ESTERLINE TECHNOLOGIES CORP (Form: 10-Q, Received: 09/05/2008 16:07:24)

Dated: September 5, 2008

/s/ Robert W. Cremin

Robert W. Cremin

Chairman, President and Chief Executive Officer

(Principal Executive Officer)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 1, 2008

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 N.E., Bellevue, Washington 98004

(Address of principal executive offices)(Zip Code)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

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

Large accelerated filer x Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company) 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 No X

As of September 2, 2008, 29,636,481 shares of the issuer’s common stock were outstanding.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

ESTERLINE TECHNOLOGIES CORPORATION

CONSOLIDATED BALANCE SHEET

As of August 1, 2008 and October 26, 2007

(In thousands, except share amounts)


	August 1, 2008			October 26, 2007
ASSETS		(Unaudited	)

Current Assets
Cash and cash equivalents	$	162,552		$	147,069
Accounts receivable, net of allowances of $5,558 and $5,378		249,083			262,087
Inventories
Raw materials and purchased parts		120,988			111,997
Work in process		130,595			99,103
Finished goods		46,878			47,076

		298,461			258,176

Income tax refundable		6,495			11,580
Deferred income tax benefits		31,907			37,830
Prepaid expenses		15,774			13,256

Total Current Assets		764,272			729,998

Property, Plant and Equipment		447,425			418,788
Accumulated depreciation		231,516			201,367

		215,909			217,421

Other Non-Current Assets
Goodwill		651,381			656,865
Intangibles, net		339,146			365,317
Debt issuance costs, net of accumulated amortization of $5,763 and $4,618		7,957			9,192
Deferred income tax benefits		46,041			43,670
Other assets		25,715			27,843

	$	2,050,421		$	2,050,306

ESTERLINE TECHNOLOGIES CORPORATION

CONSOLIDATED BALANCE SHEET

As of August 1, 2008 and October 26, 2007

(In thousands, except share amounts)


	August 1, 2008			October 26, 2007
LIABILITIES AND SHAREHOLDERS’ EQUITY		(Unaudited	)

Current Liabilities
Accounts payable	$	88,763		$	90,257
Accrued liabilities		181,583			187,596
Credit facilities		8,550			8,634
Current maturities of long-term debt		8,649			12,166
Federal and foreign income taxes		14,173			11,247

Total Current Liabilities		301,718			309,900

Long-Term Liabilities
Long-term debt, net of current maturities		390,221			455,002
Deferred income taxes		118,307			123,758
Other liabilities		54,051			36,852

Commitments and Contingencies		—			—

Minority Interest		2,643			2,968

Shareholders’ Equity
Common stock, par value $.20 per share, authorized 60,000,000 shares, issued and outstanding 29,626,981 and 29,364,269 shares		5,925			5,873
Additional paid-in capital		491,480			475,816
Retained earnings		569,181			493,269
Accumulated other comprehensive income		116,895			146,868

Total Shareholders’ Equity		1,183,481			1,121,826

	$	2,050,421		$	2,050,306

ESTERLINE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

For the Three and Nine Month Periods Ended August 1, 2008 and July 27, 2007

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended						Nine Months Ended
	August 1, 2008			July 27, 2007			August 1, 2008			July 27, 2007

Net Sales	$	382,070		$	326,376		$	1,128,454		$	895,900
Cost of Sales		262,668			226,734			762,421			622,827

		119,402			99,642			366,033			273,073

Expenses
Selling, general & administrative		63,183			55,461			184,804			148,237
Research, development & engineering		22,396			16,952			71,328			49,585

Total Expenses		85,579			72,413			256,132			197,822

Other
Other expense		—			7			86			24
Insurance recovery		—			(32,857	)		—			(37,314	)

Total Other		—			(32,850	)		86			(37,290	)


Operating Earnings		33,823			60,079			109,815			112,541

Interest income		(1,125	)		(821	)		(3,512	)		(2,110	)
Interest expense		7,339			10,790			22,517			25,042
Gain on derivative financial instrument		—			—			(1,850	)		—

Other Expense, Net		6,214			9,969			17,155			22,932


Income Before Income Taxes		27,609			50,110			92,660			89,609
Income Tax Expense		7,091			11,217			15,780			18,096

Income Before Minority Interest		20,518			38,893			76,880			71,513

Minority Interest		(36	)		(58	)		(229	)		(117	)


Net Earnings	$	20,482		$	38,835		$	76,651		$	71,396


Earnings Per Share
Basic	$	.69		$	1.51		$	2.60		$	2.79
Diluted	$	.68		$	1.49		$	2.56		$	2.74

ESTERLINE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Nine Month Periods Ended August 1, 2008 and July 27, 2007

(Unaudited)

(In thousands)


	Nine Months Ended
	August 1, 2008			July 27, 2007

Cash Flows Provided (Used) by Operating Activities
Net earnings	$	76,651		$	71,396
Minority interest		(325	)		117
Depreciation and amortization		49,343			39,579
Deferred income taxes		(19,509	)		(7,707	)
Share-based compensation		6,518			5,105
Working capital changes, net of effect of acquisitions
Accounts receivable		12,120			22,415
Inventories		(40,718	)		(13,639	)
Prepaid expenses		(2,396	)		(2,189	)
Accounts payable		(2,011	)		3,736
Accrued liabilities		5,702			(8,774	)
Federal and foreign income taxes		6,902			6,838
Other liabilities		(2,808	)		(1,636	)
Other, net		3,582			(4,188	)

		93,051			111,053

Cash Flows Provided (Used) by Investing Activities
Purchases of capital assets		(31,006	)		(24,350	)
Proceeds from sale of capital assets		626			3,092
Acquisitions of business, net of cash acquired		12,033			(344,313	)

		(18,347	)		(365,571	)

ESTERLINE TECHNOLOGIES CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Nine Month Periods Ended August 1, 2008 and July 27, 2007

(Unaudited)

(In thousands)


	Nine Months Ended
	August 1, 2008			July 27, 2007

Cash Flows Provided (Used) by Financing Activities
Proceeds provided by stock issuance under employee stock plans		7,266			7,557
Excess tax benefits from stock options exercised		1,932			1,567
Debt and other issuance costs		—			(6,409	)
Proceeds from issuance of long-term debt		—			275,000
Net change in credit facilities		(134	)		20,322
Repayment of long-term debt		(67,687	)		(3,755	)
Dividends paid to minority interest		—			(763	)

		(58,623	)		293,519

Effect of Foreign Exchange Rates on Cash		(598	)		2,043

Net Increase in Cash and Cash Equivalents		15,483			41,044

Cash and Cash Equivalents – Beginning of Period		147,069			42,638

Cash and Cash Equivalents – End of Period	$	162,552		$	83,682


Supplemental Cash Flow Information
Cash Paid for Interest	$	22,412		$	21,778
Cash Paid for Taxes		27,754			11,974

ESTERLINE TECHNOLOGIES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Nine Month Periods Ended August 1, 2008 and July 27, 2007

The consolidated balance sheet as of August 1, 2008, the consolidated statement of operations for the three and nine month periods ended August 1, 2008, and July 27, 2007, and the consolidated statement of cash flows for the nine month periods ended August 1, 2008, and July 27, 2007, are unaudited but, in the opinion of management, all of the necessary adjustments, consisting of normal recurring accruals, have been made to present fairly the financial statements referred to above in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the above statements do not include all of the footnotes required for complete financial statements. The results of operations and cash flows for the interim periods presented are not necessarily indicative of results that can be expected for the full year.

2.	The notes to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended October 26, 2007, provide a summary of significant accounting policies and additional financial information that should be read in conjunction with this Form 10-Q.

The timing of the Company’s revenues is impacted by the purchasing patterns of customers and, as a result, revenues are not generated evenly throughout the year. Moreover, the Company’s first fiscal quarter, November through January, includes significant holiday periods in both Europe and North America. The nine month period ended August 1, 2008, contained 40 weeks, while the prior-year period contained 39 weeks.

Basic earnings per share is computed on the basis of the weighted average number of shares outstanding during the year. Diluted earnings per share 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 408,803 and 384,800 in the third fiscal quarters of 2008 and 2007, respectively. Common shares issuable from stock options that are excluded from the calculation of diluted earnings per share because they were anti-dilutive were 373,038 and 440,739 in the first nine months of 2008 and 2007, respectively. Shares used for calculating earnings per share are disclosed in the following table.

(In thousands)


	Three Months Ended		Nine Months Ended
	August 1, 2008	July 27, 2007	August 1, 2008	July 27, 2007

Shares Used for Basic Earnings
Per Share	29,575	25,691	29,466	25,604
Shares Used for Diluted Earnings
Per Share	29,994	26,139	29,894	26,022

5.	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 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.

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.

6.	The Company’s comprehensive income is as follows:

(In thousands)


	Three Months Ended					Nine Months Ended
	August 1, 2008			July 27, 2007		August 1, 2008			July 27, 2007

Net Earnings	$	20,482		$	38,835	$	76,651		$	71,396
Change in Fair Value of Derivative
Financial Instruments, Net of
Tax ⁽¹⁾		(337	)		16		(3,172	)		1,722
Foreign Currency Translation
Adjustment, Net of Tax ⁽¹⁾		(1,532	)		21,152		(26,801	)		60,992


Comprehensive Income	$	18,613		$	60,003	$	46,678		$	134,110

⁽¹⁾

Net of tax benefit of $89 and $530 for the third fiscal quarters of 2008 and 2007, respectively. Net of tax benefit of $910 and $1.6 million for the first nine months of fiscal 2008 and 2007, respectively.

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 value of the assets acquired and liabilities assumed at the date of acquisition. The purchase price includes the value of future development of existing technologies, the introduction of new technologies, and the addition of new customers. A significant portion of the valuation of CMC was based upon the successful development and manufacture of the cockpit integration system for the T-6B military trainer for the U.S. military and international markets. Additionally, the valuation assumes the continued funding of research and development by the Canadian government through assistance and research and development tax credits. The Company recorded goodwill of $209.7 million. The amount allocated to goodwill is not expected to be deductible for income tax purposes.

(In thousands)


As of March 14, 2007

Current assets	$	96,282
Property, plant and equipment		39,136
Intangible assets subject to amortization Programs (15 year weighted average useful life)		83,189
Trade names		22,370
Goodwill		209,723
Deferred income tax benefit		22,212

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

During the third fiscal quarter of 2008, the Company recorded a $5.0 million ($3.8 million, net of tax, or $0.13 per diluted share) estimate to complete adjustment for certain long-term contracts accounted for under SOP 81-1. 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 at CMC.

benefit. The second event was the enactment of a tax law reducing U.K. statutory corporate income tax from 30% to 28%, which resulted in a reduction of the U.K. subsidiaries’ deferred income tax liabilities of $1.4 million. The third event was a $0.6 million increase of previously estimated tax liabilities due to the reconciliation of prior years’ income tax returns to the provision for income tax. The effective tax rate differed from the statutory rate for the first nine months of fiscal 2008 and 2007, as both periods benefited from various tax credits and certain foreign interest expense deductions.

In June 2005, 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 acquired goodwill. As of the adoption date, the Company had gross unrecognized tax benefits of $31.0 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. Management estimates that $5.7 million of the $31.0 million would affect the effective income tax rate if recognized. During the first nine months of fiscal 2008, a reduction of $9.9 million of the unrecognized tax benefits was recorded. The $9.9 million decrease consisted of a $10.6 million reduction in unrecognized tax benefits as a result of the settlement of an examination of the U.S. federal income tax returns for fiscal years 2003 through 2005, offset by a $0.7 million increase to account for the current year additions. Of the $9.9 million decrease, $0.8 million affected the first nine months of fiscal 2008 income tax rate and $9.1 million was recorded as a reduction of goodwill. The total amount of unrecognized tax benefits may decrease $0.4 million based on the reasonably possible resolution of certain tax matters within the next 12 months.

The Company recognizes interest related to unrecognized tax benefits in income tax expense. As of October 27, 2007, the total amount of interest recognized within other liabilities in the consolidated balance sheet was $1.8 million. During the first nine months of fiscal 2008, as a result of settling the examination of U.S. federal income tax returns for fiscal years 2003 through 2005, there was a $1.3 million reduction of the interest related to the unrecognized tax benefits.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. 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				2003 and prior
Germany				2003 and prior
United Kingdom				2003 and prior

10.

As of August 1, 2008, the Company had two share-based compensation plans – an employee stock purchase plan and an equity incentive plan. The compensation cost that has been charged against income for those plans for the first nine months of fiscal 2008 and 2007 was $6.5 million and $5.1 million, respectively. During the first nine months of fiscal 2008 and 2007, the Company issued 252,506 and 295,504 shares, respectively, under its employee stock plans.

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.


	Nine Months Ended
	August 1, 2008		July 27, 2007

Risk-free interest rate (U.S. Treasury zero coupon issues)	3.32 – 5.15	%	5.15	%
Expected dividend yield	—		—
Expected volatility	21.4 – 34.8	%	21.4 – 39.9	%
Expected life (months)	6		6

Under the equity incentive plan, option exercise prices are equal to the fair market value of the Company’s common stock on the date of grant. The Company granted 376,300 options and 410,000 options in the nine month periods ended August 1, 2008, and July 27, 2007, respectively. The weighted-average grant date fair value of options granted during the nine month periods ended August 1, 2008, and July 27, 2007, was $25.44 per share and $21.55 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.


	Nine Months Ended
	August 1, 2008		July 27, 2007

Risk-free interest rate (U.S. Treasury zero coupon issues)	3.24 – 4.53	%	4.31 – 4.82	%
Expected dividend yield	—		—
Expected volatility	33.0 – 42.9	%	43.3 – 44.3	%
Expected life (years)	2.0 – 9.5		4.5 – 9.5

11.	The Company’s pension plans principally include a U.S. pension plan maintained by Esterline, non-U.S. plans maintained by CMC, and U.S. and non-U.S. plans maintained by Leach Holding Corporation. Components of periodic pension cost consisted of the following:

(In thousands)


	Three Months Ended						Nine Months Ended
	August 1, 2008			July 27, 2007			August 1, 2008			July 27, 2007

Components of Net Periodic Pension Cost
Service cost	$	1,801		$	1,669		$	5,355		$	3,944
Interest cost		4,334			3,890			12,995			9,826
Expected return on plan assets		(5,488	)		(5,217	)		(16,663	)		(13,066	)
Amortization of prior service cost		5			5			14			14
Amortization of actuarial loss		95			69			240			163

Net Periodic Cost	$	747		$	416		$	1,941		$	881

The Company’s principal post-retirement plans include non-U.S. plans maintained by CMC, which are non-contributory healthcare and life insurance plans. The components of expense of these other retirement benefits consisted of the following:

(In thousands)


	Three Months Ended				Nine Months Ended
	August 1, 2008		July 27, 2007		August 1, 2008		July 27, 2007

Components of Net Periodic Pension Cost
Service cost	$	90	$	87	$	280	$	127
Interest cost		151		142		468		208
Amortization of actuarial loss		3		—		10		—

Net Periodic Cost	$	244	$	229	$	758	$	335

12.	Segment information:

Business segment information for continuing operations includes the segments of Avionics & Controls, Sensors & Systems and Advanced Materials.

(In thousands)


	Three Months Ended				Nine Months Ended
	August 1, 2008		July 27, 2007		August 1, 2008		July 27, 2007

Sales
Avionics & Controls	$	147,925	$	123,410	$	438,008	$	310,379
Sensors & Systems		121,927		95,520		343,825		276,684
Advanced Materials		112,218		107,446		346,621		308,837

Total Sales	$	382,070	$	326,376	$	1,128,454	$	895,900

(In thousands)


	Three Months Ended						Nine Months Ended
	August 1, 2008			July 27, 2007			August 1, 2008			July 27, 2007
Income from Operations
Avionics & Controls	$	9,551		$	10,323		$	42,402		$	31,415
Sensors & Systems		14,877			10,595			40,993			26,762
Advanced Materials		17,986			48,524			53,562			80,520

Segment Earnings		42,414			69,442			136,957			138,697

Corporate expense		(8,591	)		(9,356	)		(27,056	)		(26,132	)
Other expense		—			(7	)		(86	)		(24	)
Interest income		1,125			821			3,512			2,110
Interest expense		(7,339	)		(10,790	)		(22,517	)		(25,042	)
Gain on derivative financial instrument		—			—			1,850			—

	$	27,609		$	50,110		$	92,660		$	89,609

13.	The Company repaid £32.5 million or $66.9 million of the £57.0 GBP million term loan during the first nine months of fiscal 2008 and terminated the interest rate swap on the U.K. pound-denominated note for a gain of $1.9 million.

14.

The following schedules set forth condensed consolidating financial information as required by Rule 3-10 of Securities and Exchange Commission Regulation S-X as of August 1, 2008, and October 26, 2007, and for the applicable periods ended August 1, 2008, and July 27, 2007, 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 the three and nine month periods ended July 27, 2007, and the balance sheet as of October 26, 2007, have been adjusted to reflect the inclusion of CMC DataComm Inc., CMC Electronics Acton Inc. and CMC Electronics Aurora Inc. as Guarantor Subsidiaries.

Condensed Consolidating Balance Sheet as of August 1, 2008

(In thousands)


	Parent		Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Total

Assets

Current Assets
Cash and cash equivalents	$	90,019	$	827		$	71,706	$	—		$	162,552
Accounts receivable, net		456		114,136			134,491		—			249,083
Inventories		—		130,449			168,012		—			298,461
Income tax refundable		—		—			6,495		—			6,495
Deferred income tax benefits		25,395		—			6,512		—			31,907
Prepaid expenses		25		4,172			11,577		—			15,774

Total Current Assets		115,895		249,584			398,793		—			764,272

Property, Plant & Equipment, Net		1,922		103,134			110,853		—			215,909
Goodwill		—		208,971			442,410		—			651,381
Intangibles, Net		—		68,784			270,362		—			339,146
Debt Issuance Costs, Net		7,957		—			—		—			7,957
Deferred Income Tax
Benefits		12,149		(1	)		33,893		—			46,041
Other Assets		1,662		15,797			8,256		—			25,715
Amounts Due (To) From
Subsidiaries		135,747		4,327			—		(140,074	)		—
Investment in Subsidiaries		1,373,599		215,682			22,650		(1,611,931	)		—

Total Assets	$	1,648,931	$	866,278		$	1,287,217	$	(1,752,005	)	$	2,050,421

(In thousands)


	Parent		Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Total

Liabilities and Shareholders’ Equity

Current Liabilities
Accounts payable	$	731	$	25,321		$	62,711	$	—		$	88,763
Accrued liabilities		12,525		69,894			99,164		—			181,583
Credit facilities		—		—			8,550		—			8,550
Current maturities of long-term debt		7,340		870			439		—			8,649
Federal and foreign income taxes		9,187		(6,519	)		11,505		—			14,173

Total Current Liabilities		29,783		89,566			182,369		—			301,718

Long-Term Debt, Net		387,877		592			1,752		—			390,221
Deferred Income Taxes		32,633		—			85,674		—			118,307
Other Liabilities		15,157		7,217			31,677		—			54,051
Amounts Due To (From) Subsidiaries		—		—			114,573		(114,573	)		—
Minority Interest		—		—			2,643		—			2,643
Shareholders’ Equity		1,183,481		768,903			868,529		(1,637,432	)		1,183,481

Total Liabilities and Shareholders’ Equity	$	1,648,931	$	866,278		$	1,287,217	$	(1,752,005	)	$	2,050,421

Condensed Consolidating Statement of Operations for the three month period ended August 1, 2008.

(In thousands)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total

Net Sales	$	—		$	206,802		$	180,962		$	(5,694	)	$	382,070
Cost of Sales		—			138,093			130,269			(5,694	)		262,668

		—			68,709			50,693			—			119,402
Expenses
Selling, general and administrative		—			29,845			33,338			—			63,183
Research, development and engineering		—			6,121			16,275			—			22,396

Total Expenses		—			35,966			49,613			—			85,579

Other
Insurance recovery		—			—			—			—			—
Other expense (income)		—			—			—			—			—

Total Other		—			—			—			—			—


Operating Earnings		—			32,743			1,080			—			33,823

Interest income		(5,478	)		(950	)		(9,710	)		15,013			(1,125	)
Interest expense		7,155			5,377			9,820			(15,013	)		7,339
Gain on derivative financial instrument		—			—			—			—			—

Other Expense, Net		1,677			4,427			110			—			6,214


Income (Loss) Before
Income Taxes		(1,677	)		28,316			970			—			27,609
Income Tax Expense (Benefit)		(401	)		7,335			157			—			7,091

Income (Loss) Before Minority Interest		(1,276	)		20,981			813			—			20,518
Minority Interest		—			—			(36	)		—			(36	)

Income (Loss)		(1,276	)		20,981			777			—			20,482

Equity in Net Income of Consolidated Subsidiaries		21,758			5,924			(704	)		(26,978	)		—

Net Income (Loss)	$	20,482		$	26,905		$	73		$	(26,978	)	$	20,482

Condensed Consolidating Statement of Operations for the nine month period ended August 1, 2008.

(In thousands)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total

Net Sales	$	—		$	622,597		$	524,376		$	(18,519	)	$	1,128,454
Cost of Sales		—			419,088			361,852			(18,519	)		762,421

		—			203,509			162,524			—			366,033
Expenses
Selling, general and administrative		—			89,485			95,319			—			184,804
Research, development and engineering		—			19,133			52,195			—			71,328

Total Expenses		—			108,618			147,514			—			256,132

Other
Insurance recovery		—			—			—			—			—
Other expense (income)		90			1			(5	)		—			86

Total Other		90			1			(5	)		—			86


Operating Earnings		(90	)		94,890			15,015			—			109,815

Interest income		(16,571	)		(2,860	)		(30,833	)		46,752			(3,512	)
Interest expense		21,675			16,478			31,116			(46,752	)		22,517
Gain on derivative financial instruments		(1,850	)		—			—			—			(1,850	)

Other Expense, Net		3,254			13,618			283			—			17,155


Income (Loss) Before
Income Taxes		(3,344	)		81,272			14,732			—			92,660
Income Tax Expense (Benefit)		(783	)		16,523			40			—			15,780

Income (Loss) Before Minority Interest		(2,561	)		64,749			14,692			—			76,880
Minority Interest		—			—			(229	)		—			(229	)

Income (Loss)		(2,561	)		64,749			14,463			—			76,651

Equity in Net Income of Consolidated Subsidiaries		79,212			15,969			(2,124	)		(93,057	)		—

Net Income (Loss)	$	76,651		$	80,718		$	12,339		$	(93,057	)	$	76,651

Condensed Consolidating Statement of Cash Flows for the nine month period ended August 1, 2008.

