries that executed related subsidiary guarantees under the indenture covering the Senior Notes. The Senior Notes are subject to redemption at the option of the Company at any time prior to March 1, 2012 at a price equal to 100% of the principal amount, plus any accrued interest to the date of redemption and a make-whole provision. In addition, before March 1, 2010 the Company may redeem up to 35% of the principal amount at 106.625% plus accrued interest with proceeds of one or more Public Equity Offerings. The Senior Notes are also subject to redemption at the option of the Company, in whole or in part, on or after March 1, 2012 at redemption prices starting at 103.3125% of the principal amount plus accrued interest during the period beginning March 1, 2007 and declining annually to 100% of principal and accrued interest on or after March 1, 2015. The Senior Subordinated Notes are general unsecured obligations of the Company and are subordinated to all existing and future senior debt of the Company. In addition, the Senior Subordinated Notes are effectively subordinated to all existing and future senior debt and other liabilities (including trade payables) of the Company’s foreign subsidiaries. The Senior Subordinated Notes are guaranteed, jointly and severally, by all the existing and future domestic subsidiaries of the Company unless designated as an “unrestricted subsidiary” under the indenture covering the Senior Subordinated Notes. The Senior Subordinated Notes are subject to redemption at the option of the Company, in whole or in part, on or after June 15, 2008, at redemption prices starting at 103.875% of the principal amount plus accrued interest during the period beginning June 11, 2003 and declining annually to 100% of principal and accrued interest on June 15, 2011. In September 2003, we entered into an interest rate swap agreement on $75.0 million of our Senior Subordinated Notes due in 2013. The swap agreement exchanged the fixed interest rate for a variable interest rate on $75.0 million of the $175.0 million principal amount outstanding.

On February 10, 2006, we borrowed U.K. £57.0 million, or approximately $100.0 million, under the GBP term loan facility. We used the proceeds from the loan as working capital for our U.K. operations and to repay a portion of our outstanding borrowings under the revolving credit facility. The principal amount of the loan is payable quarterly commencing on March 31, 2007 through the termination date of November 14, 2010, according to a payment schedule by which 1.25% of the principal amount is paid in each quarter of 2007, 2.50% in each quarter of 2008, 5.00% in each quarter of 2009 and 16.25% in each quarter of 2010. The loan accrues interest at a variable rate based on the British Bankers Association Interest Settlement Rate for deposits in U.K. pounds plus an additional margin amount that ranges from 1.13% to 0.50% depending upon the Company’s leverage ratio. As of October 31, 2008, the interest rate on the term loan was 6.49%. During fiscal 2008 we paid down £33.2 million, or $68.0 million, on the GBP £57.0 million term loan and terminated an interest rate swap for a gain of $1.9 million. The interest rate swap exchanged the variable interest rate for a fixed interest rate of 4.75% plus an additional margin amount determined by reference to our leverage ratio.

On March 14, 2007, we acquired CMC for approximately $344.5 million in cash, including acquisition costs. The acquisition was financed in part with the proceeds of the $175 million Senior Notes due March 1, 2017. In addition, on March 13, 2007, we amended our

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credit agreement to increase the existing revolving credit facility to $200.0 million and to provide an additional $100.0 million U.S. term loan facility. On March 13, 2007, we borrowed $60.0 million under the revolving credit facility and $100.0 million under the U.S. term loan facility to pay a portion of the purchase price of the acquisition of CMC.

On October 12, 2007, we completed an underwritten public offering of 3.45 million shares of common stock, generating net proceeds of $187.1 million. Proceeds from the offering were used to pay off our $100.0 million U.S. term loan facility and pay down our revolving credit facility. We wrote off $1.1 million in debt issuance costs related to the $100.0 million term loan in fiscal 2007 as a result of its pay-off.

In fiscal 2008, we entered into a land and building lease for a 216,000 square-foot manufacturing facility to be constructed in fiscal 2009 for our Korry Electronics operation. The land lease has a fixed term of 55 years and lease payments began in fiscal 2008. The land lease is accounted for as an operating lease. The building lease has a fixed term of 30 years and includes an option to purchase the building at fair market value five years after construction is complete. The expected minimum lease payments, including a 2% annual rent increase, related to the building are $1.2 million in 2009, $2.3 million in 2010, $2.4 million in 2011, $2.4 million in 2012, $2.5 million in 2013, and $83.5 million thereafter. The fair value of the building is expected to be $26.5 million and the building lease will be accounted for as a capital lease.

We believe cash on hand, funds generated from operations and other available debt facilities are sufficient to fund operating cash requirements and capital expenditures through fiscal 2009; however, we may periodically utilize our lines of credit for working capital requirements. Current conditions in the capital markets are uncertain; however, we believe we will have adequate access to capital markets to fund future acquisitions.

Pension and Other Post-Retirement Benefit Obligations

Our pension plans principally include a U.S. pension plan maintained by Esterline, non-U.S. plans maintained by Leach, and non-U.S. plans maintained by CMC. A U.S. plan maintained by Leach was merged into the U.S. pension plan maintained by Esterline as of March 31, 2008. Our principal post-retirement plans include non-U.S. plans maintained by CMC, which are non-contributory health care and life insurance plans.

We account for pension expense using the end of the fiscal year as our measurement date and we make actuarially computed contributions to our pension plans as necessary to adequately fund benefits. Our funding policy is consistent with the minimum funding requirements of ERISA. In fiscal 2008 and 2007, operating cash flow included $4.8 million and $9.7 million, respectively, of cash funding to these pension plans. We expect pension funding requirements to be approximately $2.5 million in fiscal 2009 for the plans maintained by CMC. There is no minimum funding requirements for fiscal 2009 for the U.S. pension plan maintained by Esterline. We may decide to make a discretionary contribution in fiscal 2009. The rate of increase in future compensation levels is consistent with our historical experience and salary administration policies. The expected long-term rate of return on plan assets is based on long-term target asset allocations of 70% equity and 30% fixed income. We periodically review allocations of plan assets by investment type and evaluate external sources of information regarding long-term historical returns and expected future returns for each investment type and, accordingly, believe a 7.0 – 8.25% assumed long-term rate of return on plan assets is appropriate. Current allocations are consistent with the long-term targets.

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We made the following assumptions with respect to our pension obligation in 2008 and 2007:

	2008		2007
Principal assumptions as of fiscal year end:
Discount rate	5.6 – 8.375	%	5.6 – 6.25	%
Rate of increase in future compensation levels	3.3 – 4.5	%	3.5 – 4.5	%
Assumed long-term rate of return on plan assets	7.0 – 8.25	%	7.0 – 8.5	%

For our non-U.S. plans we use a discount rate for expected returns that is a spot rate developed from a yield curve established from high-quality corporate bonds and matched to plan-specific projected benefit payments. For our U.S. plan we use a discount rate which was determined by discounting the estimated cash flow of the U.S. plan using spot rates from the Citigroup Pension Discount Curve, which reflects the current yields of high-quality corporate bonds. Although future changes to the discount rate are unknown, had the discount rate increased or decreased by 25 basis points in 2008, pension liabilities in total would have decreased $4.2 million or increased $4.4 million, respectively. If all other assumptions are held constant, the estimated effect on fiscal 2008 pension expense from a hypothetical 25 basis point increase or decrease in both the discount rate and expected long-term rate of return on plan assets would not have a material effect on our pension expense.

We made the following assumptions with respect to our post-retirement obligation in 2008 and 2007:

	2008		2007
Principal assumptions as of fiscal year end:
Discount rate	6.25 – 6.75	%	5.6 – 6.25	%
Initial weighted average health care trend rate	4.8 – 10	%	5 – 10	%
Ultimate weighted average health care trend rate	3.3 – 10	%	3.5 – 10	%

The assumed health care trend rate has a significant impact on our post-retirement benefit obligations. Our health care trend rate was based on the experience of our plan and expectations for the future. A 100 basis point increase in the health care trend rate would increase our post-retirement benefit obligation by $0.6 million. A 100 basis point decrease in the health care trend rate would decrease our post-retirement benefit obligation by $0.5 million. Assuming all other assumptions are held constant, the estimated effect on fiscal 2008 post-retirement benefit expense from a hypothetical 100 basis point increase or decrease in the health care trend rate would not have a material effect on our post-retirement benefit expense.

Research and Development Expense

For the three years ended October 31, 2008, research and development expense has averaged 5.6% of sales. We estimate that research and development expense in fiscal 2009 will be approximately 5.0% of sales for the full year.

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Contractual Obligations

The following table summarizes our outstanding contractual obligations as of fiscal year end. Liabilities for income taxes under FIN 48 were excluded from the table, as we are not able to make a reasonably reliable estimate of the amount and period of related future payments.

In Thousands
		Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Long-term debt	$	395,075	$	8,387	$	28,688	$	175,000	$	183,000
Credit facilities		5,171		5,171		—		—		—
Operating lease obligations		82,566		15,014		33,062		9,696		24,794
Capital lease obligations 1		94,260		1,160		4,723		4,913		83,464
Purchase obligations		196,422		177,449		18,435		435		103
Total contractual obligations	$	773,494	$	207,181	$	84,908	$	190,044	$	291,361

¹ Includes capital lease obligations of a building to be completed in fiscal 2009. See Note 11 to the Consolidated Financial Statements.

Seasonality

The timing of our revenues is impacted by the purchasing patterns of our customers and, as a result, we do not generate revenues evenly throughout the year. Moreover, our first fiscal quarter, November through January, includes significant holiday vacation periods in both Europe and North America. This leads to decreased order and shipment activity; consequently, first quarter results are typically weaker than other quarters and not necessarily indicative of our performance in subsequent quarters.

Disclosures About Market Risk

Interest Rate Risks

Our debt includes fixed rate and variable rate obligations. We are not subject to interest rate risk on the fixed rate obligations. We are subject to interest rate risk on $75.0 million of our Senior Subordinated Notes due in 2013. We hold an interest rate swap agreement, which exchanged the fixed interest rate for a variable rate on $75.0 million of the $175.0 million principal amount outstanding under our Senior Subordinated Notes due in 2013.

Inclusive of the effect of the interest rate swaps, a hypothetical 10% increase or decrease in average market interest rates would not have a material effect on our pretax income.

The following table provides information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates. For long-term debt, the table presents principal cash flows and the related weighted-average interest rates by contractual maturities. For our interest rate swap, the following tables present notional amounts and, as applicable, the interest rate by contractual maturity date at October 31, 2008 and October 26, 2007.

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At October 31, 2008

Dollars In Thousands

	Long-Term Debt – Fixed Rate				Interest Rate Swap
Maturing in:		Principal Amount	Average Rates			Notional Amount	Average  Pay Rate	(1)	Average Receive Rate
2009	$	—	7.75	%	$	—	*		7.75	%
2010		—	7.75	%		—	*		7.75	%
2011		—	7.75	%		—	*		7.75	%
2012		—	7.75	%		—	*		7.75	%
2013		175,000	7.75	%		75,000	*		7.75	%
Total	$	175,000			$	75,000
Fair Value at
10/31/2008	$	176,629			$	1,561
(1)  The average pay rate is LIBOR plus 2.56%. At October 31, 2008 Dollars In Thousands
	Long-Term Debt – Variable Rate
Maturing in:		Principal Amount	Average Rates	(1)
2009	$	6,983	*
2010		21,448	*
2011		6,484	*
2012		—	*
Total	$	34,915
Fair Value at
10/31/2008	$	34,915

⁽¹⁾ The average rate on the long-term debt and the average receive rate on the interest rate swap is the British Bankers Association Interest Settlement Rate for deposits in U.K. pounds plus an additional margin of 1.13% to 0.50% depending on the Company’s leverage ratio.

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At October 26, 2007

Dollars In Thousands

	Long-Term Debt – Fixed Rate				Interest Rate Swap
Maturing in:		Principal Amount	Average Rates			Notional Amount	Average  Pay Rate	(1)	Average Receive Rate
2008	$	—	7.75	%	$	—	*		7.75	%
2009		—	7.75	%		—	*		7.75	%
2010		—	7.75	%		—	*		7.75	%
2011		—	7.75	%		—	*		7.75	%
2012		—	7.75	%		—	*		7.75	%
Thereafter		175,000	7.75	%		75,000	*		7.75	%
Total	$	175,000			$	75,000
Fair Value at 10/26/2007	$	177,328			$	252
(1)  The average pay rate is LIBOR plus 2.56%.
At October 26, 2007 Dollars In Thousands
	Long-Term Debt – Variable Rate				Interest Rate Swap
Maturing in:		Principal Amount	Average  Rates	(1)		Notional Amount	Average Pay Rate		Average Receive Rate	(1)
2008	$	10,239	*		$	10,239	4.755	%	*
2009		20,479	*			20,479	4.755	%	*
2010		62,899	*			62,899	4.755	%	*
2011		19,016	*			19,016	4.755	%	*
Total	$	112,633			$	112,633
Fair Value at 10/26/2007	$	112,633			$	2,088

⁽¹⁾ The average rate on the long-term debt and the average receive rate on the interest rate swap is the British Bankers Association Interest Settlement Rate for deposits in U.K. pounds plus an additional margin of 1.13% to 0.50% depending on the Company’s leverage ratio.

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Currency Risks

We own significant operations in Canada, France and the United Kingdom. To the extent that sales are transacted in a foreign currency, we are subject to foreign currency fluctuation risk. Furthermore, we have assets denominated in foreign currencies that are not offset by liabilities in such foreign currencies. At October 31, 2008, we had the following monetary assets subject to foreign currency fluctuation risk: Cash denominated in U.K. pounds; U.S. dollar-denominated backlog with customers whose functional currency is other than the U.S. dollar; U.S. dollar-denominated accounts receivable and payable; and certain forward contracts, which are not accounted for as a cash flow hedge. The foreign exchange rate for the dollar relative to the euro increased to .785 at October 31, 2008, from .695 at October 26, 2007; the dollar relative to the U.K. pound increased to .621 from .487; and the dollar relative to the Canadian dollar increased to 1.21 from ..962. During fiscal 2008 we recorded $5.1 million in foreign currency transaction gains and $1.6 million in foreign currency transaction losses in fiscal 2007. Foreign currency transaction gains or losses were not material in fiscal 2006. Including cash proceeds denominated in U.K. pounds from the sale of Muirhead/Traxsys on November 3, 2008, a 5% increase or decrease in the euro, Canadian dollar and U.K. pound relative to the U.S. dollar from October 31, 2008, would result in an unrealized gain or loss of approximately $2.2 million on our monetary assets.

Our policy is to hedge a portion of our forecasted transactions using forward exchange contracts with maturities up to fifteen months. The Company does not enter into any forward contracts for trading purposes. At October 31, 2008 and October 26, 2007, the notional value of foreign currency forward contracts was $313.4 million and $72.9 million, respectively. The fair value of these contracts was a $24.1 million liability and a $2.9 million asset at October 31, 2008 and October 26, 2007, respectively. If the U.S. dollar increased or decreased by a hypothetical 5%, the effect on the fair value of the foreign currency contracts would be $14.1 million.

The following tables provide information about our derivative financial instruments, including foreign currency forward exchange agreements and certain firmly committed sales transactions denominated in currencies other than the functional currency at October 31, 2008 and October 26, 2007. The information about certain firmly committed sales contracts and derivative financial instruments is in U.S. dollar equivalents. For forward foreign currency exchange agreements, the following tables present the notional amounts at the current exchange rate and weighted-average contractual foreign currency exchange rates by contractual maturity dates.

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Firmly Committed Sales Contracts

Operations with Foreign Functional Currency

At October 31, 2008

Principal Amount by Expected Maturity

In Thousands	Firmly Committed Sales Contracts in United States Dollar
Fiscal Years		Canadian Dollar	Euro	U.K. Pound
2009		$      179,233	$        64,749	$        35,036
2010		61,688	7,759	5,628
2011		51,349	126	—
2012		8,083	—	108
2013		23,729	—	464
Total		$      324,082	$        72,634	$        41,236

Derivative Contracts

Operations with Foreign Functional Currency

At October 31, 2008

Notional Amount by Expected Maturity

Average Foreign Currency Exchange Rate (USD/Foreign Currency) ⁽¹⁾

Related Forward Contracts to Sell U.S. Dollar for Euro

Dollars in Thousands, Except for Average Contract Rate	United States Dollar
Fiscal Years		Notional Amount		Avg. Contract Rate
2009	$	40,855		1.4545
2010		3,760		1.4044
Total	$	44,615
Fair Value at 10/31/2008	$	(5,324	)

¹ The Company has no derivative contracts maturing after fiscal 2010.

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Derivative Contracts

Operations with Foreign Functional Currency

At October 31, 2008

Notional Amount by Expected Maturity

Average Foreign Currency Exchange Rate (USD/Foreign Currency) ⁽¹⁾

Related Forward Contracts to Sell U.S. Dollar for U.K. Pound

Dollars in Thousands, Except for Average Contract Rate	United States Dollar
Fiscal Years		Notional Amount		Avg. Contract Rate
2009	$	43,321		1.8763
2010		11,990		1.7363
Total	$	55,311
Fair Value at 10/31/2008	$	(6,630	)

¹ The Company has no derivative contracts maturing after fiscal 2010.

Derivative Contracts

Operations with Foreign Functional Currency

At October 31, 2008

Notional Amount by Expected Maturity

Average Foreign Currency Exchange Rate (USD/Foreign Currency) ⁽¹⁾

Related Forward Contracts to Sell U.S. Dollar for Canadian Dollar

Dollars in Thousands, Except for Average Contract Rate	United States Dollar
Fiscal Years	Notional Amount			Avg. Contract Rate
2009	$	122,546		.9045
2010		90,889		.8589
Total	$	213,435
Fair Value at 10/31/2008	$	(12,117	)

¹ The Company has no derivative contracts maturing after fiscal 2010.

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Firmly Committed Sales Contracts

Operations with Foreign Functional Currency

At October 26, 2007

Principal Amount by Expected Maturity

In Thousands	Firmly Committed Sales Contracts in United States Dollar
Fiscal Years		Canadian Dollar		Euro		U.K. Pound
2008	$	101,632	$	56,704	$	55,867
2009		15,082		7,553		5,838
2010		3,228		194		77
2011		18,420		—		54
2012		37,011		—		7
Total	$	175,373	$	64,451	$	61,843

Derivative Contracts

Operations with Foreign Functional Currency

At October 26, 2007

Notional Amount by Expected Maturity

Average Foreign Currency Exchange Rate (USD/Foreign Currency) ⁽¹⁾

Related Forward Contracts to Sell U.S. Dollar for Euro

Dollars in Thousands, Except for Average Contract Rate	United States Dollar
Fiscal Years		Notional Amount	Avg. Contract Rate
2008	$	32,780	1.349
2009		5,290	1.414
Total	$	38,070
Fair Value at 10/26/2007	$	2,210

¹ The Company has no derivative contracts maturing after fiscal 2009.

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Derivative Contracts

Operations with Foreign Functional Currency

At October 26, 2007

Notional Amount by Expected Maturity

Average Foreign Currency Exchange Rate (USD/Foreign Currency) ⁽¹⁾

Related Forward Contracts to Sell U.S. Dollar for U.K. Pound

Dollars in Thousands, Except for Average Contract Rate	United States Dollar
Fiscal Years		Notional Amount	Avg. Contract Rate
2008	$	28,295	1.980
2009		6,555	2.011
Total	$	34,850
Fair Value at 10/26/2007	$	716

¹ The Company has no derivative contracts maturing after fiscal 2009.

As more fully described under Note 10 of the Consolidated Financial Statements under Item 8 of this report, on February 10, 2006, we borrowed U.K. £57.0 million, or approximately $100.0 million, under our term loan facility. We designated the U.K. £57.0 million loan as a hedge of the investment in a certain U.K. business unit. We have repaid £35.3 million of the loan. The foreign currency gain or loss that is effective as a hedge is reported as a component of Other Comprehensive Income in shareholders’ equity. A 10% increase or decrease in the U.K. pound would increase or decrease Other Comprehensive Income by $3.0 million, net of tax.

Critical Accounting Policies

Our financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results may differ from estimates under different assumptions or conditions. These estimates and assumptions are affected by our application of accounting policies. Our critical accounting policies include revenue recognition, accounting for the allowance for doubtful accounts receivable, accounting for inventories at the lower of cost or market, accounting for goodwill and intangible assets in business combinations, impairment of goodwill and intangible assets, accounting for legal contingencies, accounting for pension benefits, and accounting for income taxes.

Revenue Recognition

We recognize revenue when the title and risk of loss have passed to the customer, there is persuasive evidence of an agreement, delivery has occurred or services have been rendered, the price is determinable, and the collectibility is reasonably assured. We recognize product revenues at the point of shipment or delivery in accordance with the terms of sale. Sales are net of returns and allowances. Returns and allowances are not significant because products are manufactured to customer specification and are covered by the terms of the product warranty.

Revenues and profits on fixed-price contracts with significant engineering as well as production requirements are recorded based on the achievement of contractual milestones and the ratio of total

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actual incurred costs to date to total estimated costs for each contract (cost-to-cost method) in accordance with the American Institute of Certified Public Accountants Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” We review cost performance and estimates to complete on our ongoing contracts at least quarterly. The impact of revisions of profit estimates are recognized on a cumulative catch-up basis in the period in which the revisions are made. Provisions for anticipated losses on contracts are recorded in the period they become evident. Amounts representing contract change orders are included in revenue only when they can be reliably estimated and realization is probable, and are determined on a percentage-of-completion basis measured by the cost-to-cost method. Claims are included in revenue only when they are probable of collection.

Allowance for Doubtful Accounts

We establish an allowance for doubtful accounts for losses expected to be incurred on accounts receivable balances. Judgment is required in estimation of the allowance and is based upon specific identification, collection history and creditworthiness of the debtor.

Inventories

We account for inventories on a first-in, first-out or average cost method of accounting at the lower of its cost or market. The determination of market requires judgment in estimating future demand, selling prices and cost of disposal. Judgment is required when determining inventory reserves. These reserves are provided when inventory is considered to be excess or obsolete based upon an analysis of actual on-hand quantities on a part level basis to forecasted product demand and historical usage. Inventory reserves are released based upon adjustments to forecasted demand.

Goodwill and Intangible Assets in Business Combinations

We account for business combinations, goodwill and intangible assets in accordance with Financial Accounting Standards No. 141, “Business Combinations,” (Statement No. 141) and Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (Statement No. 142). Statement No. 141 specifies the types of acquired intangible assets that are required to be recognized and reported separately from goodwill.

Impairment of Goodwill and Intangible Assets

Statement No. 142 requires goodwill and indefinite-lived intangible assets to be tested for impairment at least annually. We are also required to test goodwill for impairment between annual tests if events occur or circumstances change that would more likely than not reduce our enterprise fair value below its book value. These events or circumstances could include a significant change in the business climate, including a significant sustained decline in an entity’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business, or other factors.

The valuation of reporting units requires judgment in estimating future cash flows, discount rates and estimated product life cycles. In making these judgments, we evaluate the financial health of the business, including such factors as industry performance, changes in technology and operating cash flows.

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Statement No. 142 outlines a two-step process for testing goodwill for impairment. The first step (Step One) of the goodwill impairment test involves estimating the fair value of a reporting unit. Statement No. 142 defines fair value (Fair Value) as “the amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced liquidation sale.” A reporting unit is generally defined at the operating segment level or at the component level one level below the operating segment, if said component constitutes a business. The Fair Value of a reporting unit is then compared to its carrying value, which is defined as the book basis of total assets less total liabilities. In the event a reporting unit’s carrying value exceeds its estimated Fair Value, evidence of potential impairment exists. In such a case, the second step (Step Two) of the impairment test is required, which involves allocating the Fair Value of the reporting unit to all of the assets and liabilities of that unit, with the excess of Fair Value over allocated net assets representing the Fair Value of goodwill. An impairment loss is measured as the amount by which the carrying value of the reporting unit’s goodwill exceeds the estimated Fair Value of goodwill.

As we have grown through acquisitions, we have accumulated $576.9 million of goodwill and $50.1 million of indefinite-lived intangible assets out of total assets of $1.9 billion at October 31, 2008. The amount of any annual or interim impairment could be significant and could have a material adverse effect on our reported financial results for the period in which the charge is taken. We performed our impairment review for fiscal 2008 as of August 1, 2008, and our Step One analysis indicates that no impairment of goodwill or other indefinite-lived assets exists at any of our reporting units. Our CMC reporting unit’s margin in passing the Step One analysis was not as large as our other reporting units. CMC’s operating performance has been impacted by the effect of the weakening U.S. dollar relative to the Canadian dollar for most of the period we have owned the business. In addition, operating results have been impacted by higher than expected costs related to certain long-term development contracts, including the T-6B. During the fourth quarter of fiscal 2008, the U.S. dollar has strengthened against the Canadian dollar and if this relationship continues, CMC’s results of operations will be favorably impacted. We expect that the T-6B development will be successful and that CMC’s operations will continue to improve due to recent contract wins, operational productivity improvements and a continued stronger U.S. dollar relative to the Canadian dollar. It is possible, however, that as a result of events or circumstances, we could conclude at a later date that goodwill of $203.3 million at CMC may be considered impaired. We also may be required to record an earnings charge or incur unanticipated expenses if, due to a change in strategy or other reason, we determined the value of other assets has been impaired. These other assets include net deferred income tax assets of $9.4 million, trade names of $22.6 million and intangible assets of $72.1 million.

Impairment of Long-lived Assets

We account for the impairment of long-lived assets to be held and used in accordance with Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” (Statement No. 144). Statement No. 144 requires that a long-lived asset to be disposed of be reported at the lower of its carrying amount or fair value less cost to sell. An asset (other than goodwill and indefinite-lived intangible assets) is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is not deemed recoverable, the asset is adjusted to its estimated fair value. Fair value is generally determined based upon estimated discounted future cash flows. As we have grown through acquisitions, we have accumulated $290.4 million of definite-lived intangible assets. The amount of any annual or interim impairment could be significant and could have a material adverse effect on our reported financial results for the period in which the charge is taken.

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Contingencies

We are party to various lawsuits and claims, both as plaintiff and defendant, and have contingent liabilities arising from the conduct of business. We are covered by insurance for general liability, product liability, workers’ compensation and certain environmental exposures, subject to certain deductible limits. We are self-insured for amounts less than our deductible and where no insurance is available. Financial Accounting Standards No. 5, “Accounting for Contingencies,” requires that an estimated loss from a contingency should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred. We evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss.

Pension and Other Post-Retirement Benefits

We account for employee pension and post-retirement benefit costs in accordance with the applicable statements issued by the Financial Accounting Standards Board. In accordance with these statements, we select appropriate assumptions including discount rate, rate of increase in future compensation levels and assumed long-term rate of return on plan assets and expected annual increases in costs of medical and other health care benefits in regard to our post-retirement benefit obligations. Our assumptions are based upon historical results, the current economic environment and reasonable expectations of future events. Actual results which vary from our assumptions are accumulated and amortized over future periods and, accordingly, are recognized in expense in these periods. Significant differences between our assumptions and actual experience or significant changes in assumptions could impact the pension costs and the pension obligation.

Income Taxes

We account for income taxes in accordance with Financial Accounting Standards No. 109, “Accounting for Income Taxes,” and account for reserves for income taxes in accordance with FIN 48. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variations in the actual outcome of these future tax consequences could materially impact our financial position and results of operations.

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Recent Accounting Pronouncements

In May 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 162, “The Hierarchy of Generally Accepted Accounting Principles (GAAP),” (Statement No. 162). The purpose of the new standard is to provide a consistent framework for determining what accounting principles should be used when preparing U.S. GAAP financial statements. The new standard is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The adoption of Statement No. 162 is not expected to have a material effect on the Company’s financial statements.

In March 2008, the Financial Accounting Standards Board issued Financial Accounting Standard No. 161, “Disclosure About Derivative Instruments and Hedging Activities, an amendment to Financial Accounting Standards Board Financial Accounting Standard No. 133,” (Statement No. 161). Statement No. 161 requires among other things, enhanced disclosure about the volume and nature of derivative and hedging activities and a tabular summary showing the fair value of derivative instruments included in the statement of financial position and statement of operations. Statement No. 161 also requires expanded disclosure of contingencies included in derivative instruments related to credit risk. Statement No. 161 is effective for fiscal 2009. The Company is currently evaluating the impact of Statement No. 161 on the Company’s financial statements.

On December 4, 2007, the Financial Accounting Standards Board issued Financial Accounting Standard No. 141(R), “Business Combinations,” (Statement No. 141(R)) and Statement No. 160, “Accounting and Reporting of Non-controlling Interest in Consolidated Financial Statements, an amendment of ARB No. 51,” (Statement No. 160). These new standards will significantly change the accounting for and reporting of business combination transactions and non-controlling (minority) interests in consolidated financial statements. Statement No. 141(R) and Statement No. 160 are required to be adopted simultaneously and are effective for fiscal 2010.

The significant changes in the accounting for business combination transactions under Statement No. 141(R) include:

• Recognition, with certain exceptions, of 100% of the fair values of assets acquired, liabilities assumed, and non-controlling interests of acquired businesses.

• Measurement of all acquirer shares issued in consideration for a business combination at fair value on the acquisition date. With the effectiveness of Statement No. 141(R), the “agreement and announcement date” measurement principles in EITF Issue 99-12 will be nullified.

• Recognition of contingent consideration arrangements at their acquisition-date fair values, with subsequent changes in fair value generally reflected in earnings.

• With the one exception described in the last sentence of this section, recognition of pre-acquisition gain and loss contingencies at their acquisition-date fair values. Subsequent accounting for pre-acquisition loss contingencies is based on the greater of acquisition-date fair value or the amount calculated pursuant to FASB Statement No. 5, “Accounting for Contingencies,” (Statement No. 5). Subsequent accounting for pre-acquisition gain contingencies is based on the lesser of acquisition-date fair value or the best estimate of

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the future settlement amount. Adjustments after the acquisition date are made only upon the receipt of new information on the possible outcome of the contingency, and changes to the measurement of pre-acquisition contingencies are recognized in ongoing results of operations. Absent new information, no adjustments to the acquisition-date fair value are made until the contingency is resolved. Pre-acquisition contingencies that are both (1) non-contractual and (2) as of the acquisition date are “not more likely than not” of materializing are not recognized in acquisition accounting and, instead, are accounted for based on the guidance in Statement No. 5, “Accounting for Contingencies.”

• Capitalization of in-process research and development (IPR&D) assets acquired at acquisition date fair value. After acquisition, apply the indefinite-lived impairment model (lower of basis or fair value) through the development period to capitalized IPR&D without amortization. Charge development costs incurred after acquisition to results of operations. Upon completion of a successful development project, assign an estimated useful life to the amount then capitalized, amortize over that life, and consider the asset a definite-lived asset for impairment accounting purposes.

• Recognition of acquisition-related transaction costs as expense when incurred.

• Recognition of acquisition-related restructuring cost accruals in acquisition accounting only if the criteria in Statement No. 146 are met as of the acquisition date. With the effectiveness of Statement No. 141(R), the EITF Issue 95-3 concepts of “assessing, formulating, finalizing and committing/communicating” that currently pertain to recognition in purchase accounting of an acquisition-related restructuring plan will be nullified.

• Recognition of changes in the acquirer’s income tax valuation allowance resulting from the business combination separately from the business combination as adjustments to income tax expense. Also, changes after the acquisition date in an acquired entity’s valuation allowance or tax uncertainty established at the acquisition date are accounted for as adjustments to income tax expense.

The Company is currently evaluating the impact of Statement No. 141(R) and Statement No. 160 on our financial statements.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements,” (Statement No. 157). Statement No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Statement No. 157 applies under other accounting pronouncements that require or permit fair value measurements. Statement No. 157 indicates, among other things, that a fair value measurement assumes the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Statement No. 157 is effective for the Company’s year ending October 29, 2010, for all non-financial assets and liabilities. For those items that are recognized or disclosed at fair value in the financial statements, the effective date is October 30, 2009. The Company is currently evaluating the impact of Statement No. 157 on the Company’s financial statements.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We hereby incorporate by reference the information set forth under the section “Disclosures About Market Risk” under Item 7.

Item 8. Financial Statements and Supplementary Data

Consolidated Statement of Operations

In Thousands, Except Per Share Amounts

For Each of the Three Fiscal Years in the Period Ended October 31, 2008		2008			2007			2006
Net Sales	$	1,483,172		$	1,207,033		$	920,447
Cost of Sales		992,853			833,973			633,427
		490,319			373,060			287,020
Expenses
Selling, general and administrative		239,282			199,826			152,068
Research, development and engineering		86,798			66,891			49,077
Total Expenses		326,080			266,717			201,145
Other
Other (income) expense		86			24			(490	)
Insurance recovery		—			(37,467	)		(4,890	)
Total Other		86			(37,443	)		(5,380	)
Operating Earnings From
Continuing Operations		164,153			143,786			91,255
Interest income		(4,374	)		(3,093	)		(2,575	)
Interest expense		29,922			35,299			21,288
Gain on derivative financial instrument		(1,850	)		—			—
Loss on extinguishment of debt		—			1,100			2,156
Other Expense, Net		23,698			33,306			20,869
Income From Continuing Operations
Before Income Taxes		140,455			110,480			70,386
Income Tax Expense		26,563			22,565			15,910
Income From Continuing Operations
Before Minority Interest		113,892			87,915			54,476
Minority Interest		(383	)		(153	)		(865	)
Income From Continuing Operations		113,509			87,762			53,611
Income From Discontinued
Operations, Net of Tax		7,024			4,522			2,004
Net Earnings	$	120,533		$	92,284		$	55,615

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Consolidated Statement of Operations

In Thousands, Except Per Share Amounts

For Each of the Three Fiscal Years in the Period Ended October 31, 2008		2008		2007		2006
Earnings Per Share – Basic:
Continuing operations	$	3.85	$	3.40	$	2.11
Discontinued operations		0.23		0.17		0.08
Earnings Per Share – Basic	$	4.08	$	3.57	$	2.19
Earnings Per Share – Diluted:
Continuing operations	$	3.80	$	3.34	$	2.08
Discontinued operations		0.23		0.18		0.07
Earnings Per Share – Diluted	$	4.03	$	3.52	$	2.15

See Notes to Consolidated Financial Statements.

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Consolidated Balance Sheet

In Thousands, Except Share and Per Share Amounts

As of October 31, 2008 and October 26, 2007		2008		2007
Assets
Current Assets
Cash and cash equivalents	$	160,645	$	147,069
Accounts receivable, net of allowances     of $5,191 and $5,378		297,506		262,087
Inventories		261,973		258,176
Income tax refundable		5,567		11,580
Deferred income tax benefits		37,702		36,977
Prepaid expenses		13,040		13,256
Other current assets		897		—
Total Current Assets		777,330		729,145
Property, Plant and Equipment
Land		22,340		23,986
Buildings		123,542		127,018
Machinery and equipment		284,942		267,784
		430,824		418,788
Accumulated depreciation		226,362		201,367
		204,462		217,421
Other Non-Current Assets
Goodwill		576,861		656,865
Intangibles, net		290,440		365,317
Debt issuance costs, net of accumulated     amortization of $6,132 and $4,618		7,587		9,192
Deferred income tax benefits		55,821		33,276
Other assets		9,601		27,843
Total Assets	$	1,922,102	$	2,039,059

See Notes to Consolidated Financial Statements.

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As of October 31, 2008 and October 26, 2007	2008			2007
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	89,807		$	90,257
Accrued liabilities		210,422			187,596
Credit facilities		5,171			8,634
Current maturities of long-term debt		8,388			12,166
Deferred income tax liabilities		2,889			1,573
Federal and foreign income taxes		4,442			11,247
Total Current Liabilities		321,119			311,473
Long-Term Liabilities
Long-term debt, net of current maturities		388,248			455,002
Deferred income taxes		97,830			110,938
Pension and post-retirement obligations		85,767			36,852
Commitments and Contingencies
Minority Interest		2,797			2,968
Shareholders’ Equity
Common stock, par value $.20 per share, authorized 60,000,000 shares, issued and outstanding 29,636,481 and 29,364,269 shares		5,927			5,873
Additional paid-in capital		493,972			475,816
Retained earnings		613,063			493,269
Accumulated other comprehensive income (loss)		(86,621	)		146,868
Total Shareholders’ Equity		1,026,341			1,121,826
Total Liabilities and Shareholders’ Equity	$	1,922,102		$	2,039,059

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Cash Flows

In Thousands

For Each of the Three Fiscal Years in the Period Ended October 31, 2008		2008			2007			2006
Cash Flows Provided (Used)     by Operating Activities
Net earnings	$	120,533		$	92,284		$	55,615
Minority interest		383			153			865
Depreciation and amortization		66,299			55,820			42,833
Deferred income tax		(22,906	)		(15,432	)		(1,623	)
Share-based compensation		8,711			6,902			5,430
Gain on sale of short-term investments		—			—			(610	)
Working capital changes, net of     effect of acquisitions
Accounts receivable		(54,602	)		(8,021	)		(16,511	)
Inventories		(28,424	)		(12,072	)		(39,241	)
Prepaid expenses		(1,624	)		(929	)		(1,305	)
Other current assets		(1,058	)		—			—
Accounts payable		12,784			7,520			8,106
Accrued liabilities		18,724			(3,434	)		(646	)
Federal and foreign income taxes		(3,362	)		4,713			(12,530	)
Other liabilities		(151	)		(3,874	)		(1,677	)
Other, net		3,586			(1,906	)		(2,030	)
		118,893			121,724			36,676
Cash Flows Provided (Used)     by Investing Activities
Purchases of capital assets		(40,665	)		(30,467	)		(27,053	)
Proceeds from sale of capital assets		1,101			3,075			1,156
Proceeds from sale of short-term investments		—			—			63,266
Acquisitions of businesses,     net of cash acquired		9,425			(354,948	)		(190,344	)
		(30,139	)		(382,340	)		(152,975	)

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For Each of the Three Fiscal Years in the Period Ended October 31, 2008		2008			2007			2006
Cash Flows Provided (Used)     by Financing Activities
Proceeds provided by stock issuance     under employee stock plans		7,516			9,742			4,038
Excess tax benefits from stock option exercise		1,983			2,728			545
Proceeds provided by sale of common stock		—			187,145			—
Net change in credit facilities		(2,191	)		144			5,905
Repayment of long-term debt		(70,032	)		(105,673	)		(71,372	)
Proceeds from issuance of long-term debt		—			275,000			100,000
Dividends paid to minority interest		(554	)		(763	)		—
Debt and other issuance costs		—			(6,409	)		—
		(63,278	)		361,914			39,116
Effect of foreign exchange rates on cash		(11,900	)		3,133			1,517
Net increase (decrease) in     cash and cash equivalents		13,576			104,431			(75,666	)
Cash and cash equivalents – beginning of year		147,069			42,638			118,304
Cash and cash equivalents – end of year	$	160,645		$	147,069		$	42,638
Supplemental Cash Flow Information
Cash paid for interest	$	29,119		$	32,091		$	21,548
Cash paid for taxes		47,359			28,140			23,710

See Notes to Consolidated Financial Statements.

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Consolidated Statement of Shareholders’

Equity and Comprehensive Income (Loss)

In Thousands, Except Per Share Amounts

For Each of the Three Fiscal Years in the Period Ended October 31, 2008		2008			2007		2006
Common Stock, Par Value $.20 Per Share
Beginning of year	$	5,873		$	5,098	$	5,064
Shares issued under stock option plans		54			85		34
Shares issued under equity offering		—			690		—
End of year		5,927			5,873		5,098
Additional Paid-in Capital
Beginning of year		475,816			270,074		260,095
Shares issued under stock option plans		9,445			12,385		4,549
Shares issued under equity offering		—			186,455		—
Share-based compensation expense		8,711			6,902		5,430
End of year		493,972			475,816		270,074
Retained Earnings
Beginning of year		493,269			400,985		345,370
Net earnings		120,533			92,284		55,615
Cumulative effect of adoption of FIN 48		(739	)		—		—
End of year		613,063			493,269		400,985
Accumulated Other Comprehensive Income (Loss)
Beginning of year		146,868			31,832		10,335
Adjustment for adoption of FAS 158, net of tax expense of $334		—			1,172		—
Change in fair value of derivative financial instruments, net of tax (expense) benefit of $7,881, $(860), and $(574)		(15,607	)		1,501		2,089
Adjustment for minimum pension liability, net of tax (expense) benefit of $17,491, $(461) and $1,362		(33,635	)		938		(2,346	)
Foreign currency translation adjustment		(184,247	)		111,425		21,754
End of year		(86,621	)		146,868		31,832
Total Shareholders’ Equity	$	1,026,341		$	1,121,826	$	707,989

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Consolidated Statement of Shareholders’

Equity and Comprehensive Income (Loss)

In Thousands, Except Per Share Amounts

For Each of the Three Fiscal Years
in the Period Ended October 31, 2008		2008			2007		2006
Comprehensive Income (Loss)
Net earnings	$	120,533		$	92,284	$	55,615
Change in fair value of derivative     financial instruments, net of tax		(15,607	)		1,501		2,089
Adjustment for minimum pension     liability, net of tax		(33,635	)		938		(2,346	)
Foreign currency translation adjustment		(184,247	)		111,425		21,754
Comprehensive Income (Loss)	$	(112,956	)	$	206,148	$	77,112

See Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements

NOTE 1: Accounting Policies

Nature of Operations

Esterline Technologies Corporation (the Company) designs, manufactures and markets highly engineered products. The Company serves the aerospace and defense industry, primarily in the United States and Europe. The Company also serves the industrial/commercial and medical markets.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company and all subsidiaries. All significant intercompany accounts and transactions have been eliminated. Classifications have been changed for certain amounts in prior periods to conform with the current year’s presentation. The Company’s fiscal year ends on the last Friday of October. The fiscal year ended October 31, 2008 contained 53 weeks, while the prior-year period contained 52 weeks.

Management Estimates

To prepare financial statements in conformity with U.S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Concentration of Risks

The Company’s products are principally focused on the aerospace and defense industry, which includes military and commercial aircraft original equipment manufacturers and their suppliers, commercial airlines, and the United States and foreign governments. Accordingly, the Company’s current and future financial performance is dependent on the economic condition of the aerospace and defense industry. The commercial aerospace market has historically been subject to cyclical downturns during periods of weak economic conditions or material changes arising from domestic or international events. Management believes that the Company’s sales are fairly well balanced across its customer base, which includes not only aerospace and defense customers but also medical and industrial commercial customers. However, material changes in the economic conditions of the aerospace industry could have a material effect on the Company’s results of operations, financial position or cash flows.

Revenue Recognition

The Company recognizes revenue when the title and risk of loss have passed to the customer, there is persuasive evidence of an agreement, delivery has occurred or services have been rendered, the price is determinable, and the collectibility is reasonably assured. The Company recognizes product revenues at the point of shipment or delivery in accordance with the terms of sale. Sales are net of returns and allowances. Returns and allowances are not significant because products are manufactured to customer specification and are covered by the terms of the product warranty.

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Revenues and profits on fixed-price contracts with significant engineering as well as production requirements are recorded based on the achievement of contractual milestones and the ratio of total actual incurred costs to date to total estimated costs for each contract (cost-to-cost method) in accordance with the American Institute of Certified Public Accountants Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Types of milestones include design review and prototype completion. The Company reviews cost performance and estimates to complete on its ongoing contracts at least quarterly. The impact of revisions of profit estimates are recognized on a cumulative catch-up basis in the period in which the revisions are made. Provisions for anticipated losses on contracts are recorded in the period they become evident. Amounts representing contract change orders are included in revenue only when they can be reliably estimated and realization is probable, and are determined on a percentage-of-completion basis measured by the cost-to-cost method. Claims are included in revenue only when they are probable of collection.

Research and Development

Expenditures for internally-funded research and development are expensed as incurred. Customer-funded research and development projects performed under contracts are accounted for as work in process as work is performed and recognized as cost of sales and sales when contract milestones are achieved. Research and development expenditures are net of government assistance and tax subsidies, which are not contingent upon paying income tax.

Financial Instruments

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings, long-term debt, foreign currency forward contracts, and interest rate swap agreements. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate their respective fair values because of the short-term maturities or expected settlement dates of these instruments. The fair market value of the Company’s long-term debt and short-term borrowings was estimated at $393.0 million and $469.5 million at fiscal year end 2008 and 2007, respectively. These estimates were derived using discounted cash flows with interest rates currently available to the Company for issuance of debt with similar terms and remaining maturities.

Foreign Currency Exchange Risk Management

The Company is subject to risks associated with fluctuations in foreign currency exchange rates from the sale of products in currencies other than its functional currency. Furthermore, the Company has assets denominated in foreign currencies that are not offset by liabilities in such foreign currencies. We own significant operations in Canada, France, Germany and the United Kingdom and, accordingly, we may experience gains or losses due to foreign exchange fluctuations.

The Company’s policy is to hedge a portion of its forecasted transactions using forward exchange contracts, with maturities up to fifteen months. These forward contracts have been designated as cash flow hedges. The portion of the net gain or loss on a derivative instrument that is effective as a hedge is reported as a component of other comprehensive income in shareholders’ equity and is reclassified into earnings in the same period during which the hedged transaction affects earnings. The remaining net gain or loss on the derivative in excess of the present value of the expected cash flows of the hedged transaction is recorded in earnings immediately. If a derivative does not qualify for hedge accounting, or a portion of the hedge is deemed ineffective, the change in fair

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value is recorded in earnings. The amount of hedge ineffectiveness has not been material in any of the three fiscal years in the period ended October 31, 2008. At October 31, 2008 and October 26, 2007, the notional value of foreign currency forward contracts accounted for as a cash flow hedge was $273.0 million and $54.2 million, respectively. The fair value of these contracts was a $19.3 million liability and a $2.6 million asset at October 31, 2008 and October 26, 2007, respectively. The Company does not enter into any forward contracts for trading purposes.

In February 2006, the Company entered into a term loan for U.K. £57.0 million. The Company designated the term loan as a hedge of the investment in a certain U.K. business unit. The foreign currency gain or loss that is effective as a hedge is reported as a component of other comprehensive income in shareholders’ equity. The amount of foreign currency translation included in Other Comprehensive Income was a gain of $6.1 million and a loss of $5.6 million net of taxes at October 31, 2008 and October 26, 2007, respectively. To the extent that this hedge is ineffective, the foreign currency gain or loss is recorded in earnings. There was no ineffectiveness in 2008.

Interest Rate Risk Management

Depending on the interest rate environment, the Company may enter into interest rate swap agreements to convert the fixed interest rates on notes payable to variable interest rates or terminate any swap agreements in place. These interest rate swap agreements have been designated as fair value hedges. Accordingly, gain or loss on swap agreements as well as the offsetting loss or gain on the hedged portion of notes payable are recognized in interest expense during the period of the change in fair values. The Company attempts to manage exposure to counterparty credit risk by only entering into agreements with major financial institutions which are expected to be able to fully perform under the terms of the agreement. In September 2003, the Company entered into an interest rate swap agreement on $75.0 million of its Senior Subordinated Notes due in 2013. The swap agreement exchanged the fixed interest rate for a variable interest rate on $75.0 million of the $175.0 million principal amount outstanding. The fair market value of the Company’s interest rate swap was an asset of $1.6 million and $0.3 million at October 31, 2008 and October 26, 2007, respectively.

Depending on the interest rate environment, the Company may enter into interest rate swap agreements to convert the variable interest rates on notes payable to fixed interest rates. These swap agreements are accounted for as cash flow hedges and the fair market value of the hedge instrument is included in Other Comprehensive Income. In February 2006, the Company entered into an interest rate swap agreement on the full principal amount of its U.K. £57.0 million term loan facility. The swap agreement exchanged the variable interest rate for a fixed interest rate of 4.75% plus an additional margin amount determined by reference to the Company’s leverage ratio. The fair value of the interest rate swap was an asset of $2.1 million at October 26, 2007. The swap was terminated in 2007 for a gain of $1.9 million.

The fair market value of the interest rate swaps was estimated by discounting expected cash flows using quoted market interest rates.

Foreign Currency Translation

Foreign currency assets and liabilities are translated into their U.S. dollar equivalents based on year end exchange rates. Revenue and expense accounts are translated at average exchange rates. Aggregate exchange gains and losses arising from the translation of foreign assets and liabilities are included in shareholders’ equity as a component of comprehensive income. Accumulated gain or (loss) on

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foreign currency translation adjustment was $(39.2) million, $145.1 million and $33.7 million as of the fiscal years ended October 31, 2008, October 26, 2007 and October 27, 2006, respectively.

Foreign Currency Transaction Gains and Losses

Foreign currency transaction gains and losses are included in results of operations. These foreign currency transactions resulted in a $5.1 million gain in fiscal 2008 and a $1.6 million loss in fiscal 2007. Foreign currency transaction gains and losses were not material in fiscal 2006.

Including cash proceeds denominated in U.K. pounds from the sale of Muirhead/Traxsys on November 3, 2008, a 5% increase or decrease in the exchange rate for the euro, U.K. pound and Canadian dollar relative to the U.S. dollar from October 31, 2008, would result in an unrealized gain or loss of approximately $2.2 million on our monetary assets.

Cash Equivalents and Cash in Escrow

Cash equivalents consist of highly liquid investments with maturities of three months or less at the date of purchase. Fair value of cash equivalents approximates carrying value. Cash in escrow represents amounts held in escrow pending finalization of a purchase transaction. Cash equivalents included $10.0 million in cash under a letter of credit facility at October 31, 2008 and October 26, 2007.

Accounts Receivable

Accounts receivable are recorded at the net invoice price for sales billed to customers. Accounts receivable are considered past due when outstanding more than normal trade terms allow. An allowance for doubtful accounts is established when losses are expected to be incurred. Accounts receivable are written off to the allowance for doubtful accounts when the balance is considered to be uncollectible.

Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) or average cost method. Inventory cost includes material, labor and factory overhead. The Company defers pre-production engineering costs as work-in-process inventory in connection with long-term supply arrangements that include contractual guarantees for reimbursement from the customer. Inventory reserves are provided when inventory is considered to be excess or obsolete based upon an analysis of actual on-hand quantities on a part level basis to forecasted product demand and historical usage. Inventory reserves are released based upon adjustments to forecasted demand.

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Property, Plant and Equipment, and Depreciation

Property, plant and equipment is carried at cost and includes expenditures for major improvements. Depreciation is generally provided on the straight-line method based upon estimated useful lives ranging from 15 to 30 years for buildings, and 3 to 10 years for machinery and equipment. Depreciation expense was $41,095,000, $34,273,000 and $26,757,000 for fiscal years 2008, 2007 and 2006, respectively. The fair value of liabilities related to the retirement of property is recorded when there is a legal or contractual obligation to incur asset retirement costs and the costs can be estimated. The Company records the asset retirement cost by increasing the carrying cost of the underlying property by the amount of the asset retirement obligation. The asset retirement cost is depreciated over the estimated useful life of the underlying property.

Debt Issuance Costs

Costs incurred to issue debt are deferred and amortized as interest expense over the term of the related debt using a method that approximates the effective interest method.

Long-lived Assets

The carrying amount of long-lived assets is reviewed periodically for impairment. An asset (other than goodwill and indefinite-lived intangible assets) is considered impaired when estimated future cash flows are less than the carrying amount of the asset. In the event the carrying amount of such asset is not deemed recoverable, the asset is adjusted to its estimated fair value. Fair value is generally determined based upon estimated discounted future cash flows.

Goodwill and Intangibles

Goodwill is not amortized under Statement No. 142, but is tested for impairment at least annually. A reporting unit is generally defined at the operating segment level or at the component level one level below the operating segment, if said component constitutes a business. Goodwill and intangible assets are allocated to reporting units based upon the purchase price of the acquired unit, the valuation of acquired tangible and intangible assets, and liabilities assumed. When a reporting unit’s carrying value exceeds its estimated fair value, an impairment test is required. This test involves allocating the fair value of the reporting unit to all of the assets and liabilities of that unit, with the excess of fair value over allocated net assets representing the fair value of goodwill. An impairment loss is measured as the amount by which the carrying value of goodwill exceeds the estimated fair value of goodwill.

Intangible assets are amortized using the straight-line method over their estimated period of benefit, ranging from 2 to 20 years. The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or that indicate that an impairment exists.

Indefinite-lived intangible assets (other than goodwill) are tested annually for impairment or more frequently on an interim basis if circumstances require. This test is comparable to the impairment test for goodwill described above.

Environmental

Environmental exposures are provided for at the time they are known to exist or are considered probable and reasonably estimable. No provision has been recorded for environmental remediation

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costs which could result from changes in laws or other circumstances currently not contemplated by the Company. Costs provided for future expenditures on environmental remediation are not discounted to present value.

Pension Plan and Post-Retirement Benefit Plan Obligations

The Company accounts for the obligations of its employee pension benefit costs and post-retirement benefits in accordance with the applicable statements issued by the Financial Accounting Standards Board. In accordance with these statements, management selects appropriate assumptions including discount rate, rate of increase in future compensation levels and assumed long-term rate of return on plan assets and expected annual increases in costs of medical and other health care benefits in regard to the Company’s post-retirement benefit obligations. These assumptions are based upon historical results, the current economic environment and reasonable expectations of future events. Actual results which vary from assumptions are accumulated and amortized over future periods and, accordingly, are recognized in expense in these periods. Significant differences between our assumptions and actual experience or significant changes in assumptions could impact the pension costs and the pension obligation.

Share-Based Compensation

Effective October 29, 2005, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (Statement No. 123(R)), which requires the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The Company adopted Statement No. 123(R) using the modified prospective method effective October 29, 2005. The cumulative effect of the change in accounting principle upon adoption of Statement No. 123(R) was included in selling, general and administrative expense as the amount was not significant.

Product Warranties

Estimated product warranty expenses are recorded when the covered products are shipped to customers and recognized as revenue. Product warranty expense is estimated based upon the terms of the warranty program.

Income Taxes

Income taxes are accounted for in accordance with Financial Accounting Standards No. 109, “Accounting for Income Taxes,” and reserves for income taxes are accounted for in accordance with FIN 48. The objective of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns.

Earnings Per Share

Basic earnings per share is computed on the basis of the weighted average number of common shares outstanding during the year. Diluted earnings per share also includes the dilutive effect of stock options. Common shares issuable from stock options that are excluded from the calculation of diluted earnings per share because they were anti-dilutive were 499,850, 96,048, and 356,349 for fiscal 2008, 2007 and 2006, respectively. The weighted average number of shares outstanding used to compute basic earnings per share was 29,507,000, 25,824,000, and 25,413,000 for fiscal

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years 2008, 2007 and 2006, respectively. The weighted average number of shares outstanding used to compute diluted earnings per share was 29,908,000, 26,252,000, and 25,818,000 for fiscal years 2008, 2007 and 2006, respectively.

Recent Accounting Pronouncements

In May 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 162, “The Hierarchy of Generally Accepted Accounting Principles (GAAP),” (Statement No. 162). The purpose of the new standard is to provide a consistent framework for determining what accounting principles should be used when preparing U.S. GAAP financial statements. The new standard is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The adoption of Statement No. 162 is not expected to have a material effect on the Company’s financial statements.

In March 2008, the Financial Accounting Standards Board issued Financial Accounting Standard No. 161, “Disclosure About Derivative Instruments and Hedging Activities, an amendment to Financial Accounting Standards Board Financial Accounting Standard No. 133,” (Statement No. 161). Statement No. 161 requires among other things, enhanced disclosure about the volume and nature of derivative and hedging activities and a tabular summary showing the fair value of derivative instruments included in the statement of financial position and statement of operations. Statement No. 161 also requires expanded disclosure of contingencies included in derivative instruments related to credit risk. Statement No. 161 is effective for fiscal 2009. The Company is currently evaluating the impact of Statement No. 161 on the Company’s financial statements.

On December 4, 2007, the Financial Accounting Standards Board issued Financial Accounting Standard No. 141(R), “Business Combinations,” (Statement No. 141(R)) and Statement No. 160, “Accounting and Reporting of Non-controlling Interest in Consolidated Financial Statements, an amendment of ARB No. 51,” (Statement No. 160). These new standards will significantly change the accounting for and reporting of business combination transactions and non-controlling (minority) interests in consolidated financial statements. Statement No. 141(R) and Statement No. 160 are required to be adopted simultaneously and are effective for fiscal 2010.

The significant changes in the accounting for business combination transactions under Statement No. 141(R) include:

• Recognition, with certain exceptions, of 100% of the fair values of assets acquired, liabilities assumed, and non-controlling interests of acquired businesses.

