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-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J9/rwF37NnM/lOohjR5B07nxLwlh8DcUXDyjO+SQjgQYtxM4Rmp/LQvcfyIuizDq pvCv/Hgk3xd0NnlH5KqRmQ== 0000950135-08-001801.txt : 20080317 0000950135-08-001801.hdr.sgml : 20080317 20080314200552 ACCESSION NUMBER: 0000950135-08-001801 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20071231 FILED AS OF DATE: 20080317 DATE AS OF CHANGE: 20080314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Altra Holdings, Inc. CENTRAL INDEX KEY: 0001374535 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 611478870 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-33209 FILM NUMBER: 08690885 BUSINESS ADDRESS: STREET 1: 14 HAYWARD STREET CITY: QUINCY STATE: MA ZIP: 02171 BUSINESS PHONE: 617-328-3300 MAIL ADDRESS: STREET 1: 14 HAYWARD STREET CITY: QUINCY STATE: MA ZIP: 02171 10-K 1 b68970ahe10vk.htm ALTRA HOLDINGS, INC. e10vk

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2007

Commission file number: 011-33209

Altra Holdings, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware		61-1478870
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

14 Hayward Street, Quincy, Massachusetts		02171
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code:

(617) 328-3300

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


Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, $0.001 par value		NASDAQ Global Market

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

NONE

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

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

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 þ No o

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

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


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

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

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant based on the closing price (as reported by NASDAQ) of such common stock on the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2007) was approximately $419.2 million.

As of March 15, 2008, there were 26,406,638 shares of Common Stock, $.001 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the following document are incorporated herein by reference into the Part of the Form 10-K indicated.


		Part of Form 10-K into
Document		which Incorporated

Altra Holdings, Inc. Proxy Statement for the 2008 Annual Meeting of Stockholders		Part III

TABLE OF CONTENTS


		Page

PART I
Item 1.	Business		4
Item 1A.	Risk Factors		14
Item 1B.	Unresolved Staff Comments		22
Item 2.	Properties		22
Item 3.	Legal Proceedings		23
Item 4.	Submission of Matters to a Vote of Security Holders		23

PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities		23
Item 6.	Selected Financial Data		25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		40
Item 8.	Financial Statements and Supplementary Data		41
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		75
Item 9A.	Controls and Procedures		75
Item 9B.	Other Information		77

PART III
Item 10.	Directors, Executive Officers and Corporate Governance		77
Item 11.	Executive Compensation		77
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		77
Item 13.	Certain Relationships and Related Transactions, and Director Independence		77
Item 14.	Principal Accountant Fees and Services		77

PART IV
Item 15.	Exhibits and Financial Statement Schedules		77
Ex-10.6 Plant Closing Agreement
Ex-10.7 Labor Agreement, dated August 13, 2007
Ex-10.12 Employment Agreement, dated December 14, 2007
Ex-23.1 Consent of Ernst & Young LLP
Ex-31.1 Certification of Chief Executive Officer
Ex-31.2 Certification of Chief Financial Officer
Ex-32.1 Section 906 Certification of CEO
Ex-32.2 Section 906 Certification of CFO

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for “forward-looking statements” made by or on behalf of Altra Holdings, Inc. We make forward-looking statements throughout this Form 10-K. Whenever you read a statement that is not solely a statement of historical fact, such as when we state that we “believe,” “expect,” “anticipate” or “plan” that an event will occur and other similar statements, you should understand that our expectations may not be correct, although we believe they are reasonable, and that our plans may change. We do not guarantee that the transactions and events described in this Form 10-K will happen as described or that any positive trends noted in this Form 10-K will continue. The forward-looking information contained in this Form 10-K is generally located under the headings, “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” but may be found in other locations as well. These forward-looking statements generally relate to our strategies, plans and objectives for, and potential results of, future operations and are based upon management’s current plans and beliefs or current estimates of future results or trends.

Forward-looking statements regarding management’s present plans or expectations for new product offerings, capital expenditures, increasing sales, cost-saving strategies and growth involve risks and uncertainties relative to among other things, return expectations, allocation of resources and changing economic or competitive conditions, and as a result, actual results could differ from present plans or expectations and such differences could be material. Similarly, forward-looking statements regarding management’s present expectations for operating results and cash flow involve risks and uncertainties relative to these and other factors, such as the ability to increase revenues and/or to achieve cost reductions, and other factors discussed under “Risk Factors” or elsewhere in this Form 10-K, which also would cause actual results to differ from present plans or expectations. Such differences could be material.


Item 1.	*Business*

Our Company

We are a leading global designer, producer and marketer of a wide range of mechanical power transmission, or MPT, and motion control products serving customers in a diverse group of industries, including energy, general industrial, material handling, mining, transportation and turf and garden. Our product portfolio includes industrial clutches and brakes, enclosed gear drives, open gearing, engineered belted drives, couplings, engineered bearing assemblies, linear components and other related products. Our products are used in a wide variety of high-volume manufacturing processes, where the reliability and accuracy of our products are critical in both avoiding costly down time and enhancing the overall efficiency of manufacturing operations. Our products are also used in non-manufacturing applications where product quality and reliability are especially critical, such as clutches and brakes for elevators and residential and commercial lawnmowers. For the year ended December 31, 2007, we had net sales of $584.4 million, net income of $11.5 million and EBITDA of $86.3 million.

We market our products under well recognized and established brands, many of which have been in existence for over 50 years. We believe many of our brands, when taken together with our brands in the same product category have achieved the number one or number two position in terms of consolidated market share and brand awareness in their respective product categories. Our products are either incorporated into products sold by original equipment manufacturers, or OEMs, sold to end users directly or sold through industrial distributors.

We are led by a highly experienced management team that has established a proven track record of execution, successfully completing and integrating major strategic acquisitions and delivering significant growth in both revenue and profits. We employ a comprehensive business process called the Altra Business System, or ABS, which focuses on eliminating inefficiencies from every business process to improve quality, delivery and cost.

We file reports and other documents with the Securities and Exchange Commission. You may read and copy any document we file at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. You should call 1-800-SEC-0330 for more information on the public reference room. Our SEC Filings are also available to you on the SEC’s internet site at http://www.sec.gov.

Our internet address is www.altramotion.com. We are not including the information contained in our website as part of, or incorporating it by reference into, this annual report on Form 10-K.

Our Industry

Based on industry data supplied by Penton Information Services, we estimate that industrial power transmission products generated sales in the United States of approximately $34.5 billion in 2007. These products are used to generate, transmit, control and transform mechanical energy. The industrial power transmission industry can be divided into three areas: MPT products; motors and generators; and adjustable speed drives. We compete primarily in the MPT area which, based on industry data, we estimate was a $17.4 billion market in the United States in 2007.

The global MPT market is highly fragmented, with over 1,000 small manufacturers. While smaller companies tend to focus on regional niche markets with narrow product lines, larger companies that generate annual sales of over $100 million generally offer a much broader range of products and have global capabilities. The industry’s customer base is broadly diversified across many sectors of the economy and typically places a premium on factors such as quality, reliability, availability and design and application engineering support. We believe the most successful industry participants are those that leverage their distribution network, their products’ reputations for quality and reliability and their service and technical support capabilities to maintain attractive margins on products and gain market share.

Our Strengths

Leading Market Shares and Brand Names. We believe we hold the number one or number two market position in key products across several of our core platforms. We believe that over 50% of our sales

from continuing operations are derived from products where we hold the number one or number two share and brand recognition, on a consolidated basis with our brands in the same product category, in the markets we serve.

Large Installed Base Supporting Aftermarket Sales. With a history dating back to 1857 with the formation of TB Wood’s, we believe we benefit from one of the largest installed customer bases in the industry which has lead to significant aftermarket replacement demand creating a recurring revenue stream. For the year ended December 31, 2007, we estimate that approximately 45% of our revenues from continuing operations were derived from aftermarket sales.

Diversified End-Markets. Our revenue base has balanced exposure across a diverse mix of end user industries, including energy, general industrial, material handling, mining, transportation and turf and garden, which helps mitigate the impact of business and economic cycles. In 2007, no single industry represented more than 8% of our total sales from continuing operations, and approximately 30% of our sales from continuing operations were from outside North America.

Strong Relationships with Distributors and OEMs. We have over 1,000 direct OEM customers and enjoy established, long-term relationships with the leading MPT industrial distributors, critical factors that contribute to our high base of recurring aftermarket revenues. We sell our products through more than 3,000 distributor outlets worldwide.

Experienced, High-Caliber Management Team. We are led by a highly experienced management team with over 330 years of cumulative industrial business experience and an average of 12 years with our companies. Our CEO, Michael Hurt, has over 40 years of experience in the MPT industry, and our COO, Carl Christenson, has over 27 years of experience in the MPT industry.

The Altra Business System. We benefit from an established culture of lean management emphasizing quality, delivery and cost through the ABS. ABS is at the core of our performance-driven culture and drives both our strategic development and operational improvements.

Proven Product Development Capabilities. Our extensive application engineering know-how drives both new and repeat sales. Our broad portfolio of products, knowledge and expertise across various MPT applications allows us to provide our customers customized solutions to meet their specific needs. We are highly focused on developing new products in response to customer requirements. We employ approximately 191 non-manufacturing engineers involved with product development, research and development, test and technical customer support. Recent new product development examples include the Foot/Deck Mount Kopper Kool Brake which was designed for very high heat dissipation in extremely rugged tensioning applications such as draw works for oil and gas wells and anchoring systems for on-shore and off-shore drilling platforms.

Our Business Strategy

We intend to continue to increase our sales through organic growth, expand our geographic reach and product offering through strategic acquisitions and improve our profitability through cost reduction initiatives. We seek to achieve these objectives through the following strategies:


	•	Leverage Our Sales and Distribution Network. We intend to continue to leverage our relationships with our distributors to gain shelf space, further integrate our recently acquired brands with our core brands and sell new products. We seek to capitalize on customer brand preference for our products to generate pull-through aftermarket demand from our distribution channel.

	•	Focus our Strategic Marketing on New Growth Opportunities. Through a systematic process that leverages our core brands and products, we seek to identify attractive markets and product niches, collect customer and market data, identify market drivers, tailor product and service solutions to specific market and customer requirements and deploy resources to gain market share and drive future sales growth.


	•	Accelerate New Product and Technology Development. We focus on developing new products across our business in response to customer needs in various markets. In total, new products developed by us during the past three years generated approximately $70 million in revenues from continuing operations in 2007.

	•	Capitalize on Growth and Sourcing Opportunities in the Asia-Pacific Market. We intend to leverage our established sales offices in China, Taiwan and Singapore, as well as add representation in Japan and South Korea. We also intend to expand our manufacturing presence in Asia beyond our current plant in Shenzhen, China. During 2007, we sourced approximately 19% of our purchases from low-cost countries, resulting in average cost reductions of approximately 50% for these products. Within the next five years, we intend to utilize our sourcing office in Shanghai to significantly increase our current level of low-cost country sourced purchases. We may also consider additional opportunities to outsource some of our production from North American and Western European locations to Asia or lower cost regions.

	•	Continue to Improve Operational and Manufacturing Efficiencies through ABS. We believe we can continue to improve profitability through cost control, overhead rationalization, global process optimization, continued implementation of lean manufacturing techniques and strategic pricing initiatives. We have implemented these principles with our acquisitions of Hay Hall, Bear Linear, All Power and TB Wood’s and intend to apply such principles to future acquisitions.

	•	Pursue Strategic Acquisitions that Complement our Strong Platform. Management believes that there may be a number of attractive potential acquisition candidates in the future, in part due to the fragmented nature of the industry. As an example, through our acquisition of TB Wood’s, we significantly enhanced our position as a leading manufacturer of MPT products by broadening our offering of flexible couplings and adding a new product group in belted drives. We plan to continue our disciplined pursuit of other strategic acquisitions to accelerate our growth, enhance our industry leadership and create value.

Products

We produce and market a wide variety of MPT products. Our product portfolio includes industrial clutches and brakes, open and enclosed gearing, couplings, engineered belted drives, engineered bearing assemblies and other related power transmission components which are sold across a wide variety of industries. Our products benefit from our industry leading brand names including Warner Electric, Boston Gear, TB Wood’s, Kilian, Nuttall Gear, Ameridrives, Wichita Clutch, Formsprag Clutch, Bibby Transmissions, Stieber, Matrix, Inertia Dynamics, Twiflex, Industrial Clutch, Huco Dynatork, Marland Clutch, Delroyd, Warner Linear and Saftek. Our products serve a wide variety of end markets including aerospace, energy, food processing, general industrial, material handling, mining, petrochemical, transportation and turf and garden. We primarily sell our products to OEMs and through long-standing relationships with the industry’s leading industrial distributors such as Motion Industries, Applied Industrial Technologies, Kaman Industrial Technologies and W.W. Grainger. The following discussion of our products does not include detailed product category revenue because such information is not individually tracked by our financial reporting system and is not separately reported by our general purpose financial statements. Conducting a detailed product revenue internal assessment and audit would involve unreasonable effort and expense as revenue information by product line is not available. We maintain sales information by operating facility, but do not maintain any accounting sales data by product line.

Our products, principal brands and markets and sample applications are set forth below:


Products	Principal Brands	Principal Markets	Sample Applications

Clutches and Brakes	Warner Electric, Wichita Clutch, Formsprag Clutch, Stieber Clutch, Matrix, Inertia Dynamics, Twiflex, Industrial Clutch, Marland Clutch	Aerospace, energy, material handling, metals, turf and garden, mining	Elevators, forklifts, lawn mowers, oil well draw works, punch presses, conveyors
Gearing	Boston Gear, Nuttall Gear, Delroyd	Food processing, material handling, metals, transportation	Conveyors, ethanol mixers, packaging machinery, metal processing equipment
Engineered Couplings	Ameridrives, Bibby Transmissions, TB Wood’s	Energy, metals, plastics, chemical	Extruders, turbines, steel strip mills, pumps
Engineered Bearing Assemblies	Kilian	Aerospace, material handling, transportation	Cargo rollers, seat storage systems, conveyors
Power Transmission Components	Warner Electric, Boston Gear, Huco Dynatork, Warner Linear, Matrix, Saftek, TB Wood’s	Material handling, metals, turf and garden	Conveyors, lawn mowers, machine tools
Engineered Belted Drives	TB Wood’s	Aggregate, HVAC, material handling	Pumps, sand and gravel conveyors, industrial fans

Clutches and Brakes. Clutches are devices which use mechanical, magnetic, hydraulic, pneumatic, or friction type connections to facilitate engaging or disengaging two rotating members. Brakes are combinations of interacting parts that work to slow or stop machinery. We manufacture a variety of clutches and brakes in three main product categories: electromagnetic, overrunning and heavy duty. Our core clutch and brake manufacturing facilities are located in Connecticut, Indiana, Illinois, Michigan, Texas, the United Kingdom, Germany, France and China.


	•	Electromagnetic Clutches and Brakes. Our industrial products include clutches and brakes with specially designed controls for material handling, forklift, elevator, medical mobility, mobile off-highway, baggage handling and plant productivity applications. We also offer a line of clutch and brake products for walk-behind mowers, residential lawn tractors and commercial mowers. While industrial applications are predominant, we also manufacture several vehicular niche applications including on-road refrigeration compressor clutches and agricultural equipment clutches. We market our electromagnetic products under the Warner Electric, Inertia Dynamics and Matrix brand names.

	•	Overrunning Clutches. Specific product lines include the Formsprag Marland and Stieber indexing and backstopping clutches. Primary industrial applications include conveyors, gear reducers, hoists and cranes, mining machinery, machine tools, paper machinery, packaging machinery, pumping equipment and other specialty machinery. We market and sell these products under the Formsprag Marland and Stieber brand names.

	•	Heavy Duty Clutches and Brakes. Our heavy duty clutch and brake product lines serve various markets including metal forming, off-shore and land-based oil and gas drilling platforms, mining material handling, marine applications and various off-highway and


		construction equipment segments. Our line of heavy duty pneumatic, hydraulic and caliper clutches and brakes are marketed under the Wichita Clutch and Twiflex brand names.

Gearing. Gears reduce the output speed and increase the torque of an electric motor or engine to the level required to drive a particular piece of equipment. These products are used in various industrial, material handling, mixing, transportation and food processing applications. Specific product lines include vertical and horizontal gear drives, speed reducers and increasers, high-speed compressor drives, enclosed custom gear drives, various enclosed gear drive configurations and open gearing products such as spur, helical, worm and miter/bevel gears. We design and manufacture a broad range of gearing products under the Boston Gear, Nuttall Gear and Delroyd brand names. We manufacture our gearing products at our facilities in New York and North Carolina and sell to a variety of end markets.

Engineered Couplings. Couplings are the interface between two shafts, which enable power to be transmitted from one shaft to the other. Because shafts are often misaligned, we designed our couplings with a measure of flexibility that accommodates various degrees of misalignment. Our coupling product line includes gear couplings, high-speed disc and diaphragm couplings, elastomeric couplings, grid couplings, universal joints, jaw couplings and spindles. Our coupling products are used in a wide range of markets including power generation, steel and custom machinery industries. We manufacture a broad range of coupling products under the Ameridrives, Bibby and TB Wood’s brand names. Our engineered couplings are manufactured in our facilities in Mexico, Michigan, Pennsylvania, Texas, the United Kingdom and Wisconsin.

Engineered Bearing Assemblies. Bearings are components that support, guide and reduce friction of motion between fixed and moving machine parts. Our engineered bearing assembly product line includes ball bearings, roller bearings, thrust bearings, track rollers, stainless steel bearings, polymer assemblies, housed units and custom assemblies. We manufacture a broad range of engineered bearing products under the Kilian brand name. We sell bearing products to a wide range of end markets, including the general industrial and automotive markets, with a particularly strong OEM customer focus. We manufacture our bearing products at our facilities in New York, Canada and China.

Engineered Belted Drives. Belted drives incorporate both a rubber-based belt and at least two sheaves or sprockets. Belted drives typically change the speed of an electric motor or engine to the level required for a particular piece of equipment. Our belted drive line includes three types of v-belts, three types of synchronous belts, standard and made-to-order sheaves and sprockets, and split taper bushings. We sell belted drives to a wide range of end markets, including aggregate, energy, chemical and material handling. Our engineered belted drives are primarily manufactured under the TB Wood’s brand in our facilities in Pennsylvania, Mexico and Texas.

Power Transmission Components. Power transmission components are used in a number of industries to generate, transfer or control motion from a power source to an application requiring rotary or linear motion. Power transmission products are applicable in most industrial markets, including, but not limited to metals processing, turf and garden and material handling applications. Specific product lines include linear actuators, miniature and small precision couplings, air motors, friction materials, hydrostatic drives and other various items. We manufacture or market a broad array of power transmission components under several businesses including Warner Linear, Huco Dynatork, Saftek, Boston Gear, Warner Electric, TB Wood’s and Matrix. Our core power transmission component manufacturing facilities are located in Illinois, Michigan, North Carolina, the United Kingdom and China.


	•	Warner Linear. Warner Linear is a designer and manufacturer of rugged service electromechanical linear actuators for off-highway vehicles, agriculture, turf care, special vehicles, medical equipment, industrial and marine applications.

	•	Huco Dynatork. Huco Dynatork is a leading manufacturer and supplier of a complete range of precision couplings, universal joints, rod ends and linkages.

	•	Other Accessories. Our Boston Gear, Warner Electric, Matrix and TB Wood’s businesses make or market several other accessories such as sensors, sleeve bearings, AC/DC motors,


		shaft accessories, face tooth couplings, mechanical variable speed drives, and fluid power components that are used in numerous end markets.

Research and Development and Product Engineering

We closely integrate new product development with marketing, manufacturing and product engineering in meeting the needs of our customers. We have product engineering teams that work to enhance our existing products and develop new product applications for our growing base of customers that require custom solutions. We believe these capabilities provide a significant competitive advantage in the development of high quality industrial power transmission products. Our product engineering teams focus on:


	•	lowering the cost of manufacturing our existing products;

	•	redesigning existing product lines to increase their efficiency or enhance their performance; and

	•	developing new product applications.

Our continued investment in new product development is intended to help drive customer growth as we address key customer needs.

Sales and Marketing

We sell our products in over 70 countries to over 1,000 direct OEM customers and over 3,000 distributor outlets. We offer our products through our direct sales force comprised of 103 company-employed sales associates as well as independent sales representatives. Our worldwide sales and distribution presence enables us to provide timely and responsive support and service to our customers, many of which operate globally, and to capitalize on growth opportunities in both developed and emerging markets around the world.

We employ an integrated sales and marketing strategy concentrated on both key industries and individual product lines. We believe this dual vertical market and horizontal product approach distinguishes us in the marketplace allowing us to quickly identify trends and customer growth opportunities and deploy resources accordingly. Within our key industries, we market to OEMs, encouraging them to incorporate our products into their equipment designs, to distributors and to end-users, helping to foster brand preference. With this strategy, we are able to leverage our industry experience and product breadth to sell MPT and motion control solutions for a host of industrial applications.

Distribution

Our MPT components are either incorporated into end products sold by OEMs or sold through industrial distributors as aftermarket products to end users and smaller OEMs. We operate a geographically diversified business. For the year ended December 31, 2007, we derived 70% of our net sales from continuing operations were derived from customers in North America, 22% from customers in Europe and 8% from customers in Asia and the rest of the world. Our global customer base is served by an extensive global sales network comprised of our sales staff as well as our network of over 3,000 distributor outlets.

Rather than serving as passive conduits for delivery of product, our industrial distributors are active participants in influencing product purchasing decisions in the MPT industry. In addition, distributors play a critical role through stocking inventory of our products, which affects the accessibility of our products to aftermarket buyers. It is for this reason that distributor partner relationships are so critical to the success of the business. We enjoy strong established relationships with the leading distributors as well as a broad, diversified base of specialty and regional distributors.

Competition

We operate in highly fragmented and very competitive markets within the MPT market. Some of our competitors have achieved substantially more market penetration in certain of the markets in which we operate, such as helical gear drives and some of our competitors are larger than us and have greater financial and other resources. In particular, we compete with Emerson Power Transmission Manufacturing, L.P., Regal-

Beloit Corporation and Rockwell Automation. In addition, with respect to certain of our products, we compete with divisions of our OEM customers. Competition in our business lines is based on a number of considerations including quality, reliability, pricing, availability and design and application engineering support. Our customers increasingly demand a broad product range and we must continue to develop our expertise in order to manufacture and market these products successfully. To remain competitive, we will need to invest regularly in manufacturing, customer service and support, marketing, sales, research and development and intellectual property protection. We may have to adjust the prices of some of our products to stay competitive. In addition, some of our larger, more sophisticated customers are attempting to reduce the number of vendors from which they purchase in order to increase their efficiency. There is substantial and continuing pressure on major OEMs and larger distributors to reduce costs, including the cost of products purchased from outside suppliers such as us. As a result of cost pressures from our customers, our ability to compete depends in part on our ability to generate production cost savings and, in turn, find reliable, cost-effective outside component suppliers or manufacture our products. See “Risk Factors — Risks Related to our Business — We operate in the highly competitive mechanical power transmission industry and if we are not able to compete successfully our business may be significantly harmed.”

Intellectual Property

We rely on a combination of patents, trademarks, copyright and trade secret laws in the United States and other jurisdictions, as well as employee and third-party non-disclosure agreements, license arrangements and domain name registrations to protect our intellectual property. We sell our products under a number of registered and unregistered trademarks, which we believe are widely recognized in the MPT industry. With the exception of Boston Gear, Warner Electric and TB Wood’s, we do not believe any single patent, trademark or trade name is material to our business as a whole. Any issued patents that cover our proprietary technology and any of our other intellectual property rights may not provide us with adequate protection or be commercially beneficial to us and, patents applied for, may not be issued. The issuance of a patent is not conclusive as to its validity or its enforceability. Competitors may also be able to design around our patents. If we are unable to protect our patented technologies, our competitors could commercialize technologies or products which are substantially similar to ours.

With respect to proprietary know-how, we rely on trade secret laws in the United States and other jurisdictions and on confidentiality agreements. Monitoring the unauthorized use of our technology is difficult and the steps we have taken may not prevent unauthorized use of our technology. The disclosure or misappropriation of our intellectual property could harm our ability to protect our rights and our competitive position.

Some of our registered and unregistered trademarks include: Warner Electric, Boston Gear, TB Wood’s, Kilian, Nuttall Gear, Ameridrives, Wichita Clutch, Formsprag, Bibby Transmissions, Stieber, Matrix, Inertia Dynamics, Twiflex, Industrial Clutch, Huco Dynatork, Marland, Delroyd, Warner Linear and Saftek.