(In thousands)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total

Cash Flows Provided (Used) by Operating Activities
Net earnings (loss)	$	76,651		$	80,718		$	12,339		$	(93,057	)	$	76,651
Minority interest		—			—			(325	)		—			(325	)
Depreciation & amortization		—			21,036			28,307			—			49,343
Deferred income taxes		405			3			(19,917	)		—			(19,509	)
Share-based compensation		—			3,633			2,885			—			6,518
Working capital changes, net of effect of acquisitions
Accounts receivable		(273	)		11,400			993			—			12,120
Inventories		—			(11,356	)		(29,362	)		—			(40,718	)
Prepaid expenses		1			363			(2,760	)		—			(2,396	)
Accounts payable		(1,067	)		(1,979	)		1,035			—			(2,011	)
Accrued liabilities		(5,451	)		9,010			2,143			—			5,702
Federal & foreign income taxes		18,984			(1,931	)		(10,151	)		—			6,902
Other liabilities		(11,365	)		(1,517	)		10,074			—			(2,808	)
Other, net		523			(895	)		3,954			—			3,582

		78,408			108,485			(785	)		(93,057	)		93,051

Cash Flows Provided (Used) by Investing Activities
Purchases of capital assets		(358	)		(12,583	)		(18,065	)		—			(31,006	)
Proceeds from sale of capital assets		—			506			120			—			626
Acquisitions of businesses, net of cash acquired		—			—			12,033			—			12,033

		(358	)		(12,077	)		(5,912	)		—			(18,347	)

(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		7,266			—			—			—		7,266
Excess tax benefits from stock options exercised		1,932			—			—			—		1,932
Net change in credit facilities		—			—			(134	)		—		(134	)
Repayment of long-term debt		(66,899	)		(857	)		69			—		(67,687	)
Net change in intercompany financing		(19,602	)		(96,030	)		22,575			93,057		—

		(77,303	)		(96,887	)		22,510			93,057		(58,623	)

Effect of foreign exchange rates on cash		(3	)		(196	)		(399	)		—		(598	)


Net increase (decrease) in cash and cash equivalents		744			(675	)		15,414			—		15,483
Cash and cash equivalents – beginning of year		89,275			1,502			56,292			—		147,069

Cash and cash equivalents – end of year	$	90,019		$	827		$	71,706		$	—	$	162,552

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
Accounts receivable, net		183		125,536		136,368		—			262,087
Inventories		—		119,093		139,083		—			258,176
Income tax refundable		—		—		11,580		—			11,580
Deferred income tax benefits		29,884		2		7,944		—			37,830
Prepaid expenses		26		4,535		8,695		—			13,256

Total Current Assets		119,368		250,668		359,962		—			729,998

Property, Plant & Equipment, Net		1,951		105,510		109,960		—			217,421
Goodwill		—		207,612		449,253		—			656,865
Intangibles, Net		—		74,041		291,276		—			365,317
Debt Issuance Costs, Net		9,192		—		—		—			9,192
Deferred Income Tax Benefits		13,370		—		30,300		—			43,670
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	$	1,660,248	$	852,896	$	1,274,761	$	(1,737,599	)	$	2,050,306

In Thousands


	Parent		Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Total

Liabilities and Shareholders’ Equity

Current Liabilities
Accounts payable	$	1,798	$	27,300		$	61,159	$	—		$	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
Federal and foreign income taxes		4,564		(4,588	)		11,271		—			11,247

Total Current Liabilities		45,293		84,044			180,563		—			309,900

Long-Term Debt, Net		452,645		1,167			1,190		—			455,002
Deferred Income Taxes		33,567		—			90,191		—			123,758
Other Liabilities		6,917		8,734			21,201		—			36,852
Amounts Due To (From) Subsidiaries		—		67,603			91,158		(158,761	)		—
Minority Interest		—		—			2,968		—			2,968
Shareholders’ Equity		1,121,826		691,348			887,490		(1,578,838	)		1,121,826

Total Liabilities and Shareholders’ Equity	$	1,660,248	$	852,896		$	1,274,761	$	(1,737,599	)	$	2,050,306

Condensed Consolidating Statement of Operations for the three month period ended July 27, 2007.

(In thousands)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total

Net Sales	$	—		$	190,308		$	139,746		$	(3,678	)	$	326,376
Cost of Sales		—			128,165			102,247			(3,678	)		226,734

		—			62,143			37,499			—			99,642
Expenses
Selling, general and administrative		—			26,084			29,377			—			55,461
Research, development and engineering		—			6,795			10,157			—			16,952

Total Expenses		—			32,879			39,534			—			72,413
Other
Other (income) expense		—			(1	)		8			—			7
Insurance recovery		—			—			(32,857	)		—			(32,857	)

Total Other		—			(1	)		(32,849	)		—			(32,850	)


Operating Earnings		—			29,265			30,814			—			60,079

Interest income		(4,758	)		(1,110	)		(8,863	)		13,910			(821	)
Interest expense		10,568			8,259			5,873			(13,910	)		10,790

Other (Income) Expense, Net		5,810			7,149			(2,990	)		—			9,969


Income (Loss) Before Income Taxes		(5,810	)		22,116			33,804			—			50,110
Income Tax Expense (Benefit)		(1,377	)		6,763			5,831			—			11,217

Income (Loss) Before Minority Interest		(4,433	)		15,353			27,973			—			38,893
Minority Interest		—			—			(58	)		—			(58	)

Income (Loss)		(4,433	)		15,353			27,915			—			38,835

Equity in Net Income of Consolidated Subsidiaries		43,268			4,269			(668	)		(46,869	)		—

Net Income (Loss)	$	38,835		$	19,622		$	27,247		$	(46,869	)	$	38,835

Condensed Consolidating Statement of Operations for the nine month period ended July 27, 2007.

(In thousands)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total

Net Sales	$	—		$	534,861		$	372,139		$	(11,100	)	$	895,900
Cost of Sales		—			364,406			269,521			(11,100	)		622,827

		—			170,455			102,618			—			273,073
Expenses
Selling, general and administrative		—			75,483			72,754			—			148,237
Research, development and engineering		—			19,783			29,802			—			49,585

Total Expenses		—			95,266			102,556			—			197,822
Other
Other expense		—			—			24			—			24
Insurance recovery		—			—			(37,314	)		—			(37,314	)

Total Other		—			—			(37,290	)		—			(37,290	)


Operating Earnings		—			75,189			37,352			—			112,541

Interest income		(15,472	)		(3,789	)		(12,878	)		30,029			(2,110	)
Interest expense		24,376			16,069			14,626			(30,029	)		25,042

Other Expense, Net		8,904			12,280			1,748			—			22,932


Income (Loss) Before Income Taxes		(8,904	)		62,909			35,604			—			89,609
Income Tax Expense (Benefit)		(2,060	)		14,149			6,007			—			18,096

Income (Loss) Before Minority Interest		(6,844	)		48,760			29,597			—			71,513
Minority Interest		—			—			(117	)		—			(117	)

Income (Loss)		(6,844	)		48,760			29,480			—			71,396

Equity in Net Income of Consolidated Subsidiaries		78,240			6,480			(668	)		(84,052	)		—

Net Income (Loss)	$	71,396		$	55,240		$	28,812		$	(84,052	)	$	71,396

Condensed Consolidating Statement of Cash Flows for the nine month period ended July 27, 2007.

(In thousands)


	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Total

Cash Flows Provided (Used) by Operating Activities
Net earnings (loss)	$	71,396		$	55,240		$	28,812		$	(84,052	)	$	71,396
Minority interest		—			—			117			—			117
Depreciation & amortization		—			19,420			20,159			—			39,579
Deferred income taxes		(992	)		25			(6,740	)		—			(7,707	)
Share-based compensation		—			2,881			2,224			—			5,105
Working capital changes, net of effect of acquisitions
Accounts receivable		125			3,106			19,184			—			22,415
Inventories		—			(7,634	)		(6,005	)		—			(13,639	)
Prepaid expenses		60			322			(2,571	)		—			(2,189	)
Accounts payable		4,372			(1,345	)		709			—			3,736
Accrued liabilities		4,693			(9,538	)		(3,929	)		—			(8,774	)
Federal & foreign income taxes		(10,874	)		12,499			5,213			—			6,838
Other liabilities		(659	)		205			(1,182	)		—			(1,636	)
Other, net		61			(1,426	)		(2,823	)		—			(4,188	)

		68,182			73,755			53,168			(84,052	)		111,053

Cash Flows Provided (Used) by Investing Activities
Purchases of capital assets		(118	)		(12,031	)		(12,201	)		—			(24,350	)
Proceeds from sale of capital assets		—			757			2,335			—			3,092
Acquisitions of businesses, net		—			(2,073	)		(342,240	)		—			(344,313	)

		(118	)		(13,347	)		(352,106	)		—			(365,571	)

(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		7,557			—			—			—		7,557
Excess tax benefits from stock option exercises		1,567			—			—			—		1,567
Debt and other issuance costs		(6,409	)		—			—			—		(6,409	)
Dividends paid to minority interest		—			—			(763	)		—		(763	)
Net change in credit facilities		20,000			—			322			—		20,322
Proceeds from issuance of long-term debt		275,000			—			—			—		275,000
Repayment of long-term debt		(2,832	)		(792	)		(131	)		—		(3,755	)
Net change in intercompany financing		(365,290	)		(60,122	)		341,360			84,052		—

		(70,407	)		(60,914	)		340,788			84,052		293,519

Effect of foreign exchange rates on cash		(3	)		51			1,995			—		2,043


Net increase (decrease) in cash and cash equivalents		(2,346	)		(455	)		43,845			—		41,044
Cash and cash equivalents –
beginning of period		14,343			2,672			25,623			—		42,638

Cash and cash equivalents –
end of period	$	11,997		$	2,217		$	69,468		$	—	$	83,682

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of 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, control and data communication devices, micro-motors, motion control sensors, 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. Sales in all segments include domestic, 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 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.

Net earnings for the nine month period ended August 1, 2008, were $76.7 million or $2.56 per diluted share, compared with $71.4 million, or $2.74 per diluted share in the prior-year period. Two factors impacted comparability. First, net earnings in the nine month period ended July 27, 2007, included $26.1 million, after tax, or $1.00 per diluted share, in insurance recoveries. Second, earnings per diluted share for the nine month period ended August 1, 2008, reflected an increase in common shares outstanding as a result of our common stock offering in October 2007. The increase in net earnings principally reflected strong results at our Avionics & Controls and Sensors & Systems segments. Avionics & Controls earnings were impacted by a $3.8 million, after tax, or $0.13 per diluted share, estimate to complete adjustment on CMC’s long-term contracts. Advanced Materials segment earnings declined compared to the prior-year period due to the insurance recoveries referred to above recorded in the nine month period ended July 27, 2007. Net earnings for the nine month period ended August 1, 2008, included $5.9 million in discrete tax benefits compared to $2.6 million in the prior-year period. The nine month period ended August 1, 2008, contained 40 weeks, while the prior-year period contained 39 weeks.

Results of Operations

Three Month Period Ended August 1, 2008, Compared with Three Month Period Ended July 27, 2007

Sales for the third fiscal quarter increased 17.1% compared with the prior-year period. Sales by segment were as follows:

(In thousands)


	Incr./(Decr.) from prior year period	Three Months Ended
	Incr./(Decr.) from prior year period	August 1, 2008		July 27, 2007

Avionics & Controls	19.9%	$	147,925	$	123,410
Sensors & Systems	27.6%		121,927		95,520
Advanced Materials	4.4%		112,218		107,446

Total Net Sales		$	382,070	$	326,376

The 19.9% increase in sales of Avionics & Controls was principally due to increased sales volumes of cockpit controls for commercial aviation and medical equipment devices from new OEM programs. Sales in the third fiscal quarter of 2008 also reflected a stronger Canadian dollar relative to the U.S. dollar, as the average exchange rate from the Canadian dollar to the U.S. dollar increased from 0.93 in the third fiscal quarter of 2007 to 0.99 in the third fiscal quarter of 2008.

The 27.6% increase in sales of Sensors & Systems mainly reflected increased sales of power distribution devices for the after-market and new OEM programs, and strong after-market sales of temperature and pressure sensors, as well as the effect of exchange rates. Sales in the third fiscal quarter of 2008 reflected a stronger euro relative to the U.S. dollar, as the average exchange rate from the euro to the U.S. dollar increased from 1.35 in the third fiscal quarter of 2007 to 1.56 in the third fiscal quarter of 2008.

The 4.4% increase in sales of Advanced Materials principally reflected higher sales at our thermally engineered components and elastomer operations, reflecting increased demand from commercial aviation customers. Additionally, combustible ordnance sales were strong in the third fiscal quarter of 2008. These increases were partially offset by lower sales of flare countermeasure devices at our U.S. and U.K. operations.

Overall, gross margin as a percentage of sales was 31.3%, compared to 30.5% in the same period a year ago.

Avionics & Controls segment gross margin was 29.3% and 30.8% for the third fiscal quarter of 2008 and 2007, respectively. The decrease reflected a $5.0 million estimate to complete adjustment for long-term contracts at CMC. 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. The decrease in gross margin also reflects an increase in excess and obsolete inventory reserves for cockpit control devices. These decreases were partially offset by pricing strength on certain cockpit control devices. Gross margin in the third fiscal quarter of 2007 was impacted by the shipment of acquired inventory of CMC, which was valued at fair market value at the date of acquisition.

Sensors & Systems segment gross margin was 34.7% and 34.9% for the third fiscal quarter of 2008 and 2007, respectively. The decrease in gross margin principally reflected a weaker U.S. dollar compared to the euro on U.S. dollar-denominated sales and euro-denominated cost of sales. This decrease was partially offset by strong aftermarket sales.

Advanced Materials segment gross margin was 30.1% compared to 26.4% for the same period one year ago. The increase in Advanced Materials gross margin reflected strong after-market sales and improved recovery of fixed costs as a result of higher sales volumes at our thermally engineered component operations in the U.K. and our elastomer operations. Strong gross margins at our combustible ordnance operations were partially offset by lower gross margins at our U.S. flare countermeasure operations. The third fiscal quarter of 2007 gross margin reflected the sale of flares at a premium price due to a supplemental award.

Selling, general and administrative expenses (which include corporate expenses) totaled $63.2 million and $55.5 million for the third fiscal quarter of 2008 and 2007, respectively, or 16.5% of sales for the third fiscal quarter of 2008 compared with 17.0% for the third fiscal quarter of 2007.

Research, development and engineering spending was $22.4 million, or 5.9% of sales, for the third fiscal quarter of 2008 compared with $17.0 million, or 5.2% of sales, for the third fiscal quarter of 2007. The increase in research, development and engineering principally reflected the development of the integrated cockpit system for the T-6B military trainer. Fiscal 2008 research, development and engineering spending is expected to be about 6.0% of sales.

Segment earnings (operating earnings excluding corporate expenses and other income or expense) for the third fiscal quarter of 2008 totaled $42.4 million compared with $69.4 million for the third fiscal quarter in 2007.

Avionics & Controls segment earnings were $9.6 million in the third fiscal quarter of 2008 and $10.3 million in the third fiscal quarter of 2007. The decrease reflects the $5.0 million estimated cost to complete adjustment for long-term contracts at CMC, higher research and development expense related to the development of the T-6B military trainer and the effect of a weaker U.S. dollar compared with the Canadian dollar on U.S. dollar-denominated sales and Canadian dollar-denominated cost of sales. Since the acquisition of CMC, the U.S. dollar relative to the Canadian dollar has declined 12.6%. Approximately 80% of CMC’s sales were denominated in U.S. dollars. Recognizing this currency environment and the impact on CMC’s financial performance since acquisition, management is focused on a broad array of initiatives designed to improve CMC’s results of operations.

Sensors & Systems segment earnings were $14.9 million for the third fiscal quarter of 2008 compared with $10.6 million for the third fiscal quarter of 2007. The increase in Sensors & Systems earnings reflects strong results across all operations from increased sales from new OEM programs, as well as strong after-market sales.

Advanced Materials segment earnings were $18.0 million for the third fiscal quarter of 2008 compared with $48.5 million for the third fiscal quarter of 2007. The decrease in earnings compared to the prior-year period is due to $32.9 million in business interruption insurance recoveries recorded in the third fiscal quarter of 2007. These insurance recoveries related to an explosion which occurred at our Wallop advanced flare facility on June 26, 2006. The advanced flare facility has been closed due to the requirements of the Health 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, possibly in 2008. 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 & Safety Act related to the accident and, accordingly, no amounts have been recorded for any potential fines that may be assessed by the HSE. We expect construction of the new flare facility to be completed and in full production, following customary start-up and commissioning activities, late in fiscal 2009. Segment earnings were also impacted by lower earnings from our U.S. countermeasure operations. The decrease in earnings described above was partially offset by strong earnings from our thermally engineered components, elastomers, and combustible ordnance operations.

Interest expense for the third fiscal quarter of 2008 was $7.3 million compared with $10.8 million for the third fiscal quarter of 2007, reflecting reduced borrowings.

The effective income tax rate for the third fiscal quarter of 2008 was 24.6% (before a $0.3 million discrete tax expense) compared with 24.0% (before a $0.8 million tax benefit) for the prior-year period. The $0.3 million tax expense in the third fiscal quarter of 2008 was the result of reconciliation of the prior year’s income tax returns to the provision for income tax. The $0.8 million tax benefit in the third fiscal quarter of 2007 was the result of a $1.4 million reduction in the U.K. subsidiaries’ deferred income tax due to a rate decrease from 30% to 28%, partially offset by a $0.6 million increase in previously estimated tax liabilities resulting from a reconciliation of prior year’s income tax returns to the provision for income tax. The effective tax rate differed from the statutory rate in the third fiscal quarters of 2008 and 2007, as both years benefited from various tax credits and certain foreign interest expense deductions.

New orders for the third fiscal quarter of 2008 were $380.4 million compared with $349.8 million for the same period in 2007.

Nine Month Period Ended August 1, 2008, Compared to Nine Month Period Ended July 27, 2007

Year-to-date sales increased 26.0% compared with the prior-year period. Sales by segment were as follows:

(In thousands)


	Incr./(Decr.) from prior year period	Nine Months Ended
	Incr./(Decr.) from prior year period	August 1, 2008		July 27, 2007

Avionics & Controls	41.1%	$	438,008	$	310,379
Sensors & Systems	24.3%		343,825		276,684
Advanced Materials	12.2%		346,621		308,837

Total Net Sales		$	1,128,454	$	895,900

The 41.1% increase in Avionics & Controls was principally due to incremental sales from the CMC acquisition and increased sales volumes of cockpit controls and medical equipment devices from new OEM programs.

The 24.3% increase in sales of Sensors & Systems reflected higher after-market sales at our temperature and pressure operations and strong after-market sales of power control devices and new OEM programs, as well as the effect of exchange rates. Sales in the first nine months of fiscal 2008 reflected a stronger euro relative to the U.S. dollar, as the average exchange rate from the euro to the U.S. dollar increased from 1.33 in the first nine months of fiscal 2007 to 1.52 in the first nine months of fiscal 2008.

The 12.2% increase in sales of Advanced Materials principally reflected higher sales of thermally engineered components and combustible ordnance. Additionally, sales at our elastomer operations increased over the prior-year period, reflecting increased demand from commercial aviation customers. These increases were partially offset by lower sales at our countermeasure operations.

Overall, gross margin as a percentage of sales was 32.4% and 30.5% for the first nine months of fiscal 2008 and 2007, respectively.

Avionics & Controls segment gross margin was 33.5% and 31.3% for the first nine months of fiscal 2008 and 2007, respectively. The increase reflected strong after-market sales and pricing strength on certain cockpit control devices as well as the prior-year period shipments of acquired inventory at CMC, which was valued at fair market value at the date of acquisition. These increases were partially offset by a $5.0 million estimate to complete adjustment for long-term contracts at CMC. 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. Additionally, gross margin was impacted by an increase in excess and obsolete inventory for cockpit control devices.

Sensors & Systems segment gross margin was 35.3% and 34.1% for the first nine months of fiscal 2008 and 2007, respectively. The increase in gross margin was due to improved recovery of fixed

costs as a result of higher sales volumes and strong after-market sales at our temperature and pressure operations. In addition, pricing strength and robust after-market sales strengthened gross margins at our power distribution devices operations. Gross margins were also impacted by the effect of a weaker U.S. dollar compared with the euro on U.S. dollar-denominated sales and euro-denominated cost of sales.

Advanced Materials segment gross margin was 28.2% and 26.4% for the first nine months of fiscal 2008 and 2007, respectively. The increase in Advanced Materials gross margin reflected strong after-market sales and an improved recovery of fixed costs as a result of higher sales volumes at our thermally engineered component operations in the U.K. Strong gross margins at our combustible ordnance operations were partially offset by lower gross margins at our U.S. flare countermeasure operations. Additionally, gross margin at our U.S. flare countermeasure operations in the first nine months of fiscal 2007 reflected the sale of flares at a premium price due to a supplemental award.

Selling, general and administrative expenses (which include corporate expenses) totaled $184.8 million and $148.2 million for the first nine months of fiscal 2008 and 2007, respectively, or 16.4% of sales for the first nine months of fiscal 2008 and 16.5% for the prior-year period. The increase in the amount of selling, general and administrative expenses reflected incremental selling, general and administrative expenses from the CMC acquisition, increased pension expense, commissions and royalty expense, as well as the effect of the stronger euro and Canadian dollar relative to the U.S. dollar. The increase in corporate expense principally reflected increased professional fees and incentive compensation expense.

Research, development and engineering expenses were $71.3 million, or 6.3% of sales for the first nine months of fiscal 2008 compared with $49.6 million, or 5.5% of sales, for the first nine months of fiscal 2007. The increase in research, development and engineering principally reflected incremental spending from the CMC acquisition, which includes the development of the integrated cockpit system for the T-6B military trainer. Fiscal 2008 research, development and engineering spending is expected to be about 6.0% of sales.

Segment earnings (operating earnings excluding corporate expenses and other income or expense) for the first nine months of fiscal 2008 totaled $137.0 million, compared with $138.7 million for the prior-year period.

Avionics & Controls segment earnings were $42.4 million for the first nine months of fiscal 2008 compared with $31.4 million in the prior-year period, principally reflecting strong earnings from our cockpit control operations. Additionally, earnings in the prior-year period were impacted by a contract overrun at a small unit which manufactures precision gears and data concentrators. In the first nine months of fiscal 2008, Avionics & Controls segment earnings were impacted by a $5.0 million estimate to complete adjustment on long-term contracts at CMC, higher research and development expenses related to the development of the T-6B military trainer and the effect of a weaker U.S. dollar compared with the Canadian dollar on U.S. dollar-denominated sales and Canadian dollar-denominated cost of sales. Since the acquisition of CMC, the U.S. dollar relative to the

Canadian dollar has declined 12.6%. Approximately 80% of CMC’s sales are denominated in U.S. dollars. Recognizing the currency environment and the impact on CMC’s financial performance since acquisition, management is focused on a broad array of initiatives designed to improve CMC’s results of operations.