• Measurement of all acquirer shares issued in consideration for a business combination at fair value on the acquisition date. With the effectiveness of Statement No. 141(R), the “agreement and announcement date” measurement principles in EITF Issue 99-12 will be nullified.

• Recognition of contingent consideration arrangements at their acquisition-date fair values, with subsequent changes in fair value generally reflected in earnings.

• With the one exception described in the last sentence of this section, recognition of pre-acquisition gain and loss contingencies at their acquisition-date fair values. Subsequent

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accounting for pre-acquisition loss contingencies is based on the greater of acquisition-date fair value or the amount calculated pursuant to FASB Statement No. 5, “Accounting for Contingencies,” (Statement No. 5). Subsequent accounting for pre-acquisition gain contingencies is based on the lesser of acquisition-date fair value or the best estimate of the future settlement amount. Adjustments after the acquisition date are made only upon the receipt of new information on the possible outcome of the contingency, and changes to the measurement of pre-acquisition contingencies are recognized in ongoing results of operations. Absent new information, no adjustments to the acquisition-date fair value are made until the contingency is resolved. Pre-acquisition contingencies that are both (1) non-contractual and (2) as of the acquisition date are “not more likely than not” of materializing are not recognized in acquisition accounting and, instead, are accounted for based on the guidance in Statement No. 5, “Accounting for Contingencies.”

• Capitalization of in-process research and development (IPR&D) assets acquired at acquisition date fair value. After acquisition, apply the indefinite-lived impairment model (lower of basis or fair value) through the development period to capitalized IPR&D without amortization. Charge development costs incurred after acquisition to results of operations. Upon completion of a successful development project, assign an estimated useful life to the amount then capitalized, amortize over that life, and consider the asset a definite-lived asset for impairment accounting purposes.

• Recognition of acquisition-related transaction costs as expense when incurred.

• Recognition of acquisition-related restructuring cost accruals in acquisition accounting only if the criteria in Statement No. 146 are met as of the acquisition date. With the effectiveness of Statement No. 141(R), the EITF Issue 95-3 concepts of “assessing, formulating, finalizing and committing/communicating” that currently pertain to recognition in purchase accounting of an acquisition-related restructuring plan will be nullified.

• Recognition of changes in the acquirer’s income tax valuation allowance resulting from the business combination separately from the business combination as adjustments to income tax expense. Also, changes after the acquisition date in an acquired entity’s valuation allowance or tax uncertainty established at the acquisition date are accounted for as adjustments to income tax expense.

The Company is currently evaluating the impact of Statement No. 141(R) and Statement No. 160 on the Company’s financial statements.

In February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” (Statement No. 159). Statement No. 159 permits entities to choose to measure certain eligible financial assets and financial liabilities at fair value (the fair value option). Statement No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. Unrealized gains and losses on items for which the fair value option is elected would be reported in earnings. Statement No. 159 is effective for the Company’s fiscal year ending October 30, 2009. The Company is currently evaluating the impact, if any, of Statement No. 159 on the Company’s financial statements.

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In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements,” (Statement No. 157). Statement No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. Statement No. 157 applies under other accounting pronouncements that require or permit fair value measurements. Statement No. 157 indicates, among other things, that a fair value measurement assumes the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. Statement No. 157 is effective for the Company’s year ending October 30, 2009. The Company is currently evaluating the impact of Statement No. 157 on the Company’s financial statements.

NOTE 2: Recovery of Insurance Claims

On June 26, 2006, an explosion occurred at the Company’s Wallop facility, which resulted in one fatality and several minor injuries. The incident destroyed an oven complex for the production of advanced flares and significantly damaged a portion of the facility. The advanced flare facility has been closed due to the requirements of the Health and Safety Executive (HSE) to review the cause of the accident, but normal operations are continuing at unaffected portions of the facility. The HSE investigation will not be completed until the Coroner’s Inquest is filed. Although it is not possible to determine the results of the HSE investigation or how the Coroner will rule, management does not expect to be found in breach of the Health and Safety at Work Act related to the accident and, accordingly, no amounts have been recorded for any potential fines that may be assessed by the HSE. The construction of the new flare facility is expected to be completed and in full production, following customary start-up and commissioning activities, late in fiscal 2009.

The operation was insured under a property, casualty and business interruption insurance policy and in June 2007, the Company settled its insurance claim for U.K. £24.0 million, including payments already received. In fiscal 2007, insurance recoveries totaled $37.5 million, net of the write-off of the damaged facility. The Company recorded business interruption insurance recoveries of $4.9 million for losses incurred in fiscal 2006.

NOTE 3: Discontinued Operations

In the fourth quarter of fiscal 2008, the Company’s Board of Directors approved the sale of the Company’s U.K.-based Muirhead Aerospace and Traxsys Input Products Limited businesses which were included in the Sensors & Systems segment. As a result, the consolidated financial statements present Muirhead Aerospace and Traxsys Input Products Limited as a discontinued operation.

Subsequent to October 31, 2008, the Company sold Muirhead Aerospace and Traxsys Input Products Limited for approximately U.K. £40.0 million or $64.4 million resulting in a gain of approximately $15.8 million, net of taxes of $11.4 million, which will be recorded in the first quarter of fiscal year 2009.

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Sales of the discontinued operations were $64.2 million, $59.5 million, and $51.8 million in fiscal year 2008, 2007 and 2006, respectively. The operating results of the discontinued segment for fiscal year 2008, 2007 and 2006 consisted of the following:

In Thousands		2008		2007			2006
Income before taxes	$	8,906	$	4,477		$	2,810
Tax expense (benefit)		1,882		(45	)		806
Income from discontinued operations	$	7,024	$	4,522		$	2,004

Net assets related to discontinued operations at October 31, 2008, were $33.7 million and consisted of the following:

In Thousands
Cash and cash equivalent	$	421
Accounts receivable, net of allowances		8,917
Inventories		9,779
Deferred income tax benefits		69
Prepaid expenses		998
Property, plant and equipment, net		4,357
Goodwill		17,029
Total assets		41,570
Accounts payable		2,522
Accrued liabilities		4,203
Federal and foreign income taxes		627
Deferred income taxes		529
Total liabilities		7,881
Net assets	$	33,689

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NOTE 4: Inventories

Inventories, net of reserves, at the end of fiscal 2008 and 2007 consisted of the following:

In Thousands		2008			2007
Raw materials and purchased parts	$	110,984		$	111,998
Work in process		89,936			83,870
Inventory costs under long-term contracts		15,650			15,233
Finished goods		45,403			47,075
	$	261,973		$	258,176
Inventory Reserve Rollforward:
In Thousands		2008			2007
Beginning balance	$	31,888		$	18,175
Reserves related to acquisitions		—			9,768
Accruals		6,918			5,711
Write-offs		(3,805	)		(4,119	)
Release of reserves on shipments		(566	)		(631	)
Release of other reserves		(503	)		—
Currency translation adjustment		(4,226	)		2,984
	$	29,706		$	31,888

NOTE 5: Goodwill

The following table summarizes the changes in goodwill by segment for fiscal 2008 and 2007:

In Thousands	Avionics & Controls			Sensors & Systems			Advanced Materials			Total
Balance, October 27, 2006	$	98,087		$	87,898		$	180,170		$	366,155
Goodwill from acquisitions		209,982			—			11,965			221,947
Goodwill adjustments		—			6,860			(678	)		6,182
Foreign currency translation adjustment		48,769			5,744			8,068			62,581
Balance, October 26, 2007		356,838			100,502			199,525			656,865
Goodwill from acquisitions		219			—			—			219
Goodwill adjustments		(6,302	)		20,016			(669	)		13,045
Foreign currency translation adjustment		(53,741	)		(14,567	)		(24,960	)		(93,268	)
Balance, October 31, 2008	$	297,014		$	105,951		$	173,896		$	576,861

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NOTE 6: Intangible Assets

Intangible assets at the end of fiscal 2008 and 2007 were as follows:

		2008				2007
In Thousands	Weighted Average Years Useful Life		Gross Carrying Amount		Accum. Amort.		Gross Carrying Amount		Accum. Amort.
Amortized Intangible Assets
Programs	17	$	268,667	$	60,018	$	317,940	$	50,205
Core technology	16		8,896		3,710		8,988		2,472
Patents and other	15		49,507		22,986		60,391		26,955
Total		$	327,070	$	86,714	$	387,319	$	79,632
Indefinite-lived Intangible Assets
Trademark		$	50,084			$	57,630

Amortization of intangible assets was $23,689,000, $20,133,000 and $14,899,000 in fiscal years 2008, 2007 and 2006, respectively.

Estimated amortization expense related to intangible assets for each of the next five fiscal years is as follows:

In Thousands

Fiscal Year
2009	$	19,167
2010		18,596
2011		18,290
2012		18,074
2013		17,682

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NOTE 7: Accrued Liabilities

Accrued liabilities at the end of fiscal 2008 and 2007 consisted of the following:

In Thousands	2008			2007
Payroll and other compensation	$	76,725		$	77,523
Commissions		3,346			3,177
Casualty and medical		13,194			12,573
Interest		6,720			7,496
Warranties		10,597			15,668
State and other tax accruals		5,455			27,734
Customer deposits		25,061			12,687
Deferred revenue		13,968			1,723
Contract reserves		6,618			7,797
Forward foreign exchange contracts		22,482			—
Unclaimed property – non-U.S.		9,755			—
Environmental reserves		2,539			2,539
Other		13,962			18,679
	$	210,422		$	187,596
Accrued liabilities are recorded to reflect the Company’s contractual obligations relating to warranty commitments to customers. Warranty coverage of various lengths and terms is provided to customers depending on standard offerings and negotiated contractual agreements. An estimate for warranty expense is recorded at the time of sale based on the length of the warranty and historical warranty return rates and repair costs.
Changes in the carrying amount of accrued product warranty costs are summarized as follows:
In Thousands	2008			2007
Balance, beginning of year	$	15,668		$	5,414
Warranty costs incurred		(5,171	)		(3,378	)
Product warranty accrual		7,191			5,790
Acquisitions		—			7,402
Release of reserves		(1,892	)		(1,560	)
Reclass of reserves (1)		(3,124	)		—
Foreign currency translation adjustment		(2,075	)		2,000
Balance, end of year	$	10,597		$	15,668

⁽¹⁾ Reclass of reserve to goodwill upon completion of the acquisition accounting related to CMC Electronics.

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NOTE 8: Retirement Benefits

Approximately 45% of U.S. employees have a defined benefit earned under the Esterline pension plan or the Leach pension plan. The Leach pension plan was frozen as of December 31, 2003, and was merged into the Esterline plan on March 31, 2008.

Under the Esterline plan, pension benefits are based on years of service and five-year average compensation or under a cash balance formula, with annual pay credits ranging from 2% to 6% of salary. Esterline amended its defined benefit plan to add the cash balance formula effective January 1, 2003. Participants elected either to continue earning benefits under the current plan formula or to earn benefits under the cash balance formula. Effective January 1, 2003, all new participants are enrolled in the cash balance formula. Esterline also has an unfunded supplemental retirement plan for key executives providing for periodic payments upon retirement.

Under the Leach pension plan, benefits are based on an employee’s years of service and the highest five consecutive years’ compensation during the last ten years of employment. Leach’s non-U.S. subsidiaries have retirement plans covering substantially all of its employees. Benefits become vested after ten years of employment and are due in full upon retirement, disability or death of the employee. Leach also has a supplemental retirement plan which provides supplemental pension benefits to former key management in addition to amounts received under the Company’s existing retirement plan.

CMC sponsors defined benefit pension plans and other retirement benefit plans for its non-U.S. employees. Pension benefits are based upon years of service and final average salary. Other retirement benefit plans are non-contributory health care and life insurance plans.

In October 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Post-retirement Plans, an amendment of FASB Statement Nos. 87, 88, 106 and 123(R).” Statement No. 158 requires an entity to:

• Recognize in its statements of financial position an asset for a defined benefit post-retirement plan’s overfunded status or a liability for a plan’s underfunded status.

• Measure a defined benefit post-retirement plan’s assets and obligations that determine its funded status as of the end of the employer’s fiscal year.

• Recognize changes in the funded status of a defined benefit post-retirement plan in comprehensive income in the year in which the changes occur.

Statement No. 158 does not change the amount of net periodic benefit cost included in net income or address the various measurement issues associated with post-retirement benefit plan accounting. The Company adopted the recognition and disclosure provisions of Statement No. 158 effective at the end of its 2007 fiscal year.

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The following table presents the balance sheet balances at October 26, 2007 prior to the initial adoption of Statement No. 158, the amount of the adjustment and the balances after the adoption of Statement No. 158.

In Thousands	Before     Application of FAS No. 158			Adjustments			After Application of FAS No. 158
Deferred income taxes	$	8,204		$	(334	)	$	7,870
Intangible assets		39			(39	)		—
Liabilities		(26,994	)		1,545			(25,449	)
Accumulated other comprehensive loss (gain)		775			(1,172	)		(397	)

The Company accounts for pension expense using the end of the fiscal year as its measurement date. In addition, the Company makes actuarially computed contributions to these plans as necessary to adequately fund benefits. The Company’s funding policy is consistent with the minimum funding requirements of ERISA. The accumulated benefit obligation and projected benefit obligation for the Esterline plans are $157,525,000 and $150,834,000, respectively, with plan assets of $116,000,000 as of October 31, 2008. The underfunded status for the Esterline plans is $41,526,000 at October 31, 2008. Contributions to the Leach plans totaled $1,265,000 and $5,023,000 in fiscal years 2008 and 2007, respectively. There is no minimum funding requirements for fiscal 2009 for the U.S. pension plan maintained by Esterline. The accumulated benefit obligation and projected benefit obligation for the CMC plans are $76,296,000 and $78,281,000, respectively, with plan assets of $67,058,000 as of October 31, 2008. The underfunded status for these CMC plans is $11,223,000 at October 31, 2008. Contributions to the CMC plans totaled $3,503,000 and $3,058,000 million in fiscal 2008 and 2007, respectively. Contributions of $2,538,000 will be made in fiscal 2009.

	Defined Benefit         Pension Plans				Post-Retirement         Benefit Plans
	2008		2007		2008		2007
Principal assumptions   as of fiscal year end:
Discount Rate	5.6 – 8.375	%	5.6 – 6.25	%	6.25 – 6.75	%	5.6 – 6.25	%
Rate of increase in future   compensation levels	3.3 – 4.5	%	3.5 – 4.5	%	—		—
Assumed long-term rate   of return on plan assets	7.0 – 8.25	%	7.0 – 8.5	%	—		—
Initial weighted average   health care trend rate	—		—		4.8 – 10.0	%	5.0 – 10.0	%
Ultimate weighted average   health care trend rate	—		—		3.3 – 10.0	%	3.5 – 10.0	%

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For the Company’s non-U.S. plans, the Company uses a discount rate for expected returns that is a spot rate developed from a yield curve established from high-quality corporate bonds and matched to plan-specific projected benefit payments. For the Company’s U.S. plan, the Company uses a discount rate which was determined by discounting the estimated cash flow of the U.S. plan using spot rates from the Citigroup Pension Discount Curve, which reflects the current yields of high-quality corporate bonds. Although future changes to the discount rate are unknown, had the discount rate increased or decreased by 25 basis points, pension liabilities in total would have decreased $4.2 million or increased $4.4 million, respectively. If all other assumptions are held constant, the estimated effect on fiscal 2008 pension expense from a hypothetical 25 basis point increase or decrease in both the discount rate and expected long-term rate of return on plan assets would not have a material effect on our pension expense. Management is not aware of any legislative or other initiatives or circumstances that will significantly impact the Company’s pension obligations in fiscal 2009.

The assumed health care trend rate has a significant impact on the Company’s post-retirement benefit obligations. The Company’s health care trend rate was based on the experience of its plan and expectations for the future. A 100 basis point increase in the health care trend rate would increase the post-retirement benefit obligation by $0.6 million. A 100 basis point decrease in the health care trend rate would decrease the post-retirement benefit obligation by $0.5 million. Assuming all other assumptions are held constant, the estimated effect on fiscal 2008 post-retirement benefit expense from a hypothetical 100 basis point increase or decrease in the health care trend rate would not have a material effect on our post-retirement benefit expense.

Plan assets are invested in a diversified portfolio of equity and debt securities, consisting primarily of common stocks, bonds and government securities. The objective of these investments is to maintain sufficient liquidity to fund current benefit payments and achieve targeted risk-adjusted returns. Management periodically reviews allocations of plan assets by investment type and evaluates external sources of information regarding the long-term historical returns and expected future returns for each investment type and, accordingly, believes an 8.25% assumed long-term rate of return on plan assets is appropriate. Allocations by investment type are as follows:

			Actual
	Target		2008		2007
Plan assets allocation as of fiscal year end:
Equity securities	55 – 75	%	60.0	%	64.0	%
Debt securities	25 – 45	%	38.0	%	36.0	%
Cash	0	%	2.0	%	0.0	%
Total			100.0	%	100.0	%

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Net periodic pension cost for the Company’s defined benefit plans at the end of each fiscal year consisted of the following:

	Defined Benefit Pension Plans									Post-Retirement Benefit Plans
In Thousands		2008			2007			2006			2008			2007		2006
Components of Net Periodic Cost
Service cost	$	6,217		$	5,474		$	4,021		$	280		$	205	$	7
Interest cost		16,736			14,470			10,304			635			430		34
Expected return on plan assets		(20,982	)		(18,283	)		(12,756	)		—			—		—
Amortization of prior service cost		18			18			18			—			—		—
Amortization of actuarial loss		330			252			1,569			12			—		—
One-time charge benefit adjustment		—			—			1,188			(10	)		1,655		—
Net periodic cost	$	2,319		$	1,931		$	4,344		$	917		$	2,290	$	41

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The funded status of the defined benefit pension and post-retirement plans at the end of fiscal 2008 and 2007 were as follows:

	Defined Benefit Pension Plans						Post-Retirement Benefit Plans
In Thousands		2008			2007			2008			2007
Benefit Obligation
Beginning balance	$	301,101		$	188,588		$	13,864		$	656
Currency translation adjustment		(23,320	)		940			(2,537	)		—
Service cost		6,217			5,474			280			205
Interest cost		16,736			14,469			635			430
One-time charge benefit adjustment		1,650			—			71			1,655
Plan participants contributions		162			31			—			—
Actuarial loss		(41,479	)		(10,917	)		(684	)		(1,278	)
Acquisitions		—			116,455			—			12,695
Benefits paid		(16,262	)		(13,939	)		(609	)		(499	)
Ending balance	$	244,805		$	301,101		$	11,020		$	13,864
Plan Assets – Fair Value
Beginning balance	$	289,516		$	168,066		$	—		$	—
Currency translation adjustment		(21,978	)		182			—			—
Realized and unrealized gain (loss) on plan assets		(71,579	)		17,592			—			—
Acquisitions		—			107,454			—			—
Plan participants contributions		162			31			—			—
Company contributions		5,621			10,413			609			499
Expenses paid		(743	)		(283	)		—			—
Benefits paid		(16,262	)		(13,939	)		(609	)		(499	)
Ending balance	$	184,737		$	289,516		$	—		$	—
Funded Status
Fair value of plan assets	$	184,737		$	289,516		$	—		$	—
Benefit obligations		(244,805	)		(301,101	)		(11,020	)		(13,864	)
Net amount recognized	$	(60,068	)	$	(11,585	)	$	(11,020	)	$	(13,864	)

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	Defined Benefit Pension Plans						Post-Retirement Benefit Plans
In Thousands		2008			2007			2008			2007
Amount Recognized in the
Consolidated Balance Sheet
Non-current asset	$	—		$	13,903		$	—		$	—
Current liability		(714	)		(511	)		(733	)		(1,989	)
Non-current liability		(59,354	)		(24,977	)		(10,287	)		(11,875	)
Net amount recognized	$	(60,068	)	$	(11,585	)	$	(11,020	)	$	(13,864	)
Amounts Recognized in Accumulated Other Comprehensive Income
Net actuarial loss (gain)	$	55,081		$	3,717		$	(1,766	)	$	(1,285	)
Prior service cost		(20	)		57			—			—
Ending balance	$	55,061		$	3,774		$	(1,766	)	$	(1,285	)

The accumulated benefit obligation for all pension plans was $235,102,000 at October 31, 2008 and $292,492,000 at October 26, 2007.

Estimated future benefit payments expected to be paid from the plan or from the Company’s assets are as follows:

In Thousands

Fiscal Year
2009	$	19,528
2010		20,575
2011		21,554
2012		22,865
2013		23,501
2014 – 2018		128,722

Employees may participate in certain defined contribution plans. The Company’s contribution expense under these plans totaled $12,095,000, $10,323,000 and $8,107,000 in fiscal 2008, 2007 and 2006, respectively.

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NOTE 9: Income Taxes

Income tax expense from continuing operations for each of the fiscal years consisted of:

In Thousands		2008			2007			2006
Current
U.S. Federal	$	36,391		$	18,533		$	16,746
State		2,806			2,538			(2,790	)
Foreign		10,272			16,851			3,438
		49,469			37,922			17,394
Deferred
U.S. Federal		601			(50	)		(82	)
State		(525	)		(179	)		259
Foreign		(22,982	)		(15,128	)		(1,661	)
		(22,906	)		(15,357	)		(1,484	)
Income tax expense	$	26,563		$	22,565		$	15,910
U.S. and foreign components of income from continuing operations before income taxes for each of the fiscal years were:
In Thousands		2008			2007			2006
U.S.	$	109,087		$	69,549		$	48,489
Foreign		31,368			40,931			21,897
Income from continuing operations, before income taxes	$	140,455		$	110,480		$	70,386
Primary components of the Company’s deferred tax assets (liabilities) at the end of the fiscal year resulted from temporary tax differences associated with the following:
In Thousands				2008			2007
Reserves and liabilities				$	25,300		$	26,238
NOL carryforwards (net of valuation allowances of     $6.2 million at fiscal year end 2007 and 2008, respectively)					110			614
Tax credit carryforwards					31,438			29,548
Employee benefits					6,895			11,764
Retirement benefits					24,350			1,013
Non-qualified stock options					6,514			4,358
Hedging activities					1,643			6,239
Other					7,810			1,726
Total deferred tax assets					104,060			81,500
Depreciation and amortization					(12,300	)		(17,251	)
Intangibles and amortization					(85,143	)		(92,837	)
Deferred costs					(7,302	)		(11,991	)
Retirement benefits					(3,605	)		(35	)
Other					(2,906	)		(1,644	)
Total deferred tax liabilities					(111,256	)		(123,758	)
Net deferred tax liabilities				$	(7,196	)		$    (42,258	)

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In connection with the Leach acquisition in fiscal 2004, the Company assumed a U.S. net operating loss (NOL) of $38.6 million which can be carried forward to subsequent years, subject to limitations under Internal Revenue Code Section 382. As a result of an IRS examination of Leach’s pre-acquisition U.S. federal income tax returns, in fiscal 2007 the amount of NOLs available to carry forward were reduced by $16.6 million ($5.8 million tax effected) and the remaining balance has been fully utilized as of the end of fiscal 2007. Further, as a result of an IRS examination of Leach’s pre-acquisition U.S. federal income tax returns, the Company recorded an additional $1.2 million of current tax payable. In accordance with ETIF 97-3, both the $5.8 million reduction of Leach’s pre-acquisition NOLs and the increase in the current tax payable were recorded to goodwill.

In connection with the acquisition of CMC, the Company assumed a U.S. NOL of $17.3 million associated with CMC’s U.S. subsidiary. While this NOL can be carried forward to subsequent years, subject to limitation under Internal Revenue Code Section 382, as part of the purchase accounting a full valuation offsetting this NOL has been established. A full valuation has been established because by virtue of being owned by CMC, this U.S. subsidiary is not included in the Company’s consolidated U.S. federal income tax return. The NOL expires beginning in 2018.

During fiscal 2008, the Company surrendered its position that under U.K. tax laws Weston’s acquired goodwill and intangible assets were amortizable. Accordingly, the Company established a $9.9 million deferred tax liability to account for the future book amortization of the acquired intangibles and paid $3.3 million for prior periods. In accordance with ETIF 97-3, both the $9.9 million increase in deferred income tax liabilities and the $3.3 million settlement were recorded to goodwill.

The Company operates in numerous taxing jurisdictions and is subject to regular examinations by various U.S. federal, state and foreign jurisdictions for various tax periods. Additionally, the Company has retained tax liabilities and the rights to tax refunds in connection with various acquisitions and divestitures of businesses in prior years. The Company’s income tax positions are based on research and interpretations of income tax laws and rulings in each of the jurisdictions in which we do business. Due to the subjectivity and complexity of the interpretations of the tax laws and rulings in each jurisdiction, the differences and interplay in the tax laws between those jurisdictions as well as the inherent uncertainty in estimating the final resolution of complex tax audit matters, the Company’s estimates of income tax liabilities and assets may differ from actual payments, assessments or refunds.

Management believes that it is more likely than not that the Company will realize the current and long-term deferred tax assets as a result of future taxable income. Significant factors management considered in determining the probability of the realization of the deferred tax assets include the reversal of deferred tax liabilities, our historical operating results and expected future earnings. Accordingly, no valuation allowance has been recorded on the deferred tax assets other than net operating losses.

The U.S. and various state and foreign income tax returns are open to examination and presently several foreign income tax returns are under examination. Such examinations could result in challenges to tax positions taken and, accordingly, the Company may record adjustments to provisions based on the outcomes of such matters. However, the Company believes that the resolution of these matters, after considering amounts accrued, will not have a material adverse effect on its consolidated financial statements.

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The incremental tax benefit received by the Company upon exercise of non-qualified employee stock options was $1.9 million, $2.7 million and $0.5 million in fiscal 2008, 2007 and 2006, respectively.

A reconciliation of the U.S. federal statutory income tax rate to the effective income tax rate for each of the fiscal years was as follows:

	2008		2007		2006
U.S. statutory income tax rate	35.0	%	35.0	%	35.0	%
State income taxes	1.1		1.4		1.4
Foreign taxes	(7.7	)	(9.5	)	(8.7	)
Export sales benefit	—		(0.1	)	(0.8	)
Pass-through entities	—		—		0.4
Domestic manufacturing deduction	(1.3	)	(0.4	)	(0.8	)
Research & development credits	(5.9	)	(7.7	)	(0.6	)
Tax accrual adjustment	(0.5	)	1.5		(4.2	)
Valuation allowance	(0.1	)	0.4		—
Change in foreign tax rates	(3.6	)	(2.6	)	—
Other, net	1.9		2.4		0.9
Effective income tax rate	18.9	%	20.4	%	22.6	%

No provision for federal income taxes has been made on accumulated earnings of foreign subsidiaries, since such earnings are considered indefinitely reinvested. The amount of the unrecognized deferred tax liability for temporary differences related to investments in foreign subsidiaries is not practical to determine because of the complexities regarding the calculation of unremitted earnings and the potential for tax credits.

In June 2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in income taxes by establishing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 prescribes a comprehensive model for how a company should recognize, derecognize, measure, present, and disclose in its financial statements uncertain tax positions that a company has taken or expects to take on a tax return. In addition, FIN 48 provides guidance on interest and penalties, accounting in interim periods, and transition.

The Company adopted the provisions of FIN 48 effective October 27, 2007. Of the $9.2 million cumulative effect of adopting FIN 48, $0.7 million was recorded as a reduction to retained earnings and $8.5 million was recorded as goodwill. As of the adoption date, the Company had gross unrecognized tax benefits of $28.7 million and interest of $2.3 million, of which $27.7 million was recorded within other liabilities, $3.1 million was recorded in deferred taxes and $0.2 million was recorded in federal and foreign income taxes payable in the consolidated balance sheet. During the next 12 months, the amount of previously unrecognized tax benefits is not expected to significantly change. The Company recognizes interest related to unrecognized tax benefits in income tax expense.

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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

In Thousands		Total
Unrecognized tax benefits as of October 27, 2007	$	28,706
Unrecognized gross benefit change
Gross increases due to prior-period adjustments		76
Gross (decrease) due to prior-period adjustments		—
Gross increases due to current-period adjustment		1,196
Gross (decrease) due to current-period adjustment		—
Gross (decrease) due to settlements with taxing authorities		(10,680	)
Gross (decrease) due to a lapse with taxing authorities		(345	)
Total change in unrecognized gross benefit	$	(9,753	)
Unrecognized tax benefits as of October 31, 2008	$	18,953
Unrecognized tax benefits that, if recognized,     would impact the effective tax rate	$	4,717
Total amount of interest
Recognized in the statement of operations	$	(104	)
Recognized in the statement of financial position		1,845

The Company is no longer subject to income tax examinations by tax authorities in its major tax jurisdictions as follows:

Tax Jurisdiction	Years No Longer   Subject to Audit
U.S. Federal	2005 and prior
Canada	2002 and prior
France	2004 and prior
Germany	2003 and prior
United Kingdom	2002 and prior

Subsequent to October 31, 2008, a development with regard to U.K. tax laws occurred, which will require the Company to record during the first fiscal quarter of 2009 an income tax liability for uncertain tax positions of approximately U.K. £11.7 million and a corresponding U.K. £4.1 million of gross interest expense. As the tax liability represents an acquired tax liability, the establishment of the tax liability will be offset by a reduction in goodwill. Further, the income tax liability and associated interest are specifically indemnified pursuant to a certain stock purchase agreement. A receivable will be established to reflect the recoverability of the contingent interest. In the event the tax is paid and is recovered from the seller, the goodwill will be restored.

In addition, during the first fiscal quarter of 2009, a U.K. £1.2 million accrual will be recorded to account for a potential tax penalty that may be assessed on the above tax liability. The penalty is not indemnified under a certain stock purchase agreement and, accordingly, it will result in a charge to earnings during the first fiscal quarter of 2009.

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NOTE 10: Debt

Long-term debt at the end of fiscal 2008 and 2007 consisted of the following:

In Thousands		2008		2007
GBP Term Loan, due November 2010	$	34,915	$	112,633
7.75% Senior Subordinated Notes, due June 2013		175,000		175,000
6.625% Senior Notes, due March 2017		175,000		175,000
Obligations under Capital Leases and Other		10,160		4,283
		395,075		466,916
Fair value of interest rate swap agreement		1,561		252
Less current maturities		8,388		12,166
Carrying amount of long-term debt	$	388,248	$	455,002

In June 2003, the Company sold $175.0 million of 7.75% Senior Subordinated Notes due in 2013 and requiring semi-annual interest payments in December and June of each year until maturity. The net proceeds from this offering were used to acquire the Weston Group from The Roxboro Group PLC for U.K. £55.0 million (approximately $94.6 million based on the closing exchange rate and including acquisition costs) and for general corporate purposes, including the repayment of debt and possible future acquisitions. The Senior Subordinated Notes are general unsecured obligations of the Company and are subordinated to all existing and future senior debt of the Company. In addition, the Senior Subordinated Notes are effectively subordinated to all existing and future senior debt and other liabilities (including trade payables) of the Company’s foreign subsidiaries. The Senior Subordinated Notes are guaranteed, jointly and severally, by all the existing and future domestic subsidiaries of the Company unless designated as an “unrestricted subsidiary” under the indenture covering the Senior Subordinated Notes. The Senior Subordinated Notes are subject to redemption at the option of the Company, in whole or in part, on or after June 15, 2008 at redemption prices starting at 103.875% of the principal amount plus accrued interest during the period beginning June 11, 2003 and declining annually to 100% of principal and accrued interest on June 15, 2011.

In September 2003, the Company entered into an interest rate swap agreement on $75.0 million of its Senior Subordinated Notes due in 2013. The swap agreement exchanged the fixed interest rate for a variable interest rate on $75.0 million of the $175.0 million principal amount outstanding. The variable interest rate is based upon LIBOR plus 2.56% and was 5.83% at October 31, 2008. The fair market value of the Company’s interest rate swap was a $1,561,000 asset at October 31, 2008 and was estimated by discounting expected cash flows using quoted market interest rates.

On February 10, 2006, the Company borrowed U.K. £57.0 million, or approximately $100.0 million, under a $100.0 million term loan facility. The Company used the proceeds from the loan as working capital for its U.K. operations and to repay a portion of its outstanding borrowings under the revolving credit facility. The principal amount of the loan is payable quarterly commencing on March 31, 2007 through the termination date of November 14, 2010, according to a payment schedule by which 1.25% of the principal amount is paid in each quarter of 2007, 2.50% in each quarter of 2008, 5.00% in each quarter of 2009 and 16.25% in each quarter of 2010. The loan accrues interest at a variable rate based on the British Bankers Association Interest Settlement Rate for deposits in U.K. pounds plus an additional margin amount that ranges from 1.13% to 0.50% depending upon the Company’s leverage ratio. As of October 31, 2008, the

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interest rate on the term loan was 6.49%. During the year the Company paid down U.K. £33.2 million or $68.0 million on the U.K. £57.0 million term loan and terminated an interest rate swap for a gain of $1.9 million. The interest rate swap exchanged the variable interest rate for a fixed interest rate of 4.75% plus an additional margin amount determined by reference to the Company’s leverage ratio.

On March 1, 2007, the Company issued $175.0 million in 6.625% Senior Notes due March 1, 2017 and requiring semi-annual interest payments in March and September of each year until maturity. The net proceeds from this offering were used to pay a portion of the purchase price of the acquisition of CMC for approximately $344.5 million. The Senior Notes are general unsecured senior obligations of the Company. The Senior Notes are guaranteed, jointly and severally on a senior basis, by all the existing and future domestic subsidiaries of the Company unless designated as an “unrestricted subsidiary,” and those foreign subsidiaries that executed related subsidiary guarantees under the indenture covering the Senior Notes. The Senior Notes are subject to redemption at the option of the Company at any time prior to March 1, 2012 at a price equal to 100% of the principal amount, plus any accrued interest to the date of redemption and a make-whole provision. In addition, before March 1, 2010 the Company may redeem up to 35% of the principal amount at 106.625% plus accrued interest with proceeds of one or more Public Equity Offerings. The Senior Notes are also subject to redemption at the option of the Company, in whole or in part, on or after March 1, 2012 at redemption prices starting at 103.3125% of the principal amount plus accrued interest during the period beginning March 1, 2007 and declining annually to 100% of principal and accrued interest on or after March 1, 2015.

On March 13, 2007, the company amended its credit agreement to increase the existing revolving credit facility from $100.0 million to $200.0 million.

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As of October 31, 2008, maturities of long-term debt and future minimum lease payments under capital lease obligations were as follows:

In Thousands

Fiscal Year	Debt & Obligations   Under Capital Lease
2009	$	8,387
2010		21,835
2011		6,684
2012		169
2013		175,019
2014 and thereafter		182,981
	$	395,075

Short-term credit facilities at the end of fiscal 2008 and 2007 consisted of the following:

In Thousands	2008				2007
		Outstanding Borrowings	Interest Rate			Outstanding Borrowings	Interest Rate
U.S.	$	—	—		$	—	—
Foreign		5,171	3.66	%		8,634	5.65	%
	$	5,171			$	8,634

At October 31, 2008, the Company’s primary U.S. dollar credit facility made available through a group of banks totals $200,000,000. The credit agreement is secured by substantially all of the Company’s assets and interest is based on standard inter-bank offering rates. An additional $27,670,000 of unsecured foreign currency credit facilities have been extended by foreign banks for a total of $227,670,000 available companywide.

A number of underlying agreements contain various covenant restrictions which include maintenance of net worth, payment of dividends, interest coverage, and limitations on additional borrowings. The Company was in compliance with these covenants at October 31, 2008. Available credit under the above credit facilities was $212,597,000 at fiscal 2008 year end, when reduced by outstanding borrowings of $5,171,000 and letters of credit of $9,902,000.

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NOTE 11: Commitments and Contingencies

Rental expense for operating leases for engineering, selling, administrative and manufacturing totaled $16,316,000, $14,547,000 and $11,462,000 in fiscal years 2008, 2007 and 2006, respectively.

At October 31, 2008, the Company’s rental commitments for noncancelable operating leases with a duration in excess of one year were as follows:

In Thousands

Fiscal Year

2009	$	15,014
2010		12,246
2011		10,681
2012		10,135
2013		9,696
2014 and thereafter		24,794
	$	82,566

In fiscal 2008, the Company entered into a land and building lease for a 216,000 square foot manufacturing facility to be constructed in fiscal 2009. The land lease has a fixed term of 55 years and lease payments began in fiscal 2008. The land lease is accounted for as an operating lease. The building lease has a fixed term of 30 years and includes an option to purchase the building at fair market value five years after construction is complete. The lease payments for the building lease begin when the building construction is complete. The expected minimum lease payments, including a minimum 2% annual rent increase, related to the building are $1.2 million in 2009, $2.3 million in 2010, $2.4 million in 2011, $2.4 million in 2012, $2.5 million in 2013 and $83.5 million thereafter. The fair value of the building is expected to be $26.5 million and the building lease will be accounted for as a capital lease. At October 31, 2008, the Company recorded $8.0 million as construction in progress related to construction costs incurred to date along with a corresponding amount recorded as a capital lease obligation.

The Company receives government funding under the Technology Partnership Canada program to assist in the development of certain new products. The amounts are reimbursable through royalties on future revenues derived from funded products if and when they are commercialized.

The Company is subject to purchase obligations for goods and services. The purchase obligations include amounts under legally enforceable agreements for goods and services with defined terms as to quantity, price and timing of delivery. As of October 31, 2008, the Company’s purchase obligations were as follows:

In Thousands

	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Purchase obligations	$	196,422	$	177,449	$	18,435	$	435	$	103

The Company is a party to various lawsuits and claims, both as plaintiff and defendant, and has contingent liabilities arising from the conduct of business, none of which, in the opinion of

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management, is expected to have a material effect on the Company’s financial position or results of operations. The Company believes that it has made appropriate and adequate provisions for contingent liabilities.

Approximately 820 U.S.-based employees or 17% of total U.S.-based employees were represented by various labor unions. In April 2008, a collective bargaining agreement covering about 130 employees expired and a successor agreement was reached with the labor union. A second agreement covering about 150 employees expired in August 2008 and a successor agreement covering 100 employees was reached. Management believes that the Company has established a good relationship with these employees and their union. The Company’s European operations are subject to national trade union agreements and to local regulations governing employment.

NOTE 12: Employee Stock Plans

The Company has two share-based compensation plans, which are described below. The compensation cost that has been charged against income for those plans for fiscal 2008 and 2007 was $8.7 million and $6.9 million, respectively. The total income tax benefit recognized in the income statement for the share-based compensation arrangement for fiscal 2008 and 2007 was $2.6 million and $2.0 million, respectively.

In March 2002, the Company’s shareholders approved the establishment of an Employee Stock Purchase Plan (ESPP) under which 300,000 shares of the Company’s common stock are reserved for issuance to employees. On March 5, 2008, the Company’s shareholders authorized an additional 250,000 shares of the Company’s stock under the ESPP. The plan qualifies as a noncompensatory employee stock purchase plan under Section 423 of the Internal Revenue Code. Employees are eligible to participate through payroll deductions subject to certain limitations.

At the end of each offering period, usually six months, shares are purchased by the participants at 85% of the lower of the fair market value on the first day of the offering period or the purchase date. During fiscal 2008, employees purchased 77,881 shares at a fair market value price of $49.54 per share, leaving a balance of 295,010 shares available for issuance in the future. As of October 31, 2008, deductions aggregating $1,312,167 were accrued for the purchase of shares on December 15, 2008. The Company converted the ESPP to a “safe harbor” design on December 16, 2008. Under the safe harbor design, shares are purchased by participants at 95% of the fair market value on the purchase date.

The fair value of the awards under the employee stock purchase plan was estimated using a Black-Scholes pricing model which uses the assumptions noted in the following table. The Company uses historical data to estimate volatility of the Company’s common stock. The risk-free rate for the contractual life of the option is based on the U.S. Treasury zero coupon issues in effect the time of grant.

	2008		2007		2006
Volatility	21.4 – 34.8	%	21.4 – 39.9	%	30.0 – 30.7	%
Risk-free interest rate	3.32 – 5.15	%	5.15	%	3.20 – 5.15	%
Expected life (months)	6		6		6
Dividends	—		—		—

The Company also provides a nonqualified stock option plan for officers and key employees. On March 5, 2008, the Company’s shareholders authorized the issuance of an additional 1,000,000

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shares of the Company’s common stock under the equity incentive plan. At the end of fiscal 2008, the Company had 3,069,875 shares reserved for issuance to officers and key employees, of which 1,399,450 shares were available to be granted in the future.

The Board of Directors authorized the Compensation Committee to administer awards granted under the equity incentive plan, including option grants, and to establish the terms of such awards. Awards under the equity incentive plan may be granted to eligible employees of the Company over the 10-year period ending March 3, 2014. Options granted become exercisable ratably over a period of four years following the date of grant and expire on the tenth anniversary of the grant. Option exercise prices are equal to the fair market value of the Company’s common stock on the date of grant. The weighted-average grant date fair value of the options granted in fiscal 2008 and 2007 was $25.44 per share and $21.62 per share, respectively.

The fair value of each option granted by the Company was estimated using a Black-Scholes pricing model which uses the assumptions noted in the following table. The Company uses historical data to estimate volatility of the Company’s common stock and option exercise and employee termination assumptions. The range of the expected term reflects the results from certain groups of employees exhibiting different behavior. The risk-free rate for the periods within the contractual life of the grant is based upon the U.S. Treasury zero coupon issues in effect at the time of the grant.

	2008		2007		2006
Volatility	33.0 – 42.9	%	36.15 – 44.26	%	44.26 – 44.95	%
Risk-free interest rate	3.24 – 4.53	%	4.31 – 4.82	%	4.53 – 5.18	%
Expected life (years)	2.0 – 9.5		4.5 – 9.5		6.5 – 9.5
Dividends	—		—		—

The following table summarizes the changes in outstanding options granted under the Company’s stock option plans:

	2008				2007				2006
	Shares Subject to Option			Weighted Average Exercise Price	Shares Subject to Option			Weighted Average Exercise Price	Shares Subject to Option			Weighted Average Exercise Price
Outstanding,     beginning of year	1,506,400		$	30.89	1,469,000		$	25.80	1,401,100		$	23.56
Granted	376,300			52.53	420,000			40.24	176,400			38.87
Exercised	(184,125	)		20.12	(332,950	)		19.68	(90,500	)		16.54
Cancelled	(28,150	)		42.50	(49,650	)		35.62	(18,000	)		25.92
Outstanding,     end of year	1,670,425		$	36.76	1,506,400		$	30.89	1,469,000		$	25.80
Exercisable,     end of year	855,125		$	28.54	775,300		$	23.95	886,300		$	20.61

The aggregate intrinsic value of the option shares outstanding and exercisable at October 31, 2008 was $7.5 million and $7.4 million, respectively.

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The number of option shares vested or that are expected to vest at October 31, 2008 was 1.6 million and the aggregate intrinsic value was $7.5 million. The weighted average exercise price and weighted average remaining contractual term of option shares vested or that are expected to vest at October 31, 2008 was $36.50 and 6.7 years, respectively. The weighted-average remaining contractual term of option shares currently exercisable is 5.2 years as of October 31, 2008.

The table below presents stock activity related to stock options exercised in fiscal 2008 and 2007:

In Thousands	2008		2007
Proceeds from stock options exercised	$	3,721	$	6,553
Tax benefits related to stock options exercised	$	1,983	$	2,729
Intrinsic value of stock options exercised	$	6,757	$	9,843

Total unrecognized compensation expense for options that have not vested as of October 31, 2008, is $7.6 million, which will be recognized over a weighted average period of 1.3 years. The total fair value of option shares vested during the year ended October 31, 2008 was $5.1 million.

The following table summarizes information for stock options outstanding at October 26, 2007:

		Options Outstanding			Options Exercisable
	Range of Exercise Prices	Shares	Weighted Average Remaining Life (years)	Weighted Average Price	Shares	Weighted Average Price
$	11.38 – 23.85	385,750	3.76	$    19.44	385,750	$    19.44
	23.86 – 38.90	361,900	5.77	34.30	291,300	33.74
	38.91 – 38.91	305,275	8.07	38.91	75,250	38.91
	38.92 – 50.89	296,900	7.95	42.49	102,825	40.37
	50.90 – 53.00	320,600	9.10	53.00	—	—

NOTE 13:  Capital Stock

The authorized capital stock of the Company consists of 25,000 shares of preferred stock ($100 par value), 475,000 shares of serial preferred stock ($1.00 par value), each issuable in series, and 60,000,000 shares of common stock ($.20 par value). At the end of fiscal 2008, there were no shares of preferred stock or serial preferred stock outstanding.

On October 12, 2007, the Company completed an underwritten public offering of 3.5 million shares of common stock, generating proceeds of $187.1 million. Proceeds from the offering were used to pay off its $100.0 million U.S. term loan facility and pay down a revolving credit facility of $27.0 million.

Effective December 5, 2002, the Board of Directors adopted a Shareholder Rights Plan, providing for the distribution of one Series B Serial Preferred Stock Purchase Right (Right) for each share of common stock held as of December 23, 2002. Each Right entitles the holder to purchase one one-hundredth of a share of Series B Serial Preferred Stock at an exercise price of $161.00, as may be adjusted from time to time.

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The Right to purchase shares of Series B Serial Preferred Stock is triggered once a person or entity (together with such person’s or entity’s affiliates) beneficially owns 15% or more of the outstanding shares of common stock of the Company (such person or entity, an Acquiring Person). When the Right is triggered, the holder may purchase one one-hundredth of a share of Series B Serial Preferred Stock at an exercise price of $161.00 per share. If after the Rights are triggered, (i) the Company is the surviving corporation in a merger or similar transaction with an Acquiring Person, (ii) the Acquiring Person beneficially owns more than 15% of the outstanding shares of common stock or (iii) the Acquiring Person engages in other “self-dealing” transactions, holders of the Rights can elect to purchase shares of common stock of the Company with a market value of twice the exercise price. Similarly, if after the Rights are triggered, the Company is not the surviving corporation of a merger or similar transaction or the Company sells 50% or more of its assets to another person or entity, holders of the Rights may elect to purchase shares of common stock of the surviving corporation or that person or entity who purchased the Company’s assets with a market value of twice the exercise price.

NOTE 14: Acquisitions

On March 14, 2007, the Company acquired all of the outstanding capital stock of CMC Electronics Inc. (CMC), a leading aerospace/defense avionics company, for approximately $344.5 million in cash, including acquisition costs and an adjustment based on the amount of cash and net working capital as of closing. The acquisition significantly expands the scale of the Company’s existing Avionics & Controls business. CMC is included in the Avionics & Controls segment.

The following summarizes the estimated fair market value of the assets acquired and liabilities assumed at the date of acquisition. The allocation of the purchase price was based upon an independent valuation report. The purchase price includes the value of future development of existing technologies, the introduction of new technologies, and the addition of new customers. These factors resulted in the recording of goodwill of $209.4 million. The amount allocated to goodwill is not expected to be deductible for income tax purposes.

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In Thousands

As of March 14, 2007

Current assets	$	96,361
Property, plant and equipment		39,136
Intangible assets subject to amortization
Programs (15 year weighted average useful life)		83,189
Trade names		22,371
Goodwill		209,445
Deferred income tax benefit		22,410
Total assets acquired		472,912
Current liabilities assumed		73,922
Deferred tax liabilities		35,976
Pension and other liabilities		18,481
Net assets acquired	$	344,533

The Company acquired Wallop Defence Systems Limited (Wallop) and FR Countermeasures from Cobham plc on March 24, 2006 and December 23, 2005, respectively. Wallop and FR Countermeasures, manufacturers of military pyrotechnic countermeasure devices, strengthen the Company’s international and U.S. position in countermeasure devices. The Company paid $77.0 million for both companies, including acquisition costs and an adjustment based on the amount of indebtedness and net working capital as of closing. The Company assumed a $4.2 million obligation at FR Countermeasures. In addition, the Company may pay an additional purchase price up to U.K. £4.1 million, or approximately $6.6 million, depending on the achievement of certain objectives. At the time of the acquisition of Wallop, the Company and the seller agreed that some environmental remedial activities may need to be carried out, and these activities are currently on-going. Under the terms of the Stock Purchase Agreement, a portion of the costs of any environmental remedial activities will be reimbursed by the seller if the cost is incurred within five years of the consummation of the acquisition. Wallop and FR Countermeasures are included in the Advanced Materials segment.

The following summarizes the estimated fair market value of the assets acquired and liabilities assumed at the date of acquisition. The allocation of the purchase price was based upon an independent valuation report. The purchase price includes the value of future development of existing technologies, the introduction of new technologies, and the addition of new customers. These factors resulted in the recording of goodwill of $40.7 million. The amount allocated to goodwill is not expected to be deductible for income tax purposes.

93

In Thousands
As of March 24, 2006 (Wallop) and December 23, 2005 (FR Countermeasures)
Current Assets	$	11,479
Property, plant and equipment		20,963
Intangible assets subject to amortization
Programs (17 year weighted average useful life)		21,793
Goodwill		40,720
Deferred income tax benefit		2,151
Total assets acquired		97,106
Debt assumed		4,212
Current liabilities assumed		8,990
Deferred tax liabilities		6,909
Net assets acquired	$	76,995

On December 16, 2005, the Company acquired Darchem Holdings Limited (Darchem), a manufacturer of thermally engineered components for critical aerospace applications for U.K. £68.7 million (approximately $121.7 million), including acquisition costs and an adjustment based on the amount of cash and net working capital of Darchem as of closing. Darchem holds a leading position in its niche market and fits the Company’s engineered-to-order model. Darchem is included in the Advanced Materials segment.

The following summarizes the estimated fair market value of the assets acquired and liabilities assumed at the date of acquisition. The allocation of the purchase price was based upon an independent valuation report. The purchase price includes the value of future development of existing technologies, the introduction of new technologies, and the addition of new customers. These factors resulted in the recording of goodwill of $60.1 million. The amount allocated to goodwill is not expected to be deductible for income tax purposes.

In Thousands As of December 16, 2005
Current Assets	$	21,864
Property, plant and equipment		8,499
Intangible assets subject to amortization
Programs (18 year weighted average useful life)		46,441
Customer relationships (6 year weighted useful life)		2,215
Patents (11 year weighted average useful life)		3,083
Other (1 year useful life)		284
		52,023
Trade name		6,219
Other		171
Goodwill		60,051
Total assets acquired		148,827
Current liabilities assumed		8,237
Deferred tax liabilities		18,933
Net assets acquired	$	121,657

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The above acquisitions were accounted for under the purchase method of accounting and the results of operations were included from the effective date of each acquisition.

On December 15, 2008, the Company acquired NMC Group, Inc. for approximately $90.0 million in cash. NMC designs and manufactures specialized light weight fasteners principally for commercial aviation applications. NMC will be included in our Advanced Materials segment.

NOTE 15: Business Segment Information

The Company’s businesses are organized and managed in three reporting segments: Avionics & Controls, Sensors & Systems and Advanced Materials. Operating segments within each reporting segment are aggregated. Operations within the Avionics & Controls segment focus on integrated cockpit systems, technology interface systems for commercial and military aircraft, and similar devices for land- and sea-based military vehicles, secure communications systems, specialized medical equipment and other industrial applications. Sensors & Systems includes operations that produce high-precision temperature and pressure sensors, electrical power switching and other related systems principally for aerospace and defense customers. The Advanced Materials segment focuses on thermally engineered components for critical aerospace applications, high-performance elastomer products used in a wide range of commercial aerospace and military applications, and combustible ordnance and electronic warfare countermeasure devices. All segments include sales to domestic, international, defense and commercial customers.

Geographic sales information is based on product origin. The Company evaluates these segments based on segment profits prior to net interest, other income/expense, corporate expenses and federal/foreign income taxes.

Details of the Company’s operations by business segment for the last three fiscal years were as follows:

In Thousands		2008			2007			2006
Sales
Avionics & Controls	$	611,467		$	461,990		$	286,936
Sensors & Systems		384,180			316,485			277,504
Advanced Materials		487,525			428,558			356,007
	$	1,483,172		$	1,207,033		$	920,447
Income From Continuing Operations
Avionics & Controls	$	77,892		$	47,821		$	45,354
Sensors & Systems		43,439			32,385			26,256
Advanced Materials		78,633			97,295			46,493
Segment Earnings		199,964			177,501			118,103
Corporate expense		(35,725	)		(33,691	)		(27,338	)
Other income (expense)		(86	)		(24	)		490
Gain on derivative financial instrument		1,850			—			—
Loss on extinguishment of debt		—			(1,100	)		(2,156	)
Interest income		4,374			3,093			2,575
Interest expense		(29,922	)		(35,299	)		(21,288	)
	$	140,455		$	110,480		$	70,386

95

In Thousands		2008		2007		2006
Identifiable Assets
Avionics & Controls	$	782,633	$	856,875	$	280,791
Sensors & Systems		488,829		462,558		416,390
Advanced Materials		501,494		568,475		518,841
Corporate1		149,146		151,151		74,429
	$	1,922,102	$	2,039,059	$	1,290,451
Capital Expenditures
Avionics & Controls	$	10,287	$	5,852	$	4,951
Sensors & Systems		12,067		8,345		9,108
Advanced Materials		15,363		15,054		11,424
Discontinued Operations		1,449		1,004		924
Corporate		1,499		212		133
	$	40,665	$	30,467	$	26,540
Depreciation and Amortization
Avionics & Controls	$	21,903	$	16,166	$	7,342
Sensors & Systems		17,110		13,818		12,938
Advanced Materials		23,852		22,320		19,164
Discontinued Operations		1,340		1,613		1,721
Corporate		2,094		1,903		1,668
	$	66,299	$	55,820	$	42,833
1    Primarily cash, prepaid pension expense (see Note 8) and deferred tax assets (see Note 9). The Company’s operations by geographic area for the last three fiscal years were as follows:
In Thousands		2008		2007		2006
Sales
Domestic
Unaffiliated customers – U.S.	$	675,187	$	594,154	$	535,259
Unaffiliated customers – export		176,985		151,041		120,247
Intercompany		12,608		10,875		12,017
		864,780		756,070		667,523
Canada
Unaffiliated customers		201,604		122,087		—
Intercompany		4,531		—		—
		206,135		122,087		—
France
Unaffiliated customers		178,511		143,599		121,553
Intercompany		27,067		19,564		14,878
		205,578		163,163		136,431
United Kingdom
Unaffiliated customers		227,830		152,319		113,371
Intercompany		13,015		13,175		10,910
		240,845		165,494		124,281

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In Thousands		2008			2007			2006
All Other Foreign
Unaffiliated customers		23,055			43,833			30,017
Intercompany		5,035			2,821			4,747
		28,090			46,654			34,764
Eliminations		(62,256	)		(46,435	)		(42,552	)
	$	1,483,172		$	1,207,033		$	920,447
Segment Earnings1
Domestic	$	147,865		$	120,711		$	95,726
Canada		1,273			(7,621	)		—
France		23,170			15,025			12,239
United Kingdom		23,052			45,786			6,491
All other foreign		4,604			3,600			3,647
	$	199,964		$	177,501		$	118,103
Identifiable Assets2
Domestic	$	661,946		$	641,143		$	604,399
Canada		478,648			568,650			—
France		186,482			188,430			157,631
United Kingdom		388,789			430,876			401,898
All other foreign		57,091			58,809			52,094
	$	1,772,956		$	1,887,908		$	1,216,022
1   Before corporate expense, shown on page 95. 2   Excludes corporate, shown on page 96. The Company’s principal foreign operations consist of manufacturing facilities located in Canada, France, Germany and the United Kingdom, and include sales and service operations located in Singapore and China. Sensors & Systems segment operations are dependent upon foreign sales, which represented $244.5 million, $200.9 million and $173.9 million of Sensors & Systems sales in fiscal 2008, 2007 and 2006, respectively. Intercompany sales are at prices comparable with sales to unaffiliated customers. U.S. government sales as a percent of Advanced Materials and Avionics & Controls sales were 23.6% and 4.9%, respectively, in fiscal 2008 and 10.0% of consolidated sales. In fiscal 2007, U.S. government sales as a percent of Advanced Materials and Avionics & Controls sales were 26.1% and 6.0%, respectively, and 11.2% of consolidated sales. Product lines contributing sales of 10% or more of total sales in any of the last three fiscal years were as follows:
		2008			2007			2006
Elastomeric products		10	%		12	%		13	%
Sensors		12	%		12	%		14	%
Aerospace switches and indicators		10	%		12	%		11	%
Avionics1		11	%		7	%		—

¹ The avionics product line reflects the acquisition of CMC in March 2007.