Employees

As of December 31, 2007, we had approximately 3,455 full-time employees, of whom approximately 59% were located in North America, 28% in Europe, and 13% in Asia. Approximately 18% of our full-time factory North American employees are represented by labor unions. In addition, approximately 34% of our employees in our facility in Scotland are represented by a labor union. Additionally, approximately 94 employees in the TB Wood’s production facilities in Mexico are unionized under collective bargaining agreements that are subject to annual renewals. The three U.S. collective bargaining agreements to which we are a party will expire on August 10, 2010, June 2, 2008 and February 1, 2009. One of the three U.S. collective bargaining agreements contain provisions for additional, potentially significant, lump-sum severance payments to all employees covered by the agreements who are terminated as the result of a plant closing and one of our collective bargaining agreements contains provisions restricting our ability to terminate or relocate operations. See “Risk Factors — Risks Related to Our Business — We may be subject to work stoppages at our facilities, or our customers may be subjected to work stoppages, which could seriously impact our operations and the profitability of our business.”

The remainder of our European facilities have employees who are generally represented by local and national social works councils which are common in Europe. Social works councils meet with employer industry associations every two to three years to discuss employee wages and working conditions. Our facilities in France and Germany often participate in such discussions and adhere to any agreements reached.

When one of our collective bargaining agreements expired in September 2007, we agreed with the union in Erie, Pennsylvania that the plant would close in 2008.

Suppliers and Raw Materials

We obtain raw materials, component parts and supplies from a variety of sources, generally from more than one supplier. Our suppliers and sources of raw materials are based in both the United States and other countries and we believe that our sources of raw materials are adequate for our needs for the foreseeable future. We do not believe the loss of any one supplier would have a material adverse effect on our business or result of operations. Our principal raw materials are steel, castings and copper. We generally purchase our materials on the open market, where certain commodities such as steel and copper have increased in price significantly in recent years. We have not experienced any significant shortage of our key materials and have not historically engaged in hedging transactions for commodity suppliers.

Regulation

We are subject to a variety of government laws and regulations that apply to companies engaged in international operations. These include compliance with the Foreign Corrupt Practices Act, U.S. Department of Commerce export controls, local government regulations and procurement policies and practices (including regulations relating to import-export control, investments, exchange controls and repatriation of earnings). We maintain controls and procedures to comply with laws and regulations associated with our international operations. In the event we are unable to remain compliant with such laws and regulations, our business may be adversely affected.

Environmental and Health and Safety Matters

We are subject to a variety of federal, state, local, foreign and provincial environmental laws and regulations, including those governing health and safety requirements, the discharge of pollutants into the air or water, the management and disposal of hazardous substances and wastes and the responsibility to investigate and cleanup contaminated sites that are or were owned, leased, operated or used by us or our predecessors. Some of these laws and regulations require us to obtain permits, which contain terms and conditions that impose limitations on our ability to emit and discharge hazardous materials into the environment and periodically may be subject to modification, renewal and revocation by issuing authorities. Fines and penalties may be imposed for non-compliance with applicable environmental laws and regulations and the failure to have or to comply with the terms and conditions of required permits. From time to time our operations may not be in full compliance with the terms and conditions of our permits. We periodically review our procedures and policies for compliance with environmental laws and requirements. We believe that our operations generally are in material compliance with applicable environmental laws and requirements and that any non-compliance would not be expected to result in us incurring material liability or cost to achieve compliance. Historically, the costs of achieving and maintaining compliance with environmental laws and requirements have not been material.

Certain environmental laws in the United States, such as the federal Superfund law and similar state laws, impose liability for the cost of investigation or remediation of contaminated sites upon the current or, in some cases, the former site owners or operators and upon parties who arranged for the disposal of wastes or transported or sent those wastes to an off-site facility for treatment or disposal, regardless of when the release of hazardous substances occurred or the lawfulness of the activities giving rise to the release. Such liability can be imposed without regard to fault and, under certain circumstances, can be joint and several, resulting in one party being held responsible for the entire obligation. As a practical matter, however, the costs of investigation and remediation generally are allocated among the viable responsible parties on some form of

equitable basis. Liability also may include damages to natural resources. We have not been notified that we are a potentially responsible party in connection with any sites we currently or formerly owned or operated or for liability at any off-site waste disposal facility.

However, there is contamination at some of our current facilities, primarily related to historical operations at those sites, for which we could be liable for the investigation and remediation under certain environmental laws. The potential for contamination also exists at other of our current or former sites, based on historical uses of those sites. We currently are not undertaking any remediation or investigations and our costs or liability in connection with potential contamination conditions at our facilities cannot be predicted at this time because the potential existence of contamination has not been investigated or not enough is known about the environmental conditions or likely remedial requirements. Currently, other parties with contractual liability are addressing or have plans or obligations to address those contamination conditions that may pose a material risk to human health, safety or the environment. In addition, while we attempt to evaluate the risk of liability associated with our facilities at the time we acquire them, there may be environmental conditions currently unknown to us relating to our prior, existing or future sites or operations or those of predecessor companies whose liabilities we may have assumed or acquired which could have a material adverse effect on our business.

We are being indemnified, or expect to be indemnified by third parties subject to certain caps or limitations on the indemnification, for certain environmental costs and liabilities associated with certain owned or operated sites. Accordingly, based on the indemnification and the experience with similar sites of the environmental consultants who we have hired, we do not expect such costs and liabilities to have a material adverse effect on our business, operations or earnings. We cannot assure you, however, that those third parties will in fact satisfy their indemnification obligations. If those third parties become unable to, or otherwise do not, comply with their respective indemnity obligations, or if certain contamination or other liability for which we are obligated is not subject to these indemnities, we could become subject to significant liabilities.

Executive Officers of Registrant

The following sets forth certain information with regard to our executive officers as of March 14, 2008 (ages are as of December 31, 2007):

Michael L. Hurt (age 62), P.E. has been our Chief Executive Officer and a director since our formation in 2004. In November 2006, Mr. Hurt was elected as chairman of our board. During 2004, prior to our formation, Mr. Hurt provided consulting services to Genstar Capital and was appointed Chairman and Chief Executive Officer of Kilian in October 2004. From January 1991 to November 2003, Mr. Hurt was the President and Chief Executive Officer of TB Wood’s Incorporated, a manufacturer of industrial power transmission products. Prior to TB Wood’s, Mr. Hurt spent 23 years in a variety of management positions at the Torrington Company, a major manufacturer of bearings and a subsidiary of Ingersoll Rand. Mr. Hurt holds a B.S. degree in Mechanical Engineering from Clemson University and an M.B.A. from Clemson-Furman University.

Carl R. Christenson (age 48) has been our President and Chief Operating Officer since January 2005. From 2001 to 2005, Mr. Christenson was the President of Kaydon Bearings, a manufacturer of custom-engineered bearings and a division of Kaydon Corporation. Prior to joining Kaydon, Mr. Christenson held a number of management positions at TB Wood’s Incorporated and several positions at the Torrington Company. Mr. Christenson holds a M.S. and B.S. degree in Mechanical Engineering from the University of Massachusetts and an M.B.A. from Rensselaer Polytechnic.

Christian Storch (age 47) has been our Chief Financial Officer since December 2007. From 2001 to 2007, Mr. Storch was the Vice President and Chief Financial Officer at Standex International Corporation. Mr. Storch also served on the Board of Directors of Standex International from October 2004 to December 2007. Mr. Storch also served as Standex International’s Treasurer from 2003 to April 2006 and Manager of Corporate Audit and Assurance Services from July 1999 to 2003. Prior to Standex International, Mr. Storch was a Divisional Financial Director and Corporate Controller at Vossloh AG, a publicly held German transport technology company. Mr. Storch has also previously served as an Audit Manager with Deloitte & Touche, LLP. Mr.. Storch holds a degree in business administration from the University of Passau, Germany.

Gerald Ferris (age 58) has been our Vice President of Global Sales since May 2007 and held the same position with Power Transmission Holdings, LLC, our Predecessor, since March 2002. He is responsible for the worldwide sales of our broad product platform. Mr. Ferris joined our Predecessor in 1978 and since joining has held various positions. He became the Vice President of Sales for Boston Gear in 1991. Mr. Ferris holds a B.A. degree in Political Science from Stonehill College.

Timothy McGowan (age 51) has been our Vice President of Human Resources since May 2007 and held the same position with our Predecessor since June 2003. Prior to joining us, from 1994 to 1998 and again from 1999 to 2003 Mr. McGowan was Vice President, Human Resources for Bird Machine, part of Baker Hughes, Inc., an oil equipment manufacturing company. Before his tenure with Bird Machine, Mr. McGowan spent many years with Raytheon in various Human Resources positions. Mr. McGowan holds a B.A. degree in English from St. Francis College in Maine.

Todd B. Patriacca (age 38) has been our Vice President of Finance and Corporate Controller since May 2007. Prior to his current position, Mr. Patriacca has been Corporate Controller since May 2005. Prior to joining us, Mr. Patriacca was Corporate Finance Manager at MKS Instrument Inc., a semi-conductor equipment manufacturer since March 2002. Prior to MKS, Mr. Patriacca spent over ten years at Arthur Andersen LLP in the Assurance Advisory practice. Mr. Patriacca is a Certified Public Accountant and holds a B.A. in History from Colby College and an M.B.A. and an M.S. in Accounting from Northeastern University.

Craig Schuele (age 44) has been our Vice President of Marketing and Business Development since May 2007 and held the same position with our Predecessor since July 2004. Prior to his current position, Mr. Schuele has been Vice President of Marketing since March 2002, and previous to that he was a Director of Marketing. Mr. Schuele joined our Predecessor in 1986 and holds a B.S. degree in Management from Rhode Island College.

Item 1A. Risk Factors

Risks Related to Our Business

We operate in the highly competitive mechanical power transmission industry and if we are not able to compete successfully our business may be significantly harmed.

We operate in highly fragmented and very competitive markets in the MPT industry. Some of our competitors have achieved substantially more market penetration in certain of the markets in which we operate, such as helical gear drives and some of our competitors are larger than us and have greater financial and other resources. With respect to certain of our products, we compete with divisions of our OEM customers. Competition in our business lines is based on a number of considerations, including quality, reliability, pricing, availability and design and application engineering support. Our customers increasingly demand a broad product range and we must continue to develop our expertise in order to manufacture and market these products successfully. To remain competitive, we will need to invest regularly in manufacturing, customer service and support, marketing, sales, research and development and intellectual property protection. In the future we may not have sufficient resources to continue to make such investments and may not be able to maintain our competitive position within each of the markets we serve. We may have to adjust the prices of some of our products to stay competitive.

Additionally, some of our larger, more sophisticated customers are attempting to reduce the number of vendors from which they purchase in order to increase their efficiency. If we are not selected to become one of these preferred providers, we may lose market share in some of the markets in which we compete.

There is substantial and continuing pressure on major OEMs and larger distributors to reduce costs, including the cost of products purchased from outside suppliers such as us. As a result of cost pressures from our customers, our ability to compete depends in part on our ability to generate production cost savings and, in turn, find reliable, cost effective outside suppliers to source components or manufacture our products. If we are unable to generate sufficient cost savings in the future to offset price reductions, then our gross margin could be materially adversely affected.

Changes in general economic conditions or the cyclical nature of our markets could harm our operations and financial performance.

Our financial performance depends, in large part, on conditions in the markets that we serve and on the U.S. and global economies in general. Some of the markets we serve are highly cyclical, such as the metals, mining, industrial equipment and energy markets. In addition, these markets may experience cyclical downturns. The present uncertain economic environment may result in significant quarter-to-quarter variability in our performance. Any sustained weakness in demand or downturn or uncertainty in the economy generally would reduce our sales and profitability.

We rely on independent distributors and the loss of these distributors could adversely affect our business.

In addition to our direct sales force and manufacturer sales representatives, we depend on the services of independent distributors to sell our products and provide service and aftermarket support to our customers. We support an extensive distribution network, with over 3,000 distributor locations worldwide. Rather than serving as passive conduits for delivery of product, our independent distributors are active participants in the overall competitive dynamics in the MPT industry. During the year ended December 31, 2007, approximately 38% of our net sales from continuing operations were generated through independent distributors. In particular, sales through our largest distributor accounted for approximately 10% of our net sales for the year ended December 31, 2007. Almost all of the distributors with whom we transact business offer competitive products and services to our customers. In addition, the distribution agreements we have are typically non-exclusive and cancelable by the distributor after a short notice period. The loss of any major distributor or a substantial number of smaller distributors or an increase in the distributors’ sales of our competitors’ products to our customers could materially reduce our sales and profits.

We must continue to invest in new technologies and manufacturing techniques; however, our ability to develop or adapt to changing technology and manufacturing techniques is uncertain and our failure to do so could place us at a competitive disadvantage.

The successful implementation of our business strategy requires us to continuously invest in new technologies and manufacturing techniques to evolve our existing products and introduce new products to meet our customers’ needs in the industries we serve and want to serve. For example, motion control products offer more precise positioning and control compared to industrial clutches and brakes. If manufacturing processes are developed to make motion control products more price competitive and less complicated to operate, our customers may decrease their purchases of MPT products.

Our products are characterized by performance and specification requirements that mandate a high degree of manufacturing and engineering expertise. If we fail to invest in improvements to our technology and manufacturing techniques to meet these requirements, our business could be at risk. We believe that our customers rigorously evaluate their suppliers on the basis of a number of factors, including:


	•	product quality and availability;

	•	price competitiveness;

	•	technical expertise and development capability;

	•	reliability and timeliness of delivery;

	•	product design capability;

	•	manufacturing expertise; and

	•	sales support and customer service.

Our success depends on our ability to invest in new technologies and manufacturing techniques to continue to meet our customers’ changing demands with respect to the above factors. We may not be able to make required capital expenditures and, even if we do so, we may be unsuccessful in addressing technological advances or introducing new products necessary to remain competitive within our markets. Furthermore, our own technological developments may not be able to produce a sustainable competitive advantage.

Our operations are subject to international risks that could affect our operating results.

Our net sales outside North America represented approximately 30% of our total net sales for the year ended December 31, 2007. In addition, we sell products to domestic customers for use in their products sold overseas. We also source a significant portion of our products and materials from overseas, which is increasing. Our business is subject to risks associated with doing business internationally, and our future results could be materially adversely affected by a variety of factors, including:


	•	fluctuations in currency exchange rates;

	•	exchange rate controls;

	•	tariffs or other trade protection measures and import or export licensing requirements;

	•	potentially negative consequences from changes in tax laws;

	•	interest rates;

	•	unexpected changes in regulatory requirements;

	•	changes in foreign intellectual property law;

	•	differing labor regulations;

	•	requirements relating to withholding taxes on remittances and other payments by subsidiaries;


	•	restrictions on our ability to own or operate subsidiaries, make investments or acquire new businesses in various jurisdictions;

	•	potential political instability and the actions of foreign governments; and

	•	restrictions on our ability to repatriate dividends from our subsidiaries.

As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. However, any of these factors could materially adversely affect our international operations and, consequently, our operating results.

Our operations depend on production facilities throughout the world, many of which are located outside the United States and are subject to increased risks of disrupted production causing delays in shipments and loss of customers and revenue.

We operate businesses with manufacturing facilities worldwide, many of which are located outside the United States including in Canada, China, France, Germany, Italy, Mexico and the United Kingdom. Serving a global customer base requires that we place more production in emerging markets to capitalize on market opportunities and cost efficiencies. Our international production facilities and operations could be disrupted by a natural disaster, labor strike, war, political unrest, terrorist activity or public health concerns, particularly in emerging countries that are not well-equipped to handle such occurrences.

We rely on estimated forecasts of our OEM customers’ needs, and inaccuracies in such forecasts could materially adversely affect our business.

We generally sell our products pursuant to individual purchase orders instead of under long-term purchase commitments. Therefore, we rely on estimated demand forecasts, based upon input from our customers, to determine how much material to purchase and product to manufacture. Because our sales are based on purchase orders, our customers may cancel, delay or otherwise modify their purchase commitments with little or no consequence to them and with little or no notice to us. For these reasons, we generally have limited visibility regarding our customers’ actual product needs. The quantities or timing required by our customers for our products could vary significantly. Whether in response to changes affecting the industry or a customer’s specific business pressures, any cancellation, delay or other modification in our customers’ orders could significantly reduce our revenue, impact our working capital, cause our operating results to fluctuate from period to period and make it more difficult for us to predict our revenue. In the event of a cancellation or reduction of an order, we may not have enough time to reduce operating expenses to minimize the effect of the lost revenue on our business and we may purchase too much inventory and spend more capital than expected.

The materials used to produce our products are subject to price fluctuations that could increase costs of production and adversely affect our profitability.

The materials used to produce our products, especially copper and steel, are sourced on a global or regional basis and the prices of those materials are susceptible to price fluctuations due to supply and demand trends, transportation costs, government regulations and tariffs, changes in currency exchange rates, price controls, the economic climate and other unforeseen circumstances. From the first quarter of 2004 to the fourth quarter of 2007, the average price of copper and steel has increased approximately 162% and 40%, respectively. If we are unable to continue to pass a substantial portion of such price increases on to our customers on a timely basis, our future profitability may be materially and adversely affected. In addition, passing through these costs to our customers may also limit our ability to increase our prices in the future.

We face potential product liability claims relating to products we manufacture or distribute, which could result in our having to expend significant time and expense to defend these claims and to pay material claims or settlement amounts.

We face a business risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in injury or other adverse effects. We currently have several product liability claims against us with respect to our products. Although we currently maintain product liability insurance coverage, we may not be able to obtain such insurance on acceptable terms in the future, if at all, or obtain insurance that will provide adequate coverage against potential claims. Product liability claims can be expensive to defend and can divert the attention of management and other personnel for long periods of time, regardless of the ultimate outcome. An unsuccessful product liability defense could have a material adverse effect on our business, financial condition, results of operations or our ability to make payments under our debt obligations when due. In addition, we believe our business depends on the strong brand reputation we have developed. In the event that our reputation is damaged, we may face difficulty in maintaining our pricing positions with respect to some of our products, which would reduce our sales and profitability.

We may be subject to work stoppages at our facilities, or our customers may be subjected to work stoppages, which could seriously impact our operations and the profitability of our business.

As of December 31, 2007, we had approximately 3,455 full time employees, of whom approximately 47% were employed outside the United States. Approximately 384 of our North American employees and 45 of our employees in Scotland are represented by labor unions. In addition, our employees in Europe are generally represented by local and national social works councils that hold discussions with employer industry associations regarding wage and work issues every two to three years. Our European facilities, particularly those in France and Germany, may participate in such discussions and be subject to any agreements reached with employees.

Our three U.S. collective bargaining agreements will expire on June 2, 2008. February 1, 2009 and August 10, 2010. We may be unable to renew these agreements on terms that are satisfactory to us, if at all. In addition, one of our three U.S. collective bargaining agreements contain provisions for additional, potentially significant, lump-sum severance payments to all employees covered by the agreements who are terminated as the result of a plant closing and one of our collective bargaining agreements contains provisions restricting our ability to terminate or relocate operations. Additionally, approximately 94 employees in the TB Wood’s production facilities in Mexico are unionized under collective bargaining agreements that are subject to annual renewals.

If our unionized workers or those represented by a works council were to engage in a strike, work stoppage or other slowdown in the future, we could experience a significant disruption of our operations. Such disruption could interfere with our ability to deliver products on a timely basis and could have other negative effects, including decreased productivity and increased labor costs. In addition, if a greater percentage of our work force becomes unionized, our business and financial results could be materially adversely affected. Many of our direct and indirect customers have unionized work forces. Strikes, work stoppages or slowdowns experienced by these customers or their suppliers could result in slowdowns or closures of assembly plants where our products are used and could cause cancellation of purchase orders with us or otherwise result in reduced revenues from these customers.

Changes in employment laws could increase our costs and may adversely affect our business.

Various federal, state and international labor laws govern our relationship with employees and affect operating costs. These laws include minimum wage requirements, overtime, unemployment tax rates, workers’ compensation rates paid, leaves of absence, mandated health and other benefits, and citizenship requirements. Significant additional government-imposed increases or new requirements in these areas could materially affect our business, financial condition, operating results or cash flow.

In the event our employee-related costs rise significantly, we may have to curtail the number of our employees or shut down certain manufacturing facilities. Any such actions would be not only costly but could also materially adversely affect our business.

We depend on the services of key executives, the loss of whom could materially harm our business.

Our senior executives are important to our success because they are instrumental in setting our strategic direction, operating our business, maintaining and expanding relationships with distributors, identifying, recruiting and training key personnel, identifying expansion opportunities and arranging necessary financing. Losing the services of any of these individuals could adversely affect our business until a suitable replacement could be found. We believe that our senior executives could not easily be replaced with executives of equal experience and capabilities. Although we have entered into employment agreements with certain of our key domestic executives, we cannot prevent our key executives from terminating their employment with us. We do not maintain key person life insurance policies on any of our executives.

If we lose certain of our key sales, marketing or engineering personnel, our business may be adversely affected.

Our success depends on our ability to recruit, retain and motivate highly skilled sales, marketing and engineering personnel. Competition for these persons in our industry is intense and we may not be able to successfully recruit, train or retain qualified personnel. If we fail to retain and recruit the necessary personnel, our business and our ability to obtain new customers, develop new products and provide acceptable levels of customer service could suffer. If certain of these key personnel were to terminate their employment with us, we may experience difficulty replacing them, and our business could be harmed.

We are subject to environmental laws that could impose significant costs on us and the failure to comply with such laws could subject us to sanctions and material fines and expenses.

We are subject to a variety of federal, state, local, foreign and provincial environmental laws and regulations, including those governing the discharge of pollutants into the air or water, the management and disposal of hazardous substances and wastes and the responsibility to investigate and cleanup contaminated sites that are or were owned, leased, operated or used by us or our predecessors. Some of these laws and regulations require us to obtain permits, which contain terms and conditions that impose limitations on our ability to emit and discharge hazardous materials into the environment and periodically may be subject to modification, renewal and revocation by issuing authorities. Fines and penalties may be imposed for non-compliance with applicable environmental laws and regulations and the failure to have or to comply with the terms and conditions of required permits. From time to time our operations may not be in full compliance with the terms and conditions of our permits. We periodically review our procedures and policies for compliance with environmental laws and requirements. We believe that our operations generally are in material compliance with applicable environmental laws, requirements and permits and that any lapses in compliance would not be expected to result in us incurring material liability or cost to achieve compliance. Historically, the costs of achieving and maintaining compliance with environmental laws, and requirements and permits have not been material; however, the operation of manufacturing plants entails risks in these areas, and a failure by us to comply with applicable environmental laws, regulations, or permits could result in civil or criminal fines, penalties, enforcement actions, third party claims for property damage and personal injury, requirements to clean up property or to pay for the costs of cleanup, or regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, including the installation of pollution control equipment or remedial actions. Moreover, if applicable environmental laws and regulations, or the interpretation or enforcement thereof, become more stringent in the future, we could incur capital or operating costs beyond those currently anticipated.

of hazardous substances occurred or the lawfulness of the activities giving rise to the release. Such liability can be imposed without regard to fault and, under certain circumstances, can be joint and several, resulting in one party being held responsible for the entire obligation. As a practical matter, however, the costs of investigation and remediation generally are allocated among the viable responsible parties on some form of equitable basis. Liability also may include damages to natural resources. We have not been notified that we are a potentially responsible party in connection with any sites we currently or formerly owned or operated or for liability at any off-site waste disposal facility.

We may face additional costs associated with our post-retirement and post-employment obligations to employees which could have an adverse effect on our financial condition.

As part of the PTH Acquisition, we agreed to assume pension plan liabilities for active U.S. employees under the Retirement Plan for Power Transmission Employees of Colfax and the Ameridrives International Pension Fund for Hourly Employees Represented by United Steelworkers of America, Local 3199-10, collectively referred to as the Prior Plans. We have established a defined benefit plan, the Altra Industrial Motion, Inc. Retirement Plan or New Plan, mirroring the benefits provided under the Prior Plans. The New Plan accepted a spin-off of assets and liabilities from the Prior Plans, in accordance with Section 414(l) of the Internal Revenue Code, or the Code, with such assets and liabilities relating to active U.S. employees as of the closing of the PTH Acquisition. Given the funded status of the Prior Plans and the asset allocation requirements of Code Section 414(l), liabilities under the New Plan greatly exceed the assets that were transferred from the Prior Plans. The accumulated benefit obligation (not including accumulated benefit obligations of non-U.S. pension plans in the amount of $3.2 million) was approximately $24.8 million as of December 31, 2007 while the fair value of plan assets was approximately $14.6 million as of December 31, 2007. As the New Plan has a considerable funding deficit, the cash funding requirements are expected to be substantial over the next several years, and could have a material adverse effect on our financial condition. As of December 31, 2007, minimum funding requirements are estimated to be $2.5 million in 2008, $5.7 million in 2009 $1.3 million in 2010, $2.0 million in 2011 and $2.1 million thereafter. These amounts are based on actuarial assumptions and actual amounts could be materially different.

Additionally, as part of the PTH Acquisition, we agreed to assume all pension plan liabilities related to non-U.S. employees. The accumulated benefit obligations of non-U.S. pension plans were approximately $3.2 million as of December 31, 2007. There are no assets associated with these plans.