Sensors & Systems segment earnings were $41.0 million for the first nine months of fiscal 2008 compared with $26.8 million in the prior-year period. The increase in Sensors & Systems earnings reflected strong results across all operations from increased sales from new OEM programs, as well as strong after-market sales.

Advanced Materials segment earnings were $53.6 million for the first nine months of fiscal 2008 compared with $80.5 million for the prior-year period. The decrease in earnings from the prior-year period is principally due to $37.3 million in business interruption insurance recoveries recorded in the first nine month period of fiscal 2007 and lower earnings at our U.S. countermeasure operations. These decreases were partially offset by strong earnings from our thermally engineered components, elastomer, and combustible ordnance operations.

Interest expense for the first nine months of fiscal 2008 was $22.5 million compared with $25.0 million for the prior-year period, principally reflecting reduced borrowings.

The effective income tax rate for the first nine months of fiscal 2008 was 23.4% (before $5.9 million of tax benefits) compared with 23.1% (before $2.6 million of tax benefits) for the first nine months of fiscal 2007. The $5.9 million of tax benefits were the result of four events. The first event was the settlement of an examination of the U.S. federal 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 event was the enactment of tax laws reducing the Canadian statutory tax rate, which resulted in a $4.1 million net reduction of deferred income tax liabilities. The third event was the recognition of $0.7 million of additional income tax liabilities at CMC. The fourth event was a $0.3 million increase of previously estimated tax liabilities due to a reconciliation of prior years’ income tax returns to the provision for income tax. The $2.6 million of tax benefits in the first nine months of 2007 was the result of three events. The first event was the retroactive extension of the U.S. Research and Experimentation tax credit that was signed into law on December 21, 2006, which resulted in a $1.8 million tax benefit. The second event was the enactment of a tax law reducing U.K. statutory corporate income tax from 30% to 28%, which resulted in a reduction of the U.K. subsidiaries’ deferred income tax liabilities of $1.4 million. The third event was a $0.6 million increase of previously estimated tax liabilities due to the reconciliation of prior years’ income tax returns to the provision for income tax. The effective tax rate differed from the statutory rate for the first nine months of fiscal 2008 and 2007 as both periods benefited from various tax credits and certain foreign interest expense deductions.

New orders for the first nine months of fiscal 2008 and 2007 were both $1.2 billion. Backlog was $1.1 billion compared with $977.9 million at the end of the prior-year period and $985.1 million at the end of fiscal 2007.

Liquidity and Capital Resources

Cash and cash equivalents at August 1, 2008, totaled $162.6 million, an increase of $15.5 million from October 26, 2007. Net working capital increased to $462.6 million at August 1, 2008, from $420.1 million at October 26, 2007. Sources and uses of cash flows from operating activities principally consist of cash received from the sale of products and cash payments for material, labor and operating expenses. Cash flows provided by operating activities were $93.1 million and $111.1 million in the first nine months of fiscal 2008 and 2007, respectively. The decrease principally reflected cash received from our insurance carrier in the prior-year period and increased payments for inventories, income taxes, and incentive compensation which are paid annually, partially offset by higher net earnings.

Cash flows used by investing activities were $18.3 million and $365.6 million in the first nine months of fiscal 2008 and 2007, respectively. The decrease principally reflected the acquisition of CMC in the prior-year period.

Cash flows used by financing activities were $58.6 million in the first nine months of fiscal 2008, principally reflecting a $66.9 million or £32.5 million principal payment on our GBP term loan. Cash flows provided by financing activities were $293.5 million in the first nine months of fiscal 2007, principally reflecting the issuance of $275.0 million in long-term debt to finance the CMC acquisition.

Capital expenditures, consisting of machinery, equipment and computers, are anticipated to be approximately $42.5 million during fiscal 2008, compared with $30.5 million expended in fiscal 2007. Capital expenditures for the first nine months of fiscal 2008 totaled $31.0 million, primarily for machinery and equipment and enhancements to information systems.

Total debt at August 1, 2008, including the fair value of the interest rate swap, was $407.4 million and consisted of $175.0 million of Senior Notes due in 2017, $176.2 million of Senior Subordinated Notes due in 2013, $44.0 million under our GBP term loan, and $12.2 million of various foreign currency debt agreements and other debt agreements, including capital lease obligations.

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, the Company amended its 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, the Company 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; the Company subsequently repaid the $60.0 million. 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.

During the first nine months of fiscal 2008, CMC executed forward contracts to hedge its U.S. dollar- denominated sales. The notional amount of open-forward contracts to sell U.S. dollars for Canadian dollars at August 1, 2008, was $83.9 million at an average rate of 1.007. The fair value of these open hedges at August 1, 2008, was $1.8 million.

We believe cash on hand and funds generated from operations are adequate to service operating cash requirements and capital expenditures through July 2009. In addition, we believe that we have adequate access to capital markets to fund future acquisitions.

Forward-Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should” or “will” or the negative of such terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risk factors set forth in “Forward-Looking Statements” and “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 26, 2007, that may cause our or the industry’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You should not place undue reliance on these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance or achievements. 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 4. 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 August 1, 2008. Based upon that evaluation, they concluded as of August 1, 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 August 1, 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 to our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

During the time period covered by this report, there were no significant changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 6. Exhibits


		10.2		Exhibit C to the Lease Agreement, dated March 26, 2008, between Capstone PF LLC and Korry Electronics Co. (such Lease Agreement previously filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated June 6, 2008 [Commission File Number 1-6357]).

		10.3		First Amendment to Building Lease and Sublease, dated June 25, 2008, between Capstone PF LLC and Korry Electronics Co.

		10.4		Second Amendment to Building Lease and Sublease, dated July 30, 2008, between Capstone PF LLC and Korry Electronics Co.

		10.5		Subordination, Nondisturbance and Attornment Agreement and Estoppel Certificate, dated July 30, 2008, between Keybank National Association and Korry Electronics Co.

		11		Schedule setting forth computation of basic and diluted earnings per common share for the three and nine month periods ended August 1, 2008, and July 27, 2007.

		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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	ESTERLINE TECHNOLOGIES CORPORATION
	(Registrant)

Dated: September 5, 2008	By:	/s/ Robert D. George
		Robert D. George
		Vice President, Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer)

EXHIBIT 10.2

Exhibit C

GROUND LEASE

Return Address:

Snohomish County Property Management

3000 Rockefeller, M/S 404

Everett, WA 98201

Document Title(s) or transactions contained therein):

Land Lease (Construction by Lessee)

Lessor(s) (Last name first, then first name and initials)

Snohomish County

Lessee(s) (Last name first, then first name and initials)

Capstone PF LLC

Legal description (abbreviated: i.e. lot, block, plat or section, township, range, qtr./qtr.)

A portion of the NE ¹ / 4 of Section 27, Township 28 North, Range 4 East, W.M. and a portion of the SE ¹ / 4 of Section 22, township 28 North, Range 4 East, W.M.

¨	Additional legal is on Exhibit A of document

Reference Number(s) of Documents assigned or released:

Assessor’s Property Tax Parcel/Account Number

Portions of 28042200400300 and 28042700100100

The Auditor/Recorder will rely on the information provided on the form. The staff will not read the document to verify the accuracy or completeness of the indexing information.

SNOHOMISH COUNTY AIRPORT

LAND LEASE (CONSTRUCTION BY LESSEE)

TABLE OF CONTENTS


		PAGE
COVER PAGE		1
TABLE OF CONTENTS		2

ARTICLE I PREMISES
Section 1.01 -	Description of Leased Land	4
Section 1.02 -	Use of Premises	4
Section 1.03 -	Inspection	5
Section 1.04 -	Construction by Lessee	6
Section 1.05 -	Action Request Forms	8
Section 1.06 -	Tenant Improvement Form	8

ARTICLE II TERM
Section 2.01 -	Term	9
Section 2.02 -	Extended Term Option	9
Section 2.03 -	Right of First Refusal	11
Section 2.04 -	County Exercise of Right of First Refusal	11
Section 2.05 -	Relationship Between Parties	11

ARTICLE III RENT
Section 3.01 -	Rent	11
Section 3.02 -	Time and Place of Payment	11
Section 3.03 -	Increased Rent	11
Section 3.04 -	Late Payment of Rent	13
Section 3.05 -	Security Deposit	13
Section 3.06 -	Adjustments of Leased Space Rent	14
Section 3.07 -	Common Area Maintenance Fee	14
Section 3.08 -	Traffic Mitigation Reimbursement	14
Section 3.09 -	Surface Water Management Fees	14

ARTICLE IV LESSEE’S OBLIGATIONS
Section 4.01 -	Condition of Premises	15
Section 4.02 -	Maintenance and Repairs	15
Section 4.03 -	Surrender of Leasehold Improvements	15
Section 4.04 -	Utilities and Other Charges	16
Section 4.05 -	Liens	16
Section 4.06 -	Personal Property	16
Section 4.07 -	Equipment	16
Section 4.08 -	Prevailing Wages	17
Section 4.09 -	Waste Water	17
Section 4.10 -	Sewage System	17
Section 4.11 -	Assigning and Subleasing	17
Section 4.12 -	Hazardous Substances	18

ARTICLE V INDEMNITY AND INSURANCE
Section 5.01 -	Hold Harmless	20
Section 5.02 -	Liability Insurance	20
Section 5.03 -	All Risk Insurance	21
Section 5.04 -	Mutual Waiver of Subrogation	21
Section 5.05 -	Destruction and Restoration	22
Section 5.06 -	Increased Limits	22


ARTICLE VI DEFAULT
Section 6.01 -	Lessee’s Default	22
Section 6.02 -	Remedies	23
Section 6.03 -	Abandonment/Removal of Property	23

ARTICLE VII TERMINATION
Section 7.01 -	Termination for Lessee’s Default	23
Section 7.02 -	Termination for Airport Use	24

ARTICLE VIII FEDERAL, STATE AND COUNTY REQUIREMENTS
Section 8.01 -	Federal Requirements	24
Section 8.02 -	Subordination to Airport Operations	25
Section 8.03 -	Condemnation	25
Section 8.04 -	Laws and Regulations	25
Section 8.05 -	Aviation Easement	26
Section 8.06 -	Easement Rights Reserved	26
Section 8.07 -	Security	26
Section 8.08 -	Noise Abatement	27
Section 8.09 -	Aircraft and Ground Service Vehicle Identification	27
Section 8.10 -	Wildlife Hazards and Deterrents	27
Section 8.11 -	Foreign Object Damage	27

ARTICLE IX GENERAL PROVISIONS
Section 9.01 -	Total Agreement, Applicability to Successors	27
Section 9.02 -	Nonwaiver	27
Section 9.03 -	Attorney Fees	27
Section 9.04 -	Time of Essence	28
Section 9.05 -	County Indemnification	28
Section 9.06 -	Warranties / Guarantees	28
Section 9.07 -	Headings	28
Section 9.08 -	Consent of County	28
Section 9.09 -	Notices	28
Section 9.10 -	Governing Law & Severability	28
Section 9.11 -	Exterior Signage	29
Section 9.12 -	Quiet Enjoyment	29
Section 9.13 -	Estoppel Certificates	29
Section 9.14 -	Encumbrances and Nondisturbance	29
Section 9.15 -	Force Majeure	29
Section 9.16 -	Leasehold Financing	30


EXHIBIT ATTACHED
Exhibit A		Legal Description
Exhibit B		General Description of Improvements and Preliminary Site Plan
Exhibit C		Additional Improvements
Exhibit D		Rate Schedule

LAND LEASE (CONSTRUCTION BY LESSEE)

SNOHOMISH COUNTY AIRPORT


Lessee:		CAPSTONE PF LLC
Lease No.:		08-005
Effective Date:		6-18-2008

THIS LEASE between SNOHOMISH COUNTY herein called County (or Lessor) and CAPSTONE PF LLC, a Washington limited liability company herein called Lessee.

WITNESSETH: That County and Lessee desire to enter into a lease for the following land on the Snohomish County Airport, Snohomish County, Washington:

Approximately thirteen point fifty-five (13.55) acres of land located at Beverly Park Road and Commando Road being a portion of NE ¹ / 4 of Section 27, Township 28 North, Range 4 East, W.M. and a portion of the SE ¹ / 4 of Section 22, Township 28 North, Range 4 East, W.M.

upon the following terms and conditions;

ARTICLE I – PREMISES

1.01 Description of Premises . The County hereby leases to Lessee and Lessee hereby leases from County the following described land situated in Snohomish County, State of Washington, Snohomish County Airport and legally described in Exhibit A and as shown on the diagram attached hereto as Exhibit A-1 hereinafter called the “premises.”

1.02 Use of the Premises . Lessee shall:

Use the premises only for the following uses: office, manufacturing and distribution and other incidental uses permitted under applicable law and for no other purpose without the written consent of the County. No delay or failure of the County to object to any improper or illegal use or other use contrary to terms of this lease shall constitute a waiver of the County’s right to claim a breach for such use.

Place no sign or mailbox upon the premises or any other Airport property or alter, remodel, or in any way modify or change the present condition or appearance of the premises without the express written permission of the Airport Director. Signs shall comply with all codes and ordinances as adopted by the County. Lessee shall obtain Airport Director approval for any exterior painting, including the choice of color.

Screen outside storage from adjoining properties and right of ways. Lessee agrees that parking, outside storage and other uses incidental to its operation shall be upon the lease premises only with the written consent of the Airport Director. Lessee shall not use or permit employees, patrons invitees, or guests to use parking space or other areas of the Airport outside of the premises, as it now exists or may hereafter be amended, in a manner contrary to the posted rules and regulations of the Airport.

Keep, maintain, and surrender the premises in a neat, clean, and safe condition and in as good condition as the same now is, reasonable wear and tear excepted. At the end of the term or earlier termination or retaking of possession, the County shall, within ten (10) days, give the Lessee a written list of Lessee’s failure, if any, to clean up or repair the premises. If the Lessee has not done so thirty (30) days after delivery of the written list, the County may clean up or repair the defects noted in the list, with its own personnel or independent subcontractors, charging the cost of the same to the Lessee. Any cost charged, including lost rent, shall be immediately due and payable by the Lessee.

Keep the visible area of the premises and access, loading and parking areas free of debris and in a neat, safe, and attractive condition. Lessee shall not use such areas for storage or for other than loading and parking activities and shall not obstruct the access, parking, or loading areas of other tenants or users of the Airport. Lessee shall not store any boat, recreational vehicle, trailer, car or other vehicle on the premises.

Not create any fire, safety, or health hazard on any Airport property, shall not use or permit any use of the premises so as to produce noxious or dangerous fumes, odors, smoke, or waste, unlawful noise, and shall not make or permit any other use of the premises which constitute a nuisance, waste or an unlawful use, interferes with the use and occupancy of other Airport property, or cause cancellation of any insurance policy on the premises.

1.03 Inspection. County reserves the right, with not less than two (2) business days prior written notice (except in an emergency when no notice shall be required), to inspect the premises and improvements thereon at any and all reasonable times throughout the term of this lease provided that it shall not interfere unduly with the Lessee’s operation or the operation of any sublessee of the premises. The right of inspection reserved to the County hereunder shall impose no obligation on the County to make inspections to ascertain the condition of the premises and shall impose no liability upon the County for failure to make such inspections. Lessee shall allow access for an annual certificate of occupancy fire and safety inspection by the County Fire Marshall. Lessee shall pay the cost of the annual certificate of occupancy fire and safety

inspection and any re-inspection in the event of a violation requiring correction. Lessee shall allow access for other fire and safety inspections by the County, provided that such inspections shall be without charge to the Lessee. Lessee shall allow the County to install a Knox box on the premises, in a location acceptable to Lessee, if deemed necessary by the County, at a reasonable cost to be reimbursed by the Lessee. In the event Lessee desires to install an alarm system, Lessee shall provide a supervised alarm system with local monitoring by a U. L. approved station reasonably acceptable to the Airport Director. Lessee shall leave the Knox box, alarm system and wiring in place upon termination of the lease, unless requested otherwise in writing by the County.

1.04 Construction by Lessee.

Lessee, solely at its cost, may construct or cause to be constructed upon the leased land certain buildings and improvements generally described in Exhibit B attached (the “Improvements” ). It is understood that the plans, specifications, details, and location of construction within the premises shall be subject to the approval of the Airport Director prior to the construction. A duly licensed architect will prepare necessary construction plans and specifications for any building and other improvements at the expense of the Lessee. The Airport Director will not unreasonably withhold or delay approval of such plans, specifications, detail and location in furtherance of the general plans and specifications attached hereto. A reproducible and CAD disc copy of all as-built building and utility plans shall be furnished the Airport upon completion of construction.

Lessee shall cause Lessee’s construction work, if any, to be performed by licensed contractors, approved by County, and the contractors shall provide, if required by County, a performance and payment bond covering all Lessee’s work.

Enumeration of obligations in this section shall not exclude the Lessee, during construction, from obligations which are stated elsewhere herein. Obligations stated in this section shall be imposed upon other activities of the Lessee, to the extent applicable.

Time of Construction as provided in this section shall commence at the Lessee’s option but no later than July 31, 2009. This period may be extended by the Airport Director for any delays caused to the Lessee by any strike, unavailability of materials or work forces, weather, or similar conditions that are beyond the reasonable control of the Lessee, including any delays in the issuance of any required permits and approvals to the extent such delays are not a result of the acts or omissions of Lessee, and any delays resulting from Lessor’s failure to perform its work pursuant to Section 1.07 of this lease.

Lessee shall be fully responsible for all construction and all activities incidental thereto. Lessee is not an agent or employee of the County but undertakes any activity hereunder solely in its own behalf. All risks of loss to any improvements now or hereafter constructed by Lessee shall rest on the Lessee.

All work and material shall be of good quality, free of defects, and accomplished in a workmanlike manner in conformity with approved plans and specification.

Lessee agrees that the height and configuration of the Improvements shall be subject to any restriction caused by existing landing, runway, or taxiway requirements of the Airport as indicated in the Master Plan and other public planning documents available to Lessee at the time of execution of the lease. Work and/or material not in accord with the foregoing shall be corrected, removed, replaced, and/or repaired at the Lessee’s expense upon written notice by the Airport Director. If such work and/or material is not so corrected, removed, replaced, and/or repaired by the Lessee within a reasonable time of such notice (but not less than thirty (30) days), the County may correct, remove, replace, and/or repair such work and/or material at the Lessee’s expense.

Water system shall be installed and maintained by Lessee according to the requirements of the Mukilteo Water District, subject to the approval of the Airport Director.

Lessee shall not install any facility or equipment requiring sewage disposal without written permission from the Airport Director. If such permission is given Lessee shall comply with applicable rules and regulations of the Airport and Mukilteo Water District or other applicable sewer district as pertains to sewage disposal. Such system shall not be used for storm drainage or the discharge of any effluent deemed by the Airport Director or Mukilteo Water District to be harmful to the system.

Except for work to be performed by the County pursuant to this lease, Lessee shall pay all costs of grading constructing, paving or any other development costs, including all permits, within the premises and costs of utility installation, relocation, or removal required by the construction and its use and occupancy of the premises.

All work by the Lessee shall be performed in a safe manner both on the premises and with respect to any other County property at the Airport which might be utilized or affected by any activity of the Lessee. Work shall be performed so as not to unreasonably interfere with the use of other Airport property by the County, its other tenants, or other users of Airport property. Lessee shall keep the premises, and any other Airport property, free of waste

materials and rubbish caused by the work. Material and/or equipment shall not be placed or stored upon Airport property other than the premises leased without the advance written consent of the Airport Director.

The County shall not be liable for any damages in connection with the approval or disapproval of any plans and specifications or any construction or other activities of Lessee on the premises, or the enforcement or failure to enforce any provisions of this lease. The County’s approval of plans and specifications shall not constitute the assumption of any responsibility by the County or its representatives of the accuracy, efficiency, or sufficiency thereof, and Lessee shall be solely responsible therefore.

1.05 Action Request Forms. All requests by Lessee for action by the County regarding the condition of the premises shall be in writing and submitted to the Business Manager at the Snohomish County Airport Office. All complaints by Lessee concerning the conduct of County employees shall be in writing and submitted the Business Manager at the Snohomish County Airport Office. Action Request Forms may be obtained at the Snohomish County Airport Office.

1.06 Tenant Improvement Forms. Prior to making any changes or improvements to the premises, and after issuance of the certificate of occupancy, Lessee shall submit a Tenant Improvement Form to the County for approval by the Airport Director. Tenant Improvements Forms may be obtained at the Snohomish County Airport Office. Lessee shall maintain all improvements made pursuant to this paragraph. Notwithstanding the foregoing, Lessor’s approval shall not be required for alterations, additions or improvements to the Improvements which are non-structural, do not require a regulatory permit, and do not affect the exterior appearance of the Improvements.

1.07 Lessor’s Work . Lessor shall deliver possession of the premises to Lessee in the following condition no later than July 31, 2008 (the “Possession Date” ):

a. Free from any contamination with “Hazardous Substances” (defined below);

b. Free and clear of any liens or encumbrances, except those liens and encumbrances that do not interfere with Lessee’s intended use;

c. With all utility connections to the premises, including electrical power, communication, natural gas, stormwater, water, sanitary sewer and solid waste stubbed to the boundary line of the premises;

d. The existing left and right ingress and egress to the premises available onto Beverly Park Road;

e. With all of the improvements on the premises demolished, with all asbestos containing materials removed, abated and disposed of in accordance with all applicable laws; and

f. All of the current buildings on the premises will be vacant and free from any tenants or other occupants.

If the premises are not in the condition required by this Section 1.07, then Lessee shall have the right to take any actions necessary for the premises to be in the condition required by this Section 1.07 and the costs incurred by Lessee in taking such actions will be credited against the rent and other charges due from Lessee under this lease until the reimbursement amount is fully paid. Lessor agrees to cooperate with Lessee in all reasonable respects in order for Lessee to complete any of the work necessary to cause the premises to be in the condition required by this Section 1.07, including allowing Lessee and its contractors and agents to have access to the premises prior to the commencement of the term of this lease. Exhibit C attached hereto provides additional terms and details to this Section 1.07.

1.08 Wetlands Mitigation . Lessor will make available to Lessee such mitigation credits as Lessor has available in its “Mitigation Bank” in order that Lessee may fill in the existing wetlands area known as Wetland 44 located on the premises.

1.09 Binding Site Plan . The County is currently processing a binding site plan to provide a separate legal lot under applicable zoning and subdivision laws. The County will use good faith efforts to complete such binding site plan as soon as reasonably possible following the execution of this lease by Lessee. The County agrees to cooperate and assist Lessee by providing a history of prior approvals of airport development pending completion of the binding site plan processes to leasehold mortgagees.