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NOTE 16: Quarterly Financial Data (Unaudited)

The following is a summary of unaudited quarterly financial information:

In Thousands, Except Per Share Amounts

Fiscal Year 2008		Fourth			Third			Second			First
Net sales	$	404,350		$	363,464		$	358,033		$	357,325
Gross margin		140,361			113,358			121,387			115,213
Net earnings from     continuing operations	$	41,437		$	18,400		$	23,947		$	29,725
Net earnings from     discontinued operations	$	2,445		$	2,082		$	1,238		$	1,259
Net earnings	$	43,882	1	$	20,482	2	$	25,185	3	$	30,984	4,5
Earnings per share – basic
Continuing operations	$	1.40		$	0.62		$	0.81		$	1.01
Discontinued operations	$	0.08		$	0.07		$	0.05		$	0.04
Earnings per share – basic	$	1.48		$	0.69		$	0.86		$	1.05
Earnings per share – diluted
Continuing operations	$	1.38		$	0.61		$	0.80		$	1.00
Discontinued operations	$	0.08		$	0.07		$	0.04		$	0.04
Earnings per share – diluted 11	$	1.46		$	0.68		$	0.84		$	1.04

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Fiscal Year 2007		Fourth			Third			Second		First
Net sales	$	355,695		$	309,966		$	298,068	$	243,304
Gross margin		113,100			94,579			94,518		70,863
Net earnings from continuing operations	$	20,468		$	36,414		$	18,880	$	12,000
Net earnings from discontinued operations	$	420		$	2,421		$	880	$	801
Net earnings 6	$	20,888	7,8	$	38,835	9	$	19,760	$	12,801	10
Earnings per share – basic
Continuing operations	$	0.77		$	1.42		$	0.74	$	0.47
Discontinued operations	$	0.02		$	0.09		$	0.03	$	0.03
Earnings per share – basic	$	0.79		$	1.51		$	0.77	$	0.50
Earnings per share – diluted
Continuing operations	$	0.76		$	1.39		$	0.73	$	0.46
Discontinued operations	$	0.02		$	0.10		$	0.03	$	0.03
Earnings per share – diluted 11	$	0.78		$	1.49		$	0.76	$	0.49

¹ Included $1.2 million of tax benefits associated with the extension of the U.S. Research Experimentation tax credit.

² Included $287,000 of tax expense associated with the reconciliation of the prior year’s U.S. income tax return provision for income taxes.

³ Included an accrual of $766,000 of tax reserves and interest related to the finalization of CMC’s FIN 48 analysis.

⁴ Included a $2.8 million reduction of previously estimated income tax liabilities due to the settlement of an examination of the U.S. income tax returns for fiscal years 2003 through 2005.

⁵ Included a $4.1 million net reduction of deferred income tax liabilities as a result of the enactment of tax laws reducing the Canadian statutory corporate income tax rate.

⁶ The effects of the business interruption insurance recovery are included in income from continuing operations and presented below:

		Fourth		Third		Second		First
Fiscal Year 2007	$	153	$	32,857	$	2,810	$	1,647

⁷ Included a $1.1 million loss on early extinguishment of debt.

⁸ Included a $1.4 million net reduction in deferred income tax liabilities which was the result of enactment of tax laws reducing U.K., Canadian, and German statutory corporate income tax rates.

⁹ Included a $1.4 million net reduction in deferred income tax liabilities which was the result of enactment of tax laws reducing U.K. statutory corporate income tax rates. The third quarter of fiscal 2007 also included a $0.9 million reduction of the estimated $1.9 million credit taken in the first quarter of fiscal 2007 relating to the retroactive extension of the U.S. Research and Experimentation tax credit that was signed into law on December 21, 2006.

¹⁰ Included a $1.9 million tax benefit as a result of the retroactive extension of the U.S. Research and Experimentation tax credit that was signed into law on December 21, 2006.

¹¹ The sum of the quarterly per share amounts may not equal per share amounts reported for year-to-date periods. This is due to changes in the number of weighted average shares outstanding and the effects of rounding for each period.

99

NOTE 17: Subsequent Event (Unaudited)

On December 21, 2008, the Company entered into a Share Sale and Purchase Agreement to acquire Racal Acoustics Global Ltd. (Racal), for U.K. £115.0 million or $172.0 million subject to certain governmental approvals and customary closing conditions. Racal develops and manufactures high technology ruggedized personal communication equipment for the defense and avionics market segment. Racal will be included in our Avionics & Controls segment.

NOTE 18: Guarantors

The following schedules set forth condensed consolidating financial information as required by Rule 3-10 of Securities and Exchange Commission Regulation S-X for fiscal 2008, 2007 and 2006 for (a) Esterline Technologies Corporation (the Parent); (b) on a combined basis, the subsidiary guarantors (Guarantor Subsidiaries) of the Senior Subordinated Notes due 2013 (Senior Subordinated Notes) and Senior Notes due 2017 (Senior Notes) which include Advanced Input Devices, Inc., Amtech Automated Manufacturing Technology, Angus Electronics Co., Armtec Countermeasures Co., Armtec Countermeasures TNO Co., Armtec Defense Products Co., AVISTA, Incorporated, BVR Technologies Co., CMC DataComm Inc., CMC Electronics Acton Inc., CMC Electronics Aurora Inc., EA Technologies Corporation, Equipment Sales Co., Esterline Canadian Holding Co., Esterline International Company (China), Esterline Sensors Services Americas, Inc., Esterline Technologies Holdings Limited, Esterline Technologies Ltd. (England), H.A. Sales Co., Hauser Inc., Hytek Finishes Co., Janco Corporation, Kirkhill-TA Co., Korry Electronics Co., Leach Holding Corporation, Leach International Corporation, Leach International Mexico S. de R.L. de C.V. (Mexico), Leach Technology Group, Inc., Mason Electric Co., MC Tech Co., Memtron Technologies Co., Norwich Aero Products, Inc., Palomar Products, Inc., Pressure Systems, Inc., Pressure Systems International, Inc., Surftech Finishes Co., UMM Electronics Inc., and (c) on a combined basis, the subsidiary non-guarantors (Non-Guarantor Subsidiaries), which include Advanced Input Devices Ltd. (U.K.), Auxitrol S.A., BAE Systems Canada/Air TV LLC, Beacon Electronics Inc., CMC Electronics Inc., Darchem Engineering Limited, Darchem Holdings Ltd., Darchem Insulation Systems Limited, Esterline Acquisition Ltd. (U.K.), Esterline Canadian Acquisition Company, Esterline Canadian Limited Partnership, Esterline Foreign Sales Corporation (U.S. Virgin Islands), Esterline Input Devices Asia Ltd. (Barbados), Esterline Input Devices Ltd. (Shanghai), Esterline Mexico S. de R.L. de C.V. (Mexico), Esterline Sensors Services Asia PTE, Ltd. (Singapore), Esterline Technologies Denmark ApS (Denmark), Guizhou Leach-Tianyi Aviation Electrical Company Ltd. (China), Leach International Asia-Pacific Ltd. (Hong Kong), Leach International Europe S.A. (France), Leach International Germany GmbH (Germany), Leach International U.K. (England), Leach Italia Srl. (Italy), LRE Medical GmbH (Germany), Muirhead Aerospace Ltd., Norcroft Dynamics Ltd., Pressure Systems International Ltd., TA Mfg. Limited (U.K.), Wallop Defence Systems Limited, Wallop Industries Limited (U.K.), Weston Aero Ltd. (England), and Weston Aerospace Ltd. (England). The Guarantor Subsidiaries are direct and indirect wholly-owned subsidiaries of Esterline Technologies Corporation and have fully and unconditionally, jointly and severally, guaranteed the Senior Notes and Senior Subordinated Notes. The net assets, net loss and cash flows of CMC DataComm Inc., CMC Electronics Acton Inc. and CMC Electronics Aurora Inc. were previously included with Non-Guarantor Subsidiaries until the valuation of these guarantor subsidiaries was complete. At May 2, 2008, the valuation of these guarantor subsidiaries was completed and, accordingly, the reported consolidating balance sheet, income statement and statement of cash flows for the Guarantor Subsidiaries and Non-Guarantor Subsidiaries for fiscal 2007 and 2006 have been adjusted to reflect the inclusion of CMC DataComm Inc., CMC Electronics Acton Inc. and CMC Electronics Aurora Inc. as Guarantor Subsidiaries.

100

Condensed Consolidating Balance Sheet as of October 31, 2008

In Thousands	Parent		Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total
Assets
Current Assets
Cash and cash equivalents	$	80,884	$	21,913		$	57,848		$	—		$	160,645
Accounts receivable, net		205		127,583			169,718			—			297,506
Inventories		—		127,216			134,757			—			261,973
Income tax refundable		—		13,664			(8,097	)		—			5,567
Deferred income tax benefits		30,034		(1	)		7,669			—			37,702
Prepaid expenses		26		4,584			8,430			—			13,040
Other current assets		—		—			897			—			897
Total Current Assets		111,149		294,959			371,222			—			777,330
Property, Plant & Equipment, Net		1,821		112,782			89,859			—			204,462
Goodwill		—		209,605			367,256			—			576,861
Intangibles, Net		—		70,013			220,427			—			290,440
Debt Issuance Costs, Net		7,587		—			—			—			7,587
Deferred Income Tax Benefits		18,082		5,810			31,929			—			55,821
Other Assets		1,490		1,857			6,254			—			9,601
Amounts Due To (From) Subsidiaries		—		62,441			—			(62,441	)		—
Investment in Subsidiaries		1,422,684		221,267			126,657			(1,770,608	)		—
Total Assets	$	1,562,813	$	978,734		$	1,213,604		$	(1,833,049	)	$	1,922,102

101

Condensed Consolidating Balance Sheet as of October 31, 2008

In Thousands	Parent		Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Total
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	510	$	30,077	$	59,220		$	—		$	89,807
Accrued liabilities		14,796		68,924		126,702			—			210,422
Credit facilities		—		—		5,171			—			5,171
Current maturities of long-term debt		6,983		740		665			—			8,388
Deferred income tax liability		2,889		—		—			—			2,889
Federal and foreign income taxes		4,022		730		(310	)		—			4,442
Total Current Liabilities		29,200		100,471		191,448			—			321,119
Long-Term Debt, Net		379,493		8,408		347			—			388,248
Deferred Income Taxes		28,152		6,042		63,636			—			97,830
Other Liabilities		16,664		32,018		37,085			—			85,767
Amounts Due To (From) Subsidiaries		82,963		—		129,049			(212,012	)		—
Minority Interest		—		—		2,797			—			2,797
Shareholders’ Equity		1,026,341		831,795		789,242			(1,621,037	)		1,026,341
Total Liabilities and Shareholders’ Equity	$	1,562,813	$	978,734	$	1,213,604		$	(1,833,049	)	$	1,922,102

102

Condensed Consolidating Statement of Operations for the fiscal year ended October 31, 2008

In Thousands	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total
Net Sales	$	—		$	851,628		$	654,666		$	(23,122	)	$	1,483,172
Cost of Sales		—			568,377			447,598			(23,122	)		992,853
		—			283,251			207,068			—			490,319
Expenses
Selling, general and administrative		—			119,655			119,627			—			239,282
Research, development and engineering		—			26,927			59,871			—			86,798
Total Expenses		—			146,582			179,498			—			326,080
Other
Other expense (income)		90			—			(4	)		—			86
Total Other		90			—			(4	)		—			86
Operating Earnings from Continuing Operations		(90	)		136,669			27,574			—			164,153
Interest income		(22,118	)		(3,803	)		(39,699	)		61,246			(4,374	)
Interest expense		28,818			21,921			40,429			(61,246	)		29,922
Gain on derivative financial instrument		(1,850	)		—			—			—			(1,850	)
Other (Income) Expense, Net		4,850			18,118			730			—			23,698
Income (Loss) from Continuing Operations Before Taxes		(4,940	)		118,551			26,844			—			140,455
Income Tax Expense (Benefit)		(1,159	)		28,621			(899	)		—			26,563
Income (Loss) From Continuing Operations Before Minority Interest		(3,781	)		89,930			27,743			—			113,892
Minority Interest		—			—			(383	)		—			(383	)
Income (Loss) From Continuing Operations		(3,781	)		89,930			27,360			—			113,509
Gain on Discontinued Operations		—			—			7,024			—			7,024
Equity in Net Income of Consolidated Subsidiaries		124,314			21,554			779			(146,647	)		—
Net Income (Loss)	$	120,533		$	111,484		$	35,163		$	(146,647	)	$	120,533

103

Condensed Consolidating Statement of Cash Flows for the fiscal year ended October 31, 2008

In Thousands	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total
Cash Flows Provided (Used) by Operating Activities
Net earnings (loss)	$	120,533		$	111,484		$	35,163		$	(146,647	)	$	120,533
Minority interest		—			—			383			—			383
Depreciation & amortization		—			27,686			38,613			—			66,299
Deferred income tax		(16,555	)		235			(6,586	)		—			(22,906	)
Share-based compensation		—			4,873			3,838			—			8,711
Working capital changes, net of effect of acquisitions
Accounts receivable		(22	)		(10,188	)		(44,392	)		—			(54,602	)
Inventories		—			(7,979	)		(20,445	)		—			(28,424	)
Prepaid expenses		—			(49	)		(1,575	)		—			(1,624	)
Other current assets		—			—			(1,058	)		—			(1,058	)
Accounts payable		(1,288	)		2,399			11,673			—			12,784
Accrued liabilities		(3,798	)		8,038			14,484			—			18,724
Federal & foreign income taxes		1,514			(8,346	)		3,470			—			(3,362	)
Other liabilities		2,899			(1,357	)		(1,693	)		—			(151	)
Other, net		3,164			185			237			—			3,586
		106,447			126,981			32,112			(146,647	)		118,893
Cash Flows Provided (Used) by Investing Activities
Purchases of capital assets		(388	)		(19,439	)		(20,838	)		—			(40,665	)
Proceeds from sale of capital assets		—			470			631			—			1,101
Acquisitions of businesses, net		—			(1,618	)		11,043			—			9,425
		(388	)		(20,587	)		(9,164	)		—			(30,139	)

104

Condensed Consolidating Statement of Cash Flows for the fiscal year ended October 31, 2008

In Thousands	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Total
Cash Flows Provided (Used) by Financing Activities
Proceeds provided by stock issuance under employee stock plans		7,516			—			—			—		7,516
Excess tax benefits from stock option exercises		1,983			—			—			—		1,983
Dividends paid to minority interest		—			—			(554	)		—		(554	)
Net change in credit facilities		—			—			(2,191	)		—		(2,191	)
Repayment of long-term debt		(68,020	)		(1,152	)		(860	)		—		(70,032	)
Net change in intercompany financing		(55,927	)		(84,871	)		(5,849	)		146,647		—
		(114,448	)		(86,023	)		(9,454	)		146,647		(63,278	)
Effect of foreign exchange rates on cash		(2	)		40			(11,938	)		—		(11,900	)
Net increase (decrease) in cash and cash equivalents		(8,391	)		20,411			1,556			—		13,576
Cash and cash equivalents – beginning of year		89,275			1,502			56,292			—		147,069
Cash and cash equivalents – end of year	$	80,884		$	21,913		$	57,848		$	—	$	160,645

105

Condensed Consolidating Balance Sheet as of October 26, 2007

In Thousands	Parent		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Total
Assets
Current Assets
Cash and cash equivalents	$	89,275	$	1,502	$	56,292	$	—		$	147,069
Cash in escrow		—		—		—		—			—
Accounts receivable, net		183		117,247		144,657		—			262,087
Inventories		—		119,093		139,083		—			258,176
Income tax refundable		—		—		11,580		—			11,580
Deferred income tax benefits		29,031		2		7,944		—			36,977
Prepaid expenses		26		4,535		8,695		—			13,256
Total Current Assets		118,515		242,379		368,251		—			729,145
Property, Plant & Equipment, Net		1,951		105,388		110,082		—			217,421
Goodwill		—		209,276		447,589		—			656,865
Intangibles, Net		—		74,445		290,872		—			365,317
Debt Issuance Costs, Net		9,192		—		—		—			9,192
Deferred Income Tax Benefits		2,976		—		30,300		—			33,276
Other Assets		3,255		15,352		9,236		—			27,843
Amounts Due To (From) Subsidiaries		243,882		—		—		(243,882	)		—
Investment in Subsidiaries		1,269,230		199,713		24,774		(1,493,717	)		—
Total Assets	$	1,649,001	$	846,553	$	1,281,104	$	(1,737,599	)	$	2,039,059

106

Condensed Consolidating Balance Sheet as of October 26, 2007

In Thousands	Parent		Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Total
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	1,798	$	27,678		$	60,781	$	—		$	90,257
Accrued liabilities		28,692		60,180			98,724		—			187,596
Credit facilities		—		—			8,634		—			8,634
Current maturities of long-term debt		10,239		1,152			775		—			12,166
Deferred income tax liability		1,573		—			—		—			1,573
Federal and foreign income taxes		4,564		(4,588	)		11,271		—			11,247
Total Current Liabilities		46,866		84,422			180,185		—			311,473
Long-Term Debt, Net		452,645		1,167			1,190		—			455,002
Deferred Income Taxes		20,747		—			90,191		—			110,938
Other Liabilities		6,917		8,734			21,201		—			36,852
Amounts Due To (From) Subsidiaries		—		58,935			99,826		(158,761	)		—
Minority Interest		—		—			2,968		—			2,968
Shareholders’ Equity		1,121,826		693,295			885,543		(1,578,838	)		1,121,826
Total Liabilities and Shareholders’ Equity	$	1,649,001	$	846,553		$	1,281,104		$  (1,737,599	)	$	2,039,059

107

Condensed Consolidating Statement of Operations for the fiscal year ended October 26, 2007

In Thousands	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total
Net Sales	$	—		$	744,085		$	478,111		$	(15,163	)	$	1,207,033
Cost of Sales		—			506,178			342,958			(15,163	)		833,973
		—			237,907			135,153			—			373,060
Expenses
Selling, general and administrative		—			103,775			96,051			—			199,826
Research, development and engineering		—			27,144			39,747			—			66,891
Total Expenses		—			130,919			135,798			—			266,717
Other
Other expense		—			—			24			—			24
Insurance recovery		—			—			(37,467	)		—			(37,467	)
Total Other		—			—			(37,443	)		—			(37,443	)
Operating Earnings from Continuing Operations		—			106,988			36,798			—			143,786
Interest income		(20,662	)		(4,797	)		(22,375	)		44,741			(3,093	)
Interest expense		34,450			21,268			24,322			(44,741	)		35,299
Loss on extinguishment of debt		1,100			—			—			—			1,100
Other Expense, Net		14,888			16,471			1,947			—			33,306
Income (Loss) from Continuing Operations Before Taxes		(14,888	)		90,517			34,851			—			110,480
Income Tax
Expense (Benefit)		(3,362	)		20,819			5,108			—			22,565
Income (Loss) From Continuing Operations Before Minority Interest		(11,526	)		69,698			29,743			—			87,915
Minority Interest		—			—			(153	)		—			(153	)
Income (Loss) From Continuing Operations		(11,526	)		69,698			29,590			—			87,762
Gain on Discontinued Operations		—			—			4,522			—			4,522
Equity in Net Income of Consolidated Subsidiaries		103,810			12,658			(2,063	)		(114,405	)		—
Net Income (Loss)	$	92,284		$	82,356		$	32,049		$	(114,405	)	$	92,284

108

Condensed Consolidating Statement of Cash Flows for the fiscal year ended October 26, 2007

In Thousands	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total
Cash Flows Provided (Used) by Operating Activities
Net earnings (loss)	$	92,284		$	82,356		$	32,049		$	(114,405	)	$	92,284
Minority interest		—			—			153			—			153
Depreciation & amortization		—			27,276			28,544			—			55,820
Deferred income tax		3,729			23			(19,184	)		—			(15,432	)
Share-based compensation		—			3,764			3,138			—			6,902
Working capital changes, net of effect of acquisitions
Accounts receivable		118			(7,853	)		(286	)		—			(8,021	)
Inventories		—			(4,054	)		(8,018	)		—			(12,072	)
Prepaid expenses		138			342			(1,409	)		—			(929	)
Accounts payable		1,073			6,073			374			—			7,520
Accrued liabilities		3,148			(2,886	)		(3,696	)		—			(3,434	)
Federal & foreign income taxes		1,773			(1,329	)		4,269			—			4,713
Other liabilities		145			(637	)		(3,382	)		—			(3,874	)
Other, net		497			(7,494	)		5,091			—			(1,906	)
		102,905			95,581			37,643			(114,405	)		121,724
Cash Flows Provided (Used) by Investing Activities
Purchases of capital assets		(145	)		(14,735	)		(15,587	)		—			(30,467	)
Proceeds from sale of capital assets		29			836			2,210			—			3,075
Acquisitions of businesses, net		—			(2,073	)		(352,875	)		—			(354,948	)
		(116	)		(15,972	)		(366,252	)		—			(382,340	)

109

Condensed Consolidating Statement of Cash Flows for the fiscal year ended October 26, 2007

In Thousands	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Total
Cash Flows Provided (Used) by Financing Activities
Proceeds provided by stock issuance under employee stock plans		9,742			—			—			—		9,742
Excess tax benefits from stock option exercises		2,728			—			—			—		2,728
Proceeds provided by sale of common stock		187,145			—			—			—		187,145
Debt and other issuance costs		(6,409	)		—			—			—		(6,409	)
Dividends paid to minority interest		—			—			(763	)		—		(763	)
Net change in credit facilities		(5,000	)		—			5,144			—		144
Proceeds from issuance of long-term debt		275,000			—			—			—		275,000
Repayment of long-term debt		(104,291	)		(1,065	)		(317	)		—		(105,673	)
Net change in intercompany financing		(386,727	)		(79,816	)		352,138			114,405		—
		(27,812	)		(80,881	)		356,202			114,405		361,914
Effect of foreign exchange rates on cash		(45	)		102			3,076			—		3,133
Net increase (decrease) in cash and cash equivalents		74,932			(1,170	)		30,669			—		104,431
Cash and cash equivalents – beginning of year		14,343			2,672			25,623			—		42,638
Cash and cash equivalents – end of year	$	89,275		$	1,502		$	56,292		$	—	$	147,069

110

Condensed Consolidating Statement of Operations for the fiscal year ended October 27, 2006

In Thousands	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total
Net Sales	$	—		$	638,494		$	296,225		$	(14,272	)	$	920,447
Cost of Sales		—			436,358			211,341			(14,272	)		633,427
		—			202,136			84,884			—			287,020
Expenses
Selling, general and administrative		—			95,185			56,883			—			152,068
Research, development and engineering		—			22,298			26,779			—			49,077
Total Expenses		—			117,483			83,662			—			201,145
Other
Other income		—			—			(490	)		—			(490	)
Insurance recovery		—			—			(4,890	)		—			(4,890	)
Total Other		—			—			(5,380	)		—			(5,380	)
Operating Earnings from Continuing Operations		—			84,653			6,602			—			91,255
Interest income		(20,857	)		(4,758	)		(1,656	)		24,696			(2,575	)
Interest expense		20,551			13,902			11,531			(24,696	)		21,288
Loss on extinguishment of debt		2,156			—			—			—			2,156
Other Expense, Net		1,850			9,144			9,875			—			20,869
Income (Loss) from Continuing Operations Before Taxes		(1,850	)		75,509			(3,273	)		—			70,386
Income Tax Expense (Benefit)		(517	)		17,636			(1,209	)		—			15,910
Income (Loss) From Continuing Operations Before Minority Interest		(1,333	)		57,873			(2,064	)		—			54,476
Minority Interest		—			—			(865	)		—			(865	)
Income (Loss) From Continuing Operations		(1,333	)		57,873			(2,929	)		—			53,611
Gain on Discontinued Operations		—			—			2,004			—			2,004
Equity in Net Income of Consolidated Subsidiaries		56,948			4,010			—			(60,958	)		—
Net Income (Loss)	$	55,615		$	61,883		$	(925	)	$	(60,958	)	$	55,615

111

Condensed Consolidating Statement of Cash Flows for the fiscal year ended October 27, 2006

In Thousands	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total
Cash Flows Provided (Used) by Operating Activities
Net earnings (loss)	$	55,615		$	61,883		$	(925	)	$	(60,958	)	$	55,615
Minority interest		—			—			865			—			865
Depreciation & amortization		—			23,585			19,248			—			42,833
Deferred income tax		(1,561	)		87			(149	)		—			(1,623	)
Share-based compensation		—			3,667			1,763			—			5,430
Gain on sale of short-term investments		(610	)		—			—			—			(610	)
Working capital changes, net of effect of acquisitions Accounts receivable		370			(8,653	)		(8,228	)		—			(16,511	)
Inventories		—			(23,513	)		(15,728	)		—			(39,241	)
Prepaid expenses		15			1			(1,321	)		—			(1,305	)
Accounts payable		(265	)		801			7,570			—			8,106
Accrued liabilities		(146	)		4,209			(4,709	)		—			(646	)
Federal & foreign income taxes		810			(1,853	)		(11,487	)		—			(12,530	)
Other liabilities		(1,579	)		(4,619	)		4,521			—			(1,677	)
Other, net		(1,541	)		785			(1,274	)		—			(2,030	)
		51,108			56,380			(9,854	)		(60,958	)		36,676
Cash Flows Provided (Used) by Investing Activities
Purchases of capital assets		(133	)		(16,624	)		(10,296	)		—			(27,053	)
Proceeds from sale of capital assets		6			1,006			144			—			1,156
Proceeds from sale of short-term investments		63,266			—			—			—			63,266
Acquisitions of businesses, net		—			(125,456	)		(64,888	)		—			(190,344	)
		63,139			(141,074	)		(75,040	)		—			(152,975	)

112

Condensed Consolidating Statement of Cash Flows for the fiscal year ended October 27, 2006

In Thousands	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Total
Cash Flows Provided (Used) by Financing Activities
Proceeds provided by stock issuance under employee stock plans		4,038			—			—			—		4,038
Excess tax benefits from stock option exercises		545			—			—			—		545
Net change in credit facilities		5,000			—			905			—		5,905
Proceeds from issuance of long-term debt		100,000			—			—			—		100,000
Repayment of long-term debt		(70,001	)		—			(1,371	)		—		(71,372	)
Net change in intercompany financing		(214,850	)		85,236			68,656			60,958		—
		(175,268	)		85,236			68,190			60,958		39,116
Effect of foreign exchange rates on cash		—			(24	)		1,541			—		1,517
Net increase (decrease) in cash and cash equivalents		(61,021	)		518			(15,163	)		—		(75,666	)
Cash and cash equivalents – beginning of year		75,364			2,154			40,786			—		118,304
Cash and cash equivalents – end of year	$	14,343		$	2,672		$	25,623		$	—	$	42,638

113

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Esterline Technologies Corporation

We have audited the accompanying consolidated balance sheets of Esterline Technologies Corporation as of October 31, 2008 and October 26, 2007, and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended October 31, 2008. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Esterline Technologies Corporation at October 31, 2008 and October 26, 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended October 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 9 to the financial statements, in 2008 the Company changed its method of accounting for uncertainties in income taxes upon the adoption of Financial Accounting Standards Board Interpretation No. 48. As discussed in Note 8 to the financial statements, in 2007 the Company changed its method of accounting for defined pension and other postretirement plans in accordance with FASB Statement No. 158. As discussed in Note 1 to the financial statements, in 2006 the Company changed its method of accounting for share-based payments in accordance with FASB Statement No. 123(R).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Esterline Technologies Corporation’s internal control over financial reporting as of October 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 19, 2008 expressed an unqualified opinion thereon.

/s/ Ernst & Young, LLP

Seattle, Washington

December 19, 2008

114

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Esterline Technologies Corporation

We have audited Esterline Technologies Corporation’s internal control over financial reporting as of October 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Esterline Technologies Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its 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.

In our opinion, Esterline Technologies Corporation maintained, in all material respects, effective internal control over financial reporting as of October 31, 2008, based on the COSO criteria.

115

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of Esterline Technologies Corporation as of October 31, 2008 and October 26, 2007, and the related consolidated statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended October 31, 2008 of Esterline Technologies Corporation and our report dated December 19, 2008 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Seattle, Washington

December 19, 2008

116

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.  Controls and Procedures

Disclosure Controls and Procedures

Our principal executive and financial officers evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of October 31, 2008. Based upon that evaluation, they concluded as of October 31, 2008, that our disclosure controls and procedures were effective to ensure that information we are required to disclose in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within time periods specified in Securities and Exchange Commission rules and forms. In addition, our principal executive and financial officers concluded as of October 31, 2008 that our disclosure controls and procedures are also effective to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

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 Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control system over financial reporting is designed by, or under the supervision of, our chief executive officer and chief financial officer, and is effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

(i)      pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the assets of the company;

(ii)     provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and that transactions are made only in accordance with the authorization of our management and directors; and

(iii)    provide reasonable assurance regarding prevention or timely detection of unauthorized transactions that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in condition, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of Esterline’s internal control over financial reporting as of October 31, 2008. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-

117

Integrated Framework. Based on management’s assessment and those criteria, our management concluded that our internal control over financial reporting was effective as of October 31, 2008.

Our independent registered public accounting firm, Ernst & Young LLP, has issued an audit report on the effectiveness of our internal control over financial reporting. This report appears on page 115.

/s/ Robert W. Cremin

Robert W. Cremin

Chairman, President and Chief Executive Officer

(Principal Executive Officer)

/s/ Robert D. George

Robert D. George

Vice President, Chief Financial Officer,

Secretary and Treasurer

(Principal Financial Officer)

/s/ Gary J. Posner

Gary J. Posner

Corporate Controller and Chief Accounting Officer

(Principal Accounting Officer)

Changes in Internal Control Over Financial Reporting

During the three months ended October 31, 2008, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

118

PART III

Item 10.  Directors and Executive Officers of the Registrant

We hereby incorporate by reference the information set forth under “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Code of Ethics,” “Other Information as to Directors – Board and Board Committees,” and “Other Information as to Directors – Director Nominations and Qualifications” in the definitive form of the Company’s Proxy Statement, relating to its Annual Meeting of Shareholders to be held on March 4, 2009.

Information regarding our executive officers required by this item appears in Item 1 of this report under “Executive Officers of the Registrant.”

Item 11.  Executive Compensation

We hereby incorporate by reference the information set forth under “Other Information as to Directors – Director Compensation,” “Executive Compensation – Compensation Discussion and Analysis,” “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation” in the definitive form of the Company’s Proxy Statement, relating to its Annual Meeting of Shareholders to be held on March 4, 2009.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table gives information about the shares of Common Stock that may be issued upon the exercise of options, warrants and rights under the Amended and Restated 1987 Stock Option Plan, the Non-Employee Directors’ Stock Compensation Plan, the Amended and Restated 1997 Stock Option Plan, the 2002 Employee Stock Purchase Plan and the 2004 Equity Incentive Plan, the only equity compensation plans of the Company in effect as of the end of the Company’s last fiscal year.

	Equity Compensation Plan Information
Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column)
Equity compensation plans approved by security holders	1,670,425	$36.76	1,715,172     (1)(2)
Equity compensation plans not approved by security holders	—	—	—
Total	1,670,425	$36.76	1,715,172

119

⁽¹⁾ Of these shares, 1,399,450 shares are available for issuance under the 2004 Equity Incentive Plan, 295,010 shares are available for purchase under the 2002 Employee Stock Purchase Plan, and 20,712 shares are available for grant under the Non-Employee Directors’ Stock Compensation Plan, as of the end of the Company’s last completed fiscal year.

⁽²⁾ Pursuant to the Non-Employee Directors’ Stock Compensation Plan effective beginning fiscal 2008, each of the Company’s non-employee directors will receive an automatic grant of shares of Common Stock not subject to any restriction within 45 days of each annual shareholders meeting with an aggregate market value of $60,000 based on the closing price of the Common Stock on that date.

We hereby incorporate by reference the information set forth under “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the definitive form of the Company’s Proxy Statement, relating to its Annual Meeting of Shareholders to be held on March 4, 2009.

Item 13.  Certain Relationships and Related Transactions, and Director Independence

We hereby incorporate by reference the information set forth under “Certain Relationships and Related Transactions” and “Other Information as to Directors – Board and Board Committees” in the definitive form of the Company’s Proxy Statement, relating to its Annual Meeting of Shareholders to be held on March 4, 2009.

Item 14.  Independent Registered Public Accounting Firm Fees and Services

We hereby incorporate by reference the information set forth under “Independent Registered Public Accounting Firm’s Fees” in the definitive form of the Company’s Proxy Statement relating to the Annual Meeting of Shareholders to be held on March 4, 2009.

120

PART IV

Item 15.  Exhibits and Financial Statement Schedules

(a)(1)  Financial Statements.

Our Consolidated Financial Statements are as set forth under Item 8 of this report on Form 10-K.

(a)(2)  Financial Statement Schedules.

The following consolidated financial statement schedule of the Company is included as follows:

ESTERLINE TECHNOLOGIES CORPORATION AND SUBSIDIARIES

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

(In Thousands)

Description	Balance at Beginning    of Year		Charged to Costs &  Expenses		Other 2		Deductions			Balance at End    of Year
Reserve for Doubtful Accounts Receivable
Fiscal Years
2008	$	5,378	$	788	$	—	$	(975	)1	$	5,191
2007	$	4,338	$	791	$	874	$	(625	)1	$	5,378
2006	$	4,462	$	540	$	57	$	(721	)1	$	4,338

¹ Uncollectible accounts written off, net of recoveries.

² Acquisition-related addition.

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

(a)(3)  Exhibits.

See Exhibit Index on pages 124-129.

121

SIGNATURES

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

ESTERLINE TECHNOLOGIES CORPORATION
(Registrant)
By	/s/ Robert D. George
	Robert D. George
	Vice President,
	Chief Financial Officer,
	Secretary and Treasurer
	(Principal Financial Officer)

Dated: December 23, 2008

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.

/s/ Robert W. Cremin	Chairman, President and	December 23, 2008
(Robert W. Cremin)	Chief Executive Officer	Date
	(Principal Executive Officer)
/s/ Robert D. George	Vice President,	December 23, 2008
(Robert D. George)	Chief Financial Officer,	Date
	Secretary and Treasurer
	(Principal Financial Officer)
/s/ Gary J. Posner	Corporate Controller and	December 23, 2008
(Gary J. Posner)	Chief Accounting Officer	Date
	(Principal Accounting Officer)
/s/ Lewis E. Burns	Director	December 23, 2008
(Lewis E. Burns)		Date
/s/ John F. Clearman	Director	December 23, 2008
(John F. Clearman)		Date

122

/s/ Robert S. Cline	Director	December 23, 2008
(Robert S. Cline)		Date
/s/ Anthony P. Franceschini	Director	December 23, 2008
(Anthony P. Franceschini)		Date
/s/ Paul V. Haack	Director	December 23, 2008
(Paul V. Haack)		Date
/s/ Charles R. Larson	Director	December 23, 2008
(Charles R. Larson)		Date
/s/ Jerry D. Leitman	Director	December 23, 2008
(Jerry D. Leitman)		Date
/s/ James J. Morris	Director	December 23, 2008
(James J. Morris)		Date
/s/ James L. Pierce	Director	December 23, 2008
(James L. Pierce)		Date

123

Exhibit Number	Exhibit Index
2.1	Share Purchase Agreement among Cobham plc, Esterline Acquisition Limited and Esterline Technologies Corporation dated March 8, 2006. (Incorporated by reference to Exhibit 2.1 to the Company’s Annual Report on Form 10-K for the year ended October 27, 2006 [Commission File Number 1-6357].)
2.2	Share Purchase Agreement among ONCAP L.P., ONCAP (Cayman) L.P., Onex Corporation, the other vendors, CMC Electronics Holdings Inc., CMC Electronics Inc., CMC Electronics Aurora Inc., and Esterline Technologies Corporation dated as of January 31, 2007. (Incorporated by reference to Exhibit 10.45 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 26, 2007 [Commission File Number 1-6357].)
3.1	Restated Certificate of Incorporation for Esterline Technologies Corporation, dated June 6, 2002. (Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 26, 2002 [Commission File Number 1-6357], with Form of Certificate of Designation, dated December 11, 2002.) (Incorporated by reference to Exhibit 4.1 to Esterline’s Registration of Securities on Form 8-A filed December 12, 2002 [Commission File Number 1-6357].)
3.2	By-laws of the Company, as amended and restated September 8, 2005. (Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated September 9, 2005 [Commission File Number 1-6357].)
4.1	Rights Agreement dated as of December 11, 2002, between Esterline Technologies Corporation and Mellon Investor Services LLC, as Rights Agent, which includes as Exhibit A the Form of Certificate of Designation of Series B Serial Preferred Stock, as Exhibit B the Form of Rights Certificate and as Exhibit C the Summary of Rights to Purchase Preferred Shares. (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A, as amended, filed on December 12, 2002 [Commission File Number 1-6357].)
4.2	Indenture relating to Esterline Technologies Corporation’s 7.75% Senior Subordinated Notes due 2013, dated as of June 11, 2003. (Incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 1, 2003 [Commission File Number 1-6357].)
4.3	Form of Exchange Note for the 7.75% Senior Subordinated Notes due 2013. (Incorporated by reference to Exhibit 4.3 to the Company’s Form S-4, as amended, filed on September 30, 2003 [Commission File Number 333-109325].)
4.4	Registration Rights Agreement among Esterline Technologies Corporation, its subsidiaries listed on Schedule 1 thereto, Wachovia Capital Markets, LLC, Banc of Americas Securities LLC, KeyBanc Capital Markets, a division of McDonald Investments and Wells Fargo Securities, LLC, dated March 1, 2007 (“2007 Registration Rights Agreement”). (Incorporated by reference to Exhibit 10.47 to the Company’s Current Report on Form 8-K filed on March 7, 2007 [Commission File Number 1-6357].)

124

Exhibit   Number	Exhibit Index
4.5	Indenture relating to Esterline Technologies Corporation’s 6.625% Senior Notes due 2017, dated as of March 1, 2007. (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on March 7, 2007 [Commission File Number 1-6357].)
4.6	Form of Exchange Note for the 6.625% Senior Notes due 2017. (Incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-4 filed on June 29, 2007 [Commission File Number 333-144161].)
4.7	Supplemental Indenture, relating to Esterline Technologies Corporation’s 7.75% Senior Subordinated Notes due 2013, dated as of June 27, 2007. (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 28, 2007 [Commission File Number 1-6357].)
4.8	Amendment dated as of July 31, 2007 to 2007 Registration Rights Agreement. (Incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-4/A filed on August 6, 2007 [Commission File Number 333-144161].)
4.9	Supplemental Indenture, relating to Esterline Technologies Corporation’s 6.625% Senior Notes due 2017, dated as of July 26, 2007. (Incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-4/A filed on August 6, 2007 [Commission File Number 333-144161].)
10.1	Amendment No. 5 Credit Agreement, dated as of March 13, 2007, among Esterline Technologies Corporation, the financial institutions referred to therein and Wachovia Bank, National Association, as Administrative Agent. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated March 19, 2007 [Commission File Number 1-6357].)
10.2	Industrial Lease dated July 17, 1984, between 901 Dexter Associates and Korry Electronics Co., First Amendment to Lease dated May 10, 1985, Second Amendment to Lease dated June 20, 1986, Third Amendment to Lease dated September 1, 1987, and Notification of Option Exercise dated January 7, 1991, relating to the manufacturing facility of Korry Electronics at 901 Dexter Avenue N., Seattle, Washington. (Incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the year ended October 28, 2005 [Commission File Number 1-6357].)
10.2a	Fourth Amendment dated July 27, 1994, to Industrial Lease dated July 17, 1984 between Houg Family Partnership, as successor to 901 Dexter Associates, and Korry Electronics Co. (Incorporated by reference to Exhibit 10.4a to the Company’s Annual Report on Form 10-K for the year ended October 28, 2005 [Commission File Number 1-6357].)

125

Exhibit   Number	Exhibit Index
10.3	Industrial Lease dated July 17, 1984, between 801 Dexter Associates and Korry Electronics Co., First Amendment to Lease dated May 10, 1985, Second Amendment to Lease dated June 20, 1986, Third Amendment to Lease dated September 1, 1987, and Notification of Option Exercise dated January 7, 1991, relating to the manufacturing facility of Korry Electronics at 801 Dexter Avenue N., Seattle, Washington. (Incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended October 28, 2005 [Commission File Number 1-6357].)
10.3a	Fourth Amendment dated March 28, 1994, to Industrial Lease dated July 17, 1984, between Michael Maloney and the Bancroft & Maloney general partnership, as successor to 801 Dexter Associates, and Korry Electronics Co. (Incorporated by reference to Exhibit 10.5a to the Company’s Annual Report on Form 10-K for the year ended October 28, 2005 [Commission File Number 1-6357].)
10.4*	Compensation of Directors for fiscal year ended October 31, 2008.
10.6*	Esterline Technologies Corporation Supplemental Retirement Income Plan. (Incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended October 27, 2006 [Commission File Number 1-6357].)
10.7*	Esterline Technologies Corporation Long-Term Incentive Plan. (Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 1, 2008 [Commission File Number 1-6357].)
10.8*	Executive Officer Termination Protection Agreement. (Incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the year ended October 28, 2005 [Commission File Number I-6357].)
10.9a*	Offer Letter from Esterline Technologies Corporation to Richard Wood dated February 2, 2005. (Incorporated by reference to Exhibit 10.19b to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 28, 2005 [Commission File Number 1-6357].)
10.9b*	Severance Protection Agreement between Richard Wood and Esterline Technologies Corporation, dated February 23, 2005. (Incorporated by reference to Exhibit 10.19c to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 28, 2005 [Commission File Number 1-6357].)
10.10*	Offer Letter from Esterline Technologies Corporation to Frank Houston dated March 4, 2005. (Incorporated by reference to Exhibit 10.19e to the Company’s Current Report on Form 8-K dated March 29, 2005 [Commission File Number 1-6357].)
10.11*	Offer Letter from Esterline Technologies Corporation to Brad Lawrence dated December 11, 2006. (Incorporated by reference to Exhibit 10.19f to the Company’s Current Report on Form 8-K dated January 23, 2007 [Commission File Number 1-6357].)
10.12	Real Property Lease and Sublease, dated June 28, 1996, between 810 Dexter L.L.C. and Korry Electronics Co. (Incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the year ended October 28, 2005 [Commission File Number 1-6357].)

126

Exhibit   Number	Exhibit Index
10.13*	Esterline Technologies Corporation Amended and Restated 1997 Stock Option Plan. (Incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 filed March 14, 2003 [Commission File Number 333-103846].)
10.14	Property lease between Slibail Immobilier and Norbail Immobilier and Auxitrol S.A., dated April 29, 1997, relating to the manufacturing facility of Auxitrol at 5, allée Charles Pathé, 18941 Bourges Cedex 9, France, effective on the construction completed date (December 5, 1997). (Incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the year ended October 28, 2005 [Commission File Number 1-6357].)
10.15	Industrial and Build-to-Suit Purchase and Sale Agreement between The Newhall Land and Farming Company, Esterline Technologies Corporation and TA Mfg. Co., dated February 13, 1997 including Amendments, relating to premises located at 28065 West Franklin Parkway, Valencia, CA. (Incorporated by reference to Exhibit 10.26 to the Company’s Annual Report on Form 10-K for the year ended October 28, 2005 [Commission File Number 1-6357].)
10.16	Lease Agreement, dated as of February 27, 1998, between Glacier Partners and Advanced Input Devices, Inc., Lease Amendment #1, dated February 27, 1998. (Incorporated by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K for the year ended October 27, 2000 [Commission File Number 1-6357].)
10.17*	Esterline Technologies Corporation 2002 Employee Stock Purchase Plan, as amended on March 5, 2008. (Incorporated by reference to Annex D of the Registrant’s Definitive Proxy Statement on Schedule 14A, filed on February 4, 2008 [Commission File Number 1-6357].)
10.18	Lease Agreement, dated as of August 6, 2003, by and between the Prudential Insurance Company of America and Mason Electric Co., relating to premises located at Sylmar, California. (Incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K for the year ended October 31, 2003 [Commission File Number 1-6357].)
10.19	Occupation Lease of Buildings known as Phases 3 and 4 on the Solartron Site at Victoria Road, Farnborough, Hampshire between J Sainsbury Developments Limited and Weston Aerospace Limited, dated July 21, 2000. (Incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K for the year ended October 31, 2003 [Commission File Number 1-6357].)
10.20a*	Esterline Technologies Corporation 2004 Equity Incentive Plan, as amended on March 5, 2008. (Incorporated by reference to Annex C of the Registrant’s Definitive Proxy Statement on Schedule 14A, filed on February 4, 2008 [Commission File Number 1-6357].)
10.20b*	Form of Stock Option Agreement. (Incorporated by reference to Exhibit 10.36a to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 28, 2005 [Commission File Number 1-6357].)

127

Exhibit   Number	Exhibit Index
10.21	Lease Agreement dated as of March 19, 1969, as amended, between Leach Corporation and Gin Gor Ju, Trustee of Ju Family Trust, relating to premises located in Orange County. (Incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the year ended October 29, 2004 [Commission File Number 1-6357].)
10.22	Lease Agreement, dated November 29, 2005 between Lordbay Investments Limited, Darchem Engineering Limited and Darchem Holdings Limited relating to premises located at Units 4 and 5 Eastbrook Road, London Borough of Gloucestershire Gloucester. (Incorporated by reference to Exhibit 10.38 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 28, 2006 [Commission File Number 1-6357].)
10.23*	Esterline Technologies Corporation Amended and Restated Non-Employee Directors’ Stock Compensation Plan. (Incorporated by reference to Exhibit 10.40 to the Company’s Quarterly Report on Form 10-Q for the quarter ended January 28, 2005 [Commission File Number 1-6357].)
10.24	Amendment No. 1 dated as of November 23, 2005 to Lease Agreement dated as of March 1, 1994 between Highland Industrial Park, Inc. and Armtec Countermeasures Company. (Incorporated by reference to Exhibit 10.41 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 28, 2006 [Commission File Number 1-6357].)
10.25*	Esterline Technologies Corporation Fiscal Year 2008 Annual Incentive Compensation Plan. (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 1, 2008 [Commission File Number 1-6357].)
10.26*	Esterline Technologies Supplemental Executive Retirement and Deferred Compensation Plan. (Incorporated by reference to Exhibit 10.43 to the Company’s Annual Report on Form 10-K for the year ended October 27, 2006 [Commission File Number 1-6357].)
10.27	Lease Agreement dated November 4, 2002, between American Ordnance LLC and FR Countermeasures, relating to premises located at 25A Ledbetter Gate Road, Milan, Tennessee. (Incorporated by reference to Exhibit 10.44 to the Company’s Annual Report on Form 10-K for the year ended October 27, 2006 [Commission File Number 1-6357].)
10.28	Lease Agreement between Capstone PF LLC and Korry Electronics Co. dated as of March 26, 2008. (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 2, 2008 [Commission File Number 1-6357].)
10.29	Exhibit C to Lease Agreement between Capstone PF LLC and Korry Electronics Co. dated as of March 26, 2008. (Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 1, 2008 [Commission File Number 1-6357].)

128

Exhibit   Number	Exhibit Index
10.30	First Amendment to Building Lease and Sublease, dated June 25, 2008, between Capstone PF LLC and Korry Electronics Co. (Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 1, 2008 [Commission File Number 1-6357].)
10.31	Second Amendment to Building Lease and Sublease, dated July 30, 2008, between Capstone PF LLC and Korry Electronics Co. (Incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 1, 2008 [Commission File Number 1-6357].)
10.32	Subordination, Nondisturbance and Attornment Agreement and Estoppel Certificate, dated July 30, 2008, between Keybank National Assocation and Korry Electronics Co. (Incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 1, 2008 [Commission File Number 1-6357].)
10.33	Agreement for the sale and purchase of the entire issued share capital of Muirhead Aerospace Limited between Esterline Technologies Limited, Esterline Technologies Corporation, EMA Holding UK Limited, and Ametek, Inc. dated November 3, 2008.
10.34	Stock Purchase Agreement between NMC Group, Inc. and Esterline Technologies Corporation dated November 17, 2008.
11.1	Schedule setting forth computation of earnings per share for the five fiscal years ended October 31, 2008.
12.1	Statement of Computation of Ratio of Earnings to Fixed Charges.
21.1	List of subsidiaries.
23.1	Consent of Independent Registered Public Accounting Firm.
31.1	Certification of Chief Executive Officer.
31.2	Certification of Chief Financial Officer.
32.1	Certification (of Robert W. Cremin) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification (of Robert D. George) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Indicates management contract or compensatory plan or arrangement.

129

EX-10.4

Exhibit 10.4

Summary of Non-Employee Director Compensation

For Service on the Board of Directors of Esterline Technologies Corporation

Effective Fiscal Year 2008

Compensation Paid to Non-Employee Directors
Annual retainer	$	30,000
Attendance (in person) at Board meeting (per meeting fee)	$	1,500
Attendance (by phone) at Board meeting (per meeting fee)	$	750
Annual issuance of fully-paid Common Stock	$	60,000
Compensation for Attendance at Committee Meetings (in person or by telephone)
Attendance (in person) at Committee meeting (per meeting fee)	$	1,500
Attendance (by phone) at Committee meeting (per meeting fee)	$	750
Additional Compensation for Committee Chairpersons
Audit Committee	$	11,250
All Other Committees	$	5,000
Additional Compensation for the Lead Independent Director	$	21,250

EX-10.33

Exhibit 10.33

Dated 3rd November 2008

1.     Esterline Technologies Limited

2.     Esterline Technologies Corporation

3.     EMA Holdings UK Limited

4.     Ametek, Inc.

AGREEMENT

for the sale and purchase

of the entire issued share capital

of Muirhead Aerospace Limited

CMS Cameron McKenna LLP

Mitre House

160 Aldersgate Street

London EC1A 4DD

T +44(0)20 7367 3000

F +44(0)20 7367 2000

Execution Copy

Table of contents

1.	Definitions and Interpretation	1
2.	Sale and purchase	9
3.	Consideration	10
4.	Completion	10
5.	Transitional Services and Retention Bonus Payments	11
6.	Warranties and undertakings	12
7.	Limitation of Seller’s liability	14
8.	Protection of goodwill and trade secrets	14
9.	Termination	16
10.	Third party rights	16
11.	Further assurance	17
12.	Confidentiality; announcements	17
13.	Assignment	18
14.	Waiver; variation; invalidity	18
15.	Costs and expenses	19
16.	Payments	19
17.	Guarantee	20
18.	Entire agreement	20
19.	Counterparts	21
20.	Time of the essence	21
21.	Notices	21
22.	Governing law and jurisdiction	22
23.	Seller’s Guarantee	23
24.	Purchaser’s Guarantee	23
25.	Agent for Service	24
Schedule 1 The Companies		26
Part 1		26
Part 2		27
Part 3		28
Part 4		29
Schedule 2 Properties		30
Part 1 Properties		30
Part 2 Leases		30
Part 3 Letting Documents		31
Schedule 3 Intellectual Property		32
Part 1 Registered IP (excluding Licences In)		32
Part 2 Material unregistered IP (excluding Licences In)		34

Part 3 Licences In - registered		34
Part 4 Licences In - material unregistered		35
Implied licences from some customers of the Business to use specifications and design drawings provided by customers to design and manufacture parts for such customers		35
Schedule 4 Information Technology		36
Part 1 IT Systems		36
Part 2 Domain names		37
Schedule 5 Completion Obligations		39
1.	Seller’s Completion obligations	39
2.	Purchaser’s Completion obligations	40
Schedule 6 Warranties		41
Part 1 General warranties		41
1.	Power to contract	41
2.	The Company	41
3.	Connected business	42
4.	Accounts	43
5.	Post-Balance Sheet Date events	44
6.	Transactions with the Seller, directors and Connected Persons	45
7.	Finance	46
8.	Environment	47
9.	Health and Safety	49
10.	Other assets	49
11.	Insurance	50
12.	Litigation	51
13.	Licences	51
14.	Trading	53
15.	Contracts	56
16.	Employees	57
17.	Pension Schemes	59
18.	Intellectual Property Rights	61
19.	Information technology and telecommunications	64
20.	Legislation	65
21.	Information	65
22.	Properties	65
Part 2 Taxation Warranties		68
23.	General	68
24.	Payment of Tax	68
25.	Compliance	68
26.	Taxation Claims Reliefs and Liabilities	69

27.	Corporation Tax/Capital Allowances	69
28.	Close Companies	70
29.	Tax Avoidance	70
30.	Value Added Tax	70
31.	Share Schemes/Restricted Securities	70
32.	International	70
33.	Non-Arm’s Length Transactions	71
34.	Groups of Companies	71
35.	Stamp Duties	71
36.	Group Payment Arrangements	71
Schedule 7 Limitation of Seller’s liability		72
1.	General limitations	72
2.	Quantum	72
3.	Time limits	73
4.	Conduct of Claims	73
5.	Recovery from Third Parties	75
Schedule 8 Working Capital Adjustment		76
Schedule 9 List of documents in the agreed form		79
Schedule 10 Form of Working Capital Statement		80
Schedule 11 Transitional Services		82

THIS AGREEMENT is made the 3^rd day of November 2008

BETWEEN

(1) Esterline Technologies Limited, (registered in England with number 03837209) whose registered office is at Mitre House, 160 Aldersgate Street, London EC1A 4DD (the “Seller”);

(2) Esterline Technologies Corporation, a company incorporated in the State of Delaware, USA whose principal office is at City Centre Bellevue, 500 108^th Avenue NE, Suite 1500, Bellevue, WA 98004, USA (the “Seller’s Guarantor”);

(3) EMA Holdings UK Limited, (registered in England with number 4600860) whose registered office is at PO BOX 36, 2 New Star Road, Leicester, Leicestershire LE4 9JQ (the “Purchaser”); and

(4) Ametek, Inc., a company incorporated in the State of Delaware, USA whose principal office is at 37, North Valley Road, Building 4, Paoli, PA 19301, USA (the “Purchaser’s Guarantor”).

RECITALS

(A) Details of Muirhead Aerospace Limited (“Muirhead”), Advanced Input Devices (UK) Limited (“AIDL”) and Norcroft Dynamics Limited (“Norcroft”) are set out in Parts 1, 2 and 3 of Schedule 1.

(B) Muirhead is the beneficial owner of the entire issued share capital of AIDL and the legal and beneficial owner of the entire issued share capital of Norcroft.

(C) The diagram showing the Seller’s group structure at Completion is set out in Part 4 of Schedule 1.

(D) The Seller has agreed to sell the Shares to the Purchaser and the Purchaser has agreed to purchase the Shares on and subject to the terms and conditions of this Agreement.

(E) The Seller’s Guarantor has agreed to guarantee the obligations of the Seller under this Agreement.

(F) The Purchaser’s Guarantor has agreed to guarantee the obligations of the Purchaser under this Agreement.