Finally, as part of the PTH Acquisition, we also agreed to assume all post-employment and post-retirement welfare benefit obligations with respect to active U.S. employees. The benefit obligation for post-retirement benefits, which are not funded, was approximately $3.1 million as of December 31, 2007.

For a description of the post-retirement and post-employment costs, see Note 10 to our audited financial statements included elsewhere in this Form 10-K.

Our future success depends on our ability to integrate acquired companies and manage our growth effectively.

Our growth through acquisitions has placed, and will continue to place, significant demands on our management, operational and financial resources. Realization of the benefits of acquisitions often requires integration of some or all of the acquired companies’ sales and marketing, distribution, manufacturing, engineering, finance and administrative organizations. Integration of companies demands substantial attention from senior management and the management of the acquired companies. In addition, we will continue to pursue new acquisitions, some of which could be material to our business if completed. We may not be able to integrate successfully our recent acquisitions, including TB Wood’s, or any future acquisitions, operate these acquired companies profitably, or realize the potential benefits from these acquisitions.

We may not be able to protect our intellectual property rights, brands or technology effectively, which could allow competitors to duplicate or replicate our technology and could adversely affect our ability to compete.

We rely on a combination of patent, trademark, copyright and trade secret laws in the United States and other jurisdictions, as well as on license, non-disclosure, employee and consultant assignment and other agreements and domain names registrations in order to protect our proprietary technology and rights. Applications for protection of our intellectual property rights may not be allowed, and the rights, if granted, may not be maintained. In addition, third parties may infringe or challenge our intellectual property rights. In some cases, we rely on unpatented proprietary technology. It is possible that others will independently develop the same or similar technology or otherwise obtain access to our unpatented technology. In addition, in the ordinary course of our operations, we pursue potential claims from time to time relating to the protection of certain products and intellectual property rights, including with respect to some of our more profitable products. Such claims could be time consuming, expensive and divert resources. If we are unable to maintain the proprietary nature of our technologies or proprietary protection of our brands, our ability to market or be competitive with respect to some or all of our products may be affected, which could reduce our sales and profitability.

Goodwill comprises a significant portion of our total assets, and if we determine that goodwill has become impaired in the future, net income in such years may be materially and adversely affected.

Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. We review goodwill and other intangibles annually for impairment and any excess in carrying value over the estimated fair value is charged to the results of operations. Reduction in net income resulting from the write down or impairment of goodwill would affect financial results.

Unplanned repairs or equipment outages could interrupt production and reduce income or cash flow.

Unplanned repairs or equipment outages, including those due to natural disasters, could result in the disruption of our manufacturing processes. Any interruption in our manufacturing processes would interrupt our production of products, reduce our income and cash flow and could result in a material adverse effect on our business and financial condition.

Our operations are highly dependent on information technology infrastructure and failures could significantly affect our business.

We depend heavily on our information technology, or IT, infrastructure in order to achieve our business objectives. If we experience a problem that impairs this infrastructure, such as a computer virus, a problem with the functioning of an important IT application, or an intentional disruption of our IT systems by a third party, the resulting disruptions could impede our ability to record or process orders, manufacture and ship in a timely manner, or otherwise carry on our business in the ordinary course. Any such events could cause us to lose customers or revenue and could require us to incur significant expense to eliminate these problems and address related security concerns.

Our leverage could adversely affect our financial health and make us vulnerable to adverse economic and industry conditions.

We have incurred indebtedness that is substantial relative to our stockholders’ investment. As of December 31, 2007, we had approximately $296.9 million of indebtedness outstanding and $23.5 million available under lines of credit. Our indebtedness has important consequences; for example, it could:


	•	make it more challenging for us to obtain additional financing to fund our business strategy and acquisitions, debt service requirements, capital expenditures and working capital;

	•	increase our vulnerability to interest rate changes and general adverse economic and industry conditions;

	•	require us to dedicate a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the availability of our cash flow to finance acquisitions and to fund working capital, capital expenditures, research and development efforts and other general corporate activities;

	•	make it difficult for us to fulfill our obligations under our credit and other debt agreements;

	•	limit our flexibility in planning for, or reacting to, changes in our business and our markets; and

	•	place us at a competitive disadvantage relative to our competitors that have less debt.

Substantially all of our assets have been pledged as collateral against any outstanding borrowings under the credit agreements, or the Credit Agreements, governing Altra Industrial’s senior revolving credit facility and the credit facility we entered into in connection with the TB Wood’s Acquisition, or the TB Wood’s senior secured credit facility. In addition, the Credit Agreements require us to maintain specified financial ratios and satisfy certain financial condition tests, which may require that we take action to reduce our debt or to act in a manner contrary to our business objectives. If an event of default under the Credit Agreements, then the lenders could declare all amounts outstanding under the senior revolving credit facility and the TB Wood’s senior secured credit facility, together with accrued interest, to be immediately due and payable. In addition, our senior revolving credit facility, the TB Wood’s senior secured credit facility and the indentures governing the 9% senior secured notes and 111/4% senior notes have cross-default provisions such that a default under any one would constitute an event of default in any of the others.

We are subject to tax laws and regulations in many jurisdictions and the inability to successfully defend claims from taxing authorities related to our current or acquired businesses could adversely affect our operating results and financial position.

We conduct business in many countries, which requires us to interpret the income tax laws and rulings in each of those taxing jurisdictions. Due to the subjectivity of tax laws between those jurisdictions as well as the subjectivity of factual interpretations, our estimates of income tax liabilities may differ from actual payments or assessments. Claims from taxing authorities related to these differences could have an adverse impact on our operating results and financial position.


Item 1B.	*Unresolved Staff Comments*

None


Item 2.	*Properties*

In addition to our leased headquarters in Quincy, Massachusetts, we maintain 29 production facilities, fifteen of which are located in the United States, two in Canada, ten in Europe, and one in China and Mexico. The following table lists all of our facilities, other than sales offices and distribution centers, as of December 31, 2007, indicating the location, principal use and whether the facilities are owned or leased.

Location

Brand

Major Products

Sq. Ft.

Leased

Expiration

United States

Chambersburg,

Pennsylvania

TB Wood’s

Couplings, Belted Drives, Castings

440,000

Owned

N/A

South Beloit, Illinois

Warner Electric

Electromagnetic Clutches & Brakes

104,288

Owned

N/A

Syracuse, New York

Kilian

Engineered Bearing Assemblies

97,000

Owned

N/A

Wichita Falls, Texas

Wichita Clutch

Heavy Duty Clutches and Brakes

90,400

Owned

N/A

Warren, Michigan

Formsprag

Overrunning Clutches

79,000

Owned

N/A

Erie, Pennsylvania

Ameridrives

Couplings

76,200

Owned

N/A

Chattanooga, Tennessee⁽⁶⁾

TB Wood’s

60,000

Owned

N/A

Scotland, Pennsylvania⁽⁶⁾

TB Wood’s

51,300

Owned

N/A

San Marcos, Texas

TB Wood’s

Couplings and Belted Drives

51,000

Owned

N/A

Columbia City, Indiana

Warner Electric

Electromagnetic Clutches & Brakes & Coils

35,000

Owned

N/A

Mt. Pleasant, Michigan

TB Wood’s

Power Transmission Components, Couplings

30,000

Owned

N/A

Charlotte, North Carolina

Boston Gear

Gearing & Power Transmission Components

193,000

Leased

February 28, 2013

Niagara Falls, New York

Nuttall Gear

Gearing

155,509

Leased

March 31, 2008

New Hartford, Connecticut

Inertia Dynamics

Electromagnetic Clutches & Brakes

32,000

Leased

July 30, 2019

Quincy, Massachusetts⁽¹⁾

Altra, Boston Gear

—

30,350

Leased

February 12, 2009

Belvidere, Illinois

Warner Linear

Linear Actuators

21,000

Leased

June 30, 2009

New Braunsfels, Texas

Ameridrives

Couplings

16,200

Leased

December 31, 2009

Green Bay, Wisconsin

Ameridrives

Couplings

85,250

Leased

March 31, 2011

International

Heidelberg, Germany

Stieber

Overrunning Clutches

57,609

Owned

N/A

Saint Barthelemy, France

Warner Electric

Electromagnetic Clutches & Brakes

50,129

Owned

N/A

Bedford, England

Wichita Clutch

Heavy Duty Clutches and Brakes

49,000

Owned

N/A

Allones, France

Warner Electric

Electromagnetic Clutches & Brakes

38,751

Owned

N/A

Toronto, Canada

Kilian

Engineered Bearing Assemblies

29,000

Owned

N/A

Dewsbury, England

Bibby Transmissions

Couplings

26,100

Owned

N/A

Stratford, Canada⁽⁵⁾

TB Wood’s

Power Transmission Components, Couplings

46,000

Owned

N/A

Shenzhen, China

Warner Electric

Electromagnetic Clutches, Brakes & Precision Components

112,271

Leased

December 15, 2008

San Luis Potosi, Mexico

TB Wood’s

Couplings and Belted Drives

71,800

Leased

June 8, 2014

Brechin, Scotland

Matrix

Clutch Brakes, Couplings

52,500

Leased

February 28, 2011

Garching, Germany

Stieber

Overrunning Clutches

32,292

Leased

⁽²⁾

Toronto, Canada

Kilian

Engineered Bearing Assemblies

30,120

Leased

⁽³⁾

Twickenham, England

Twiflex

Heavy Duty Clutches and Brakes

27,500

Leased

September 30, 2009

Hertford, England

Huco Dynatork

Couplings Components

13,565

Leased

July 30, 2012

Telford, England

Saftek

Friction Material

4,400

Leased

August 31, 2008


(1)		Corporate Headquarters and selective Boston Gear functions.

(2)		Must give the lessor twelve months notice for termination.


(3)		Month to month lease.

(4)		Must give the lessor six months notice for termination.

(5)		Building is currently held for sale.

(6)		Buildings are currently being leased to tenants.


Item 3.	*Legal Proceedings*

We are, from time to time, party to various legal proceedings arising out of our business. These proceedings primarily involve commercial claims, product liability claims, intellectual property claims, environmental claims, personal injury claims and workers’ compensation claims. We cannot predict the outcome of these lawsuits, legal proceedings and claims with certainty. Nevertheless, we believe that the outcome of any currently existing proceedings, even if determined adversely, would not have a material adverse effect on our business, financial condition and results of operations.


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

During the fourth quarter of fiscal year 2007, there were no matters submitted to a vote of security holders.

PART II


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

Market Information

Our common stock trades on the NASDAQ Global Market under the symbol “AIMC”. As of March 7, 2008, there were 22 holders of record of our common stock.

The following table sets forth, for the periods indicated, the high and low sales price for our common stock as reported on The NASDAQ Global Market. Our common stock commenced trading on the NASDAQ Global Market on December 15, 2006.


	High		Low

Fiscal Year Ended December 31, 2006:
Fourth Quarter	$	14.55	$	13.75
Fiscal Year Ended December 31, 2007:
First Quarter	$	16.87	$	15.40
Second Quarter	$	18.00	$	15.04
Third Quarter	$	18.72	$	13.94
Fourth Quarter	$	16.99	$	13.71

Dividends

We have never declared or paid any dividends on our common stock. We currently intend to retain any earnings for use in the operation and expansion of our business and, therefore do not anticipate paying any cash dividends in the foreseeable future. In addition, the Credit Agreement governing the senior revolving credit facility and the indentures governing the 9% senior secured notes and 111/4% senior notes limit our ability to pay dividends or other distributions on our common stock.

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

None.

Performance Graph

The following graph compares the cumulative total stockholder return on our common stock since the time of our initial public offering, December 15, 2006 through December 31, 2007, with the cumulative total return on shares of companies comprising the S&P Small Cap 600 index and a special Peer Group index, in each case assuming an initial investment of $100.


			December 31,		March 31,		June 30,		September 29,		December 31,
	December 15, 2006		2006		2007		2007		2007		2007
Altra Holdings, Inc.	$	100	$	104.07	$	101.56	$	128.00	$	123.48	$	123.19
Russell 2000	$	100	$	99.45	$	102.20	$	107.25	$	105.05	$	98.03
Peer Group	$	100	$	100.62	$	101.28	$	117.45	$	107.73	$	103.29

The Peer Group consists of the following publicly traded companies: Franklin Electric Co. Inc., RBC Bearings, Inc., Regal Beloit Corp., Baldor Electric Co., and Kaydon Bearings Corp.


Item 6.	*Selected Financial Data*

We were formed to facilitate the PTH Acquisition. The following table contains our selected historical financial data for the years ended December 31, 2007, 2006, 2005 and the period from inception (December 1, 2004) to December 31, 2004 and PTH (the Predecessor), for the period from January 1, 2004 through November 30, 2004 and for the year ended December 31, 2003. Colfax Corporation did not maintain separate financial statements for PTH as a stand-alone business. At the time of the PTH Acquisition, Colfax Corporation produced historical financial statements for PTH for the eleven month period January 1, 2004 — November 30, 2004 and the fiscal year ended 2003. The following should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes included elsewhere in this Form 10- K.


													Predecessor
										(Period			(Period
										From			From
	Altra			Altra			Altra			December 1,			January 1
	Year Ended			Year Ended			Year Ended			2004 Through			Through			Year Ended
	December 31,			December 31,			December 31,			December 31,			November 30,			December 31,
	2007			2006			2005			2004)			2004)			2003
	(Dollars in thousands)
Income Statement Data:
Net sales	$	584,376		$	462,285		$	363,465		$	28,625		$	275,037		$	266,863
Cost of sales		419,109			336,836			271,952			23,847			209,253			207,941

Gross profit		165,267			125,449			91,513			4,778			65,784			58,922
Selling, general and administrative expenses		93,211			83,276			61,579			8,973			45,321			49,513
Research and development expenses		6,077			4,938			4,683			378			3,947			3,455
Restructuring charge, asset impairment and transition expenses		2,399			—			—			—			947			11,085
Loss (gain) on curtailment of post-retirement benefit plan		2,745			(3,838	)		—			—			—			—
Gain on sale of assets		—			—			(99	)		—			(1,300	)		—

Operating income (loss) from continuing operations		60,835			41,073			25,350			(4,573	)		16,869			(5,131	)
Interest expense, net		38,554			25,479			19,514			1,612			4,294			5,368
Other non-operating expense (income), net		612			856			(17	)		—			148			465

Income (loss) before income taxes and discontinued operations		21,669			14,738			5,853			(6,185	)		12,427			(10,964	)
Provision (benefit) for income taxes		8,208			5,797			3,349			(292	)		5,532			(1,658	)

Net income (loss) from continuing operations		13,461			8,941			2,504			(5,893	)		6,895			(9,306	)
Net loss on discontinued operations, net of taxes of $6,109		(2,001	)		—			—			—			—			—

Net income (loss)	$	11,460		$	8,941		$	2,504		$	(5,893	)	$	6,895		$	(9,306	)

Other Financial Data:
Depreciation and amortization	$	21,939		$	14,611		$	11,533		$	919		$	6,074		$	8,653
Purchases of fixed assets		12,314			9,408			6,199			289			3,489			5,294
Cash flow provided by (used in):
Operating activities	$	41,808		$	11,128		$	12,023		$	5,623		$	3,604		$	(14,289	)
Investing activities		(124,672	)		(63,163	)		(5,197	)		(180,401	)		953			(1,573	)
Financing activities		84,537			83,837			(971	)		179,432			(6,696	)		12,746
Weighted average shares of common stock outstanding:
Basic		23,579			1,183			9			n/a			n/a			n/a
Diluted		24,630			19,525			18,969			n/a			n/a			n/a
Basic net income per share:
Net income from continuing operations	$	0.57		$	7.56		$	278.22			n/a			n/a			n/a
Net loss from discontinued operations	$	(0.08	)		—			—			n/a			n/a			n/a

Net income	$	0.49		$	7.56		$	278.22			n/a			n/a			n/a
Diluted net income per share:
Net income from continuing operations	$	0.55		$	0.46		$	0.13			n/a			n/a			n/a
Net loss from discontinued operations	$	(0.08	)		—			—			n/a			n/a			n/a
Net income	$	0.47		$	0.46		$	0.13			n/a			n/a			n/a


	Altra		Altra		Altra		Altra		Predecessor
	December 31,		December 31,		December 31,		December 31,		December 31,
	2007		2006		2005		2004		2003
Balance Sheet Data:
Cash and cash equivalents		45,807	$	42,527	$	10,060	$	4,729	$	3,163
Total assets		580,525		409,368		297,691		299,387		174,324
Total debt		294,066		229,128		173,760		173,851		1,888
Convertible preferred stock and other long-term liabilities		45,399		29,471		79,168		76,665		62,179

Comparability of the information included in the selected financial data has been impacted by the acquisitions of Hay Hall and Warner Linear in 2006 and TB Wood’s and All Power in 2007.


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

The following discussion of the financial condition and results of income of Altra Holdings, Inc. should be read together with the Selected Historical Financial Data, and the financial statements of Altra Holdings, Inc. and its Predecessor and related notes included elsewhere in this Form 10-K. The following discussion includes forward-looking statements. For a discussion of important factors that could cause actual results to differ materially from the results referred to in the forward-looking statements, see “Forward-Looking Statements” and “Risk Factors”.

General

We are a leading global designer, producer and marketer of a wide range of MPT and motion control products with a presence in over 70 countries. Our global sales and marketing network includes over 1,000 direct OEM customers and over 3,000 distributor outlets. Our product portfolio includes industrial clutches and brakes, enclosed gear drives, open gearing, couplings, engineered bearing assemblies, linear components and other related products. Our products serve a wide variety of end markets including energy, general industrial, material handling, mining, transportation and turf and garden. We primarily sell our products to a wide range of OEMs and through long-standing relationships with industrial distributors such as Motion Industries, Applied Industrial Technologies, Kaman Industrial Technologies and W.W. Grainger.

Our net sales have grown at a compound annual growth rate of approximately 20% over the last three fiscal years. We believe this growth has been a result of recent acquisitions, greater overall global demand for our products due to a strengthening economy, increased consumption in certain geographic markets such as China, expansion of our relationships with our customers and distributors and implementation of improved sales and marketing initiatives.

We improved our gross profit margin and operating profit margin every year from fiscal year 2003 through fiscal year 2007 by implementing strategic price increases, utilizing low-cost country sourcing of components, increasing our productivity and employing a more efficient sales and marketing strategy.

While the power transmission industry has undergone some consolidation, we estimate that in 2007 the top five broad-based MPT companies represented approximately 19% of the U.S. power transmission market. The remainder of the power transmission industry remains fragmented with many small and family-owned companies that cater to a specific market niche often due to their narrow product offerings. We believe that consolidation in our industry will continue because of the increasing demand for global distribution channels, broader product mixes and better brand recognition to compete in this industry.

Initial Public Offering

In December 2006, the Company completed an initial public offering. The Company offered 3,333,334 of their own shares. In addition selling stockholders offered 6,666,666 shares. Proceeds to the Company after the underwriting discount were $41.9 million. As of December 31, 2006, there are 50,000,000 shares of common stock authorized with a par value of $0.001 and 21,467,500 outstanding.

Secondary Public Offering

In June 2007, we completed a secondary public offering of 12,650,000 shares of our common stock, par value $0.001 per share, which included 1,650,000 sold as a result of the underwriters’ exercise of their overallotment option in full at closing. We received proceeds of $48.7 million, net of underwriting discount and other issuance costs. In the offering we sold 3,178,494 shares and certain selling stockholders sold 9,471,506 shares.

History and the Acquisitions

Our current business began with the acquisition by Colfax Corporation, or Colfax, of the MPT group of Zurn Technologies, Inc. in December 1996. Colfax subsequently acquired Industrial Clutch Corp. in May 1997, Nuttall Gear Corp. in July 1997 and the Boston Gear and Delroyd Worm Gear brands in August 1997 as part of Colfax’s acquisition of Imo Industries, Inc. In February 2000, Colfax acquired Warner Electric, Inc., which sold products under the Warner Electric, Formsprag Clutch, Stieber and Wichita Clutch brands. Colfax formed PTH in June 2004 to serve as a holding company for all of these power transmission businesses.

On November 30, 2004, we acquired our original core business through the acquisition of PTH from Colfax for $180.0 million in cash. We refer to this transaction as the PTH Acquisition.

On October 22, 2004, The Kilian Company, or Kilian, a company formed at the direction of Genstar Capital, the largest stockholder of Altra Holdings, acquired Kilian Manufacturing Corporation from Timken U.S. Corporation for $8.8 million in cash and the assumption of $12.2 million of debt. At the completion of the PTH Acquisition, (i) all of the outstanding shares of Kilian capital stock were exchanged for approximately $8.8 million of shares of our capital stock and Kilian and its subsidiaries were transferred to our wholly owned subsidiary, Altra Industrial and (ii) all outstanding debt of Kilian was retired with a portion of the proceeds of the sale of Altra Industrial’s 9% senior secured notes due 2011, or the 9% senior secured notes.

On February 10, 2006, we purchased all of the outstanding share capital of Hay Hall for $49.2 million. During 2007, the purchase price was reduced by $0.4 million related to the finalization of the working capital adjustment in accordance with the terms of the purchase price agreement. Included in the purchase price was $6.0 million paid in the form of deferred consideration. At the closing we deposited such deferred consideration into an escrow account for the benefit of the former Hay Hall shareholders. The deferred consideration is represented by a loan note. While the former Hay Hall shareholders will hold the note, their rights will be limited to receiving the amount of the deferred consideration placed in the escrow account. They will have no recourse against us unless we take action to prevent or interfere in the release of such funds from the escrow account. At closing, Hay Hall and its subsidiaries became our direct or indirect wholly owned subsidiaries. Hay Hall is a UK-based holding company established in 1996 that is focused primarily on the manufacture of couplings and clutch brakes. Hay Hall consists of five main businesses that are niche focused and have strong brand names and established reputations within their primary markets.

Through Hay Hall, we acquired 15 strong brands in complementary product lines, improved customer leverage and expanded geographic presence in over 11 countries. Hay Hall’s product offerings diversified our revenue base and strengthened our key product areas, such as electric clutches, brakes and couplings. Matrix International, Inertia Dynamics and Twiflex, three Hay Hall businesses, combined with Warner Electric, Wichita Clutch, Formsprag Clutch and Stieber, make the consolidated company one of the largest individual manufacturers of industrial clutches and brakes in the world.

On May 18, 2006, we acquired substantially all of the assets of Bear Linear for $5.0 million. Approximately $3.5 million was paid at closing and the remaining $1.5 million is payable over approximately the next two years. Bear Linear manufactures high value-added linear actuators which are electromechanical power transmission devices designed to move and position loads linearly for mobile off-highway and industrial applications. Bear Linear’s product design and engineering expertise, coupled with our sourcing alliance with a low cost country manufacturer, were critical components in our strategic expansion into the motion control market.

On April 5, 2007, we acquired all of the outstanding shares of TB Wood’s for $24.80 per share, or aggregate consideration of $93.5 million. As part of the TB Wood’s acquisition, we retired $18.7 million of TB Wood’s indebtedness and paid $9.2 million to retire options under the TB Wood’s equity plan. TB Wood’s is an established designer, manufacturer and marketer of mechanical and electronic industrial power transmission products.

On October 5, 2007, we acquired substantially all of the assets of All Power Transmission Manufacturing, Inc. (“All Power”). Approximately $5.0 million was paid at closing and the remaining $2.6 million of consideration was issued in the form of a note payable, due in installments over a 2 year period. The total cash payments including deal costs and the net present value of the $2.6 million note payable reflect the total purchase consideration of $7.2 million.

Divestitures

On December 31, 2007, we sold the TB Wood’s adjustable speed drives business or Electronics division to Vacon, Inc. for $29.0 million. We sold the Electronics division in order to continue our strategic focus on our core electro-mechanical power transmission business.

Critical Accounting Policies

The methods, estimates and judgments we use in applying our critical accounting policies have a significant impact on the results we report in our financial statements. We evaluate our estimates and judgments on an on-going basis. Our estimates are based upon historical experience and assumptions that we believe are reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what our management anticipates and different assumptions or estimates about the future could change our reported results.

We believe the following accounting policies are the most critical in that they are important to the financial statements and they require the most difficult, subjective or complex judgments in the preparation of the financial statements.

Revenue Recognition. Product revenues are recognized, net of sales tax collected, at the time title and risk of loss pass to the customer, which generally occurs upon shipment to the customer. Service revenues are recognized as services are performed. Amounts billed for shipping and handling are recorded as revenue. Product return reserves are accrued at the time of sale based on the historical relationship between shipments and returns, and are recorded as a reduction of net sales. Certain large distribution customers receive quantity discounts which are recognized net at the time the sale is recorded.

Inventory. Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method for all of our subsidiaries except TB Wood’s. TB Wood’s inventory is stated at the lower of current cost or market, principally using the last-in, first-out (LIFO) method. Inventory stated using the LIFO method approximates 15% of total inventory. We state inventories acquired by us through acquisitions at their fair values at the date of acquisition as determined by us based on the replacement cost of raw materials, the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts, and for work-in-process the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts and costs to complete.