ARTICLE II-TERM

2.01 Term. The term of this lease shall be for a period of Fifty-five (55) years commencing on the date the lease is fully executed by the Lessor (the “Effective Date” ) of this lease.

2.02 Extended Term Option .

a. Lessee shall have two options to renew this lease for an additional ten (10) years each (each a “Renewal Term” ) upon the same terms and conditions as provided herein, except that the initial monthly rental payment shall be determined by negotiation or arbitration as described below. Lessee shall give written notice (a “Renewal Notice” ) to the Airport Director not less than 180 days prior to the expiration

of this lease, of its intent to exercise its option to renew this lease; otherwise this option shall be null and void. Lessee must be current on all rent and other obligations of this lease at the time of exercising this option; otherwise this option shall be null and void. The rent for each Renewal Term shall be the Fair Market Rental for the premises as defined in Section 3.03 below. The rent for the Renewal Term shall be adjusted every three (3) years as provided by Section 3.03 below.

b. The County shall give Lessee written notice (the “County Renewal Rent Notice” ) of the proposed rent for the applicable Renewal Term within thirty (30) days following its receipt of the Renewal Notice. The proposed rent for the Renewal Term in the County Renewal Rent Notice shall be the rent in effect for the applicable Renewal Term unless Lessee, within thirty (30) days following its receipt of the County Renewal Rent Notice, gives the County written notice ( “Lessee’s Renewal Rent Notice” ) of its rejection of the adjusted rent set forth in the County Renewal Rent Notice.

c. If Lessee does not accept the County’s determination of Fair Market Rental Value, the parties (or their designated representatives) shall promptly meet and attempt to agree on the Fair Market Rent. If the parties have not agreed on the Fair Market Rental Value within thirty (30) days after the County receives Lessee’s Renewal Rent Notice, the parties shall submit the matter to arbitration in accordance with the terms of the following paragraphs. The last day of such 30-day period (as the same may be extended by the written agreement of the parties) is referred to in this lease as the “Renewal Rent Arbitration Commencement Date” .

(i) The arbitration will be conducted by three MAI real estate appraisers who have been active over the five (5) year period ending on the Renewal Rent Arbitration Commencement Date in the appraisal of industrial properties in Snohomish County, Washington. Lessee will select one appraiser, the County will select one appraiser, and the two appraisers so chosen will select the third appraiser. If the two appraisers chosen by the parties cannot agree on a third appraiser within ten (10) days after the date the second appraiser has been appointed, the third appraiser will be appointed by the presiding judge of the Snohomish County Superior Court upon the application of either party. Each party shall select its appraiser within ten (10) days after the Renewal Rent Arbitration Commencement Date. If either party fails to select its appraiser within such ten (10) day period, and the other party timely selects its appraiser, then the appraiser selected by the other party shall be the sole arbitrator for determining Fair Market Rental Value.

Value within five (5) days after the expiration of the thirty (30) day period. In such case, the three determinations shall be averaged to determine the Fair Market Rental Value; however, if the lowest Fair Market Rental Value or the highest Fair Market Rental Value is ten percent (10%) lower or higher, as applicable, than the middle Fair Market Rental Value, then the low Fair Market Rental Value and/or the high Fair Market Rental Value, as applicable, shall be disregarded and the remaining Fair Market Rental Value(s) will be averaged in order to establish the Fair Market Rental Value.

(iii) Both parties may submit any information to the arbitrators for their consideration, with copies to the other party. The arbitrators shall have the right to consult experts and competent authorities for factual information or evidence pertaining to the determination of Fair Market Rental Value. The arbitrators shall render their decision and award in writing with counterpart copies to each party. The arbitrators shall have no power to modify the provisions of this lease. The determination of the arbitrators will be final and binding upon the County and Lessee.

(iv) The cost of the arbitration (i.e., the charges and fees of the arbitrators but not the parties’ own costs such as attorneys’ fees and expert fees) will be shared equally by the parties.

2.03 Relationship Between Parties. It is the intention of this lease to create the relation of lessor and lessee between the parties and no other relations whatsoever. Nothing herein contained shall be construed to make the parties partners or joint ventures, or to render either party liable for any of the debts or obligations of the other party.

ARTICLE III – RENTAL

3.01 Rent . Lessee shall pay the County rent in the amount of $23,117.85 per month, (based upon $0.47 per square foot of land per year as shown on Exhibit D) plus leasehold excise tax as set forth in Paragraph 8.04 (b) and any other charges as fixed in this lease. Rent shall be paid in advance on the first of each month.

3.02 Time and Place of Payment. Rental shall be payable to the Snohomish County Airport at the Airport Office, Paine Field, 3220 - 100th St SW, Suite A Everett, WA 98204 -1390, commencing August 1 , 2008 or on the date the existing buildings on the premises have been vacated, abated, demolished and removed from the premises, whichever occurs later (the “Rent Commencement Date” ). Payment of rental shall not relieve the Lessee of payment of any other fees generally charged by the County. Rent for partial calendar months will be prorated based on the number of days remaining in any such month and a 365 day year.

3.03 Increased Rent.

a. The parties agree to additional adjustment of rent on the fifth (5 ^th ) anniversary of the Rent Commencement Date and on the same date every three (3) years thereafter (each a “Rent Adjustment Date” ). The adjusted rent shall be the then existing fair market rent for the premises (excluding the value of any improvements made to the premises by Lessee or any sublessee), and “fair market rent” shall have the same meaning as such term is defined in existing Snohomish County Code Section 4.46.010 (5) (the “Fair Market Rental Value” ), which reads as follows:

“Fair market rental value is an amount in the competitive market that a well informed and willing lessor who desires but is not required to lease, would accept, and which a well-informed and willing lessee who desires but is not required to lease, would pay for the temporary use of the premises, after due consideration of all the elements reasonably affecting value”.

b. The County shall give Lessee written notice (the “County Rent Notice” ) of the proposed adjusted rent to take effect on each applicable Rent Adjustment Date. The proposed adjusted rent in the County Rent Notice shall be the rent which takes effect on the applicable Rent Adjustment Date unless Lessee, within thirty (30) days following its receipt of the County Rent Notice, gives the County written notice ( “Lessee’s Notice” ) of its rejection of the adjusted rent set forth in the County Rent Notice.

c. If Lessee does not accept the County’s determination of Fair Market Rental Value, the parties (or their designated representatives) shall promptly meet and attempt to agree on the Fair Market Rental Value. If the parties have not agreed on the Fair Market Rental Value within thirty (30) days after the County receives Lessee’s Notice, the parties shall submit the matter to arbitration in accordance with the terms of the following paragraphs. The last day of such 30-day period (as the same may be extended by the written agreement of the parties) is referred to in this lease as the “Arbitration Commencement Date” .

(i) The arbitration will be conducted by three MAI real estate appraisers who have been active over the five (5) year period ending on the Arbitration Commencement Date in the appraisal of industrial properties in Snohomish County, Washington. Lessee will select one appraiser, the County will select one appraiser, and the two appraisers so chosen will select the third appraiser. If the two appraisers chosen by the parties cannot agree on a third appraiser within ten (10) days after the date the second appraiser has been appointed, the third appraiser will be appointed by the presiding judge of the Snohomish County Superior Court upon the application of either party. Each party shall select its appraiser within ten (10) days after the Arbitration Commencement Date. If either party fails to select its appraiser within such ten (10) day period, and the other party timely selects its appraiser, then the appraiser selected by the other party shall be the sole arbitrator for determining Fair Market Rental Value.

(ii) Within thirty (30) days after the selection of the third appraiser (or if only one appraiser is to render the decision as provided in subparagraph (i) above, within thirty (30) days after the last day of the above-referenced ten (10) day period), the appraiser(s) shall determine Fair Market Rental Value. If more than one appraiser has been appointed, the decision of a majority of the appraisers shall control. If a majority of the appraisers do not agree within the stipulated time period, then each appraiser shall in writing render his or her separate determination as to Fair Market Rental Value within five (5) days after the expiration of the thirty (30) day period. In such case, the three determinations shall be averaged to determine the Fair Market Rental Value; however, if the lowest Fair Market Rental Value or the highest Fair Market Rental Value is ten percent (10%) lower or higher, as applicable, than the middle Fair Market Rental Value, then the low Fair Market Rental Value and/or the high Fair Market Rental Value, as applicable, shall be disregarded and the remaining Fair Market Rental Value(s) will be averaged in order to establish the Fair Market Rental Value.

(iv) The cost of the arbitration (i.e., the charges and fees of the arbitrators but not the parties’ own costs such as attorneys’ fees and expert fees) will be shared equally by the parties.

(v) Once the adjusted rent has been agreed to by the parties or determined by arbitration as provided above, the adjusted rent shall be effective retroactive to the Rent Adjustment Date.

3.04 Late Payment of Rent. Rent shall be delinquent if not paid by the fifteenth (15 ^th ) day of each month. If payment is received after the fifteenth (15 ^th ) day of any month, there will be a .0333% per day interest charge on the unpaid balance for each day past the due date. A late payment charge of .01665% per day will also be charged on rent not paid by the fifteenth (15 ^th ) of each month for each day past the due date. In addition, a charge in the amount provided by current County ordinance will be made on any payment by check which is returned unpaid to the Airport because of insufficient funds, account closed, forgery, or any other reason.

3.05 Security Deposit . In addition to the first month’s rental, Lessee has deposited a sum equal to the first (1 ^st ) month’s rent plus leasehold excise tax as security for the faithful performance of each and every term, covenant, and condition hereof, including but not limited to payment of rent. County may apply or retain the whole or any part of such security for payment of any rent or other charge in default or for any other sum which County may spend or be required to spend, or be entitled to by reason of Lessee’s default. If all or part of this deposit is so used, Lessee shall immediately

restore such deposit and such additional amount to secure the lease as deemed necessary by County. In the event rent has been increased pursuant to Paragraph 3.03, then the deposit shall be increased accordingly. Any repayment to this security will draw interest and late fee as provided in Paragraph 3.04. Should Lessee faithfully and fully comply with all the terms, covenants, and conditions of this lease, the security or any balance thereof shall be returned to Lessee or, at the option of the County, to the last assignee of Lessee’s interest at the expiration of the term hereof. Lessee shall not be entitled to any interest on such security deposit.

3.06 Adjustments of Leased Space and Rent .

The parties may mutually agree to reduce or increase the total amount of leased space. If the County desires to reasonably increase or decrease the leased space, County will present a detailed letter and exhibits to the Lessee and Lessee will review and provide written acceptance or denial. If the Lessee desires to reasonably increase or decrease the leased space, Lessee will present a detailed letter and exhibits to the County and County will review and provide written acceptance or denial. The rent for the adjusted space will begin on an agreed date by both parties and be subject to the date of increased rent as stated in Section 3.03.

Rent adjustments as agreed to in this section and/or as provided in Section 3.03 will be authorized by an amendment to the lease with only effected paragraphs changed.

3.07 Common Road Maintenance Fee. Lessee shall pay County a Common Road Maintenance (CRM) fee for common road maintenance in the amount of $1.50 per automobile parking stall on the premises per month. For example only if there are six hundred twenty (620) parking stalls on the premises the CRM fee will be $930.00 per month. The CRM fee shall be increased in the same percentage as land rent increases on the Rent Adjustment Date. The CRM fee shall be paid in advance on the first of every month.

3.08 Traffic Mitigation Reimbursement . Lessee shall pay a one time fixed traffic mitigation reimbursement fee and any fees relating to frontage improvements required by Snohomish County Public Works and/or any other applicable jurisdiction.

3.09 Construction of New Road . Lessee shall be responsible to construct and pay for a new road from Beverly Park Road to the intersection with Commando Road along the northerly edge of the premises. The road shall be built to standards approved by the Airport Director and Snohomish County Public Works, including a sidewalk on Lessee’s side of the road, together with curbs and gutters on both sides of the road. The County will collect “latecomer” fees from any future developments at the Airport that will access the road constructed by Lessee from the east pursuant to this Section 3.09 and any such fees collected by the County will be remitted to Lessee promptly upon receipt by the County. Exhibit C attached hereto provides additional terms and details to this Section 3.09.

3.10 Surface Water Management Fees . Lessee shall pay surface water management fees based upon impervious surface calculations by the Airport for charges assessed by Snohomish County Public Works Surface Water Management and/or any other applicable jurisdiction.

ARTICLE IV - LESSEE’S OBLIGATIONS

4.01 Condition of Premises. Lessee has examined the premises, including any structure, grounds, and access thereto, and accepts the same in the condition in which they now are, subject to the County’s obligations under Section 1.07 of this lease. It is agreed that the County shall not be bound by any warranty, representation, or condition regarding the premises except as stated herein.

4.02 Maintenance and Repairs. Lessee, at its sole expense, shall keep the premises as now or hereafter constituted with all buildings and improvements made thereon and the adjoining sidewalks, curbs, walls, parking areas, landscaping, access roads, and vaults clean and in good condition, ordinary wear and tear excepted. Lessee shall make all repairs, replacements, and renewals, whether ordinary or extraordinary, seen or unforeseen, including all structural repairs, necessary to maintain the premises. All repairs, replacements, and renewals shall be at least equal to that as originally constructed herein under Paragraph 1.04, unless otherwise approved by the airport director.

4.03 Surrender of Leasehold Improvements.

During the term of the lease and any subsequent renewals pursuant to Paragraph 2.02, the Lessee shall have title to any and all buildings, fixtures and improvements constructed or installed by the Lessee. At the expiration of the term hereunder and any subsequent renewals pursuant to Paragraph 2.02, the County shall have title to any and all buildings, fixtures and improvements constructed or installed by the Lessee; PROVIDED however, the County shall have the option to request the Lessee to remove any and all buildings, fixtures and improvements constructed or installed by the Lessee at the sole cost and expense of the Lessee and restore the premises.

Lessee shall peaceably and quietly leave, surrender and deliver to County the premises, together with any buildings and improvements, and any and all subsequent alterations, additions, and replacements which may have been made upon the premises to which the County has assumed title, in good repair, ordinary wear and tear excepted.

4.04 Utilities and Other Charges. Lessee shall pay charges for sewer, water, gas, electricity, telephone, surface water management fees, joint mailbox systems, security and fire equipment maintenance and monitoring, annual certificate of occupancy fire and safety inspection fee and re-inspection fee in the event of a violation requiring correction, and all other charges which may be furnished, or made available to the premises at Lessee’s order or consent within a reasonable time.

4.05 Liens. Lessee agrees to pay, when due, all sums of money that may become due for, or purporting to be for, any labor, services, materials, supplies, utilities, furnishings, machinery, or equipment, which have been furnished or ordered with Lessee’s consent, to be furnished to or for the Lessee in, upon, or about the premises herein leased, which may be secured by any mechanics’, materialmen’s, or other lien against the premises herein leased or County’s interest therein, and will cause such lien to be fully discharged and released at the time the performance of any obligation secured by any such lien matures or becomes due, provided that the Lessee may in good faith contest any mechanics’ or other liens filed or established, and in such event may permit the items so contested to remain undischarged and unsatisfied during the period of such contest.

4.06 Personal Property . Lessee shall keep all personal property, equipment, trade fixtures, and furniture insured to their full insurable value and provide insurance policies and certificates of renewal to the County upon request.

4.07 Equipment. Any machinery, tools, appliances and/or other personal property of any kind and nature placed on the premises by the Lessee shall remain the property of the Lessee; provided that:

The Lessee shall remove such machinery, etc., prior to the expiration or termination of this lease and repair any damage to the premises caused by such removal;

Any such machinery, etc. which is not removed by the Lessee before the expiration, retaking of possession, or termination of this lease may, at the County’s option upon the County giving the Lessee written notice thereof, become the property of the County.

If such machinery, etc., is not removed by the Lessee as provided above, the County has the right to remove and store any or all of such property at the expense of the Lessee. The County shall have a lien on such property for reasonable storage, and removal charges, and any other charges the County may have against the Lessee and shall have the right to sell any or all of such property and dispose of the proceeds as provided in RCW 60.60.030 and .040. At all times the Lessee shall bear all risk of loss or damage to any machinery, etc., or personal property placed in or on the premises or any other Airport premises by the Lessee.

4.08 Prevailing Wages . Pursuant to SCC 4.46.335, Lessee agrees that all contracts for improvements to the premises shall require the contractor or developer to comply with the prevailing wage provisions of RCW 39.12.010 through 39.12.030. Failure to comply with the prevailing wage provisions shall constitute a default of the lease resulting in termination unless said default is cured within thirty (30) days after notice thereof.

4.09 Waste Water . This lease is subject to all statutes and regulations of the State of Washington with respect to waste water disposal. If the Lessee’s use of the premises results in the discharge or the potential for the discharge of any waste waters except domestic waste waters from the premises, Lessee shall immediately apply to Washington State Department of Ecology (DOE) for a State Waste Water Discharge Permit. Lessee shall advise the Airport which drains or other waste water facilities the Lessee will utilize in disposing of waste waters. The Airport may designate sewers or other facilities which the Lessee may utilize to dispose of waste waters.

4.10 Sewage System .

It is understood that the Airport is presently under contract with Mukilteo Water District for sewage disposal. In its use of the sewage system, Lessee shall comply with all applicable rules and regulations of the Airport and Mukilteo Water District or other applicable sewer districts. Such system shall not be used for storm drainage or the discharge of any effluent deemed by the Airport Director or Mukilteo Water District to be harmful to the system.

In addition to the rental provided herein, Lessee shall pay the County such reasonable charges for sewer service as are fixed by the Airport Director.

4.11 Assigning and Subleasing . Lessee shall not assign, encumber, or sublet the premises or any part thereof without the prior written consent of the Airport Director; provided, notwithstanding the foregoing, the following transfers ( “Permitted Transfers” ) shall not require the Airport Director’s consent so long as the transferee engages only in the same uses as permitted by this lease: any transfer to (a) a subsidiary, parent, affiliate, division or corporation controlled by or under common control with Lessee or (b) any successor corporation to Lessee as a result of merger, consolidation, reorganization or government action (each such transferee a “Permitted Transferee” ). As used herein the terms “control”, “controlled by” or similar term shall mean the ownership of more than fifty percent (50%) of the outstanding voting stock or voting equity interests together with the sole power to vote said equity interests. In the event of any Permitted Transfer (i) Lessee shall provide County at least 20 days prior notice of the Permitted Transfer, and copies of the transfer documentation promptly upon consummation of the transfer; (ii) Lessee shall not be released from any obligation or liability arising prior to such transfer. Notwithstanding the foregoing, the County recognizes that Lessee’s permitted

use of the premises involves subletting to Korry Electronics, Co., a Delaware corporation ( “Korry” ). County acknowledges receipt of a copy of the Lessee’s sublease to Korry and consents to the sublet to Korry and its commercial operations. The County further consents to the assignment of this lease to Korry. Lessee shall advise prospective assignees or subtenants that Snohomish County Code, Section 15.08.400 requires Airport Director approval of commercial operations. Prior to any consent, Lessee shall deliver to the Airport Director a written statement of intent to assign, sublease, or encumber. Any assignment, subletting or encumbrance without the written consent of the Airport Director is null and void. If this lease is assigned or sublet, or if the premises or any part thereof is occupied or used by anyone other than Lessee, County may, upon default by the Lessee, collect rent and any other charges under this lease from the assignee, subtenant or occupant and apply the net amount collected to the Lessee’s rent and other charges herein reserved. No such assignment, subletting, occupancy or collection, shall be deemed a waiver of this covenant, the acceptance of the assignee, subtenant or occupancy as a tenant, or a release of Lessee from further performance by Lessee of the covenants including the payment of rent and other charges in this lease; and Lessee shall remain liable for all of its obligations, except for rentals paid, under this lease. Any consent by the Airport Director shall not be construed to relieve Lessee from obtaining the consent of the Airport Director to any further assignment, subletting, or occupancy. Lessee shall not charge or assess an assignee, subtenant or occupant rental or other fees in excess of ten percent (10%) over the rental or fees owing from Lessee under the terms of this lease; PROVIDED, that this restriction shall not apply to (a) assessments for utilities, taxes, insurance and other reasonable attendant expenses other than the payments to Lessee for use or occupancy of the premises and/or (b) rent attributable to any improvements constructed by Lessee on the premises. If (a) Lessee defaults under this lease and fails to cure the default prior to the expiration of any applicable cure period, and the default is not cured by a leasehold mortgagee pursuant to Section 9.17a. below, and (b) the default will permit the County to terminate this lease, then the County will allow Korry, at Korry’s option, to assume the obligations of Lessee under this Lease (or at Korry’s option, the County will enter into a new lease with Korry on the same terms and conditions as this lease), and this lease (or such new lease) shall continue in effect on the same terms and conditions as this lease, except that (1) Korry shall pay County rent (triple net) for the Improvements based upon the same rate Korry would have paid the Lessee under that certain Building Lease and Sublease dated __________ 2008 between Korry and Lessee, and (2) Korry shall have the right to terminate this lease (or the new lease, as applicable) as of the date the initial 30-year term of the sublease between Korry and lessee otherwise would have expired. To so terminate this lease (or the new lease, as applicable) Korry will be required to give the County not less than twelve (12) months prior written notice of its election to terminate.

4.12 Hazardous Substances .

Lessee agrees that it will not cause or permit in any manner, including accidental or non-negligent acts or omissions, release of any Hazardous Substance into, upon or from any Airport property contrary to any local, state or federal law, or regulation. Lessee shall notify the Airport Director, the

State Department of Ecology to the extent required by law, and any other involved agency in writing of any such release. Lessee shall be completely liable for any and all consequences of such a release, including all liability under any federal, state, or common law. Lessee shall indemnify and hold the County harmless, as provided in Section 5, from any and all liability resulting from such a release and shall have full responsibility for completely cleaning up any and all contamination from a release as may be required by any governmental agency. After clean up of such a release, Lessee shall provide County a copy of a “No Further Action” letter from the State Department of Ecology containing no restrictions on the property. If Lessee fails to clean up such a release of a Hazardous Substance within a reasonable time after its occurrence, and such failure is not cured within ninety (90) days following written notice thereof to Lessee, the County may elect to terminate the lease by written notice given to Lessee following the expiration of such 90-day period, and the County may enter the premises and take whatever steps it deems appropriate to cure the consequences of such release, all at the expense of the Lessee. The County has provided Lessee with certain environmental reports listed in Paragraph 4.12(d) (the “Environmental Reports” ) which indicate asbestos and lead are present in the existing buildings on the premises. County represents to Lessee that, to the best of County’s actual, present knowledge there are no Hazardous Substances on the premises except as revealed in the Environmental Reports. Lessee represents to County that to the best of Lessee’s actual, present knowledge there are no Hazardous Substances on the premises except as revealed in the Environmental Reports. Any Hazardous Substance placed upon the premises during the term of this lease as a result of the acts or omissions of Lessee, its sublessees or their respective invitees, contractors, agents or employees, or trespassers on the premises shall be removed by the Lessee not later than the cancellation or termination of this lease. Lessee shall not be responsible for Hazardous Substances migrating onto the premises from other property.