NOW IT IS AGREED as follows:

1. Definitions and Interpretation

Defined terms

1.1 In this Agreement:

“Accounts” means the audited financial statements of each Company as at the relevant Balance Sheet Date (comprising a balance sheet, profit and loss account, notes, auditors’ and directors’ reports and a cashflow statement). Copies of the Accounts have been initialled by or on behalf of each of the Parties for the purpose of identification;

“Acquiror’s Business” means a business operated by any company excluded from clause 8.1 by reason of clause 8.3, to the extent that such business is or may in any way be in competition with all or any part of the Business;

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“Actual Borrowing Amount” means the aggregate amount necessary to repay in full all External Borrowings of the Companies outstanding as of the Completion Date;

“Actual Cash Balance” means the amount of the Cash at 11.59pm on the day immediately preceding the Completion Date;

“Actual Working Capital” means the adjusted working capital of the Companies as shown in the Working Capital Statement as agreed or determined pursuant to Schedule 8;

“Affiliate” means in relation to any body corporate from time to time (i) a parent undertaking of such body corporate; or (ii) a subsidiary undertaking of such body corporate or of any such parent undertaking;

“AID Inc” means Advanced Input Devices Inc, a company incorporated in the State of Delaware, USA whose principal office address is at Coeur d’Alene, Idaho, USA;

“Agreement” means (subject to sub-clause 18.1 (This Agreement)) this Agreement including the Recitals and Schedules, but not the Tax Deed;

“Balance Sheet Date” means 31 October 2007 in relation to AIDL and 26 October 2007 in relation to Muirhead and Norcroft;

“Business” means the business of the Companies at the date of Completion;

“Business Day” means a day (other than a Saturday or Sunday) when banks are open for business in the City of London;

“Cash” means the aggregate fair market value of any cash, bank deposits or cash equivalents or derivative instruments owned by any Company expressed in pounds sterling, and taking into account any cheques that have been received by any Company (as listed in the schedule in the agreed form) and any outstanding but unpaid cheques issued by any Company, but excluding any amount taken into consideration in calculating the Inter Company Receivables, less the amount included in the balance sheets contained in the Accounts in respect of customer deposits or prepayments;

“CAA” means the Capital Allowances Act 2001;

“CA 85” means the Companies Act 1985;

“Charges” means (a) the charge over 3,581,565 shares in Muirhead in favour of Wachovia Bank (representing 65% of the issued share capital) in accordance with an agreement dated 29 May 2007; and (b) the charge over 65 shares in AIDL in favour of Wachovia Bank in accordance with an agreement dated 11 June 2003;

“Commercial Information” means all information which belongs to the Companies or is used exclusively by the Companies for the purposes of the Business (or any aspect of it);

“Companies” means Muirhead, AIDL and Norcroft and each of them is a “Company”;

“Company Expenses” means collectively, the amount of the unpaid fees or expenses or bonuses (other than Retention Bonuses and Incentive Bonuses) that have been or will be incurred by the Companies on or prior to the Completion Date (whether payable before or after Completion) on behalf of the Companies, the Seller, and/or any member of the Retained Group in connection with the preparation, negotiation and execution of this Agreement, the consummation or performance of any of the transactions contemplated by this Agreement including, without limitation, the fees and expenses of any broker, investment banker or financial advisor, and any legal, accounting and consulting fees and expenses;

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“Competent Authority” means (i) any person (whether autonomous or not) having legal and/or regulatory authority and/or enforcement powers; (ii) any court of law or tribunal in any jurisdiction; and/or (iii) any Taxation Authority;

“Completion” means completion of the sale and purchase of the Shares pursuant to this Agreement;

“Completion Date” means the date of Completion;

“Completion Tax Statement” has the meaning given to it in the Tax Deed;

“Connected Person” means a person connected (within the meaning of section 839 TA 88) with the Seller or with any of the directors (or any former director) of either Company;

“Consideration” means the consideration payable for the Shares pursuant to Clause 3 (Consideration);

“Deeds of Assignment” means the agreed form deeds of assignment between (a) Muirhead and the Seller’s Guarantor, (b) AIDL and AID Inc and (c) AIDL and the Seller’s Guarantor in relation to the assignment of the ‘Muirhead’, ‘Traxball’ and ‘Traxsys’ trade marks;

“Disclosed” means fairly disclosed (with sufficient details to identify the nature and scope of the matter disclosed and the specific warranty or warranties to which it relates) by the Disclosure Letter (and “Disclosure” shall be construed accordingly);

“Disclosure Letter” means the letter described as such, dated as of the date of this Agreement and addressed by the Seller to the Purchaser;

“Employee Options” means the share options held by any employee of any Company (including Graham Payne) in respect of shares in any member of the Retained Group;

“Encumbrance” means any interest or equity of any person (including any right to acquire, option or right of pre-emption or conversion) or any mortgage, charge, pledge, lien, assignment, hypothecation, security interest, title retention or any other security agreement or arrangement, or any agreement to create any of the above;

“Environment”, “Environment Agreement”, “Environment Law” and “Environment Liability” are as defined in paragraph 8 of Part 1 of Schedule 6 (Environment);

“ERA” means the Employment Rights Act 1996;

“Esterline Reorganisation” means the reorganisation of the Retained Group of companies which occurred prior to Completion as described in the step plan extracts of which are set out in the document in the agreed form entitled “Esterline UK Tax Restructuring” and dated 29 October 2008;

“Estimated Working Capital” means £8,036,000 being the bona fide estimate of the amount of the Actual Working Capital agreed between the Seller and the Purchaser at Completion as set out in the schedule in agreed form;

“Existing Customer” means any person who at any time during the 12 months preceding Completion shall have been a customer of a Company;

“Existing Use” is as defined in paragraph 22 of Part 1 of Schedule 6 (Properties);

“External Borrowings” means the aggregate of the amounts (if any) of all outstanding borrowings and outstanding indebtedness in the nature of borrowings of any Company, including without limitation any bank debit balances, bonds, notes, loan stock, debentures or

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other debt instruments, any overdraft or finance lease and also accrued interest on the foregoing items and any premiums, fees, penalties, expenses and other amounts related thereto, but excluding ordinary trade credit and also excluding any amount taken into consideration in calculating the Inter-Company Payables and also excluding any amount owing from one Company to another Company;

“FA” means Finance Act;

“Financial Year” means a financial year within the meaning of section 390 Companies Act 2006;

“FRS” means a financial reporting standard in force at the date of this Agreement as issued by the Accounting Standards Board Limited;

“Harm” and “Hazardous Matter” are as defined in paragraph 8 of Part 1 of Schedule 6 (Environment);

“Incentive Bonus” means any and all bonuses payable by any Company to any officers, employees (in each case excluding Graham Payne) or independent contractors pursuant to any bonus scheme relating to the financial performance of any Company for all periods ending on or prior to the Completion Date but excluding the Retention Bonuses;

“Incentive Bonus Payment Date” means a date on or around 15 December 2008;

“Indemnities” means the indemnities given by the Seller to the Purchaser as set out in clauses 6.5 and 6.6 and “Indemnity” shall be construed accordingly;

“Intellectual Property Rights” is as defined in paragraph 18 of Part 1 of Schedule 6 (Intellectual Property Rights);

“Inter-Company Payables” means the aggregate of the amounts (if any) owing, including in respect of interest accrued on all such amounts, as at the opening of business on the Completion Date from the Companies to members of the Retained Group, excluding the Ordinary Trading Items, expressed in pounds sterling;

“Inter-Company Receivables” means the aggregate of the amounts (if any) owing, including in respect of interest accrued on all such amounts, as at the opening of business on the Completion Date from members of the Retained Group to the Companies, excluding the Ordinary Trading Items, expressed in pounds sterling;

“IT Assignment Documents” means the documents in the agreed form for the transfer of certain software to AIDL from Infor;

“IT Contracts”, “IT Services” and “IT Systems” are as defined in paragraph 19 of Part 1 of Schedule 6 (Information technology and telecommunications);

“IT(EP)A” means the Income Tax (Earnings and Pensions) Act 2003;

“Know How” is as defined in paragraph 18 of Part 1 of Schedule 6 (Intellectual Property Rights);

“Lease” means in relation to any Property, if applicable, the lease under which the Property is held by any Company;

“Letting Documents” means, in relation to any Property, leases, underleases, tenancies, licences or other agreements or arrangements giving rise to rights of occupation (in each case as amended) to which the Property is subject;

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“Licences In” and “Licences Out” are as defined in paragraph 18 of Part 1 of Schedule 6 (Intellectual Property Rights);

“Litigation” means any actual or prospective proceedings, whether judicial, administrative, tribunal, arbitral, criminal or similar and whether or not subject or intended to be subject to Alternative Dispute Resolution techniques;

“Losses and Expenses” means losses, damages, liabilities, claims, demands, costs and expenses and all reasonably incurred legal and other professional fees (including, for the avoidance of doubt in relation to clauses 6.5(b), 6.5(c) 6.5(d) and 6.5(g) any employer’s Class 1 national insurance or other Tax);

“Ordinary Trading Items”: means ordinary trade indebtedness outstanding at Completion and relating to the period up to Completion only, between the Companies and members of the Retained Group, but excluding management charges and other administrative charges or recharges payable by the Companies (which shall be paid in full prior to Completion);

“Other Property” is as defined in paragraph 8 of Part 1 of Schedule 6 (Environment);

“Parties” means the Purchaser, the Purchaser’s Guarantor, the Seller and the Seller’s Guarantor (and “Party” shall be construed accordingly);

“Payne Compromise Agreement” means the agreed form compromise agreement between Muirhead and Graham Payne to be delivered by the Seller duly executed on Completion;

“Pension Schemes” means agreements or arrangements (whether legally enforceable or not) for the payment of any pensions, allowances, lump sums or other like benefits on retirement for the benefit of any present or former director, officer or employee of any Company or for the benefit of the dependants of any such persons;

“Permits” is as defined in paragraph 8 of Part 1 of Schedule 6 (Environment);

“Permitted Business” means:

(a) the existing business of Mason Electric in relation to the manufacture and sale of cursor control devices (other than track balls), save that Mason may not sell such devices to Existing Customers in respect of applications met by products supplied (or to be supplied) under existing contracts with those Existing Customers by AIDL (but, for the avoidance of doubt, where AIDL has an existing contract with an Existing Customer this prohibition will not prevent Mason Electric from selling such devices to such Existing Customer in relation to other applications);

(b) the existing business of BVR Technologies (“BVR”) in relation to the manufacture and sale of rotary actuation devices and angular position sensors (including but not limited to linear actuation or rotary actuation products that utilise BVR’s custom precision planetary gearbox in-house design and manufacturing capability and/or BVR’s patented Hall effect digital sensing technologies) for customers other than Existing Customers of the motion business of Muirhead, provided that:

(i) such business may not manufacture or supply products for the downhole/oil and gas industry (except to its existing customer Moog); and

(ii) (subject to sub-paragraph (i)) BVR may manufacture and sell products to any of the following existing customers of BVR in North America only, namely (1) BAE, (2) Hamilton Sundstrand, (3) Pratt Whitney, (4) Boeing and (5) Parker Hannifin, provided that BVR may not sell products meeting applications met by products supplied (or to be supplied) under existing contracts with such customers by any Company; and

5

(c) any motion control business with sales in excess of US$100,000,000 that may be acquired by any member of the Retained Group from a third party on arm’s length terms.

“Proceedings” means any proceeding, suit or action (including arbitration) arising out of or in connection with this Agreement;

“Product” is as defined in paragraph 14 of Part 1 of Schedule 6 (Trading);

“Properties” means the properties of which short particulars are set out in Schedule 2 (Properties) and the expression “Property” shall mean, where the context so admits, any one or more or any part of such properties;

“Provisional Consideration” means the provisional consideration payable for the Shares, as specified in clause 3.1;

“Purchaser’s Solicitors” means CMS Cameron McKenna LLP of Mitre House, 160 Aldersgate Street, London EC1A 4DD (Ref. BHH/DNHE/0Z4060.00050);

“Regulatory Requirements” means any applicable requirement of law, the UK Listing Authority or the London Stock Exchange plc, or of any person who has regulatory authority which has the force of law;

“Releases” means the agreed form deeds of release by Wachovia Bank in respect of the Charges;

“Relief” has the meaning given to it in the Tax Deed;

“Remediation Action” is as defined in paragraph 8 of Part 1 of Schedule 6 (Environment);

“Retained Group” means the Seller and its Affiliates (excluding the Companies) from time to time;

“Retained Information” means any financial information and/or Tax information relating to the Companies (and shall include details of policies of insurance which any Company had the benefit of) which following Completion remains in the possession or control of the Seller or the Retained Group (but not of the Purchaser);

“Retention Bonuses” means the retention bonuses payable to the Selected Employees in relation to the successful completion of the sale by the Seller of the Companies in accordance with the terms of the Retention Bonus Letters;

“Retention Bonus Letters” means the letters between the Seller’s Guarantor, Muirhead and each Selected Employee dated on or about 11 July 2008 in relation to the payment of the Retention Bonuses including the timing and amount of any such payments, as amended, copies of which have been Disclosed;

“Retention Bonus Payment Date” means a date on which the Retention Bonuses are due to be paid in accordance with the Retention Bonus Letters;

“Selected Employees” means Dawn Salisbury, Stephen Scaife, Pradeep Sharma, Stephen Wells, Michael Baker, Simon Coverdale, Wendy Stansfield, Mark Butler, Anthony Sawyer, Michael Robinson and Robert Furmsten;

“Seller’s Group” means the Retained Group together with the Companies;

“Seller’s Solicitors” means Taylor Wessing LLP of Carmelite, 50 Victoria Embankment, London EC4Y ODX (Ref: DNK/MPB/EST-9-10);

6

“Service Termination Dates” means the various dates set out in Schedule 11 for the termination of the Transitional Services;

“Shares” means the 5,510,101 fully-paid issued ordinary shares in the capital of Muirhead;

“SSAP” means a statement of standard accounting practice in force at the date of this Agreement as adopted by the Accounting Standards Board Limited;

“TA 88” means the Income and Corporation Taxes Act 1988;

“Taxation” or “Tax” has the meaning given to it in the Tax Deed;

“Taxation Authority” has the meaning given to it in the Tax Deed;

“Taxation Statute” has the meaning given to it in the Tax Deed;

“Tax Deed” means the deed in the agreed form containing certain Taxation covenants and indemnities between the Seller and the Purchaser;

“Tax Warranties” means the warranties set out in Part 2 of Schedule 6 (Taxation Warranties);

“TCGA” means the Taxation of Chargeable Gains Act 1992;

“TMA” means the Taxes Management Act 1970;

“Trade Union” is as defined in section 1 TULRCA;

“Transaction Document” means this Agreement, the Tax Deed or any document or agreement entered into pursuant to or in connection with this Agreement;

“Transitional Services” means the transitional services to be provided or procured by the Seller to the Purchaser and/or the Companies as set out in clause 5 and Schedule 11;

“Traxsys Supply Agreement” means the agreement in the agreed form between AID Inc and AIDL in relation to the supply of certain products by AIDL to AID Inc following Completion;

“TULRCA” means the Trade Union and Labour Relations (Consolidation) Act 1992;

“TUPE” means the Transfer of Undertakings (Protection of Employment) Regulations 2006 (and, where the context so requires, the 1981 Regulations defined in those regulations);

“UK GAAP” means FRSs, SSAPs, the legal principles set out in such of the regulations referred to in sections 396 and 404 Companies Act 2006 as apply, rulings and abstracts of the Urgent Issues Task Force of the Accounting Standards Board Limited and guidelines, conventions, rules and procedures of accounting practice in the United Kingdom which are regarded as permissible by the Accounting Standards Board Limited;

“US Dollar” or “USD” means the lawful currency of the United States of America;

“US GAAP” means United States generally accepted accounting principles;

“US GAAP Accounts” means the monthly management reports in the agreed form as at 30 September 2008 (and for the 11 month period then ended);

“VAT” means value added tax or any equivalent Tax that is levied on the supply of goods or services in any jurisdiction;

“VATA” means the Value Added Tax Act 1994;

7

“Warranties” means the warranties set out in clause 6 (Warranties) and Schedule 6 (Warranties); and

“Working Capital Statement” means the working capital statement in the form set out in Schedule 10 as referred to and prepared in accordance with Schedule 8 (Working Capital Adjustment).

Interpretation

1.2 In interpreting this Agreement:

1.2.1 reference to any document as being “in the agreed form” shall mean that it is in the form agreed between the Seller and the Purchaser and signed for the purposes of identification by or on behalf of the Seller and the Purchaser or identified as being in the agreed form by an email between or on behalf of the Seller and the Purchaser.

1.2.2 where any statement is qualified as being limited by any person’s knowledge (for example, by using expressions such as “so far as he is aware”), the statement shall be deemed to be given to the best of his knowledge, information and belief after making reasonable enquiries including, but not limited to, enquiries of Graham Payne, in relation to Schedule 6 parts 1 to 22, Pradeep Sharma in relation to parts 1 to 7, 10, 13 and 23 to 27, Phillip Bourne (for AIDL only) in relation to parts 1 to 7, 10, 13, 16 to 17 and 19 to 22, Dawn Salisbury (for Muirhead only) in relation to parts 8 to 10, Mick Robertson (for Traxsys only) in relation to parts 1 to 9, Robert Furmston (for Traxsys only) in relation to parts 1 to 8 and 10, both Tony Sawyer and Mark Baker (Traxsys only) in relation to parts 8 to 22, both Simon Covedale and Stephen Wells (Muirhead only) in relation to parts 11 and parts 14 to 15, Wendy Stansfield in relation to parts 16 to 17 and both Steven Scaife and Mike Butler (Muirhead only) in relation to part 18.

1.2.3 the table of contents and headings and sub-headings are for convenience only and shall not affect the interpretation of this Agreement.

1.2.4 unless the context otherwise requires, words denoting the singular shall include the plural and vice versa and references to any gender shall include all other genders. References to any person shall include natural persons, bodies corporate, unincorporated associations, partnerships, governments, governmental agencies and departments, statutory bodies or other entities, in each case whether or not having a separate legal personality, and shall include such person’s successors.

1.2.5 the words “other”, “include” and “including” shall not connote limitation in any way.

1.2.6 references to Recitals, Schedules, clauses and sub-clauses are to (respectively) recitals to, schedules to, and clauses and sub-clauses of, this Agreement (unless otherwise specified) and references within a Schedule to paragraphs are to paragraphs of that Schedule (unless otherwise specified).

1.2.7 references to any statute, statutory provision, directive of the Council of the European Union (whether issued jointly with any other person or under any other name) or other legislation include a reference to that statute, statutory provision, directive or legislation as amended, extended, re-enacted, consolidated or replaced from time to time (whether before or after the date of this Agreement) and include any order, regulation, instrument or other subordinate legislation made under the relevant statute, statutory provision, directive or legislation and in force at the relevant time.

1.2.8 words and expressions used in this Agreement that are defined in:

8

(a) provisions of the Companies Act 2006 in force at the date of this Agreement shall be read as having those meanings; and

(b) provisions of CA 85 shall be read as having those meanings as long as those provisions are in force, and shall then be read as having the meanings given to them in the Companies Act 2006.

1.2.9 words and expressions defined in the Tax Deed shall (to the extent they are not inconsistent with this Agreement) bear those meanings respectively in this Agreement.

1.2.10 references to any English legal term for any action, remedy, method of judicial proceeding, legal document, legal status, court, organisation, body, official or any legal concept, state of affairs or thing shall in respect of any jurisdiction other than England be deemed to include that which most nearly approximates in that jurisdiction to the English legal term.

1.2.11 any reference to “writing” or “written” shall include faxes, and any legible reproduction of words delivered in permanent and tangible form (but not email).

1.2.12 except as specified in Schedule 10, any amount determined or expressed in one currency (the “First Currency”) shall, to the extent that it requires in whole or in part to be expressed in pounds sterling (or any other currency) in order to give due effect to this Agreement, be deemed for that purpose to have been converted into the relevant currency at the close of business on the Business Day immediately preceding the Completion Date. Subject to any applicable legal requirements governing conversions into that currency, the rate of exchange shall be the spot rate for the purchase of that other currency with the First Currency at the time of the deemed conversion as shown in the final edition of the Financial Times published on the following day.

1.2.13 references to times of the day are (unless otherwise expressly provided) to London time and references to a day are to a period of 24 hours running from midnight on the previous day.

2. Sale and purchase

Obligation to sell and purchase

2.1 Subject to the terms of this Agreement, the Seller shall sell all the Shares to the Purchaser (together with all rights attaching to them at the date of this Agreement); and the Purchaser shall purchase the Shares accordingly.

Dividends and distributions

2.2 The Purchaser shall be entitled to receive all dividends and distributions (whether of income or capital) declared, paid or made by either Company on or after the date of this Agreement.

Sale of all Shares

2.3 The Purchaser shall not be obliged to complete the purchase of any of the Shares unless the purchase of all the Shares is completed simultaneously.

Implied covenants for title

2.4 The Seller covenants that it has the right to transfer the legal and beneficial title to the Shares held by it to the Purchaser in accordance with this Agreement and is disposing of them free from all Encumbrances.

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Part 1 of the Law of Property (Miscellaneous Provisions) Act 1994 shall not apply to any disposition made under or pursuant to this Agreement.

Waivers of pre-emption

2.5 The Seller waives all rights of pre-emption or similar rights over any of the Shares conferred on it either by the articles of association of Muirhead or in any other way.

3. Consideration

Consideration

3.1 The consideration for the sale of the Shares payable on Completion shall be £40,015,000 (the “Provisional Consideration”). The consideration shall be adjusted after Completion as provided in clause 3.2 below and in clause 12 of the Tax Deed.

3.2 The Provisional Consideration shall be adjusted after Completion as follows:

3.2.1 if the Actual Working Capital is less than Estimated Working Capital, the Seller shall pay to the Purchaser the amount of the deficiency;

3.2.2 if the Actual Working Capital is greater than Estimated Working Capital, the Purchaser shall pay to the Seller the amount of the excess,

in either case within 10 Business Days after the date on which the Working Capital Statement has been agreed or settled.

Reduction in consideration

3.3 Any payment made by the Seller in respect of a breach of the Warranties or under the Tax Deed or any other payment made by the Seller pursuant to this Agreement shall (so far as possible) be deemed to reduce the price paid for the Shares under this Agreement by a matching amount. Any payment made by the Purchaser to the Seller under this Agreement (other than any payments made pursuant to Schedule 11) shall (so far as possible) be deemed to increase the price paid for the Shares under this Agreement by a matching amount.

4. Completion

Completion

4.1 Completion shall take place at the offices of the Purchaser’s Solicitors (or wherever else the Parties agree in writing) upon execution and release by all parties of this Agreement.

4.2 At Completion, the Parties shall perform their respective Completion obligations set out in Schedule 5 (Completion Obligations). Completion shall be effective as of 12.01am on the Completion Date.

Effect of Completion

4.3 Notwithstanding Completion:

4.3.1 each provision of this Agreement (and any other document referred to in it) not performed at or before Completion but which remains capable of performance;

4.3.2 the Warranties; and

4.3.3 all covenants and other undertakings contained in or entered into pursuant to this Agreement

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will remain in full force and effect and (except as otherwise expressly provided) without limit in time.

Pending registration

4.4 The Seller declares that for so long as it remains the registered holder of the Shares after Completion, the Seller will:

4.4.1 hold those Shares and all dividends and other distributions in respect of them, and all other rights arising out of or in connection with them, in trust for the Purchaser; and

4.4.2 at all times deal with and dispose of those Shares, and all such dividends, distributions and rights attaching to them, as the Purchaser may direct.

4.5 The Seller shall procure that for so long as AID Inc remains the registered holder of the issued share capital of AIDL after completion, it shall procure that AID Inc shall:

4.5.1 hold those shares and all dividends and distributions in respect of them, and all other rights arising out of them, in trust for the Companies; and

4.5.2 at all times deal with and dispense of such shares as the Company may direct.

Company records etc.

4.6 During the six years following Completion, the Seller will or will procure that the Retained Group will maintain in safekeeping and on request promptly provide the Purchaser with all Retained Information reasonably requested by the Purchaser. The Seller and the Purchaser undertake at all times to provide the other promptly on request with all reasonable information known to the Seller or the Purchaser (as the case may be) in relation to the Company if it is required for the purposes of complying with Regulatory Requirements.

5. Transitional Services and Retention Bonus Payments

5.1 In accordance with the provisions of Schedule 11, the Seller agrees to provide or procure the provision of each of the Transitional Services to the Companies from the Completion Date until the relevant Service Termination Date.

5.2 The Seller shall provide or procure (but as regards persons outside the Retained Group, only so far as it is able) the provision of the Transitional Services using reasonable skill, diligence and care, to a standard equivalent to the standard to which such services were supplied by the Retained Group to the Companies in the six (6) month period immediately prior to the date of this Agreement.

5.3 The Purchaser shall procure that the Purchaser and/or the relevant Company shall provide such information, decisions and data as the Seller may reasonably require for the purposes of the provision of the Transitional Services.

5.4 The Seller shall treat as confidential and shall procure that each member of the Retained Group (and each of its employees) treats as confidential all information obtained as a result of performing the Transitional Services and the Seller hereby agrees that no member of the Retained Group (and any of its employees) shall acquire any rights in respect of any Intellectual Property generated during the hosting of the website as part of the Transitional Services.

5.5 The Seller shall, in performing the Transitional Services, and the Company shall, in receiving the Transitional Services, comply in all respects with applicable data protection legislation.

5.6 The Seller shall not have any liability whether in contract or tort (save for death or personal injury) for any act or omission in the provision of the Transitional Services to the Purchaser

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and/or the relevant Company save to the extent that any loss or damage suffered by the Purchaser is due to fraud, wilful misconduct or gross negligence by the Seller or any member of the Retained Group.

5.7 Each Party shall allow the other Parties reasonable access on reasonable prior notice to any relevant documentation and personnel to the extent reasonably required for such Party to complete its financial year end process.

5.8 The Seller shall, five (5) Business Days before each Retention Bonus Payment Date, pay to the Company or procure the payment to the Company of the relevant amount of the Retention Bonuses to be paid on that date to each Selected Employee who is an employee of the relevant Company on the Retention Bonus Payment Date (and any employer’s class 1 national insurance contributions on such amounts). At the request of the Seller the Purchaser will confirm which Selected Employees are so employed on the date of the request.

5.9 Subject to receipt of payment under clause 5.8, the Purchaser shall procure that the relevant Company shall:

5.9.1 pay the amount of the Retention Bonus (as notified by the Seller) to each relevant Selected Employee on the Retention Bonus Date (net of amounts withheld in accordance with clause 5.9.2); and

5.9.2 operate PAYE and account for any other Tax deductions (including any employee’s national insurance contributions) and related employer’s Class 1 national insurance applicable to such Retention Bonuses to the relevant Taxation Authority within the period required by law.

5.10 The Seller shall, five (5) Business Days before the Incentive Bonus Payment Date, pay to the Purchaser or procure the payment to the Purchaser of the relevant amount of the Incentive Bonuses to be paid on that date to each person (other than Graham Payne) entitled to receive an Incentive Bonus (and any employer’s class 1 national insurance contributions on such amounts).

5.11 Subject to receipt of payment under clause 5.10, the Purchaser shall procure that the relevant Company shall:

5.11.1 pay the amount of the Incentive Bonus (as notified by the Seller) to each relevant recipient on the Retention Bonus Date (net of amounts withheld in accordance with clause 5.11.2); and

5.11.2 operate PAYE and account for any other Tax deductions (including any employee’s national insurance contributions) and related employer’s Class 1 national insurance applicable to such Incentive Bonuses to the relevant Taxation Authority within the period required by law.

6. Warranties and undertakings

6.1 The Seller warrants and undertakes to the Purchaser in the terms set out in Schedule 6 (Warranties) in relation to each Company (and references in the Warranties to “the Company” shall be construed as a separate reference to each of the Companies). Each of the Warranties set out in the separate paragraphs of Schedule 6 (Warranties) shall be separate and independent and (except as expressly otherwise provided) shall not be limited by reference to any other Warranty or by anything in this Agreement, the Disclosure Letter or the Tax Deed.

Investigation by Purchaser

6.2 None of the Warranties shall be deemed in any way modified or discharged by reason of any investigation or inquiry made or to be made by or on behalf of the Purchaser. No information relating to the Companies that has not been Disclosed but of which the Purchaser has

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knowledge (whether actual or constructive) shall prejudice any claim which the Purchaser shall be entitled to bring or shall operate to reduce any amount recoverable by the Purchaser under this Agreement.

Information supplied by the Company

6.3 The Seller undertakes to the Purchaser to waive any and all claims which the Seller might otherwise have against the Companies or their respective officers, employees, or consultants or any of them in respect of any information supplied to the Seller by or on behalf of a Company in connection with the Warranties, the Tax Deed and/or the information Disclosed.

Reliance

6.4 The Seller accepts that the Purchaser has entered into this Agreement upon the basis of the Warranties being true and accurate.

Indemnities

6.5 The Seller hereby agrees to indemnify and hold the Purchaser harmless in relation to any and all Losses and Expenses sustained, incurred, paid or required to be paid by the Purchaser or any Company which arise out of, relate to or result from:

(a) the existence of any External Borrowings or Inter-Company Payables or Company Expenses as at the Completion Date and not included within the Working Capital Statement or the Completion Tax Statement; and/or

(b) the exercise of the Employee Options, except where recovery has been made from the relevant employee exercising an Employee Option or the relevant amount was included within the Working Capital Statement or the Completion Tax Statement; and/or

(c) except to the extent that payment has been made pursuant to clause 5.8 or 5.10, any Incentive Bonuses and any liability under the Retention Bonus Letters; and/or

(d) any liability to Graham Payne in respect of any Incentive Bonus or under the retention bonus letter between him, the Seller’s Guarantor and Muirhead dated 11 July 2008 (as amended); and/or

(e) the Esterline Reorganisation; and/or

(f) (save for ordinary course costs and expenses associated with keeping a company dormant) any liability of Norcroft to any other person; and/or

(g) any liability of any of the Companies under Section 75 of the Pensions Act 1995 to any Pension Scheme as a result of or pursuant to the obligations under the share sale agreement between Silvermines Engineering Technology Limited, Silvermine Group pic, the Seller’s Guarantor and the Seller dated 23 September 1999; and/or

(h) the provisions of Council Directives 77/187/EEC and 2001/23 EEC and any other applicable provision of law affecting the transfer of employees as a result of which transfer the Purchaser or any Company has or will have at Completion a liability (whether actual, contingent or future) to provide an early retirement benefit which is not an old-age, invalidity or survivor’s benefit; and/or

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(i) any liability of the Companies arising out of any claim against any Company by either Liebherr – Aerospace Lindenberg GmbH or Bayern Chemie Gesellschaft fuer flugchemische Antriebe GmbH in relation to the matters set out in paragraph 5 of the Disclosure Letter against the Warranty in paragraph 12.1 of Schedule 6.

6.6 The Seller will indemnify and hold harmless the Purchaser and any person who is connected or associated with the Purchaser (as those terms are defined in sections 38 to 51 Pensions Act 2004) in full against any and all Losses and Expenses sustained, incurred, paid or required to be paid by any such person relating to the Seller’s Pension Scheme and/or any other occupational pension scheme (as defined in section 1 Pension Schemes Act 1993) established or operated by a Company and arising under or in respect of any contribution notice or financial support direction made by the Pensions Regulator (under sections 38 to 51 Pensions Act 2004).

IT Assignment Documents

6.7 The Seller undertakes to pay any outstanding amounts due to procure the relevant software assignment to AIDL pursuant to the IT Assignment Documents in accordance with the terms of such documents.

7. Limitation of Seller’s liability

Limitations on liability

7.1 The Seller’s liability in respect of any claim shall be limited as provided in Schedule 7 (Limitation of Seller’s liability) provided that such limitations shall not apply in relation to the Warranties set out in paragraphs 1 (Power to contract), 2.4 (Share capital of the Company) and 2.5 (Subsidiaries) of Part 1 of Schedule 6 (Warranties).

Exclusions from clause 7

7.2 Notwithstanding any other provision of this Agreement, the provisions of this clause 7 and Schedule 7 (Limitation of Seller’s liability) shall not apply to any claim made against the Seller in the case of any fraud, dishonesty, wilful misstatement or wilful omission by or on behalf of the Seller.

8. Protection of goodwill and trade secrets

Covenants

8.1 As further consideration for the Purchaser agreeing to purchase the Shares on the terms contained in this Agreement and with the intent of assuring to the Purchaser the full benefit and value of the goodwill and connections of the Companies and as a constituent part of the sale of the Shares, the Seller shall not (and shall procure that none of the Affiliates of the Seller’s Guarantor shall) directly or indirectly:

8.1.1 until 3 years after Completion, carry on or be employed, engaged, concerned, interested or in any way assist in the conduct of any business which is or may in any way be in competition with all or any part of the Business provided that nothing in this sub-clause 8.1.1 shall prevent the Seller or any of the Affiliates of the Seller’s Guarantor from:

(a) being engaged in any Permitted Business; or

(b) holding for investment purposes only not more than three per cent of any class of the issued share or loan capital of any company quoted on a recognised investment exchange (as defined in the Financial Services and Markets Act 2000);

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8.1.2 until 3 years after Completion:

(a) canvass, solicit or approach or cause to be canvassed, solicited or approached (in relation to a business which may in any way compete with all or part of the Business, but excluding any Permitted Business) any Existing Customer; or

(b) compete against any Company in any open bid or tender process that any such Company has identified as at the date of Completion and intends to participate in, provided that Mason Electric may compete against AIDL in any relevant open bids or tenders for or relating to:

(i) Lockheed-Martin VH71; and/or

(ii) Gulfstream 5-50 upgrade programme; or

(c) compete against any Company for any other opportunity that (under the principles currently operated by the Seller’s Group) would have been allocated to that Company;

8.1.3 until 3 years after Completion, offer employment to or offer to conclude any contract of services with any employees holding executive or managerial posts or any key technical or sales personnel of any Company or procure or facilitate the making of such an offer by any person, firm or company or entice or endeavour to entice any such employees of any Company to terminate their employment with that Company Provided always that this sub-clause 8.1.3 shall only apply in relation to persons who were so employed at Completion and who were still so employed at the time of the relevant breach of this sub-clause 8.1.3;

8.1.4 until 3 years after Completion, employ any employees holding executive or managerial posts or any key technical or sales personnel of any Company or procure or facilitate such employment by any person, firm or company at any time within 6 months after termination of their employment with the Company Provided always that this sub-clause 8.1.4 shall only apply in relation to persons who were so employed at Completion;

8.1.5 until 3 years after Completion, procure or permit directly or indirectly Graham Payne to have any role in a Permitted Business or any Acquiror’s Business either as an employee, consultant or a director;

8.1.6 at any time after Completion use as a trade or business name or mark, use as or include in a domain name for any web site, or carry on a business under a title containing the words “Muirhead” or “Muirhead Avionics” or “Muirhead Aerospace” or “Traxsys” or “Traxball” or any other word(s) colourably resembling any such word; or

8.1.7 at any time after Completion disclose to any person whatsoever or use in connection with any business (whether or not a Permitted Business) or any Acquiror’s Business (or otherwise use to the detriment of any Company) or otherwise make use of, or through any failure to exercise all due care and diligence cause any unauthorised disclosure or use of, any Commercial Information which is confidential or in respect of which a Company is bound by an obligation of confidence to a third party or which the Seller is prohibited under clause 12 (Confidentiality; announcements) from disclosing without the Purchaser’s consent,

in each case whether on the Seller’s or Affiliate’s own behalf or with or on behalf of any person except in accordance with a prior waiver given by the Purchaser (which in the case of clause 8.1.4, shall not be unreasonably withheld).

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8.2 Each undertaking contained in sub-clause 8.1 shall be read and construed independently of the other undertakings and as an entirely separate and severable undertaking.

8.3 Except in relation to the restrictions contained in clauses 8.1.3, 8.1.4, 8.1.6 and 8.1.7 references in clause 8.1 to Affiliates of the Seller’s Guarantor shall exclude any company which may acquire (including, for the avoidance of doubt, by way of a merger) the Seller’s Guarantor, and any Affiliate of such acquiror which is not (and since the date of this Agreement has never been) a member of the group comprising the Seller’s Guarantor and its subsidiaries.

Severability of covenants

8.4 The undertakings in sub-clause 8.1 (Covenants) are considered by the Parties to be reasonable in all the circumstances, but if any one or more should for any reason be held to be invalid, but would have been held to be valid if part of the wording were deleted, the undertakings shall apply with the minimum modifications necessary to make them valid and effective.

Information in the public domain

8.5 The restriction contained in sub-clause 8.1.7 (Covenants) shall not extend to any confidential or secret information that may come into the public domain otherwise than through the default of the Seller or relevant Connected Persons.

9. Termination

Accrued liabilities

9.1 On termination, the rights and liabilities of the Parties that have accrued beforehand shall subsist.

Surviving provisions

9.2 Except as otherwise expressly provided, this clause and the following provisions of this Agreement shall survive termination, without limit of time:

9.2.1 clause 1 (Definitions and interpretation);

9.2.2 clause 6 (Warranties);

9.2.3 clause 7 (Limitation on Seller’s liability);

9.2.4 clauses 9 to 16 inclusive; and

9.2.5 clauses 18 to 25 inclusive.

10. Third party rights

10.1 Nothing in this Agreement is intended to confer on any person any right to enforce any term of this Agreement which that person would not have had but for the Contracts (Rights of Third Parties) Act 1999 except:

10.1.1 that the Companies’ officers, employees and consultants shall be entitled with the Purchaser’s prior written consent to enforce sub-clause 6.3 (Information supplied by the Company); and

10.1.2 that the Companies shall be entitled to enforce clause 5 (Transitional Services);

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and all other provisions of this Agreement necessary to give due effect to such rights, but this Agreement may be amended or varied by the Parties in any way, or terminated, in accordance with its terms without any such person’s consent.

11. Further assurance

11.1 The Seller or the Purchaser shall, from time to time on being required to do so by the other Party acting reasonably, promptly and at the cost and expense of the other Party do or (so far as it is able) procure the doing of all such acts and/or execute or procure the execution of all such reasonable documents in a form satisfactory to the other Party as the other Party may reasonably consider necessary to give full effect to this Agreement (or to such parts of it as remain operative after termination).

12. Confidentiality; announcements

Prohibition on disclosure

12.1 Each of the Seller and the Seller’s Guarantor undertakes with the Purchaser, and each of the Purchaser and the Purchaser’s Guarantor undertakes with the Seller, to keep confidential (except as expressly provided in this Agreement) at all times after the date of this Agreement, and not directly or indirectly reveal, report, publish, disclose or transfer or use for its own or any other purposes, any confidential information received or obtained as a result of entering into or performing, or supplied by or on behalf of another Party in the negotiations leading to, this Agreement and which relates to:

12.1.1 the negotiations relating to this Agreement;

12.1.2 the subject matter and/or provisions of this Agreement; or

12.1.3 (in the Seller’s case) the Purchaser or the Purchaser’s Guarantor or (in the Purchaser’s case) the Seller or the Seller’s Guarantor.

Permitted disclosures

12.2 The prohibition in sub-clause 12.1 (Prohibition on disclosure) does not apply if:

12.2.1 the information was in the public domain before it was furnished to the relevant Party or, after it was furnished to that Party, entered the public domain otherwise than as a result of (i) a breach by that Party of this clause or (ii) a breach of a confidentiality obligation by the discloser, where the breach was known to that Party;

12.2.2 disclosure is necessary in order to comply with Regulatory Requirements or to obtain tax or other clearances or consents from HM Revenue and Customs or other relevant Taxation Authority;

12.2.3 disclosure is made pursuant to an announcement permitted under sub-clause 12.3; or

12.2.4 disclosure is made to such of the Party’s officers, employees, agents, consultants and professional advisers as are involved in the transactions contemplated by this Agreement and is restricted to matters necessary for the proper performance of their duties or services in relation to those transactions

provided that any such information disclosable pursuant to sub-clause 12.2.2 shall be disclosed only to the extent required by Regulatory Requirements and (unless such consultation is prohibited by Regulatory Requirements) only after consultation with the Purchaser or the Seller (as the case may be).

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Announcements

12.3 Except as set out in clause 12.4, no Party shall make any formal press release or other public announcement in connection with any of the transactions contemplated by this Agreement unless consent has been received from the other Parties (such consent not to be unreasonably withheld, delayed or conditioned).

12.4 Any Party shall be entitled to make any announcement required by any applicable Regulatory Requirements (provided that, unless such consultation is prohibited by Regulatory Requirements, it is made only after consultation with the other Parties (as the case may be)).

13. Assignment

Assignment by Purchaser

13.1 Subject to clause 13.2, the Purchaser is permitted to assign the benefit of, and any of its rights under, this Agreement (including under the Warranties provided that no assignee shall be entitled to greater damages or other compensation than that to which the Purchaser would have been entitled had it not assigned the benefit of the Warranty) together with any cause of action arising in connection with any of them to its successor in title or, to any of its Affiliates.

13.2 If any assignee under clause 13.1 ceases to be an Affiliate of the Purchaser then the Purchaser shall procure that it assigns all of its rights as assignee either to the Purchaser or to an Affiliate of the Purchaser and pending such assignment the assignee may not exercise any of its rights as assignee.

No assignment by Seller

13.3 The Seller may not:

13.3.1 assign, transfer, charge or deal in any way with the benefit of, or any of its rights under or interest in, this Agreement; or

13.3.2 sub-contract any or all of its obligations under this Agreement

or do any such thing in relation to any document or arrangement expressed to be supplemental to this Agreement, or which this Agreement expressly preserves or requires to be executed, except in accordance with a prior written waiver given by the Purchaser.

Successors in title

13.4 This Agreement shall be binding upon and operate for the benefit of the personal representatives and permitted assigns and successors in title of each of the Parties and references to the Parties shall be construed accordingly.

14. Waiver; variation; invalidity

No waiver by omission, delay or partial exercise

14.1 No right, power or remedy provided by law or under this Agreement shall be waived, impaired or precluded by any delay or omission to exercise it, by any single or partial exercise of it on an earlier occasion, or by any delay or omission to exercise, or single or partial exercise of, any other such right, power or remedy.

Specific waivers to be in writing

14.2 Any waiver of any right, power or remedy under this Agreement must be in writing and may be given subject to any conditions thought fit by the grantor. No waiver will take effect if the

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person seeking the waiver has failed to disclose to the grantor every material fact or circumstance which (so far as the person seeking the waiver is aware) has a bearing on its subject matter. Unless otherwise expressly stated, any waiver shall be effective only in the instance and only for the purpose for which it is given.

Variations to be in writing

14.3 No variation to this Agreement shall be of any effect unless it is agreed in writing and signed by or on behalf of each Party.

Invalidity

14.4 Each of the provisions of this Agreement is severable. If any such provision is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction that shall not affect or impair the legality, validity or enforceability in that jurisdiction of the other provisions of this Agreement, or of that or any other provision of this Agreement in any other jurisdiction.

15. Costs and expenses

Payment of costs

15.1 Except as otherwise stated in this Agreement, each Party shall bear its own costs and expenses in relation to the negotiation, preparation, execution and carrying into effect of this Agreement and all other agreements forming part of the transactions contemplated by this Agreement

Claims by directors etc

15.2 The Seller covenants to pay the Purchaser on demand an amount equal to all Losses and Expenses that the Companies may suffer or incur as a result of any and all claims that may be made against it by directors that are also officers of the Seller’s Guarantor by reason of their resignation and/or termination of their employment in accordance with Schedule 5 (Completion Obligations).

Unauthorised or invalid documents

15.3 The Purchaser shall indemnify and hold the Seller harmless, and the Seller shall indemnify and hold the Purchaser harmless, against any Losses and Expenses the Party indemnified may suffer or incur as a result of any document delivered to it pursuant to clause 4.2 (Completion) being unauthorised, invalid or for any other reason ineffective for its purpose.

16. Payments

No deduction etc

16.1 Except as otherwise expressly provided in this Agreement, all payments to be made under this Agreement shall be made in full without any set off or counterclaim and free from any deduction or withholding except as may be required by law (in which event such deduction or withholding shall not exceed the minimum amount required by law and the payer will pay to the payee whatever additional amount is required for the net amount received to equal what would have been received if no such deduction or withholding had been required). Any amount payable in relation to any Warranty shall be increased to the extent necessary to ensure that the net amount received by the Purchaser shall after Taxation be equal to that which it would have received had the payment not been subject to Taxation, save to the extent that Taxation has already been taken into account in calculating the quantum of the amount payable in relation to the Warranty.

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Payments to Seller’s Solicitors

16.2 Where this Agreement provides for any payment to be made to the Seller’s Solicitors (whether or not the manner of payment is specified) in each case the Seller irrevocably authorises and instructs the Purchaser to make that payment to the Seller’s Solicitors, whose receipt shall be an effective discharge of the Purchaser’s obligation to pay the amount concerned. The Purchaser shall not be concerned to see to the application or be answerable for the loss or misapplication of any such amount.

Interest on late payment

16.3 If a Party fails to pay any sum payable by it under this Agreement on the due date for payment, it shall pay interest on such sum for the period from and including the due date up to the date of actual payment (after as well as before judgment) at the rate which is the aggregate of 2% per annum and the base rate from time to time of Barclays Bank pic. The interest will accrue from day to day on the basis of the actual number of days elapsed and a 365-day year and shall be payable on demand and compounded monthly in arrears.

17. Guarantee

17.1 The Purchaser shall use reasonable endeavours to procure that as soon as practicable following Completion the Seller’s Guarantor is released from the guarantee given by it in the licence to assign dated 15 November 2002 between (1) Burry and Knight Limited (2) Devlin Electronics Limited, (3) AIDL and (4) the Seller’s Guarantor relating to the property at Castleman Crossing Centre, Ringwood, Hampshire and pending such release will indemnify the Seller’s Guarantor against any Losses and Expenses arising under such guarantee.

18. Entire agreement

This Agreement

18.1 In this clause, references to this Agreement include all other written agreements and arrangements between the Parties, and all other instruments, which are expressed to be supplemental to this Agreement or which this Agreement expressly preserves or requires to be executed.

Entire agreement

18.2 The Transaction Documents constitute the whole and only agreement and understanding between the Parties in relation to its subject matter. Subject to sub-clause 18.6 (Fraud), all previous drafts, agreements, understandings, undertakings, representations, warranties, promises and arrangements of any nature whatsoever between the Parties with any bearing on the subject matter of any Transaction Documents are superseded and extinguished to the extent that they have such a bearing, except insofar as any such thing is in terms repeated or otherwise reflected in any Transaction Documents.

18.3 The parties have not entered into any Transaction Document in reliance upon any representation, warranty or promise and no such representation, warranty or promise or any other term is to be implied in them whether by virtue of any usage or course of dealing or otherwise except as expressly set out in them.

18.4 If a party has given any representation, warranty or promise, then except to the extent that it has been set out in a Transaction Document, the party to whom it was given waives any rights or remedies it may have in respect of it.

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Other remedies

18.5 The rights, powers and remedies provided in this Agreement are independent and cumulative and do not exclude any rights, powers or remedies (express or implied) which are available as a matter of common law, statute, custom or otherwise.

Fraud

18.6 Nothing in this Agreement shall be read or construed as excluding any liability or remedy in respect of fraud or fraudulent misrepresentation or concealment or any resulting right to rescind the Agreement or the Tax Deed.

19. Counterparts

19.1 This Agreement may be executed in any number of counterparts and by the Parties on different counterparts. Each counterpart shall constitute an original of this Agreement but all the counterparts shall together constitute one and the same Agreement.

20. Time of the essence

20.1 Time shall be of the essence of this Agreement as regards any time, date or period mentioned in it. If any such time, date or period (or variation of any of them) is varied, such varied time, date or period shall be of the essence.

21. Notices

Form of notices

21.1 Any communication to be given in connection with the matters contemplated by this Agreement shall except where expressly provided otherwise be in writing and shall either be delivered by hand or sent by first class pre-paid post or facsimile transmission. Delivery by courier shall be regarded as delivery by hand.

Address and facsimile

21.2 Such communication shall be sent to the address of the relevant Party referred to in this Agreement or the facsimile number set out below or to such other address or facsimile number as may previously have been communicated to the sending Party in accordance with this clause. Each communication shall be marked for the attention of the relevant person.

Seller or the Seller’s Guarantor - facsimile number + 1 425 453 2916. For the attention of the VP Strategy & Technology

Purchaser- facsimile number 01243 861717. For the attention of Allan Imrie.

Purchaser’s Guarantor - facsimile number: +1610 725 8485. For the attention of Robert Feit/Patrick Farris.

21.3 In respect of any notice to be served on:

21.3.1 the Seller or the Seller’s Guarantor, a copy shall be sent or delivered to the Seller’s Solicitors and marked for the attention of David Kent and Mark Barron;

21.3.2 the Seller, a copy shall be sent or delivered to the Seller’s Guarantor;

21.3.3 the Purchaser, a copy shall be sent or delivered to the Purchaser’s Guarantor; and

21

21.3.4 the Purchaser or the Purchaser’s Guarantor, a copy shall be sent or delivered to the Purchaser’s Solicitors and marked for the attention of Barney Hearnden and Danielle Heath.

Deemed time of service

21.4 A communication shall be deemed to have been served:

21.4.1 if delivered by hand at the address referred to in sub-clause 21.2 (Address and facsimile) at the time of delivery;

21.4.2 if sent by first class pre-paid post to the address referred to in that sub-clause, at the expiration of two clear days after the time of posting; and

21.4.3 if sent by facsimile to the number referred to in that sub-clause, at the time of completion of transmission by the sender.

If a communication would otherwise be deemed to have been delivered outside normal business hours (being 9:30 a.m. to 5:30 p.m. on a Business Day) in the time zone of the territory of the recipient under the preceding provisions of this clause, it shall be deemed to have been delivered at the next opening of such normal business hours in the territory of the recipient.

Proof of service

21.5 In proving service of the communication, it shall be sufficient to show that delivery by hand was made or that the envelope containing the communication was properly addressed and posted as a first class pre-paid letter or that the facsimile was despatched and a confirmatory transmission report received.

Change of details

21.6 A Party may notify the other of a change to its name, relevant person, address or facsimile number for the purposes of sub-clause 21.2 (Address and facsimile) provided that such notification shall only be effective on:

21.6.1 the date specified in the notification as the date on which the change is to take place; or

21.6.2 if no date is specified or the date specified is less than five clear Business Days after the date on which notice is deemed to have been served, the date falling five clear Business Days after notice of any such change is deemed to have been given.

Non-applicability to Proceedings

21.7 For the avoidance of doubt, the Parties agree that the provisions of this clause shall not apply in relation to the service of any claim form, application notice, order, judgment or other document relating to or in connection with any Proceedings.

22. Governing law and jurisdiction

English law

22.1 This Agreement shall be governed by and construed in accordance with English law.

22

Courts of England and Wales

22.2 The Parties irrevocably agree that the courts of England and Wales shall have exclusive jurisdiction to hear and determine or otherwise settle all and any disputes which may arise out of or in connection with this Agreement.

23. Seller’s Guarantee

23.1 The Seller’s Guarantor hereby unconditionally and irrevocably guarantees to the Purchaser the full, due and punctual performance and observation by the Seller of all the obligations of the Seller under the terms of this Agreement (the “Seller Obligations”). In the event of any failure by the Seller to perform or observe such Seller Obligations, the Seller’s Guarantor shall be liable for the Seller Obligations arising hereunder as if it were a primary obligor.

23.2 The obligations of the Seller’s Guarantor under this clause 23:

23.2.1 shall be continuing obligations in respect of all Seller Obligations which have not been previously discharged by the Seller or the Seller’s Guarantor and shall not be satisfied, discharged or affected by any change in the constitution or control of, or the insolvency of, or any liquidation, winding up or analogous proceedings relating to the Seller;

23.2.2 shall be discharged on an ongoing basis by the due performance by the Seller or the Seller’s Guarantor of the relevant Seller Obligations, but otherwise shall not be discharged, prejudiced, lessened, affected or impaired by any act, omission or circumstance whatsoever which but for this provision might operate to release or exonerate the Seller from all or any part of such obligations or in any way discharge, prejudice, lessen, affect or impair the same; and

23.2.3 shall not be released or diminished by any forbearance, neglect or delay in seeking performance hereby imposed or any granting of time for such performance or, except in respect of the variation of the Seller Obligation or this clause 23 in accordance with this Agreement, any variation of this Agreement.

23.3 The Seller’s Guarantor waives any right it may have to require the Purchaser first to proceed against or claim payment from the Seller before claiming under this clause 23.

23.4 As a separate and independent stipulation, the Seller’s Guarantor agrees that any Seller Obligations expressed to be given by the Seller which may not be enforceable against or recoverable from the Seller by reason of any disability or incapacity on or on behalf of the Seller shall nevertheless be enforceable against the Seller’s Guarantor as though the same had been incurred by the Seller’s Guarantor and the Seller’s Guarantor was the sole and principal obligor in respect thereof and/or shall be performed or paid by the Seller’s Guarantor after receiving written notice on or after the time at which such obligation arises.

24. Purchaser’s Guarantee

24.1 The Purchaser’s Guarantor hereby unconditionally and irrevocably guarantees to the Seller the full, due and punctual performance and observation by the Purchaser of all the obligations of the Purchaser under the terms of this Agreement (the “Purchaser Obligations”). In the event of any failure by the Purchaser to perform or observe such Purchaser Obligations, the Purchaser’s Guarantor shall be liable for the Purchaser Obligations arising hereunder as if it were a primary obligor.

24.2 The obligations of the Purchaser’s Guarantor under this clause 24:

24.2.1 shall be continuing obligations in respect of all Purchaser Obligations which have not been previously discharged by the Purchaser or the Purchaser’s Guarantor and shall

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not be satisfied, discharged or affected by any change in the constitution or control of, or the insolvency of, or any liquidation, winding up or analogous proceedings relating to the Purchaser;

24.2.2 shall be discharged on an ongoing basis by the due performance by the Purchaser or the Purchaser’s Guarantor of the relevant Purchaser Obligations, but otherwise shall not be discharged, prejudiced, lessened, affected or impaired by any act, omission or circumstance whatsoever which but for this provision might operate to release or exonerate the Purchaser from all or any part of such obligations or in any way discharge, prejudice, lessen, affect or impair the same; and

24.2.3 shall not be released or diminished by any forbearance, neglect or delay in seeking performance hereby imposed or any granting of time for such performance or, except in respect of the variation of the relevant Purchaser Obligation or this clause 24 in accordance with this Agreement, any variation of this Agreement.

24.3 the Purchaser’s Guarantor waives any right it may have to require the Seller first to proceed against or claim payment from the Purchaser before claiming under this clause 24.

24.4 As a separate and independent stipulation, the Purchaser’s Guarantor agrees that any Purchaser Obligations expressed to be given by the Purchaser which may not be enforceable against or recoverable from the Purchaser by reason of any disability or incapacity on or on behalf of the Purchaser shall nevertheless be enforceable against the Purchaser’s Guarantor as though the same had been incurred by the Purchaser’s Guarantor and the Purchaser’s Guarantor was the sole and principal obligor in respect thereof and/or shall be performed or paid by the Purchaser’s Guarantor after receiving written notice on or after the time at which such obligation arises.

25. Agent for Service

25.1 The Purchaser’s Guarantor irrevocably appoints Blake Lapthorn Tarlo Lyons: attention Jenny Hayward and Hilary Keeping, Harbour Court, Compass Road, North Harlow, Portsmouth, PO6 4ST to be its agent for the receipt of service of process in England. It agrees that any documentation may be effectively served on it in connection with any Proceedings in England and Wales by service on its agent.

25.2 The Seller’s Guarantor irrevocably appoints Taylor Wessing LLP, of Carmelite, 50 Victoria Embankment, Blackfriars, London EC4Y ODX (attention: John Robinson) to be its agent for the receipt of service of process in England. It agrees that any documentation may be effectively served on it in connection with any Proceedings in England and Wales by service on its agent.

25.3 If any agent referred to in clauses 25.1 and 25.2 (or any replacement agent appointed pursuant to this clause) at any time ceases for any reason (including its dissolution) to act as the Purchaser’s Guarantor’s agent for service or the Seller’s Guarantor’s agent for service as appropriate, the Purchaser’s Guarantor or the Seller’s Guarantor (as the case may be) shall promptly and irrevocably appoint another person with an address for service in England and Wales to be that parties agent for service on the terms of this clause and promptly notify the other party of the replacement’s name and address. Failing such appointment and notification, the Seller’s Guarantor or the Purchaser’s Guarantor (as the case may be) shall be entitled by notice to the other party to appoint such a replacement (including itself) on the replacement’s standard or usual terms (if any) for such appointments to act on the Purchaser’s Guarantor or the Seller’s Guarantor’s behalf (as the case may be) in accordance with this clause. By way of security, the Purchaser’s Guarantor and the Seller’s Guarantor irrevocably appoints the other party as its attorney to effect any such appointment.

25.4 A copy of any document served on an agent pursuant to this clause shall be sent by post to the relevant in accordance with clause 21 (Notices), but no failure or delay in so doing shall prejudice the effectiveness of service of the documentation.

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AS WITNESS the hands of the Parties or their duly authorised representatives on the date first appearing at the head of this Agreement.