We periodically reviews our quantities of inventories on hand and compares these amounts to the expected usage of each particular product or product line. We record as a charge to cost of sales any amounts required to reduce the carrying value of inventories to net realizable value.

Retirement Benefits. Obligations for pension obligations and other post retirement benefits are actuarially determined and are affected by several assumptions, including the discount rate, assumed annual rates of return on plan assets, and per capita cost of covered health care benefits. Changes in discount rate and differences from actual results for each assumption will affect the amounts of pension expense and other post retirement expense recognized in future periods.

Goodwill and Intangible Assets. In connection with our acquisitions, intangible assets were identified and recorded at their fair value, in accordance with Statement of Financial Accounting Standards, or SFAS No. 141, Business Combinations. We recorded intangible assets for customer relationships, trade names and trademarks, product technology and patents, and goodwill. In valuing the customer relationships, trade names and trademarks and product technology intangible assets, we utilized variations of the income approach. The income approach was considered the most appropriate valuation technique because the inherent value of these assets is their ability to generate current and future income. The income approach relies on historical financial and qualitative information, as well as assumptions and estimates for projected financial information. Projected information is subject to risk if our estimates are incorrect. The most significant estimate relates to our projected revenues. If we do not meet the projected revenues used in the valuation calculations then the intangible assets could be impaired. In determining the value of customer relationships, we reviewed historical customer attrition rates which were determined to be approximately 5% per year. Most of our customers tend to be long-term customers with very little turnover. While we do not typically have long-term contracts with customers, we have established long-term relationships with customers which make it difficult for competitors to displace us. Additionally, we assessed historical revenue growth within our industry and customers’ industries in determining the value of customer relationships. The value of our customer relationships intangible asset could become impaired if future results differ significantly from any of the underlying assumptions. This could include a higher customer attrition rate or a change in industry trends such as the use of long-term contracts which we may not be able to obtain successfully. Customer relationships and product technology and patents are considered finite-lived assets, with estimated lives ranging from 8 years and 16 years. The estimated lives were determined by calculating the number of years necessary to obtain 95% of the value of the discounted cash flows of the respective intangible asset. Goodwill and trade names and trademarks are considered indefinite lived assets. Trade names and trademarks were determined to be indefinite lived assets based on the criteria stated in paragraph 11 in SFAS No. 142, Goodwill and Other Intangible Assets. Other intangible assets include trade names and trademarks that identify us and differentiate us from competitors, and therefore competition does not limit the useful life of these assets. All of our brands have been in existence for over 50 years and therefore are not susceptible to obsolescence risk. Additionally, we believe that our trade names and trademarks will continue to generate product sales for an indefinite period. All indefinite lived intangible assets are reviewed at least annually to determine if an impairment exists. An impairment could be triggered by a loss of a major customer, discontinuation of a product line, or a change in any of the underlying assumptions utilized in estimating the value of the intangible assets. If an impairment is identified it will be recognized in that period.

In accordance with SFAS No. 142, we assess the fair value of our reporting units for impairment of intangible assets based upon a discounted cash flow methodology. Estimated future cash flows are based upon historical results and current market projections, discounted at a market comparable rate. If the carrying amount of the reporting unit exceeds the estimated fair value determined using the discounted cash flow calculation, goodwill impairment may be present. We would evaluate impairment losses based upon the fair value of the underlying assets and liabilities of the reporting unit, including any unrecognized intangible assets, and estimate the implied fair value of the intangible asset. An impairment loss would be recognized to the extent that a reporting unit’s recorded value of the intangible asset exceeded its calculated fair value.

We have calculated goodwill and intangible assets arising from the application of purchase accounting from our acquisitions, and have allocated these assets across our reporting units. We evaluated our intangible assets at the reporting unit level at December 31, 2007 and found no evidence of impairment at that date. If the book value of a reporting unit exceeds its fair value, the implied fair value of goodwill is compared with the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recorded in an amount equal to that excess. The fair value of a reporting unit is estimated using the discounted cash flow approach, and is dependent on estimates and judgments related to future cash flows and discount rates. If the actual cash flows differ significantly from the estimates used by management, we may be required to record an impairment charge to write down the goodwill to its realizable value.

Long-lived Assets. Long-lived assets are reviewed for impairment when events or circumstances indicate that the carrying amount of a long-lived asset may not be recovered. Long-lived assets held for use

are reviewed for impairment by comparing the carrying amount of an asset to the undiscounted future cash flows expected to be generated by the asset over its remaining useful life. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value, and is charged to results of operations at that time. Assets to be disposed of are reported at the lower of the carrying amounts or fair value less cost to sell. Our management determines fair value using discounted future cash flow analysis. Determining market values based on discounted cash flows requires our management to make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate discount rates.

Income Taxes. We record income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. We evaluate the realizability of our net deferred tax assets and assess the need for a valuation allowance on a quarterly basis. The future benefit to be derived from our deferred tax assets is dependent upon our ability to generate sufficient future taxable income to realize the assets. We record a valuation allowance to reduce our net deferred tax assets to the amount that may be more likely than not to be realized. To the extent we establish a valuation allowance, an expense will be recorded within the provision for income taxes line on the statement of operations. In periods subsequent to establishing a valuation allowance, if we were to determine that we would be able to realize our net deferred tax assets in excess of our net recorded amount, an adjustment to the valuation allowance would be recorded as a reduction to income tax expense in the period such determination was made.

Non-GAAP Financial Measures

The discussion of EBITDA (earnings before interest, income taxes, depreciation and amortization) included in the discussion of Results of Operations below is being provided because management considers EBITDA to be an important measure of financial performance. Among other things, management believes that EBITDA provides useful information for our investors because it is useful for trending, analyzing and benchmarking the performance and value of our business. Management also believes that EBITDA is useful in assessing current performance compared with the historical performance of our Predecessor because significant line items within our statements of operations such as depreciation, amortization and interest expense are significantly impacted by the PTH Acquisition. Internally, EBITDA is used as a financial measure to assess the operating performance and is an important measure in our incentive compensation plans.

EBITDA has important limitations, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. For example, EBITDA does not reflect:


	•	cash expenditures, or future requirements, for capital expenditures or contractual commitments;

	•	changes in, or cash requirements for, working capital needs;

	•	the significant interest expense, or the cash requirements necessary to service interest or principal payments, on debts;

	•	tax distributions that would represent a reduction in cash available to us; and

	•	any cash requirements for assets being depreciated and amortized that may have to be replaced in the future.

EBITDA is not a recognized measurement under GAAP, and when analyzing our operating performance, investors should use EBITDA in addition to, and not as an alternative for, operating income (loss) and net (loss) income (each as determined in accordance with GAAP). Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures of other companies. The amounts shown for EBITDA also differ from the amounts calculated under similarly titled definitions in our debt instruments, which are further adjusted to reflect certain other cash and non-cash charges and are used to determine compliance with financial covenants and our ability to engage in certain activities, such as incurring additional debt and making certain restricted payments.

To compensate for the limitations of EBITDA we utilize several GAAP measures to review our performance. These GAAP measures include, but are not limited to, net income (loss), operating income (loss), cash provided by (used in) operations, cash provided by (used in) investing activities and cash provided by (used in) financing activities. These important GAAP measures allow our management to, among other things, review and understand our uses of cash period to period, compare our operations with competitors on a consistent basis and understand the revenues and expenses matched to each other for the applicable reporting period. We believe that the use of these GAAP measures, supplemented by the use of EBITDA, allows us to have a greater understanding of our performance and allows us to adapt to changing trends and business opportunities.

Results of Operations


	Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,
	2007			2006			2005
	(Dollars in thousands)

Net sales	$	584,376		$	462,285		$	363,465
Cost of sales		419,109			336,836			271,952

Gross profit		165,267			125,449			91,513
Gross profit percentage		28.3	%		27.1	%		25.2	%
Selling, general and administrative expenses		93,211			83,276			61,480
Research and development expenses		6,077			4,938			4,683
Restructuring charge, asset impairment and transition expenses		2,399			—			—
Loss (gain) on curtailment of post-retirement benefit plan		2,745			(3,838	)		—

Operating income from continuing operations		60,835			41,073			25,350
Interest expense, net		38,554			25,479			19,514
Other non-operating expense (income), net		612			856			(17	)

Income from continuing operations before income taxes		21,669			14,738			5,853
Provision for income taxes		8,208			5,797			3,349

Net income from continuing operations	$	13,461		$	8,941		$	2,504
Net loss from discontinued operations, net of taxes of 6,109		(2,001	)		—			—

Net Income	$	11,460		$	8,941		$	2,504

Year Ended December 31, 2007 Compared with Year Ended December 31, 2006

Net sales. Net sales increased $122.1 million, or 26.4%, from $462.3 million, for the year ended December 31, 2006 to $584.4 million for the year ended December 31, 2007. Net sales increased primarily due to inclusion of TB Wood’s and All Power and the full year inclusion of the previously acquired Hay Hall and Warner Linear in the results of the year ended December 31, 2007. TB Wood’s net sales for the period April 5, 2007 to December 31, 2007 were $61.2 million. All Power’s net sales for the period October 5, 2007 to December 31, 2007 were $2.3 million. The remaining net increase was due to price increases, strong distribution sales and the strength of several key markets including energy, primary metals and mining.

Gross profit. Gross profit increased $39.8 million, or 31.7%, from $125.4 million (27.1% of net sales), in 2006 to $165.3 million (28.3% of net sales) in 2007. The increase includes $14.5 million from TB Wood’s for the period April 5, 2007 to December 31, 2007 and $0.5 million from All Power for the period October 5, 2007 to December 31, 2007. Excluding TB Wood’s and All Power, gross profit increased approximately $24.8 million, or 19.8%, and gross profit as a percent of sales increased to 28.8% due to price

increases during the second quarter of 2007, an increase in low cost country material sourcing, low cost country manufacturing and further manufacturing efficiencies as a result of continued application of the Altra Business System.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $9.9 million, or 11.9%, from $83.3 million in 2006 to $93.2 million in 2007. The increase in selling, general and administrative expenses is due to the inclusion of TB Wood’s for the period April 5, 2007 to December 31, 2007, which contributed $5.1 million and All Power for the period October 5, 2007 to December 31, 2007, which contributed $0.2 million, the remaining increase was primarily due to 2007 wage increases and increased costs associated to being a public company. Excluding TB Wood’s and All Power, selling, general and administrative expenses, as a percentage of net sales, decreased from 18.2% in 2006 to 16.9% in 2007, primarily due to the $3.0 million termination fee paid to Genstar Capital and $1.0 million transaction fee paid to Genstar Capital in connection with the Hay Hall acquisition during 2006 which were partially offset by 2007 wage increases and increased costs associated with being a public company.

Research and development expenses. Research and development expenses increased $1.1 million, or 23.1%, from $4.9 million in 2006 to $6.1 million in 2007. The increase was primarily due to the inclusion of TB Wood’s for the period April 5, 2007 to December 31, 2007, which amounted to $0.9 million.

EBITDA. To reconcile net income to EBITDA for 2007, we added back to net income $14.3 million provision of income taxes, $38.6 million of interest expense and $21.9 million of depreciation and amortization expenses. To reconcile net income to EBITDA for 2006, we added back to net income $5.8 million provision of income taxes, $25.5 million of interest expense and $14.6 million of depreciation and amortization expenses. Taking into account the foregoing adjustments, our resulting EBITDA was $86.3 million for 2007 and $54.8 million for 2006.

Other non-operating (income) expense. We recorded $0.6 million and $0.9 million of non-operating expense in 2007 and 2006, respectively, which was primarily due to foreign currency translation losses due to the strengthening of the British Pound Sterling and Euro in both fiscal years.

Interest expense. We recorded interest expense of $38.6 million during 2007 which was an increase of $13.1 million, or 51.3%, compared to $25.5 million during 2006. The increase was due to the $7.1 million in interest associated with the additional $105.0 million of the 9% senior secured notes being outstanding for nine months of 2007, additional deferred financing costs of $0.6 million associated with the issuance of the additional 9% senior secured notes, the interest associated with 111/4% senior notes outstanding for an additional six weeks during the first quarter of 2007 of $0.8 million, the $7.5 million pre-payment premium, the write-off of $2.0 million of deferred financing costs associated with the pay-down of the 111/4% senior notes and the $0.7 million of interest expense associated with the TB Wood’s Revolving Credit Agreement. The increase was partially offset by a decrease in interest expense on the 111/4% senior notes after the February 2007 redemption and June and September 2007 pay-downs and the Subordinated Notes due to pay down on these notes during 2006. For a description of the 111/4% senior notes and 9% senior secured notes, please see Note 11 in the audited financial statements.

Restructuring. During 2007, we adopted two restructuring programs. The first was intended to improve operational efficiency by reducing headcount, consolidating our operating facilities and relocating manufacturing to lower cost areas (Altra Plan). The second was related to the acquisition of TB Wood’s and was intended to reduce duplicate staffing and consolidate facilities (TB Wood’s Plan). The total restructuring charge for the year to date periods ended December 31, 2007 was $2.4 million, which is comprised of $0.2 million of non-cash asset impairment and losses on sale of assets and $2.2 million of other restructuring expenses. In 2008, we expect to incur an additional $0.7 million of severance expense and $0.2 million of moving and relocation expense related to these restructuring programs.

Curtailment. One of our four U.S. collective bargaining agreements expired in September 2007. In October 2007, an agreement was reached which extended the existing collective bargaining agreement. The negotiations also resulted in a provision to close the Erie, Pennsylvania plant by December 2008 through the transfer of manufacturing equipment to other existing facilities and a ratable reduction in headcount. The plant

closure has triggered a special retirement pension feature and plan curtailment. The curtailment and special termination benefits are approximately $2.9 million for the year ended December 31, 2007.

In connection with the union renegotiation, the post retirement benefit plan for employees at that location have been terminated for all eligible employees who have not retired, or given notice to retire in 2007. We recognized a non-cash gain associated with the curtailment of these plans in 2007 of $0.2 million.

Provision for income taxes. The provision for income taxes was $8.2 million, or 37.9%, of income before taxes, for 2007, versus a provision of $5.8 million, or 39.3%, of income before taxes, for 2007. The 2006 provision as a percent of income before taxes was lower than that of 2006 primarily due to a greater proportion of taxable income in jurisdictions possessing lower statutory tax rates. For further discussion, refer to Note 9 in the audited financial statements.

Discontinued Operations. On December 31, 2007, we completed the divestiture of our TB Wood’s adjustable speed drives business (“Electronics division”) for $29.0 million. The decision to sell the Electronics division was made to allow us to continue our strategic focus on our core electro-mechanical power transmission business.

As of December 31, 2007, $11.9 million of cash had been received for the purchase of the Electronics division. The remaining $17.1 million is recorded as a receivable for sale of Electronics division on the consolidated balance sheet. We determined that the Electronics division became a discontinued operation in the fourth quarter of 2007. Accordingly, the operating results of the Electronics division have been segregated from the continuing operations in the consolidated statements of operations for the periods subsequent to the acquisition of TB Wood’s (April 5, 2007) through December 31, 2007.

The following table summarizes the results from discontinued operations for the period from April 5 to December 31, 2007:


Sales	$	28,715
Cost of sales		19,120

Gross Profit		9,595
Selling, general and administrative expenses		5,334
Research and development		1,825

Operating income from continuing operations		2,436
Interest income, net		(76	)
Other non-operating income		(83	)
Gain on the sale of the Electronics division		1,513

Total income from discontinued operations before income taxes		4,108

Income taxes		6,109

Total net loss from discontinued operations	$	(2,001	)

Year Ended December 31, 2006 Compared with Year Ended December 31, 2005

Net sales. Net sales increased $98.8 million, or 27.2%, from $363.5 million, for the year ended December 31, 2005 to $462.3 million for the year ended December 31, 2006. Net sales increased primarily due to the inclusion of Hay Hall and Warner Linear in the results of the year ended December 31, 2006. Hay Hall net sales for the period February 10 to December 31, 2006 were $65.5 million and Warner Linear’s sales for the period May 18 to December 31, 2006 were $3.2 million. The remaining net increase was due to price increases and strong distribution sales for the aftermarket and the strength of several key markets including energy, primary metals and mining.

Gross profit. Gross profit increased $33.9 million, or 37.1%, from $91.5 million (25.2% of net sales), in 2005 to $125.4 million (27.1% of net sales) in 2006. The increase includes $14.1 million from Hay Hall for the period February 10, 2006 to December 31, 2006 and $0.7 million from Warner Linear for the

period May 18, 2006 to December 31, 2006. Excluding Hay Hall and Warner Linear, gross profit increased approximately $19.2 million, or 21.0%, and gross profit as a percent of sales increased to 28.1% due to price increases during the first quarter of 2006 and an increase in low cost country material sourcing and manufacturing efficiencies implemented by the new management team in the second half of 2005.

Selling, general and administrative expenses. Selling, general and administrative expenses increased $21.7 million, or 35.2%, from $61.6 million in 2005 to $83.3 million in 2006. The increase in selling, general and administrative expenses is due to the inclusion of Hay Hall for the period February 10, 2006 to December 31, 2006 and Warner Linear for the period May 18, 2006 to December 31, 2006, which contributed $11.1 million and $0.6 million, respectively. Excluding Hay Hall and Warner Linear, selling, general and administrative expenses, as a percentage of net sales, increased from 16.9% in 2005 to 18.2% in 2006, primarily due to the $3.0 million termination fee paid to Genstar, $1.0 million transaction fee paid to Genstar in connection with the Hay Hall acquisition and $1.9 million stock based compensation expense offset by the cost savings initiatives.

Research and development expenses. Research and development expenses increased $0.2 million, or 5.4%, from $4.7 million in 2005 to $4.9 million in 2006. The increase was primarily due to the inclusion of Hay Hall for the period February 10 to December 31, 2006.

EBITDA. To reconcile net income to EBITDA for 2006, we added back to net income $5.8 million provision of income taxes, $25.5 million of interest expense and $14.6 million of depreciation and amortization expenses. To reconcile net income to EBITDA for 2005, we added back to net income $3.3 million provision of income taxes, $19.5 million of interest expense and $11.5 million of depreciation and amortization expenses. Taking into account the foregoing adjustments, our resulting EBITDA was $54.8 million for 2006 and $36.9 million for 2005.

Other non-operating (income) expense. We recorded $0.9 million of non-operating expense in 2006 which was primarily due to foreign currency translation losses due to the strengthening of the British Pound Sterling and Euro.

Interest expense. We recorded interest expense of $25.5 million during 2006 primarily relating to the 9% senior secured notes, 111/4% senior notes, subordinated notes and amortization of related deferred financing costs. Interest expense of $19.5 million was recorded during 2005. The increase was due to the issuance of the 111/4% senior notes during 2006 and the redemption of the subordinated notes which resulted in prepayment penalties and the write-off of the related deferred financing costs.

Curtailment. During 2006, we renegotiated our contract with the labor union at our South Beloit, IL manufacturing facility. As a result of the renegotiation, participants in our pension plan cease to accrue additional benefits starting July 3, 2006. Additionally, the other post retirement benefit plan for employees at that location has been terminated for all eligible participants who had not retired, or given notice to retire in 2006, by August 1, 2006. We recognized a non-cash gain associated with the curtailment of these in 2006 of $3.8 million.

Provision for income taxes. The provision for income taxes was $5.8 million, or 39.3%, of income before taxes, for 2006, versus a combined provision of $3.3 million, or 57.2%, of income before taxes, for 2005. The 2005 provision as a percent of income before taxes was higher than that of 2006 primarily due to the Hay Hall acquisition and a greater proportion of taxable income in jurisdictions possessing lower statutory tax rates. For further discussion, refer to Note 9 in the audited financial statements.

Liquidity and Capital Resources

Overview

We finance our capital and working capital requirements through a combination of cash flows from operating activities and borrowings under our senior revolving credit facility. We expect that our primary ongoing requirements for cash will be for working capital, debt service, capital expenditures and pension plan

funding. If additional funds are needed for strategic acquisitions or other corporate purposes, we believe we could borrow additional funds or raise funds through the issuance of equity securities.

Borrowings

In connection with the PTH Acquisition, we incurred substantial indebtedness. To partially fund the PTH acquisition, our wholly owned subsidiary, Altra Industrial issued $165.0 million of 9% senior secured notes, we issued $14.0 million of subordinated notes, or the CDPQ subordinated notes, to Caisse de dépôt et placement du Québec, or CDPQ, a limited partner of Genstar Capital Partners III, L.P., and Altra Industrial entered into a $30.0 million senior revolving credit facility. All of the CDPQ subordinated notes were redeemed in 2006. In connection with our acquisition of Hay Hall in February 2006 Altra Industrial issued £33.0 million of 111/4% senior notes. Based on an exchange rate of 1.7462 U.S. Dollars to U.K. pounds sterling (as of February 8, 2006), the proceeds from these notes were approximately $57.6 million. The notes are unsecured and are due in 2013. Interest on the 111/4% senior notes is payable in U.K. pounds sterling semiannually in arrears on February 15 and August 15 of each year, commencing August 15, 2006. In connection with our acquisition of TB Wood’s in April 2007, Altra Industrial issued an additional $105.0 million of its 9% senior secured notes.

As of December 31, 2007, Altra Industrial had outstanding $270.0 million of 9% senior secured notes, $7.8 million of 111/4% senior notes, $3.4 million in capital leases, $2.6 million in mortgages, $7.7 million in outstanding borrowings and $6.9 million of outstanding letters of credit under the TB Wood’s Revolving Credit Agreement, $5.3 million of Industrial Revenue Bonds and had no outstanding borrowings and $6.5 million of outstanding letters of credit under our senior revolving credit facility. This constitutes approximately $296.8 million of total indebtedness which results in approximately $28.6 million of annual interest expense.

During 2007, we redeemed £29.1 million aggregate principal amount of the outstanding 111/4% Senior Notes. In connection with the redemption, Altra Industrial expensed $2.0 million of deferred financing costs and incurred $7.5 million of a pre-payment premium.

Altra Industrial’s senior revolving credit facility provides for senior secured financing of up to $30.0 million, including $10.0 million available for letters of credit. The senior revolving credit facility requires us to comply with a minimum fixed charge coverage ratio of 1.20 for all four quarter periods when availability falls below $12.5 million.

TB Wood’s revolving credit facility does not allow for any additional borrowings.

Altra Industrial and all of its domestic subsidiaries are borrowers, or Borrowers, under the senior revolving credit facility. Certain of our existing and subsequently acquired or organized domestic subsidiaries which are not Borrowers do and will guarantee (on a senior secured basis) the senior revolving credit facility. Obligations of the other Borrowers under the senior revolving credit facility and the guarantees are secured by substantially all of the Borrowers’ assets and the assets of each of our existing and subsequently acquired or organized domestic subsidiaries that is a guarantor of our obligations under the senior revolving credit facility (with such subsidiaries being referred to as the “U.S. subsidiary guarantors”), including but not limited to: (a) a first-priority pledge of all the capital stock of subsidiaries held by the Borrowers or any U.S. subsidiary guarantor (which pledge, in the case of any foreign subsidiary, will be limited to 100% of any non-voting stock and 65% of the voting stock of such foreign subsidiary) and (b) perfected first-priority security interests in and mortgages on substantially all tangible and intangible assets of each Borrower and U.S. subsidiary guarantor, including accounts receivable, inventory, equipment, general intangibles, investment property, intellectual property, real property (other than (i) leased real property and (ii) our existing and future real property located in the State of New York), cash and proceeds of the foregoing (in each case subject to materiality thresholds and other exceptions).

An event of default under the senior revolving credit facility would occur in connection with a change of control if: (i) Altra Industrial ceases to own or control 100% of each of its borrower subsidiaries, or (ii) a

change of control occurs under the 9% senior secured notes, 111/4% senior notes or any other subordinated indebtedness.

An event of default under the senior revolving credit facility would occur if an event of default occurs under the indentures governing the 9% senior secured notes or the 111/4% senior notes or if there is a default under any other indebtedness any Borrower may have involving an aggregate amount of $3 million or more and such default: (i) occurs at final maturity of such debt, (ii) allows the lender there under to accelerate such debt or (iii) causes such debt to be required to be repaid prior to its stated maturity. An event of default would also occur under the senior revolving credit facility if any of the indebtedness under the senior revolving credit facility ceases to be senior in priority to any of our other contractually subordinated indebtedness, including the obligations under the 9% senior secured notes and the 111/4% senior notes.

Under the agreements governing Altra Industrial’s indebtedness, its subsidiaries are permitted to make dividend payments to Altra Industrial for use in its operations and to pay off its senior revolving credit facility and outstanding notes. During 2006, Altra Industrial pre-paid $14.0 million of the CDPQ subordinated notes on our behalf. The outstanding balance due under the CDPQ subordinated notes was paid in full on December 7, 2006. In addition, the first priority liens against us, its subsidiaries and their assets created by our indebtedness limits our ability to sell or transfer such subsidiaries or assets.