As used in this Lease, “Hazardous Substances” means any chemical, substance, material, waste or similar matter defined, classified, listed or designated as harmful, hazardous, extremely hazardous, dangerous, toxic or radioactive or as a contaminant or pollutant, or other similar term, by, and/or which are subject to regulation under, any federal, state or local environmental statute, regulation or ordinance presently in effect or that may be promulgated in the future, and as they may be amended from time to time.

Lessee will perform a phase one environmental inspection of the premises prior to commencement of construction. Lessee shall disclose and deliver to County copies of any environmental reports, tests, studies or other documentation obtained by Lessee relating to any investigation of the premises for Hazardous Substances.

Lessee acknowledges receipt from County the following Environmental Reports: Final Environmental Baseline Survey Report, Paine Field Housing Everett, Washington, CTO 0156, May 31, 1994 prepared by the URS Consultants, Science Applications International Corp. and Shannon and Wilson, Inc.; Lead Management Plan, Paine Field Housing, Naval Station Everett, Everett, Washington, November, 1998, prepared by Department of the Navy, Navy Public Works Center, Energy and Environmental Engineering Branch; and Lead Inspection Report on Residential Units, Snohomish County Airport, Everett, Washington, November 20, 2001, prepared by Presant Associates, Inc.

Lessee shall perform a phase one environmental inspection of the premises thirty (30) days prior to the expiration of the lease. Lessee shall provide County a copy of the phase one environmental report upon expiration of earlier termination of the lease. In the event the phase one inspection does not reasonably satisfy County, County may require Lessee to perform a phase two investigation of the premises. Lessee shall provide County a copy of the phase two environmental report.

ARTICLE V - INDEMNITY AND INSURANCE

5.01 Hold Harmless . Lessee shall protect, save harmless, indemnify, and defend, at its own expense, the County, its elected and appointed officials, officers, employees and agents, from any loss or claim for damages of any nature whatsoever, including concurrent liability, arising out of Lessee’s use of the premises or the conduct of Lessee’s business on the airport or the performance of this contract, including claims by County’s employees or third parties, except for those damages solely caused by the negligence or willful misconduct of the County, its elected and appointed officials, officers, employees or agents. Such hold harmless agreement expressly provides for waiver of the Lessee’s immunity under RCW Title 51 Industrial Insurance for claims by its employees and this hold harmless agreement and waiver of immunity were mutually and expressly negotiated and agreed between the parties.

5.02 Liability Insurance . Lessee shall obtain and maintain continuously commercial general liability or public liability insurance which includes coverage for bodily injury and property damage and/or other insurance necessary to comply with the hold harmless agreement above with limits of liability not less than $1,000,000.00 per occurrence. Coverage shall be on an occurrence basis. Claims made coverage will not be accepted.

Liability insurance shall include and specifically name “Snohomish County, its officers, elected officials, agents and employees” as an additional insured and shall contain an additional insured endorsement. Insurance shall not be reduced or canceled without thirty days written prior notice to the County. The Lessee shall provide to County, for review and approval, a certificate of insurance as evidence of insurance protection provided, as a condition precedent to execution of this contract.

Such insurance, in its provision for additional insured, shall include a “Cross Liability Endorsement”, “Severability of Interests”, or “Separation of Insureds” provision indicating:

“The inclusion of more than one insured under this policy shall not affect the rights of any insured as respects any claim, suit, or judgment made or brought by or for any other insured or by or for any employee of any other insured. The policy shall protect each insured in the same manner as though a separate policy had been issued to each except that nothing herein shall operate to increase the company’s liability beyond the amount or amounts for which the insurer would have been liable had only one insured been named.”

Prior to execution of this lease, Lessee shall provide the County a certificate of insurance, as evidence of such insurance, containing the required coverage, limits, and additional insured endorsement. Thereafter, on an annual basis, Lessee shall provide the County with a certificate of insurance containing the required coverage, limits, and additional insured endorsement. Upon the written request of the County, Lessee shall provide County a certified copy of all insurance policies maintained by the Lessee as required by this Lease.

Insurance shall be placed with insurance carriers licensed to do business in the state of Washington, and with carriers and coverage subject to approval by the County’s Risk Management Division.

5.03 All Risk Insurance. Lessee shall obtain and maintain continuously All Risk Insurance including Earthquake (if available at a commercially reasonable cost) and Flood (if the premises are located in a designated flood hazard zone) insuring to their full insurable value, any and all buildings and improvements constructed by the Lessee upon the premises against all loss or damage for the benefit of both County and Lessee and named Insureds. Full insurable value shall mean actual replacement value. Lessee shall provide duplicate insurance policies and certificates of renewal to the County upon request. County acknowledges that any property insurance maintained by Lessee will name Lessee’s lenders as loss payees and that such insurance shall be used to repair and restore any damage to the Improvements to the extent Lessee is required to do so pursuant to this lease.

5.04 Mutual Waiver of Subrogation . Lessee and County each releases and relieves the other and waives its entire right of recovery against the other for loss or damage arising out of or incident to the perils covered by All Risk Insurance, including Earthquake and Flood coverage, approved for use in Washington which occur in, on or about the premises, whether caused by the negligence of either party, their agents, employees, or otherwise. Each party shall obtain from its insurer(s) provisions permitting waiver of any claim for loss or damage within the scope of the above insurance. The release and waiver of recovery contained herein shall be limited by, and shall be co-extensive with, the waiver provisions of the insurance policies procured and maintained by the parties pursuant to this lease. If either County or Lessee is unable to obtain its insurer’s permission to waiver of any claim against the other party, such party shall promptly notify the other party of such inability.

5.05 Destruction and Restoration. If any building, structure or facility which was constructed or located on the premises by Lessee is destroyed or damaged by fire, the elements, or any other cause, the Lessee shall repair the same to its condition at the time of loss. The Lessee, at its option, shall have the right, at its own expense, either to promptly repair and rebuild such building, structure or facility, or to delay the commencement of such repair or rebuilding until the proceeds of all insurance policies covering such casualty are available. After commencement of repair or rebuilding the Lessee shall continue the work with reasonable diligence until completion. Except as otherwise provided in this lease, the lease shall not terminate or be affected in any manner by reason of the damage or destruction by fire, the elements, or any other cause, and the fixed rent reserved in this lease, as well as all other charges payable hereunder, shall be paid by the Lessee without abatement or reduction on account of such damage or destruction. All risk of loss to any building, structure or facility placed in the premises by Lessee shall be on Lessee.

5.06 Increased Limits. If during the term of the lease, higher limits of insurance than those mentioned shall be required by the then current version of Snohomish County Airport Rules and Regulations and Minimum Standards, then upon request by the County, Lessee shall procure such insurance with higher limits, provided that such limits are commercially reasonable.

ARTICLE VI - DEFAULT

6.01 Lessee’s Default . Lessee shall be in default of this lease if Lessee:

Fails to pay when due any sum payable by Lessee hereunder and fails to make full payment thereof within fifteen (15) days of Lessee’s receipt of the County’s written demand for payment, or

Breaches any non-monetary, material term, covenant or condition of this lease and the Lessee fails either to begin to cure the breach within thirty (30) days of Lessee’s receipt of the County’s written notice of such breach or to complete the cure of the breach within a reasonable time thereafter. If Lessee timely commences to cure such breach with such thirty (30) day period, Lessee shall not be in default if Lessee continues in timely good faith its efforts to cure following such thirty (30) day period, or

Either makes any general assignment or general arrangement for the benefit of creditors; files a petition in bankruptcy, including reorganization or arrangement, except in the case of a petition filed against Lessee when the same is dismissed within sixty (60) days after filing; suffers the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the premises or of Lessee’s interest in the lease, or

Suffers a cancellation of a guaranty of Lessee’s obligations by a guarantor, if any, or

Fails to comply with the Airport Rules and Regulations, unless such failure is cured within 5 days after notice.

6.02 Remedies. Statement of any remedy herein shall not prevent a party to this lease from pursuing any other legal remedy available to it. Upon pursuing any remedy, a party to this lease, in addition to any other charges provided herein, shall be entitled to all costs and expenses incurred by it, including reasonable attorney’s fees and expenses incurred in putting the premises in order.

6.03 Abandonment/Removal of Property.

Lessee shall not abandon the premises at any time during the term of the Lease.

In the event Lessee shall abandon or surrender said premises, or be dispossessed by process of law, County shall have the right, but not the obligation, to remove from the premises all personal property located therein, and may store the same in any place selected by County, including but not limited to a public warehouse, at the expenses and risk of the owners thereof, with the right to sell such property and dispose of the proceeds as provided in RCW 60.60.030 and .040.

ARTICLE VII - TERMINATION

7.01 Termination for Lessee’s Default .

If Lessee is in default, County may terminate this lease by giving Lessee notice of termination. Such notice shall be given by certified mall, or by delivery, to Lessee or any agent of Lessee at Lessee’s last known address, or by posting such notice at the premises.

If Lessee is in default, County may retake possession of the premises without terminating this lease. If County so retakes possession and does not terminate this lease, Lessee shall remain liable to pay any and all rentals and other charges as specified herein, together with any and all other damages as may be sustained by the County, excepting therefrom rental proceeds received from reletting the premises.

7.02 Termination for Airport Use . Notwithstanding any of the other provisions contained in this lease, County may determine at some time during the term of this lease that the premises are required under applicable federal laws to be used by the Airport and/or County for aviation use or for the construction, development or improvement of necessary facilities for aviation use at the Airport. If such determination is made at the sole discretion of the County, this lease may be terminated by the County’s giving notice to the Lessee of such intent to terminate and retake possession of the premises; and this lease shall terminate two (2) years after the giving of any such notice of intent to so terminate. Compensation shall be paid to the Lessee for termination for airport use as set forth in Paragraph 8.03 c.

ARTICLE VIII – FEDERAL, STATE AND COUNTY REQUIREMENTS

8.01 Federal Requirements . County, as a recipient of Federal Aid Airport Program Grant Funds, is required to include statements 8.01 (a) and (b) in all lease agreements. Construction of a building or improvements on airport property requires a special federal approval as set forth in Paragraph 8.01 (c).

Lessee, in its operation at Snohomish County Airport, covenants that it will not on the grounds of race, color, creed or national origin discriminate or permit discrimination against any person or group of persons in any manner prohibited by Parts 15 and 21 of the Federal Aviation Regulations (49 CFR), and in the event of such discrimination, Lessee agrees that the County has the right to take such action as the United States Government may direct to enforce this covenant.

With respect to any aeronautical services Lessee specifically agrees:

(1)

To furnish said aeronautical service on a fair, equal and not unjustly discriminatory basis to all users thereof, and

(2)

To charge fair, reasonable and not unjustly discriminatory prices for each unit of service, PROVIDED, that the Lessee may be allowed to make reasonable and nondiscriminatory discounts, rebates or other similar types of price reductions to volume purchasers.

Lessee shall submit a Form 7460 to the Federal Aviation Administration (FAA) to comply with Part 77 of the Code of Federal Regulations, Title 14 Aeronautics and Space. Lessee shall not begin construction on the premises until the FAA has approved Form 7460 and Lessee submits a copy of the approval to County. Lessee shall not begin construction on premises until County has received FAA approval of such Form 7460. County agrees to cooperate with Lessee to obtains such approval as soon as reasonably possible following Lessee’s execution of this lease.

8.02 Subordination To Airport Operation . This lease shall be subordinate to the provisions of any existing or future agreement between the County and the United States relative to the operation or maintenance of the Airport, the execution of which has been or may be required as a condition precedent to the expenditure of Federal funds for the development of the airport.

8.03 Condemnation .

Whole Taking . If the whole of the premises is acquired or condemned by a competent authority for any public use or purpose, this lease shall terminate as of the date on which title vests in that authority, and the rent reserved hereunder shall be apportioned and paid up to that date. Any compensation paid for the land shall become the property of the County and any compensation paid for Lessee’s improvements shall become the property of the Lessee.

Partial Taking . If only a portion of the premises is so acquired or condemned, that portion of compensation paid for improvements shall be used to replace, repair, and restore insofar as possible, the premises to their condition of utilization prior to the taking or condemnation. If such repair, replacement, or restoration cannot be so accomplished, this lease shall be terminated unless the parties agree otherwise. If the lease continues, rent shall be reduced on the date of surrender of possession of the part taken in proportion to the decrease in use suffered by the Lessee. Any compensation paid for the land shall become the property of the County and any compensation paid for Lessee’s improvements shall become the property of the Lessee.

Compensation . In the case of any taking or condemnation of the whole of the premises, whether or not the term of this Lease shall cease and terminate, Lessee shall:

(1)

Receive that portion of the award for such taking or condemnation that equals the value to Lessee of the unexpired term of this Lease (including extensions), measured by the difference between the fair market rental value of comparable premises and the actual rent being paid by Lessee under this Lease; and

(2)

Have the right to claim and seek recovery from the condemnation authority compensation for any loss of its leasehold interest, the unamortized value of Lessee’s improvements, and for loss to which Lessee may be put for Lessee’s moving expenses and business interruption.

8.04 Laws and Regulations .

Lessee shall comply with all applicable laws, ordinance codes, rules, and regulations. Lessee shall be responsible for securing and maintaining all permits and paying, when due, all costs, fees, including surface water management fees, taxes, annual inspection fees, and other charges/benefits incidental to lease, construction and use of the premises.

Lessee’s attention is directed to Chapter 82.29A RCW, amendments thereto, and any ordinances, laws, or regulations of Snohomish County and/or any other taxing authority with respect to the levy and collection of excise or other taxes on leasehold interests. Lessee agrees that it will comply therewith, and will pay such taxes to the County when due in accord with the applicable rules, statutes and regulations. Lessee specifically authorizes the County to remit to the respective taxing authority any amounts paid by Lessee to County in payment of any such taxes, and agrees that County shall not be held responsible or liable in any manner for reimbursement of any amounts so paid if said taxes, or any part thereof, are determined to be invalid, improper, or unenforceable.

If the applicable taxing authority requires the County to collect the taxes and Lessee does not agree on the amount of taxes to be so paid, the Lessee shall pay the amount requested by the County, and Lessee’s sole recourse shall be against the applicable taxing authority with respect to the amount, propriety, and validity of such tax. County in no way warrants the validity or propriety or correctness of any such tax, and the sole obligation of the County upon collection of such tax shall be to remit the same to the appropriate taxing authority.

Lessee shall provide a certification of its corporate status, business license and other registrations as applicable for review by the County at lease signing and at any subsequent change of status or amendment.

8.05 Aviation Easement . Lessee’s right to use the premises for the purposes as set forth in this lease shall be secondary to and subordinate to the operation of the airport. The County specifically reserves for itself, and for the public, a right of flight for the passage of aircraft in the air space above the surface of the described property together with the right to cause in said air space such noise as any be inherent in the operation of aircraft.

8.06 Easement Rights Reserved . The County reserves the right to grant easements and or licenses over, across, and under the premises so long as the easement or license does not unreasonably interfere with the Lessee’s use.

8.07 Security . Lessee recognizes its obligations to comply with Federal Airport and Snohomish County Airport Security Regulations. Lessee will reimburse the County in full for any fines or penalties levied against the County for security violations as a result of any actions on the part of the Lessee, its agents, suppliers, guests, customers,

invitees, or employees for any violation occurring at any field access point under the control of the Lessee. Lessee shall be responsible for all employees and other persons gaining access to the premises which is in a restricted area (SCC 15.08.210). Lessee shall be responsible for ensuring that identification required and provided by the Airport is required by all agents, suppliers, customers, employees and invitees needing access to a restricted area, if any.

8.08 Noise Abatement . The County and Lessee recognize the importance and joint responsibility of compatibility between the airport and the surrounding community. Therefore, Lessee shall actively participate and comply with all noise abatement procedures, policies, and programs as set forth by the County.

8.09 Aircraft and Ground Service Vehicle Identification . Lessee agrees to register all airside ground service vehicles and aircraft and obtain operator permits from the Airport Director. Lessee shall provide the Airport Director on an annual basis a current list of all aircraft stored on the premises including the name and address of each owner and N number of each aircraft.

8.10 Wildlife Hazards and Deterrents . Lessee shall not allow a bird, rodent or other wildlife attractant on the premises. Lessee shall keep trash cans and dumpster lids closed. In the event Lessee activities attract wildlife, Lessee at its cost shall take immediate action to remove the wildlife and prevent further wildlife attraction. Lessee agrees to participate in prorated area wide costs as necessary to resolve any area wide rodent problem.

8.11 Foreign Object Damage. Lessee shall inspect and keep the premises clean of any object, material or matter that poses a threat of Foreign Object Damage (FOD) to aircraft.

ARTICLE IX - GENERAL PROVISIONS

9.01 Total Agreement: Applicability to Successors . This lease constitutes the entire agreement of the parties and cannot be changed or terminated except by a written instrument subsequently executed by the parties. This lease and the terms and conditions hereof apply to and are binding on the heirs, representatives, successors, and assignees of both parties.

9.02 Nonwaiver . Waiver by either party of strict performance of any provision of this lease shall not be a waiver of or prejudice the party’s right to require strict performance of the same provision in the future or of any other provision.

9.03 Attorney Fees . If suit or action is instituted in connection with any controversy arising out of this lease, the prevailing party shall be entitled to recover in addition to costs such sum as the court may adjudge reasonable as attorney fees, including in-house counsel, or in the event of appeal as allowed by the appellate court. Costs shall include, without limitation, the fees of appraisers, accountants, engineers and other professionals incurred in connection with such suit or action.

9.04 Time of Essence . It is mutually agreed that time is of the essence in the performance of all covenants and conditions to be kept and performed under the terms of this lease.

9.05 County Indemnification . Lessee hereby waives all claims for damages that may be caused by County’s re-entering and taking possession of Premises or removing and storing the property of Lessee as provided in this lease, and will save County harmless from loss, costs or damages occasioned by Lessee, and no such re-entry shall be considered to be a forcible entry, except for those damages solely caused by the negligence or willful misconduct of the County, its elected and appointed officials, officers, employees or agents.

9.06 Warranties/Guarantees . Except as otherwise provided in this lease, County makes no warranty, guarantee, or averment of any nature whatsoever concerning the physical condition of the premises and any subsequent structures, and it is agreed that the County will not be responsible for any loss, damage, or costs which may be incurred by Lessee by reason of any such physical condition.

9.07 Headings . The article and section headings contained herein are for convenience in reference and are not intended to define or limit the scope of any provisions of this lease.

9.08 Consent of County . Whenever consent, approval, or direction by the County is required under the terms contained herein, all such consent, approval, or direction shall be received in writing from the Airport Director.

9.09 Consent of Airport Director . Where the consent, approval or direction of the Airport Director is required pursuant to the terms of this lease, such consents, approvals and directions shall not be unreasonably withheld, delayed or conditioned.

9.10 Notices . All notices may be delivered in person or mailed to the following respective addresses:


To the County:		Airport Director
		Snohomish County Airport,
		Paine Field
		3220 – 100 ^th St. SW, Suite A
		Everett, Washington 98204


To the Lessee:		Capstone PF LLC
		1001 Fourth Avenue, Suite 4400
		Seattle, WA 98154
		Attn: Mike Hubbard and Kirk
		Johnson

9.11 Governing Law and Severability . The laws of the state of Washington shall govern the validity, performance, and enforcement of this lease. The invalidity or unenforceabililty of any provision hereof shall not affect or impair any other provision.

9.12 Exterior Signage . Lessee will have signage rights subject to Airport’s Sign Policy and Airport Director’s review and approval, and Snohomish County signage ordinances and approvals, and the approval of any applicable entity with jurisdiction; however, in no case shall billboard type signs be allowed. All costs incurred in the installation and removal of such exterior signage shall be at Lessee’s expense.

9.13 Quiet Enjoyment. The County covenants that Lessee, upon paying the rent and other charges herein provided for and observing and keeping all covenants, agreements, and conditions of this lease, shall quietly have and enjoy the premises free from claims arising by, through, or under the County, but not otherwise, for the lease term.

9.14 Estoppel Certificates . Each party shall, at any time and from time to time as requested by the other party, upon not less than ten (10) business days’ prior written notice, execute, acknowledge and deliver to the other a statement in writing certifying that this lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), certifying the date through which rent and other charges, if any, have been paid, and stating whether or not, to the best knowledge of the signer, the other party is in default beyond any applicable grace periods provided in the performance of any of its obligations under this lease, and if so, specifying each such default of which the signer may have knowledge. The parties agree and acknowledge that it is specifically intended that any such statement delivered pursuant to this Section 9.14 may be relied upon by others with whom the party requesting the certificate may be dealing.

9.15 Encumbrances and Nondisturbance . The County represents to Lessee that there is no mortgage or deed of trust encumbering the premises on the date hereof. With respect to any mortgage or security interest hereafter encumbering the County’s fee interest in the premises, the County shall cause to be delivered to Lessee a commercially reasonable nondisturbance agreement (executed by the secured party under such mortgage or security interest) that confirms that, in the event of any foreclosure or other action taken with respect to such mortgage or security interest, this lease and the rights of Lessee hereunder shall not be disturbed but shall continue in full force and effect, subject only to the terms and conditions of this lease.

9.16 Force Majeure . In the event that the County or Lessee shall be delayed or hindered in, or prevented from, the performance of any act required hereunder by reason of inability to procure materials, delay by the other party, failure of power or unavailability of utilities, riots, insurrection, war, labor disputes, weather or Act of God or other reason of a like nature not the fault of such party or not within its reasonable control, then performance of such act (other than the payment of money) shall be excused for the period of delay, and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay.

9.17 Leasehold Financing.

Conditions to Obtaining Leasehold Mortgage . Lessee shall have the right, without the County’s written consent, to encumber Lessee’s estate created by this lease with any leasehold mortgage given in connection with a bona fide financing transaction (which leasehold mortgage may be given in connection with a portfolio financing transaction involving Lessee and its Affiliates with a total loan amount that is substantially greater than the value of the leasehold); provided, however, that such leasehold mortgage shall meet each of the following terms, conditions and requirements:

(1)

The leasehold mortgage shall contain provisions requiring that copies of all notices of default under said leasehold mortgage must be sent to the County;

(2)

The leasehold mortgage shall be subordinate to the County’s fee interest in the premises and the County’s interest under this lease, and shall not cover any interest in real property other than the leasehold estate created by this lease, any improvements constructed by Lessee on the Premises and any easement, to the extent it benefits the premises; and

(3)

The leasehold mortgage shall not permit or authorize, or be construed to permit or authorize, any lender to devote the premises to any uses, or to construct any improvements thereon, other than those uses and improvements provided for and authorized by this lease.