25

Schedule 1

The Companies

Part 1

Name:	Muirhead Aerospace Limited
Number:	560015
Date of incorporation:	13 January 1956
Registered office:	Mitre House, 160 Aldersgate Street, London EC1A 4DD
Share capital:
- authorised:	10,000,000 ordinary shares of £1.00 each
- issued:	5,510,101 ordinary shares of £1.00 each
Shareholder:
- name:	Esterline Technologies Limited
- Shares held:	5,510,101 ordinary shares of £1.00 each
Directors:	Robert William Cremin
	Robert David George
	Larry Albert Kring
	Richard Bradley Lawrence
	Graham Payne
	Pradeep Kumar Sharma
	Stephen Keith Wells
Secretary:	Mitre Secretaries Limited
Auditors:	Ernst & Young
Charges:	None
Subsidiaries:	Advanced Input Devices (UK) Limited (subject to registration of transfer of legal title following stamping)
	Norcroft Dynamics Limited (subject to registration of transfer of legal title following stamping)

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Part 2

Name:	Advanced Input Devices (UK) Limited
Number:	4436258
Date of incorporation:	13 May 2002
Registered office:	Mitre House, 160 Aldersgate Street, London EC1A 4DD
Share capital:
- authorised:	10,000 ordinary shares of £0.01 each
- issued:	101 ordinary shares of £0.01 each
Shareholder:
- name:	Advanced Input Devices, Inc.
- Shares held:	101 ordinary shares of £0.01 each
Directors:	Robert William Cremin
	Robert David George
	Richard Bradley Lawrence
	Graham Payne
	Pradeep Kumar Sharma
Secretary:	Mitre Secretaries Limited
Auditors:	Ernst & Young
Charges:	One charge outstanding: Rent Deposit Deed dated 15 November 2002 in favour of Burry and Knight Limited. Amount secured: £58,700 plus VAT.
Subsidiaries:	None

27

Part 3

Name:	Norcroft Dynamics Limited
Number:	01412224
Date of incorporation:	29 January 1979
Registered office:	Mitre House, 160 Aldersgate Street, London EC1A 4DD
Share capital:
- authorised:	106,200 ordinary shares of £0.20 each
- issued:	106,200 ordinary shares of £0.20 each
Shareholder:
- name:	Esterline Technologies Limited
- Shares held:	106,200 ordinary shares of £0.20 each
Directors:	Robert William Cremin
	Robert David George
	Larry Albert Kring
Secretary:	Mitre Secretaries Limited
Auditors:	Ernst & Young
Charges:	None
Subsidiaries:	None

28

Part 4

29

Schedule 2

Properties

Part 1

Properties

(1)	(2)	(3)	(4)	(5)
Description of Property	Tenure and rent payable (if leasehold)	Registered or unregistered	Title number and grade of title (if registered)	Existing Use
Unit 4 Oakfield Road, Penge	Leasehold	Registered	SGL693858 Title absolute	Manufacturing/ repair facilities and offices
Mallory House, Southall Lane, Heston	Leasehold	Registered	N/a	Lightweight assembly of avionics equipment
5 East Portway Industrial Estate, Andover	Leasehold	Registered	HP580162, Title absolute	Manufacturing and offices
Plot l, Castleman Crossway Centre, Ringwood	Leasehold	Unregistered	N/a	Factory and office premises

Part 2

Leases

(1)	(2)	(3)	(4)	(5)
Property	Date	Term	Parties	Current yearly rent
Unit 4 Oakfield Road, Penge in the London Borough of Bromley	30 August 2006	10 years from 1 December 2007	Industrial Property Investment Fund (1) Muirhead Aerospace Limited (2)	£351,000
Mallory House, Navigator Park, Southall Lane, Heston, Middlesex	12 September 2003	10 years from 12 September 2003	Harlequin Centre (Heston) (No. 1) Limited and Harlequin Centre (Heston) (No. 2) Limited (1) and Muirhead Aerospace Limited (2)	£130,000 (+£3, 000 pa as contribution to landlord’s works)

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(1)	(2)	(3)	(4)	(5)
Property	Date	Term	Parties	Current yearly rent
5 East Portway Industrial Estate, Andover	29 November 1976	99 years (commenced on 10 April 1973)	The District Council of Test Valley (1) and The Croydex Company Limited (2)	£22,570
Plot 1 Castleman Crossing Centre, Ringwood, Hampshire	4 December 2000	20 years (commenced on 4 December 2000)	Burry and Knight Limited (1) Devlin Electronics Limited (2) Spirent plc (3)	£72,500

Part 3

Letting Documents

(1)	(2)	(3)	(4)	(5)
Property	Date	Term	Parties	Current yearly rent
Electricity Substation, 5 East Portway Industrial Estate, Andover	23 February 1994	21 years from 10 October 1994	The Croydex Company Limited (1) Southern Electric Plc (2)	£1

31

Schedule 3

Intellectual Property

Part 1

Registered IP (excluding Licences In)

List of Granted Patents

Patent number	Description
US 6,717,086	Switch with adjustable bias means
GB2367947	A switch
US 7,133,033	Actuator for a switch
GB2341439	Control Device
US 6,740,863	Joystick
GB2383410	Joystick
GB2412715	Improvements relating to pointing devices
GB2413620	Improvements relating to pointing devices
US6949904	Power-actuated seat

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List of Patent Applications

Patent application number	Description	File Date	Publish Date
0421372.4	Signal conditioning circuit	24th September 2004	29th March 2006
11/233919	Signal conditioning circuit	29th October 2005
11/097544	Pointing Devices	1st April 2005

List of Registered Trade Marks

Mark	Country	Status	Class No	App Date	Reg No	Reg Date
TRAXSYS	Community Trademark	Registered	9, 38, 42	31 October 2003	3501483	20 April 2005
TRAXSYS	United States	Registered	9	12 June 2003	2,925,937	8 February 2005
TRAXSYS	United States	Registered	9	14 July 2003	2,979,017	26 July 2005
TRAXBALL	Community Trademark	Registered	9	25 February 2005	4310124	4 April 2006
TRAXBALL	United States	Registered	9	22 September 2004	3083760	18 April 2006
MUIRHEAD	Community Trademark	Registered	7, 9, 35, 37, 40, 42	30 October 2003	3482734	4 March 2005
MUIRHEAD VATRIC	United Kingdom	Registered	7	3 August 1993	1543670	1 September 1995
MUIRHEAD VATRIC	United Kingdom	Registered	9	21 January 1992	1488530	10 December 1993

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Part 2

Material unregistered IP (excluding Licences In)

Copyright in design drawings and specifications created by the Company in respect of products sold or to be sold to its customers.

Know-how relating to the design, engineering and manufacturing processes relating to products sold by the Company to its customers.

Part 3

Licences In - registered

	Licensor	Licensee	Priority Date	Subject note
1	Sensopad Technologies Ltd	AID (UK) Ltd trading as Traxis	30 Oct 2001	PCT/GB0201204 Field Position Sensor (ret. Only PAD1)
2	Sensopad Technologies Ltd	AID (UK) Ltd trading as Traxis	5 Feb 2002	PCT/GB2003/000495 Ball Tracking Device

Notes:

1. Family of Patents owned by Sensopad and used by Traxsys

— Priority date was 30 October 2001

— PCT application number is GB02/01204 PCT publication number is WO03/038379

— Granted as EP1442273 (Europe), in DE, FR, IT, ES, NL, SE & GB2374424, also granted as US7208945, prosecution ongoing in China, Korea, Norway, Australia, Japan

2. Family of Patent Applications: “Ball tracking device”

— Priority date was 5 February 2002

— PCT application number is GB03/000495 PCT publication number is WO03/067181

— Not yet granted, prosecution ongoing in EP, US, Japan & China

Sensopad Technologies Limited has since changed its name to TT Electronics Limited.

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Part 4

Licences In - material unregistered

Implied licences from some customers of the Business to use specifications and design drawings provided by customers to design and manufacture parts for such customers

Know-how relating to the Sensopad patents set out in Part 3 above.

35

Schedule 4

Information Technology

Part 1

IT Systems

(1)	(2)
AS/400	Muirhead Motion & Avionics
File & Print Server	Muirhead Motion & Avionics
Exchange Server	Muirhead Motion & Avionics
PDM Server	Muirhead Motion
Domain Controller	Muirhead Motion & Avionics
SQL Server	Muirhead Motion & Avionics
NAS Box	Muirhead Motion & Avionics
Antivirus Server	Muirhead Motion & Avionics
DCS Server	Muirhead Motion
Terminal Services Server	Muirhead Motion & Avionics
Websense Server	Muirhead Motion & Avionics
PDM Server	Traxsys Site
Domain Controller	Traxsys Site
Sytline Server	Traxsys Site
File & Print Server	Traxsys Site
Exchange Server	Traxsys Site
Samsung Telephone system	Muirhead Motion & Avionics
Eserver 15	Muirhead Motion & Avionics

Product	Total Licences	Total Installs
Office 97	247	244
Office Pro 2000
Office Pro XP
Office Pro 2003
Office Pro Plus 2007
Project 2000	62	36
Project Standard 2002
Project Pro 2003
Project Standard 2003
Project Standard 2007
Visio Standard 2002	47	41
Visio Standard 2002
Visio Pro 2003
Visio Standard 2007
LS/400 main production system – Avionics
LS/400 main production system – Aerospace
Sophos antivirus software	300	300
Websense
Virtual Office	11	11
Linpics system
Q-pulse
Minitab	5	5
Sonicwall
Sonicwall GAV & IPS
Time and Attendance

36

Product	Total Licences	Total Installs
Gumbo Spoolmail and SpoolAMatic
Payroll HRWorks
Permissions Analyser
Mail Disclaimer Maintenance
Mathcad	5	5
Opera 2d	3	3
MotorCad	4	4
Schaffner EPS 9980 emission software
Ultiboard/Multism software
PDM
Design Space (annual renewal required)

Part 2

Domain names

MUIRHEADAEROSPACE.COM

MUIRHEADAVIONICS.COM

TRAXSYS.COM

TRAXSYS.EU

TRAXSYS.CO.UK

TRAXSYS.ORG

TRAXSYS.ORG.UK

Part 3

IT Contracts

Disaster recovery contract with NDR

Maintenance agreement in respect of Samsung Telephone system with Progressive Communications (supplier)

Line rental for phone and other telecommunications and related support - Spitfire

Maintenance agreement in respect of Avaya telephone equipment with Comec

Maintenance agreement in respect of the Penge telephone system with Cenreal

AS400 software support	Supplier
LS/400 main production system - Avionics	Friedman
LS/400 main production system - Aerospace	Friedman
Network support
Penge
Sophos antivirus software	Foursys Ltd
Websense	Foursys Ltd
Virtual Office	Virtuall Software
Linpics system	Forward Microsystems
Q-pulse	Gael Quality Software

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AS400 software support	Supplier
Minitab	Minitab
Sonicwall	Lan2Lan
Sonicwall	ISIPITT
Time and Attendance	Kronos
Gumbo Spoolmail and SpoolAMatic	Friedman Corporation
Payroll HRWorks	Wealden
Permissions Analyser	Share-IT
Mail Disclaimer Maintenance
Andover
Mathcad software assurance	PTC
Opera 2d	Vector Fields
MotorCad	Motor Design Ltd
Schaffner EPS 9980 emission software	Schaffner
Ultiboard/Multism software	National Instruments
PDM	NTCADCAM
Design Space	IDAC/ANSYS
Lan 2 Lan
IBM
Eserver i5	IBM

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Schedule 5

Completion Obligations

1. Seller’s Completion obligations

The Seller will be obliged to deliver to the Purchaser (or otherwise make available to the satisfaction of the Purchaser):

(a) a copy of the minutes of a meeting of the directors of the Seller authorising the execution by the Seller of this Agreement and the Tax Deed;

(b) transfers of the Shares duly executed by the Seller in favour of the Purchaser or its nominee(s) together with the relevant share certificates (or, in lieu of share certificates, indemnities in a form satisfactory to the Purchaser);

(c) the IT Assignment Documents duly executed by the parties thereto;

(d) agreed form claims or elections under paragraph 66 of Schedule 29 FA 2002 or Section 179A TCGA (as appropriate) to give effect to clause 14 (Joint elections) of the Tax Deed;

(e) the statutory registers and minute books (properly written up to the time immediately prior to Completion), the common seal (if any), the certificate of incorporation and (if applicable) any certificate of incorporation on change of name of each Company;

(f) the Tax Deed duly executed as a deed by the Seller;

(g) the Traxsys Supply Agreement duly signed by AIDL and AID Inc;

(h) the Deeds of Assignment executed as deeds by the parties thereto;

(i) the Payne Compromise Agreement duly executed by Graham Payne and Muirhead;

(j) the Releases duly executed by Wachovia Bank and the relevant Company;

(k) certificates from each of the banks at which either Company maintains an account of the amount standing to the credit or debit of all such accounts as at the close of business on the last Business Day before the Completion meeting;

(1) at its registered office all material records, correspondence, documents, files, memoranda and other papers belonging to each Company but not kept at any of the Properties, and shall procure that any other person controlled by the Seller shall do the same without delay;

(m) the written resignations in the agreed form of all the directors and the secretary of each Company from their respective offices, such resignations to take effect from Completion;

(n) irrevocable powers of attorney in the agreed form executed by the Seller in favour of the Purchaser or its nominee(s) to enable the beneficiary (pending registration of the transfers of the Shares) to exercise all voting and other rights attaching to the Shares and to appoint proxies for this purpose; and

(o) a written shareholder resolution to change the name of AIDL to Traxsys Input Products Limited in agreed form;

and to cause a board meeting of each Company to be held at which:

39

(a) the transfers of the Shares will be approved for registration (subject to their being duly stamped, which shall be at the cost of the Purchaser);

(b) all resignations provided for above will be tendered and accepted so as to take effect at the close of the meeting;

(c) all persons nominated by the Purchaser (in the case of directors, subject to any maximum number imposed by the relevant articles of association) will be appointed additional directors and appointed secretary;

(d) all existing instructions and authorities to bankers will be revoked and will be replaced with alternative instructions, mandates and authorities in such form as the Purchaser may require;

(e) the registered office will be changed to P. O. Box 36, 2 New Star Road, Leicester, LE4 9JQ;

(f) the accounting reference date will be changed to 31 December; and

(g) such other business as the Purchaser may reasonably require will be conducted.

2. Purchaser’s Completion obligations

The Purchaser’s obligations (which are subject to the Seller complying with its obligations under paragraph 1) are to:

(a) pay to the Seller’s Solicitors by electronic transfer an amount comprising the Provisional Consideration; and

(b) deliver to the Seller:

(i) a counterpart Tax Deed duly executed by the Purchaser; and

(ii) a copy of the minutes of a meeting of the directors of the Purchaser authorising the execution by the Purchaser of this Agreement and the Tax Deed (such copy minutes being in each case certified as correct by the secretary of the Purchaser).

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Schedule 6

Warranties

Part 1

General warranties

1. Power to contract

The Seller has full power to enter into and perform this Agreement and the Tax Deed, each of which constitutes (or will when executed constitute) binding obligations on the Seller in accordance with their respective terms.

2. The Company

Memorandum and articles of association

2.1 The copy of the memorandum and articles of association of the Company which has been Disclosed is true and complete in all respects and has embodied in it or annexed to it a copy of every such resolution and agreement as is referred to in section 29(1)(b) Companies Act 2006. The Company has at all times since carried on its business and affairs in all respects in accordance with its memorandum and articles of association and all such resolutions and agreements.

Statutory books

2.2 The statutory books (including all registers and minute books) of the Company have been properly kept and contain an accurate and complete record of the matters which should be dealt with in those books, and no notice or allegation that any of them is incorrect or should be rectified has been received.

Statutory returns

2.3 The Company has complied with the provisions of the Companies Acts (as defined in the Companies Act 2006) and the Companies Act 1989 in that all returns, particulars, resolutions and other documents required to be filed with or delivered to the Registrar of Companies or to any other authority whatsoever by the Company have been correctly and properly prepared and so filed or delivered.

Share capital

2.4 The Shares constitute the whole of the issued share capital of Muirhead and the Seller is the sole beneficial owner of the Shares as set out in part 1 Schedule 1. There is no Encumbrance on, over or affecting any of the Shares or any unissued shares, debentures or other securities of Muirhead. No claim has been made by any person to be entitled to the benefit of any such Encumbrance and no person has the right (exercisable now or in the future and whether contingent or not) to call for the issue of any share or loan capital of the Company.

Subsidiaries’ shares

2.5 Muirhead is the sole beneficial owner of the entire issued share capital of AIDL and Norcroft as set out in Schedule 1 and is entitled to be registered as the legal owner of such shares. There is no Encumbrance on, over or affecting any of the shares in AIDL or Norcroft or any unissued shares, debentures or other securities of AIDL or Norcroft. No claim has been made by any person to be entitled to the benefit of any such Encumbrance and no person has the right (exercisable now or in the future and whether contingent or not) to call for the issue of any share or loan capital of AIDL or Norcroft.

41

Purchase of own shares etc

2.6 The Company has at no time:

2.6.1 repaid, redeemed or purchased any of its own shares, or otherwise reduced its issued share capital or any class of it, or capitalised, in the form of shares, debentures or other securities or in paying up any amounts unpaid on any shares, debentures or other securities, any profits or reserves of any class or description or passed any resolution to do so, or agreed to do any of the above; or

2.6.2 directly or indirectly provided any financial assistance for the purpose of the acquisition of its own shares or the shares of any holding company of the Company or for the purpose of reducing or discharging any liability incurred in such an acquisition, whether in accordance with sections 155 and 156 CA 85 or otherwise.

Solvency

2.7 The Company is not insolvent as defined by section 123 Insolvency Act 1986:

2.7.1 has not entered into any scheme of arrangement or voluntary or other arrangement with any of its creditors, nor taken any steps to obtain a moratorium as set out in Schedule Al of that Act;

2.7.2 no order has ever been made or petition presented or resolution passed for its winding up and no distress, execution or other process has ever been levied on its assets;

2.7.3 no administrative or other receiver or manager has been appointed by any person over the whole or any part of its business or assets, nor has any petition been presented or application made for the appointment of an administrator in respect of it; and

2.7.4 there are no circumstances which would entitle any person to present a petition to wind it up, to appoint an administrator in respect of it or to appoint an administrative or other receiver or manager over the whole or any part of its undertaking or assets.

2.8 AID Inc was not insolvent or unable to pay its debts within the meaning of section 123 Insolvency Act 1986 or any equivalent legislation in the United States of America at the time of (nor did it become so as a result of) the sale of the shares in AIDL to Muirhead and there are no circumstances that would entitle a liquidator or administrator (or equivalent office holder) to set aside the sale by AID Inc of the shares in AIDL to Muirhead.

3. Connected business

Connected transactions

3.1 The Company:

3.1.1 has not been, nor has agreed to become, the holder or other owner of any shares, debentures or other securities of any other body corporate (whether incorporated in the United Kingdom or elsewhere) with the exception of Norcroft and AIDL;

3.1.2 has not agreed to become a subsidiary of any other body corporate or under the control of any group of bodies corporate or consortium;

3.1.3 is not, nor has agreed to become, a member of any partnership, joint venture, consortium or other unincorporated association other than a recognised trade association or a party to any agreement or arrangement for sharing commissions or other income; and

42

3.1.4 has no branch, place of business or substantial assets outside England and Wales or any permanent establishment (as that expression is defined in any relevant Order in Council made pursuant to section 788 TA 88) in any country outside the United Kingdom.

4. Accounts

General

4.1 The Accounts have been audited, have been prepared and presented in accordance with UK GAAP, are consistent with the practice and policies adopted by the Company or during the three accounting periods ended on the Balance Sheet Date, comply with the requirements of CA 85 or the Companies Act 2006 (whichever is applicable) and give a true and fair view of the assets, liabilities and the financial position (including profits and losses) of the Company as at the Balance Sheet Date.

Provisions

4.2 Without prejudice to the contents of paragraph 4.1 above, the Accounts make proper provision or reserve for (or where appropriate disclose by way of note) all material liabilities, contingent liabilities, bad and doubtful debts, obsolete or slow moving stock and depreciation; and do not include (and the profits of the Company for the period have not been affected to a material extent by) any unusual, exceptional or non-recurring items of income or expenditure, with a value in excess of £100,000.

True and fair view

4.3 The profit and loss accounts, balance sheets and reports of the Company (copies of which have been Disclosed) covering the three years ended on the Balance Sheet Date, give a true and fair view of the assets, liabilities and financial position (including profits and losses) of the Company at the relevant dates, and there were no unusual, exceptional or non-recurring items or transactions entered into other than in the normal course of trade which materially affect such accounts or the trend of profits shown by them.

Basis of valuation

4.4 The basis of valuation for stock-in-trade, work-in-progress and of depreciation of fixed assets adopted for the purpose of the Accounts and each of the accounting periods of the Company for the last three financial years ended on the Balance Sheet Date has, in all material respects, remained consistent.

Books of account

4.5 All accounts, books, ledgers, financial and other necessary records of whatsoever kind of the Company (including all invoices and other records required for VAT purposes) have been accurately maintained, are in the possession of the Company and contain true and accurate records of all matters (including those required to be entered in them by all applicable legislation) and no notice or allegation that any of them is incorrect or should be rectified has been received.

US GAAP Accounts

4.6 The US GAAP Accounts have been properly prepared and presented in accordance with the Company’s accounting records, are in accordance with US GAAP and fairly and in all material respects state the assets, level of turnover, operating profit and losses and liabilities of the Company as at that date and for that period and (except as expressly disclosed in them) do not include any unusual, exceptional or non-recurring item of income or expenditure.

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5. Post-Balance Sheet Date events

5.1 Since the Balance Sheet Date:

5.1.1 the Company has carried on its business in the normal course and without any interruption or alteration in the nature, scope or manner of its business;

5.1.2 the Company has not experienced any material deterioration in its financial position or prospects or turnover or suffered any diminution of its assets by the wrongful act of any person and the Company has not had its business, profitability or so far as the Seller is aware prospects materially and adversely affected by the loss of any important customer or source of supply or by any abnormal factor not affecting similar businesses to a like extent and so far as the Seller is aware there are no facts which are likely to give rise to any such effects;

5.1.3 the Company has not acquired or disposed of or agreed to acquire or dispose of any assets or assumed or incurred or agreed to assume or incur any material liabilities (actual or contingent), or made any payment not provided for in the Accounts, or entered into any other transaction, otherwise than in the ordinary course of trading;

5.1.4 the Company has not declared, made or paid any dividend, bonus or other distribution of capital or income (whether a qualifying distribution or otherwise) and (excluding fluctuations in overdrawn current accounts with bankers) no loan or loan capital of the Company has been repaid in whole or in part or has become due or is liable to be declared due for any reason;

5.1.5 the Company has not made any change to the remuneration, terms of employment, emoluments or pension benefits of any present or former director, officer or employee of the Company who on the Balance Sheet Date was entitled to remuneration in excess of £50,000 per annum and has not appointed or employed any additional director, officer or employee who is so entitled;

5.1.6 the Company has received payment in full on their due dates of all debts owing to the Company shown in the Accounts (subject to any provision for bad and doubtful debts made in the Accounts), and the Company has not released any debts in whole or in part or written off debts in an amount exceeding £100,000 in the aggregate;

5.1.7 the Company has not entered into contracts involving capital expenditure in an amount exceeding £100,000 in the aggregate;

5.1.8 the Company has not become aware that any event has occurred which would entitle any third party to terminate any contract or any benefit enjoyed by the Company or to call in any money before the normal due date;

5.1.9 the Company has not purchased stocks in quantities or at prices materially greater than was the practice of the Company before the Balance Sheet Date;

5.1.10 the Company has paid its creditors within the times agreed with such creditors and has no debts outstanding which are overdue for payment by more than four weeks;

5.1.11 the Company has not created or agreed to create any Encumbrance or entered into any factoring arrangement, hire-purchase, conditional sale or credit sale agreement which has not been Disclosed (and there has been no default by the Company in the performance or observance of any of the provisions of any such Disclosed Encumbrance, arrangement or agreement);

5.1.12 the Company has not borrowed or raised any money or taken any financial facility (except such short term borrowings from bankers as are within the amount of any

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overdraft facility which was available to the Company at the Balance Sheet Date) or renegotiated or received any notice from any banker that such banker wishes to renegotiate any overdraft facility available to the relevant Company at the Balance Sheet Date;

5.1.13 the Company has not made any material change to the accounting procedures or principles by reference to which the Accounts were drawn up nor made any change to its accounting reference date and no accounting period of the Company has ended since the Balance Sheet Date; and

5.1.14 the Company (including any class of its members) has not passed any resolution whether in general meeting or otherwise.

5.2 Prior to the date of this Agreement, the Seller has procured the repayment by the Companies of all External Borrowings and Inter-Company Payables.

6. Transactions with the Seller, directors and Connected Persons

Loans and debts

6.1 There are not outstanding:

6.1.1 any Inter-Company Payables or Inter-Company Receivables

6.1.2 and, save for Ordinary Trading Items, there is not outstanding:

(a) any other indebtedness or other liability (actual or contingent) owing by the Company to the Seller or any director of the Company or any Connected Person or owing to the Company by the Seller or any director of the Company or any Connected Person; or

(b) any guarantee or security for any such indebtedness or liability.

Arrangements with Connected Persons

6.2 The Company:

6.2.1 is not, nor has it at any time during the last three years been, a party to any agreement, arrangement or understanding (whether legally enforceable or not) in which the Seller, or any director of the Company or any Connected Person is or has been interested whether directly or indirectly; or

6.2.2 is not a party to, nor have its profits or financial position during the last three years been affected by, any agreement or arrangement which is not entirely of an arm’s length nature.

Competitive interests

6.3 None of the Seller, the directors of the Company nor any Connected Person, either individually or with any other person or persons, has any estate, right or interest, directly or indirectly, in any business other than that now carried on by the Company which is or is likely to become competitive with any aspect of the Business of the Company except:

6.3.1 as registered holder or other owner of any class of securities of any company if such class of securities is listed on any recognised investment exchange (as defined in the Financial Services and Markets Act 2000) and if such person (together with Connected Persons and Affiliates) holds or is otherwise interested in less than three per cent of such class of securities;

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6.3.2 for the Permitted Business and in relation to which the full details of the existing Permitted Business have been Disclosed,

and the Seller is not itself or with any other person or persons interested in any way whatsoever in any Intellectual Property Rights used and not wholly owned by the Company.

Benefits

6.4 No Connected Person is entitled to or has claimed entitlement to any remuneration, compensation or other benefit from the Company.

7. Finance

Borrowings

7.1 Particulars of all money borrowed by the Company have been Disclosed. The total amount borrowed by the Company from any source does not exceed any limitation on its borrowing contained in the articles of association of the Company or in any debenture or loan stock trust deed or instrument or any other document binding on the Company and the amount borrowed by the Company from each of its bankers does not exceed the overdraft facility agreed with such banker. The Company has no outstanding loan capital.

Debts owed to the Company

7.2 All debts owed to the Company are collectable in the ordinary course of business and each such debt will so far as the Seller is aware realise in full its face value within three months of its due date for payment. The Company owns the benefit of no debt (whether present or future) other than debts that have accrued to it in the ordinary course of business.

Bank accounts

7.3 There have been Disclosed:

7.3.1 particulars of the balances on all the bank accounts of the Company as at a date not more than two days before the date of this Agreement and the Company has no other bank accounts. Since the date of such particulars there have been no payments out of any such bank accounts except for routine payments;

7.3.2 all unpresented cheques drawn by the Company, and there are no such unpresented cheques drawn otherwise than in the normal course of business.

Financial facilities

7.4 The Seller has Disclosed full details and true and correct copies of all documents relating to all debentures, acceptance lines, overdrafts, loans or other financial facilities outstanding or available to the Company and all Encumbrances to which any asset of the Company is subject. Neither the Seller nor the Company has done anything whereby the continuance of any such facility or Encumbrance in full force and effect might be affected or prejudiced.

Grants

7.5 Full details of all grants made to the Company in the last six years, and all outstanding applications for any such grant, have been Disclosed. No act or transaction has been effected in consequence of which the Company is or could be held liable to refund (in whole or in part) any such grant or any loan received by virtue of any statute, or in consequence of which any such grant or loan for which application has been made by it will not or may not be paid or will or may be reduced.

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Options and guarantees

7.6 The Company is not responsible for the indebtedness of any other person nor party to any option or pre-emption right or any guarantee, suretyship or any other obligation (whatever called) to pay, purchase or provide funds for the payment of, or as an indemnity against the consequence of default in the payment of, any indebtedness of any other person; and no person has given any guarantee of or security for any overdraft, loan or loan facility granted to the Company.

Payment of obligations

7.7 There has been no delay by the Company in the payment of any material obligation due for payment.

8. Environment

Definitions

8.1 In this Agreement:

“Environment” means any and all organisms (including man), ecosystems, property and the following media: air (including the air within buildings and the air within other natural or man-made structures, whether above or below ground); water (including water under or within land or in drains or sewers and coastal and inland waters); and land (including land under water);

“Environment Agreements” means any and all leases or licences or other agreements (including agreements of the nature referred to within DETR Circular 01/2006 dated September 2006) which are binding on the Company but only to the extent that they relate to the protection of the Environment and/or the prevention of Harm and/or Remediation Action and/or the provision of remedies in respect of Harm;

“Environment Law” means any and all laws applying as at the date of this Agreement, whether civil, criminal or administrative and which have as a purpose or effect the protection of the Environment and/or the prevention of Harm and/or the carrying out of Remediation Action and/or the provision of remedies in respect of Harm which are legally binding, including: European Community or European Union regulations, directives, decisions and recommendations; statutes and subordinate legislation; regulations, orders and ordinances; Permits; codes of practice, circulars, guidance notes and the like; common law, local laws and bye-laws; and judgments, notices, orders, directions, instructions or awards of any Competent Authority;

“Environment Liability” means liability (including liability in respect of Remediation Action) on the part of the Company and/or any of its directors or officers or shareholders under Environment Laws;

“Harm” means harm or damage to, or other interference with, the Environment and includes, in the case of man, offence caused to any of his senses or harm or damage to his property;

“Hazardous Matter” means any and all matter (including asbestos), radiation, electricity, heat, vibration or noise that (alone or in combination) is capable of causing Harm;

“Other Property” means any and all land or property, other than any Property, owned, occupied or operated at any time by the Company including any land or property used for the disposal, reclamation or recycling of Hazardous Matter;

“Permits” means any and all licences, consents, permits, registrations, filings, exemptions, approvals, authorisations or the like, made or issued pursuant to or under, or required by, Environment Law in relation to the Properties and/or the carrying on of the Business;

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“Remediation Action” means (i) preventing, limiting, removing, remedying, cleaning-up, abating or containing the presence or effect of any Hazardous Matter in the Environment or (ii) carrying out investigative, design and scoping work and obtaining legal and other professional advice as is reasonably required in relation to (i).

Compliance with Environment Law

8.2 So far as the Seller is aware, each Property and any Other Property has been used, and the Company has operated, at all times in material compliance with Environment Law and no work, repairs, remediation, construction, or capital expenditure over £100,000 is required under any Environment Law.

8.3 The Seller has Disclosed all material correspondence between the Company and the competent authorities in respect of the Environment.

Permits

8.4 All Permits necessary under Environment Law for carrying on of the Business in the manner in which the Business is now carried on have been obtained, full copies of them have been Disclosed, and all are in full force and effect and their terms and conditions have been materially complied with. No circumstances exists which may result in modification, suspension, or revocation of any Permit or may result in any such Permit not being extended, renewed, granted or (where necessary) transferred. Renewals of all permits, if required, have been timely applied for.

Hazardous Matter

8.5 As far as the Seller is aware, no Hazardous Matter has been spilled, deposited, disposed of, discharged, emitted at, on, under or from any Property and/or the Other Properties on or prior to Completion which may give rise to an Environment Liability.

Environment Agreements

8.6 The Company is, and has at all times been, in compliance with the Environment Agreements, and has not received notification of any claim or liability, and does not know of any circumstances likely to give rise to a claim or liability, under any Environment Agreement.

Storage tanks

8.7 No underground storage tanks of any kind, including related pipework, are or have been located at any time whatsoever on or under any Property.

Notice of claims

8.8 At no time in the last three years have the Seller or the Company had knowledge of or received any notice, claim, demand or other communication which could give rise to an Environment Liability.

Assessments, audits etc

8.9 The Seller has Disclosed and provided to the Purchaser complete copies of all assessments, audits, reports or investigations relating to the Environment, Environment Law or Environment Liability in connection with the Properties or the Other Properties or to the operations of the Company whether in draft form (but excluding any draft reports superseded by a final version) or final form which it holds copies of and is entitled to disclose by operation of law.

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Other Properties

8.10 The Seller has Disclosed the following information in relation to the Other Properties:

8.10.1 address and current and former uses; and

8.10.2 nature of involvement of the Company, including any former property interest.

Asbestos

8.11 So far as the Seller is aware no claim has been made or other action taken or threatened by any employee, customer or other individual alleging exposure to asbestos in any Products manufactured, sold, serviced, repaired or otherwise handled currently or in the past by the Company and the Seller is not aware of any circumstance which may reasonably lead to such a claim.

9. Health and Safety

Compliance

9.1 So far as the Seller is aware, the Business has at all times been conducted in material compliance with all applicable legislation concerning health and safety matters and all and any regulations or orders made or issued under any such legislation and any relevant codes of practice, guidance notes and the like issued by government agencies which are legally binding (the “Health and Safety Legislation”).

9.2 [Intentionally left blank.]

Properties

9.3 No works, repairs, construction, remedial action or expenditure over £100,000 is required in relation to the Health and Safety Legislation in order to carry on the Business lawfully at any Property.

Claims

9.4 The Seller is not aware of any notice, claim or other communication alleging any contravention of or actual or potential liability under the Health and Safety Legislation.

10. Other assets

Title

10.1 The Company:

10.1.1 has, except insofar as this Warranty is inconsistent with paragraph 22 (Properties) and paragraph 18 (IP) (and except for assets disposed of in the ordinary course of trading), legal and beneficial title (free from any Encumbrance, hire or hire purchase agreement or leasing agreement or agreement for payment on deferred terms) to all of its assets which:

(a) are included in the Accounts; or

(b) have otherwise been Disclosed as being its property; or

(c) were at the Balance Sheet Date used or held for the purposes of its business; or

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(d) have been acquired by it since the Balance Sheet Date

and all such assets are in its possession and control and are sited within the United Kingdom.

10.1.2 has not acquired or agreed to acquire any material asset on terms that title does not pass to it until full payment is made.

10.1.3 owns or has the right to use all the assets used in, related to or required by the Company in order to carry on its business in the manner in which it is currently carried on.

Condition of assets

10.2 The plant and machinery (including fixed plant and machinery) and all vehicles and office and other equipment shown in the Accounts or acquired since the Balance Sheet Date or otherwise used in connection with the Business which have not been disposed of in the ordinary course of business:

10.2.1 do not so far as the Seller is aware contravene any requirement or restriction having the force of law;

10.2.2 are in materially good repair and condition and are regularly maintained;

10.2.3 are so far as the Seller is aware each capable of doing the work for which they were designed and/or purchased and will each be so capable (subject to fair wear and tear) during the period of time over which the value of such assets will be written down to nil in the accounts of the Company;

10.2.4 are not surplus to the Company’s requirements;

10.2.5 are not so far as the Seller is aware dangerous, inefficient, out of date, unsuitable or in need of renewal or replacement; and

10.2.6 are so far as the Seller is aware free from asbestos,

and the vehicles owned by the Company are so far as the Seller is aware road-worthy and duly licensed for the purposes for which they are used.

Condition of stock

10.3 The Company’s stock-in-trade is in good condition and is capable of being sold by the Company in the ordinary course of business in accordance with its current price list without rebate or allowance to a purchaser.

Rental payments

10.4 Rentals payable by the Company under any leasing, hire-purchase or other similar agreement to which it is a party are set out in the Disclosure Letter and have not been and are not likely to be increased and all such rentals are fully deductible by the Company for tax purposes.

11. Insurance

Extent of insurance

11.1 All the assets of the Company that are of an insurable nature are adequately insured against fire and all relevant risks and the Company is and has at all material times since 11 October 1999 been adequately covered against all relevant legal liability and risks (including liability to

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employees or third parties for personal injury or loss or damage to property, product liability and loss of profit and liability to third parties in respect of errors or omissions in the provision of any professional services by the Company).

Premiums and claims

11.2 Particulars of all policies of insurance of the Company now in force have been Disclosed and such particulars are true and correct and all premiums due on such policies have been duly paid and all such policies are valid and in force. So far as the Seller is aware, there are no circumstances and there is no action which the Company has or has not taken in relation to a claim that would otherwise be payable under the policy which might lead to a repudiation of any such policy or to any liability under such insurance being avoided by the insurers in relation to a claim that would otherwise be payable under the policy or to the premiums being increased. There is no claim outstanding under any such policies and so far as the Seller is aware there are no circumstances likely to give rise to such a claim.

12. Litigation

Litigation

12.1 The Company:

12.1.1 except as claimant in the collection of debts (not exceeding £100,000 in the aggregate) arising in the ordinary course of trading, is not now engaged in any Litigation, and no Litigation is in prospect, in either case by the Company or, so far as the Seller is aware, against the Company or any person for whose acts or defaults it may be vicariously liable;

12.1.2 has not, in the last five years preceding the date of this Agreement, been involved in any Litigation with any person who is or was a supplier, or customer, of importance to the Company or the Business, or where such Litigation resulted in adverse publicity or loss of goodwill; and,

12.1.3 so far as the Seller is aware, there is no matter or fact in existence which might give rise to any Litigation involving the Company, including any which might form the basis of any criminal prosecution against it.

Injunctions, etc

12.2 No injunction or order for specific performance has been granted against the Company which has not been discharged or fully complied with or is otherwise no longer in force.

Orders and judgments

12.3 The Company is not subject to any order or judgment given by any court, tribunal or governmental agency which is still in force, nor has it given any undertaking to any court or tribunal or to any third party arising out of any Litigation.

13. Licences

General

13.1 The Company has all necessary licences (including statutory licences), permits, consents and authorities (public and private) for the proper and effective carrying on of the Business in the manner in which the Business is now carried on and all such licences, permits, consents and authorities are valid and subsisting and the Seller knows of no reason why any of them should be suspended, cancelled or revoked whether in connection with the sale to the Purchaser or otherwise and, so far as the Seller is aware, there are no factors that might in any way prejudice

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the continuance or renewal of any of those licences, permits, consents or authorities and the Company is not restricted by contract from carrying on any activity in any part of the world. The Company has obtained all export licences required for products exported from the United Kingdom.

Financial Services and Markets Act etc

13.2 The Company does not carry on or purport to carry on, nor has at any time since 28th April 1988 carried on or purported to carry on, in the United Kingdom

13.2.1 investment business within the meaning of section 1 Financial Services Act 1986; or

13.2.2 any regulated activity within the meaning of section 22 Financial Services and Markets Act 2000,

nor has contravened any provision of either of those Acts.

Data Protection Act 1998

13.3

13.3.1 The Company has registered or applied to register itself under the Data Protection Act 1998 in respect of all registrable personal data held by it, and all due and requisite fees in respect of such registrations have been paid.

13.3.2 The details contained in such registrations or applications are correct, proper and suitable for the purpose(s) for which the Company holds or uses the personal data which are the subject of them, and the contents of all such registrations or applications have been Disclosed.

13.3.3 All personal data held by the Company has been held by it in accordance with the data protection principles and there has been no unauthorised disclosure of such personal data.

13.3.4 The Company has not received any notice or complaint from any individual or regulatory authority alleging non-compliance with the Data Protection Act 1998 (including any prohibition or restriction on the transfer of data) or claiming compensation for an injunction in respect of non-compliance with the Data Protection Act 1998.

13.3.5 There are no unsatisfied requests to the Company made by data subjects in respect of personal data held by it, nor any outstanding applications for rectification or erasure of personal data.

13.3.6 There are no outstanding claims against the Company for compensation for inaccuracy, loss or unauthorised disclosure of personal data; nor is any personal data held by the Company inaccurate; nor has it lost or made any unauthorised disclosure of any such data.

13.3.7 Without prejudice to the specific provisions above, the Company and its employees have complied in all respects with the requirements of the Data Protection Acts 1984 and 1998.

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14. Trading

Definition

14.1 In this Agreement, “Product” means any goods, product, apparatus or equipment which the Company has manufactured, marketed, repaired, supplied or agreed to supply to any person or put into service and includes a product which is comprised in another product (whether by virtue of being a component part or raw material or otherwise).

Tenders, etc

14.2 No offer, tender or the like is outstanding (the value of which to the Company could exceed £100,000 in any year) which is capable of being converted into an obligation of the Company by an acceptance or other act of some other person.

Delegation of powers

14.3 There are in force no powers of attorney given by the Company other than to the holder of an Encumbrance (which has been Disclosed) solely to facilitate its enforcement nor any other authority (express, implied or ostensible) given by the Company to any person to enter into any contract or commitment or do anything on its behalf other than any authority of employees to enter into routine trading contracts in the normal course of their duties.

Consequence of acquisition of Shares by Purchaser

14.4 Nothing done in compliance with the terms of this Agreement (including acquisition of the Shares by the Purchaser) and no change in the management of the Company will:

14.4.1 cause the Company to lose the benefit of any right or privilege it presently enjoys or so far as the Seller is aware cause any person who normally does business with the Company not to continue to do so on the same basis as previously;

14.4.2 relieve any person of any obligation to the Company (either contractual or so far as the Seller is aware otherwise) or legally entitle any person to determine any such obligation or any right or benefit enjoyed by the Company or to exercise any right, whether under an agreement with, or so far as the Seller is aware otherwise in respect of, the Company;

14.4.3 conflict with, or result in the breach of, or constitute a default on the part of the Company or the Seller under (i) any of the terms, conditions or provisions of any agreement or instrument to which it is now a party; or any loan to or mortgage created by it; or (ii) its memorandum or articles of association;

14.4.4 result in any present or future indebtedness of the Company becoming due and payable or capable of being declared due and payable prior to its stated maturity;

14.4.5 so far as the Seller is aware cause any director, officer or senior employee of the Company to leave employment;

14.4.6 conflict with, violate or result in a breach of any law, regulation, order, decree, claim form or application notice applicable to the Company or the Seller or entitle any person to receive from the Company any finder’s fee, brokerage or other commission,

or, so far as the Seller is aware without having made any investigation of any such client, customer or supplier, will prejudicially affect the attitude or actions of clients, customers and suppliers with regard to the Company.

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The Products

14.5 At no time has the Company:

14.5.1 carried on any business other than the Business now carried on by the Company; or

14.5.2 designed, manufactured, placed on the market, installed, supplied or put into service any Product which was at the material times not fully compliant with:

(a) the requirements of all applicable European laws and the laws of any territory in which such Product has been placed on the market or put into service;

(b) the terms of any applicable recognised national or international product standards; or

(c) any representation or warranty (whether express or implied) given in respect of such Product; or

14.5.3 had knowledge of or received any notice, claim, governmental enforcement action or other communication from any person alleging any defect in, or lack of fitness for purpose of, any Product or any contravention of any applicable law or standard relating to the Products nor requiring the Company to repair or rectify any defect or default in any Product. So far as the Seller is aware, there are no circumstances which could give rise to such a notice, claim or action.

Guarantees and warranties

14.6 Except for warranties or guarantees implied by law, every:

14.6.1 guarantee, warranty and/or representation given or made in respect of articles or trading stock sold or contracted to be sold by the Company; and

14.6.2 liability or obligation to service, maintain, repair, take back or otherwise do or not do anything in respect of any articles or stock that would apply after any such article or stock has been delivered by the Company

(the value of which could exceed £100,000) has been Disclosed.

Competition/Anti-trust

14.7 The Company is not party to or directly concerned in any agreement, arrangement, understanding, practice (whether or not legally binding) or conduct which is:

14.7.1 the subject of an investigation by the Office of Fair Trading or a reference to the Competition Commission under the provisions of the Enterprise Act 2002;

14.7.2 infringing Article 81 or Article 82 of the EC Treaty or section 2 or section 18 of the Competition Act 1998;

14.7.3 in contravention of the Consumer Credit Act 1974, the Trade Descriptions Act 1968, the Consumer Protection Act 1987 or any other provision of the Competition Act 1998 not previously mentioned;

14.7.4 otherwise in contravention of the anti-trust legislation, trade regulation or similar legislation of any jurisdiction in which the Company conducts business;

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14.7.5 the subject of any investigation, inquiry or proceedings by any competent anti-trust authority or any litigation proceedings in respect of the anti-trust legislation, trade regulation or similar legislation of any jurisdiction in which the Company conducts business;

14.7.6 the subject of any threatened or pending investigation, inquiry or proceedings by any competent anti-trust authority or any threatened or pending litigation proceedings in respect of the anti-trust legislation of any jurisdiction in which the Company conducts business;

14.7.7 subject to any existing or pending decisions, judgments, orders or rulings of or undertakings given to any competent anti-trust authority or other competent body in any jurisdiction in which the Company conducts business; and

the Company is not in receipt of any payment, guarantee, financial assistance or other aid from a government or other state body which was not, but should have been, notified to the European Commission under Article 88 of the EC Treaty for a decision declaring such aid to be compatible with the common market.

Restrictions on trading

14.8 The Company is not and has not been a party to any agreement, arrangement, understanding or practice restricting its freedom to provide and take goods and services by such means and from and to such persons and into or from such place as it may from time to time think fit other than as Disclosed.

Possession of records

14.9 All title deeds and agreements to which the Company is a party, and all other documents owned by it, are in its possession or so held; and none of its records, systems, controls, data or information is recorded, stored, maintained, operated or otherwise wholly or partly dependent on or held by any means (including any electronic, mechanical or photographic process, whether computerised or not) which (including all means of access to and from them) are not under the exclusive ownership and direct control of the Company.

Business names

14.10 The Company does not use on its letterhead, books or vehicles or otherwise carry on its business under any name other than its corporate name.

Unlawful acts

14.11 None of the Company or its existing officers or, so far as the Seller is aware, any of its previous officers have been prosecuted for any criminal, illegal or unlawful act connected with the Company.

Inducements

14.12 No officer or employee of the Company has (in connection with the Business or otherwise) directly or indirectly offered, given, procured or received any gift, loan, fee, reward, advantage or other consideration which:

14.12.1 is deemed illegal under the Prevention of Corruption Acts 1889 to 1916 and/or Part 12 of the Anti-terrorism, Crime and Security Act 2001, or which has contravened, or was intended to result in the contravention of, the laws of any jurisdiction (including in particular but without limitation the US Foreign Corrupt Practices Act); or

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14.12.2 (whether or not it is unlawful) is in the nature of a bribe, influence payment or kickback or similarly has an ulterior or covert purpose;

or has agreed, conspired or attempted to, or assisted any other person to, do any such thing.

Previous Business Acquisitions

14.13 Other than as Disclosed, the Company has not acquired any business or material asset from a third party or from any member of the Retained Group.

15. Contracts

Material contracts

15.1 All contracts to which the Company is a party with a value in excess of £100,000 in the last twelve months prior to Completion, and all contracts with the 10 largest customers and 10 largest suppliers of each Company, have been Disclosed and the Company is not a party to or subject to any agreement, transaction, obligation, commitment, understanding, arrangement or liability which:

15.1.1 cannot readily be fulfilled or performed by the Company on time and without undue or unusual expenditure of money and effort; or

15.1.2 requires the Company to pay any commission, finder’s fee, royalty or the like; or

15.1.3 is in any way otherwise than in the ordinary and proper course of the Company’s business.

Performance of contracts

15.2

15.2.1 The terms of all the Company’s contracts have been complied with by it and, so far as the Seller is aware, by the other parties to the contracts in all material respects and there are no circumstances likely to give rise to a default by it or (so far as the Seller is aware) by any other party under any such contract.

15.2.2 There are no outstanding claims, separately or in the aggregate, of material amounts, against the Company on the part of customers or other persons in respect of defects in quality or delays in delivery or completion of contracts or deficiencies of design or performance or otherwise relating to liability for goods or services sold or supplied by it and no such claims are threatened or (so far as the Seller is aware) anticipated and (so far as the Seller is aware) there is no matter or fact in existence in relation to goods or services currently sold or supplied by it which might give rise to any such claim.

15.2.3 The Seller has no knowledge of the invalidity of or grounds for rescission, avoidance or repudiation of any agreement or other transaction to which it is a party or in relation to which it otherwise purports to have enforceable rights and it has received no notice of any intention to terminate, repudiate or disclaim any such agreement or other transaction.

Agency and distribution agreements

15.3 The Company is not a party to any subsisting agency or distributorship agreement with a value in excess of £100,000 in the twelve months prior to Completion.

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16. Employees

Particulars of employees

16.1 So far as the Seller is aware, the particulars shown in the schedule of employees that has been Disclosed are true and complete and show in respect of each director, officer or employee of the Company his date of birth (if available), the date on which he commenced continuous employment with the Company for the purposes of the ERA and all remuneration payable and other benefits provided or which the Company is bound to provide to each such person and full particulars of all remuneration arrangements (particularly profit sharing, incentive, bonus and severance arrangements to which the Company is a party) and each director, office, employee and worker of the Company is Disclosed.

Contracts of employment

16.2 Copies of all written contracts of employment in force between the Company and any of its directors, officers or employees (and so far as the Seller is aware any material terms of employment that are not in writing) have been Disclosed. There are no consultancy, agency or management services agreements in existence between the Company and any other person, firm or company, and there are no legally binding agreements between the Company (or any employers’ or trade association of which the Company is a member) and any recognised Trade Union or works council or staff association. There are no outstanding pay negotiations with any employees or recognised Trade Unions.

Benefits

16.3 There are no amounts owing to present or former directors, officers or employees of the Company other than not more than one month’s arrears of remuneration (including any bonuses, benefits or other employment-related payments) accrued or due or for reimbursement of business expenses incurred within a period of three months preceding the date of this Agreement and no moneys or benefits other than in respect of remuneration or emoluments of employment are payable to or for the benefit of any present or former director, officer or employee of the Company, nor any dependant of any present or former director, officer or employee of the Company.

Liabilities and payments

16.4 So far as the Seller is aware and except to the extent (if any) to which full provision or allowance has been made in the Accounts:

16.4.1 no liability has been incurred or is reasonably anticipated by any senior member of the Human Resources department of the Company for breach of any contract of employment or for severance payments or for redundancy payments or protective awards or for compensation for unfair dismissal or for failure to comply with any order for the reinstatement or re-engagement of any employee or for sex or race or disability discrimination or for any other liability (statutory, contractual or otherwise) accruing from the termination or variation of any contract of employment or (in respect of any discrimination claims only) for services;

16.4.2 no gratuitous payment has been made or promised by the Company in connection with the actual or proposed termination, suspension or variation of any contract of employment of any present or former director, officer or employee or any dependant of any present or former director, officer or employee of the Company; and

16.4.3 the Company has not made or agreed to make any payment to, or provided or agreed to provide any benefit or change in terms and conditions of employment for, any of its present or former directors, officers or employees in connection with the sale and purchase contemplated by this Agreement.

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Relevant legislation

16.5

16.5.1 The Company has in relation to each of its employees (and so far as relevant to each of its former employees) complied with:

(a) all material obligations imposed on it by all relevant statutes or statutory instruments affecting its employment of any persons and all relevant orders and awards made thereunder and has maintained records regarding the service, terms and conditions of employment of each of its employees; and

(b) all collective agreements and recognition agreements for the time being affecting its employees or their conditions of service.

16.5.2 The Company has not been served with any improvement and/or prohibition notices pursuant to sections 21 and 22 of the Health and Safety at Work etc Act 1974, nor is any prosecution or sentence pending for any (alleged) offence under that Act.

16.5.3 So far as the Seller is aware, the Company is not in breach of any of the provisions on the employment of young persons contained in the Health and Safety (Young Persons) Regulations 1997, the Children (Protection at Work) Regulations 1998 or the Working Time Regulations 1998 and is not presently being prosecuted under any of such provisions.

16.5.4 There is no liability awarded by a court or tribunal or claim against the Company outstanding under the Equal Pay Act 1970, the Sex Discrimination Acts 1975 and 1986, the Race Relations Act 1976, the Disability Discrimination Act 1995, ERA, TUPE, the Social Security Contributions and Benefits Act 1992, TULRCA, the Working Time Regulations 1998, the National Minimum Wage Regulations 1999 or the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000, the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000, the Fixed Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 or the Employment Act 2002, the Employment Equality (Sexual Orientation) Regulations 2003, the Employment Equality (Religion or Belief) Regulations 2003 and the Employment Equality (Age) Regulations 2006.

16.5.5 Within a period of one year preceding the date of this Agreement, the Company has not given notice of any redundancies to the Secretary of State or started consultations with any independent trade union or workers’ representatives under the provisions of Part IV TULRCA or under TUPE nor has it failed to comply with any such obligation under Part IV TULRCA or under TUPE.

Termination of employment

16.6 None of the present directors, officers or employees of the Company has given or received notice terminating his employment except as expressly contemplated under this Agreement and Completion of this Agreement will not entitle any director, officer, employee to terminate his employment or trigger any entitlement to a severance payment or liquidated damages; and the Company has complied with all specific recommendations made to it by the Advisory Conciliation and Arbitration Service and with all awards and declarations made to it by the Central Arbitration Committee in respect of its employees or any Trade Union.

Share and other schemes

16.7 The Company does not have in existence and is not proposing to introduce, and none of its directors, officers or employees participates in (whether or not established by the relevant Company), any employee share option plan, employee share trust, share incentive scheme, share

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option scheme or profit sharing scheme for the benefit of all or any of its present or former directors, officers or employees or the dependants of any of such persons or any scheme under which any of its present or former directors, officers or employees is entitled to a commission or remuneration of any other sort calculated by reference to the whole or part of the turnover, profits or sales of the Company or any other person, firm or company including any profit related pay scheme established under Chapter III, Part V TA 88.

Disputes and claims

16.8 No:

16.8.1 dispute exists or can reasonably be anticipated (by any senior member of the Human Resources Department of the Company) between the Company and a material number or category of its employees or any Trade Union(s) or works council and, so far as the Seller is aware, there are no wage or other claims outstanding against the Company by any person who is now or has been a director, officer or employee of the Company; and

16.8.2 form of official industrial action by the Company’s employees or workers or any lock out has occurred during the last three years, nor, so far as the Seller is aware, is any reasonably anticipated by any senior member of the Human Resources Department of the Company, which has caused, or is likely to cause, the Company to be materially incapable of carrying on its business in the normal and ordinary course.

Transfer of undertakings

16.9 The Company has not:

16.9.1 been a party to any relevant transfer as defined in TUPE; or

16.9.2 failed to comply with any duty to inform and consult any Trade Union or employees’ or workers’ representatives under TUPE

within the period of one year preceding the date of this Agreement.

Agreements with Trade Unions

16.10 The Company is not a party to any agreement or arrangement with or commitment to any trade unions or staff association and, so far as the Seller is aware, no application for collective bargaining – recognition by a recognised Trade Union is pending in relation to the Company under Schedule Al of TULRCA.

17. Pension Schemes

General

17.1 All material details of the Pension Schemes, the Company’s obligations in respect of them, the trustees (where appropriate) and those of the employees who are members have been Disclosed and no proposal has been announced or made by the Company to amend any of the Pension Schemes.

17.2 Other than as Disclosed, there are no other Pension Schemes for current or past directors or employees of the Company and no other schemes that the Company, or any part of it, has ever participated in as an employer.

Benefits, discretions and funding

17.3 In relation to each Pension Scheme:

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17.3.1 no power to augment benefits has been exercised;

17.3.2 no discretion has been exercised to admit an employee to membership of the pension scheme who would not otherwise be eligible;

17.3.3 no discretion has been exercised to provide a benefit which would not otherwise be provided;

17.3.4 all benefits (other than a refund of contributions with interest where appropriate) payable under the pension scheme on the death of a member while in an employment to which the pension scheme relates or during a period of sickness or disability of a member are fully insured by a policy with an insurance company of good repute. Each member has been covered for insurance by the insurance company at its normal rates and on its normal terms for persons in good health and all premiums payable have been paid;

17.3.5 there are no contributions to the Pension Scheme which are due but unpaid and have remained unpaid for more than one month and in any event contributions have been paid which are at least equal to and by the due date specified in any schedule of contributions or payments applicable under section 58 or 87 Pensions Act 1995; and

17.3.6 other than benefits payable on death as Disclosed, it provides only money purchase benefits within the meaning of section 181 Pension Schemes Act 1993. None of the Companies have given any assurance, promise or guarantee (whether oral or written) to any person as to the level or amount of benefit to be provided and, so far as the Seller is aware, no other person has given such assurance, promise or guarantee.