As of December 31, 2007, we were in compliance with all covenant requirements associated with all of our borrowings.

Net Cash

Cash and cash equivalents totaled $45.8 million at December 31, 2007 compared to $42.5 million at December 31, 2006. The primary source of funds for our fiscal year 2007 was cash provided by financing and operating activities of $84.5 million and $41.8 million, respectively. Net cash provided by operating activities for 2007 resulted mainly from net income of $11.5 million, non-cash depreciation, amortization and deferred financing costs of $25.4 million, net accretion of debt discount and premium of $0.8 million, non-cash amortization of $0.9 million for inventory step-ups recorded as part of the TB Wood’s and All Power Acquisitions, non-cash stock compensation expense of $2.0 million, non-cash loss on the curtailment of pension and other post-retirement benefit plans of $2.7 million $5.5 million deferred tax provision of and $0.7 million related to the loss on foreign currency which was offset by a non-cash gain on the sale of the Electronics division of $3.0 million and by cash used by a net increase in operating assets and liabilities of $5.1 million.

Net cash used in investing activities of $124.7 million for 2007 resulted from $11.6 million of purchases of property, plant and equipment primarily for investment in manufacturing equipment and $123.9 million related to the acquisitions of TB Wood’s and All Power, offset by the proceeds of $10.8 million received from the sale of the Electronics division.

Net cash provided by financing activities of $84.5 million for 2007 consisted primarily of $106.1 million from the issuance of the 9.0% senior secured notes and $49.6 million from the proceeds of the secondary stock offering, net of the underwriter’s discount. These amounts are offset by the $58.4 million pre-payment of the 111/4% senior notes, $5.2 million in payments under the TB Wood’s revolving credit facility, payment of $4.2 million in debt issuance costs associated with the 9.0% senior secured notes and $2.2 million in stock offering costs.

Capital Expenditures

We made capital expenditures of approximately $11.6 million and $9.4 million in the year ended December 31, 2007 and December 31, 2006, respectively. These capital expenditures will support on-going business needs. We expect capital expenditures to be in the range of $16 million to $19 million in 2008.

Our senior revolving credit facility imposes a maximum annual limit on our capital expenditures of $20.0 million for fiscal year 2008, $21.3 million for fiscal year 2009, $22.5 million for 2010 and each fiscal year thereafter, provided that 75% of unspent amounts from prior periods may be used in future fiscal years.

Pension Plans

As of December 31, 2007, we had minimum cash funding requirements associated with our pension plan which we estimated to be $2.5 million in 2008, $5.7 million in 2009, $1.3 million in 2010 and $2.0 million in 2011 and $2.1 million in 2012.. These amounts represent minimum funding requirements for the previous pension benefits we provided our employees. In addition to the minimum funding requirements, we may choose to make additional supplemental payments to the plan. In 2006, we eliminated pension benefits in one of our locations and in 2007 we eliminated pension benefits at two other locations. These amounts are based on actuarial assumptions and actual amounts could be materially different. See Note 10 in the audited financial statements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that provide liquidity, capital resources, market or credit risk support that expose us to any liability that is not reflected in our consolidated financial statements.

Related Party Transactions

One of the Company’s directors is an executive of Joy Global, Inc. The Company sold approximately $5.4 million and $3.2 million in goods to divisions of Joy Global, Inc. during the year to date periods ended December 31, 2007 and 2006, respectively. Other than his position as an executive of Joy Global, Inc., the Company’s director has no interest in sales transactions between the Company and Joy Global, Inc.

Contractual Obligations

The following table is a summary of our contractual cash obligations as of December 31, 2007 (in millions):


	Payments Due by Period
	2008		2009		2010		2011		2012		Thereafter		Total

9% senior secured notes⁽¹⁾	$	—	$	—	$	—	$	270.0	$	—	$	—	$	270.0
111/4% senior notes⁽²⁾		—		—		—		—		—		7.8		7.8
Operating leases		4.5		3.1		2.2		1.6		1.4		3.0		15.7
Capital leases		1.1		0.9		0.8		0.8		0.2		—		3.8
Mortgage⁽³⁾		0.1		0.1		0.1		0.1		0.1		2.1		2.6
TB Wood’s Revolving Credit Facility⁽⁴⁾		1.5		0.2		6.0		—		—		—		7.7
Variable Rate Demand Revenue Bonds⁽⁵⁾		—		—		—		—		—		5.3		5.3
Senior Revolving Credit Facility⁽⁶⁾		—		—		—		—		—		—		—

Total contractual cash obligations	$	6.3	$	3.4	$	8.6	$	271.1	$	0.8	$	68.2	$	306.9


(1)		We have semi-annual cash interest requirements due on the 9% senior secured notes with $24.3 million payable in, 2008, 2009, and 2010 and $22.3 million payable in 2011.

(2)		Assuming an exchange rate of 1.997 of U.S. Dollars to 1.0 U.K. Pounds as of December 31, 2007, we have semi-annual cash interest requirements due on the 111/4% senior notes with $0.9 million payable in 2008, 2009, 2010, 2011 and 2012 and $0.1 million thereafter. The principal balance of £3.9 million is due in 2013 which, assuming an exchange rate of 1.997 of U.S. Dollars to 1.0 U.K. Pounds, equals approximately $7.8 million.


(3)		In June, 2006, our German subsidiary entered into a mortgage on its building in Heidelberg, Germany, with a local bank. The mortgage has a principal of €2.0 million, an interest rate of 5.75% and is payable in monthly installments over 15 years.

(4)		In April 2007, as part of the acquisition, we refinanced the TB Wood’s revolving credit facility with a commercial bank. As of December 31, 2007, there was $7.7 million of outstanding borrowings and $6.9 million of outstanding letters of credit under this facility.

(5)		In April 2007, as part of the TB Wood’s acquisition, we assumed the Variable Rate Demand Revenue Bonds. These bonds bear variable interest rates and mature in April 2022 and April 2024.

(6)		We have up to $30.0 million of borrowing capacity, through November 2010, under our senior revolving credit facility (including $10.0 million available for use for letters of credit). As of December 31, 2007, there were no outstanding borrowings and $6.5 million of outstanding letters of credit under our senior revolving credit facility.

We have cash funding requirements associated with our pension plan. As of December 31, 2007, these requirements were estimated to be $2.5 million for 2008, $5.7 million for 2009, $1.3 million for 2010, $2.0 million for 2011 and $2.1 million thereafter.

We may be required to make cash outlays related to our unrecognized tax benefits. However, due to the uncertainty of the timing of future cash flows associated with our unrecognized tax benefits, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. Accordingly, unrecognized tax benefits of $4.0 million as of December 31, 2007 have been excluded from the contractual obligations table above. For further information on unrecognized tax benefits, see Note 9 to the consolidated financial statements included in this Report.

Stock-based Compensation

In January 2005, we established the 2004 Equity Incentive Plan that provides for various forms of stock based compensation to our officers and senior level employees. We account for grants under this plan in accordance with the provisions of SFAS No. 123(R).

As of December 31, 2007, we had 1,120,864 shares of unvested restricted stock. The remaining compensation cost to be recognized through 2012 is $2.9 million. Based on the stock price at December 31, 2007 of $16.63 per share, the intrinsic value of these awards as of December 31, 2007 was $26.7 million, of which $8.0 million related to vested shares and $18.7 million related to unvested shares.

Income Taxes

We are subject to taxation in multiple jurisdictions throughout the world. Our effective tax rate and tax liability will be affected by a number of factors, such as the amount of taxable income in particular jurisdictions, the tax rates in such jurisdictions, tax treaties between jurisdictions, the extent to which we transfer funds between jurisdictions and repatriate income, and changes in law. Generally, the tax liability for each legal entity is determined either (a) on a non-consolidated and non-combined basis or (b) on a consolidated and combined basis only with other eligible entities subject to tax in the same jurisdiction, in either case without regard to the taxable losses of non-consolidated and non-combined affiliated entities. As a result, we may pay income taxes to some jurisdictions even though on an overall basis we incur a net loss for the period.

Seasonality

We experience seasonality in our turf and garden business, which in recent years has represented approximately 10% of our net sales. As our large OEM customers prepare for the spring season, our shipments generally start increasing in December, peak in February and March, and begin to decline in April and May. This allows our customers to have inventory in place for the peak consumer purchasing periods for turf and garden products. The June-through-November period is typically the low season for us and our customers in the turf and garden market. Seasonality is also affected by weather and the level of housing starts.

Inflation

Inflation can affect the costs of goods and services we use. The majority of the countries that are of significance to us, from either a manufacturing or sales viewpoint, have in recent years enjoyed relatively low inflation. The competitive environment in which we operate inevitably creates pressure on us to provide our customers with cost-effective products and services.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS 157 is effective for fiscal years beginning after November 15, 2007. However, on December 14, 2007, the FASB issued proposed FSP FAS 157-b which would delay the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). This proposed FSP partially defers the effective date of Statement 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. The partial adoption of SFAS 157 will not have a material impact on the Company’s consolidated financial position, results of operations and cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities- including an Amendment of FASB Statement No. 115 (“SFAS 159”), which allows an entity to choose to measure certain financial instruments and liabilities at fair value. Subsequent measurements for the financial instruments and liabilities an entity elects to fair value will be recognized in earnings. SFAS 159 also establishes additional disclosure requirements. SFAS 159 is effective for the Company beginning January 1, 2008. The Company is currently evaluating the potential impact of the adoption of SFAS 159 on our consolidated financial position, results of operations and cash flows.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. This statement is effective for the Company beginning January 1, 2009. The Company is currently evaluating the potential impact of the adoption of SFAS 141R on the Company’s consolidated financial position, results of operations and cash flows.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This statement is effective for the Company beginning January 1, 2009. The Company is currently evaluating the potential impact of the adoption of SFAS 160 on their consolidated financial position, results of operations and cash flows.

In June 2006, the FASB issued FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109”, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company adopted FIN 48 on January 1, 2007. See Note 9 to the condensed consolidated financial statements for the impact of adoption of this pronouncement.

Item 7A. Qualitative and Quantitative Information about Market Risk

We are exposed to various market risk factors such as fluctuating interest rates and changes in foreign currency rates. At present, we do not utilize derivative instruments to manage this risk.

Currency translation. The results of operations of our foreign subsidiaries are translated into U.S. dollars at the average exchange rates for each period concerned. The balance sheets of foreign subsidiaries are translated into U.S. dollars at the exchange rates in effect at the end of each period. Any adjustments resulting from the translation are recorded as other comprehensive income. As of December 31, 2007 and 2006, the aggregate total assets (based on book value) of foreign subsidiaries were $55.6 million and $46.8 million, respectively, representing approximately 38.0% and 58.9%, respectively, of our total assets (based on book value). Our foreign currency exchange rate exposure is primarily with respect to the Euro and British Pound Sterling. The approximate exchange rates in effect at December 31, 2007 and 2006 were $1.47 and $1.31, respectively to the Euro. The approximate exchange rates in effect at December 31, 2007 and 2006 were $1.98 and $1.96, respectively to the British Pound Sterling. We have debt denominated in British Pound Sterling with a carrying value of (£3.9 million) or ($7.8 million) as of December 31, 2007. If the British Pound Sterling were to increase 10%, the carrying value of the debt would increase to $8.6 million. If the British Pound Sterling were to decrease 10%, the carrying value of the debt would decrease to $7.0 million.

Currency transaction exposure. Currency transaction exposure arises where actual sales and purchases are made by a business or company in a currency other than its own functional currency. Any transactional differences at an international location are recorded in net income on a monthly basis.

Interest rate risk. We are subject to market exposure to changes in interest rates based on our financing activities. This exposure relates to borrowings under our senior revolving credit facility, TB Wood’s revolving credit facility and our Variable Rate Demand Revenue Bonds. Our senior revolving credit facility and TB Wood’s revolving credit facility is payable at prime rate plus 0.25% in the case of prime rate loans, or LIBOR rate plus 1.75%, in the case of LIBOR rate loans. As of December 31, 2007, we had no borrowings under our senior revolving credit facility and $6.6 million of outstanding letters of credit under our senior revolving credit facility. The Variable Rate Demand Revenue Bonds have a variable interest rate that was 3.57% as of December 31, 2007. Due to the minimal amounts of outstanding debt a hypothetical change in interest rates of 1% would not have a material effect on our near-term financial condition or results of operations.


Item 8.	*Financial Statements and Supplementary Data*

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Altra Holdings, Inc.

We have audited the accompanying consolidated balance sheets of Altra Holdings, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of income and comprehensive income (loss), convertible preferred stock and stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the consolidated financial statement schedules listed in the index at Item 15(a)(2). These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Altra Holdings, Inc. at December 31, 2007 and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, in fiscal 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” As discussed in Note 10 to the consolidated financial statements, in fiscal 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An amendment of FASB Statements No. 87, 88, 106, and 132(R).”

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Altra Holdings, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 12, 2008 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Boston, Massachusetts

March 12, 2008

ALTRA HOLDINGS, INC

Consolidated Balance Sheets

Dollars in thousands, except share amounts


	December 31,
	2007		2006

ASSETS
Current assets:
Cash and cash equivalents	$	45,807	$	42,527
Trade receivables, less allowance for doubtful accounts of $1,548 and $2,017		73,248		61,506
Inventories, net		101,835		75,769
Deferred income taxes		8,286		6,783
Receivable for sale of Electronics (see Note 4)		17,100		—
Prepaid expenses and other		5,578		7,532
Assets held for sale (see Note 6)		1,161		—

Total current assets		253,015		194,117
Property, plant and equipment, net		116,610		82,387
Intangible assets, net		88,943		59,662
Goodwill		114,979		65,397
Deferred income taxes		231		2,135
Other assets		6,747		5,670

Total assets	$	580,525	$	409,368


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	41,668	$	34,053
Accrued payroll		16,988		15,557
Accruals and other liabilities		22,001		15,008
Taxes payable		—		5,353
Deferred income taxes		8,060		1,382
Current portion of long-term debt		2,667		573

Total current liabilities		91,384		71,926
Long-term debt, less current portion and net of unaccreted discount		291,399		228,555
Deferred income taxes		24,490		7,130
Pension liabilities		13,431		15,169
Other post retirement benefits		3,170		3,262
Long-term taxes payable		5,911		—
Other long term liabilities		4,308		3,910
Commitments and Contingencies (see Note 16)		—		—
Stockholders’ equity
Common stock ($0.001 par value, 90,000,000 shares authorized, 25,128,873 and 21,467,502 issued and outstanding at December 31, 2007 and 2006, respectively)		25		21
Additional paid-in capital		127,653		76,907
Retained earnings		16,831		5,552
Accumulated other comprehensive income (loss)		1,923		(3,064	)

		146,432		79,416

Total liabilities and stockholders’ equity	$	580,525	$	409,368

See accompanying notes.

ALTRA HOLDINGS, INC.

Consolidated Statements of Income and Comprehensive Income (Loss)

Dollars in thousands, except per share amounts


	Year-Ended December 31,
	2007			2006			2005

Consolidated Statement of Income
Net sales	$	584,376		$	462,285		$	363,465
Cost of sales		419,109			336,836			271,952

Gross profit		165,267			125,449			91,513
Selling, general and administrative expenses		93,211			83,276			61,480
Research and development expenses		6,077			4,938			4,683
Restructuring charges		2,399			—			—
Loss (gain) on curtailment of post-retirement benefit and pension plan, net		2,745			(3,838	)		—

Operating income from continuing operations		60,835			41,073			25,350
Interest expense, net		38,554			25,479			19,514
Other non-operating expense (income), net		612			856			(17	)

Income from continuing operations before income taxes		21,669			14,738			5,853
Provision for income taxes		8,208			5,797			3,349

Net income from continuing operations		13,461			8,941			2,504

Net loss from discontinued operations, net of taxes of $6,109		(2,001	)		—			—

Net Income		11,460			8,941			2,504

Consolidated Statement of Comprehensive Income (Loss)
Pension liability adjustment		482			696			(700	)
Foreign currency translation adjustment		4,505			677			(6,400	)

Other comprehensive income (loss)		4,987			1,373			(7,100	)

Comprehensive income (loss)	$	16,447		$	10,314		$	(4,596	)

Weighted average common shares outstanding:
Basic		23,579			1,183			9
Diluted		24,630			19,525			18,969
Earning per share — Basic:
Net income from continuing operations	$	0.57		$	7.56		$	278.22
Net loss from discontinued operations	$	(0.08	)		—			—

Net income	$	0.49		$	7.56		$	278.22

Earnings per share — Diluted:
Net income from continuing operations	$	0.55		$	0.46		$	0.13
Net loss from discontinued operations	$	(0.08	)		—			—

Net Income	$	0.47		$	0.46		$	0.13

See accompanying notes.

ALTRA HOLDINGS, INC.

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity

Amounts in thousands


																Accumulated
											Additional		Retained			Other
	Preferred						Common				Paid-In		Earnings			Comprehensive
	Stock			Shares			Stock		Shares		Capital		(Deficit)			Income (Loss)			Total

Balance at December 31, 2004	$	35,100			35,100		$	—		—	$	54	$	(5,893	)	$	(173	)	$	29,088
Issuance of preferred stock		400			400			—		—		—		—			—			400
Amortization of restricted stock grants		—			—			—		53		59		—			—			59
Net income		—			—			—		—		—		2,504			—			2,504
Other comprehensive loss, net of $1,938 tax benefit		—			—			—		—		—		—			(7,100	)		(7,100	)

Balance at December 31, 2005	$	35,500			35,500			—		53	$	113	$	(3,389	)	$	(7,273	)	$	24,951
Conversion of preferred stock into common stock		(35,500	)		(35,500	)		18		17,750		35,482		—			—			—
Issuance of common stock, net of offering costs		—			—			3		3,333		39,367		—			—			39,370
Stock based compensation and vesting of restricted stock		—			—			—		332		1,945		—			—			1,945
Net income		—			—			—		—		—		8,941			—			8,941
Cumulative foreign currency translation adjustment, net of $880 tax expense		—			—			—		—		—		—			677			677
Minimum pension liability adjustment and cumulative transition to SFAS No. 158, net of $2,165 tax expense		—			—			—		—		—		—			3,532			3,532

Balance at December 31, 2006	$	—			—		$	21		21,468	$	76,907	$	5,552		$	(3,064	)	$	79,416
Issuance of common stock, net of offering costs		—			—			3		3,178		48,708		—			—			48,711
Stock based compensation and vesting of restricted stock		—			—			1		483		2,038		—			—			2,039
Net income		—			—			—		—		—		11,460			—			11,460
Adoption of FIN 48		—			—			—		—		—		(181	)		—			(181	)
Cumulative foreign currency translation adjustment, net of $1,873 tax		—			—			—		—		—		—			4,505			4,505
Minimum pension liability adjustment, net of $28 tax		—			—			—		—		—		—			482			482

Balance at December 31, 2007	$	—			—		$	25		25,129	$	127,653	$	16,831		$	1,923		$	146,432

See accompanying notes.

ALTRA HOLDINGS, INC.

Consolidated Statements of Cash Flows

Dollars in thousands


	Year-Ended			Year-Ended			Year-Ended
	December 31,			December 31,			December 31,
	2007			2006			2005

Cash flows from operating activities:
Net income	$	11,460		$	8,941		$	2,504
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		16,447			10,821			8,574
Amortization of intangible assets		5,492			3,790			2,959
Amortization of deferred loan costs		3,448			1,255			669
Loss on foreign currency, net		732			1,079			—
Accretion of debt discount and premium, net		774			942			942
Gain on sale of Electronics division		(2,927	)		—			—
Amortization of inventory fair value adjustment		926			2,278			1,699
Stock based compensation		2,038			1,945			59
Loss (gain) on sale of fixed assets		313			—			(99	)
Loss (gain) on curtailment of pension and post-retirement benefit obligation, net		2,745			(3,838	)		—
Provision for deferred taxes		5,455			1,190			225
Changes in operating assets and liabilities:
Trade receivables		4,318			(330	)		(2,654	)
Inventories		(2,277	)		(3,973	)		(1,353	)
Accounts payable and accrued liabilities		(10,690	)		(11,427	)		(1,788	)
Other current assets and liabilities		3,735			(2,297	)		2,226
Other operating assets and liabilities		(181	)		752			(1,940	)

Net cash provided by operating activities		41,808			11,128			12,023
Cash flows from investing activities:
Purchases of fixed assets		(11,633	)		(9,408	)		(6,199	)
Acquisitions, net of $5,522 and $775 of cash acquired in 2007 and 2006, respectively		(123,867	)		(53,755	)		1,607
Proceeds from sale of adjustable speed drives business, net of cash of $1,072		10,828			—			—
Payment of additional Kilian purchase price		—			—			(730	)
Proceeds from sale of fixed assets		—			—			125

Net cash used in investing activities		(124,672	)		(63,163	)		(5,197	)
Cash flows from financing activities:
Proceeds from issuance of senior secured notes		106,050			—			—
Proceeds from secondary offering		49,592			—			—
Proceeds from initial public offering		—			41,850			—
Public offering transaction costs		(2,180	)		(1,176	)		—
Payments on senior notes		(58,428	)
Proceeds from issuance of senior notes		—			57,625			—
Proceeds from sale of preferred stock		—			—			400
Payment of paid-in-kind interest		—			—			(198	)
Payment of subordinated notes		—			(14,000	)		—
Payment of debt issuance costs		(4,235	)		(2,731	)		(338	)
Proceeds from mortgages		—			2,510			—
Borrowings under revolving credit agreement		8,315			5,057			4,408
Payments on revolving credit agreement		(13,520	)		(5,057	)		(4,408	)
Payment of capital leases		(931	)		(241	)		(835	)
Payments on mortgages		(126	)		—			—

Net cash provided by (used in) financing activities		84,537			83,837			(971	)

Effect of exchange rates on cash		1,607			665			(524	)

Increase in cash and cash equivalents		3,280			32,467			5,331
Cash and cash equivalents, beginning of period		42,527			10,060			4,729

Cash and cash equivalents, end of period	$	45,807		$	42,527		$	10,060

Cash paid during the period for:
Interest	$	36,961		$	23,660		$	17,458
Income Taxes	$	13,277		$	2,341		$	1,761

Non-Cash Financing:
Acquisition of capital equipment under capital lease	$	2,364		$	613		$	—
Accrual of initial public offering costs	$	—		$	1,304		$	—
Conversion of preferred stock	$	—		$	35,500		$	—

See Accompanying notes

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements


1.	Description of Business and Summary of Significant Accounting Policies

Basis of Preparation and Description of Business

Headquartered in Quincy, Massachusetts, Altra Holdings, Inc. (“the Company”), through its wholly-owned subsidiary Altra Industrial Motion, Inc. (“Altra Industrial”) is a leading multi-national designer, producer and marketer of a wide range of mechanical power transmission products. The Company brings together strong brands covering over 40 product lines with production facilities in nine countries and sales coverage in over 70 countries. The Company’s leading brands include Boston Gear, Warner Electric, TB Wood’s, Formsprag Clutch, Ameridrives Couplings, Industrial Clutch, Kilian Manufacturing, Marland Clutch, All Power Transmissions, Nuttall Gear, Stieber Clutch, Wichita Clutch, Twiflex Limited, Bibby Transmissions, Matrix International, Inertia Dynamics, Huco Dynatork and Warner Linear.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and their wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Net Income Per Share

Basic earnings per share is based on the weighted average number of common shares outstanding, and diluted earnings per share is based on the weighted average number of common shares outstanding and all dilutive potential common equivalent shares outstanding. Common equivalent shares are included in the per share calculations when the effect of their inclusion would be dilutive.

The following is a reconciliation of basic to diluted net income per share:


	Year Ended			Year Ended		Year Ended
	December 31,			December 31,		December 31,
	2007			2006		2005

Net income from continuing operations	$	13,461		$	8,941	$	2,504
Net loss on discontinued operations		(2,001	)		—		—

Net Income	$	11,460		$	8,941	$	2,504

Shares used in net income per common share — basic		23,579			1,183		9
Effect of dilutive securities:
Incremental shares of unvested restricted common stock		1,051			1,321		1,210
Preferred Stock		—			17,021		17,750

Shares used in net income per common share — diluted		24,630			19,525		18,969

Earnings per share — Basic:
Net income from continuing operations	$	0.57		$	7.56	$	278.22
Net income from discontinued operations	$	(0.08	)	$	—	$	—

Net income	$	0.49		$	7.56	$	278.22

Earnings per share — Diluted
Net income from continuing operations	$	0.55		$	0.46	$	0.13
Net income from discontinued operations	$	(0.08	)	$	—	$	—

Net income	$	0.47		$	0.46	$	0.13

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

Fair Value of Financial Instruments

The carrying values of financial instruments, including accounts receivable, accounts payable and other accrued liabilities, approximate their fair values due to their short-term maturities. The carrying amount of the 9% Senior Secured Notes was $267.2 million and $160.4 million at December 31, 2007 and 2006, respectively. The carrying amount of the 11.25% Senior Notes was $7.8 million and $64.6 million as of December 31, 2007 and 2006, respectively. The estimated fair value of the 9% Senior Secured Notes at December 31, 2007 and December 31, 2006 was $274.1 million and $168.3 million, respectively based on quoted market prices for such Notes. The estimated fair value of the 11.25% Senior Notes was approximately £4.3 million ($8.5 million), £36.3 million ($71.1 million) as of December 31, 2007 and December 31, 2006, respectively.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the financial statements. Actual results could differ from those estimates.