Lender’s Rights . During the continuance of any leasehold mortgage permitted by this lease, and until such time as the lien of any leasehold mortgage has been extinguished: Following a successor by foreclosure’s acquisition of Lessee’s interest in the lease, such successor by foreclosure shall be entitled to assign its interest in this lease without County’s prior consent, subject to compliance with this Paragraph 9.16(b) and Paragraphs 9.16(e) and 9.16(f) below. All subsequent transfers by the transferee of

lender shall comply with the provisions of this lease, including all restrictions on transfer set forth in Section 4.11 hereof. Notwithstanding any other provision of this lease, so long as any Leasehold Mortgage exists, Lessor will not modify or amend this lease in any manner nor agree with Lessee to any cancellation, rescission or surrender of this lease without the prior written consent of any then Leasehold Mortgagee.

Default Notice . County, upon providing Lessee with any notice of default under this lease, shall, at the same time, provide a copy of such notice to every lender who has requested such notice, in writing, from County. From and after such notice has been given to a lender, such lender shall have the same period for remedying the default complained of as the cure period provided to Lessee pursuant to Section 6.01, plus the additional period provided to such lender as specified below. County shall accept performance by or at the instigation of such lender as if the same had been done by Lessee.

Lender Cure Rights . Notwithstanding anything to the contrary contained in this lease, County shall have no right to terminate this lease on account of an uncured default of Lessee unless, following expiration of Lessee’s applicable cure period, County first provides each lender not less than thirty (30) days notice of its intent to terminate and lender fails to cure such default within thirty (30) days after receipt of such notice or cure or, in good faith and with reasonable diligence and continuity, commences to cure any non-monetary default within said thirty (30) day period. If such non-monetary default cannot reasonably be cured within said thirty (30) day period (or is such that possession of the premises is necessary to remedy the default), the date for termination shall be extended for such period of time as may be reasonably required to remedy such default, if (a) lender shall have fully cured any monetary default of Lessee within thirty (30) days after its receipt of notice of County’s intent to terminate, and shall continue to pay currently such monetary obligations as and when the same are due, and (b) lender continues its good faith and diligent efforts to remedy such non-monetary default (including its acquisition of possession of the premises if necessary to the cure of such default). Nothing in this Section 9.16 shall be construed to require a lender to continue any foreclosure proceeding it may have commenced against Lessee after all defaults have been cured by lender, and if such defaults shall be cured and the lender shall discontinue such foreclosure proceedings, this lease shall continue in full force and effect as if Lessee had not defaulted under this lease.

Obligations of successor by foreclosure . No lender, acting in such capacity, shall be deemed to be an assignee or transferee of this lease or of the leasehold estate hereby created so as to require such lender, in that capacity, to assume the performance of any of the terms, covenants or conditions on the part of the Lessee to be performed hereunder, unless and until it acquires

the interest of Lessee hereunder. Except as provided in Paragraph 9.16(b), upon acquiring Lessee’s leasehold, a successor by foreclosure may, without the consent of County, sell and assign the leasehold estate on such terms and to such persons and entities as are acceptable to such successor by foreclosure and thereafter be relieved of all obligations of Lessee first arising under this lease after the date of such sale or assignment; provided, however, that such assignee of the successor by foreclosure shall have delivered to County an assumption agreement. Any such assignee of the successor by foreclosure or any other assignee of this lease or of the leasehold estate created hereby by a conveyance in lieu of foreclosure or any purchaser at any foreclosure sale of this lease or of the leasehold estate hereby created (other than the lender), shall be deemed to be a transferee of this lease, and shall be deemed to have agreed to perform all of the terms, covenants and conditions on the part of the Lessee to be performed hereunder from and after the date of such purchase and assignment and, from and after such date, shall be subject to all the terms of this lease, including all restrictions on further transfer set forth in Section 4.11.

Bona fide foreclosure . Notwithstanding any other provision of this lease, any bona fide sale of this lease and of the leasehold estate hereby created in any proceedings for the foreclosure of any leasehold mortgage or a bona fide assignment or transfer of this lease and of the leasehold estate hereby created in lieu of foreclosure of a leasehold mortgage shall be deemed to be a permitted sale, transfer or assignment of this lease and of the leasehold estate hereby created so long as such transfer has not been undertaken for the purpose or with the intent of circumventing any otherwise applicable restrictions upon transfers of Lessee’s interest under this lease.

Amendments to Lease . Lessor will agree to such reasonable amendments to this lease as may be required by any Leasehold Mortgagee provided that no such amendments shall (i) shall affect the term of this Lease or any monetary obligation of Lessee or Lessor under this lease, or (ii) impose any additional material liabilities or obligations upon Lessor.

New Lease . If this lease is terminated for any reason, including rejection of this lease in a bankruptcy proceeding, Lessor agrees to enter into a new lease with the Leasehold Mortgagee for the then remainder of the term of this lease, at the rent and upon the other terms, covenants, conditions and agreements contained in this lease, provided the Leasehold Mortgagee delivers a written request to Lessor for such new lease within thirty (30) days after the Leasehold Mortgagee receives written notice of the termination, and further provided the Leasehold Mortgagee agrees in writing to perform and observe all covenants contained in such new lease. If the holders of more than one Leasehold Mortgage shall make written requests upon Lessor for a new lease in accordance with the provisions of this paragraph, the new lease shall be entered into pursuant to the request of the holder whose Leasehold Mortgage shall be prior in lien thereto, as evidenced by a current title insurance policy or guaranty provided by the Leasehold Mortgagee at its expense, and thereupon the written requests for a new lease of each holder of a Leasehold Mortgage junior in lien shall be and be deemed to be void and of no force and effect.


DATED:	6-18-2008	DATED:	6/17/08
COUNTY:	SNOHOMISH COUNTY	LESSEE:	CAPSTONE PF LLC

/s/ D. T. Waggoner		/s/ Kirk Johnson
Airport Director		Its: Member

STATE OF WASHINGTON

)

STATE OF:

Washington

)

ss.

)

ss.

COUNTY OF SNOHOMISH

)

COUNTY OF:

King

)



On this day personally appeared before me Dave Waggoner to me known to be the Airport Director of the Snohomish County Airport and the person who executed the within and foregoing instrument, and acknowledged that he signed the same as its free and voluntary act and deed, for the uses and purposes therein mentioned.				On this day personally appeared before me Kirk A. Johnson to me known to be the Member of the Capstone PF LLC and the person who executed the within and foregoing instrument, and acknowledged that he signed the same as its free and voluntary act and deed, for the uses and purposes therein mentioned.

DATED: 06-18-2008				DATED: June 17, 2008

/s/ Paula A. Bond				/s/ Deborah Bishop

Notary Public in and for the State of WA				Notary Public in and for the State of WA

Residing at: Everett				Residing at: Woodinville, WA

My appointment expires:				My appointment expires: 2-8-09

[SEAL]				[SEAL]

Approved as to form:				Approved:

Jim Maynard 6/18/2008 Per Fax

Deputy Prosecuting Attorney				Risk Management

EXHIBIT 10.3

FIRST AMENDMENT TO BUILDING LEASE AND SUBLEASE

This Amendment is made as of June 25, 2008 between CAPSTONE PF LLC, a Washington limited liability company ( “Landlord” ), and KORRY ELECTRONICS CO., a Delaware corporation ( “Tenant” ).

RECITALS:

A. Landlord and Tenant entered into a Building Lease and Sublease dated as of March 26, 2008, pursuant to which Tenant agreed to lease from Landlord certain premises to be constructed by Landlord as more particularly described in the Lease. Capitalized terms used in this Amendment and not otherwise defined shall have the meanings given to them in the Lease.

B. The obligations of Tenant under the Lease ARE guaranteed by Esterline Technologies Corporation, a Delaware corporation ( “Guarantor” ), pursuant to a Guaranty of Lease dated as of March 26, 2008 (the “Guaranty” ).

C. Landlord and Tenant have agreed to modify certain provisions of the Lease, as provided below.

AGREEMENT:

For and in consideration of the mutual covenants in this Amendment, and the mutual covenants in the Lease, Landlord and Tenant agree as follows:

1. Building . Section 1.1 of the Lease is amended to read in its entirety as follows:

The Building, having a foot print of approximately 211,000 square feet and consisting of manufacturing space and accessory office space, including 52,000 square feet of mezzanine space for accessory office, to be built on the Land in the approximate location shown on the Preliminary Site Plan, in accordance with the terms of the Workletter attached to this Lease as Exhibit D (the “Workletter” ).

2. Minimum Rent . Section 4.2(a) of the Lease is amended to read in its entirety as follows:

Commencing on the Commencement Date, Tenant shall pay to Landlord at the address specified in Section 1.8 above or at such other entity or address as may be specified by Landlord from time to time, without notice, setoff or deduction whatsoever, as fixed monthly minimum rent (“Minimum Rent”) equal to the sum of (A) the Base Rent payable from time to time pursuant to the Ground Lease, which shall not be increased (except as expressly provided in the Ground Lease) without Tenant’s prior written consent, plus (B) the “Fixed Rent” (defined below). As used in this Lease, the term “Fixed Rent” means (1) the “Premises Cost” (defined below), (2) multiplied by an interest rate equal to the greater of (A) eight and three quarters percent (8.75%) per annum and (B) three hundred seventy

-1-

five (375) basis points in excess of the current average yield of thirty (30)-year U.S. Treasury Constant Maturities (as published in Federal Reserve Statistical Release H.15 [519]) (the “Index” ), to be determined based on the Index level as of the date which is forty five (45) days following the date a building permit is issued for the construction of the Building, and (3) divided by twelve (12). To the extent commercially feasible, Landlord will use reasonable efforts to lower the three hundred seventy-five (375) basis point spread described in the preceding sentence. If the Federal Reserve Board ceases to publish the Index, then Landlord shall select such replacement index as Landlord in its discretion determines most closely approximates the Index. For purposes of this Lease, the term “Premises Cost” means $26,320,960. If Landlord refinances the Premises within twelve (12) months following the Commencement Date, then the Fixed Rent will be recalculated using an interest rate equal to the greater of (A) eight and three quarters percent (8.75%) per annum and (B) three hundred seventy five (375) basis points in excess of the Index level as of the date of such refinancing, but in no event shall the Fixed Rent be increased as a result of any such recalculation.

3. Tenant Payment Obligations . Clause (d) in Section 4.3 of the Lease is amended to read as follows:

(d) expenses directly related to the management, maintenance and repair of the Premises, except to the extent set forth in Section 8.1, including property management fees.

4. Ground Lease Rents . Tenant shall be responsible for paying the Base Rent payable from time to time pursuant to the Ground Lease, including any Base Rent payable under the Ground Lease for any periods prior to the Commencement Date. All such Base Rent shall be due and payable in accordance with the terms of the Ground Lease, and Tenant hereby acknowledges receipt of a copy of the fully executed Ground Lease. If Landlord is entitled to any credits against the Base Rent for costs incurred by Landlord pursuant to Section 1.07 of the Ground Lease, Tenant will pay Landlord the full amount of the Base Rent otherwise payable under the Ground Lease (i.e., the full Base Rent without taking any credits into consideration), and Landlord will be entitled to retain the portion of the Base Rent paid by Tenant attributable to such credits.

5. Guaranty . By executing this Amendment below, Guarantor hereby consents to the amendments to the Lease provided for in this Amendment and confirms and ratifies its obligations under the Guaranty.

6. No Other Changes . Except as expressly amended or modified pursuant to this Amendment, all of the terms and conditions of the Lease are hereby ratified and affirmed and shall remain in full force and effect. This Amendment may be executed in counterparts, each of which shall be an original but all of which together will constitute one and the same agreement.

-2-

Dated as of the day and year first written above.

LANDLORD:

CAPSTONE PF LLC, a Washington limited liability company



By:	Capstone Partners NW LLC, a Washington limited liability company, its Manager

	By:	CBIL Group, LLC, a Washington limited liability company, Authorized Member

			By:	/s/ Kirk Johnson
				Kirk Johnson, Sole Member

TENANT:

KORRY ELECTRONICS CO., a Delaware corporation



By		/s/ Dan McFeeley
Its		President

GUARANTOR:

ESTERLINE TECHNOLOGIES CORPORATION,

a Delaware corporation



By
Its

-3-

EXHIBIT 10.4

SECOND AMENDMENT TO BUILDING LEASE AND SUBLEASE

This Amendment is made as of July 30, 2008 between CAPSTONE PF LLC, a Washington limited liability company (“Landlord”), and KORRY ELECTRONICS CO., a Delaware corporation (“Tenant”).

RECITALS:

A. Landlord and Tenant entered into a Building Lease and Sublease dated as of March 26, 2008, as amended by a First Amendment to Building Lease and Sublease dated as of June 25, 2008, pursuant to which Tenant agreed to lease from Landlord certain premises to be constructed by Landlord as more particularly described in the Lease. Capitalized terms used in this Amendment and not otherwise defined shall have the meanings given to them in the Lease.

B. The obligations of Tenant under the Lease are guaranteed by Esterline Technologies Corporation, a Delaware corporation (“Guarantor”), pursuant to a Guaranty of Lease dated as of March 26, 2008 (the “Guaranty”).

C. Landlord and Tenant have agreed to modify certain provisions of the Lease, as provided below.

AGREEMENT:

For and in consideration of the mutual covenants in this Amendment, and the mutual covenants in the Lease, Landlord and Tenant agree as follows:

1. Commencement Date . Section 1.3 of the Lease is amended to read as follows:

The term of this Lease shall commence on the date (the “Commencement Date”) on which Landlord has achieved “Substantial Completion” of the “Base Building Improvements” (as such terms are defined in the Workletter), and shall continue for a period of thirty (30) years thereafter, unless sooner terminated or extended in accordance with the terms of this Lease.

2. Prepaid Rent . The last sentence in Section 1.6 of the Lease is amended to read as follows:

So long as Tenant is not in default under this Lease, this Prepaid Rent shall be applied to the Minimum Rent payable by Tenant for the first month following the Commencement Date.

3. Ground Lease . The parties acknowledge that the Ground Lease has been executed by the County and the termination right in Section 3.1 of the Lease is no longer applicable.


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4. Delivery of Premises . Section 7.1 of the Lease is amended to read as follows:

Subject to delays for “Force Majeure” (as defined in Section 17.10) and “Tenant Delays” (as defined in the Workletter), Landlord shall promptly commence, and diligently pursue in good faith to completion, the Work described in the Workletter. Landlord shall use reasonable efforts to complete the Work on or before the “Anticipated Occupancy Date” (as defined in the Workletter), and shall deliver the Premises to Tenant when the Work is Substantially Complete in accordance with the terms of the Workletter. If Landlord fails to deliver the Premises to Tenant with the Work Substantially Complete by the Anticipated Occupancy Date, and the cause of the delay is not a Tenant Delay or a delay resulting from Force Majeure, Tenant will be entitled to rent abatement and certain other remedies as more fully described in Paragraph 4(b) of the Workletter. If for any reason other than a Tenant Delay, Landlord fails to deliver the Premises to Tenant with the Work Substantially Complete by June 30, 2010, then Tenant may elect to terminate this Lease by giving written notice to Landlord at any time prior to the date Landlord notifies Tenant in writing that the Work is Substantially Complete.

5. Option to Purchase . The following section is added to the Lease as new Section 10.6:

10.6. Option to Purchase.

(a) Option to Purchase . Landlord grants to Tenant an option (the “Purchase Option”) to purchase the Building and associated improvements, together with Landlord’s interest in the Ground Lease (collectively, the “Property”), all subject to the terms of this Section 10.6. Tenant may exercise the Purchase Option by delivering written notice of its exercise (the “Purchase Option Notice”) to Landlord during the period beginning on the date that is the fifth (5 ^th ) anniversary of the Commencement Date and ending at 5:00 pm, Pacific Time, thirty (30) days later (the “Option Exercise Period” ). Landlord has certain rights to accelerate the date of the Option Exercise Period as set forth in Section 10.6(b) below. It shall be a condition precedent to Tenant’s right to exercise the Purchase Option that (i) this Lease shall be in full force and effect at the time of delivery of Tenant’s Purchase Option Notice, and (ii) both at the time of delivery of Tenant’s Purchase Option Notice and at the time designated for closing there shall not then exist any default on the part of Tenant under this Lease which remains uncured after the expiration of applicable notice and cure periods. Any election by Tenant not to exercise a duly granted Offer Right under Section 10.5 of this Lease, and any sale of the Property by Landlord to a third party under Section 10.5 as a result of Tenant’s election not to exercise its Offer Right, shall not affect or invalidate any of Tenant’s rights under this Section 10.6, all of which shall continue in full force and effect.

(b) Landlord’s Right to Accelerate Option Exercise Period . Landlord shall have the right to notify Tenant that the Option Exercise Period shall be accelerated, upon giving Tenant written notice thirty (30) days prior to the date Landlord wishes the Option Exercise Period to commence


		-2-		2ND AMD LSE-FINAL

(“Acceleration Notice”). If an Acceleration Notice is given by Landlord, the accelerated Option Exercise Period (“Accelerated Option Exercise Period”) shall commence thirty (30) days thereafter. If an Acceleration Notice is given by Landlord prior to the third (3rd) anniversary of the Commencement Date and Tenant does not exercise the Purchase Option during the Accelerated Option Exercise Period, then the Purchase Option shall remain in full force and effect, and Tenant may still exercise the Purchase Option as described in Section 10.6(a) during the original Option Exercise Period. If an Acceleration Notice is given by Landlord on or after the third (3rd) anniversary of the Commencement Date and Tenant does not exercise the Purchase Option during the Accelerated Option Exercise Period, then the Purchase Option shall be deemed to have been waived and surrendered by Tenant and shall no longer be in force or effect.

(i) The purchase price for the Property (the “Purchase Price”) shall be the Fair Market Value (as defined below) of the Property; provided, however, that if Landlord shall then have a first mortgage loan in place secured by the Property, the Purchase Price shall not be less than the amount necessary to pay off such loan (exclusive of prepayment fees and charges, which shall be paid by Landlord at its sole cost). As used herein, the term “Fair Market Value” shall mean the price that a willing seller could obtain from a willing, third party purchaser of the Property in an arms-length transaction, neither party being under any compulsion to complete the purchase and sale of the Property, taking into account the location, size, type and quality of the Properly, and all other factors that would be relevant to a third party desiring to purchase the Property in determining the purchase price that party would be willing to pay therefor. Excluded from the calculation of the Fair Market Value of the Property shall be the value of any improvements, alterations, fixtures and other property that were part of the Tenant’s Improvements or that were otherwise constructed or installed at Tenant’s expense.

(ii) If Landlord and Tenant shall not have agreed on the Fair Market Value of the Property within thirty (30) days after Tenant shall have exercised the Purchase Option, each party shall, within the following twenty (20) days, select a neutral, licensed and qualified investment sales broker (a “Broker”), with experience in commercial real estate activities, including at least ten (10) years’ experience in selling and/or buying commercial/industrial property in the greater Everett or Seattle, Washington, metropolitan areas, who is not a current or former employee of either Landlord or Tenant (or a relative of any such employee), and is not currently and has not previously been engaged by either Landlord or Tenant in connection with the sale, purchase or leasing of any other property. If only one party selects a Broker during such twenty (20) day period, that Broker shall determine the Fair Market Value. If two Brokers are so chosen and they fail to agree on the Fair Market Value of the Property within thirty (30) days after the date of the last Broker’s selection, then they shall together select a neutral and similarly qualified third Broker (the “Neutral Broker”). If the two


		-3-		2ND AMD LSE-FINAL

Brokers fail to agree on a Neutral Broker within ten (10) days after expiration of the thirty (30) day period, then either party, on behalf of both, may apply to the then presiding judge of the Superior Court of Snohomish County for the selection of the Neutral Broker. Within seven (7) days after the selection of the Neutral Broker, the parties’ respective Brokers shall exchange their proposed resolutions of the Fair Market Value. The role of the Neutral Broker shall be to select, within thirty (30) days thereafter, which of the two proposed resolutions most closely approximates his or her determination of Fair Market Value. The Neutral Broker shall have no authority or right to propose a middle ground or any modification of either of the two proposed resolutions. The resolution chosen by the Neutral Broker as most closely approximating his or her determination shall constitute the Fair Market Value of the Property and shall be final and binding upon the parties. The Neutral Broker’s determination shall be given in writing to Landlord and Tenant. Each party shall pay the cost of its own appraiser and one-half of the cost of the Neutral Broker.

(d) Title Inspection . Within ten (10) business days after receipt of the Purchase Option Notice, Landlord shall order a preliminary commitment for an extended owner’s policy of title insurance for the Property (the “Preliminary Commitment”) from Transnation Title Insurance Company (or another title insurance company reasonably acceptable to both parties) in Seattle, Washington (the “Title Company”). Landlord shall deliver a copy of the Preliminary Commitment to Tenant promptly upon receipt of same. Within ten (10) business days after Tenant’s receipt of the Preliminary Commitment, Tenant shall notify Landlord, in writing, of any defects or encumbrances set forth in the Preliminary Commitment to which Tenant objects, and if Tenant does not timely object, Tenant shall be deemed to have approved all matters contained in the Preliminary Commitment. Within ten (10) business days of receiving Tenant’s objection notice (if any), Landlord shall give written notice to Tenant specifying which, if any, of the defects and/or encumbrances to which Tenant objects Landlord will cure prior to the closing of the sale. Within five (5) business days after receiving Landlord’s notice specifying which, if any, defects or encumbrances Landlord will cure prior to closing, Tenant must deliver written notice to Landlord of Tenant’s election to either (i) proceed with the purchase of the Property despite any remaining defects and/or encumbrances on the title (the “Permitted Encumbrances”), or (ii) terminate the purchase of the Property due to Tenant’s dissatisfaction with the condition of title, and thereby terminate its Purchase Option. If Tenant fails to deliver notice of its election to either proceed with or terminate the sale within such five (5) business day period, Tenant shall be deemed to have elected to terminate its purchase of the Property. If Tenant elects to terminate its purchase of the Property or Tenant is deemed to have elected to terminate its purchase of the Property, the Purchase Option shall terminate and expire without further action by either party, and this Lease shall continue in full force and effect.


		-4-		2ND AMD LSE-FINAL

(e) Closing .

(i) Closing Date . The closing of the sale shall occur through escrow, with the escrow department of the Title Company, on the date that is four (4) weeks after the final determination of the Purchase Price (the “Closing Date”).

(ii) Conveyance . Landlord shall convey the Property to Tenant by (A) a duly executed and acknowledged bargain and sale deed as to the Building and associated improvements, subject only to the Permitted Encumbrances (the “Deed”), and (B) a duly executed and acknowledged Assignment and Assumption of Ground Lease, in form and substance reasonably satisfactory to Landlord and Tenant (“Assignment and Assumption of Ground Lease”).

(iii) Escrow Deposits .