Administration

17.4 Each Pension Scheme:

17.4.1 is a registered pension scheme under Chapter 2 of Part 4 of the Finance Act 2004 and, so far as the Seller is aware, there is no reason why such registered status might be withdrawn under section 157 of that Act;

17.4.2 has not been the subject of any report of wrongdoing or irregularities by the Companies to the Pensions Regulator and, so far as the Seller is aware, no other person has made such a report and there are no circumstances which would justify such a report;

17.4.3 is a scheme in respect of which all actuarial, consultancy, legal and other fees, charges or expenses have been paid and for which no services have been provided for which an account or invoice has not been rendered; and

17.4.4 has been, so far as the Seller is aware, administered in accordance with all applicable laws, regulations and requirements and all applicable requirements of any governmental body or regulatory authority.

Claims

17.5 So far as the Seller is aware, no claim has been threatened or made or litigation commenced against the trustees or administrator of any Pension Scheme or against the Company or any other person whom the Company is or may be liable to indemnify or compensate in respect of any matter arising out of or in connection with any Pension Scheme. So far as the Seller is aware, there are no circumstances that may give rise to any such claim or litigation. There are no unresolved disputes under any Pension Scheme’s internal dispute resolution procedure.

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Stakeholder pension arrangements

17.6 The Company has complied with all obligations imposed by the Welfare Reform and Pensions Act 1999 and any regulations made under it regarding facilitating access to all of its relevant employees (as defined in that Act) to a stakeholder pension arrangement and

17.6.1 there is no obligation on the Company to pay contributions to a stakeholder pension arrangement in respect of any employee or officer of the Company; and

17.6.2 there are no claims or actions in progress or pending, nor, so far as the Seller is aware, any reason for such claims or actions involving any employee or officer of the Company in connection with a stakeholder pension arrangement.

18. Intellectual Property Rights

Definitions

18.1 In this Agreement:

“Intellectual Property Rights” means patents, rights to inventions, copyright and related rights, trade marks, service marks and trade names, domain names, rights in get-up, rights to goodwill or to sue for passing off or unfair competition, rights in designs, rights in computer software, database rights, rights in confidential information (including Know-How) and any other intellectual property rights or rights of a similar nature, in each case whether registered or unregistered, and including all applications (or rights to apply) for, and renewals or extensions of, such rights and all similar or equivalent rights or forms of protection which subsist or will subsist now or in the future in any part of the world;

“Know-How” means all inventions, improvements, modifications, processes, formulae, models, prototypes and sketches, drawings, plans or specifications or any other matters made, devised, developed or discovered by the Company, alone or with one or more others, relating to or otherwise in connection with the Business;

“Licences In” means licences, agreements, authorisations and permissions pursuant to which the Company uses, exploits or holds (or is permitted to use, exploit or hold) any Intellectual Property Rights belonging to any third party;

“Licences Out” means licences, agreements, authorisations and permissions pursuant to which the Company authorises or permits the use of any Intellectual Property Rights belonging to or otherwise held by the Company.

Not Licences In or Licences Out

18.2 Complete and accurate particulars of all registered Intellectual Property Rights and all material unregistered Intellectual Property Rights owned, used or exploited by the Company (other than Intellectual Property Rights used or exploited by the Company pursuant to Licences In) are set out in Part 1 and Part 2 of Schedule 3 (Intellectual Property) respectively.

Licences In

18.3 Complete and accurate particulars of all registered Intellectual Property Rights and all material unregistered Intellectual Property Rights used or exploited by the Company pursuant to Licences In (in whatever form and whether express or implied) are set out in Parts 3 and 4 of Schedule 3 (Intellectual Property) respectively.

Licenses Out

18.4 The Company has not entered into any Licences Out of its Intellectual Property Rights.

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No other Intellectual Property Rights required

18.5 The Company does not require any Intellectual Property Rights other than those set out in Parts 1, 2, 3 and 4 of Schedule 3 (Intellectual Property) in order to carry on the Business.

Sole owner or applicant

18.6 Except in respect of Intellectual Property Rights used, exploited or held by the Company pursuant to the Licences In as set out in Parts 3 and 4 of Schedule 3, the Company is the sole legal and beneficial owner of (or applicant for) the Intellectual Property Rights used by the Company including, without limitation, those set out in Part 1 of Schedule 3, free from all Encumbrances.

Valid, subsisting and enforceable

18.7 The Intellectual Property Rights owned by the Company, including without limitation those set out in Part 1 of Schedule 3, are valid, subsisting and enforceable and nothing has been done or not been done as a result of which any of them has ceased or might cease to be valid, subsisting or enforceable. In particular:

18.7.1 all application and renewal fees and other steps required for the prosecution, maintenance or protection of such rights have been paid on time or taken;

18.7.2 so far as the Seller is aware, no trade marks, service marks, trade names, or domain names, identical or similar to any such rights, has been registered or is being used by any person in the same, or a similar, business to that of the Company in any country in which the Company has registered or is using that trade mark, service mark, trade name or domain name;

18.7.3 all confidential information (including Know-How) has been kept confidential and has not been disclosed to third parties (other than persons who have signed written confidentiality undertakings in respect of such information, details of which have been Disclosed);

18.7.4 there are no pending or outstanding claims against the Company for compensation under the Patents Act 1977 or equivalent legislation worldwide;

18.7.5 there are and have been no claims, challenges, disputes or proceedings, pending or threatened, in relation to the ownership, validity or use of such rights.

No omission

18.8 Nothing is due to be done within 30 days of Completion the omission of which would jeopardise the prosecution, maintenance or protection of any of the Intellectual Property Rights owned or used by the Company (other than Intellectual Property Rights used or exploited by the Company pursuant to Licences In) which are registered or the subject of an application for registration.

Applications

18.9 So far as the Seller is aware, there are no factors that would cause any applications for registration of any Intellectual Property Rights to be unacceptable to any body to which the application is being made.

Licences In valid etc

18.10 The Licences In:

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18.10.1 are valid and binding (so far as the Seller is aware) and nothing has been done or not been done by the Seller, or, so far as the Seller is aware, by any third party, as a result of which any of them has ceased or might cease to be valid;

18.10.2 have not been the subject of any breach or default by the Company or, so far as the Seller is aware, any party or any event which, with the giving of notice or lapse of time, would constitute a default by the Company;

18.10.3 are not, and have not been, the subject of any claim, dispute or proceeding, pending or threatened;

18.10.4 have, where required, been duly recorded or registered; and

18.10.5 have been fully paid up as at the Completion Date,

and the Seller has no reason to believe that there is any cause for any Licence In to come to an end or be restricted except in accordance with its terms.

No infringement etc

18.11 No Intellectual Property Rights (excluding for the avoidance of doubt any Licence In) owned or used by the Company now or previously:

18.11.1 have infringed or infringe the Intellectual Property Rights of any third party; or

18.11.2 have constituted or constitute of any duty of confidence, passing off or actionable act of unfair competition; or

18.11.3 have given or give rise to any obligation to pay any royalty, damages or other sum.

18.12 So far as the Seller is aware, no activities of the Company or of any licensee of the Company in respect of the Licences In:

18.12.1 have infringed or infringe the Intellectual Property Rights of any third party; or

18.12.2 have constituted or constitute any breach of any duty of confidence; or

18.12.3 have constituted or constitute passing off or actionable act of unfair competition; or

18.12.4 have given or give rise to any obligation to pay any royalty.

Change of control

18.13 No change of control of the Company will result in the termination of, or materially affect, any of the Intellectual Property Rights set out in Parts 3 and 4 of Schedule 3 (Intellectual Property).

Confidential information

18.14 In relation to rights in confidential information comprising Intellectual Property Rights:

18.14.1 all such confidential information is in the lawful possession of the Company;

18.14.2 the Company has not disclosed or permitted to be disclosed any such information (other than to the extent necessary in the ordinary course of business or for the purpose of disclosure to its professional advisers) to any person except the Purchaser;

18.14.3 the Company does not own rights in any confidential information which may be capable of patent protection or which, if disclosed other than subject to conditions of

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confidentiality, might have a material adverse effect on any business carried on by the Company;

18.14.4 so far as the Seller is aware, no activity of any third party constitutes or is likely to constitute any breach of any duty of confidence owed to the Company; and

18.14.5 no activity of the Company constitutes or is likely to constitute any breach of any duty of confidence owed by the Company to any third party.

19. Information technology and telecommunications

Definitions

19.1 In this Agreement:

“IT Contracts” means any agreements, licences or other contractual arrangements with third parties relating to the IT Systems or IT Services, including licences of all software, leases of hardware and other procurement of IT Systems or IT Services;

“IT Services” means any services relating to the IT Systems or to any other aspect of the Company’s data processing or other technology requirements, including software development, support or maintenance, consultancy, source code deposit, recovery and network services, facilities management or hardware maintenance; and

“IT Systems” means all computer programs (in both source and object code form), computer hardware and peripherals, telecommunications and network equipment owned, used, leased or licensed in by or to the Company.

Ownership and control

19.2 All IT Systems material to the operation of the Company have been identified in Part 1 of Schedule 4 (Information Technology).

Operation

19.3 So far as the Seller is aware:

19.3.1 all IT Systems are in good working order, function in accordance with all applicable specifications and have been, and are being, properly and regularly maintained and replaced;

19.3.2 no part of the IT Systems has materially failed to function or has otherwise materially interrupted or hindered the operation of the business of the Company at any time during the 2 years prior to the date of this Agreement; and

19.3.3 all IT Services are being, and have been, provided in accordance with all applicable specifications.

Access

19.4 The Company has full and unrestricted access to, and use of, the IT Systems and no third party agreements or consents are required to enable the Company to continue such access and use following Completion.

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Domain names

19.5 The Company is the registrant and beneficial owner of the domain names specified in Part 2 of Schedule 4 (Information Technology) and those domain names do not infringe the Intellectual Property Rights of any third party.

Websites

19.6 All websites operated by the Company have been created or developed by the Company or pursuant to IT Contracts that vest the legal and beneficial ownership of all copyright and all other Intellectual Property Rights in such websites in the Company and, so far as the Seller is aware, the content of the websites does not infringe the Intellectual Property Rights of any third party.

IT Contracts

19.7 The IT Contracts:

19.7.1 are so far as the Seller is aware valid and binding and nothing has been done or not been done as a result of which any of them has ceased or might cease to be valid;

19.7.2 have not been the subject of any breach or default by the Company or, so far as the Seller is aware, any party and are not otherwise liable to be adversely affected by the transactions contemplated by this Agreement; and

19.7.3 are not, and have not been, the subject of any claim, dispute or proceeding, pending or threatened.

19.8 The IT Contracts in relation to the software used in the Business are listed in part 3 of Schedule 4, are licensed to the Company and have been fully paid up to the Completion Date by the Company.

20. Legislation

20.1 So far as the Seller is aware the Company is not in breach of, nor has it received notice of, nor is it aware of, any allegation of breach of, the requirements of any legislation that is applicable to it.

21. Information

21.1 The information set out in Schedules 1 to 4 (inclusive) is complete, true, accurate and not misleading. Insofar as any such information amounts to a forecast or an expression of opinion, intention or expectation, such information is, so far as the Seller is aware, fair and honest and made on reasonable grounds.

22. Properties

22.1 The Properties comprise all the land owned, controlled, used or occupied by the Company, and all the estates, interests or rights vested in the Company relating to any land, at the date of this Agreement.

22.2 The Company has no liability (whether actual, contingent or otherwise) as tenant, assignee, guarantor, covenantor or otherwise arising from or relating to any estate, interest or right in any land other than the Properties.

22.3 The Company’s title to each Property for the estate or interest is as set out in Schedule 2 and free from any Encumbrances, any agreements for sale or lease, options or rights of pre-emption.

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22.4 Any Letting Documents to which any Property is subject are referred to in Part 3 of Schedule 2. Otherwise the Company is in actual occupation of each of the Properties on an exclusive basis and, except by virtue of the Letting Documents, no person, other than the Company, has any right (actual or contingent) to possession, occupation or use of or interest in the Properties.

22.5 Complete and accurate copies of all Leases and Letting Documents have been Disclosed and the Company has not received notice or allegation of any breach of any of the Leases or Letting Documents.

22.6 The documents of title relating to each Property consist of original documents or properly examined abstracts, all of which are in the possession of the Company or are unconditionally held to its order.

22.7 The Property held under the lease dated 4 December 2000 made between Burry and Knight Limited (1) and Devlin Electronics Limited (2) has a water supply and discharges effluent via adopted public service media.

22.8 The Seller is not aware of any disputes, claims, actions, demands or complaints which are outstanding in relation to any Property and the Seller is not aware of any notices materially affecting the Property have been given or received.

22.9 The Property is not subject to any outgoings other than the uniform business rate or water rates (and sums due under any Lease including rent, insurance and service charge) and all such payments have been made to date.

22.10 The current use of each Property is as set out in column (5) of Part 1 Schedule 2 and the Company is not aware of any enforcement proceedings having been commenced or notices served and no such proceedings or notices have been proposed.

22.11 The Seller is not aware of any notice or allegation of any breach of any laws, regulations, restrictions, covenants or obligations from any person.

22.12 So far as the Seller is aware, there is no outstanding order, notice or other requirement of any local or other authority affecting the Property or involving expenditure in compliance with it nor any circumstances which may result in any such order or notice being made or served.

22.13 In relation to each Property where the Company’s tenure is leasehold:

22.13.1 the current rent payable (being rent only) is set out in Part 1 of Schedule 2. The last instalment of rent was paid to and was accepted by the landlord without qualification; and

22.13.2 all steps in rent reviews have been duly taken and no rent reviews are or should be currently under negotiation or the subject of a reference to an expert or arbitrator or the courts and, where appropriate, evidence of the agreement or determination of the current rent has been placed with the documents of title; and

22.13.3 sections 24 to 28 Landlord and Tenant Act 1954 have not been excluded in relation to the tenancy created by the Lease.

22.14 The lease dated 4 January 1993 between Openmen Limited (1) and Muirhead Vactric Components Limited (2) was determined by effluxion of time. There are no outstanding tenant’s liabilities under this lease.

22.15 There are no outstanding tenant’s liabilities under the agreement for lease referred to in paragraph 1.2.10 of the Second Schedule of the lease dated 4 December 2000 made between Burry and Knight Limited (1) and Devlin Electronics Limited (2).

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22.16 The Seller is not aware of any unusual or otherwise onerous conditions contained in Planning consents 0065823 relating to the Property at Southall and 65823 30/03/1999 relating to the Property at Ringwood which prevent the existing use of those properties.

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Part 2

Taxation Warranties

23. General

23.1 Provision or reserve has been made in the Accounts in accordance with UK GAAP for all Taxation liable to be assessed on the Company or for which the Company is accountable (whether primarily or otherwise) in respect of all income, profits or gains earned, accrued or received on or before the Balance Sheet Date or deemed to have been or treated as earned, accrued or received for Taxation purposes on or before the Balance Sheet Date and/or in respect of any event occurring or deemed to have occurred on or before the Balance Sheet Date, including distributions made on or before the Balance Sheet Date or provided for in the Accounts.

23.2 Provision has been made in the Accounts for deferred Taxation in accordance with UK GAAP.

24. Payment of Tax

24.1 The Company has properly paid all Taxation prior to Completion which it has become liable to pay prior to Completion and it has not within the last six years paid or become liable to pay, nor so far as the Seller is aware are there any circumstances which may cause it to become liable to pay, any penalty, fine, surcharge or interest in connection with Taxation.

24.2 All payments by the Company to any person which ought to have been made under deduction or withholding of Taxation have been so made and the Taxation so deducted or withheld has been properly and punctually accounted to the relevant Taxation Authority.

25. Compliance

25.1 In the six years prior to Completion, the Company has made all returns, claims for relief, applications, notifications, computations, reports, accounts, statements, registrations and assessments (whether physically in existence or electronically stored) (“Returns”) it is required by law to make. All Returns have been properly submitted by the Company within any relevant time limits to each relevant Taxation Authority and the Returns so far as the Seller is aware give full disclosure of all material facts and circumstances and so far as the Seller is aware are not likely to be the subject of any question or dispute with any Taxation Authority.

25.2 In the six years prior to Completion, the Company has prepared, kept and preserved sufficient records to enable it to make and complete returns for Taxation purposes and to calculate the liability to Taxation or the amount of a Relief arising on the disposal of any asset owned at the Balance Sheet Date or acquired since the Balance Sheet Date but before Completion and otherwise as required by law.

25.3 The Disclosure Letter contains details so far as they affect the Company of all arrangements with any Taxation Authority current at Completion that are not based on a strict application of the law relating to Taxation (other than published extra-statutory concessions, statements of practice and statements of a similar nature) and so far as the Sellers is aware no such arrangement is liable to be withdrawn for any reason.

25.4 The Company is not in dispute with any Taxation Authority and so far as the Seller is aware there are no circumstances that exist which are likely to give rise to any such dispute. No Taxation Authority has, within the past 12 months, investigated or indicated in writing that it may investigate the Company’s Taxation affairs and so far as the Seller is aware the Company is not subject to any ongoing investigation.

25.5 All particulars furnished to any Taxation Authority in connection with an application for any consent or clearance made on behalf of or affecting the Company during the last six years were made to the appropriate office, section, department or body and disclosed all material facts,

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circumstances and (where appropriate) law material to the decision of the relevant Taxation Authority and any such consent or clearance given remains valid and effective and any transaction for which such consent or clearance has previously been obtained has been carried into effect (if at all) in all material respects in accordance with the terms of the relevant application, consent or clearance.

26. Taxation Claims Reliefs and Liabilities

26.1 In the six years prior to Completion, no Company pursuant to an indemnity, guarantee or covenant other than in the ordinary course of its trade and relating to the sale of capital assets subject to the TCGA provisions or shares has agreed to meet or pay a sum equivalent to or by reference to another person’s liability to Taxation.

26.2 There is no charge referred to in section 237 Inheritance Tax Act 1984 outstanding in respect of any asset of the Company or the Shares.

27. Corporation Tax/Capital Allowances

27.1 The Disclosure Letter sets out full particulars of all claims and elections made (or assumed in the Accounts to be made) under Sections 152, 162, 175 or 179B of the TCGA and paragraphs 40, 56, 65 or 67 Schedule 29 Finance Act 2002 insofar as they could affect the chargeable gain or allowable loss which would arise in the event of a disposal after the Completion Date by the Company of any of its assets.

27.2 The Company has not since the Balance Sheet Date made any distribution within the meaning of section 209 TA 88 (meaning of “distribution”) save for any dividend disclosed in the Accounts nor is it bound to make such a distribution.

27.3 In the six years prior to Completion, the Company has not at any time repaid, redeemed or repurchased or agreed to repay, redeem or repurchase or granted an option under which it may become liable to purchase any shares of any class of its issued share capital nor has the Company capitalised or agreed to capitalise in the form of shares or debentures any profits or reserves of any class or description or otherwise issued or agreed to issue any share capital other than for receipt of new consideration (within the meaning of Part VI TA 88) or passed or agreed to pass any resolution to do so.

27.4 In the six years prior to Completion , no rents, interest, annual payments or other sums of an income nature paid or payable by the Company or which the Company is under an existing obligation to pay in the future are or may be wholly or partially disallowable as deductions, management expenses or charges in computing profits for the purposes of corporation tax to the extent that they have been reflected as allowable deductions, management expenses and charges in tax returns submitted prior to Completion.

27.5 Under current law, all expenditure which the Company has incurred in the six years prior to Completion or may incur under any subsisting commitment on the provision of machinery, plant or buildings has qualified or will qualify (if not deductible as a trading expense for trade carried on by the Company) for writing-down allowances or industrial building allowances (as the case may be) under CAA to the extent that it has been reflected as qualifying expenditure in tax returns submitted prior to Completion. In relation to expenditure incurred but for which no claim has been made a claim made in the Company’s next corporation tax self assessment return for such allowances in respect of such expenditure would not be barred by virtue of section 58(4), CAA.

27.6 The Company has not in the past six years incurred any long-life asset expenditure within the meaning of section 90, CAA.

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27.7 None of the assets of the Company expenditure on which has qualified for a capital allowance under Part 3, CAA in the past six years has at any time been used otherwise than as an industrial building or structure.

28. Close Companies

28.1 The Company is not nor has it been in the last six years a close company within the meaning of sections 414 and 415 TA 88.

29. Tax Avoidance

29.1 The Company has not entered into or so far as the Seller is aware been a party to any scheme, arrangement or transaction designed wholly or mainly, for the purpose of avoiding or reducing a liability to Taxation.

29.2 The Company has not been party to any arrangements, transaction or series of transactions which it has or may become liable to notify to any Tax Authority under any legislation requiring the disclosure of tax avoidance schemes.

30. Value Added Tax

30.1 Each Company has, throughout the whole of the period beginning three years before the Balance Sheet Date and ending on the date hereof, been registered and been eligible to be registered and is a taxable person for the purposes of the VATA and such registration is not subject to any conditions imposed by or agreed with HM Revenue and Customs (“HMRC”)

30.2 Each Company has complied with the terms of all statutory provisions, regulations, directions, conditions, notices and agreements with HMRC relating to VAT. The Company has not been required by HMRC to give security.

30.3 All supplies of goods and services made by the Company are taxable supplies for the purposes of the VATA and all input tax is deductible in accordance with the provisions of sections 25 and 26 VATA.

30.4 Neither the Company nor any relevant associate (within the meaning of paragraph 3(7) Schedule 10 VATA) has made any election under paragraph 2(1) Schedule 10 VATA in respect of any land in, over or in respect of which the Company has any interest, right or licence to occupy and the Company has no obligation to make such an election.

30.5 The Company does not own any assets which are capital items subject to the Capital Goods Scheme under Part XV of the VAT Regulations 1995.

31. Share Schemes/Restricted Securities

31.1 The Company has not established (or is a participant in) any bonus, share option, profit related pay or other scheme or arrangement, whether or not approved by HMRC, for the benefit of its current or former officers or employees or any of them.

32. International

32.1 The Company was incorporated in and is and for the six years prior to Completion has been resident only in the United Kingdom for Taxation purposes and for the purposes of any double taxation agreement. The Company is not liable to, and has at no time in the past six years incurred any, or is required to be registered for any Taxation in any jurisdiction other than the United Kingdom or had a branch outside the United Kingdom or any permanent establishment (as that expression is defined in the respective double taxation relief orders current at the date of this Agreement) outside the United Kingdom.

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32.2 The Company has not without the prior consent of HM Treasury, or without having duly provided the required information to HMRC, carried out or agreed to carry out any transaction (including under section 765 TA 88) which would be unlawful in the absence of such consent and has, where relevant, complied with the requirements of section 765 A(2) TA 88 (supply of information on movement of capital within the EU) and any regulations made or notice given by that section.

33. Non-Arm’s Length Transactions

33.1 The Company has not in the period of six years ending on the date of this Agreement been party to any non-arms length transaction or been party to any transaction or arrangement to which the provisions of section 770A and Schedule 28AA TA 88 may apply. So far as the Seller is aware, the Company will not receive any payment for an asset or any services or facilities of any kind that it has supplied or provided or is liable to supply or provide which is less than the market value of that asset or those services or facilities.

33.2 So far as the Sellers are aware, the Company has not at any time within the last six years transferred any asset for less than market value in circumstances where the provisions of section 17 TCGA apply to that transfer.

34. Groups of Companies

34.1 The Company has not in the past six years been a 51 per cent subsidiary of any person within the meaning of section 838 TA 88 (subsidiaries) other than a 51 per cent subsidiary of AID Inc. or the Seller.

34.2 The Company has not at any time during the last six years acquired any asset from any company which at the time of the acquisition was a member of the same group of companies as defined in section 170 TCGA;

34.3 The Company has not since the Balance Sheet Date ceased to be a member of a group of companies in such circumstances that a profit or gain was deemed to accrue to it under section 178 or 179 TCGA;

34.4 In the six years prior to Completion, there has been no reallocation of Tax to the Company from the Seller or a member of the Seller group of companies pursuant to Sections 171A, 175, 179A or 179B of TCGA or paragraph 66 of Schedule 29 FA 2002 and no amount in consideration of a similar reallocation is owed by a Company to any other person (other than another Company).

35. Stamp Duties

35.1 There is no instrument to which the Company is a party and which is necessary to establish the Company’s rights or the Company’s title to any asset, which is liable to stamp duty and which has not been duly stamped, or which would attract stamp duty, interest or penalties if brought into the United Kingdom.

35.2 Within the 3 years ending on the date of this Agreement, the Company has not made any claim for relief, exemption or deferral of stamp duty, stamp duty land tax or stamp duty reserve tax.

35.3 The Company is not nor may become liable to pay stamp duty land tax after Completion by reference to any land transaction, as defined in section 43 FA 2003, to which it has been a party prior to Completion.

36. Group Payment Arrangements

36.1 The Company has not entered into any group payment arrangements under the provisions of section 36 FA 1998.

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Schedule 7

Limitation of Seller’s liability

Subject as provided in clause 7, the following provisions shall apply:

1. General limitations

1.1 The Seller shall not be liable:

1.1.1 under the Warranties to the extent that the facts which might result in a claim or possible claim under the Warranties were Disclosed;

1.1.2 under the Indemnities or the Warranties or the Tax Deed to the extent that the subject of the claim is specifically provided for in the Working Capital Statement or the Completion Tax Statement;

1.1.3 under this Agreement to the extent that the claim (other than in relation to the Tax Warranties) arises or is increased:

(a) as a result of an act or omission on the part of the Seller occurring at the written request of the Purchaser after Completion;

(b) as a result of an act or omission of or at the direction of the relevant Company or the Purchaser after Completion (otherwise than in the ordinary course of trading or under a legally binding obligation of the relevant Company created before Completion or in order to ensure compliance with the law);

(c) wholly or partly as a result of (i) the passing or coming into force of or any change in any enactment, law, regulation, directive, requirement or any published practice having legal effect of any government, government department or agency or regulatory body (including extra-statutory concessions of HM Revenue and Customs) after Completion, whether or not having retrospective effect or (ii) except as set out in clause 16.1, any change in the basis or method of calculation of, or of increase in the rates of, Taxation made or imposed by legislation after Completion with effect to any period ending before Completion;

1.1.4 under this Agreement to the extent that the Purchaser has recovered any amount under the Tax Deed or otherwise under this Agreement in respect of the same loss, damage or deficiency;

1.1.5 the Seller shall not be liable in respect of any claim under the Warranties (other than the Tax Warranties) or under the Indemnity in clause 6.5(a) to the extent that the claim arises or is increased as a result of any change after Completion in the accounting bases, policies, practice or methods applied in preparing any accounts or valuing assets or liabilities of any Company from those used in preparing the Accounts unless such change was required in order to ensure compliance with the law or with UK GAAP.

2. Quantum

2.1 The liability of the Seller in respect of any claim under the Warranties or the Indemnity in clause 6.5(i) shall not arise unless and until the amount of such claim when aggregated with the amount of any other claim made against the Seller under the Warranties or such Indemnity exceeds £400,000 in which event all of such claim or claims (and not just the excess) shall be recoverable and no minimum shall apply to any subsequent claims (but for the avoidance of

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doubt this paragraph shall not prevent a claim from being validly notified pursuant to paragraph 3.1).

2.2 The liability of the Seller in respect of any claim under the Warranties (excluding the Tax Warranties and the Warranties in paragraphs 2.7 (Solvency), 6.1 (Loans and Debts) and 8 (Environment) of Schedule 6) shall not (when aggregated with the amount of all other such claims) exceed 30% of the Consideration.

2.3 Without prejudice to paragraph 2.2 above, the liability of the Seller in respect of any claim under this Agreement, the Tax Warranties or under the Tax Deed shall not (when aggregated with the amount of all other claims under this Agreement and under the Tax Deed) exceed the amount of the Consideration.

3. Time limits

3.1 The liability of the Seller in respect of any claim under the Warranties or under the Tax Deed shall cease:

3.1.1 in the case of any claim the subject matter of which relates to Taxation, at the close of business on the seventh anniversary of Completion;

3.1.2 in the case of any claim under paragraph 8 (Environment) of Schedule 6, at the close of business on the fifth anniversary of Completion; and

3.1.3 in the case of any other claim, at the close of business on the day which falls 18 months after Completion.

except in respect of matters which before that period expires have been the subject of a bona fide written claim made by or on behalf of the Purchaser to the Seller.

3.2 The Purchaser shall provide to the Seller reasonable details of the factual matters giving rise to the claim including, where possible, the Purchaser’s best estimate of the amount of the claim.

3.3 Any such claim shall (if it has not previously been satisfied, settled or withdrawn) be deemed to have been withdrawn unless:

(a) legal proceedings in respect of it have been commenced by both being issued and served within 9 months of such notification to the Seller; or

(b) the Seller and the Purchaser have agreed in writing to extend the 9 month period, in which case this paragraph 3.3 shall apply to that claim with the substitution of that extended period.

4. Conduct of Claims

4.1 As soon as reasonably practicable after the Purchaser becomes aware of any claim made or threatened which does or may result in a claim under the Warranties (other than the Tax Warranties) or the Indemnity in clause 6.5(i), the Purchaser will notify the Seller of that matter (a “Relevant Matter”) (indicating the nature of the allegations made). If the Seller is notified of a Relevant Matter made or threatened to be made against the Purchaser or a Company (each an “Indemnified Party”), the Seller shall provide the Indemnified Party with such information and assistance in relation to the matter giving rise such Relevant Matter as it may reasonably require provided that the Indemnified Party shall and shall procure that its Affiliates and professional advisers shall keep confidential all information so provided. If the Seller is restricted from providing such information due to confidentiality obligations with a third party, the Seller shall use all reasonable endeavours to procure the release of such obligation for the purposes of providing the Purchaser or a Company with the required information.

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4.2 Subject to the Purchaser and the relevant Company being indemnified and secured to the Purchaser’s reasonable satisfaction, the Purchaser shall or shall procure that the Company shall:

4.2.1 at reasonable intervals keep the Seller informed of the progress of the Relevant Matter and where the Seller reasonably considers its involvement might lead to a more beneficial settlement of the Relevant Matter for the Purchaser and the Company, involve the Seller in discussions, strategy meetings and contact with the party bringing or threatening the Relevant Matter (without cost to either the Purchaser or the Company);

4.2.2 (at the cost of the Seller) provide the Seller with copies of such documentation relating to the Relevant Matter as the Seller may reasonably request; and

4.2.3 maintain reasonable consultation with the Seller regarding the Relevant Matter and take its views, insofar as they are reasonable, into account.

4.3 Subject to paragraph 4.4, in relation to a claim made or threatened against the Purchaser or a Company that will or may give rise to liability under any Indemnity, or any other such claim in respect of which the Seller undertakes to indemnify and hold harmless the Purchaser as if such claim was the subject of an Indemnity (each a “Third Party Claim”), the Purchaser shall, subject to the Purchaser and the relevant Company being indemnified and secured to the Purchaser’s reasonable satisfaction, and subject to paragraph 4.3.3 below:

4.3.1 take such action as the Seller may reasonably request to:

(a) avoid, dispute or defend; or

(b) appeal or compromise,

the Third Party Claim;

4.3.2 permit the Seller reasonable access at reasonable times to the employees and premises of the Purchaser to ask reasonable questions provided that the Seller shall, and shall procure that its professional advisers shall, keep confidential all matters so examined, and provided that the Purchaser may require the Seller to pay a reasonable fee for the time of the employees of the Purchaser spent in connection with such examination;

4.3.3 For the purpose of this clause 4.3:

(i) the appointment of solicitors or other professional advisers shall be subject to the approval of the Purchaser such approval not to be withheld or delayed unreasonably;

(ii) the Purchaser shall be kept fully informed of all relevant matters and shall be entitled to see copies of all correspondence relating to any such action, negotiations or proceedings; and

(iii) the Seller shall not make any settlement of or compromise the Third Party Claim nor agree any matter in the conduct of any such action, negotiations or proceedings which is likely to affect the amount of the claim or the future liability of the Purchaser without the prior written approval of the Purchaser, such approval not to be withheld or delayed unreasonably.

4.4 The provisions of paragraph 4.3 shall apply to any claim made or threatened against the Purchaser or a Company that will or may give rise to liability under the Indemnity in clause 6.5(i) (a “L/B Claim”), in lieu of the provisions of paragraph 4.2, if the Seller reasonably considers that such L/B Claim will give rise to a liability on the part of the Seller

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notwithstanding paragraph 2.1 above, provided that in exercising its conduct rights under paragraph 4.3 the Seller shall use reasonable endeavours to mitigate the relevant Company’s liability in respect of such L/B Claim.

4.5 Pending the Seller acquiring rights of conduct in respect of a L/B Claim pursuant to paragraph 4.4, the Purchaser shall (and shall procure that the relevant Company shall) use reasonable endeavours to mitigate such Company’s liability in respect of such L/B Claim.

5. Recovery from Third Parties

5.1 Where the Purchaser and/or the relevant Company is or is likely to be entitled to recover from some other person (including any insurer) any sum in respect of any matter giving rise to a claim for breach of the Warranties (other than the Tax Warranties), or under any Indemnity, then the Purchaser shall at the request of the Seller and subject to the Seller giving to the Purchaser security in terms satisfactory to the Purchaser (acting reasonably) on an indemnity basis in respect of its costs and expenses, taxes, which may be incurred (including, in relation to a claim under against any insurer, any increase in premium on a renewal of the relevant insurance policy) procure that reasonable steps are taken to enforce such recovery and if any sum is so recovered then either the amount payable by the Seller in respect of the claim shall be reduced by an amount equal to the sum so recovered (less the reasonable costs and expenses of recovering it and any taxation payable by the Purchaser or the Company as a result of its receipt) or (if an amount shall already have been paid by the Seller in respect of that claim) there shall be repaid to the Seller an amount equal to the amount so recovered (less the reasonable costs and expenses of its recovery and any taxation payable by the Purchaser or the Company as a result of its receipt) or (if less) the amount of the Seller’s payment PROVIDED ALWAYS the Purchaser shall not be obliged to take such steps to recover if to do so would (in the reasonable opinion of the Purchaser) cause material damage to the goodwill or business of the relevant Company nor shall the Purchaser’s obligations under this paragraph restrict or delay in any way the Purchaser’s right to bring a claim against the Seller.

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Schedule 8

Working Capital Adjustment

1. Preparation of Working Capital Statement

1.1 As soon as reasonably practicable after Completion, the Purchaser shall prepare a draft Working Capital Statement for the Companies in the form set out in Schedule 10.

1.2 The Seller shall procure that the Purchaser has access (without charge), through its employees, agents and advisers, to all relevant files and/or working papers (with the right to take copies at the Purchaser’s expense) in their possession or control (but not in the possession of any Company), to the extent that they are reasonably required in connection with the preparation of the Working Capital Statement and subject to the Purchaser providing the Seller’s advisers with such undertaking as are reasonably requested.

1.2 The draft Working Capital Statement shall be prepared as at the opening of business on the date of Completion in accordance with the principles set out in this Schedule.

1.3 The Purchaser shall procure that the draft Working Capital Statement is submitted to the Seller for review by the Seller within 60 Business Days after Completion. The Purchaser shall procure that each Company gives the Seller (and its respective employees, agents and advisers) without charge access to all relevant files and/or working papers (with the right to take copies at the Seller’s expense) in such Company’s possession or control to the extent they are reasonably required for the purposes of the Seller’s review of the draft Working Capital Statement and subject to the Seller providing the Purchaser’s advisers with such undertakings as are reasonably requested.

1.4 The Parties shall pay their own respective costs in connection with the preparation of the Working Capital Statement.

1.5 The draft Working Capital Statement shall be deemed to have been accepted as the Working Capital Statement and no dispute may be raised in relation to it unless, within 30 Business Days of it being received by the Seller, the Seller delivers to the Purchaser notice to the contrary specifying (i) the item or items disputed; (ii) the Seller’s reasons; and (iii) how the draft Working Capital Statement and the Provisional Consideration should be adjusted (the “Dispute Notice”). Only those item(s) and amount(s) listed in the Dispute Notice shall be treated as being in dispute. If the Purchaser and the Seller resolve the item(s) raised in the Dispute Notice in the 15 Business Days following receipt of the Dispute Notice, the draft Working Capital Statement (adjusted, if necessary, as agreed by the Purchaser and the Seller) will be deemed to have been accepted by the Parties as the Working Capital Statement.

1.6 If the Seller and the Purchaser are unable to reach agreement within 15 Business Days of the Dispute Notice, the item(s) and amount(s) in dispute may, at the written election of the Seller or the Purchaser, be referred to the decision of PricewaterhouseCoopers or, if they are unwilling or unable to act, an independent chartered accountant (the “Independent Accountant”) to be appointed (in default of nomination by agreement between the Seller and the Purchaser) by the President for the time being of the Institute of Chartered Accountants in England and Wales on the written application of the Seller or of the Purchaser (whichever applies first).

1.7 The Independent Accountant shall act as an expert and not as an arbitrator and neither the Arbitration Act 1996 nor any earlier or later enactments on arbitration shall apply. The Independent Accountant shall be instructed to adjudicate only upon the matters in dispute, and in no event shall any determination made by the Independent Accountant award to the Purchaser an amount greater than that claimed by the Purchaser, or award to the Seller an amount greater than that claimed by the Seller. The Independent Accountant’s decision shall (in the absence of manifest error) be final and binding on the Parties for all the purposes of this Agreement. The draft Working Capital Statement, as adjusted (if necessary) to reflect the

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Independent Accountant’s final and binding decision, will be deemed to have been accepted by the Parties as the Working Capital Statement.

1.8 The costs of the Independent Accountant shall be apportioned between the Parties as the Independent Accountant shall decide but each Party shall be responsible for its own costs of presenting its case to the Independent Accountant.

Basis for preparation of the Working Capital Statement

PART A: Accounting policies, principles, practices, bases and methodologies

The Working Capital Statement for the Companies shall:

1. be prepared strictly in accordance with the specific overriding accounting principles, practices and policies set out in Part B (Specific accounting principles, practices and policies) of this Schedule;

2. subject to paragraph 1 above, be prepared using the accounting principles, practices and policies of the Companies applied in accordance with bases and methodologies consistent with the preparation of the US GAAP Accounts; and

3. subject to paragraphs 1 and 2 above, be prepared under generally accepted accounting principles and financial reporting and accounting standards in the United States of America in issue and applicable at the Completion Date.

PART B: Specific accounting principles, practices and policies

The Working Capital Statement shall be prepared:

1. as if the date to which the Working Capital Statement is made up were the last day of a financial year;

2. (except as expressly provided in this Agreement) so as to include no charge, provision, reserve or write-off in respect of any costs, liabilities or charges to be incurred after the date to which the Working Capital Statement is made up as a consequence of the change of ownership of the Companies or closure of any business (or part thereof) which results from the change of ownership (provided that the valuation of a business, and its assets, shall be conducted in the context of the relevant business at Completion without taking into account any change of ownership thereof or the Purchaser’s intentions with respect to the conduct of any business after Completion);

3. so as to take no account of the costs of the Seller or the Purchaser in relation to this Agreement (including, without limitation, the costs of the preparation, delivery, review and resolution of the Working Capital Statement);

4. (except as specified in Schedule 10) such that the rate of exchange for conversion between relevant currencies and sterling shall be as set out in clause 1.2.12 of this Agreement;

5. after the day which is the earlier of (i) the completion by the Seller of its financial reporting requirements or (ii) 14 November 2008, the Purchaser shall arrange for a physical stock take to take place at the premises of each Company. The Seller, Graham Payne and Deloittes (the “Seller’s Accountants”) shall be permitted access to attend at the time the Purchaser determines for the physical count at each premises and to perform such sample test counts as they may reasonably request. The following counting procedure shall apply:

Andover – Full physical inventory

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Penge Motion	–	Raw materials and sub assemblies – all items with a net book value after provisions in excess of £1,000
Penge Motion	–	WIP and finished goods – all items
Penge Avionics	–	Raw materials and sub assemblies – all items with a net book value after provisions in excess of £1,000
Penge Avionics	–	WIP and finished goods – all items
Heathrow Avionics	–	Raw materials and sub assemblies – all items with a net book value after provisions in excess of £1,000
Heathrow Avionics	–	WIP and finished goods – all items
Traxsys	–	Raw materials and sub assemblies – all items with a net book value after provisions in excess of £1,000
Traxsys	–	WIP and finished goods – all items

Items not counted according to this policy will be valued under existing accounting policies.

6. so as to include (on the same basis as in the calculation of the Estimated Working Capital) a provision in respect of accrued holiday pay for Graham Payne (and disregarding for this purpose the Payne Compromise Agreement).

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Schedule 9

List of documents in the agreed form

1. Tax Deed

2. Directors’ resignations (Schedule 5 paragraph 1 (Completion Obligations))

3. Powers of attorney (Schedule 5 paragraph 1 (Completion Obligations))

4. US GAAP Accounts (clause 1.1 (Definition of “US GAAP Accounts”))

5. Schedule of outstanding and unpaid cheques (clause 1.1 (Definition of “Cash”))

6. Deeds of Assignment

7. Releases

8. Traxsys Supply Agreement

9. Resolution to change the name of AIDL

10. s.l79 joint elections (Schedule 5 paragraph 1 (Completion Obligations))

11. Payne Compromise Agreement

12. Estimated Working Capital

13. Accounts

14. Esterline Reorganisation Step Plan

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Schedule 10

Form of Working Capital Statement

Actual Cash Balance

Accounts receivable

Inter Affiliate Receivables

Bad debt provision

Unbilled

Accounts receivable other

Net external

Inventory

Raw materials

Work in progress

Finished goods

Less progress payments

Total

Prepaid expenses

Other current assets

Total current assets

Current Liabilities

Actual Borrowing Amount

Accounts payable

Inter Affiliate Payables

Accrued expenses

Accrued payroll related

Payroll

Total current liabilities

Net Working Capital

Plus Transitional Services:

Life, PHI and BUPA for two months (or for such other period as services provided)

Salary and wages for Olivier Cuq for two months (or for such other period as services provided)

Salary and wages and benefits for Richard LaMantia for two months (or for such other period as services provided)

Plus:

£98,700 being the Purchaser contribution to Retention Bonuses

Actual Working Capital

Notes:

• Capitalised expressions shall have the meanings given to them in this Agreement.

• For the avoidance of doubt, Ordinary Trading Items will be included and Tax liabilities, and any Incentive Bonus payments (including in respect of Graham Payne) shall be excluded from the Working Capital Statement.

• The line items Inter Affiliate Receivables and Inter Affiliate Payables shall respectively include Inter-Company Receivables and Inter-Company Payables as defined in this Agreement.

• Accrued amounts due in respect of Transitional Services to be added to working capital and included in final payment under clause 3 (such payment being deemed to be made by Purchaser on behalf of the relevant Company).

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• The amounts included for transitional services shall (where applicable) be converted into pounds sterling at the average exchange rate for the period during which such Transitional Services were provided.

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Schedule 11

Transitional Services

Services

Non UK Employee Services- payroll and benefits:

The Seller shall provide or procure (but as regards persons outside the Retained Group, only so far as it is able) the provision of the following services to the relevant Company:

• Provision and management of salaried payroll and benefits in relation to Richard LaMantia (based in the USA) and Olivier Cuq (based in France) (together the “Non-UK Employees”) (on the same basis as provided as at the date of this Agreement) for a period of up to 60 days after Completion

The Seller will maintain or procure the maintenance of all necessary personnel and payroll records and pay any associated payroll tax to the appropriate government agency or body. The Seller will process the recovery of any overpayments made during the period up to and including the relevant Services Termination Date and will liaise with human resources at the relevant Company as required.

The Seller shall issue to the Company an invoice relating to payments to be administered by the Seller on the Company’s behalf in relation to PAYE, national insurance contributions and pensions contributions not less than 5 Business Days before the date upon which the Seller is obliged to pass such payments on (the “Payroll Payment Date”). The invoices submitted by the Seller above shall be settled pursuant to clause 3.2 and Schedule 10 or, to the extent not included in Schedule 10, in cleared funds by the Company no less than 2 Business Days before the relevant Payroll Payment Date.

Graham Payne Consultancy Arrangement

The Seller shall procure (so far as it is able) that Graham Payne provides consultancy services to the Companies as follows:

(a) Graham shall perform, on a non-exclusive basis, general management services for the Companies with a view to ensuring a smooth handover of the Business, including but not limited to: (i) provision of services relating to the day to day management of the Business performed in a manner consistent with his performance and responsibilities during the 6 month period prior to Completion; and (ii) support in connection with the transitioning of responsibilities to the manager appointed by the Purchaser; and (iii) introduction of the appointed manager to key customers and suppliers; and (iv) ensuring continued services (IT and HR) from the Retained Group in accordance with this Schedule until the services are transitioned to the Companies (“Consultancy Services”);

(b) During the period of the Consultancy Services, Graham shall report directly to Richard Madamba;

(c) Graham shall be required to perform the Consultancy Services for a period of 40 days from Completion (the “Consultancy End Date”) as follows:

(i) Graham will provide the Consultancy Services on a full time basis for a period of 15 Business Days post Completion (“Initial Period”);

(ii) for the period from the end of the Initial Period until the Consultancy End Date (“Second Period”), Graham shall provide such reasonable assistance to the Companies as requested by the Companies or the Purchaser. Provided that this assistance shall be by telephone or email, and Graham shall not be required to attend

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the Properties in person other than by prior agreement between Graham and the Purchaser;

The Purchaser shall procure that Graham is reimbursed promptly for all reasonable out of pocket expenses properly incurred in providing the Consultancy Services.

Employee Services – UK Life/Medical Insurance:

Provision and continuation of life, medical and income protection insurance under the existing policies for all UK employees of the Companies until the termination date of the relevant existing policy.

Employee Services – Peoplesoft System:

Full access by the relevant Company (to already trained HR personnel) to the HRIS system “Peoplesoft” licensed by the Retained Group for a period of 60 days after Completion in relation to the employees of the Companies including access to review data and download files and data in relation to such employees.

Website Services:

Hosting and management by the Seller (on the same basis as hosted as at the date of this Agreement (including as to service levels)) for a period of up to 180 days after Completion of the following two websites pending establishment of alternative hosting arrangements:

muirheadaerospace.com

traxsys.com

This shall include, but shall not be limited to:

• removal of all branding in relation to and references to the Retained Group as requested by the Purchaser and inclusion on the website of the Ametek name and logo and other Ametek corporate branding requirements as provided by the Purchaser; and

• inclusion of links to Ametek group or other websites as may reasonably be required by the Purchaser.

The Purchaser shall procure that the relevant members of its group establish alternative hosting arrangements for the websites as soon as reasonably practicable after Completion.

Email Security Services – Postini (Google Message Security) System:

Full use and access, for a period of up to 30 days after Completion, to the Postini (now Google) software currently used by AIDL and Muirhead.

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Signed by Robert W. Cremin	)
for and on behalf of	)
ESTERLINE TECHNOLOGIES LIMITED	)	/s/    Robert W. Cremin Duly authorised

Signed by Robert W. Cremin	)
for and on behalf of	)
ESTERLINE TECHNOLOGIES CORPORATION	)	/s/    Robert W. Cremin Duly authorised

Signed by John J. Molinelli	)
for and on behalf of	)	/S/    John J. Molinelli
EMA HOLDINGS UK LIMITED	)	Duly authorised

Signed by William D. Eginton	)
for and on behalf of	)	/S/    William D. Eginton
AMETEK, INC	)	Duly authorised

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EX-10.34

Exhibit 10.34

EXECUTION COPY

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (this “Agreement”) is entered into as of November 17, 2008 by and among each of the individuals set forth on Annex I (each, a “Seller” and, collectively, the “Sellers”), NMC Group, Inc., a California corporation (the “Company”), and Esterline Technologies Corporation, a Delaware corporation (the “Buyer”).

Introduction

The Sellers own all of the issued and outstanding shares of capital stock of the Company (the “Purchased Shares”). The Sellers wish to sell, and the Buyer wishes to buy, all of the Purchased Shares on the terms and conditions set forth herein.

An index of defined terms as used in this Agreement is set forth in Article 10.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1

PURCHASE AND SALE; CLOSING

1.1        Purchase and Sale.  Subject to the terms and conditions hereof, at the Closing, the Sellers shall sell, transfer, assign and deliver to the Buyer, and the Buyer shall purchase from the Sellers, all of the Purchased Shares.

1.2        Purchase Price; Payments at Closing.

(a)        As used herein, the following terms shall have the following meanings:

“Closing Cash” means, as of immediately prior to the Closing, all the cash, marketable securities and other cash equivalents, and deposits of the Company (other than customer advances), wherever located.

“Closing Indebtedness” means any liability for (i) indebtedness for borrowed money, including interest thereon and prepayment or other penalties becoming due as a result of this transaction, created, issued or incurred by the Company, including the Debt Amount, (ii) all payment obligations of the Company for the deferred purchase price for purchases of property outside the ordinary course of business arising in connection with transactions occurring prior to the Closing which are not evidenced by trade payables, (iii) the present value of all payment obligations of the Company under leases in existence immediately prior to the Closing to which the Company is a party which are capital leases as of the Closing as determined in accordance GAAP, (iv) any payment obligations in respect of letters of credit, interest rate swaps, collars, caps, hedging obligations or other similar contingent obligations, (v) any indebtedness of the type referred to in clauses (i) through (iv) above of any Person other than the Company in

existence immediately prior to the Closing which is either guaranteed by, or secured by a security interest upon any property owned by, the Company.

“Closing Purchase Price” means $89,500,000 (i) plus the aggregate amount of the Closing Cash, (ii) minus an amount equal to the Closing Indebtedness, and (iii) plus the amount, if any, by which the Closing Working Capital exceeds the Target Working Capital Ceiling, or minus the amount, if any, by which the Closing Working Capital is less than the Target Working Capital Floor.

“Closing Working Capital” means (i) the accounts receivable, inventory, prepaid expenses and other current assets (excluding deferred Tax assets, cash, marketable securities and cash equivalents, other than customer advances and similar prepaid amounts which will be retained in the Company) of the Company as of immediately prior to the Closing (net of all applicable reserves), minus (ii) the accounts payable, accrued expenses, accrued compensation, accrued Taxes and all other current liabilities of the Company as of immediately prior to the Closing, excluding for this purpose the items set forth on Schedule 1.2(a)(i) hereto, the Debt Amount, Sale Bonuses and Sellers’ Expenses paid pursuant to Section 1.2(c). The Closing Working Capital shall be determined by reference to the accounts that were used to determine the Target Working Capital, which was determined in accordance with United States generally accepted accounting principles (“GAAP”) as set forth on Schedule 1.2(a)(ii) hereto.

“Credit Facility” means that certain Loan Agreement by and among the Company and Community Bank, dated May 15, 2006, as amended and supplemented, which established a revolving credit line for the identified Borrowers from the identified Lenders.

“Debt Amount” means all outstanding principal, accrued interest, fees, expenses and other amounts owed by the Company immediately prior to the Closing in connection with the Credit Facility.

“Escrow Account” means the account established by the Escrow Agent to hold the Escrow Amount and any earnings thereon pursuant to the Escrow Agreement.

“Escrow Agent” means Wells Fargo, N.A.

“Escrow Agreement” means the Escrow Agreement, substantially in the form of Exhibit A attached hereto, to be entered into among the Buyer, the Representative and the Escrow Agent at the Closing.

“Escrow Amount” means the amount in the Escrow Account at the time of determination.

“Estimated Closing Purchase Price” means the Closing Purchase Price, determined using the estimate of the Closing Working Capital, the Closing Cash and the Closing Indebtedness set forth in the Estimated Closing Purchase Price Certificate.

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“Retained Employee” means each of Mark Balderrama, Thomas Mendez and Stephen Williams.

“Retention Amount” means the following amounts for each of the following Retained Employees:

Mark Balderrama – $87,000

Thomas Mendez – $180,620

Stephen Williams – $36,000

“Retention Bonuses” means the amount to be paid pursuant to Section 5.14.

“Sale Bonuses” means the Retention Bonuses and all change of control, sale, and transaction bonuses, if any, payable to the employees of the Company in connection with or as a result of the transactions contemplated by this Agreement.

“Sellers’ Expenses” means the fees and expenses incurred by the Sellers and/or the Company in connection with the transactions contemplated by this Agreement including, without limitation, the fees and expenses of Houlihan Lokey Howard & Zukin Capital, Inc. and Paul, Hastings, Janofsky & Walker LLP, but specifically excluding any fees and expenses incurred by or for the benefit of the Buyer or any of its Affiliates.

“Target Working Capital” means $5,600,000.

“Target Working Capital Ceiling” means Target Working Capital plus $50,000.

“Target Working Capital Floor” means Target Working Capital minus $50,000.

(b)        Except where the context clearly requires to the contrary: (i) each reference in this Agreement to a designated “Section,” “Article,” “Schedule,” “Exhibit,” or “Annex” is to the corresponding Section, Article, Schedule, Exhibit or Annex of or to this Agreement; (ii) instances of gender or entity-specific usage (e.g., “his” “her” “its” “person” or “individual”) shall not be interpreted to preclude the application of any provision of this Agreement to any individual or entity; (iii) the word “or” shall not be applied in its exclusive sense; (iv) “including” shall mean “including, without limitation”; (v) references to laws, regulations and other governmental rules, as well as to contracts, agreements and other instruments, shall mean such rules and instruments as in effect as of the date of this Agreement; (vi) references to “$” or “dollars” shall mean the lawful currency of the United States; (vii) references to “Federal” or “federal” shall be to laws, agencies or other attributes of the United States (and not to any State or locality thereof); (viii) the meaning of the terms “domestic” and “foreign” shall be determined by reference to the United States; (ix) references to “days” shall mean calendar days; references to “business days” shall mean any day other than Saturday, Sunday or any day on which commercial banks in Los Angeles, California are

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authorized to close; (x) references to months or years shall be to the actual calendar months or years at issue (taking into account the actual number of days in any such month or year); (xi) days, business days and times of day shall be determined by reference to local time in Los Angeles, California; and (xii) the English language version of this Agreement shall govern all questions of interpretation relating to this Agreement, notwithstanding that this Agreement may have been translated into, and executed in, other languages.

(c)        At least two business days prior to the Closing, the Representative will furnish to the Buyer (i) a certificate (the “Estimated Closing Purchase Price Certificate”) setting forth an estimate of the Closing Working Capital, the Closing Cash and the Closing Indebtedness and a calculation of the Closing Purchase Price based thereon, and (ii) a payoff letter from each holder of such outstanding Closing Indebtedness (A) indicating the amount required to discharge such Closing Indebtedness at Closing and (B) if such Closing Indebtedness is secured by any liens, security interests, mortgages, restrictions or encumbrances (collectively, “Liens”), agreeing to release such Liens upon receipt of the payoff amount. The Estimated Closing Purchase Price Certificate shall be reasonably acceptable to the Buyer, and the Representative and the Buyer shall cooperate in good faith to resolve any disputes raised by the Buyer with respect to items set forth in the Estimated Closing Purchase Price Certificate and consider whether any modifications thereto are applicable prior to the Closing; provided that (i) if the Representative and the Buyer are unable to agree on the Estimated Closing Purchase Price Certificate notwithstanding such good faith efforts to resolve any such disputes prior to the Closing, then the estimate of the Closing Working Capital, the Closing Cash and the Closing Indebtedness reflected on the Estimated Closing Purchase Price Certificate, with any modifications agreed to by the Representative and the Buyer, shall be used in the calculation of the Estimated Closing Purchase Price payable pursuant to Section 1.2(d) and (ii) no actions taken by the Buyer pursuant to this Section 1.2(c) shall operate as a waiver of or otherwise affect or impair the Buyer’s ability to take any actions or assert any disagreement or other rights pursuant to Section 1.7.

(d)        At the Closing, the Buyer shall make the following payments in an amount, in the aggregate, equal to the Estimated Closing Purchase Price, by wire transfer of immediately available funds:

(i)        first, to the respective holders of the Closing Indebtedness, if any, the amounts specified in the payoff letters delivered by the Representative to the Buyer pursuant to Section 1.2(c)(ii) above;

(ii)        second, to such payees of the Sellers’ Expenses as directed in writing by the Representative prior to the Closing;

(iii)        third, to an account established by the Company (the “Payment Account”), an amount equal to the aggregate amount of Sale Bonuses (and following the Closing, the Company shall pay the Retention Bonuses in accordance with Section 5.14);

(iv)        fourth, to the Escrow Agent pursuant to the Escrow Agreement, an amount equal to $8,500,000 (the “Initial Escrow Amount”) to be held in the Escrow Account and disbursed in accordance with the terms of the Escrow Agreement; and

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(v)        fifth, the remainder to or as directed by the Representative.