Foreign currency translation

Assets and liabilities of subsidiaries operating outside of the United States with a functional currency other than the U.S. dollar are translated into U.S. dollars using exchange rates at the end of the respective period. Revenues and expenses are translated at average exchange rates effective during the respective period.

Foreign currency translation adjustments are included in accumulated other comprehensive loss as a separate component of stockholder’s equity. Net foreign currency transaction gains and losses are included in the results of operations in the period incurred and included in other non-operating expense(income), net in the accompanying statement of income and comprehensive income (loss).

Cash and Cash Equivalents

Cash and cash equivalents include all financial instruments purchased with an initial maturity of three months or less. Cash equivalents are stated at cost, which approximates fair value.

Trade Receivables

An allowance for doubtful accounts is recorded for estimated collection losses that will be incurred in the collection of receivables. Estimated losses are based on historical collection experience, as well as, a review by management of the status of all receivables. Collection losses have been within the Company’s expectations.

Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out (“FIFO”) method for all entities excluding one of the Company’s subsidiaries, TB Woods. TB Wood’s inventory is stated at the lower of cost or market, principally using the last-in, first-out (“LIFO”) method. Inventory stated using the LIFO method approximates 15% of total inventory. The cost of inventories acquired by the Company in its acquisitions reflect their fair values at the date of acquisition as determined by the Company based on the replacement cost of raw materials, the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts, and for work-in-process the sales price of the finished goods less an appropriate amount representing the expected profitability from selling efforts and costs to complete.

The Company periodically reviews its quantities of inventories on hand and compares these amounts to the expected usage of each particular product or product line. The Company records a charge to cost of sales for any amounts required to reduce the carrying value of inventories to its estimated net realizable value.

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

Property, Plant and Equipment

Property, plant, and equipment are stated at cost, net of accumulated depreciation.

Depreciation of property, plant, and equipment, including capital leases is provided using the straight-line method over the estimated useful life of the asset, as follows:


Buildings and improvements			15 to 45 years
Machinery and equipment			2 to 15 years
Capital lease			Life of lease

Improvements and replacements are capitalized to the extent that they increase the useful economic life or increase the expected economic benefit of the underlying asset. Repairs and maintenance expenditures are charged to expense as incurred.

Intangible Assets

Intangibles represent product technology and patents, tradenames and trademarks and customer relationships. Product technology, patents and customer relationships are amortized on a straight-line basis over 8 to 16 years. The tradenames and trademarks are considered indefinite-lived assets and are not being amortized. Intangibles are stated at fair value on the date of acquisition. At December 31, 2007, and 2006 intangibles are stated net of accumulated amortization incurred since the date of acquisition.

Goodwill

Goodwill represents the excess of the purchase price paid by the Company for the Predecessor, Kilian, Hay Hall, Bear Linear, TB Woods, Inc. and All Power Transmission Manufacturing, Inc. (“All Power”) over the fair value of the net assets acquired in each of the acquisitions. Goodwill can be attributed to the value placed on the Company being an industry leader with a market leading position in the Power Transmission industry. The Company’s leadership position in the market was achieved by developing and manufacturing innovative products and management anticipates that its leadership position and profitability will continue to expand, enhanced by cost improvement programs associated with ongoing consolidation and centralization of its operations.

Impairment of Goodwill and Indefinite-Lived Intangible Assets

The Company evaluates the recoverability of goodwill and indefinite-lived intangible assets annually, or more frequently if events or changes in circumstances, such as a decline in sales, earnings, or cash flows, or material adverse changes in the business climate, indicate that the carrying value of an asset might be impaired. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. Fair values are established using a discounted cash flow methodology (specifically, the income approach). The determination of discounted cash flows is based on the Company’s strategic plans and long-range forecasts. The revenue growth rates included in the forecasts are the Company’s best estimates based on current and anticipated market conditions, and the profit margin assumptions are projected based on current and anticipated cost structures. This analysis included consideration of discounted cash flows as well as EBITDA multiples. The analysis indicated no impairment to be present as of December 31, 2007 and 2006.

Impairment of Long-Lived Assets Other Than Goodwill and Indefinite-Lived Intangible Assets

The Company assesses its long-lived assets other than goodwill and indefinite-lived intangible assets for impairment whenever facts and circumstances indicate that the carrying amounts may not be fully recoverable. To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining lives of such assets. If these projected cash flows are less than the carrying amounts, an impairment loss would be

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

recognized, resulting in a write-down of the assets with a corresponding charge to earnings. The impairment loss is measured based upon the difference between the carrying amounts and the fair values of the assets. Assets to be disposed of are reported at the lower of the carrying amounts or fair value less cost to sell. Management determines fair value using the discounted cash flow method or other accepted valuation techniques.

Debt Issuance Costs

Costs directly related to the issuance of debt are capitalized, included in other long-term assets and amortized using the effective interest method over the term of the related debt obligation. The net carrying value of debt issuance costs was approximately $6.1 million and $5.4 million at December 31, 2007 and 2006, respectively.

Revenue Recognition

Product revenues are recognized, net of sales tax collected, at the time title and risk of loss pass to the customer, which generally occurs upon shipment to the customer. Service revenues are recognized as services are performed. Amounts billed for shipping and handling are recorded as revenue. Product return reserves are accrued at the time of sale based on the historical relationship between shipments and returns, and are recorded as a reduction of net sales.

Certain large distribution customers receive quantity discounts which are recognized net at the time the sale is recorded.

Shipping and Handling Costs

Shipping and handling costs associated with sales are classified as a component of cost of sales.

Warranty Costs

Self-Insurance

Certain operations are self-insured up to pre-determined amounts above which third-party insurance applies, for medical claims, workers’ compensation, vehicle insurance, product liability costs and general liability exposure. The accompanying balance sheets include reserves for the estimated costs associated with these self-insured risks, based on historic experience factors and management’s estimates for known and anticipated claims. A portion of medical insurance costs are offset by charging employees a premium equivalent to group insurance rates.

Research and Development

Research and development costs are expensed as incurred.

Advertising

Advertising costs are charged to selling, general, and administrative expenses as incurred and amounted to approximately $2.4 million, $2.4 million and $2.2 million, for the year ended December 31, 2007, 2006, and 2005, respectively.

Stock-Based Compensation

The Company established the 2004 Equity Incentive Plan that provides for various forms of stock based compensation to officers, directors and senior-level employees of the Company. The Company accounts

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

for grants under this plan in accordance with the provisions of SFAS No. 123(R). Expense associated with equity awards is recognized on a straight-line basis over the requisite service period which typically coincides with the vesting period of the grant.

Income Taxes

The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The Company evaluates the realizability of its net deferred tax assets and assesses the need for a valuation allowance in purchase price accounting and on a quarterly basis. The future benefit to be derived from its deferred tax assets is dependent upon the Company’s ability to generate sufficient future taxable income to realize the assets. The Company records a valuation allowance to reduce its net deferred tax assets to the amount that may be more likely than not to be realized. In periods subsequent to an acquisition, if the Company were able to realize net deferred tax assets in excess of their net recorded amount established in the purchase price allocation, an adjustment to the valuation allowance would be recorded as a reduction to goodwill in the period such determination was made.

To the extent the Company establishes a valuation allowance on net deferred assets generated from operations, an expense will be recorded within the provision for income taxes. In periods subsequent to establishing a valuation allowance on net deferred assets from operations, if the Company were to determine that it would be able to realize its net deferred tax assets in excess of their net recorded amount, an adjustment to the valuation allowance would be recorded as a reduction to income tax expense in the period such determination was made.

We assess our income tax positions and record tax benefits for all years subject to examination, based upon our evaluation of the facts, circumstances and information available at the reporting date. For those tax positions for which it is more likely than not that a tax benefit will be sustained, we record the amount that has a greater than 50% likelihood of being realized upon settlement with the taxing authority that has full knowledge of all relevant information. Interest and penalties are accrued, where applicable. If we do not believe that it is more likely than not that a tax benefit will be sustained, no tax benefit is recognized.

Accumulated Other Comprehensive Income (Loss)

The Company’s total accumulated other comprehensive income (loss) is comprised of the following:


	Minimum			Cumulative
	Pension			Foreign			Accumulated
	Liability/SFAS			Currency			Other
	No. 158			Translation			Comprehensive
	Asset/(liability)			Adjustment			Income (loss)

Balance at December 31, 2004		(722	)		549			(173	)
Minimum pension liability adjustment		(700	)		—			(700	)
Foreign currency translation adjustment		—			(6,400	)		(6,400	)

Balance at December 31, 2005		(1,422	)		(5,851	)		(7,273	)
Minimum pension liability adjustment		696			—			696
Foreign currency translation adjustment		—			677			677
Cumulative adjustment for transition to SFAS No. 158		2,836			—			2,836

Balance at December 31, 2006	$	2,110		$	(5,174	)	$	(3,064	)
Pension liability adjustment		482			—			482
Foreign currency translation adjustment		—			4,505			4,505

Balance at December 31, 2007	$	2,592		$	(669	)	$	1,923

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

Reclassifications

Certain prior period amounts have been reclassified in the condensed consolidated financial statements to conform to the current period presentation.


2.	Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — including an Amendment of FASB Statement No. 115 (“SFAS 159”), which allows an entity to choose to measure certain financial instruments and liabilities at fair value. Subsequent measurements for the financial instruments and liabilities an entity elects to fair value will be recognized in earnings. SFAS 159 also establishes additional disclosure requirements. SFAS 159 is effective for the Company beginning January 1, 2008. The Company is currently evaluating the potential impact of the adoption of SFAS 159 on our consolidated financial position, results of operations and cash flows.

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

expected to be taken in a tax return. The Company adopted FIN 48 on January 1, 2007. See Note 9 to the condensed consolidated financial statements for the impact of adoption of this pronouncement.


3.	Acquisitions

On April 5, 2007, the Company acquired all of the outstanding shares of TB Wood’s for $24.80 per share, or aggregate consideration of $93.5 million. As part of the TB Wood’s acquisition, the Company retired $18.7 million of TB Wood’s indebtedness and paid $9.2 million to retire options under the TB Wood’s equity plan. TB Wood’s is an established designer, manufacturer and marketer of mechanical and electronic industrial power transmission products.

The TB Wood’s acquisition has been accounted for in accordance with SFAS No. 141. The closing date of the TB Wood’s acquisition was April 5, 2007, and as such, the Company’s consolidated financial statements reflect TB Wood’s results of operations from that date forward.

The Company has completed its final purchase price allocation. The value of the acquired assets, assumed liabilities and identified intangibles from the acquisition of TB Wood’s, as presented below, are based upon the fair value as of the date of the acquisition. Goodwill and intangibles recorded in connection with the acquisition of TB Wood’s have been allocated across the business units acquired. The purchase price allocation is as follows:


Total purchase price, including closing costs of approximately $2.7 million	$	124,092

Cash and cash equivalents		5,522
Trade receivables		16,186
Inventories		29,215
Prepaid expenses and other		1,927
Property, plant and equipment		38,574
Intangible assets		41,901

Total assets acquired	$	133,325

Accounts payable, accrued payroll, and accruals and other current liabilities	$	22,768
Debt		18,669
Other liabilities		24,424

Total liabilities assumed	$	65,861

Net assets acquired	$	67,464

Excess purchase price over the fair value of net assets acquired	$	56,628

The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill.

The estimated amounts recorded as intangible assets consist of the following:


Customer relationships, subject to amortization	$	30,117
Trade names and trademarks, not subject to amortization		11,784

Total intangible assets	$	41,901

Customer relationships are subject to amortization over their estimated useful lives of 16 years representing the anticipated period over which the Company estimates it will benefit from the acquired assets. The acquisition of TB Woods did not result in any tax deductible goodwill.

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

On October 5, 2007, the Company acquired substantially all of the assets of All Power Transmission Manufacturing, Inc. (“All Power”). Approximately $5.0 million was paid at closing and the remaining $2.6 million of consideration was issued in the form of a note payable, due in installments over a 2 year period. The total cash payments including deal costs and the net present value of the $2.6 million note payable reflect the total purchase consideration of $7.2 million.

The All Power acquisition has been accounted for in accordance with SFAS No. 141. The closing date of the All Power acquisition was October 19, 2007, and as such, the Company’s consolidated financial statements reflect All Power’s results of operations only from that date forward.

The fair value of All Power’s acquired net assets was $4.3 million consisting primarily of accounts receivable, inventory, fixed assets, accounts payable and accrued liabilities. The Company identified $2.4 million of customer relationships. The customer relationships will be amortized over a period of 10 years representing the anticipated period over which the Company estimates it will benefit from the acquired assets. The Company recorded the $0.6 million excess purchase price over the fair value of the net assets acquired as goodwill. The Company has completed its final purchase price allocation. The All Power acquisition resulted in goodwill that the Company believes is deductible for tax purposes.

On February 10, 2006, the Company purchased all of the outstanding share capital of Hay Hall for $49.2 million. During 2007, the purchase price was reduced by $0.4 million related to the finalization of the working capital adjustment in accordance with the terms of the purchase price agreement. Included in the purchase price was $6.0 million paid in the form of deferred consideration. At the closing the Company deposited such deferred consideration into an escrow account for the benefit of the former Hay Hall shareholders. The deferred consideration is represented by a loan note. While the former Hay Hall shareholders will hold the note, their rights will be limited to receiving the amount of the deferred consideration placed in the escrow account. They will have no recourse against the Company unless we take action to prevent or interfere in the release of such funds from the escrow account. At closing, Hay Hall and its subsidiaries became the Company’s direct or indirect wholly owned subsidiaries. Hay Hall is a UK-based holding company established in 1996 that is focused primarily on the manufacture of couplings and clutch brakes. Hay Hall consists of five main businesses that are niche focused and have strong brand names and established reputations within their primary markets.

The Hay Hall acquisition has been accounted for in accordance with SFAS No. 141. The closing date of the Hay Hall acquisition was February 10, 2006, and as such, the Company’s consolidated financial statements reflect Hay Hall’s results of operations only from that date forward.

The Company has completed its final purchase price allocation. The value of the acquired assets, assumed liabilities and identified intangibles from the acquisition of Hay Hall, as presented below, are based upon fair value as of the date of the acquisition. The goodwill and intangibles recorded in connection with the

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

acquisition of Hay Hall have been allocated across the business units acquired. The final purchase price allocation is as follows:


Total purchase price, including closing costs of approximately $1.8 million and the working capital adjustment of $0.4 million	$	50,584

Cash and cash equivalents		775
Trade receivables		12,111
Inventories		17,004
Prepaid expenses and other		510
Property, plant and equipment		13,670
Intangible assets		16,352

Total assets acquired		60,422
Accounts payable, accrued payroll, and accruals and other current liabilities		12,971
Other liabilities		8,784

Total liabilities assumed		21,755

Net assets acquired		38,667

Excess purchase price over the fair value of net assets acquired	$	12,809

The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill.

The amounts recorded as intangible assets consist of the following:


Patents, subject to amortization	$	110
Customer relationships, subject to amortization		9,312
Trade names and trademarks, not subject to amortization		6,930

Total intangible assets	$	16,352

Customer relationships are amortized on a straight-line basis over 11 years representing the anticipated periods over which the Company estimates it will benefit from the acquired assets. The Company anticipates that substantially all of this amortization is deductible for income tax purposes. The acquisition of Hay Hall did not result in any tax deductible goodwill.

On May 18, 2006, the Company entered into a purchase agreement with the shareholders of Bear Linear LLC, or Bear, to purchase substantially all of the assets of the company for $5.0 million. Approximately $3.5 million was paid at closing and the remaining $1.5 million is payable over the next 2.5 years. Bear manufacturers high value-added linear actuators for mobile off-highway and industrial applications.

The Bear acquisition has been accounted for in accordance with SFAS No. 141. The closing date of the Bear acquisition was May 18, 2006, and as such, the Company’s consolidated financial statements reflect Bear’s results of operations only from that date forward.

Bear had approximately $0.5 million of net assets at closing consisting primarily of accounts receivable, inventory, fixed assets and accounts payable and accrued liabilities. The Company did not identify any specifically identifiable intangible assets. The Company recorded the $4.2 million excess purchase price over the fair value of the net assets acquired as goodwill. The Company has completed its final purchase price allocation. The Bear Linear acquisition resulted in goodwill that the Company believes is tax deductible.

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

The following table sets forth the unaudited pro forma results of operations of the Company for the year to date periods ended December 31, 2007 and 2006 as if the Company had acquired TB Wood’s, Hay Hall, Bear Linear and All Power at the beginning of the respective periods. The pro forma information contains the actual operating results of the Company and TB Wood’s, Hay Hall, Bear Linear and All Power with the results prior to April 5, 2007, for TB Wood’s, February 11, 2006 for Hay Hall, May 19, 2006 for Bear Linear and October 19, 2007 for All Power, adjusted to include the pro forma impact of (i) additional depreciation expense as a result of estimated depreciation on fair value of fixed assets; (ii) additional expense as a result of estimated amortization of identifiable intangible assets; (iii) additional interest expense associated with debt issued on April 5, 2007 in connection with the TB Wood’s Acquisition, (iv) elimination of intercompany sales between Hay Hall and the Company and (v) and an adjustment to the tax provision for the tax effect of the above adjustments. The unaudited pro-forma financial information for the year to date period ended December 31, 2007 and 2006 includes a charge to step-up the value of acquired inventory sold of $0.9 million and $2.3 million, respectively. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisitions occurred at the beginning of the respective periods or that may be obtained in the future.


	Pro Forma (unaudited)
	Year to Date Ended			Year to Date Ended
	December 31,			December 31,
	2007			2006

Total revenues	$	623,249		$	591,131
Net income from continuing operations		11,697			6,845
Net loss from discontinued operations		(2,001	)		—
Net income	$	9,696		$	6,845
Basic earnings per share:
Net income from continuing operations	$	0.50		$	5.37
Net loss from discontinued operations	$	(0.09	)		—

Net income	$	0.41		$	5.37
Diluted earnings per share:
Net income from continuing operations	$	0.47		$	0.33
Net loss from discontinued operations	$	(0.08	)		—

Net income	$	0.39		$	0.33


4.	Discontinued Operations

On December 31, 2007, the Company completed the divestiture of its TB Wood’s adjustable speed drives business (“Electronics division”) to Finland-based Vacon for $29.0 million. The decision to sell the Electronics division was made to allow the Company to continue its strategic focus on its core electro-mechanical power transmission business. The Company determined that the carrying value of the Electronics division was less than the sale price less the cost to sell, as a result, no adjustment to carrying value of this long-lived asset was necessary during the year-ended December 31, 2007.

As of December 31, 2007, $11.9 million of cash had been received from Vacon for the purchase of the Electronics division. The remaining $17.1 million is recorded as a receivable for sale of Electronics division on the consolidated balance sheet. In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), the Company determined that the Electronics division became a discontinued operation in the fourth quarter of 2007. Accordingly, the operating results of the Electronics division have been segregated from the continuing operations in the consolidated statements of income and comprehensive income for the periods subsequent to the acquisition of TB Wood’s (April 5, 2007) through December 31, 2007.

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

The following table summarizes the results from discontinued operations for the periods indicated:


	April 5 to
	December 31,
	2007

Sales	$	28,715
Cost of sales		19,120

Gross Profit		9,595
Selling, general and administrative expenses		5,334
Research and development		1,825

Operating income from continuing operations		2,436
Interest income, net		76
Other non-operating income		83
Gain on the sale of the Electronics division		1,513

Total income from discontinued operations before income taxes		4,108

Income taxes		(6,109	)

Total net loss from discontinued operations	$	(2,001	)

The Company will also receive additional consideration from Vacon through facility leases in North America and transition services to be provided by Altra for a period of time after closing, not to exceed 18 months. The Company does not believe net cash flows from the transition services agreement will be significant.


5.	Inventories

Inventories located at certain subsidiaries acquired in connection with the TB Wood’s acquisition are stated at the lower of current cost or market, principally using the last-in, first-out (LIFO) method. All of the Company’s remaining subsidiaries are stated at the lower of cost or market, using the first-in, first-out (FIFO) method. Market is defined as net realizable value. Inventories at December 31, 2007 and 2006 consisted of the following:


	2007		2006

Raw materials	$	33,601	$	26,731
Work in process		20,376		19,112
Finished goods		47,858		29,926

Inventories, net	$	101,835		75,769

Approximately 15% of total inventories at December 31, 2007 were valued using the LIFO method. All LIFO inventory acquired as part of the TB Wood’s acquisition was valued at the estimated fair market value less cost to sell. The adjustment resulted in a $1.7 million increase in the carrying value of the inventory. From April 5, 2007 to December 31, 2007, a $0.3 million LIFO provision was recorded as a component of costs of sales in the accompanying consolidated statement of income and comprehensive income (loss). As of December 31, 2007, the net LIFO reserve included as part of inventory on the consolidated balance sheet was an asset of $1.4 million.

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)


6.	Property, Plant and Equipment

Property, plant and equipment at December 31, 2007 and 2006, consisted of the following:


	2007			2006

Land	$	13,993		$	9,599
Buildings and improvements		33,927			19,849
Machinery and equipment		102,678			71,866

		150,598			101,314
Less — Accumulated depreciation		(33,988	)		(18,927	)

	$	116,610		$	82,387

During the fourth quarter of 2007, management entered into a plan to exit the building located in Stratford, Canada. The facility, which was acquired as part of the TB Woods acquisition is to be combined with the Company’s remaining facilities in 2008. In accordance with SFAS 144, the building is classified as an asset held for sale in the consolidated balance sheet.


7.	Goodwill and Intangible Assets

Goodwill as of December 31, 2007 and 2006 consisted of the following:


Goodwill
Balance December 31, 2006	$	65,397
Additions related to TB Wood’s acquisition		56,628
Additions related to All Power acquisition		628
Impact of additional tax contingencies		956
Adjustments to acquisition related deferred tax liabilities		(2,309	)
Working capital adjustments related to the purchase price of Hay Hall		(446	)
Reductions related to sale of the Electronics division		(7,931	)

Impact of changes in foreign currency		2,056

Balance December 31, 2007	$	114,979


	December 31, 2007				December 31, 2006
			Accumulated				Accumulated
	Cost		Amortization		Cost		Amortization

Other Intangibles
Intangible assets not subject to amortization:
Tradenames and trademarks		30,730	$	—	$	23,010	$	—
Intangible assets subject to amortization:
Customer relationships		62,038		10,139		37,114		5,679
Product technology and patents		5,232		2,348		5,232		1,316
Impact of changes in foreign currency		3,430		—		1,301		—

Total intangible assets	$	101,430		12,487	$	66,657	$	6,995

The Company recorded $5.5 million, $3.8 million and $3.0 million of amortization for the years ended December 31, 2007, 2006 and 2005, respectively.

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

Customer relationships, product technology and patents are amortized over their useful lives ranging from 8 to 16 years. The weighted average estimated useful life of intangible assets subject to amortization is approximately 11 years.

The estimated amortization expense for intangible assets is approximately $5.5 million in each of the next five years and then $27.3 million thereafter.


8.	Warranty Costs

Estimated expenses related to product warranties are accrued at the time products are sold to customers. Estimates are established using historical information as to the nature, frequency and average costs of warranty claims. Changes in the carrying amount of accrued product warranty costs for the year ended December 31, 2007 and 2006 are as follows:


	Year-Ended			Year-Ended
	December 31,			December 31,
	2007			2006

Balance at beginning of period	$	2,083		$	1,876
Balance assumed with TB Wood’s acquisition		843			—
Accrued warranty costs		2,310			1,666
Balance sold with the Electronics division		(873	)		—
Payments and adjustments		(265	)		(1,459	)

Balance at end of period		4,098		$	2,083


9.	Income Taxes

Pre-tax income (loss) from continuing operations by domestic and foreign locations consists of the following:


	December 31,		December 31,			December 31,
	2007		2006			2005

Domestic	$	10,190	$	15,969		$	2,127
Foreign		11,479		(1,231	)		3,726

	$	21,669	$	14,738		$	5,853

The components of the provision (benefit) for income taxes from continuing operations consists of the following:


	December 31,		December 31,		December 31,
	2007		2006		2005

Current:
Federal	$	781	$	2,616	$	1,086
Foreign and State		1,972		1,991		2,038

		2,753		4,607		3,124
Deferred:
Federal		4,988		998		509
Foreign and state		467		192		(284	)

		5,455		1,190		225

Provision (benefit) for income taxes	$	8,208	$	5,797	$	3,349

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

A reconciliation from the federal statutory rate to the Company’s effective tax rate for income taxes from continuing operations is as follows:


	December 31,			December 31,			December 31,
	2007			2006			2005

Tax at U.S. federal income tax rate	$	7,584		$	5,158		$	2,049
State taxes, net of federal income tax effect		306			674			373
Change in tax rate		(750	)		53
Foreign Taxes		1,761			944
Interest		(1,365	)		(1,361	)		313
Foreign and other		672			329			614

Provision (benefit) for income taxes	$	8,208		$	5,797		$	3,349

The Company adopted the provisions of FASB interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB 109” (“FIN 48”) at the beginning of fiscal 2007, which resulted in a decrease of approximately $0.2 million to the December 31, 2006 retained earning balance. FIN 48 provides a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns.