(1) Landlord’s Escrow Deposits . On or before the Closing Date, Landlord shall deposit into escrow the following: (A) the duly executed and acknowledged Deed; (B) a duly executed and completed Real Estate Excise Tax Affidavit, in the form required by Washington law; (C) two originals of a duly executed and acknowledged Assignment and Assumption of Ground Lease; (D) written consent from the landlord under the Ground Lease to the assignment thereof to Tenant, if required by the terms of the Ground Lease; (E) a duly executed and completed nonforeign affidavit, certifying that Landlord is not a foreign person as such term is defined by the Internal Revenue Code; and (F) all other documents, instruments or agreements as are reasonably required by the escrow holder to close the escrow and consummate the sale of the Property in accordance with the provisions of this Section 10.6.

(2) Tenant’s Escrow Deposits . On or before the Closing Date, Tenant shall deposit into escrow the following: (A) immediately available U.S. funds sufficient to pay the full Purchase Price plus Tenant’s share of the closing costs; (B) a duly executed and completed Real Estate Excise Tax Affidavit, in the form required by Washington law; (C) two originals of an executed and acknowledged Assignment of Ground Lease, and (D) all other documents, instruments or agreements as are reasonably required by the escrow holder to close the escrow and consummate the sale of the Property in accordance with the provisions of this Section 10.6.

(iv) Closing Costs . Through escrow at closing, Landlord shall pay (A) the premium for the standard coverage portion of the owner’s title policy insuring title to the Property in Tenant in the amount of the Purchase Price, plus sales tax on that premium; (B) one half of the escrow agent’s escrow fee, and (C) the State of Washington Real Estate Excise Tax due upon the conveyance of the Property. Through escrow at closing, Tenant shall pay (A) the cost of recording the conveyance of the Property, (B) one half of the escrow


		-5-		2ND AMD LSE-FINAL

agent’s escrow fee, and (C) the cost differential between the premium for any extended title coverage and/or endorsements requested by Tenant, and the premium paid by Landlord for the standard coverage policy, plus the sales tax on that cost differential. Each party shall bear its own legal fees incurred in connection with the sale. At closing, the parties shall prorate and make appropriate adjustments for real estate taxes, rents, and all amounts prepaid by Tenant prior to closing, and shall make other appropriate closing prorations.

6. Minimum Rent . The reference to “Section 4.2(a)” of the Lease in Paragraph 2 of the First Amendment to the Lease should have been a reference to “Section 4.1(a)” of the Lease.

7. Abatement of Rent . The rent abatement provided for in Section 11.2 of the Lease shall terminate when the Base Building Improvements are restored.

8. Workletter . The Workletter attached to the Lease as Exhibit D is hereby replaced by Exhibit D to this Amendment.

9. Schedule . The Design and Construction Schedule attached to the Lease as Exhibit D-2 is hereby replaced by Exhibit D-2 to this Amendment.

10. Guaranty . By executing this Amendment below, Guarantor hereby consents to the amendments to the Lease provided for in this Amendment and confirms and ratifies its obligations under the Guaranty.

11. No Other Changes . Except as expressly amended or modified pursuant to this Amendment, all of the terms and conditions of the Lease are hereby ratified and affirmed and shall remain in full force and effect. This Amendment may be executed in counterparts, each of which shall be an original but all of which together will constitute one and the same agreement.

Dated as of the day and year first written above.


LANDLORD:

CAPSTONE PF LLC, a Washington limited liability company

By:	Capstone Partners NW LLC, a Washington limited liability company, its Manager

	By:	CBIL Group, LLC, a Washington limited liability company, Authorized Member

		By:	/s/ Kirk Johnson
			Kirk Johnson, Sole Member

[signatures of Tenant and Guarantor on next page]


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TENANT:

KORRY ELECTRONICS CO. , a Delaware corporation

By		/s/ Dan McFeeley
		Its President


GUARANTOR:

ESTERLINE TECHNOLOGIES CORPORATION, a Delaware corporation

By		/s/ Robert D. George
		Its VP, CFO, Secretary & Treasurer


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STATE OF WASHINGTON	)
	)	ss.
COUNTY OF KING	)

On this 31 ^st day of July, 2008, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn personally appeared Kirk Johnson , known to me to be the sole member of CBIL Group, LLC , an authorized member of Capstone Partners NW LLC , the manager of CAPSTONE PF LLC , a Washington limited liability company, the limited liability company that executed the foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said limited liability company, for the purposes therein mentioned, and on oath stated that he was authorized to execute said instrument.

I certify that I know or have satisfactory evidence that the person appearing before me and making this acknowledgment is the person whose true signature appears on this document.

WITNESS my hand and official seal hereto affixed the day and year in the certificate above written.



				/s/ Susan J. Benson
				Signature

[SEAL]				Susan J. Benson
				Print Name
				NOTARY PUBLIC in and for the State of
				Washington, residing at Kenmore, WA
				My commission expires 2-01-10


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STATE OF WA	)
	)	ss.
COUNTY OF KING	)

On this 30 ^th day of July, 2008, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn personally appeared, Daniel McFeeley, known to me to be the President of KORRY ELECTRONICS CO. , a Delaware corporation, the corporation that executed the foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said corporation, for the purposes therein mentioned, and on oath stated that he/she was authorized to execute said instrument.

I certify that I know or have satisfactory evidence that the person appearing before me and making this acknowledgment is the person whose true signature appears on this document.

WITNESS my hand and official seal hereto affixed the day and year in the certificate above written.



[SEAL]		/s/ Kathryn L. Simpson
		Signature

		Kathryn L. Simpson
		Print Name
		NOTARY PUBLIC in and for the State of
		Washington, residing at Federal Way
		My commission expires 08/29/2009


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EXHIBIT D

REVISED WORKLETTER

This Workletter is attached to and made a part of that certain Building Lease and Sublease between CAPSTONE PF LLC , a Washington limited liability company (“Landlord”), and KORRY ELECTRONICS CO., a Delaware corporation (“Tenant”). The purpose of this Workletter is to set forth how the Building and the tenant improvements to the Building are to be constructed and designed.

Landlord and Tenant agree as follows:

1. Defined Terms . Unless the context otherwise requires, terms used in this Workletter shall have the same meaning as such terms in the Lease. The following capitalized terms shall have the meanings set forth below.

“Anticipated BBI Completion Date” means April 1, 2009.

“Anticipated Occupancy Date” means September 30, 2009.

“Architect” means Craft Architects, PLLC.

“Base Building Improvements” means the building shell and core and other improvements generally described on Exhibit D-l attached.

“BBI Construction Contract” means the contract between Landlord and Contractor for the construction and installation of the Base Building Improvements, which contract shall be subject to Tenant’s prior written consent (such consent not to be unreasonably withheld or delayed). It is anticipated that the BBI Construction Contract will be in the form of a Cost of the Work Plus a Fee with a Guaranteed Maximum Price.

“BBI Plans and Specifications” means all plans, specifications and drawings necessary to construct the Base Building Improvements, which shall include all construction documents, and mechanical, electrical and plumbing drawings necessary to complete the Base Building Improvements.

“Business Day” means any day other than a Saturday, Sunday or other day on which United States national banks in Seattle, Washington are authorized or required by law to be closed for business.

“Contractor” means Foushee & Associates, Inc., a Washington corporation.

“Substantial Completion” means (a) with respect to the Base Building Improvements, complete to the extent Contractor can reasonably commence making the Tenant’s Improvements, subject to minor details of construction and mechanical adjustments to the Base Building Improvements that remain to be completed by Landlord and will not adversely interfere with the construction of the Tenant’s Improvements, as evidenced by issuance of a Standard AIA Certificate of Substantial Completion executed by the Architect, and (b) with respect to the


		-10-		2ND AMD LSE-FINAL

Tenant’s Improvements, complete to the extent that Tenant may reasonably use and occupy the Premises for the purpose for which the same were intended, subject to minor details of construction and mechanical adjustments that remain to be completed by Landlord, as evidenced by issuance of a Standard AIA Certificate of Substantial Completion executed by the Architect and issuance of a certificate of occupancy (or other governmental approval permitting the occupancy of the Premises by Tenant) by the local governmental authority.

“Tenant’s Improvements” means all improvements to the Premises not constituting Base Building Improvements.

“TI Construction Contract” means the contract between Landlord and Contractor for the construction and installation of the Tenant’s Improvements, which contract shall be subject to Tenant’s prior written consent (such consent not to be unreasonably withheld or delayed). It is expected that the TI Construction Contract will be in the form of a Cost of the Work Plus a Fee with a Guaranteed Maximum Price.

“TI Plans and Specifications” means all plans, specifications and drawings necessary to construct the Tenant’s Improvements, which shall include all construction documents, and mechanical, electrical and plumbing drawings necessary to complete the Tenant’s Improvements.

“Work” means the Base Building Improvements and Tenant’s Improvements to be constructed by Landlord under this Workletter.

2. Preparation and Approval of Plans and Specifications . Promptly after the full execution of the Lease, Landlord and Tenant will meet and agree on the preliminary specifications for the Base Building Improvements and the Tenant’s Improvements. Once Landlord and Tenant have agreed on the preliminary specifications for the Base Building Improvements and the Tenant’s Improvements, Landlord shall engage Architect to design the Base Building Improvements and the Tenant’s Improvements and to prepare the BBI Plans and Specifications and the TI Plans and Specifications. Landlord and Tenant will work together to cause Architect to prepare the BBI Plans and Specifications and the TI Plans and Specifications, and obtain the County’s approval of the BBI Plans and Specifications and the TI Plans and Specifications (to the extent the County’s approval is required pursuant to the Ground Lease). The parties shall use commercially reasonable efforts to (a) complete the BBI Plans and Specifications by August 31, 2008, (b) complete the TI Plans and Specifications by October 31, 2008, and (c) meet the various deadlines in the schedule attached to this Workletter as Exhibit D-2 . Landlord will be primarily responsible for causing the completion of the BBI Plans and Specifications by August 31, 2008, and Tenant will be primarily responsible for causing the completion of the TI Plans and Specifications by October 31, 2008. Tenant understands Landlord’s review and approval of the BBI Plans and Specifications and the TI Plans and Specifications pursuant to this Workletter are solely to protect the interests of Landlord, and Landlord shall not be the guarantor nor responsible for the correctness of the BBI Plans and Specifications and the TI Plans and Specifications, or responsible for the compliance of the BBI Plans and Specifications and the TI Plans and Specifications with applicable law.


		-11-		2ND AMD LSE-FINAL

3. Construction of Improvements .

(a) Promptly after Landlord and Tenant have reached agreement on the BBI Plans and Specifications, all required master use permits, building permits and other permits necessary to commence and complete the Base Building Improvements are obtained (collectively, “BBI Permits” ), and any required approvals from the County are obtained under the Ground Lease, Landlord will enter into the BBI Construction Contract with Contractor and will cause the Base Building Improvements to be completed in accordance with the BBI Plans and Specifications and the BBI Permits, as the same may be revised in accordance with Section 5 below. Landlord shall obtain or cause the Contractor to obtain the BBI Permits and all other necessary permits, licenses and approvals necessary for the Base Building Improvements; provided, however, that the terms and conditions of the BBI Permits (including, but not limited to, any conditions contained in the Master Use Permit and any transportation demand management or similar requirements) shall be subject to the prior written approval of Tenant. Subject to Section 5 below, the parties agree the cost of completing the Base Building Improvements shall not exceed $26,320,960. If the cost of completing the Base Building Improvements exceeds $26,320,960, Landlord shall be responsible for the excess costs, except as provided in Section 5 below.

(b) Promptly after Landlord and Tenant have reached agreement on the TI Plans and Specifications, all required master use permits, building permits and other permits necessary to commence and complete the Tenant’s Improvements are obtained (collectively, “TI Permits” ), and any required approvals from the County are obtained under the Ground Lease, Landlord will enter into the TI Construction Contract with Contractor and will cause the Tenant’s Improvements to be completed in accordance with the TI Plans and Specifications and the TI Permits, as the same may be revised in accordance with Section 5 below. Landlord shall obtain or cause the Contractor to obtain the TI Permits and all other necessary permits, licenses and approvals necessary for the Tenant’s Improvements; provided, however, that the terms and conditions of the TI Permits (including, but not limited to, any conditions contained in the TI Permits and any transportation demand management or similar requirements) shall be subject to the prior written approval of Tenant. Prior to executing the TI Construction Contract, Landlord will provide Tenant with the final construction budget for the Tenant Improvements for Tenant’s approval and a schedule for the completion of the Tenant’s Improvements. Landlord shall not execute the TI Construction Contract prior to receipt of Tenant’s approval of such contract and the final construction budget and the schedule for the Tenant’s Improvements.

(c) From and after the commencement of the Work, Landlord shall deliver to Tenant, no less than once every month, a budget report for the Work, which shall contain the lines items shown in the final approved budget and schedule for the Work, and shall otherwise be in a form reasonably acceptable to Tenant and containing the information reasonably requested by Tenant (e.g., specifying “approved revisions,” “amounts requested,” “balance to complete,” “current revised budget,” and “variances to budget”). Throughout the design and construction process and until the final budget is reconciled after Substantial Completion of the Work, Landlord shall make available to Tenant for inspection all books and records, as well as contracts, bills, vouchers and checks, and such other documents as are necessary to properly review all costs of the Work.


		-12-		2ND AMD LSE-FINAL

(d) Landlord will be solely responsible for paying the costs of constructing and completing the Base Building Improvements, except as otherwise provided in this Workletter. Tenant will be solely obligated to pay for the costs of constructing and completing the Tenant’s Improvements (“Tenant’s Construction Cost Obligation”). Tenant shall pay Tenant’s Construction Cost Obligation within fifteen (15) Business Days after written notice from Landlord of the amount due from Tenant. At the option of Landlord, amounts payable by Tenant pursuant to this paragraph shall be paid directly to Contractor or such other party as Landlord may designate in writing.

(e) Landlord shall obtain from the Contractor, in both the BBI Construction Contract and the TI Construction Contract, a warranty for a period expiring twelve (12) months after Substantial Completion of the Base Building Improvements and the Tenant Improvements, as applicable (“Warranty Period”), with respect to any defects (latent or otherwise) in the construction of the Base Building Improvements or the Tenant’s Improvements, and if, prior to the expiration of the Warranty Period, Tenant discovers any defects in the Base Building Improvements or the Tenant Improvements, Landlord shall, at Tenant’s request, use its best efforts to enforce such warranty for the benefit of Landlord and Tenant. The BBI Construction Contract shall also include such liquidated damages penalties as Landlord and Tenant agree upon for failure to Substantially Complete the Base Building Improvements by the Anticipated BBI Completion Date. The TI Construction Contract shall also include such liquidated damages penalties as Landlord and Tenant agree upon for failure to Substantially Complete the Tenant’s Improvements by the Anticipated Occupancy Date. The BBI Construction Contract and the TI Construction Contract shall also provide that Landlord and Tenant shall have a right, within a reasonable period of time following Substantial Completion of the Tenant’s Improvements, to conduct an audit of the books and records of Contractor to confirm the costs actually incurred with respect to the construction of the Base Building Improvements and the Tenant’s Improvements and similar matters under BBI Construction Contract and the TI Construction Contract. The results of the audit shall be made available to both Landlord and Tenant. The BBI Construction Contract and the TI Construction Contract shall provide for binding arbitration of all disputes arising from the audit.

(f) Landlord shall not, without first obtaining Tenant’s prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned, agree to any amendments to the BBI Construction Contract, the TI Construction Contract, the BBI Plans and Specifications, the TI Plans and Specifications, the BBI Permits, the TI Permits, or any other matters which could increase the cost of the work associated with the Base Building Improvements or the Tenant’s Improvements (including, but not limited to, change orders).

4. Acceptance of the Premises .

(a) Landlord will notify Tenant when the Tenant’s Improvements are Substantially Complete. Within fifteen (15) Business Days after receiving such notice, and prior to move-in of any of Tenant’s furniture, fixtures or equipment (except as otherwise permitted pursuant to Section 6 below), Tenant shall inspect the Premises for any deficiencies in the Base Building Improvements or the Tenant’s Improvements. A “punchlist” of all the deficiencies in the Building Improvements and the Tenant’s Improvements shall be prepared and agreed upon by both Landlord and Tenant. Landlord will correct defective items stated in the punchlist which


		-13-		2ND AMD LSE-FINAL

are the responsibility of Landlord or the Contractor. If Tenant does not so provide Landlord with a punchlist prior to occupying the Premises, Tenant shall be deemed to have accepted the Premises, the Building Improvements and the Tenant’s Improvements in their then present condition, subject to the Warranty Period obligations described above. The existence of punchlist items shall not postpone the Commencement Date of the Lease or result in a delay or abatement of Tenant’s obligation to pay rent or give rise to a damage claim against Landlord. Landlord agrees to complete all punchlist items which are Landlord’s or the Contractor’s responsibility within forty five (45) days after receiving the final punchlist (or longer if reasonably necessary). If a temporary certificate of occupancy is issued at the time of Substantial Completion of the Tenant’s Improvements, Landlord shall proceed to complete the conditions to and obtain the issuance of the final certificate of occupancy for the Premises as soon as reasonably practicable.

(b) If the Base Building Improvements and the Tenant’s Improvements are not Substantially Complete by the Anticipated Occupancy Date due to a “Landlord Delay” (defined below), and such delay actually results in Tenant being required to holdover in its Current Premises beyond the expiration dates of Tenant’s leases of the Current Premises (which is July 31, 2011), then: (i) Landlord shall pay, and shall indemnify, defend and hold Tenant harmless from and against, any holdover rent premiums, surcharges or percentage increases incurred by Tenant under the various leases for its existing buildings at 901 Dexter Avenue North, Seattle (“Current Premises”) from and after the Anticipated Occupancy Date, (ii) if Tenant is forced to relocate from all or any portion of the Current Premises prior to Substantial Completion of the Tenant’s Improvements, Landlord shall use commercially reasonable best efforts to provide or secure for Tenant alternative space as required by Tenant, such space to be within the reasonable proximity of the Current Premises and reasonably acceptable to Tenant, and Landlord shall pay to the landlord of such alternative space (whether such space is provided or secured by Landlord or through Tenant’s own efforts) the differential in base rent and additional rent required over the amount of base rent and additional rent that Tenant would have otherwise paid in the Premises had such delay not occurred, and (iii) Landlord shall pay all third party costs of a second move, if required by Tenant after the Tenant’s Improvements and the Base Building Improvements are Substantially Complete. In addition, if Substantial Completion of the Tenant’s Improvements and the Base Building Improvements has not occurred by the Anticipated Occupancy Date, and the delay is not a result of a Tenant Delay or a delay caused by a Force Majeure event, then Tenant shall be entitled to two (2) days of free rent (which includes Minimum Rent and Additional Rent) for each day after the Anticipated Occupancy Date until the Tenant’s Improvements and the Base Building Improvements are Substantially Complete. Notwithstanding any of the foregoing, if the TI Plans and Specifications, the TI Construction Contract, and the construction budget and schedule for the Tenant’s Improvements have not been completed and approved by the parties by November 30, 2008, the Anticipated Occupancy Date will be delayed by one day for each day after November 30, 2008 until such items have been agreed upon by the parties.


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(c) If Substantial Completion of either the Base Building Improvements or the Tenant’s Improvements is delayed as a result of any of the following causes, such delay shall be considered a “Tenant Delay”:

(i) a failure to complete the TI Plans and Specifications by October 31,2008, unless the delay is the result of a Landlord Delay.

(ii) changes in the BBI Plans and Specifications or the TI Plans and Specifications requested by Tenant after approval of either of such Plans and Specifications by Landlord and the County;

(iii) delays caused by Tenant in construction, but only if and to the extent that such delay causes a delay in any item on the critical path to Substantial Completion of either the Base Building Improvements or the Tenant’s Improvements, and is not caused by other factors;

(iv) delays due to the postponement of any of the Work at the request of Tenant; or

(v) delays otherwise attributable to the acts or omissions of Tenant or its employees, agents or contractors, other than delays in the Work requested by Landlord.

Landlord shall notify Tenant promptly after learning of any events or circumstances which Landlord believes may constitute Tenant Delay or a delay caused by Force Majeure; however, Landlord’s failure to so notify shall not constitute a waiver by Landlord of its right to claim that a Tenant Delay or a Force Majeure delay has occurred. Landlord shall use good faith efforts to minimize the impact of any Tenant Delay on the Substantial Completion of the Work. For purposes of the Lease and this Workletter, if a Tenant Delay has occurred and results in a delay in the Substantial Completion of the Base Building Improvements, the Commencement Date shall be deemed to have occurred on the date the Commencement Date would have commenced but for the Tenant Delay. Tenant acknowledges that the length of any Tenant Delay or Force Majeure delay is to be measured by the duration of the delay in the occurrence of the event in question caused by the event or conduct constituting Tenant Delay or Force Majeure delay, which may exceed the duration of such event or conduct due to the necessity of rescheduling work or other causes.

(d) If Substantial Completion is delayed as a result of any of the following causes, such delay shall be considered a “Landlord Delay”:

(i) a failure to complete the BBI Plans and Specifications by August 31, 2008, unless the delay is the result of a Tenant Delay.

(ii) any interference or delay caused by occurrences within the reasonable control of Landlord;

(iii) delays caused by Landlord’s failure or refusal to reasonably approve the BBI Plans and Specifications or the TI Specifications, but only if and to the extent that such delay causes a delay in any item on the critical path to Substantial Completion of either the BBI Plans and Specifications or the TI Specifications, and is not caused by other factors;

(iv) delays due to the postponement of any of the Work at the request of Landlord; or


		-15-		2ND AMD LSE-FINAL

(v) delays otherwise attributable to changes in or additions to the Work requested by Landlord or on account of interference by Landlord or its contractors, agents or employees.

Tenant shall notify Landlord promptly after learning of any events or circumstances which Tenant believes may constitute Landlord Delay hereunder, however, Tenant’s failure to so notify shall not constitute a waiver by Tenant of its right to claim that a Landlord Delay has occurred. Tenant shall use good faith efforts to minimize the impact of any Landlord Delay on the Substantial Completion of the Work. Landlord acknowledges that the length of any Landlord Delay is to be measured by the duration of the delay in the occurrence of the event in question caused by the event or conduct constituting Landlord Delay, which may exceed the duration of such event or conduct due to the necessity of rescheduling work or other causes.

5. Changes in Work . Tenant shall have the right to request, in writing, changes to the BBI Plans and Specifications and to the TI Plans and Specifications, subject to Landlord’s prior approval, which approval shall not be unreasonably withheld or delayed. Landlord shall notify Tenant in writing of any additional costs and any construction delays attributable to any such change requested by Tenant and whether or not Landlord approves or disapproves of the requested change. Landlord may condition its approval of any change on receipt of written confirmation from Tenant, within three (3) Business Days after receiving Landlord’s notice, that Tenant will pay the additional cost of making the change and any costs Landlord will incur as a result of any delays.