1.3        Cash Withdrawal.  Subject to the terms and conditions of this Agreement, including Section 5.2 hereof, between the date hereof, through and including the Closing Date, the Company shall have the right to distribute any portion of its cash and cash equivalents from time to time to the Sellers, other than such cash representing customer advance payments and other similar prepaid amounts which will be retained in Company accounts.

1.4        The Closing.  The consummation of the transactions contemplated hereby (the “Closing”) will take place at the offices of Paul, Hastings, Janofsky & Walker LLP, on (a) the day that is two (2) business days after the conditions set forth in Article 6 are satisfied (other than those conditions which by their nature are normally satisfied at the Closing) or waived, or (b) such later date that is agreed to in writing by the Sellers and the Buyer (the “Closing Date”).

1.5        Deliveries at Closing by the Sellers and the Company.  At the Closing, and upon satisfaction or waiver of the conditions set forth in Section 6.2, the Sellers and the Company will deliver or cause to be delivered the instruments, consents, certificates and other documents required of them by Section 6.1.

1.6        Deliveries at Closing by the Buyer.  At the Closing, and upon satisfaction or waiver of the conditions set forth in Section 6.1, the Buyer will deliver or cause to be delivered the instruments, consents, certificates and other documents required of it by Section 6.2.

1.7        Determination of Closing Purchase Price.

(a)        Within 120 days after the Closing Date, the Buyer will deliver to the Representative a certificate (the “Closing Purchase Price Certificate”) executed by the Buyer setting forth an itemized statement of the Closing Working Capital, the Closing Cash and the Closing Indebtedness and a calculation of the Closing Purchase Price.

(b)        If the Representative delivers written notice (the “Disputed Items Notice”) to the Buyer within thirty (30) days after receipt by the Representative of the Closing Purchase Price Certificate, stating that the Representative objects to any items in the Closing Purchase Price Certificate, specifying in reasonable detail the basis for such objection and setting forth the Representative’s proposed modification to the Closing Purchase Price, the Buyer and the Representative shall use their commercially reasonable efforts to resolve and finally determine and agree upon the Closing Purchase Price as promptly as practicable. The Disputed Items Notice shall specify those items or amounts as to which the Representative disagrees, and the Representative shall be deemed to have agreed with (and the Independent Accountant, if any, shall be deemed to be bound by) all other items and amounts contained in the Closing Purchase Price Certificate delivered pursuant to Section 1.7(a).

(c)        If the Representative and the Buyer are unable to agree upon the Closing Purchase Price within thirty (30) days after delivery of the Disputed Items Notice, the Representative and the Buyer will select an accounting firm of nationally recognized standing, which shall in all cases be independent from the parties hereto (the “Independent Accountant”), to resolve the items set forth in the Disputed Items Notice (the “Disputed Items”). If the Buyer

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and the Representative are unable to agree upon the selection of the Independent Accountant, either party may petition a court to select the Independent Accountant. The Independent Accountant will (i) resolve the Disputed Items and (ii) make a determination of the Closing Purchase Price using the calculations set forth in the Closing Purchase Price Certificate, as modified only by the Independent Accountant’s resolution of the Disputed Items. In making such calculation, the Independent Accountant shall consider only those items or amounts in the Closing Purchase Price Certificate and the calculation of the Closing Working Capital, Closing Cash and the Closing Indebtedness as to which the Representative has disagreed in the Disputed Items Notice and the Independent Accountant’s determination with respect to each disputed item shall not be in excess of, nor less than, the greatest or lowest value, respectively, claimed for that particular item in the Closing Purchase Price Certificate or in the Disputed Items Notice. The determination of the Independent Accountant will be made within sixty (60) days after being selected. Such determination shall be final and binding upon the Buyer and the Sellers, shall be deemed a final arbitration award that is binding on the Buyer and the Sellers, and none of the Buyer or the Sellers may seek further recourse to courts or other tribunals with respect thereto, other than to enforce such determination. The fees and expenses of the Independent Accountant shall be allocated to the Buyer, on the one hand, and the Sellers, on the other, based upon the percentage that the portion of the contested amount not awarded to each party bears to the amount actually contested by such party, as determined by the Independent Accountant.

(d)        If the Representative does not deliver the Disputed Item Notice to the Buyer within thirty (30) days after receipt by the Representative of the Closing Purchase Price Certificate, the Closing Purchase Price specified in the Closing Purchase Price Certificate will be conclusively presumed to be true and correct in all respects and will be final and binding upon the parties.

(e)        At such time as the Closing Purchase Price is finally determined, either (i) the Buyer shall pay the Representative (for payment to the Sellers) an aggregate amount equal to the excess, if any, of the Closing Purchase Price over the Estimated Closing Purchase Price or (ii) the Representative shall instruct the Escrow Agent to pay the Buyer from the Escrow Account an aggregate amount equal to the excess, if any, of the Estimated Closing Purchase Price over the Closing Purchase Price. Any payment pursuant to this Section 1.7(e) shall be made within five business days after the Closing Purchase Price has been determined by wire transfer by the Buyer or the Escrow Agent, as the case may be, of immediately available funds to the account of such other party as may be designated in writing by such other party. Except as set forth in this Section 1.7, the Buyer shall have no right to make any claim against any Seller in respect of the determination of the Closing Purchase Price or the Closing Working Capital and, without limiting the generality of the foregoing, no adjustment to the Closing Purchase Price pursuant to this Section 1.7 shall be considered a breach of any representation, warranty or other provision of this Agreement.

(f)        The Sellers and their accountants, lawyers and other representatives will be given full access at all reasonable times to (and shall be allowed to make copies of) the relevant books and records of the Company and to any personnel of the Company reasonably requested by such persons, in each case in connection with the final determination of the Closing Purchase Price or any dispute relating thereto.

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1.7.2        Withholding.  The Buyer shall be entitled to deduct and withhold from the Closing Purchase Price otherwise deliverable to the Sellers under this Agreement, and from any other payments to the Sellers otherwise required pursuant to this Agreement, any amounts the Buyer is required to deduct and withhold with respect to any such deliveries and payments under the Internal Revenue Code of 1986, as amended (the “Code”) or any provision of state, local, provincial or foreign Tax law. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been delivered and paid to the Sellers in respect of which such deduction and withholding was made.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES

CONCERNING THE SELLERS

Each Seller hereby, severally and not jointly, represents and warrants to the Buyer that each of the statements contained in this Article 2, with respect to himself or herself, when read together with and qualified by the Disclosure Schedule delivered by the Sellers to the Buyer in connection with and prior to the execution of this Agreement (the “Disclosure Schedule”) is true and correct as of the date hereof.

2.1        Title.  Except as set forth on Schedule 2.1 of the Disclosure Schedule, such Seller owns, and has good title to, the Purchased Shares set forth opposite his or her name on Annex I attached hereto (the percentage of such Purchased Shares owned being his or her “Pro Rata Share”). At the Closing, such Seller will transfer his or her Purchased Shares to the Buyer free and clear of all Liens, other than restrictions under applicable securities laws. Upon the consummation of the transactions contemplated by this Agreement, the Buyer will own such Purchased Shares, free and clear of all Liens, other than restrictions imposed under applicable securities law.

2.2        Power and Authority.  Such Seller has the requisite capacity to execute and deliver and to carry out the terms of this Agreement and the other agreements, instruments and documents to be executed and delivered by such Seller as contemplated hereby.

2.3        No-Conflict.  Except as set forth on Schedule 2.3 of the Disclosure Schedule, such Seller’s execution, delivery and performance of this Agreement and the other agreements, instruments and documents to be executed and delivered by such Seller as contemplated hereby will not result in any material violation of, be in material conflict with or constitute a material default under any law, statute, regulation, rule, ordinance, contract, agreement or instrument, judgment, decree or order to which such Seller is a party or by which such Seller or his or her assets is bound.

2.4        Consents and Approvals.  Except for any applicable filings under the HSR Act or as set forth on Schedule 2.4 of the Disclosure Schedule, no consent, order, approval, authorization, declaration or filing from or with any governmental authority or third party is required on the part of such Seller to permit such Seller to fulfill all of such Seller’s obligations under this Agreement and the other agreements, instruments and documents of such Seller contemplated hereby.

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2.5        Validity and Enforceability.  Assuming the valid execution and delivery by the other parties hereto and thereto, this Agreement is, and each of the other agreements, instruments and documents to be executed and delivered by such Seller as contemplated hereby will be when executed and delivered by such Seller, the valid and binding obligations of such Seller, enforceable against such Seller in accordance with their respective terms, subject, however, to applicable bankruptcy, insolvency and other laws affecting the rights and remedies of creditors and to general equitable principles.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

CONCERNING THE COMPANY

The Company represents and warrants to the Buyer that each of the statements contained in this Article 3 when read together with and qualified by the Disclosure Schedule is true and correct as of the date hereof.

3.1        Organization, Power and Standing.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California. The Company has full corporate power and authority to own, lease and operate its properties and to carry on its business as such business is conducted on the date hereof. The copies of the articles of incorporation and by-laws of the Company, each as amended through the date hereof (the “Company Charter Documents”), that have been made available to the Buyer by the Company are complete and correct copies thereof.

3.2        Power and Authority.  The Company has the corporate power and authority and has taken all required corporate action on its part necessary to permit it to execute and deliver and to carry out the terms of this Agreement and the other agreements, instruments and documents to be executed and delivered by the Company as contemplated hereby.

3.3        Validity and Enforceability.  Assuming the valid execution and delivery by the other parties hereto and thereto, this Agreement is, and each of the other agreements, instruments and documents to be executed and delivered by the Company as contemplated hereby will be when executed and delivered by the Company, the valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject, however, to applicable bankruptcy, insolvency and other laws affecting the rights and remedies of creditors and to general equitable principles.

3.4        Subsidiaries.  The Company has no subsidiaries and does not own or have the right to acquire any equity interest in any corporation, limited liability company, partnership, joint venture, trust or other business organization.

3.5        Foreign Qualifications.  Schedule 3.5 of the Disclosure Schedule sets forth a complete and accurate list of all jurisdictions in which the Company is qualified to do business as a foreign entity. There are no other jurisdictions in which the Company is required to qualify to do business as a foreign entity, except for any jurisdiction(s) in which the failure to so qualify would not have a Company Material Adverse Effect.

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As used herein, the term “Company Material Adverse Effect” shall mean any event, circumstance, or condition which has had or reasonably could be expected to have, a material adverse effect on the assets, liabilities, properties, results of operations or financial condition of the Company, taken as a whole; provided, however, that in no event shall any of the following be taken into account in the determination of whether a Company Material Adverse Effect has occurred: (a) any change in any Legal Requirement or GAAP; (b) any change resulting from conditions affecting any of the industries in which the Company operates or from changes in general business, financial, political, capital market or economic conditions (including any change resulting from any hostilities, war or military or terrorist attack), so long as the Company is not disproportionately affected thereby; (c) any change resulting from the announcement or pendency of the transactions contemplated by this Agreement or attributable to the fact that the Buyer or any of its Affiliates are the prospective owners of the Company; (d) any event, condition or other matter described on the Disclosure Schedule that has not materially changed since the date of such disclosure; or (e) any change resulting from the compliance by the Company with the terms of, or the taking of any action by the Company contemplated or permitted by, this Agreement.

3.6        Capitalization.  Schedule 3.6 of the Disclosure Schedule sets forth a complete and accurate list of all outstanding shares of capital stock of the Company and the record holders thereof. Such shares are duly authorized, validly issued, fully paid and nonassessable. There are no outstanding options, warrants, convertible or exchangeable securities or other rights that would obligate the Company to issue shares of its capital stock or other equity securities. Except as set forth on Schedule 3.6 of the Disclosure Schedule, there are no agreements, written or oral, to which the Company is a party relating to the acquisition, disposition, voting or registration under applicable securities laws of any equity security of the Company. Except as set forth on Schedule 3.6 of the Disclosure Schedule, there are no outstanding or authorized stock appreciation, phantom stock or other similar rights with respect to the Company.

3.7        Financial Statements.  (a) The Sellers have delivered to the Buyer (i) an audited balance sheet of the Company as of each of December 31, 2006 and 2007, and audited statements of income, stockholders’ equity and cash flows for the fiscal years then ended, and (ii) an unaudited balance sheet of the Company (the “Balance Sheet”) as of June 30, 2008 (the “Balance Sheet Date”) and an unaudited statement of income for the six-month period then ended. Such financial statements and the notes thereto, if any, fairly present, in all material respects, the financial condition of the Company for the periods then ended, and were prepared in accordance with the books and records of the Company in conformity with GAAP (except as set forth on Schedule 3.7(a) of the Disclosure Schedule or in the case of unaudited financial statements for the omission of footnotes and subject to year-end adjustments).

(b)        Except as set forth on Schedule 3.7(b) of the Disclosure Schedule, each accrual reflected on the Balance Sheet is adequate to meet the liability underlying such accrual and the reserve provided for doubtful accounts reflected on the Balance Sheet is adequate given the Company’s history and current knowledge of the account.

(c)        The Company has no liabilities, contingent or otherwise that are not reflected on the Balance Sheet, including the notes thereto, other than liabilities arising in the

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ordinary course of business, liabilities incurred in connection with the transactions contemplated hereby and liabilities which are not material to the Company. Except as reflected on the Balance Sheet and Schedule 3.7(c)(i) of the Disclosure Schedule, the Company has no indebtedness for money borrowed or for the deferred purchase price of property or services, capital lease obligations, conditional sale or other title retention agreements relating to the Company’s assets or business. Except as set forth in Schedule 3.7(c)(ii) of the Disclosure Schedule, the Company is not a guarantor or otherwise liable for any liability or obligation or any other person for any matter which relates to or affects the Company or its assets or business.

(d)        All accounts receivable of the Company reflected in the Balance Sheet or existing as of the Closing Date, are bona fide accounts receivables and are or will be valid and enforceable against the account debtor, subject to the allowance for doubtful accounts set forth on the Balance Sheet or in the books and records of the Company, as the case may be.

(e)        All inventories of finished products consist of items of a quality and quantity that are saleable in the ordinary course of business as currently conducted by the Company, and all inventories of raw materials, work in process, supplies, parts and packaging and labeling materials consist of items of a quality and quantity that are useable in the ordinary course of business as currently conducted by the Company. To the knowledge of the Company, there is no adverse condition affecting the quality or supply of raw materials, intermediates, supplies, parts and other materials available to the Company that are necessary to manufacture, package or label its products.

3.8        Absence of Certain Changes.  Since the Balance Sheet Date, except as set forth on Schedule 3.8 of the Disclosure Schedule and except for transactions contemplated by this Agreement, (a) the Company has conducted its business in all material respects in the ordinary course, (b) no Lien has been placed upon any of the Company’s assets, other than Permitted Liens, (c) the Company has not acquired or disposed of any material assets, except in the ordinary course of business, (d) there has been no material damage, destruction or casualty loss (other than those covered by insurance the proceeds of which will be used to replace or repair the subject assets prior to Closing) with respect to any of the assets or properties of the Company, (e) the Company has not cancelled, compromised or waived any material right or claim, (f) the Company has not accelerated, terminated, modified or cancelled any material agreement, contract, lease or license related to the Company’s business, and (g) to the Company’s knowledge, there has been no event or circumstance relating specifically to the Company that has caused or could reasonably be expected to cause a Company Material Adverse Effect.

3.9        Taxes.

(a)        The representations and warranties set forth in this Section 3.9 are subject in all respects to the qualifications and disclosures set forth on Schedule 3.9 of the Disclosure Schedule.

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(b)        For purposes of this Agreement, the following definitions shall apply:

(i)        “Pre-Closing Tax Period” means all taxable periods ending on or before the Closing Date and the portion of a Straddle Period ending on and including the Closing Date.

(ii)        “Pre-Closing Taxes” means any and all Taxes of the Company that are attributable to a Pre-Closing Tax Period, relate to an event or transaction occurring on or before the Closing Date, or arise out of or result from the transactions contemplated by this Agreement (including any transfer, documentary, sales, use, stamp, registration and other such Taxes and fees, and any interest, fines, assessments, penalties or additions to tax imposed in connection therewith or with respect thereto).

(iii)        “Straddle Period” means a Tax period that includes, but does not end on, the Closing Date

(iv)        “Tax” or “Taxes” means (a) any and all federal, state, provincial, local, foreign and other taxes, levies, fees, imposts, duties and similar governmental charges (including any interest, fines, assessments, penalties or additions to tax imposed in connection therewith or with respect thereto), whether computed on a separate or consolidated, unitary or combined basis or in any other manner, including, without limitation, (A) taxes imposed on, or measured by, income, franchise, profits or gross receipts, and (B) ad valorem, value added, capital gains, sales, goods and services, use, real or personal property, capital stock, license, branch, payroll, estimated, withholding, employment, social security (or similar), unemployment, compensation, utility, severance, production, excise, stamp, occupation, premium, windfall profits, transfer and gains taxes, and customs duties; (b) liability for the payment of any amounts of the type described in clause (a) arising as a result of being (or ceasing to be) a member of any affiliated, consolidated, unitary or similar group; or (c) liability for the payment of any amounts of the type described in clause (a) or (b) as a result of any express or implied obligation to indemnify or otherwise assume or succeed to the liability of any other Person.

(v)        “Tax Returns” means all reports, estimates, declarations of estimated Tax, information statements and returns relating to Taxes and any schedules attached to or amendments of any of the foregoing.

(c)        The Company has made a valid election, effective as of May 1, 1988 to be treated as an S corporation within the meaning of Sections 1361 and 1362 of the Code and under any corresponding state or local tax provision. For federal and applicable state and local income Tax purposes, the Company has properly qualified as an S corporation since the effective date of its election through the date of this Agreement, and will properly qualify as an S corporation through and until the Closing Date in all applicable jurisdictions in which it is subject to Tax. Since the effective date of its election, the Company has not been subject to income Tax as a C corporation within the meaning of Section 1361(a) of the Code (or comparable provision of state or local law).

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(d)        The Company will not be obligated to pay Tax under Section 1374 of the Code (or comparable provision of state or local law) in connection with the transactions contemplated by this Agreement. The Company has not, in the past 10 years acquired assets from another corporation in a transaction in which the Company’s Tax basis for the acquired assets was determined, in whole or in part, by reference to the Tax basis of the acquired assets (or any other property) in the hands of the transferor.

(e)        The Company has made available to the Buyer true and correct copies of the Tax Returns of the Company for the 2005, 2006 and 2007 taxable years.

(f)        Except as set forth on Schedule 3.9(f) of the Disclosure Schedule, the Company has duly and timely filed all Tax Returns that were required to be filed by it and all such Tax Returns are true, correct and complete in all material respects. The Company has paid when due all Taxes required to be paid by it (whether or not shown or required to be shown to be due on any Tax Return). The Company does not have any currently effective agreement or waiver that would have the effect of extending any applicable statute of limitations in respect of any of its Tax liabilities. No power of attorney has been granted by the Company with respect to any Tax matter which is currently in force. There are no unpaid assessments against the Company of any Taxes for any fiscal period or pending or, to the knowledge of the Company, threatened tax examinations or audits by any foreign, federal, state or local taxing authority. No governmental authority has given notice to the Company of any intention to assert any deficiency or claim for additional Taxes against the Company. All Taxes that the Company is required by law to withhold or to collect for payment have been duly withheld and collected and, to the extent required, paid to the proper governmental entity. There are no Tax Liens pending or, to the knowledge of the Company, threatened against the Company or its assets or property, other than Permitted Liens.

(g)        The Company is not now, nor has it previously been, a member of an affiliated group filing a consolidated, combined, unitary or similar Tax Return. The Company has no liability for Taxes of any Person (other than itself) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise.

(h)        No claim has ever been made by a taxing authority in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to taxation by that jurisdiction.

(i)        No withholding is required under Section 1445 of the Code in connection with the consummation of the transactions contemplated by this Agreement.

(j)        The Company is not now, nor has it previously been, a party to a “reportable transaction” within the meaning of Section 1.6011-4(b) of the Treasury Regulations.

(k)        The Company has not distributed stock of another Person nor has had its stock distributed by another Person in a transaction that was purported or intended to be governed in whole or in part by Sections 354, 355 or 361 of the Code.

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(l)        Each “nonqualified deferred compensation plan” (as such term is defined in Section 409A(d)(1) of the Code) sponsored or maintained by the Company since January 1, 2005 has been operated since that date in good faith compliance with Section 409A of the Code, the final or proposed regulations thereunder, and any other Internal Revenue Service guidance issued with respect thereto, to the extent applicable to such plan. No deferred compensation plan existing prior to January 1, 2005, which would otherwise not be subject to Section 409A of the Code, has been “materially modified” at any time after October 3, 2004.

3.10        Personal Property.  The Company has valid title to or a valid leasehold, license or other similar interest in all tangible personal property, free and clear of all Liens, except for Permitted Liens, used by the Company in its business, except for any tangible personal property disposed of in the ordinary course of the business after the date hereof. The equipment and other tangible operating assets of the Company, taken as a whole, are in adequate condition to conduct the business of the Company as the same is conducted on the date hereof, normal wear and tear excepted.

As used herein, “Permitted Liens” means (a) such imperfections of title, easements, encumbrances, liens or restrictions which (i) are of record and (ii) do not materially impair the current use of the Company’s assets, (b) materialmen’s, mechanics’, carriers’, workmen’s, warehousemen’s, repairmen’s, landlords’, and other like Liens arising in the ordinary course of business, or deposits to obtain the release of such Liens for amounts which are not yet due and payable, (c) Liens for Taxes not yet due and payable, or being contested in good faith, (d) purchase money Liens incurred in the ordinary course of business, (e) Liens created as a result of any action taken by or through the Buyer or any of its Affiliates, or (f) Liens securing the Debt Amount which will be removed at the Closing assuming compliance by Buyer with its obligations hereunder.

3.11        Real Property.

(a)        The Company does not own any real property.

(b)        Schedule 3.11 of the Disclosure Schedule describes each interest in real property leased by the Company, including the lessor of such leased property, and identifies each lease or any other arrangement under which such property is leased. The Company enjoys peaceful and quiet possession of its leased premises and has not received any written notice from any landlord asserting the existence of a default under any such lease or been informed in writing that the lessor under any such lease has taken action or, to the knowledge of Company, threatened to terminate the lease before the expiration date specified in the lease. Except as set forth on Schedule 3.11 of the Disclosure Schedule, each lease of real property is valid and binding against the Company and, to the knowledge of the Company, against the counterparty thereto, and is in full force and effect, and has not been amended from the version provided to the Buyer. No security deposit or portion thereof deposited with respect to any real property lease has been applied with respect of a breach of default under such lease which has not been redeposited in full. Except as set forth on Schedule 3.11 of the Disclosure Schedule, the Company has not subleased, licensed or otherwise granted to any person or entity the right to use or occupy any of the leased real property or any portion thereof. Except as shown on

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Schedule 3.11 of the Disclosure Schedule, the transactions contemplated by this Agreement will not be the basis for any lessor to terminate its lease prior to the expiration date of the lease.

3.12        Intellectual Property.

(a)        As used herein “Intellectual Property” means all (i) patents, provisional patents, patent applications, continuations, continuations in part, extensions and patent disclosures, (ii) trademarks and service marks (registered and unregistered), and registrations and applications for registration thereof together, to the extent applicable, with all of the goodwill associated therewith (iii) trade dress, trade names and corporate names (iv) copyrights (registered or unregistered) and copyrightable works and registrations and applications for registration thereof, (v) computer software, data, data bases and documentation thereof, (vi) trade secrets and other confidential information (including, without limitation, ideas, formulae, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, financial and marketing plans and customer and supplier lists and information), and (vii) Uniform Resource Locators (a.k.a. “URLs” or “domain names”). As used herein “Company Intellectual Property” means Intellectual Property owned by the Company.

(b)        Schedule 3.12(b) of the Disclosure Schedule contains a list of all Company Intellectual Property included in clauses (i), (ii) and (vii) of the definition of Intellectual Property, and all Company Intellectual Property included in clause (iv) thereof that is material to the conduct of the business as currently conducted. The Company has paid all necessary registration, maintenance and renewal fees for the purpose of maintaining such Company Intellectual Property.

(c)        Schedule 3.12(c) of the Disclosure Schedule contains a list of all Intellectual Property licensed to the Company by any third party that is used in the Company’s business, excluding “off-the-shelf” or “shrink wrap” products licensed to the Company which are licensed in the ordinary course of business and as to which the Company has adequate site, user or other applicable licenses.

(d)        Schedule 3.12(d) of the Disclosure Schedule also contains a description of all licenses granted by the Company to any third party with respect to any Company Intellectual Property material to the Company’s business as currently conducted.

(e)        Except as set forth on Schedule 3.12 of the Disclosure Schedule, (i) to the Company’s knowledge, the Company is not infringing or otherwise violating any Intellectual Property of any other Person and it is in material compliance with the terms of any license related to Intellectual Property licensed to the Company and (ii) to the Company’s knowledge, no third party is infringing on any Company Intellectual Property.

(f)        The Company has taken reasonable steps to protect its rights in, and (to the extent confidential) the confidentiality of, (i) the Company Intellectual Property and (ii) any Intellectual Property provided by any other Person to the Company, each material to the Company’s business as currently conducted.

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3.13        Material Contracts.  Set forth on Schedule 3.13 of the Disclosure Schedule is a list of all Material Contracts of the Company, showing the parties thereto. Each Material Contract is in full force and effect and the Company, and, to the knowledge of the Company, each other party thereto has performed all material obligations required to be performed by them thereunder. The Company is not in default under any material provision of any Material Contract. To the knowledge of the Company, no third party is in default under any material provision of any Material Contract.

As used herein, the term “Material Contract” shall mean each written contract or agreement to which the Company is a party involving (i) aggregate consideration payable to or by the Company of $100,000 other than those contracts or agreements which will be terminated at or prior to the Closing or are terminable by notice of not more than thirty (30) days without material liability to the Company), (ii) any agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise relating directly or indirectly to the Company, its current or historic business which contain any obligation of the Company which will continue after the Closing, (iii) any mortgages, indentures, loans, security agreements or other instruments relating to the borrowing of money by the Company or under which any party has imposed or may, with notice or the lapse of time impose, a lien on any of the Company’s assets, (iv) any distribution, joint marketing, development, partnership or joint venture agreement of the business of the Company, (v) any employment, severance, bonus, noncompetition or nonsolicitation agreement with any employee of the Company, (vi) any agreement, contract or commitment containing any covenant limiting in any respect the right of the Company or any of its Affiliates to engage in any line of business or to compete with any person, (vii) any agreement that provides for the payment or receipt by the Company of an ongoing license fee or royalty payment in excess of $100,000, (viii) any agreement or lease under which the Company is a lessee of or holds or operates any personal property owned by any other party that is used in the Company’s business, (ix) any agreement involving a commitment to make capital expenditures in excess of $100,000, or (x) any agreement related to hazardous waste disposal, solid waste disposal, waste water management, investigation of environmental matters, environmental remediation or any other material environmental obligation, liability or agreement.

3.14        Litigation.  Except as disclosed on Schedule 3.14 of the Disclosure Schedule, there is no action, arbitration, litigation, proceeding or governmental investigation pending or, to the knowledge of the Company, threatened against the Company.

3.15        No-Conflict; Required Consents and Approvals.  Except as set forth on Schedule 3.15 of the Disclosure Schedule and except for applicable filings under the HSR Act, the Company’s execution, delivery and performance of this Agreement and the other agreements, instruments and documents of the Company contemplated hereby will not result in any material violation of, be in material conflict with or constitute a material default under the Company Charter Documents, any Material Contract, any Authorization or any Legal Requirement. Except as set forth on Schedule 3.15 of the Disclosure Schedule and except for applicable filings and approvals under the HSR Act, no material consent, order, approval, authorization, declaration or filing with or from any governmental authority or any party to a Material Contract is required on the part of the Company for or in connection with the

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execution and delivery of this Agreement or the consummation of the transactions contemplated hereby by the Company.

3.16        Licenses and Permits.  Schedule 3.16 of the Disclosure Schedule sets forth a list of all licenses, permits and authorizations of governmental authorities held by the Company which are material to the business of the Company as it is currently conducted (except for licenses, permits and authorizations relating to Environmental Laws, as to which Section 3.22 only applies) (collectively, the “Authorizations”). The Authorizations are in full force and effect. The Company is in material compliance with the Authorizations. To the knowledge of the Company, no governmental authority has threatened the amendment, suspension or cancellation of any Authorization, except where such threatened suspension or cancellation relates to such items of noncompliance that the Company had previously remedied or will remedy within the applicable cure periods.

3.17        Compliance with Laws.  The Company is in material compliance with all Legal Requirements (except as to Taxes, as to which Section 3.9 only applies, to Benefit Plans, as to which Section 3.19 only applies, and to Environmental Laws, as to which Section 3.22 only applies). As used herein, the term “Legal Requirements” means, with respect to any Person, all foreign, federal, state, and local statutes, laws, ordinances, judgments, decrees, and orders and all governmental rules and regulations applicable to such Person.

3.18        Employees and Compensation.  Schedule 3.18 of the Disclosure Schedule sets forth (i) a true and correct list of the name and current annual salary of each officer or employee of the Company whose annual base salary exceeds $75,000 and (ii) any other form of compensation (other than salary, bonuses or customary benefits) paid or payable by the Company to each such officer or employee for the most recent fiscal year. Except as contemplated by Section 6.1(i), to the Company’s knowledge no employee identified on Schedule 3.18 has any present intention to terminate his or her employment with the Company within the next 12 months or is bound by any confidentiality agreement, non-competition agreement or other contract that may reasonably be expected to have an adverse effect on such employee’s participation in the Company’s business. The Company has complied in all material respects with all provisions of all Legal Requirements relating to employment and employment practices, terms and condition of employment, wage and hours and similar matters.

3.19        Benefit Plans.

(a)        Schedule 3.19(a) of the Disclosure Schedule sets forth all material employee benefit plans, programs, policies, practices, agreements and arrangements (including, but not limited to, all plans described in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)) maintained or contributed to by the Company for the benefit of any of its current or former officers, employees, directors or independent contractors, or with respect to which the Company has (or reasonably could be expected to have) any obligation or liability (including, but not limited to, liabilities arising from affiliation under Section 414(b), (c), (m) or (o) of the Code, or Section 4001 of ERISA) (each, a “Benefit Plan” and collectively, the “Benefit Plans”). Except as disclosed on Schedule 3.19 of the Disclosure Schedule, there has been no amendment or announcement (written or oral) by the Company relating to a change in participation or coverage under, any Benefit Plan that could reasonably be

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expected to materially increase the expense of maintaining such Benefit Plan above the level of expense incurred with respect thereto for the most recent fiscal year included in the financial statements provided pursuant to Section 3.7. Each Benefit Plan can be terminated by the Company at any time without material liability or expense (other than for any benefits accrued thereunder at the time of such termination). None of the rights of the Company under any Benefit Plan will be impaired in any way by the consummation of the transactions contemplated by this Agreement.

(b)        With respect to each Benefit Plan, the Company has made available to the Buyer (to the extent applicable to such Benefit Plan) true and complete copies of: (i) all documents embodying such Benefit Plan (including all amendments thereto) or, if such Benefit Plan is not in writing, a written description of such Benefit Plan; (ii) the last three annual reports (Form 5500 series and all schedules and financial statements attached thereto) filed with respect to such Benefit Plan; (iii) the most recent summary plan description, and all summaries of material modifications related thereto, distributed with respect to such Benefit Plan; (iv) all contracts and agreements (and any amendments thereto) relating to such Benefit Plan, including, without limitation, all trust agreements, investment management agreements, annuity contracts, insurance contracts, bonds, indemnification agreements and service provider agreements; (v) the most recent determination letter issued by the Internal Revenue Service (the “IRS”) with respect to such Benefit Plan; (vii) all written communications to employees or beneficiaries, generally (A) in which the provisions of such Benefit Plan, as set forth or described therein, differ materially from such provisions as set forth or described in the other information or materials furnished under this subsection (b), or (B) relating to the amendment, creation or termination of such Benefit Plan, or to an increase or decrease in benefits, acceleration of payments or vesting or any other event with respect to such Benefit Plan that could result in a material liability to the Company; (viii) all material correspondence to or from any governmental entity or agency relating to such Benefit Plan sent or received in the past three (3) years; and (ix) all coverage, nondiscrimination, top heavy and Code Section 415 tests performed with respect to such Benefit Plan for the three most recently completed plan years.

(c)        Except as set forth on Schedule 3.19 of the Disclosure Schedule, with respect to each Benefit Plan: (i) such Benefit Plan is, and at all times since inception has been, maintained, operated, administered and funded in accordance with its terms and all Legal Requirements in all material respects; (ii) the Company and each other Person (including, without limitation, all fiduciaries) have, at all times and in all material respects, properly performed all of their duties and obligations under or with respect to such Benefit Plan; (iii) all returns, reports, notices, statements and other disclosures relating to such Benefit Plan required to be filed with any governmental authority or distributed to any participant therein have been properly prepared and duly filed or distributed in a timely manner; (iv) all contributions, premiums and other payments due or required to be paid to (or with respect to) such Benefit Plan have been timely paid, or, if not yet due, have been accrued as a liability on the Balance Sheet; (v) no breach of fiduciary duty has occurred with respect to any Benefit Plan(vi) no “prohibited transaction” (within the meaning of either Section 4975(c) of the Code or Section 406 or 407 of ERISA) has occurred with respect to such Benefit Plan; and (vii) the Company has not incurred, and there exists no condition or set of circumstances in connection with which the Company or Buyer could incur, directly or indirectly, any material liability or expense (except for routine contributions and benefit payments) under ERISA, the Code or any other applicable Legal

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Requirement or pursuant to any indemnification or similar agreement, with respect to such Benefit Plan.

(d)        Each Benefit Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and each trust and group annuity contract related thereto is exempt from taxation under Section 501(a) of the Code. Each such Benefit Plan (i) is the subject of an unrevoked favorable determination letter from the IRS with respect to such Benefit Plan’s qualified status under the Code, as amended by that legislation commonly referred to as “GUST” and “EGTRRA” and all subsequent legislation, (ii) has remaining a period of time under the Code or applicable Treasury regulations or IRS pronouncements in which to request, and make any amendments necessary to obtain, such a letter from the IRS, or (iii) is a prototype plan or volume submitter plan entitled, under applicable IRS guidance, to rely on the favorable opinion or advisory letter issued by the IRS to the sponsor of such prototype or volume submitter plan. To the Company’s knowledge, nothing has occurred, or is reasonably expected by the Company or any Seller to occur, that could adversely affect the qualification or exemption of any such Benefit Plan or any trust or group annuity contract related thereto. The Company has been informed by the relevant third party administrators that no such Benefit Plan is a “top-heavy plan,” as defined in Section 416 of the Code.

(e)        The Company is not, and has not within the past six (6) years been, a member of (i) a controlled group of corporations, within the meaning of Section 414(b) of the Code, (ii) a group of trades or businesses under common control, within the meaning of Section 414(c) of the Code, (iii) an affiliated service group, within the meaning of Section 414(m) of the Code, or (iv) any other group of Persons treated as a single employer under Section 414(o) of the Code.

(f)        The Company does not sponsor, maintain or contribute to, and has not previously sponsored, maintained or contributed to (or been obligated to sponsor, maintain or contribute to), (a) a “multiemployer plan,” as defined in Section 3(37) or 4001(a)(3) of ERISA or 414(f) of the Code, (b) a multiple employer plan within the meaning of Section 4063 or 4064 of ERISA or Section 413(c) of the Code, (c) an employee benefit plan that is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code, or (d) a “multiple employer welfare arrangement,” as defined in Section 3(40) of ERISA.

(g)        Neither the Company nor any Benefit Plan provides or has any obligation to provide (or contribute toward the cost of) life insurance, medical benefits or any other welfare benefits (within the meaning of Section 3(1) of ERISA) with respect to any current or former officer, employee, director, agent or independent contractor of the Company after his or her retirement or other termination of service for any reason, except to the extent required by Part 6 of Subtitle B of Title I of ERISA and Section 4980B(f) of the Code.

(h)        There are no lawsuits or claims (other than routine claims for benefits) pending or, to the knowledge of the Company, threatened with respect to (or against the assets of) any Benefit Plan, nor, to the Company’s knowledge is there a basis for any such lawsuit or claim. The Company has not been notified that any Benefit Plan is currently under investigation, audit or review, directly or indirectly, by the IRS, the Department of Labor or any other government authority.

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(i)        Schedule 3.19 of the Disclosure Schedule sets forth a complete and accurate list of all “nonqualified deferred compensation plans” (within the meaning of Section 409A of the Code) sponsored or maintained by the Company (or to which the Company is (or was) a party), and in which any of their current or former officers, employees, agents, directors or independent contractors participated at any time since January 1, 2005. Each such plan has been operated and administered since January 1, 2005 in good faith compliance with Section 409A of the Code and any guidance issued by the United States Treasury Department or the IRS thereunder (including, without limitation, IRS Notice 2005-1, the proposed Treasury regulations issued on September 29, 2005, and the final Treasury regulations issued on April 10, 2007), to the extent applicable to such plan. No such plan has been “materially modified” (within the meaning of IRS Notice 2005-1 or Proposed Treasury Regulation Section 1.409A-6(a)(4)) at any time after October 3, 2004.

(j)        Except as set forth on Schedule 3.19 of the Disclosure Schedule, neither the execution of this Agreement nor the consummation of the transactions contemplated by this Agreement will (i) result in any benefit or right becoming established or increased, or accelerate the time of payment or vesting, under any Benefit Plan, (ii) increase the amount of compensation due to any individual or forgive any indebtedness owed by any individual, or (iii) entitle any individual to severance pay, unemployment compensation or any other payment from the Company, Seller or any Benefit Plan.

3.20        Insurance.  The Company is insured under the insurance policies listed on Schedule 3.20 of the Disclosure Schedule. The Company is in compliance in all material respects with the terms and provisions of such insurance policies. Except as disclosed on Schedule 3.20 of the Disclosure Schedule, as of the date hereof, there are no pending claims under any such insurance policy as to which the respective insurers have denied coverage, or provided the Company notice that a defense will be afforded with reservation of rights. The insurance policies maintained by the Company are of the type and in amounts customarily carried by persons conducting businesses similar to those of the Company in the jurisdiction in which the Company operates.

3.21        Brokers.  Except as set forth on Schedule 3.21 of the Disclosure Schedule, the Company has not engaged any broker, finder or similar agent with respect to the transactions contemplated by this Agreement, and the Company is not under any obligation to pay any broker’s fee, finder’s fee or commission in connection with the consummation of the transactions contemplated by this Agreement as a result of any agreement of the Company.

3.22        Compliance with Environmental Laws.  Each of the representations and warranties set forth in this Section 3.22 is subject in all respects to the further qualifications and disclosures set forth on Schedule 3.22 of the Disclosure Schedule.

(a)        For purposes of this Agreement, the following definitions shall apply:

(i)        “Environment” shall mean soil, surface waters, sediments, groundwaters, land, surface, subsurface strata, ambient air, fish, plant, wildlife, habitat and any other environmental medium or natural resources.

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(ii)        “Environmental Claim” shall mean any litigation, proceeding, order, claim, demand, directive, summons, notice, cause of action, complaint or citation, relating to Environmental Laws or Hazardous Substances.

(iii)        “Environmental Laws” shall mean all foreign, federal, state and local statutes, regulations, rules and ordinances relating to pollution or the protection of the Environment, Hazardous Substances or the discharge of materials into the Environment.

(iv)        “Hazardous Substances” shall mean any substance which is a “hazardous substance,” “hazardous waste,” “toxic substance,” “toxic waste,” “pollutant,” “contaminant” or words of similar import under any Environmental Law including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. §9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. §6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. §1251 et seq.), and the Clean Air Act (42 U.S.C. §7401 et seq.), and including, without limitation, which contains polychlorinated biphenyl, asbestos, or gasoline, diesel fuel or other petroleum hydrocarbons or volatile organic compounds.

(b)        The operations of the Company have at all times been and are in material compliance with all applicable Environmental Laws.

(c)        The Company has at all times possessed and currently possesses all material permits, licenses and authorizations required under applicable Environmental Laws, and the operations of the Company have at all times been and are in material compliance with the terms and conditions of such required permits, licenses and authorizations.

(d)        There are no pending or, to the knowledge of the Company, threatened Environmental Claims against the Company.

(e)        The Company’s operations have not resulted in a spill or release of Hazardous Substances into the Environment that would be reasonably likely to give rise to remediation costs in excess of $100,000. Except as set forth on Schedule 3.22(e), the Company has no knowledge of any spills or releases of Hazardous Substances at, from, onto or under any real property leased or operated by the Company.

(f)        None of the following exists at any property or facility owned or operated by the Company: (i) underground storage tanks; (ii) friable asbestos-containing materials; (iii) materials or equipment containing polychlorinated biphenyls; or (iv) landfills, surface impoundments or hazardous waste disposal areas.

(g)        The Company has not either expressly or by operation of law, assumed or undertaken any liability, including without limitation any material obligation for corrective or remedial action, of any other Person related to any Environmental Laws.

(h)        The Company has provided Buyer with complete and accurate copies of all environmental assessments and reports in its possession that relate to the operations of the Company or any real property leased by the Company.

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3.23        Affiliate Transactions.  Except for employment relationships and the payment of compensation and benefits in the ordinary course of business or as disclosed on Schedule 3.23 of the Disclosure Schedule, the Company is not a party to any Material Contract or other arrangement with any stockholder, officer, director or Affiliate of the Company. As used herein, the term “Affiliate” shall have the meaning given to it under Rule 405 promulgated under the Securities Act of 1933, as amended.

3.24        Customers and Suppliers.  To the knowledge of the Company no Major Customer or Major Supplier has notified the Company that it intends to terminate or modify its relationship with the Company. Except as set forth on Schedule 3.24 of the Disclosure Schedule, no Major Customer or Major Supplier of the Company has during the last twelve months materially decreased or limited, or threatened to materially decrease or limit, its purchase of the Company’s products, or its supply of materials or services to the Company, as the case may be. Schedule 3.24 of the Disclosure Schedule lists the ten largest customers of the Company by sales during the period from January 1, 2006 through June 30, 2008 (each a “Major Customer”). Schedule 3.24 of the Disclosure Schedule also lists the ten largest suppliers of the Company by expenses of the Company for materials or services purchased during the period from January 1, 2006 through June 30, 2008 (each a “Major Supplier”).

3.25        Absence of Questionable Payments.  None of the Company or, to the knowledge of the Company, any director, officer, agent, employee or other person acting on behalf of the Company has used, any of the Company’s funds for unlawful contributions, payments, gifts or entertainment, or made any unlawful expenditures relating to political activity to any government official or other person. None of the Company or, to the knowledge of the Company, any officer, director, agent, employee other person acting on behalf of the Company has accepted or received any unlawful contributions, payments, gifts, or expenditures in connection with the operation of the Company’s business.

3.26        Product Warranties; Defects; Liabilities.  Each product manufactured, sold, licensed, leased or delivered by the Company has been in material conformity with all applicable contractual commitments and all expressed and implied warranties. The Company does not have any material liability (and to the knowledge of the Company, as of the date of this Agreement, there is no current reasonable basis for any present action, suit, proceeding, hearing, investigation, charge, complaint or claim against the Company relating to any product giving rise to any material liability) for replacement or repair thereof or any damages in connection therewith. No product manufactured, sold, licensed, leased or delivered by the Company is subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions of sale, license or lease or beyond that implied or imposed by applicable law or to any current recall whether initiated due to the action of any governmental authority, private party or otherwise.

3.27        Government Contracts.  The Company is not now, nor has it previously been, suspended or debarred from bidding on contracts or subcontracts for any agency of the United States government or any foreign government, nor to the knowledge of the Company has such a suspension or debarment been threatened or action for suspension or debarment been commenced. The Company has not been nor is it currently being audited, except in the ordinary course of business or as is customary in the industry or as provided by the Federal

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Acquisition Regulations or, to the knowledge of the Company, investigated by any agency of the United States government or any foreign government nor to the knowledge of the Company has such audit or investigation been threatened. To the knowledge of the Company, there is no valid basis for the Company’s suspension or debarment from bidding on contracts or subcontracts for any agency of the United States government or any foreign government and, to the knowledge of the Company, there is no valid basis for a claim pursuant to an audit or investigation by any agency of the United States government or any foreign government, or any prime contractor with any such governmental authority. The Company has not had a contract or subcontract terminated for default by the Company by any agency of the United States government or any foreign government. The Company does not have any outstanding agreements, contracts or commitments that require it to obtain or maintain a government security clearance.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE BUYER

The Buyer hereby represents and warrants to the Sellers and the Company that each of the statements contained in this Article 4 is true and correct as of the date hereof.

4.1        Organization, Power and Standing.  The Buyer is a Delaware duly organized, validly existing and in good standing under the laws of the State of Delaware, with all requisite power and authority to own, lease and operate its properties and to carry on its business as such business is conducted on the date hereof.

4.2        Power and Authority; No-Conflict.  The Buyer has full power and authority and has taken all required action necessary to permit it to execute and deliver and to carry out the terms of this Agreement and all other agreements, instruments and documents to be executed and delivered by the Buyer as contemplated hereby and none of such actions will result in any violation of, be in conflict with or constitute a default under any charter, by-law, organizational document, Legal Requirement, contract, agreement or instrument to which the Buyer is a party or by which the Buyer or its assets are bound.

4.3        Consents and Approvals.  Except for any applicable filings under the HSR Act, no consent, order, approval, authorization, declaration or filing from or with any governmental authority or third party is required on the part of the Buyer for or in connection with the execution, delivery and performance of this Agreement or any other agreement, instrument or document contemplated hereby by the Buyer and the consummation by the Buyer of any of the transactions contemplated herein or therein.

4.4        Validity and Enforceability.  Assuming the valid execution and delivery by the other parties hereto and thereto, this Agreement constitutes, and each other agreement, instrument and document of the Buyer contemplated hereby will be when executed and delivered by the Buyer, the valid and legally binding obligation of the Buyer, enforceable against it in accordance with their respective terms, subject, however, to applicable bankruptcy, insolvency and other laws affecting the rights and remedies of creditors and to general equitable principles.

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4.5        Brokers.  The Buyer has not engaged any broker, finder or similar agent with respect to the transactions contemplated by this Agreement, and the Buyer is not under any obligation to pay any broker’s fee, finder’s fee, commission or similar amount in connection with the consummation of the transactions contemplated by this Agreement.

4.6        Investment Representations.

(a)        The Buyer is acquiring the Purchased Shares for its own account for investment only, and not with a view to, or for sale in connection with, any distribution of the Purchased Shares in violation of the Securities Act of 1933, as amended (the “Securities Act”), any rule or regulation under the Securities Act, or any state securities laws.

(b)        The Buyer has had such opportunity as it has deemed adequate to obtain from management of the Company such information about the business and affairs of the Company as is necessary to permit the Buyer to evaluate the merits and risks of its investment in the Company.

(c)        The Buyer has sufficient experience in business, financial and investment matters to be able to evaluate the merits and risks involved in the purchase of the Purchased Shares and to make an informed investment decision with respect to such purchase.

(d)        The Buyer is an “accredited investor” within the meaning of Rule 501 promulgated under the Securities Act.

(e)        The Buyer understands that the Purchased Shares have not been registered under the Securities Act or any other securities laws and are therefore “restricted securities” within the meaning of Rule 144 under the Securities Act, and the Purchased Shares cannot be sold, transferred or otherwise disposed of unless they are subsequently registered under the Securities Act and applicable securities laws, or an exemption from registration is then available.

4.7        Financial Ability.  The Buyer has, and will have at the Closing, the financial capability to consummate the transactions contemplated by this Agreement, and the Buyer understands that under the terms of this Agreement the Buyer’s obligations hereunder are not in any way contingent or otherwise subject to (a) the Buyer’s consummation of any financing arrangements or the Buyer’s obtaining any financing or (b) the availability of any financing to the Buyer.

4.8        No Other Agreements.  Except for the agreements expressly contemplated hereby, neither the Buyer nor any of its Affiliates has any other agreements, arrangements or understandings with any director, officer, employee, consultant, stockholder or Affiliate of the Company in respect of the transactions contemplated hereby.

4.9        No Other Representations or Warranties of the Sellers or the Company.  The Buyer has been provided access and an opportunity to review information in respect of the business of the Company requested by the Buyer. In entering into this Agreement, Buyer is exclusively relying on the representations and warranties made by each Seller to the Buyer expressly set forth in Article 2 of this Agreement (as modified by the Disclosure Schedule), the representations and warranties made by the Company to the Buyer expressly set forth in

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Article 3 of this Agreement (as modified by the Disclosure Schedule) and the covenants and agreements set forth in this Agreement.

ARTICLE 5

COVENANTS

5.1        Access to Information; Confidentiality.

(a)        If reasonably requested by the Buyer, the Sellers and the Company shall permit the Buyer and its counsel, accountants and other representatives access, upon reasonable notice and during normal business hours throughout the period prior to the Closing, to the properties, books and records of the Company. Any such access shall be managed by and conducted through those representatives of the Company identified by the Company, and shall be subject to such additional limitations as the Company may reasonably require to prevent disclosure of the transactions contemplated hereby, the disruption of the business of the Company and/or the disclosure of any confidential or legally privileged information. While it is contemplated that Buyer will contact the Company’s material customers and suppliers as part of its confirmatory due diligence investigation, neither the Buyer nor any of its Affiliates or representatives shall, directly or indirectly, contact any customer, dealer, distributor, vendor, supplier or service provider of the Company concerning the Company or the transactions contemplated by this Agreement without first obtaining the Company’s written consent.

(b)        The confidentiality agreement between the Company (or its financial advisor) and the Buyer or an Affiliate of the Buyer dated June 18, 2008 (the “Confidential Agreement”) shall remain in full force and effect and shall be applicable to the Buyer and its Affiliates and representatives.

5.2        Conduct of Business.  Between the date of this Agreement and the Closing or earlier termination of this Agreement, unless the Buyer shall otherwise consent in writing (such consent not to be unreasonably withheld, delayed or conditioned) and except as set forth on Schedule 5.2 of the Disclosure Schedule, as otherwise contemplated by this Agreement or as required by any Legal Requirement:

(a)        Required Actions.  The Company shall:

(i)        maintain its legal existence;

(ii)        conduct its business only in the ordinary course; and

(iii)        use reasonable efforts to operate in such a manner as to assure that the representations and warranties of the Company set forth in this Agreement will be true and correct in all material respects as of the Closing Date with the same force and effect as if such representations and warranties had been made on and as of the Closing Date.

(b)        Prohibited Actions.  The Company shall not do any of the following:

(i)        effect any material change to the Company Charter Documents;

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(ii)        acquire or dispose of any material properties or assets, except in the ordinary course of business;

(iii)        incur any indebtedness for borrowed money, other than in the ordinary course of business;

(iv)        subject any of its properties or assets to any Lien, other than Permitted Liens;

(v)        make any non-cash dividend or distribution on its shares of stock;

(vi)        modify or amend in any material respect or cancel or terminate any Material Contract, other than in the ordinary course of business;

(vii)        make any material change in its Tax or accounting practices, other than any change required by applicable law or GAAP;

(viii)        make any material change to any Tax election or Tax Return, other than any change required by law;

(ix)        acquire any business, whether by merger or consolidation, purchase of substantial assets or equity interests or any other manner;

(x)        make any material increase in the cash compensation of any employee, other than salary increases and other changes in compensation in the ordinary course of business and any payments (including Sale Bonuses) to employees from the Closing Purchase Price;

(xi)        make any material change to any of the Benefit Plans, except to the extent required by the terms of such Benefit Plan or applicable law; or

(xii)        commit to do any of the foregoing.

5.3        Exclusivity.  From the date of this Agreement until the Closing Date or the earlier termination of this Agreement, neither the Company nor any of the Sellers will, directly or indirectly, solicit any competing offers for the acquisition of the Company, or the sale of all or substantially all of the assets or business of the Company, or negotiate with respect to any unsolicited offer or indication of interest with respect to any such acquisition or sale.

5.4        Consents and Approvals.  From the date of this Agreement until the Closing Date or the earlier termination of this Agreement, the parties shall cooperate and use all reasonable efforts to obtain all third party, governmental and regulatory consents, approvals and actions necessary to consummate the transactions contemplated hereby which are required to be obtained by any Legal Requirement or Material Contract.

5.5        HSR Act Filings.  To the extent required in connection with the transactions contemplated by this Agreement, within five (5) business days following the date of execution of this Agreement the parties shall promptly make or cause to be made any and all required

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filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and will request early termination of the waiting period required under the HSR Act. The parties agree to cooperate and promptly respond to any inquiries or investigations initiated by the Federal Trade Commission or the Department of Justice in connection with any such filings.

5.6        Reasonable Efforts.  From the date of this Agreement until the Closing Date or the earlier termination of this Agreement, the parties agree to act in good faith and use reasonable efforts to satisfy the conditions specified in this Agreement necessary to consummate the transactions contemplated hereby.

5.7        Tax Matters.

(a)        Tax Indemnification.  Each Seller, severally and not jointly, agrees to indemnify the Buyer and hold it harmless against and in respect of (i) any and all Pre-Closing Taxes and related Losses; and (ii) any and all Taxes and related Losses incurred by the Buyer or the Company that arise or result from the failure of the Company or the Sellers to perform any of their covenants or agreements contained in this Section 5.7, in each case, except to the extent such Taxes and related Losses were reflected on the statement of the Closing Working Capital and taken into account in the calculation of the Closing Purchase Price. Notwithstanding anything to the contrary in this Agreement, Seller’s indemnification obligations under this Section 5.7(a) shall not be subject to the limitations and conditions set forth in Section 7.2(b).

(b)        Tax Refunds.  After the Closing, all refunds received or receivable by the Buyer or the Company in respect of Taxes paid prior to the Closing or in respect of any Pre-Closing Tax Period shall be paid by the Buyer or the Company to each applicable Seller promptly upon receipt, except to the extent such refunds were reflected on the statement of the Closing Working Capital and taken into account in the calculation of the Closing Purchase Price. Neither the Buyer nor the Company shall amend the Tax Returns of the Company in respect of Taxes paid prior to the Closing or in respect of any Pre-Closing Tax Period in a manner which would increase the Sellers’ tax liability without the prior written consent of the Sellers (such consent not to be unreasonably withheld, delayed or conditioned).

(c)        Tax Returns.

(i)        The Company shall prepare or cause to be prepared, and timely file, all Tax Returns required to be filed by the Company, the due date of which (taking account extensions) occurs on or before the Closing Date, and the Company shall pay all Taxes due with respect to any such Tax Returns. Prior to the due date for filing such Tax Returns, the Company shall make available to the Buyer a draft of such Tax Returns as the Company proposes to file. The Representative shall prepare of cause to be prepared all federal, state, local and foreign income and franchise Tax Returns of the Company for the Pre-Closing Tax Period required to be filed by the Company, the due date of which (taking account extensions) occurs after the Closing Date, and will make available to the Buyer drafts of such returns for its review and approval prior to filing (such approval not to be unreasonably withheld, delayed or conditioned). The Buyer shall prepare or cause to be prepared, and timely file, all other Tax Returns of the Company for the Pre-Closing Tax

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Period. All Tax Returns of the Company for any Pre-Closing Tax Period shall be prepared in a manner consistent with the past practice of the Company, except as required by law.

(ii)        For purposes of this Agreement, in the case of any Taxes that are payable for a Straddle Period, the portion of such Tax attributable to the Pre-Closing Tax Period shall (A) in the case of any Taxes other than Taxes based upon or related to income, sales, gross receipts, wages, capital expenditures or expenses, be deemed to be the amount of such Tax for the Straddle Period multiplied by a fraction the numerator of which is the days in the Pre-Closing Tax Period and the denominator of which is the number of days in the Straddle Period, and (B) in the case of any Tax based upon or related to income, sales, gross receipts, wages, capital expenditures or expenses, be deemed to equal to the amount which would be payable if the Pre-Closing Tax Period ended on the Closing Date.

(d)        Section 338(h)(10) Election.