A reconciliation of the gross amount of unrecognized tax benefits excluding accrued interest and penalties from January 1, 2007 through December 31, 2007 is as follows:



Balance at January 1, 2007	$	922
Increases related to prior year tax positions		1,916
Increases related to acquisitions		3,581
Decreases related to prior year tax positions		(1,970	)
Increases related to current year tax positions		1,785
Lapse of statute limitations		(651	)

Balance at December 31, 2007	$	5,583

At December 31, 2007, the Company had $4.0 million of net unrecognized tax benefits, of which $1.2 million, if recognized would reduce the Company’s effective tax rate and $2.8 million would result in a decrease to goodwill. We do not expect the amount of unrecognized tax benefit disclosed above to change significantly over the next 12 months.

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense in the consolidated statements of income. At the date of adoption and December 31, 2007, the Company had $0.3 million and $1.7 million of accrued interest and penalties, respectively in income taxes payable.

The Company and its subsidiaries file consolidated and separate income tax returns in the U.S. federal jurisdiction as well as in various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities in all of these jurisdictions. With the exception of certain foreign jurisdictions, the Company is no longer subject to income tax examinations for the tax years prior to 2004 in these major jurisdictions. Additionally, the Company has indemnification agreements with the sellers of the Colfax and Hay Hall entities, which provides for reimbursement to the Company for payments made in satisfaction of tax liabilities relating to pre-acquisition periods.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

purposes. Significant components of the deferred tax assets and liabilities as of December 31, 2007 and 2006 were as follows:


	2007			2006

Deferred tax assets:
Post-retirement obligations	$	5,031		$	5,247
Goodwill		2,051			7,555
Inventory		0			2,036
Expenses not currently deductible		6,801			5,852
Net operating loss carryover		1,761			2,899
Other		177			557

Total deferred tax assets		15,821			24,146
Valuation allowance for deferred tax assets		(1,336	)		(1,252	)

Net deferred tax assets		14,485			22,894
Deferred tax liabilities:
Property, plant and equipment		16,081			9,650
Intangible assets		20,331			11,730
Other		2,106			1,108

Total deferred tax liabilities		38,518			22,488

Net deferred tax liabilities		(24,033	)		406

At December 31, 2007 and 2006, the Company had net operating loss carry forwards primarily related to operations in the United Kingdom of $6.3 million and $4.2 million respectively, and in France of $0 million and $3.4 million respectively, which can be carried forward indefinitely.

The increase in deferred tax liabilities for the year includes the addition of deferred tax liability balances of approximately $23 million attributable to the acquisition of TB Wood’s Corp.

Valuation allowances are established for a deferred tax asset that management believes may not be realized. The Company continually reviews the adequacy of the valuation allowance and recognizes tax benefits only as reassessments indicate that it is more likely than not the benefits will be realized. A valuation allowance at December 31, 2007 and December 31, 2006 of $1.3 related to the net operating loss in the UK has been established due to the uncertainty of realizing the benefits of these net operating losses. The valuation allowance existing at December 31, 2007 will be allocated to reduce book goodwill if and when released in subsequent periods.

The Company’s current intention is to reinvest the total amount of its unremitted foreign earnings in the local tax jurisdiction to the extent that they are generated and available, or to repatriate the earnings only when tax effective. As such, the Company has not provided U.S. tax expense on approximately $10.4 million of unremitted earnings from certain of its foreign subsidiaries. If these undistributed earnings were distributed, it would result in incremental US tax expense of approximately $2.1 million to the Company.


10.	Pension and Other Employee Benefits

Defined Benefit (Pension) and Postretirement Benefit Plans

The Company sponsors various defined benefit (pension) and postretirement (medical and life insurance coverage) plans for certain, primarily unionized, active employees (those in the employment of the Company at or hired since November 30, 2004).

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

Included in accumulated other comprehensive loss at December 31, 2007 are $0.7 million ($0.3 million, net of tax) of unrecognized actuarial losses that have not yet been recognized in net periodic pension cost.

The following tables represent the reconciliation of the benefit obligation, fair value of plan assets and funded status of the respective defined benefit (pension) and postretirement benefit plans as of December 31, 2007 and 2006:


	Pension Benefits						Post Retirement Benefits
	Year Ended			Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,			December 31,
	2007			2006			2007			2006

Change in benefit obligation:
Obligation at beginning of period	$	26,121		$	27,697		$	3,549		$	10,983
Service cost		325			513			72			140
Interest cost		1,452			1,491			175			315
Amendments		—			57			(25	)		(2,564	)
Curtailments		2,899			119			(154	)		(3,838	)
Actuarial loss (gain)		(1,756	)		(1,188	)		168			(1,291	)
Foreign exchange effect		374			326			—			—
Benefits paid		(1,404	)		(2,894	)		(303	)		(196	)

Obligation at end of period	$	28,011		$	26,121		$	3,482		$	3,549

Change in plan assets:
Fair value of plan assets, beginning of period	$	10,952		$	5,832		$	—		$	—
Actual return on plan assets		1,196			821			—			—
Employer contribution		3,836			7,193			302			196
Benefits paid		(1,404	)		(2,894	)		(302	)		(196	)

Fair value of plan assets, end of period	$	14,580		$	10,952		$	—		$	—

Funded status	$	(13,431	)	$	(15,169	)	$	(3,482	)	$	(3,549	)
Amounts Recognized in the balance sheet consist of:
Non current assets	$	—		$	—		$	—		$	—
Current liabilities		—			—			(312	)		(287	)
Non-current liabilities		(13,431	)		(15,169	)		(3,170	)		(3,262	)

Total	$	(13,431	)	$	(15,169	)	$	(3,482	)	$	(3,549	)

For all pension plans presented above, the accumulated and projected benefit obligations exceed the fair value of plan assets. The accumulated benefit obligation at December 31, 2007 and 2006 was $28.0 million and $26.1 million, respectively. Non-US pension liabilities recognized in the amounts presented above are $3.2 million and $3.4 million at December 31, 2007 and 2006, respectively.

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

The weighted average discount rate used in the computation of the respective benefit obligations at December 31, 2007 and 2006 presented above are as follows:


	2007			2006

Pension benefits		6.25	%		5.75	%
Other postretirement benefits		6.25	%		5.75	%

The following table represents the components of the net periodic benefit cost associated with the respective plans:


	Pension Benefits									Postretirement Benefits
	Year Ended			Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,			December 31,			December 31,			December 31,
	2007			2006			2005			2007			2006			2005

Service cost	$	325		$	513		$	591		$	72		$	140		$	295
Interest cost		1,452			1,491			1,362			175			315			549
Recognized net actuarial loss		—			—			—			—			(113	)		—
Expected return on plan assets		(1,066	)		(829	)		(431	)		—			—			—
Settlement/Curtailment		2,899			119			—			(154	)		(3,838	)		—
Amortization		(4	)		6			72			(1,022	)		(640	)		(423	)

Net periodic benefit cost	$	3,606		$	1,300		$	1,594		$	(929	)	$	(4,136	)	$	421

The key economic assumptions used in the computation of the respective net periodic benefit cost for the periods presented above are as follows:

Pension Benefits

Postretirement Benefits

Year Ended

December 31,

2007

2006

2005

2007

2006

2005

Discount rate

5.75

5.5

5.75

5.5

Expected return on plan assets

8.5

N/A

Compensation rate increase

N/A

The reasonableness of the expected return on the funded pension plan assets was determined by three separate analyses: (i) review of forty years of historical data of portfolios with similar asset allocation characteristics, (ii) analysis of six years of historical performance for the Predecessor plan assuming the current portfolio mix and investment manager structure, and (iii) a projected portfolio performance, assuming the plan’s target asset allocation.

For measurement of the postretirement benefit obligations and net periodic benefit costs, an annual rate of increase in the per capita cost of covered health care benefits of approximately 9.0% was assumed. This rate was assumed to decrease gradually to 5% by 2012 and remain at that level thereafter. The assumed

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

health care trends are a significant component of the postretirement benefit costs. A one-percentage-point change in assumed health care cost trend rates would have the following effects:


	1-Percentage-		1-Percentage-
	Point		Point
	Increase		Decrease

Effect on service and interest cost components for the period January 1, 2007 through December 31, 2007	$	31	$	(25	)
Effect on the December 31, 2007 post-retirement benefit obligation	$	287	$	(239	)

The asset allocations for the Company’s funded retirement plan at December 31, 2007 and 2006, respectively, and the target allocation for 2007, by asset category, are as follows:


	Allocation Percentage of
	Plan Assets at Year-End
	2007			2007			2006
	Actual			Target			Actual

Asset Category
Equity securities		66	%		65	%		59	%
Fixed income securities		34	%		35	%		41	%

The investment strategy is to achieve a rate of return on the plan’s assets that, over the long-term, will fund the plan’s benefit payments and will provide for other required amounts in a manner that satisfies all fiduciary responsibilities. A determinant of the plan’s returns is the asset allocation policy. The plan’s asset mix will be reviewed by the Company periodically, but at least quarterly, to rebalance within the target guidelines. The Company will also periodically review investment managers to determine if the respective manager has performed satisfactorily when compared to the defined objectives, similarly invested portfolios, and specific market indices.

Expected cash flows

The following table provides the amounts of expected benefit payments, which are made from the plans’ assets and includes the participants’ share of the costs, which is funded by participant contributions. The amounts in the table are actuarially determined and reflect the Company’s best estimate given its current knowledge; actual amounts could be materially different.


	Pension		Postretirement
	Benefits		Benefits

Expected benefit payments (from plan assets)
2008	$	1,194	$	311
2009		1,315		332
2010		1,428		335
2011		1,533		337
2012		1,688		312
2013 — 2017		9,871		910

The Company contributed $3.5 million to its pension plan in 2007. The Company has minimum cash funding requirements associated with its pension plan which are estimated to be $2.5 million in 2008, $5.7 million in 2009, $1.3 million in 2010 and $2.0 million annually until 2012.

One of our four U.S. collective bargaining agreements expired in August 2007. An agreement was reached in September 2007 with the union that extends the collective bargaining agreement through August 2010. The agreement reached provides for certain wage increases over a three year period, transition of health

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

insurance premiums to a union administered plan and other benefits. In addition, the defined benefit plan will be frozen effective December 31, 2007, with all eligible plan participants transitioned to a 401 (k) defined contribution plan. This is considered a pension curtailment in accordance with SFAS No. 88 (Employer’s Accounting for Settlements and Curtailments of Defined Benefit Plans and for Termination Benefits). The Company evaluated the amendment to the defined benefit plan and concluded that there was no curtailment gain/loss in connection with this change.

One of our four U.S. collective bargaining agreements expired in September 2007. In October 2007, an agreement was reached which extended the existing collective bargaining agreement. The negotiations also resulted in a provision to close the Erie, Pennsylvania plant by December 2008 through the transfer of manufacturing equipment to other existing facilities and a ratable reduction in headcount. The plant closure has triggered a special retirement pension feature and plan curtailment.

Under the special retirement pension feature, plan participants become eligible for pension benefits at an age earlier than the normal retirement feature would allow provided that service is broken by permanent shutdown, layoff or disability. The pension benefit is increased by a special supplemental benefit payment on a monthly basis and a special one time payment at the time of retirement.

The curtailment and special termination benefits are approximately $2.9 million for the year ended December 31, 2007.

In connection with the union renegotiation, the post retirement benefit plan for employees at that location has been terminated for all eligible employees who have not retired, or given notice to retire in 2007. The Company recognized a non-cash gain associated with the curtailment of these plans in 2007 of $0.2 million.

In May 2006, the Company renegotiated its contract with the labor union at its South Beloit, IL manufacturing facility. As a result of the renegotiation, participants in the Company’s pension plan cease to accrue additional benefits starting July 3, 2006. Additionally, the other post retirement benefit plan for employees at that location has been terminated for all eligible participants who had not retired, or given notice to retire in 2006, by August 1, 2006. The Company recognized a non-cash gain associated with the curtailment of these plans in 2006 of $3.8 million.

Defined Contribution Plans

At November 30, 2004, the Company established a defined contribution plan for substantially all full-time U.S.-based employees on terms that mirror those previously provided by the Predecessor. All active employees became participants of the Company’s plan and all of their account balances in the Predecessor plans were transferred to the Company’s plan at Inception.

Under the terms of the Company’s plan, eligible employees may contribute from one to fifty percent of their compensation to the plan on a pre-tax basis. The Company makes a matching contribution equal to half of the first six percent of salary contributed by each employee and makes a unilateral contribution of three percent of all employees’ salary (including non-contributing employees). The Company’s expense associated with the defined contribution plan was $3.4 million and $2.9 million during the years ended December 31, 2007 and 2006, respectively.

On December 31, 2006, the Company adopted the recognition and disclosure provisions of SFAS No. 158. SFAS No. 158 required the Company to recognize the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of its pension plans and postretirement benefit plan in the December 31, 2006 balance sheet, with a corresponding adjustment to accumulated other comprehensive income (loss), net of tax. The adjustment to accumulated other comprehensive income (loss) at adoption represents the net unrecognized actuarial losses, unrecognized prior service

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

costs, and unrecognized transition obligation remaining from the initial adoption of SFAS No. 87 Employers’ Accounting for Pensions (“SFAS No. 87”), all of which were previously netted against the plan’s funded status in the Company’s statement of financial position pursuant to the provisions of SFAS No. 87. These amounts will be subsequently recognized as net periodic pension cost pursuant to the Company’s historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic pension cost in the same periods will be recognized as a component of other comprehensive income. Those amounts will be subsequently recognized as a component of net periodic pension cost on the same basis as the amounts recognized in accumulated other comprehensive income at adoption of SFAS No. 158.

The incremental effects of adopting the provisions of SFAS No. 158 on the Company’s balance sheet at December 31, 2006 are presented in the following table. The adoption of SFAS No. 158 had no effect on the Company’s consolidated statement of operations for the year ended December 31, 2006, or for any prior period presented, and it will not effect the Company’s operating results in future periods. Had the Company not been required to adopt SFAS No. 158 at December 31, 2006, it would have recognized an additional minimum liability pursuant to the provisions of SFAS No. 87. The effect of recognizing the additional minimum liability is included in the table below in the column labeled “Prior to Application of SFAS No. 158.”


	Pension as of
	December 31, 2006
	Prior to			As Reported
	Adopting			at December 31,
	SFAS No. 158			2006

Plan Funded Status:
Benefit obligation	$	(26,121	)	$	(26,121	)
Allowance for future salary increases		—			—

Projected benefit obligation		(26,121	)		(26,121	)
Fair value of assets		10,952			10,952

Funded Status		(15,169	)		(15,169	)
Unrecognized loss		1,154			N/A
Unrecognized prior service cost		43			N/A

Accrued benefit cost	$	(13,972	)		N/A

Balance Sheet:
Prepaid benefit cost	$	—			N/A
Intangible asset		43			N/A
Accrued benefit cost		(15,122	)		N/A

Net liability	$	(15,079	)	$	(15,169	)

Corresponding charges to equity accounts:
Retained earnings	$	13,972		$	13,972
Accumulated other comprehensive loss		1,154			1,197

Total charges to equity	$	15,126		$	15,169

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)


	Post-Retirement Benefits as of December 31, 2006
	Prior to			As Reported at
	Adopting SFAS			December 31,
	No. 158			2006

Plan Funded Status:
Benefit obligation	$	(3,549	)	$	(3,549	)
Fair value of assets		—			—

Funded Status		(3,549	)		(3,549	)
Unrecognized gain		(1,016	)		N/A
Unrecognized prior service cost		(3,602	)		N/A

Accrued benefit cost	$	(8,167	)		N/A

Balance Sheet:
Prepaid benefit cost		N/A			N/A
Intangible asset		N/A			N/A
Accrued benefit cost		N/A			N/A

Net liability		N/A		$	(3,549	)

Corresponding charges to equity accounts:
Retained earnings		N/A		$	8,167
Accumulated other comprehensive loss		N/A			(4,618	)

Total charges to equity		N/A		$	3,549


11.	Long-Term Debt

Revolving Credit Agreement

The Company maintains a $30 million revolving borrowings facility with a commercial bank (the “Revolving Credit Agreement”) through its wholly owned subsidiary Altra Industrial Motion, Inc. (Altra Industrial). The Revolving Credit Agreement is subject to certain limitations resulting from the requirement of Altra Industrial to maintain certain levels of collateralized assets, as defined in the Revolving Credit Agreement. Altra Industrial may use up to $10.0 million of its availability under the Revolving Credit Agreement for standby letters of credit issued on its behalf, the issuance of which will reduce the amount of borrowings that would otherwise be available to Altra Industrial. Altra Industrial may re-borrow any amounts paid to reduce the amount of outstanding borrowings; however, all borrowings under the Revolving Credit Agreement must be repaid in full as of November 30, 2010.

Substantially all of Altra Industrial’s assets have been pledged as collateral against outstanding borrowings under the Revolving Credit Agreement. The Revolving Credit Agreement requires Altra Industrial to maintain a minimum fixed charge coverage ratio (when availability under the line falls below $12.5 million) and imposes customary affirmative covenants and restrictions on Altra Industrial. Altra Industrial was in compliance with all requirements of the Revolving Credit Agreement at December 31, 2007.

There were no borrowings under the Revolving Credit Agreement at December 31, 2007 and 2006, however, the lender had issued $6.5 million of outstanding letters of credit on behalf of Altra Industrial as of both dates.

In April 2007, Altra Industrial amended the Revolving Credit Agreement. The interest rate on any outstanding borrowings on the line of credit was reduced to the lender’s Prime Rate plus 25 basis points or LIBOR plus 175 basis points. The rate on all outstanding letters of credit was reduced to 1.5% and .25% on any unused availability under the Revolving Credit Agreement. All borrowings under the amended plan must be repaid by November 30, 2010.

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

TB Wood’s Revolving Credit Agreement

As part of the TB Wood’s acquisition, the Company refinanced the existing line of credit agreement with a commercial bank. The Company refinanced $13.0 million of debt associated with TB Wood’s line of credit. As of December 31, 2007, there was $7.7 million of debt outstanding under the TB Wood’s Credit Agreement, and $6.9 million of outstanding letters of credit.

Overdraft Agreements

Certain of our foreign subsidiaries maintain overdraft agreements with financial institutions. There were no borrowings as of December 31, 2007 or 2006 under any of the overdraft agreements.

9% Senior Secured Notes

On November 30, 2004, Altra Industrial issued 9% Senior Secured Notes (“Senior Secured Notes”), with a face value of $165.0 million. Interest on the Senior Secured Notes is payable semiannually, in arrears, on June 1 and December 1 of each year, beginning June 1, 2005, at an annual rate of 9%.

The Senior Secured Notes are guaranteed by Altra Industrial’s U.S. domestic subsidiaries and are secured by a second priority lien, subject to first priority liens securing the Revolving Credit Agreement, on substantially all of Altra Industrial’s assets. The Senior Secured Notes contain numerous terms, covenants and conditions, which impose substantial limitations on Altra Industrial. Altra Industrial was in compliance with all covenants of the indenture governing the Senior Secured Notes at December 31, 2007.

In connection with the acquisition of TB Wood’s on April 5, 2007, Altra Industrial completed a follow-on offering issuing an additional $105.0 million of the Senior Secured Notes. The additional $105.0 million has the same terms and conditions as the previously issued Senior Secured Notes. The effective interest rate on the Senior Secured Notes, after the follow-on offering is approximately 9.6% after consideration of the amortization of $5.6 million net discount and $6.5 million of deferred financing costs.

11.25% Senior Notes

On February 8, 2006, Altra Industrial issued 11.25% Senior Notes (“Senior Notes”), with a face value of £33 million. Interest on the Senior Notes is payable semiannually, in arrears, on August 15 and February 15 of each year, beginning August 15, 2006, at an annual rate of 11.25%. The effective interest rate on the Senior Notes is approximately 12.7%, after consideration of the $0.7 million of deferred financing costs (included in other assets). The Senior Notes mature on February 13, 2013.

The Senior Notes are guaranteed on a senior unsecured basis by Altra Industrial’s U.S. domestic subsidiaries. The Senior Notes contain numerous terms, covenants and conditions, which impose substantial limitations on the Company. Altra Industrial was in compliance with all covenants of the indenture governing the Senior Notes at December 31, 2007.

During 2007, the Company redeemed £29.1 million aggregate principal amount of the outstanding Senior Notes. In connection with the redemption, Altra Industrial expensed $2.0 million of deferred financing costs and incurred $7.5 million of a pre-payment premium.

The remaining principal amount of the Senior Notes matures on February 13, 2013, unless previously redeemed by Altra Industrial prior to such maturity date. As of December 31, 2007, the remaining principal balance outstanding was £3.9 million, or $7.8 million.

Subordinated Notes

At November 30, 2004, the Company executed an agreement with a stockholder to obtain $14.0 million of unsecured subordinated financing (the “Subordinated Notes”). The interest accrued at an annual rate of

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

17% and was payable quarterly in full or payment-in-kind (PIK). In December 2006, the remaining principal, penalty, unpaid and accrued interest balance was paid in full. All unamortized deferred financing costs associated with the Subordinated Notes was written off to interest expense in connection with the repayment of the Subordinated Notes in 2006.

Variable Rate Demand Revenue Bonds

In connection with the acquisition of TB Wood’s, the Company assumed the Variable Rate Demand Revenue Bonds outstanding as of the acquisition date. TB Wood’s had borrowed approximately $3.0 and $2.3 million by issuing Variable Rate Demand Revenue Bonds under the authority of the industrial development corporations of the City of San Marcos, Texas and City of Chattanooga, Tennessee, respectively. These bonds bear variable interest rates (3.57% as of December 31, 2007) and mature in April 2024 and April 2022. The bonds were issued to finance production facilities for TB Wood’s manufacturing operations in those cities, and are secured by letters of credit issued under the terms of the TB Wood’s Credit Agreement.

Mortgage

In June 2006, the Company entered into a mortgage on its building in Heidelberg, Germany with a local bank. As of December 31, 2007 and 2006, the mortgage has a remaining principal of €1.8 million, or $2.6 million and €2.0 million or $2.6 million, respectively and an interest rate of 5.75% and is payable in monthly installments over 15 years.

Capital Leases

The Company leases certain equipment under capital lease arrangements, whose obligations are included in both short-term and long-term debt. Capital lease obligations amounted to approximately $3.4 million and $1.5 million at December 31, 2007 and 2006, respectively. Assets under capital leases are included in property, plant and equipment with the related amortization recorded as depreciation expense.


12.	Stockholders’ Equity

Common Stock

In December 2006, the Company completed an initial public offering. The Company offered 3,333,334 shares and selling stockholders offered 6,666,666 shares. Proceeds to the Company after the underwriting discount and issuance cost were $39.3 million. As of December 31, 2006, there are 50,000,000 shares of common stock authorized with a par value of $.001 and 21,467,502 outstanding.

In June 2007, the Company closed its secondary public offering of 12,650,000 shares of its common stock, par value $0.001 per share (the “Shares”), which included 1,650,000 sold as a result of the underwriters’ exercise of their overallotment option in full at closing. The Company received proceeds of $48.7 million, net of issuance costs. In the offering the Company sold 3,178,494 Shares and certain selling stockholders, including Genstar Capital, the Company’s largest stockholder, sold an aggregate of 9,471,506 shares.

Amended and Restated Stockholders Agreement

We had entered into an agreement with our stockholders that granted certain rights to and placed certain limitations on the actions of our stockholders. These rights and restrictions generally included (i) restrictions on the right to sell or transfer our stock, (ii) the Genstar Funds’ rights of first refusal and drag-along rights with respect to sales of shares by other stockholders, (iii) the stockholders’ rights to participate in the sale of the our shares by the Genstar Fund (a co-sale right), (iv) the stockholders’ right of first offer with respect to additional sales of shares by us and (v) the Genstar Funds’ right to designate all of our directors. In addition, stockholders who were part of our management were subject to non- competition and non-solicitation

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

provisions and also granted us and the Genstar Funds the right to repurchase their shares upon their termination of employment.