6. Access by Tenant; Early Entry . With Landlord’s prior written approval, Tenant and Tenant’s contractors shall have the privilege of entering into the Premises prior to the Substantial Completion of the Work for purposes of cable, telephone and furniture installation; provided that such entry or work does not interfere with the construction and completion of the Work. Any such access must be scheduled in advance with Landlord and Contractor. All of the terms and provisions of the Lease (including those in Section 9) shall be applicable upon such early entry, except for those provisions applicable to the payment of Rent. Tenant shall be responsible for any damages to the Building or the Work caused by Tenant or any of Tenant’s officers, contractors, architects, space planners, engineers, licensees, agents, employees, guests or invitees.

7. Designation of Construction Representatives . Tenant hereby designates David Rhoden as its initial representative in connection with the design and construction of the Work. Landlord, Architect and Contractor shall be entitled to rely upon the decisions and agreements made by such representative as binding upon Tenant until Landlord, Architect and Contractor have received written notice from Tenant that such person’s authority has been revoked. Landlord hereby appoints Mike Hubbard as its initial representative in connection with the design and construction of the Work. Tenant, Architect and Contractor shall be entitled to rely upon the decisions and agreements made by any such representative as binding upon Landlord until Tenant, Architect and Contractor have received written notice from Landlord that any such person’s authority has been revoked. Either party may change its designated representative or representatives upon written notice to the other party. No consent, authorization or other action shall bind Landlord or Tenant unless in writing and signed by the aforementioned person or persons (or their designated successors). If Landlord or Tenant complies with any request or


		-16-		2ND AMD LSE-FINAL

direction presented to it by anyone else claiming to act on behalf of the other party, such compliance shall be at such party’s sole risk and responsibility and shall not in any way alter or diminish the obligations and requirements created and imposed by this Workletter. The parties shall notify each other of all regularly scheduled design and construction meetings and they each shall have the right to attend all regularly scheduled design and construction meetings. Throughout the period of design, development, construction and completion of the Premises, Landlord shall hold meetings on a periodic basis, as needed, with the development team consisting of Tenant, the Architect, the Contractor, Landlord, and engineers and other consultants as necessary, to discuss the scheduling, budgeting, progress and payment for the Work, and Landlord shall promptly distribute minutes or other summaries of such meetings.

8. Additional Provisions . This Workletter and the exhibits attached hereto set forth the entire agreement of Landlord and Tenant with respect to the completion of the Work. Neither this Workletter nor any of the provisions contained in this Workletter may be changed or waived, except by a written instrument signed by both parties. To the extent any of the terms or conditions of this Workletter conflict with any of the terms or conditions of the Lease, this Workletter shall control.


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Exhibit D-2

UPDATED DESIGN AND CONSTRUCTION SCHEDULE

[see attached]


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EXHIBIT 10.5

After Recording Mail To:

KeyBank National Association

Real Estate Capital

Mailcode: WA-31-18-0385

601 - 108th Avenue N.E., 3rd Floor

Bellevue, WA 98004

Attn: Regan Frick

SUBORDINATION, NONDISTURBANCE

AND ATTORNMENT AGREEMENT

AND ESTOPPEL CERTIFICATE


GRANTOR: (Tenant)		KORRY ELECTRONICS CO., a Delaware corporation

GRANTEE: (Lender)		KEYBANK NATIONAL ASSOCIATION, a national banking association

LEGAL		Ptn of SE ¹ / 4 , 22-28N-04E, and Ptn NE ¹ / 4 27-28N-04E
DESCRIPTION		The complete legal description is on Exhibit A.

TAX PARCEL ACCOUNT NUMBERS		280422-004-003-00; 280427-001-001-00

THIS SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT AND ESTOPPEL CERTIFICATE is made this 30 ^th day of July, 2008, between KEYBANK NATIONAL ASSOCIATION, a national banking association ( “Lender” ) and KORRY ELECTRONICS CO., a Delaware corporation ( “Tenant” ).

Recitals

CAPSTONE PF LLC, a Washington limited liability company ( “Landlord” ) is the ground lessee of real property ( “Property” ) located in Snohomish County, Washington, and legally described on Exhibit A. Tenant is leasing the Property from Landlord under that certain Building Lease and Sublease dated March 26, 2008, as amended by First Amendment to Building Lease and Sublease dated June 25, 2008, and by Second Amendment to Building Lease and Sublease dated July 30, 2008 (the “Lease” ). Lender has agreed to make a loan ( “Loan” ) to Landlord, secured by a Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing and an Assignment of Rents and Leases (together, the “Security Instruments” ) encumbering Landlord’s


		-1-		Lease Subordination

leasehold interest in the Property. The Security Instruments constitute an assignment to Lender of all right, title, and interest of Landlord under the Lease as security for the Loan. The Security Instruments were recorded on July , 2008 under Snohomish County Recording Nos. and . Lender’s agreement to make the Loan is conditioned on Tenant’s subordination of the Lease to the Security Instruments, and Tenant’s agreement to attorn to Lender if Lender obtains title to the Property by foreclosure or deed in lieu of foreclosure. Tenant is willing to do so in consideration of the benefits to Tenant from the Loan and the Lease and Lender’s agreement not to disturb Tenant’s possession of the Property under the Lease, and Landlord is also executing this Agreement to indicate its consent and agreement to the terms contained herein.

Agreement

NOW, THEREFORE, Lender and Tenant agree as provided below.

1.	Subordination . Tenant hereby subordinates the Lease and all of its rights thereunder to the Security Instruments and all of Lender’s rights thereunder, including any and all renewals, modifications and extensions thereof.

Nondisturbance . Lender agrees that if Lender obtains title to the Property by foreclosure or deed in lieu of foreclosure, Lender shall be bound to Tenant under all the terms and conditions of the Lease (except as provided in this Agreement), the Lease shall continue in full force and effect as a direct lease in accordance with its terms (except as provided in this Agreement) between Lender and Tenant. Tenant’s possession of the Property under the Lease shall not be disturbed by Lender during the term of the Lease and Lender shall not join Tenant in any action or proceeding for the purpose of terminating the Lease, except upon the occurrence of a default by Tenant under the Lease and the continuance of such default beyond any cure period given to Tenant under the Lease. Lender agrees that all condemnation awards and insurance proceeds payable to Landlord or Lender with respect to the Property shall be paid and applied to restoration of the Property in accordance with the provisions for condemnation and casualty under the Lease provided that, with respect to any casualty, Tenant ratifies its obligations under the Lease including, without limitation, its obligation to repair and replace any “Tenant Improvements” (as defined in the Lease) damaged or destroyed by such casualty.

Attornment . If Lender obtains title to the Property by foreclosure or deed in lieu of foreclosure, Tenant shall attorn to Lender and recognize Lender as the landlord under the Lease for the unexpired term of the Lease. Such attornment shall be effective without Lender being (a) subject to any offsets or defenses arising out of any prior act or omission of Landlord (but the foregoing shall not limit either (i) Tenant’s right to exercise against Lender any offset rights otherwise available to Tenant under the Lease because of events occurring after the date of attornment, or (ii) Lender’s obligation to correct any conditions that existed as of the date of attornment and violated Lender’s obligations as successor landlord under the Lease), (b) liable for any prior act or


		-2-		Lease Subordination

omission of Landlord, (c) bound by any amendment, modification, or waiver of any of the provisions of the Lease, or by any separate agreement between Landlord and Tenant relating to the Property, unless any such action was taken with the prior written consent of Lender, (d) liable for the return of any security or other deposit unless the deposit has been paid to Lender, or (e) bound by any payment of rent or other monthly payment under the Lease made by Tenant more than one month in advance of the due date, unless the same was paid to, and received by, Lender. Lender and Tenant specifically agree that the right of first offer contained in Section 10.5 of the Lease shall not be triggered by or eliminated by any foreclosure or deed in lieu of foreclosure, that such right of first offer will not terminate upon Lender obtaining title to the Property by foreclosure or deed in lieu of foreclosure, and that such right of first offer shall continue to be recognized after foreclosure or deed in lieu of foreclosure. Lender and Tenant specifically agree that the option to purchase contained in Section 10.6 of the Lease shall not be triggered by or eliminated by any foreclosure or deed in lieu of foreclosure, that such option to purchase will not terminate upon Lender obtaining title to the Property by foreclosure or deed in lieu of foreclosure, and that such option to purchase shall continue to be recognized after foreclosure or deed in lieu of foreclosure. Lender’s obligations as landlord under the Lease after obtaining title to the Property by foreclosure or deed in lieu of foreclosure shall terminate upon Lender’s subsequent transfer of its interest in the Property.

Termination of Lease . If Lender obtains title to the Property by foreclosure or deed in lieu of foreclosure and Landlord’s obligation under the Lease to construct the “Base Building Improvements” has not been substantially completed, Lender will cause the Base Building Improvements to be completed as soon as reasonably possible thereafter but only if the undisbursed proceeds of the Loan are sufficient to pay all of the costs of completion. If Lender reasonably determines that the undisbursed proceeds of the Loan are not sufficient, it will give notice thereof to Tenant and the Lease will terminate unless, within thirty (30) days after the date of such notice, Tenant agrees to pay the excess costs and provides assurances of payment reasonably acceptable to Lender.

5.	Covenants of Tenant . Tenant covenants and agrees with Lender as follows:

5.1

Upon written demand from Lender which is also sent to Landlord, Tenant shall pay to Lender all rent and other payments otherwise payable to Landlord under the Lease. The consent and approval of Landlord to this Agreement shall constitute an express authorization for Tenant to make such payments to Lender and a release and discharge of all liability of Tenant to Landlord for any such payments made to Lender, and Landlord agrees that Tenant shall have the right to rely on any such notice from Lender without incurring any obligation or liability to Landlord, and Tenant is hereby instructed to disregard any notice to the contrary received from Landlord or any third party. All such payments made by Tenant to Lender shall be credited to installments of rent otherwise payable to Landlord under the Lease.


		-3-		Lease Subordination

5.2

Tenant shall enter into no material amendment or modification of the Lease without Lender’s prior written consent.

5.3

Tenant shall not subordinate its rights under the Lease to any other mortgage, deed of trust or other security instrument without the prior written consent of Lender.

5.4

If the Lease is rejected or deemed rejected in any bankruptcy proceeding with respect to Landlord, Tenant shall not exercise its option to treat the Lease as terminated under 11 U.S.C. § 365(h), as amended.

5.5

Tenant shall not accept any waiver or release of Tenant’s obligations under the Lease by Landlord, or any termination of the Lease by Landlord, without Lender’s prior written consent.

5.6

Tenant shall promptly deliver written notice to Lender of any default by Landlord under the Lease. Lender shall have the right to cure such default within thirty (30) days after the receipt of such notice. Tenant further agrees not to invoke any of its remedies under the Lease until the thirty (30) days have elapsed, or during any period that Lender is proceeding to cure the default with due diligence, or is attempting to obtain the right to obtain the Property and cure the default.

Effect of Assignment . Notwithstanding that Landlord has assigned its rights under the Lease to Lender as security for the Loan, Lender shall not be liable for any of the obligations of Landlord to Tenant under the Lease until Landlord has obtained title to the Property by foreclosure or deed in lieu of foreclosure, and then only to the extent provided in Section 3 above and this Section 6. Notwithstanding any provision in the Lease to the contrary, if Lender has obtained title to the Property, its liability under the Lease shall be limited to Lender’s interest in the Property and any proceeds therefrom, and any judgment against Lender will be enforceable solely against Lender’s interest in the Property and any proceeds therefrom.

7.	Estoppel Certifications . Tenant hereby certifies to Lender as provided below.

7.1

The Lease constitutes the entire agreement between Landlord and Tenant relating to the Property.

7.2

The Lease is in full force and effect, and has not been amended, modified, or assigned by Tenant.

7.3

Tenant has no present claim, offset or defense under the Lease, and Tenant has no knowledge of any uncured default by Landlord under the Lease.


		-4-		Lease Subordination

7.4

Tenant has no knowledge of any prior sale, transfer, assignment, hypothecation or pledge of Landlord’s interest under the Lease or of the rents due under the Lease.

7.5

Except as otherwise provided in the Lease, Tenant has made no agreements with Landlord concerning free rent, partial rent, rebate of rental payments, setoff, or any other type of rental concession.

7.6

Except as set out in the Lease, Tenant has no options or rights of first refusal with respect to acquiring the Property.

Costs and Attorneys’ Fees . In the event of any claim or dispute arising out of this Agreement, the party that substantially prevails shall be awarded, in addition to all other relief, all attorneys’ fees and other costs and expenses incurred in connection with such claim or dispute; including without limitation those fees, costs, and expenses incurred before or after suit, and in any arbitration, and any appeal, any proceedings under any present or future bankruptcy act or state receivership, and any post-judgment proceedings.

Notices . All notices to be given under this Agreement shall be in writing and personally delivered or mailed, postage prepaid, certified or registered mail, return receipt requested, to Lender at the address indicated on the first page of this Agreement, and to Tenant at its address indicated below. All mailed notices shall be deemed given three days after the postmark. Either party may change its address by notice to the other.

10.

Miscellaneous . This Agreement may not be modified except in writing and executed by the parties hereto or their successors in interest. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their successors and assigns. As used herein, “Landlord” shall include Landlord’s predecessors and successors in interest under the Lease, and “Lender” shall include any purchaser of the Property at any foreclosure sale and any grantee under any deed in lieu of foreclosure of the Security Instruments. If any provision of this Agreement is determined to be invalid, illegal or unenforceable, such provision shall be considered severed from the rest of this Agreement and the remaining provisions shall continue in full force and effect as if such provision had not been included. This Agreement shall be governed by the laws of the State of Washington.


		-5-		Lease Subordination

IN WITNESS WHEREOF, Tenant and Lender have signed this Agreement as of the date first written above.


*“Lender”* KEYBANK NATIONAL ASSOCIATION, a national banking association

By:		/s/ Regan Frick
Name:
Title:		Vice President

*“Tenant”* KORRY ELECTRONICS CO., a Delaware corporation

By:		/s/ Dan McFeeley
Name:		Dan McFeeley
Title:		President



Address:
		901 Dexter Avenue N. Seattle, WA 98109 Attn: Dan McFeeley Fax No. 206-273-4174

The undersigned Guarantor of Tenant’s Lease obligations hereby agrees and consents to the foregoing Agreement:


ESTERLINE TECHNOLOGIES CORPORATION, a Delaware corporation

By:		/s/ Robert D. George
Name:		Robert D. George
Title:		VP, CFO, Secretary & Treasurer


		-6-		Lease Subordination

CONSENTED AND AGREED TO:


“LANDLORD”

CAPSTONE PF LLC, a Washington limited liability company

By:	Capstone Partners NW LLC, Manager

	By:	CBIL Group LLC, Authorized Member

		By:	/s/ Kirk Johnson
			Kirk Johnson, Sole Member

Tenant Acknowledgment


STATE OF WASHINGTON	)
	)	ss.
County of King	)

I certify that I know or have satisfactory evidence that Daniel McFeeley is the person who appeared before me, and said person acknowledged that he/she signed this instrument, on oath stated that he/she was authorized to execute the instrument and acknowledged it as the President of KORRY ELECTRONICS CO., a Delaware corporation, to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument.

DATED this 30 ^th day of July, 2008.



[SEAL]		/s/ Kathryn L. Simpson
		Notary Public in and for the State of Washington
		Kathryn L. Simpson
		Name (printed or typed)
		residing at Federal Way WA
		My appointment expires: 08/29/2009


		-7-		Lease Subordination

Lender Acknowledgment


STATE OF WASHINGTON	)
	)	ss.
County of King	)

I certify that I know or have satisfactory evidence that Regan Frick is the person who appeared before me, and said person acknowledged that he/she signed this instrument, on oath stated that he/she was authorized to execute the instrument and acknowledged it as the Vice President of KEYBANK NATIONAL ASSOCIATION, a national banking association, to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument.

DATED this 30 ^th day of July, 2008.



[SEAL]		/s/ Tammy L. Olson
		Notary Public in and for the State of Washington
		Tammy L. Olson
		Name (printed or typed)
		residing at Monroe, WA
		My appointment expires: Oct. 19, 2009


		-8-		Lease Subordination

Landlord Acknowledgment


STATE OF WASHINGTON	)
	)	ss.
County of King	)

I certify that I know or have satisfactory evidence that Kirk Johnson is the person who appeared before me, and said person acknowledged that he/she signed this instrument, on oath stated that he/she was authorized to execute the instrument and acknowledged it as the Sole Member of CBIL GROUP LLC, the authorized member of CAPSTONE PARTNERS NW LLC, the manager of CAPSTONE PF LLC, a Washington limited liability, to be the free and voluntary act of CAPSTONE PF LLC for the uses and purposes mentioned in the instrument.

DATED this 30 ^th day of July, 2008.



[SEAL]		/s/ Andrew B. Bassetti
		Notary Public in and for the State of Washington
		Andrew B. Bassetti
		Name (printed or typed)
		residing at Mercer Island
		My appointment expires: 11-15-2011


		-9-		Lease Subordination

EXHIBIT A

Legal Description

The Property is located in Snohomish County, Washington, and is legally described as follows:

THAT PORTION OF THE NORTHEAST QUARTER OF SECTION 27, TOWNSHIP 28 NORTH, RANGE 4 EAST, W.M., AND THAT PORTION OF THE SOUTHEAST QUARTER OF SECTION 22, TOWNSHIP 28 NORTH, RANGE 4 EAST, W.M., LYING NORTHWESTERLY OF BEVERLY PARK - EDMONDS ROAD AND MORE PARTICULARLY DESCRIBED AS FOLLOWS:

COMMENCING AT THE SOUTHEAST CORNER OF SAID SECTION 22;

THENCE NORTH 88°42’50” WEST 268.89 FEET ALONG THE SOUTH LINE OF SAID SECTION 22 TO THE NORTHWESTERLY MARGIN OF SAID BEVERLY PARK - EDMONDS ROAD AS SHOWN ON A PROPOSED BINDING SITE PLAN ENTITLED PAINE FIELD AIRPORT SECTOR 6 BINDING SITE PLAN PF NO. 07-104017-006BG;

SAID RIGHT OF WAY MARGIN BEING 50.00 FEET DISTANT FROM AND AT RIGHT ANGLES TO THE CENTERLINE OF SAID BEVERLY PARK - EDMONDS ROAD;

THENCE SOUTH 43°39’01” WEST 150.65 FEET TO AN ANGLE POINT IN SAID RIGHT OF WAY MARGIN OF BEVERLY PARK - EDMONDS ROAD;

THENCE SOUTH 43°38’39” WEST 54.50 FEET ALONG SAID RIGHT OF WAY MARGIN OF BEVERLY PARK - EDMONDS ROAD, TO THE TRUE POINT OF BEGINNING;

THENCE CONTINUING SOUTH 43°38’39” WEST 776.56 FEET ALONG SAID RIGHT OF WAY MARGIN OF BEVERLY PARK - EDMONDS ROAD, TO THE NORTHEASTERLY LINE OF THAT REAL PROPERTY CONVEYED BY QUITCLAIM DEED TO SNOHOMISH COUNTY PARKS DEPARTMENT RECORDED UNDER SNOHOMISH COUNTY REC. NO. 200211140549;

THENCE NORTH 46°21 ’21” WEST 30.00 FEET TO THE BEGINNING OF A CURVE CONCAVE SOUTHERLY HAVING A RADIUS OF 300.00 FEET;

THENCE NORTHWESTERLY 137.55 FEET ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 26°16’10”;

THENCE NORTH 72°37’31” WEST 130.10 FEET TO THE BEGINNING OF A CURVE CONCAVE NORTHERLY HAVING A RADIUS OF 300.00 FEET;

THENCE NORTHWESTERLY 125.02 FEET ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 23°52’35”;


		-10-		Lease Subordination

THENCE NORTH 48°44’55” WEST 304.60 FEET;

THENCE NORTH 43°21’18” EAST 469.61 FEET TO THE SOUTH LINE OF SAID SECTION 22;

THENCE CONTINUING NORTH 43°21’18” EAST 38.16 FEET;

THENCE NORTH 63°58’29” EAST 430.05 FEET TO THE BEGINNING OF A CURVE CONCAVE SOUTHERLY HAVING A RADIUS OF 30.00 FEET;

THENCE EASTERLY AND SOUTHEASTERLY 36.48 FEET ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 69°40’27”;

THENCE SOUTH 46°21’03” EAST 328.21 FEET TO THE SOUTH LINE OF SAID SECTION 22;

THENCE CONTINUING SOUTH 46°21’03” EAST 178.83 FEET TO THE BEGINNING OF A CURVE CONCAVE SOUTHWESTERLY HAVING A RADIUS OF 22.00 FEET;

THENCE SOUTHERLY AND SOUTHWESTERLY 34.56 FEET ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 90°00’00” TO THE SAID NORTHWESTERLY MARGIN OF RIGHT OF WAY OF BEVERLY PARK - EDMONDS ROAD AND THE TRUE POINT OF BEGINNING;

SITUATE IN THE COUNTY OF SNOHOMISH, STATE OF WASHINGTON.


		-11-		Lease Subordination

EXHIBIT 11

ESTERLINE TECHNOLOGIES CORPORATION

Computation of Basic and Diluted Earnings Per Common Share

For the Three and Nine Month Periods Ended August 1, 2008 and July 27, 2007

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended				Nine Months Ended
	August 1, 2008		July 27, 2007		August 1, 2008		July 27, 2007

Net Sales	$	382,070	$	326,376	$	1,128,454	$	895,900
Gross Margin		119,402		99,642		366,033		273,073

Net Earnings	$	20,482	$	38,835	$	76,651	$	71,396


Basic

Weighted Average Number of Shares Outstanding		29,575		25,691		29,466		25,604


Earnings Per Share – Basic	$	.69	$	1.51	$	2.60	$	2.79


Diluted

Weighted Average Number of Shares Outstanding		29,575		25,691		29,466		25,604
Net Shares Assumed to be Issued for Stock Options		419		448		428		418

Weighted Average Number of Shares and Equivalent Shares Outstanding – Diluted		29,994		26,139		29,894		26,022


Earnings Per Share – Diluted	$	.68	$	1.49	$	2.56	$	2.74

EXHIBIT 31.1

CERTIFICATIONS

I, Robert W. Cremin, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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:

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;

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;

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

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 function):

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

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.

EXHIBIT 31.2

CERTIFICATIONS

I, Robert D. George, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Esterline Technologies Corporation;

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.

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 Quarterly Report of Esterline Technologies Corporation (the “ Company ”) on Form 10-Q for the period ended August 1, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “ Form 10-Q ”), 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-Q 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-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

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 Quarterly Report of Esterline Technologies Corporation (the “ Company ”) on Form 10-Q for the period ended August 1, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “ Form 10-Q ”), 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-Q 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-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.