(i)        The Sellers shall join with the Buyer in making an election under Section 338(h)(10) of the Code (and any comparable election under state, local or foreign law) (the “Section 338 Elections”) with respect to the purchase and sale of the Purchased Shares. Sellers shall prepare and deliver at the Closing (or such other times as Buyer may request or as required by the Code in order to effectuate the Section 338 Elections) an executed Form 8023 (and any corresponding or similar forms under state, local or foreign law).

(ii)        The Buyer and the Sellers agree to cooperate fully with each other in the making of the Section 338 Elections. Except as provided in Section 5.7(d)(i) and Section 6.1(l), in connection with making the Section 338 Elections under applicable law, the Sellers shall prepare a complete set of forms and any additional data or materials (including any allocation of purchase price as required under the Code or regulations) required to be filed (the “Section 338 Forms”) for the Buyer’s review and approval at least 30 days prior to the due date for filing such forms, approval not to be unreasonably withheld. The Buyer and the Sellers shall file all Tax Returns in a manner consistent with the Section 338 Elections and the Section 338 Forms.

(iii)        The Sellers shall be responsible for and shall pay any and all Taxes attributable to the purchase and sale of the Purchased Shares and the making of the Section 338 Elections (including, without limitation, any Taxes imposed on the Company under Section 1374 of the Code, and any comparable provision under state, local or foreign law, or otherwise).

(iv)        Neither the Company nor the Sellers shall take or allow any action that could result in the inability of the Sellers and the Buyer to make valid Section 338 Elections.

(e)        Tax Audits.  The Buyer shall promptly notify the Representative in writing with respect of any matter which may give rise to a claim for indemnification against the Sellers pursuant to Section 5.7(a) (each, a “Tax Matter”) upon learning of such claim or the facts constituting such claim, describing the claim in reasonable detail, the amount thereof, and the

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basis therefor; provided, however, that failure of the Buyer to give Sellers notice as provided herein will not relieve Sellers of their indemnification obligations hereunder, except to the extent that Sellers are prejudiced by the Buyer’s failure to give such prompt notice. The Representative shall have the right, as to any Tax Matter, if the Representative notifies the Buyer that he or she will defend such Tax Matter within ten (10) days after receipt of such notice and commences the defense of such Tax Matter and the Sellers agree that the Sellers are obligated to indemnify the Buyer with respect to the full amount in dispute in such Tax Matter, (i) to control, in whole or in part, any Tax audit, examination, contest or proceedings, (ii) to resolve and defend against any assessment, notice of deficiency, or other adjustment or proposed adjustment, (iii) to consent to any extension or waiver of the limitations period applicable to any Tax Matter, (iv) to initiate any claim for refund of Taxes related to a Pre-Closing Tax Period, and (v) to amend any Tax Return related to a Pre-Closing Tax Period only upon a final settlement or a Tax Matter, in each case solely to the extent relating to Taxes attributable to a Pre-Closing Tax Period or Taxes otherwise attributable to a Tax Matter; provided, however, Representative shall not enter into any settlement of or otherwise compromise any such Tax Matter to the extent that it can reasonably be expected to adversely affect the Tax liability of the Buyer or any affiliate thereof for any taxable period ending after the Closing Date without the prior written consent of the Buyer (such consent not to be unreasonably withheld, delayed or conditioned), and provided further, the Buyer may participate in any such audit, examination, contest or proceedings with counsel of its choice at its own expense. In the event of a conflict between the provisions of this Section 5.7(e) and Section 7.4, the provisions of this Section 5.7(e) shall control.

(f)        Cooperation in Tax Matters.  Each party to this Agreement (a “Party,” or collectively, the “Parties”) shall provide the other Parties with such assistance as may be reasonably requested by such Party in connection with the preparation of any Tax Return, any audit or other examination by any taxing authority, or any judicial or administration contest or proceedings relating to liability for Taxes, and shall provide the other Parties with any available records or information that may be relevant to such Tax Return, audit, examination, contest, proceedings or determination. Such assistance shall include making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder and shall include providing copies of any relevant Tax Return and supporting work schedules. The Party requesting assistance hereunder shall reimburse the other Parties for reasonable out-of-pocket expenses incurred in providing such assistance.

(g)        S Election.  The Company and the Sellers shall not revoke the Company’s election to be treated as an S corporation within the meaning of Sections 1361 and 1362 of the Code (and any corresponding state or local tax provision), and shall not take or allow any action that could result in the termination of the Company’s status as a validly electing S corporation.

5.8        Directors’ and Officers’ Indemnification

(a)        In the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal or administrative (each, a “Proceeding”), in which any Person who is now, or has been at any time prior to the Closing, a director, officer, employee or Affiliate of the Company (the “Indemnified Persons”) is, or is threatened to be, made a party thereto based in whole or in part on the fact that such Person is or was a director, officer, employee or Affiliate of the Company, whether in any case asserted or arising before, on or after

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the Closing, the Company shall, to the fullest extent permitted by law, indemnify and hold harmless such Indemnified Person from and against any and all losses, claims, damages, liabilities, costs, expenses (including reasonable attorneys’ fees and expenses in advance of the final disposition of any Proceeding to each Indemnified Person to the fullest extent permitted by law), judgments, fines and amounts paid in settlement incurred in connection with or arising out of such Proceeding.

(b)        An Indemnified Person shall notify the Company of the existence of a Proceeding for which such Indemnified Person is entitled to indemnification hereunder as promptly as reasonably practicable after such Indemnified Person learns of such Proceeding; provided, that the failure to so notify shall not affect the obligations of the Company under this Section 5.8 except to the extent such failure to notify actually prejudices the Company. The Company, at its expense, shall have the right to control the defense of the Proceeding with counsel selected by the Company and reasonably acceptable to the Indemnified Person. The Indemnified Person and the Company shall cooperate fully with each other in connection with the defense of any Proceeding. No settlement of a Proceeding may be made by the Company without the Indemnified Person’s consent which consent will not be unreasonably withheld, delayed or conditioned, except for a settlement which requires no more than a monetary payment for which the Indemnified Person is fully indemnified and which does not require the admission of liability. No settlement of a Proceeding may be made by an Indemnified Person without the consent of the Company, unless such consent is unreasonably withheld, delayed or conditioned.

(c)        The provisions of this Section 5.8 are intended to be for the benefit of, and enforceable by, each Indemnified Person and such Indemnified Person’s estate, heirs and representatives, and nothing herein shall affect any indemnification rights that any Indemnified Person or such Indemnified Person’s estate, heirs and representatives may have under the Company Charter Documents, any Legal Requirements, any contract or otherwise.

(d)        The obligations of the Company under this Section 5.8 shall continue in full force and effect for a period commencing as of the Closing and ending as of the later of (i) the six (6) year anniversary of the Closing and (ii) the date that all applicable statute of limitation periods have expired for any claim or claims for which an Indemnified Person may be entitled to indemnification under this Section 5.8; provided, that all rights to indemnification in respect of any claim for indemnification under this Section 5.8 asserted or made within such period shall continue until the final disposition of such claim.

5.9        Books and Records.  From and after the Closing, the Buyer will cause the Company to maintain a reasonable records retention policy. After the Closing, the Sellers and their accountants, lawyers and other representatives shall be entitled at all reasonable times to have access to and to make copies of the books and records and other information of the Company for the period prior to the Closing for the preparation of Tax Returns and the defense of litigation related to the Sellers’ ownership of the Company or otherwise related to Sellers’ obligation to provide indemnification pursuant to this Agreement. In the event of any litigation or threatened litigation between the parties relating to this Agreement or the transactions contemplated hereby, the covenants contained in this Section 5.9 shall not be considered a waiver by any party of any right to assert the attorney-client privilege.

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5.10        WARN Act.  Neither the Buyer nor the Company will, at any time prior to one hundred eighty (180) days after the Closing Date, effectuate a “plant closing” or “mass layoff” as those terms are defined in the Worker Adjustment and Retraining Notification Act or any similar termination or reduction in force under any Legal Requirement including, without limitation, California Labor Code Section 1400 et. seq.

5.11        Noncompete.  Following the Closing Date, for a period of five (5) years (the “Restricted Period”), each of the Sellers covenants that it will not and will cause its Affiliates to not, directly or indirectly acquire, own, participate or engage in, or be employed by, an entity (other than the Company) anywhere in the United States that designs, manufactures, distributes or provides products or services related to fasteners and/or hydraulic, air, fuel, fluid, mechanical and electrical line management solutions used in the aerospace industry and custom molding for automotive, medical and consumer markets; provided, however, that, for purposes of this Section 5.11, ownership of securities having less than five percent (5%) of the outstanding voting power of any competitor which are listed on any national securities exchange shall not be deemed to be in violation of this Section 5.11 as long as the Seller owning such securities has no other connection or relationship with such competitor; and, provided further, that the employment of Douglas P. Stephen Jr. by Precision Tube Bending and any successor shall not be deemed to be in violation of this Section 5.11; provided that Precision Tube Bending continues to offer products and services substantially similar to those currently offered and that it does not expand its business to being directly competitive with the Company’s products and services. With respect to the Company’s executive, managerial, technical and sales personnel (“Key Employees”) and any of the Company’s customers and suppliers (such customers and suppliers, together with the Key Employees, being “Company Contacts”), each Seller covenants that such Seller will not directly or indirectly, without Buyer’s prior written consent, solicit or otherwise interfere with the relationship between the Company and any Company Contact during the Restricted Period for as long as such Company Contact maintains its relationship with the Company; provided, however, that if any Key Employee responds to a general solicitation to the public or other general advertising conducted by any Seller during the Restricted Period, such general solicitation or general advertising shall not be deemed to be a violation of this Section 5.11 provided that Seller does not hire such Key Employee during the Restricted Period. In addition, each of the Sellers agrees that, during the Restricted Period, it will not, without Buyer’s prior written consent, hire any Key Employee formerly employed by the Company within six months of the termination of such Key Employee’s relationship with the Company in substantially the same capacity as such terminated employee was employed by the Company.

5.12        Transition Period for AgFast Corporation.  For a period of sixty days after the Closing Date, Buyer hereby agrees, on the same terms and conditions as currently in effect, to continue: (a) to grant a license to AgFast Corporation to continue accessing and using the same office and warehouse space currently used by it and (b) providing to AgFast Corporation the same level of accounting and customer service support.

5.13        Inventory Repurchase Covenant.

(a)        Within 90 days of the first anniversary of the Closing Date, the Buyer may provide the Representative a written notice (the “Inventory Notice”) that identifies: (i) (A) any

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line of finished goods by SKU that existed as of the Closing Date for which the Company has had no sales in the year following the Closing Date; or (B) any type of component parts that comprise any finished goods for which the Company has either had no sales or for which no units of such component parts have been consumed in the creation of any finished goods in the year following the Closing Date (an “Unsold Inventory Line”); (ii) the number of units comprising one hundred percent of such Unsold Inventory Line held by the Company; and (iii) the standard cost per unit for such Unsold Inventory Line reflected in the books and records of the Company as of the Closing Date (the “Standard Cost”). In no event shall the Buyer be entitled to deliver an Inventory Notice to purchase less than one hundred percent of the units comprising the Unsold Inventory Line held by the Company. If Buyer elects to deliver an Inventory Notice to the Representative, the Representative will be granted reasonable access to the Company’s books and records to confirm the information contained in the Inventory Notice.

(b)        If the Representative does not object to the information contained in the Inventory Notice by providing written notice of objection within twenty (20) days of receipt, specifying in reasonable detail the amount and basis of their objection, each Seller will purchase from the Buyer its Pro Rata Share of, and the Buyer will deliver to the Representative, one hundred percent of the units comprising the Unsold Inventory Line held by the Company at a per unit price equal to the Standard Cost contained in the Inventory Notice.

(c)        If the Sellers dispute the information contained in the Inventory Notice, and the parties cannot resolve such dispute through good faith negotiations during the thirty (30) days following receipt of the dispute notice from the Representative, then either the Buyer or the Representative may present the dispute to the Independent Accountant in accordance with the procedures described in Section 1.7(c). In the event that the Independent Accountant determines that the Sellers must purchase an Unsold Inventory Line and the Standard Cost for such Unsold Inventory Line, each Seller will purchase from the Buyer its Pro Rata Share of, and the Buyer will deliver to the Representative, one hundred percent of the units comprising the Unsold Inventory Line held by the Company at a per unit price equal to the Standard Cost determined by the Independent Accountant.

(d)        In the event that the Sellers purchase an Unsold Inventory Line pursuant to this Section 5.13 and the Buyer subsequently wishes to repurchase any or all of the units in such Unsold Inventory Line, then the Representative shall be entitled to set the number of units to be sold and the purchase price for such units in its sole and absolute discretion.

5.14        Payment of Sales Bonuses.  Within seven days after the six-month anniversary of the Closing Date, the Buyer shall cause the Company to pay in cash, by check or by wire transfer of immediately available funds, the Retention Bonuses in the following manner:

(a)        In the event that a Retained Employee has been continuously employed by the Company through the six-month anniversary of the Closing Date, the Buyer shall cause the applicable Retention Amount to be paid from the Payment Account to such Retained Employee, net of any required payroll withholding obligations and, concurrently with such payment, the Buyer shall pay to the Representative for disbursement to the Sellers, 20% of each such Retention Amount paid to the Retained Employees. For the avoidance of doubt, any payment

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from the Payment Account to the Representative pursuant to Section 5.14(a) shall be deemed to be an adjustment to the Closing Purchase Price.

(b)        In the event that a Retained Employee has not been continuously employed by the Company through the six-month anniversary of the Closing Date, the Buyer shall cause such Retained Employee’s Retention Amount to be paid from the Payment Account to the Representative for disbursement to the Sellers. For the avoidance of doubt, any payment from the Payment Account to the Representative pursuant to Section 5.14(b) shall be deemed to be an adjustment to the Closing Purchase Price.

5.15        Waiver of Buy-Sell Arrangement.  Each of the Sellers and the Company hereby: (a) waive any rights or notice requirements under that certain NMC Group, Inc. Stockholders Buy-Sell Agreement executed and accepted as of January 1, 2001 by and among the Company, Thomas V. Stephen, Douglas P. Stephen, Jr., Michael J. Stephen, Susan M. Stephen-Ellersick, Robert M. Stephen, Lesley Stephen, Michelle Stephen, Jacqui Stephen, Michael Ellersick and Jennifer Stephen (the “Buy-Sell Agreement”) arising in connection with this Agreement, including, but not limited to, any rights to purchase the Purchased Shares of any other Seller and (b) agree that the Buy-Sell Agreement shall be terminated upon the consummation of the Closing.

ARTICLE 6

CONDITIONS TO CLOSING

6.1        Conditions Precedent to the Buyer’s Obligations.  The obligation of the Buyer to purchase the Purchased Shares and to consummate the other transactions contemplated by this Agreement is expressly subject to the fulfillment or express written waiver of the following conditions on or prior to the Closing Date:

(a)        Representations and Warranties True.  Each of the representations and warranties contained in Articles 2 and 3 shall be true and correct in all material respects (other than representations and warranties which are qualified by materiality which shall be true and correct in all respects) at and as of the Closing (except as a result of any event or circumstance contemplated, or any action or inaction required, by this Agreement or otherwise approved in writing by the Buyer, and except for any representation or warranty that expressly relates to an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date).

(b)        Covenants Performed.  Each Seller and the Company shall each have performed in all material respects, on or before the Closing Date, all obligations contained in this Agreement which by the terms hereof are required to be performed by them on or before the Closing Date.

(c)        Compliance Certificate.  The Buyer shall have received a certificate signed by the Representative on behalf of each Seller and by the Company certifying as to the matters set forth in Sections 6.1(a) and (b) above.

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(d)        No Injunction, Etc.  There shall not be any order of any court of competent jurisdiction or governmental agency restraining or invalidating the material transactions which are the subject of this Agreement.

(e)        HSR Act.  The waiting period under the HSR Act applicable to the transactions contemplated by this Agreement shall have expired or been terminated.

(f)        Required Consents.  All of the approvals, consents and licenses listed on Schedule 6.1(f) of the Disclosure Schedule shall have been obtained.

(g)        Escrow Agreement.  The Sellers and the Escrow Agent shall have executed and delivered the Escrow Agreement.

(h)        Share Certificates.  The Sellers shall have delivered original stock certificates representing the Purchased Shares, together with assignments separate from such certificates executed by the applicable Seller with respect to such Purchased Shares.

(i)        Resignations.  All officers and directors of the Company shall have delivered resignations from such positions to the Buyer.

(j)        Lease Amendment.  The Company shall have delivered a Lease Amendment to the Buyer with respect to the Company’s principal facility in substantially the form attached hereto as Exhibit B.

(k)        Royalty Agreement.  The Company shall have executed and delivered a royalty agreement substantially in the form of Exhibit C attached hereto (the “Royalty Agreement”).

(l)        Section 338 Elections.  The Sellers shall have delivered to the Buyer an executed Form 8023 (and any corresponding or similar forms under state, local or foreign law) in accordance with Section 5.7(d)(i).

(m)        FIRPTA Affidavit.  Each Seller shall have delivered to the Buyer a non-foreign affidavit, in form and substance reasonably satisfactory to the Buyer.

(n)        Related Party Indebtedness; Pay-off Letters.  The Buyer shall have received evidence reasonably acceptable to it that all loans, advances and other indebtedness owed to or payable by the Company with respect to any of the Sellers, MJS Fastening Systems, or any Affiliate, shareholder or director of the foregoing has been satisfied in full. The Buyer shall have received evidence that the Company has been released from its guaranty of its landlord’s mortgage. All indebtedness owed to the lender under the Credit Facility shall have been paid in full and all Liens evidencing such indebtedness shall have been released (or in each case provided for as contemplated by Section 1.2(c)(ii) and Section 1.2(d)(i).

(o)        Funds Flow Statement.  The Representative and the Buyer shall have agreed upon a closing flow of funds statement, in form and substance reasonably satisfactory to the Buyer and the Representative, with respect to the payments to be made on the Closing Date.

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6.2        Conditions Precedent to each Seller’s Obligations.  The obligation of each Seller to consummate the transactions contemplated by this Agreement is expressly subject to the fulfillment or express written waiver of the following conditions on or prior to the Closing Date:

(a)         Representations and Warranties True.  Each of the representations and warranties of the Buyer contained in Article 4 shall be true and correct in all material respects at and as of the Closing.

(b)        Obligations Performed.  The Buyer shall have performed in all material respects, on or before the Closing Date, all obligations contained in this Agreement which by the terms hereof are required to be performed by the Buyer on or before the Closing Date.

(c)        Compliance Certificate.  The Representative, on behalf of the Sellers, shall have received a certificate signed by an authorized officer of the Buyer certifying as to the matters set forth in Sections 6.2(a) and (b).

(d)        No Injunction, Etc.  There shall not be any order of any court of competent jurisdiction or governmental agency restraining or invalidating the material transactions which are the subject of this Agreement.

(e)        Closing Payments.  The Buyer shall have made the payments contemplated by Section 1.2.

(f)        HSR Act.  The waiting period under the HSR Act applicable to the transactions contemplated by this Agreement shall have expired or been terminated.

(g)        Escrow Agreement.  The Buyer and the Escrow Agent shall have executed and delivered the Escrow Agreement.

(h)        Royalty Agreement.  The Buyer shall have executed and delivered the Royalty Agreement.

(i)        Lease Amendment.  The Buyer shall have delivered a Lease Amendment to the Sellers with respect to the Company’s principal facility in substantially the form attached hereto as Exhibit B.

(j)        Funds Flow Statement.  The Representative and the Buyer shall have agreed upon a closing flow of funds statement, in form and substance reasonably satisfactory to the Buyer and the Representative, with respect to the payments to be made on the Closing Date.

ARTICLE 7

SURVIVAL; INDEMNIFICATION

7.1        Survival.  The representations and warranties contained in this Agreement and in any certificate delivered at the Closing pursuant to this Agreement shall survive the Closing until the eighteen-month anniversary of the Closing (the “Cut-Off Date”); provided however that representations and warranties: in (a) Sections 2.1 (Title), 3.1 (Organization, Power and

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Standing), 3.2 (Power and Authority), 3.3 (Validity and Enforceability), 3.6 (Capitalization) and 4.9 (No Other Representations) shall survive indefinitely, (b) Sections 3.9 (Taxes), 3.19 (Benefit Plans) and 3.22 (Compliance with Environmental Laws) shall survive until the end of the applicable statute of limitations plus thirty days (or in the event of an audit, investigation, litigation or other action that has been commenced with respect to such matters, until the conclusion of such action) and (c) Section 3.12(e) (Intellectual Property Infringement) (the “IP Representation”) shall survive until the fifth anniversary of the Closing Date. All representations or warranties that survive for a period beyond the Cut-Off Date, other than the IP Representation, are referred to as “Fundamental Representations.” Except with respect to the Fundamental Representations and the IP Representation, no claim for breach of any representation, warranty, pre-Closing covenant or pre-Closing agreement may be brought after the Cut-Off Date, except for claims (a) of which the Representative has been notified in writing with reasonable specificity by the Buyer prior to the Cut-Off Date, (b) of which the Buyer has been notified in writing with reasonable specificity by a Seller or the Representative prior to the Cut-Off Date. The post-Closing covenants and post-Closing agreements contained in this Agreement shall survive in accordance with their respective terms.

7.2        Indemnification of the Buyer.

(a)        Subject to the other terms of this Article 7, from and after the Closing, each Seller agrees to indemnify the Buyer and hold it harmless against and in respect of any and all damages, losses, expenses, costs, obligations and liabilities, including without limitation reasonable attorney’s fees (collectively, “Losses”), (i) in an amount equal to his or her Pro Rata Share of the Losses, incurred by the Buyer that arise or result from (as determined by an order of a court of competent jurisdiction or by written agreement of the Representative and the Buyer) (1) any breach of any of the representations or warranties contained in Article 3 (as modified by the Disclosure Schedule, (2) the failure of the Company or the Sellers to perform any of their covenants or agreements contained herein, or (3) associated with correcting any material documentary deficiencies associated with the Company’s 401(k) employee benefit plan, and (ii) severally and not jointly, in an amount equal to the Losses incurred by the Buyer that arise or result from (as determined by an order of a court of competent jurisdiction or by written agreement of the applicable Seller and the Buyer) any breach of any of the representations or warranties contained in Article 2 (as modified by the Disclosure Schedule) by such Seller, it being understood, that, for the avoidance of doubt, the indemnification obligations set forth in this Section 7.2(a)(ii) for a breach of any of the representations or warranties contained in Article 2 shall only apply to the Seller who committed such breach.

(b)        Each Seller’s indemnification obligations under this Agreement with regard to breaches of representations, warranties, pre-Closing covenants, and pre-Closing agreements, however, shall be subject to the following limitations and conditions:

(i)        except as otherwise provided herein, no claim shall be made unless, and only to the extent that, the cumulative amount of Losses incurred by the Buyer exceeds one-half of one percent (0.5%) of the Closing Purchase Price (the “Deductible”);

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(ii)        the Deductible will not apply to claims under Section 7.2(a)(i)(3) and the cumulative amount of Losses recoverable by the Buyer under Section 7.2(a)(i)(3) will be capped at a maximum of $25,000.

(iii)        the Sellers’ cumulative liability for indemnification payments under Section 7.2(a)(i)(1) (other than those that may be required with respect to Fundamental Representations and the IP Representation) shall not exceed, in the aggregate, an amount equal to the Initial Escrow Amount deposited in the Escrow Account minus any amount paid to the Buyers by the Escrow Agent in accordance with Section 1.7(e) and the Sellers’ obligation to make indemnification payments under Section 7.2(a)(i)(1) (other than those that may be required with respect to Fundamental Representations and the IP Representation) shall be solely from the funds available in the Escrow Account;

(iv)        the Sellers’ cumulative liability for Losses associated with, arising from or related to any breach of the IP Representation will be limited as follows (1) no claim for such Losses will be made unless, and only to the extent that the cumulative amounts of Losses incurred by the Buyer exceed $500,000 and any such recovery shall only be had to the extent that such Losses exceed $500,000, (2) the aggregate cap on claims to recover such Losses will be ten percent (10%) of the Closing Purchase Price and (3) such claims will be paid by each Seller personally in accordance with its Pro Rata Share and will not be paid from the Escrow Account. For the avoidance of doubt, the Buyer acknowledges that the Seller’s indemnity obligation with respect to the Company’s representations relating to the non-infringement of the Intellectual Property of any other Person is limited to infringement claims based on products commercialized by the Company prior to the Closing, and that the Sellers shall have no such obligation to indemnify to the extent any infringement claim is based on any modification to such products made subsequent to the Closing;

(v)        without affecting any other limitations on a Seller’s liability for indemnification set forth herein, no Seller’s cumulative liability for indemnification payments pursuant to this Article VII shall exceed such Seller’s proceeds for the sale of his or her Purchased Shares;

(vi)        no claim shall be made with respect to Losses arising out of any breach of the representations or warranties contained in Article 3 as modified by the Disclosure Schedule to the extent a corresponding reserve for such Losses has been made on the Company’s financial statements or to the extent that there has been a corresponding reduction in the calculation of Closing Working Capital;

(vii)        no claim shall be made for punitive, exemplary or special damages; and

(viii)        no claim shall be made with respect to any matter excluded by Section 1.7(e).

(c)        In determining the foregoing thresholds and in otherwise determining the amount of any Losses for which the Buyer is entitled to assert a claim for indemnification

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hereunder, the amount of any such Losses shall be determined after deducting therefrom the amount of any insurance proceeds actually received (after giving effect to any applicable deductible or retention) and other third party recoveries actually received by the Buyer or the Company in respect of such Losses (which proceeds and recoveries the Buyer agrees to use, or to cause the Company to use, commercially reasonable efforts to obtain). If an indemnification payment is received by the Buyer, and the Buyer or the Company later receives insurance proceeds or other third party recoveries in respect of the related Losses, the Buyer shall immediately pay to the indemnifying Sellers a sum equal to the lesser of (y) the actual amount of such insurance proceeds other third party recoveries or (z) the actual amount of the indemnification payment previously paid by such Sellers with respect to such Losses. The Buyer shall use commercially reasonable efforts to mitigate the amount of Losses for which it may be entitled to indemnification hereunder.

7.3        Indemnification of Sellers.  Subject to the other terms of this Article 7, from and after the Closing, the Buyer and the Company agree to indemnify each Seller and hold each Seller harmless from all Losses incurred by any Seller that arise or result from (a) any breach of any of the Buyer’s representations and warranties, (b) the failure of the Buyer to perform any of its covenants or agreements set forth herein or (c) the failure of the Company to perform any covenant or agreement set forth herein which by its terms is to be performed after the Closing.

7.4        Procedure for Indemnification.

(a)        Any party entitled to make a claim for indemnification hereunder shall promptly notify the indemnifying party of the claim in writing upon learning of such claim or the facts constituting such claim, describing the claim in reasonable detail, the amount thereof, and the basis therefor. The indemnifying party will be relieved of its indemnification obligations hereunder only to the extent that it is prejudiced by the indemnified party’s failure to give such prompt notice. The party from whom indemnification is sought shall respond to each such claim within twenty (20) days of receipt of such notice. No action shall be taken pursuant to the provisions of this Agreement or otherwise by the party seeking indemnification (unless reasonably necessary to protect the rights of the party seeking indemnification) until the later of (i) the expiration of the 20-day response period, or (ii) thirty (30) days following the expiration of the 20-day response period if a response, received within such 20-day period by the party seeking indemnification, requests an opportunity to cure the matter giving rise to indemnification (and, in such event, the amount of such claim for indemnification shall be reduced to the extent so cured).

(b)        If a claim for indemnification hereunder is based on a claim by a third party, the indemnifying party shall have the right to assume the entire control of the defense thereof, including at its own expense, employment of counsel reasonably satisfactory to the indemnified party, and, in connection therewith, the party claiming indemnification shall reasonably cooperate with the indemnifying party and make available to the indemnifying party all pertinent requested information under its control; provided, that the indemnified party may participate in any proceeding with counsel of its choice at its own expense. In such event, the indemnifying party shall have the right to settle or resolve any such claim by a third party; provided, that any such settlement or resolution contemplated by the Sellers or the Representative, as the indemnifying party, that involves any action by the Buyer other than the

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payment of an amount of money that is less than the remaining Escrow Amount shall not be concluded without the prior written approval of the Buyer, unless such approval is unreasonably withheld, delayed or conditioned; and, provided further, that any such settlement or resolution contemplated by the Buyer, as the indemnifying party, that involves any action by the Sellers other than the payment of money shall not be concluded without the prior written approval of each of the indemnified Sellers, which approval shall not be unreasonably withheld, delayed or conditioned. Without limiting the generality of the foregoing, the Buyer will, and the Buyer will cause the employees of the Buyer and the Company to, cooperate fully with the Representative and each Seller in connection with any matter for which any Seller is the indemnifying party. Such cooperation shall include, without limitation, (i) assisting in the collection and preparation of discovery materials, (ii) meeting with (and making employees available to meet with) the indemnifying Sellers and/or their counsel to prepare for and/or appear as witnesses at depositions, court proceedings and/or trial, and (iii) providing to the indemnifying Sellers and/or their counsel all information under the control of the Buyer or the Company that is deemed necessary by the indemnifying Sellers and/or their counsel for the defense or prosecution of such matter. Sellers will reimburse Buyer for its reasonable out of pocket expenses incurred with respect to Buyer’s cooperation pursuant to this Section 7.4(b).

(c)        (i) Notwithstanding the foregoing, if (A) the indemnifying party does not give written notice to the indemnified party within the period specified in Section 7.4(a) stating that the indemnifying party has elected to assume defense of such third-party claim, (B) at any time the indemnifying party shall fail to carry out such defense or handling diligently and in such manner as is reasonable under the circumstances, (C) the third-party claim involves such matters as in the good faith judgment of the Buyer may result in a material adverse impact on the business, obligations, assets, liabilities (absolute, accrued, contingent or otherwise), condition (financial or otherwise), material customer or supplier relationships or prospects of the Buyer or its Affiliates or (D) the indemnified party has reasonably determined, upon advice of counsel, that having common counsel with the indemnifying party would present such counsel with a conflict of interest or that, upon advice of counsel, there may be legal defenses available to such indemnified party which are different from or in addition to those available to the indemnifying party, then the provisions of Section 7.4(c)(ii) below shall govern.

(ii)        The indemnified party may, at the indemnifying party’s expense, select counsel reasonably satisfactory to the indemnifying party to defend or handle such third-party claim in a manner that is reasonable under the circumstances; provided, however, that the indemnified party shall keep the indemnifying party timely apprised of the status of such third-party claim. The indemnified party shall not settle such third-party claim without the prior written consent of the indemnifying party (which consent shall not be unreasonably withheld, conditioned or delayed). If the indemnified party defends or handles such third-party claim, the indemnifying party shall cooperate with the indemnified party and shall be entitled to participate in the defense of handling of such third-party claim with its own counsel and at the indemnifying party’s expense. In addition, in the event that the indemnifying party is not permitted to assume the defense of the third-party claim solely by virtue of clause (D) of subparagraph (c)(i) above, then the indemnifying party shall be permitted to pursue, at its own expense, settlement discussions directly with any other parties involved in such third-party claim. Notwithstanding the preceding sentence, the indemnifying party shall not, without the prior written consent of the indemnified party agree to a settlement of any third-party claim, unless (A) the settlement is for monetary

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damages only for amounts which the Sellers agree to pay, and with respect to claims by any indemnified party provides an unconditional release and discharge of the indemnified parties, and the indemnified party has no reasonable good faith objection to the form or substance of such discharge and release and (B) the indemnified party shall not have reasonably objected to any such settlement on the grounds that the circumstances surrounding the settlement could adversely impact the business, operations, assets, liabilities (absolute, accrued, contingent or otherwise), condition, financial or otherwise, material or customer or supplier relationships of the Buyer or its Affiliates or could establish or contribute to a precedential customer practice which could have a material adverse effect on the continuing business interest of the Buyer or its Affiliates.

7.5        Remedies Exclusive.  The remedies provided in this Article 7 shall be the exclusive remedies of the parties hereto and their heirs, successors, and assigns after the Closing with respect to this Agreement and the transactions contemplated by this Agreement, including without limitation any breach or non-performance of any representation, warranty, covenant or agreement contained herein, except in the case of actual fraud, in which case the defrauded party shall have all rights and remedies available under this Agreement and available under the law against the party that committed such actual fraud. No party may bring or commence any claim, suit, action or proceeding with respect to this Agreement or the transactions contemplated hereby, whether in contract, tort or otherwise, except to (a) bring a claim for actual fraud against the party that committed such fraud and (b) enforce such party’s express rights under this Agreement. The provisions of this Article 7 constitute an integral part of the consideration given pursuant to this Agreement and were specifically bargained for and reflected in the total amount of the Closing Purchase Price payable to the Sellers.

7.6        Tax Treatment of Indemnity Payments.  To the maximum extent permitted by law, it is the intention of the parties to treat any indemnity payment made under this Agreement as an adjustment to the purchase price for all federal, state, local and foreign Tax purposes, and the parties agree to file their Tax Returns accordingly.

ARTICLE 8

TERMINATION

8.1        Termination.  Notwithstanding anything contained in this Agreement to the contrary, this Agreement may be terminated at any time prior to the Closing:

(a)        by mutual written consent of the Representative and the Buyer;

(b)        by the Buyer, if (i) any of the representations and warranties of the Sellers or the Company set forth in this Agreement shall not be true and correct to the extent set forth in Section 6.1(a), or any Seller shall have breached or failed to perform any of its obligations, covenants or agreements under this Agreement to the extent set forth in Section 6.1(b), and (ii) such breach, failure or misrepresentation is not cured within fifteen (15) days after the Buyer gives the Sellers and the Company written notice identifying in reasonably detail such breach, failure or misrepresentation;

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(c)        by the Representative, if (i) any of the representations and warranties of the Buyer set forth in this Agreement shall not be true and correct to the extent set forth in Section 6.2(a), or if the Buyer shall have breached or failed to perform any of its obligations, covenants or agreements under this Agreement to the extent set forth in Section 6.2(b), and (ii) such breach, failure or misrepresentation is not cured within fifteen (15) days after the Sellers give the Buyer written notice identifying in reasonable detail such breach, failure or misrepresentation;

(d)        by either the Sellers or the Buyer, if any court or governmental authority has issued a final and non-appealable order, decree or ruling permanently restraining, enjoining or otherwise prohibiting the consummation of the sale and purchase of the Purchased Shares contemplated by this Agreement; or

(e)        by either the Representative or the Buyer, if the Closing has not occurred by January 31, 2009 or such other date, if any, as the Representative and the Buyer may agree in writing; provided, that the right to terminate this Agreement under this Section 8.1(e) shall not be available to the party whose willful and knowing failure to fulfill any obligation under this Agreement has contributed materially to the failure of the Closing to occur on or before such date.

8.2        Effect of Termination.

(a)        If this Agreement is terminated as provided above, the parties shall have no further obligations hereunder (including, without limitation, for costs and expenses incurred by other parties in connection with this Agreement and the transactions contemplated hereby), except as provided below and except that each party shall be liable for its breach of this Agreement and the other parties hereto shall be entitled to all rights and remedies provided by law in respect of such breach.

(b)        The obligations of the Buyer under Section 5.1(b) shall survive the termination of this Agreement.

ARTICLE 9

MISCELLANEOUS

9.1        Notices.  Any notices, demands and communications to a party hereunder shall be in writing and shall be deemed to have been duly given and received (a) if delivered personally or actually received, as of the date received, (b) if delivered by certified mail, return receipt requested, two (2) business days after being mailed, (c) if delivered by a nationally recognized overnight delivery service, one (1) business day after being sent to such delivery service, or (d) if sent via facsimile, electronic mail or similar electronic transmission, as of the date received, to such party at its address set forth below (or such other address as it may from time to time designate in writing to the other parties hereto):

If to the Sellers, the Representative or the Company prior to the Closing, to:

NMC Group, Inc.

2755 Thompson Creek Road

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Pomona, CA 91767

Attn: Mr. Robert M. Stephen

Facsimile: (909) 593-8309

with a copy (which shall not constitute notice) to:

Paul, Hastings, Janofsky & Walker LLP

515 South Flower Street

Los Angeles, California 90071

Attn: Robert A. Miller, Jr., Esq.

Facsimile: (213) 627-0705

If to the Sellers or the Representative after the Closing, to:

Robert M. Stephen

16912 Marina Bay Drive

Huntington Beach, CA 92649

Facsimile: (562) 592-7856

with a copy (which shall not constitute notice) to:

Paul, Hastings, Janofsky & Walker LLP

515 South Flower Street

Los Angeles, California 90071

Attn: Robert A. Miller, Jr., Esq.

Facsimile: (213) 627-0705

If to the Buyer or, after the Closing, the Company, to:

Esterline Technologies Corporation

500 108th Avenue NE, Suite 1500

Bellevue, WA 98004

Attn: Stephen R. Larson

Facsimile: (425) 453-2916

with a copy (which shall not constitute notice) to:

Perkins Coie LLP

1201 Third Avenue, 48th Floor

Seattle, WA 98101

Attn: Troy Hickman

Facsimile: (206) 359-7356

9.2        No Waiver.  No failure of any party to exercise and no delay in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder.

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9.3        Amendments and Waivers.  This Agreement may be modified, amended or waived only by a writing signed by the party against whom enforcement thereof is sought.

9.4        Choice of Law; Forum.  This Agreement shall be governed by and construed in accordance with the internal laws of the State of California, without regard to the choice of law provisions thereof. Any proceeding arising out of or relating to this Agreement shall be brought in the courts of the State of California, County of Los Angeles, or, if it has or can acquire jurisdiction, in the United States District Court for the Central District of California. This provision may be filed with any court as written evidence of the knowing and voluntary irrevocable agreement between the parties to waive any objections to jurisdiction, venue or convenience of forum. EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

9.5        Binding Effect and Benefits.  This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective heirs, successors and assigns, but may not be assigned by any party without the prior written consent of the Representative in the case of a purported assignment by the Buyer, or by the Buyer in the case of a purported assignment by any Seller.

9.6        Integration; Schedules.  This writing, the annexes, exhibits and schedules attached hereto and the Disclosure Schedule, embody the entire agreement and understanding among the parties with respect to this transaction and supersede all prior discussions, understandings and agreements concerning the matters covered hereby, except as set forth in Section 5.1(b). Information set forth on the Disclosure Schedule shall be deemed to qualify each section of this Agreement to which such information is applicable (regardless of whether or not such other section is qualified by reference to the Disclosure Schedule), so long as application to such section is reasonably discernible from the reading of such disclosure. No information set forth on any schedule to the Disclosure Schedule shall be deemed to broaden in any way the scope of any Seller’s or the Company’s representations and warranties. The inclusion of an item on any schedule to the Disclosure Schedule is not evidence of the materiality of such item for purposes of this Agreement or otherwise, or that such item is a disclosure required under the Agreement. No disclosure in any schedule to the Disclosure Schedule relating to any possible breach or violation of any agreement, Authorization or Legal Requirement shall be construed as an admission or indication that any such breach or violation exists or has actually occurred, or shall constitute an admission of liability to any third party.

9.7        Counterparts.  This Agreement may be executed in two or more counterparts, and with counterpart signature pages, each of which shall be an original, but all of which together shall constitute one and the same Agreement, binding on all of the parties hereto notwithstanding that all such parties have not signed the same counterpart. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in

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“portable document format” (“.pdf”) form, or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.

9.8        Limitation on Scope of Agreement.  If any provision of this Agreement is unenforceable or illegal, such provision shall be enforced to the fullest extent permitted by law and the remainder of the Agreement shall remain in full force and effect.

9.9        Sellers’ Representative.

(a)        Each Seller hereby appoints Robert M. Stephen as his or her representative (the “Representative”), to be his or her true and lawful attorney-in-fact for all matters in connection with this Agreement, including without limitation, the compromise of any disputes between the Buyer and any Seller relating to the transactions contemplated by this Agreement and to take any other action contemplated to be taken by the Representative hereof. The power of attorney granted to the Representative appointed hereunder is coupled with an interest and will continue in full force and effect notwithstanding the subsequent death or incapacity of a Seller. The Representative appointed hereunder will have the power to act on behalf of the Sellers with respect to all matters requiring action by the Sellers under this Agreement, including, without limitation, the execution and delivery of any documents contemplated hereby. Robert M. Stephen hereby accepts such appointment. In the event of the death, or the incapacity to serve or resignation as the Representative by Robert M. Stephen, a successor Representative will promptly be appointed by the Sellers constituting the former holders of a majority of the Purchased Shares and the Sellers will jointly notify the Buyer of such appointment. The Buyer will be entitled to rely on any communication received from the Representative or his successor without investigation.

(b)        The Representative shall not be liable to the Sellers for any act taken or omitted by him as permitted under this Agreement and the transactions contemplated hereby, except if such act is taken or omitted in bad faith or by willful misconduct. The Representative shall also be fully protected against the Sellers in relying upon any written notice, demand, certificate or document that he in good faith believes to be genuine.

(c)        The Sellers agree, severally but not jointly, to indemnify the Representative for, and to hold the Representative harmless against Losses, in an amount equal to his or her Pro Rata Share of the Losses, incurred without willful misconduct or bad faith on the part of the Representative, arising out of or in connection with the Representative’s carrying out its duties under this Agreement and the transactions contemplated hereby, including costs and expenses of successfully defending the Representative against any claim of liability with respect thereto. The Representative may consult with counsel of its own choice and will have full and complete authorization and protection for any action taken and suffered by it in good faith and in accordance with the opinion of such counsel.

9.10        Headings.  The headings of Articles and Sections herein are inserted for convenience of reference only and shall be ignored in the construction or interpretation hereof.

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9.11        Expenses.  All legal and other costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, except as otherwise expressly provided herein.

9.12        No Third Party Beneficiaries.  Except as otherwise expressly set forth in this Agreement, including Section 5.8 hereof, nothing in this Agreement will be construed as giving any third party, any right, remedy or claim under or in respect of this Agreement or any provision hereof. No employee of the Company shall be a third-party beneficiary or entitled to rely on Section 5.10.

9.13    Further Assurances.  Following the Closing, the parties shall execute and deliver to each other such documents and take such other actions as may reasonably be requested in order to consummate more effectively the transactions contemplated hereby.

9.14        “Knowledge” Defined.  As used herein, “to the knowledge of the Company,” “to the Company’s knowledge” or any other similar phrase shall mean the actual knowledge of Robert M. Stephen, Mark Balderraama, Tom Mendez, Doug Stephen and Stephen Williams.

9.15        Publicity.  Pending the Closing, no party shall issue a press release or make any other public announcement concerning the transactions contemplated by this Agreement without the prior written consent of the Representative and the Buyer, except to the extent required by law, in which case the other parties hereto shall have the opportunity to review and comment prior to disclosure.

9.16        No Strict Construction.  The parties hereto have participated jointly in the negotiation and drafting of this Agreement and the other agreements and documents contemplated herein. In the event an ambiguity or question of intent or interpretation arises under any provision of this Agreement or any other agreement or documents contemplated herein, this Agreement and such other agreements or documents shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of authoring any of the provisions of this Agreement or any other agreements or documents contemplated herein.

ARTICLE 10

DEFINITIONS

The following terms, as used in this Agreement, have the meanings given to them in the section or place indicated below:

Term:	Section or Place Where Defined:
Affiliate	Section 3.23
Agreement	Preamble
Authorizations	Section 3.16
Balance Sheet	Section 3.7
Balance Sheet Date	Section 3.7
Benefit Plans	Section 3.19

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Term:	Section or Place Where Defined:
Buyer	Preamble
Closing	Section 1.4
Closing Cash	Section 1.2
Closing Date	Section 1.4
Closing Indebtedness	Section 1.2
Closing Purchase Price	Section 1.2
Closing Purchase Price Certificate	Section 1.7
Closing Working Capital	Section 1.2
Code	Section 3.9
Company	Preamble
Company Charter Documents	Section 3.1
Company Contacts	Section 5.11
Company Intellectual Property	Section 3.12
Company Material Adverse Effect	Section 3.5
Confidential Agreement	Section 5.1
Credit Facility	Section 1.2
Cut-Off Date	Section 7.1
Debt Amount	Section 1.2
Deductible	Section 7.2
Disclosure Schedule	Article 2
Disputed Items	Section 1.7
Disputed Items Notice	Section 1.7
Environment	Section 3.22
Environmental Claim	Section 3.22
Environmental Laws	Section 3.22
ERISA	Section 3.19
Escrow Account	Section 1.2
Escrow Agent	Section 1.2
Escrow Agreement	Section 1.2
Escrow Amount	Section 1.2
Estimated Closing Purchase Price	Section 1.2
Estimated Closing Purchase Price Certificate	Section 1.2
Fundamental Representations	Section 7.1
GAAP	Section 1.2
HSR Act	Section 5.5
Hazardous Substances	Section 3.22
Indemnified Persons	Section 5.9
Independent Accountant	Section 1.7
Initial Escrow Amount	Section 1.2
Intellectual Property	Section 3.12
Inventory Notice	Section 5.13
IP Representation	Section 7.1
IRS	Section 3.19

-45-

Term:	Section or Place Where Defined:
Key Employees	Section 5.11
Knowledge	Section 9.14
Legal Requirements	Section 3.17
License Agreement	Section 6.1
Liens	Section 1.2
Losses	Section 7.2
Major Customer	Section 3.24
Major Supplier	Section 3.24
Material Contract	Section 3.13
Parties	Section 5.7
Payment Account	Section 1.2
Permitted Liens	Section 3.10
Pre-Closing Taxes	Section 3.9
Pre-Closing Tax Period	Section 3.9
Proceeding	Section 5.9
Pro Rata Share	Section 2.1
Purchased Shares	Introduction
Representative	Section 9.9
Restricted Activities	Section 5.11
Restricted Period	Section 5.11
Retained Employee	Section 1.2
Retention Amount	Section 1.2
Retention Bonuses	Section 1.2
Sale Bonuses	Section 1.2
Section 338 Elections	Section 5.8
Section 338 Forms	Section 5.8
Securities Act	Section 4.6
Seller	Preamble
Sellers	Preamble
Seller’s Expenses	Section 1.2
Standard Cost	Section 5.13
Straddle Period	Section 3.9
Target Working Capital	Section 1.2
Target Working Capital Ceiling	Section 1.2
Target Working Capital Floor	Section 1.2
Tax or Taxes	Section 3.9
Tax Matter	Section 5.7
Tax Returns	Section 3.9
Unsold Inventory Line	Section 5.13

-46-

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first above written.

NMC GROUP, INC.
By:	/s/    Robert M. Stephen

Name: Robert M. Stephen

Title: President

SELLERS:

/s/    Douglas P. Stephen

Douglas P. Stephen, Co-Trustee of The

Stephen Family Trust

/s/    Barbara M. Stephen

Barbara M. Stephen, Co-Trustee of The

Stephen Family Trust

/s/    Douglas P. Stephen, Jr.

Douglas P. Stephen, Jr.

/s/    Robert M. Stephen

Robert M. Stephen

/s/    Michael J. Stephen

Michael J. Stephen

/s/    Susan M. Stephen Ellersick

Susan M. Stephen Ellersick

/s/    Thomas V. Stephen

Thomas V. Stephen

[Signature Page to the Stock Purchase Agreement]

ESTERLINE TECHNOLOGIES CORPORATION
By:	/s/    Robert W. Cremin

Name: Robert W. Cremin

Title: Chairman, Pres & CEO

[Signature Page to the Stock Purchase Agreement]

ANNEX I

SHAREHOLDERS

Shareholder	Shares of Series A Voting Common Stock	Shares of Series B Non-Voting Common Stock	Pro Rata Share of Outstanding Shares
Douglas P. Stephen and Barbara M. Stephen, Co-Trustees of the Stephen Family Trust	1,250	0	25%
Douglas P. Stephen, Jr.	250	500	15%
Robert M. Stephen	250	500	15%
Michael J. Stephen	250	500	15%
Susan M. Stephen Ellersick	250	500	15%
Thomas V. Stephen	250	500	15%

EXHIBIT A

ESCROW AGREEMENT

EXHIBIT B

LEASE AMENDMENT

EXHIBIT C

ROYALTY AGREEMENT

Schedule 1.2(a)(i)

Excluded Accounts for Closing Working Capital

2330-000-10-00        Accrued Distributions – The purpose of this account is to accrue future distributions to the Company’s shareholders.

2339-000-10-00        Accrued Calif Income Tax – The purpose of this account is to accrue future tax payments to the California State Board of Equalization.

2374-000-10-00        Accrued Interest – The purpose of this account is to accrue future interest payments to debt holders of the Company.

2393-000-10-00        Short Term Portion of Notes Payable DPS – The purpose of this account was to account for the short term portion of a long term loan pursuant to an agreement with Douglas P. Stephen.

2394-000-10-00        Short Term Portion of Notes Payable – The purpose of this account was to account for the short term portion of a long term loan pursuant to an agreement with Community Bank to finance equipment.

2395-000-10-00        Community Bank W/C Line – The purpose of this account is to account for the Company’s line of credit with Community Bank.

2395-001-10-00        Do Not Use LOC Community Bank Temp – The purpose of this account is the same as 2395-000-10-00 listed above. This account is used only if the Company transfers its account from Community Bank to another bank.

Schedule 1.2(a)(ii)

Target Working Capital Statement

EX-11.1

Exhibit 11.1

ESTERLINE TECHNOLOGIES CORPORATION

(In thousands, except per share amounts)

Computation of Earnings Per Share – Basic

	2008		2007		2006		2005		2004
Income From Continuing     Operations	$	113,509	$	87,762	$	53,611	$	47,403	$	29,370
Income From     Discontinued Operations,     Net of Tax		7,024		4,522		2,004		10,623		10,213
Net Earnings	$	120,533	$	92,284	$	55,615	$	58,026	$	39,583
Weighted Average Number     of Shares
Outstanding – Basic		29,507		25,824		25,413		24,927		21,195
Earnings Per Share – Basic:
Continuing operations	$	3.85	$	3.40	$	2.11	$	1.90	$	1.39
Discontinued operations		.23		.17		.08		.43		.48
Earnings Per Share – Basic	$	4.08	$	3.57	$	2.19	$	2.33	$	1.87

ESTERLINE TECHNOLOGIES CORPORATION

(In thousands, except per share amounts)

Computation of Earnings Per Share – Diluted

	2008		2007		2006		2005		2004
Income From Continuing     Operations	$	113,509	$	87,762	$	53,611	$	47,403	$	29,370
Income From Discontinued     Operations,
Net of Tax		7,024		4,522		2,004		10,623		10,213
Net Earnings	$	120,533	$	92,284	$	55,615	$	58,026	$	39,583
Weighted Average Number     of Shares Outstanding		29,507		25,824		25,413		24,927		21,195
Net Shares Assumed to be     Issued for Stock Options		401		428		405		375		344
Weighted Average Number     of Shares and Equivalent     Shares Outstanding –     Diluted		29,908		26,252		25,818		25,302		21,539
Earnings Per Share – Diluted:
Continuing operations	$	3.80	$	3.34	$	2.08	$	1.87	$	1.36
Discontinued operations		.23		.18		.07		.42		.48
Earnings Per Share – Diluted	$	4.03	$	3.52	$	2.15	$	2.29	$	1.84

2

EX-12.1

Exhibit 12.1

ESTERLINE TECHNOLOGIES CORPORATION

(In thousands)

Statement of Computation of Ratio of Earnings to Fixed Charges

	2008		2007		2006		2005		2004
Income from continuing     operations before     income taxes	$	140,455	$	110,480	$	70,386	$	64,136	$	38,935
Fixed charges 1
Interest expense		29,922		35,299		21,288		18,157		17,330
Amortization of debt     issuance cost		—		—		172		56		56
Interest included in     rental expense		5,211		4,134		3,089		2,734		2,465
Total	$	35,133	$	39,433	$	24,549	$	20,947	$	19,851
Earnings 2	$	175,588	$	149,913	$	94,935	$	85,083	$	58,786
Ratio of earnings available to cover fixed charges		5.0		3.8		3.9		4.1		3.0

¹ Fixed charges consist of interest on indebtedness and amortization of debt issuance cost plus that portion of lease rental expense representative of the interest factor.

² Earnings consist of income from continuing operations before income taxes plus fixed charges.

EX-21.1

Exhibit 21.1

SUBSIDIARIES

The subsidiaries of the Company as of October 31, 2008 are as follows:

Name of Subsidiary	Jurisdiction of Incorporation
Advanced Input Devices, Inc.	Delaware
Memtron Technologies Co.	Delaware
LRE Medical GmbH	Germany
Esterline Input Devices (Shanghai) Ltd.	China
Armtec Defense Products Co.	Delaware
Armtec Countermeasures Co.	Delaware
Armtec Countermeasures TNO Co.	Delaware
Wallop Defence Systems	England
Auxitrol Technologies S.A.	France
Auxitrol S.A.	France
Esterline Sensors Services Americas, Inc.	Delaware
CMC Electronics Incorporated	Canada
CMC Electronics Aurora Incorporated	Delaware
Darchem Engineering Ltd.	Scotland
Hytek Finishes Co.	Delaware
Kirkhill – TA Co.	California
Korry Electronics Co.	Delaware
AVISTA Incorporated	Wisconsin
Palomar Products, Inc.	Delaware
Leach International Corporation	Delaware
Leach International Europe S.A.	France
Mason Electric Co.	Delaware
BVR Technologies Co.	Delaware
Muirhead Aerospace Limited	England
Traxsys Input Products Ltd.	England
Pressure Systems, Inc.	Virginia
Weston Aerospace Ltd.	England
Norwich Aero Products Ltd.	New York

The above list excludes certain subsidiaries that, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of October 31, 2008.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

(1) Registration Statement (Form S-8 No. 333-43843) pertaining to the Esterline Technologies Corporation 1997 Stock Option Plan;

(2) Registration Statement (Form S-8 No. 33-58375) pertaining to the Esterline Technologies Corporation Non-Employee Directors’ Stock Compensation Plan;

(3) Registration Statement (Form S-8 No. 333-62650) pertaining to the Esterline Technologies Corporation Amended and Restated 1997 Stock Option Plan;

(4) Registration Statement (Form S-8 No. 333-85440) pertaining to the Esterline Technologies Corporation 2002 Employee Stock Purchase Plan;

(5) Registration Statement (Form S-8 No. 333-103846) pertaining to the Esterline Technologies Corporation Amended and Restated 1997 Stock Option Plan;

(6) Registration Statement (Form S-8 No. 333-113475) pertaining to the Esterline Technologies Corporation 2004 Equity Incentive Plan;

(7) Registration Statement (Form S-8 No. 333-135025) pertaining to the Esterline Technologies Corporation 2004 Equity Incentive Plan and the Esterline Technologies Corporation 2002 Employee Stock Purchase Plan;

(8) Registration Statement (Form S-8 No. 333-151823) pertaining to the Esterline Technologies Corporation 2004 Equity Incentive Plan and the Esterline Technologies Corporation 2002 Employee Stock Purchase Plan;

of our reports dated December 19, 2008, with respect to the consolidated financial statements and schedule of Esterline Technologies Corporation, and the effectiveness of internal control over financial reporting of Esterline Technologies Corporation, included in this Annual Report (Form 10-K), for the year ended October 31, 2008.

/s/ Ernst & Young LLP            

Seattle, Washington

December 19, 2008

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Robert W. Cremin, certify that:

1. I have reviewed this annual report on Form 10-K of Esterline Technologies Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: December 23, 2008	By:	/s/ Robert W. Cremin
		Robert W. Cremin
		Chairman, President and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Robert D. George, certify that:

1.  I have reviewed this annual report on Form 10-K of Esterline Technologies Corporation;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: December 23, 2008	By:	/s/ Robert D. George
		Robert D. George
		Vice President, Chief Financial Officer,
		Secretary and Treasurer
		(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Esterline Technologies Corporation (the “Company”) on Form 10-K for the fiscal year ended October 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-K”), I, Robert W. Cremin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: December 23, 2008

By:	/s/ Robert W. Cremin
	Robert W. Cremin
	Chairman, President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Esterline Technologies Corporation (the “Company”) on Form 10-K for the fiscal year ended October 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “the Form 10-K”), I, Robert D. George, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: December 23, 2008

By:	/s/ Robert D. George
	Robert D. George
	Vice President, Chief Financial Officer,
	Secretary and Treasurer