Upon the completion of the Company’s initial public stock offering, certain significant provisions of the stockholders agreement terminated automatically, including the rights of first refusal, drag-along rights, co-sale rights, rights of first offer, and the Genstar Funds’ right to designate directors. In addition, shares held by members of the Company’s management no longer are subject to a repurchase right upon termination. Members of management remained subject to the non-competition and non-solicitation provisions following the offering.

Preferred Stock

On December 20, 2006, the Company amended and restated its certificate of incorporation authorizing 10,000,000 shares of undesignated Preferred Stock (“Preferred stock”). The Preferred stock may be issued from time to time in one or more classes or series, the shares of each class or series to have such designations and powers, preferences, and rights, and qualifications, limitations and restrictions as determined by the Company’s Board of Directors. There was no Preferred stock issued or outstanding at December 31, 2007 or 2006.

Restricted Common Stock

The Company’s Board of Directors established the 2004 Equity Incentive Plan (the Plan) that provides for various forms of stock based compensation to independent directors, officers and senior-level employees of the Company. The restricted shares issued pursuant to the plan generally vest ratably over each of the five years from the date of grant, provided, that the vesting of the restricted shares may accelerate upon the occurrence of certain liquidity events, if approved by the Board of Directors in connection with the transactions. Common stock awarded under the 2004 Equity Incentive Plan is generally subject to restrictions on transfer, repurchase rights, and other limitations and rights as set forth in the Stockholders Agreement and Registration Agreement.

The Plan permits the Company to grant restricted stock to key employees and other persons who make significant contributions to the success of the Company. The restrictions and vesting schedule for restricted stock granted under the Plan are determined by the Compensation Committee of the Board of Directors. Compensation expense recorded during the year ended December 31, 2007, 2006 and 2005 was $2.0 million ($1.5 million, net of tax), $1.9 million ($1.3 million, net of tax) and $0.1 million, respectively. Compensation expense is recognized on a straight-line basis over the service period.

The following table sets forth the activity of the Company’s restricted stock grants to date:


				Weighted-Average
				Grant Date Fair
	Shares			Value

Restricted shares unvested December 31, 2005		1,604,833		$	0.20
Restricted shares granted		346,756		$	14.38
Shares for which restrictions lapsed		(331,500	)	$	0.20

Restricted shares unvested December 31, 2006		1,620,089		$	3.24

Restricted shares granted		61,652		$	16.88
Restricted shares forfeited		(78,000	)	$	$0.20
Restricted shares for which restrictions lapsed		(482,877	)	$	4.23

Restricted shares unvested at December 31, 2007		1,120,864		$	3.76

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

Total remaining unrecognized compensation cost is approximately $2.9 million as of December 31, 2007 and will be recognized over a weighted average remaining period of two years. The fair market value of the shares in which the restrictions have lapsed during 2007 was $6.8 million .

Prior to the initial public offering, the fair value of the Company’s common stock is determined by the Company’s Board of Directors (the Board) at the time of the restricted common stock grants. Prior to the initial public offering, in the absence of a public trading market for the Company’s common stock, the Company’s Board considers objective and subjective factors in determining the fair value of the Company’s common stock and related options. Consistent with the guidance provided by the AICPA’s Technical Practice Aid on The Valuation of Privately-held- Company Equity Securities Issued as Compensation (the TPA), such considerations included, but were not limited to, the following factors:


	•	Historical and expected future earnings performance

	•	The liquidation preferences and dividend rights of the preferred stock

	•	Milestones achieved by the company

	•	Marketplace and major competition

	•	Market barriers to entry

	•	The Company’s workforce and related skills

	•	Customer and vendor characteristics

	•	Strategic relationships with suppliers

	•	Risk factors and uncertainties facing the Company

Subsequent to the initial public offering restricted shares granted will be valued based on the fair market value of the stock on the date of grant.

Common stock split

In December 2006, the Board of Directors of the Company approved a two-for-one reverse stock split of the Company’s common stock. All financial information presented reflects the impact of the reverse split.


13.	Related-Party Transactions

Joy Global Sales

Management Agreement

At November 30, 2004, the Company entered into an advisory services agreement with Genstar Capital, L.P. (“Genstar”), whereby Genstar agreed to provide certain management, business strategy, consulting, financial advisory and acquisition related services to the Company. Pursuant to the agreement, the Company was required to pay to Genstar an annual consulting fee of $1.0 million (payable quarterly, in arrears at the end of each calendar quarter), reimbursement of out-of-pocket expenses incurred in connection with the advisory services and an advisory fee of 2.0% of the aggregate consideration relating to any acquisition or dispositions completed by the Company. The Company recorded $1.0 million and $1.0 million in management fees, included in selling, general and administrative expenses for the years ended December 31, 2006 and

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

2005, respectively. Genstar also received a one-time transaction fee of $1.0 million for the Hay Hall acquisition and such amounts are reflected in selling, general and administrative expenses for the year ended December 31, 2006. At December 31, 2005, the Company had $0.3 million recorded in accruals and other liabilities as a payable to Genstar in connection with the annual consulting fee. In December 2006, the Genstar management agreement was terminated and $3.0 million was paid to Genstar as a termination fee. There are no amounts in accruals or other liabilities payable to Genstar as of December 31, 2006.

Transition Services Agreement

In connection with the acquisition of the Predecessor operations from Colfax, the Company entered into a transition services agreement with Colfax whereby Colfax agreed to provide the Company with transitional support services. The transition services include the continued access to Colfax’ employee benefit plans through February 2005, the provision of certain accounting, treasury, tax and payroll services through various periods all of which ended by May 2005 and the transition of management oversight of various on-going business initiatives through May 2005. The cost of these services was less than $0.1 million.

Subordinated Notes

As discussed in Note 10, a Preferred Stockholder was the holder of the Subordinated Notes payable. In 2005, the Company recorded $2.4 million of related interest expense and disbursed $2.0 million in cash payments to the holder. In 2006, the Company recorded $2.0 million of related interest expense and disbursed $15.7 million of cash payments to the holder. During December 2006, the Company paid all amounts outstanding in full.


14.	Concentrations of Credit, Business Risks and Workforce

Financial instruments, which are potentially subject to concentrations of credit risk, consist primarily of trade accounts receivable. The Company manages this risk by conducting credit evaluations of customers prior to delivery or commencement of services. When the Company enters into a sales contract, collateral is normally not required from the customer. Payments are typically due within thirty days of billing. An allowance for potential credit losses is maintained, and losses have historically been within management’s expectations.

Credit related losses may occur in the event of non-performance by counterparties to financial instruments. Counterparties typically represent international or well established financial institutions.

No customer represented greater than 10% of total sales for the year ended December 31, 2007, 2006 and 2005.

The Company and its Predecessor operate in a single business segment for the development, manufacturing and sales of mechanical power transmission products. The Company’s chief operating decision maker reviews consolidated operating results to make decisions about allocating resources and assessing performance for the entire Company. Net sales to third parties and property, plant and equipment by geographic region are as follows:


	Net Sales						Property, Plant and Equipment
	Year-ended		Year-ended		Year-ended
	December 31,		December 31,		December 31,		December 31,		December 31,
	2007		2006		2005		2007		2006
North America (primarily U.S.)	$	424,031	$	332,647	$	288,883	$	84,850	$	50,673
Europe		137,908		113,799		59,176		29,767		29,865
Asia and other		22,437		15,839		15,406		1,993		1,849

Total	$	584,376	$	462,285	$	363,465	$	116,610	$	82,387

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

Net sales to third parties are attributed to the geographic regions based on the country in which the shipment originates. Amounts attributed to the geographic regions for property, plant and equipment are based on the location of the entity, which holds such assets.

The net assets of our foreign subsidiaries at December 31, 2007 and 2006 were $55.6 million and $46.8 million, respectively.

The Company has not provided specific product line sales as our general purpose financial statements do not allow us to readily determine groups of similar product sales.

Approximately 20.3% of the Company’s labor force (15.5% and 32.3% in the United States and Europe, respectively) is represented by collective bargaining agreements.


15.	Restructuring, Asset Impairment and Transition Expenses

During 2007, the Company adopted two restructuring programs. The first is intended to improve operational efficiency by reducing headcount, consolidating its operating facilities and relocating manufacturing to lower cost areas (Altra Plan). The second is related to the acquisition of TB Wood’s and is intended to reduce duplicate staffing and consolidate facilities (TB Wood’s Plan). The plan was initially formulated at the time of the TB Wood’s acquisition and therefore the accrual has been recorded as part of purchase price accounting. The total restructuring charge for the year to date periods ended December 31, 2007 was $2.4 million, which is comprised of $0.2 million of non-cash asset impairment and losses on sale of assets and $2.2 million of other restructuring expenses.

The Company’s total restructuring expense, by major component for the year to date period ended December 31, 2007 were as follows:


	Altra Plan		TB Wood’s Plan		Total

Expenses
Non-cash asset impairment and loss on sale of fixed asset	$	215	$	—	$	215
Other cash expenses
Moving and relocation		1,055		267		1,322
Severance		718		—		718
Other		144		—		144

Total cash expenses		1,917		267		2,184

Total restructuring expenses	$	2,132	$	267	$	2,399

The following is a reconciliation of the accrued restructuring costs between December 31, 2006 and December 31, 2007:


	Altra Plan			TB Wood’s Plan			Total

Balance at December 31, 2006	$	—		$	—		$	—
Restructuring expense incurred		2,132			267			2,399
Accruals established as part of purchase accounting related to severance		—			1,741			1,741
Cash payments		(1,468	)		(979	)		(2,447	)
Non-cash loss on disposal of fixed assets		(215	)		—			(215	)

Balance at December 31, 2007	$	449		$	1,029		$	1,478

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)

The Company expects to incur an additional $0.7 million of severance expense in 2008 and $0.2 million of moving and relocation expense.


16.	Commitments and Contingencies

Minimum Lease Obligations

The Company leases certain offices, warehouses, manufacturing facilities, automobiles and equipment with various terms that range from a month to month basis to ten year terms and which, generally, include renewal provisions. Future minimum rent obligations under non-cancelable operating and capital leases are as follows:


Year Ending December 31:	Operating Leases		Capital Leases

2008	$	4,452	$	1,069
2009		3,090		894
2010		2,199		805
2011		1,600		765
2012		1,357		215
Thereafter		3,009		34

Total lease obligations	$	15,707		3,782

Less amounts representing interest				(440	)

Present value of minimum capital lease obligations			$	3,342

Net rent expense under operating leases for the years ended December 31, 2007, 2006 and 2005 was approximately $6.8 million, $6.6 million and $4.3 million, respectively.

General Litigation

The Company is involved in various pending legal proceedings arising out of the ordinary course of business. None of these legal proceedings is expected to have a material adverse effect on the financial condition of the Company. With respect to these proceedings, management believes that it will prevail, has adequate insurance coverage or has established appropriate reserves to cover potential liabilities. Any costs that management estimates may be paid related to these proceedings or claims are accrued when the liability is considered probable and the amount can be reasonably estimated. There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these legal proceedings were to be determined adversely to the Company, there could be a material adverse effect on the financial condition of the Company. Colfax and other sellers have agreed to indemnify the Company for certain pre-existing matters up to agreed upon limits.

ALTRA HOLDINGS, INC.

Notes to Consolidated Financial Statements — (Continued)


17.	Unaudited Quarterly Results of Operations:

Year ending December 31, 2007


	Fourth			Third		Second		First

Net Sales	$	150,864		$	147,278	$	153,528	$	132,706
Gross Profit		42,421			41,681		43,117		38,048
Net income from continuing operations		1,933			3,424		4,336		3,768
Net income (loss) from discontinued operations		(3,353	)		886		466		—

Net income		(1,420	)		4,310		4,802		3,768

Earnings per share — Basic
Net income from continuing operations	$	0.08		$	0.14	$	0.19	$	0.17
Net income from discontinued operations	$	(0.14	)	$	0.03	$	0.03		—
Net income	$	(0.06	)	$	0.17	$	0.22	$	0.17
Earnings per share — Diluted
Net income from continuing operations	$	0.07		$	0.13	$	0.19	$	0.16
Net income from discontinued operations	$	(0.12	)	$	0.04	$	0.02		—

Net income	$	(0.05	)	$	0.17	$	0.21	$	0.16

Year ending December 31, 2006


	Fourth			Third		Second		First

Net Sales	$	114,774		$	112,953	$	119,774	$	114,784
Gross Profit		30,897			30,425		32,273		31,854
Net income (loss)		(1,752	)		3,793		3,696		3,204
Basic earnings (loss) per share	$	(0.46	)	$	11.42	$	11.13	$	9.65

Diluted earnings (loss) per share	$	(0.46	)	$	0.20	$	0.19	$	0.17

Information for the second and third quarter of 2007 was adjusted to reflect the discontinued operation, to make the quarterly periods comparable.


18.	Subsequent Events

On February 7, 2008, the Company’s Board of Directors approved the grant of 156,900 shares of restricted common stock to certain management and independent directors of the Company.


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

None.


Item 9A.	*Controls and Procedures*


1.	Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended or the Exchange Act. These rules refer to the controls and other procedures of a company that are designed to ensure that information is recorded, processed, summarized and communicated to management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding what is required to be disclosed by a company in the reports that it files under the Exchange Act. As of December 31, 2007 or the Evaluation Date, our management, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, our chief executive officer and chief financial officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective at the reasonable assurance level.


2.	Internal Control over Financial Reporting


(a)	Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our chief executive officer and chief financial officer, and implemented by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that:


	•	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions;

	•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

	•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, under the supervision and with the participation of our chief executive officer and chief financial officer, has assessed the effectiveness of our internal control over financial reporting as of December 31, 2007 based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management has concluded that our internal control over financial reporting was effective as of December 31, 2007.

The effectiveness of our internal control over financial reporting as of December 31, 2007 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included in this Annual Report on Form 10-K.


(b)	Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Altra Holdings, Inc.

We have audited Altra Holdings, Inc.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Altra Holdings, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Altra Holdings, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Altra Holdings, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of income and comprehensive income (loss), convertible preferred stock and stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007 of Altra Holdings, Inc. and our report dated March 12, 2008 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Boston, Massachusetts

March 12, 2008


(c)	Changes in Internal Control over Financial Reporting

No changes in our internal control over financial reporting as defined in Rules 13a-15(f) and 15d — 15(f) under the Exchange Act occurred during the quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Item 9B.	*Other Information*

None.

PART III


Item 10.	*Directors, Executive Officers and Corporate Governance*

The information required by this item is incorporated by reference to our definitive Proxy Statement for the Annual Meeting of Stockholders to be held on or about May 8, 2008.


Item 11.	*Executive Compensation*

The information required by this item is incorporated by reference to our definitive Proxy Statement for the Annual Meeting of Stockholders to be held on or about May 8, 2008.


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

The information required by this item is incorporated by reference to our definitive Proxy Statement for the Annual Meeting of Stockholders to be held on or about May 8, 2008.


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

The information required by this item is incorporated by reference to our definitive Proxy Statement for the Annual Meeting of Stockholders to be held on or about May 8, 2008.


Item 14.	*Principal Accountant Fees and Services*

The information required by this item is incorporated by reference to our definitive Proxy Statement for the Annual Meeting of Stockholders to be held on or about May 8, 2008.

PART IV


Item 15.	*Exhibits and Financial Statement Schedules*

(a) List of documents filed as part of this report:

(1) Financial Statements

See Item 8.

(2) Financial Statement Schedules

See Item 16 (b) Schedule I — Condensed Financial Information of Registrant

See Item 21(b) Schedule II — Valuation and Qualifying Accounts

(3) Exhibits


Exhibit
Number			Description

	2	.1⁽¹⁾*	LLC Purchase Agreement, dated as of October 25, 2004, among Warner Electric Holding, Inc., Colfax Corporation and Registrant
	2	.2⁽¹⁾*	Assignment and Assumption Agreement, dated as of November 21, 2004, between Registrant and Altra Industrial Motion, Inc.
	2	.3⁽²⁾*	Share Purchase Agreement, dated as of November 7, 2005, among Altra Industrial Motion, Inc. and the stockholders of Hay Hall Holdings Limited listed therein
	2	.4*	Asset Purchase Agreement, dated May 18, 2006, among Warner Electric LLC, Bear Linear LLC and the other guarantors listed therein
	3	.1*	Second Amended and Restated Certificate of Incorporation of the Registrant
	3	.2*	Amended and Restated Bylaws of the Registrant
	4	.1⁽³⁾*	Indenture, dated as of November 30, 2004, among Altra Industrial Motion, Inc., the Guarantors party thereto and The Bank of New York Trust Company, N.A. as trustee
	4	.2⁽³⁾*	First Supplemental Indenture, dated as of February 7, 2006, among Altra Industrial Motion, Inc., the guarantors party thereto, and The Bank of New York Trust Company, N.A. as trustee
	4	.3⁽²⁾*	Second Supplemental Indenture, dated as of February 8, 2006, among Altra Industrial Motion, Inc., the guarantors party thereto, and The Bank of New York Trust Company, N.A. as trustee
	4	.4⁽³⁾*	Third Supplemental Indenture, dated as of April 24, 2006, among Altra Industrial Motion, Inc., the guarantors party thereto, and The Bank of New York Trust Company, N.A. as trustee
	4	.5⁽⁵⁾	Fourth Supplemental Indenture, dated as of March 21, 2007, among Altra Industrial Motion, Inc., the guarantors party thereto and The Bank of New York Trust Company, N.A. as trustee
	4	.6⁽⁶⁾	Fifth Supplemental Indenture, dated as of April 5, 2007, among Altra Industrial Motion, Inc., the guarantors party thereto and The Bank of New York Trust Company, N.A. as trustee
	4	.7⁽¹⁾*	Form of 9% Senior Secured Notes due 2011 (included in Exhibit 4.1)
	4	.8⁽¹⁾*	Registration Rights Agreement, dated as of November 30, 2004, among Altra Industrial Motion, Inc., Jefferies & Company, Inc., and the Subsidiary Guarantors party thereto
	4	.9⁽²⁾*	Indenture, dated as of February 8, 2006, among Altra Industrial Motion Inc. the guarantors party thereto, the Bank of New York, as trustee and paying agent and the Bank of New York (Luxembourg) SA, as Luxembourg paying agent.
	4	.10⁽³⁾*	First Supplemental Indenture, dated as of April 24, 2006, among Altra Industrial Motion, Inc., the guarantors party thereto, and The Bank of New York as trustee.
	4	.11⁽⁵⁾	Second Supplemental Indenture, dated as of March 26, 2007, among Altra Industrial Motion, Inc., the guarantors party thereto and The Bank of New York Trust as trustee
	4	.12⁽⁶⁾	Third Supplemental Indenture, dated as of April 5, 2007, among Altra Industrial Motion, Inc., the guarantors party thereto and the Bank of New York Trust as trustee
	4	.13⁽²⁾*	Form of 111/4% Senior Notes due 2013 (included in Exhibit 4.10)
	4	.14⁽²⁾*	Registration Rights Agreement, dated as of February 8, 2006, among Altra Industrial Motion, Inc., the guarantors party thereto, Jefferies & Company, Inc. and Jefferies International Limited, as initial purchasers
	4	.14*	Amended and Restated Stockholders Agreement, dated January 6, 2005, among the Registrant and the stockholders listed therein
	4	.15*	First Amendment to the Amended and Restated Stockholders Agreement, dated May 1, 2005, among the Registrant and the stockholders listed therein
	4	.16*	Form of Common Stock Certificate
	4	.17*	Second Amendment to the Amended and Restated Stockholders Agreement among the Registrant and the stockholders listed therein
	10	.1⁽¹⁾*	Credit Agreement, dated as of November 30, 2004, among Altra Industrial Motion, Inc. and certain subsidiaries of the Company, as Guarantors, the financial institutions listed therein, as Lenders, and Wells Fargo Bank, as Lead Arranger
	10	.2⁽³⁾*	Security Agreement, dated as of November 30, 2004, among Altra Industrial Motion, Inc., the other Grantors listed therein and The Bank of New York Trust Company, N.A.


Exhibit
Number			Description

	10	.3⁽¹⁾*	Patent Security Agreement, dated as of November 30, 2004, among Kilian Manufacturing Corporation, Warner Electric Technology LLC, Formsprag LLC, Boston Gear LLC, Ameridrives International, L.P. and The Bank of New York Trust Company, N.A..
	10	.4⁽¹⁾*	Trademark Security Agreement, dated as of November 30, 2004, among Warner Electric Technology LLC, Boston Gear LLC and The Bank of New York Trust Company, N.A.
	10	.5⁽¹⁾*	Intercreditor and Lien Subordination Agreement, dated as of November 30, 2004, among Wells Fargo Foothill, Inc., The Bank of New York Trust Company, N.A. and Altra Industrial Motion, Inc.
	10	.6	Agreement, dated as of September 19, 2007 between Ameridrives International, L.P. and United Steel Workers of America Local 3199-10
	10	.7	Labor Agreement, dated as of August 13, 2007, between Warner Electric LLC (formerly Warner Electric Inc.) and International Association of Machinists and Aerospace Works, AFL-CIO, and Aeronautical Industrial District Lode 776, Local Lodge 2771
	10	.8*	Labor Agreement, dated May 17, 2006, between Warner Electric LLC and United Steelworkers and Local Union No. 3245
	10	.9*	Labor Agreement, dated June 6, 2005, between Formsprag LLC and UAW Local 155
	10	.10⁽¹⁾*	Employment Agreement, dated as of January 6, 2005, among Altra Industrial Motion, Inc., the Registrant and Michael L. Hurt.
	10	.11⁽¹⁾*	Employment Agreement, dated as of January 6, 2005, among Altra Industrial Motion, Inc., the Registrant and Carl Christenson.
	10	.12	Employment Agreement, dated as of December 14, 2007, among Altra Industrial Motion, Inc., the Registrant and Christian Storch.
	10	.13⁽¹⁾*	Registrant’s 2004 Equity Incentive Plan
	10	.14*	Amendment to Registrant’s 2004 Equity Incentive Plan
	10	.21⁽⁷⁾*	Second Amendment to Registrant’s 2004 Equity Incentive Plan
	10	.15*	Form of Registrant’s Restricted Stock Award Agreement
	10	.16*	Subscription Agreement, dated November 30, 2004, among Registrant, the preferred purchasers and the common purchasers as listed therein.
	10	.18⁽¹⁾*	Transition Services Agreement, dated as of November 30, 2004, among Warner Electric Holding, Inc., Colfax Corporation and Altra Industrial Motion, Inc.
	10	.19⁽¹⁾*	Trademarks and Technology License Agreement, dated November 30, 2004, among Registrant, Colfax Corporation and Altra Industrial Motion, Inc.
	10	.22⁽⁸⁾*	First Amendment to Employment Agreement, dated December 5, 2006, among Altra Industrial Motion, Inc., the Registrant and Michael L. Hurt
	10	.23*	Form of Amendment to Restricted Stock Agreements with Michael Hurt
	10	.24*	Form of Transition Agreement
	10	.28*	First Amendment to Credit Agreement, dated as of December 30, 2004, among Altra Industrial Motion, Inc. the financial institutions listed therein, as Lenders, and Wells Fargo Foothill, Inc.
	10	.29*	Second Amendment to Credit Agreement, dated as of January 14, 2005, among Altra Industrial Motion, Inc., the financial institutions listed therein, as Lenders, and Wels Fargo Foothill, Inc.
	10	.30*	Third Amendment to Credit Agreement, dated as of January 31, 2005, among Altra Industrial Motion, Inc., the financial institutions listed therein, as Lenders, and Wells Fargo Foothill, Inc.
	10	.31*	Fourth Amendment to Credit Agreement, dated as of February 16, 2007, among Altra Industrial Motion, Inc., the financial institutions listed therein, as Lenders, and Wells Fargo Foothill, Inc.
	10	.32⁽⁴⁾*	Supplement Number 1 to Security Agreement, dated as of April 5, 2007, among TB Wood’s Incorporate, TB Wood’s Corporation, Plant Engineering Consultants, LLC, TB Wood’s Enterprises, Inc. and Wells Fargo Foothill, Inc.
	10	.33⁽⁴⁾*	Supplement Number 2 to Security Agreement, dated as of April 5, 2007, among Altra Industrial Motion, Inc., the other Grantors listed therein and The Bank of New York Trust Company, N.A.


Exhibit
Number			Description

	10	.34⁽⁴⁾*	Fifth Amendment to, and Consent and Waiver under, Credit Agreement and Joinder to Loan Documents, dated April 5, 2007, by and among, Altra Industrial Motion, Inc., as Administrative Borrower for the borrowers of each of the New Loan Parties, the Lenders thereto and Wells Fargo Foothill, Inc.
	10	.35⁽⁴⁾*	Credit Agreement, dated as of April 5, 2007, among Altra Industrial Motion, Inc. and certain of its subsidiaries, as Guarantors, the financial institutions listed therein, as Lenders, and Wells Fargo Foothill, Inc., as Arranger and Administrative Agent
	10	.36⁽⁴⁾*	Security Agreement, dated as of April 5, 2007, among TB Wood’s Incorporate, Plant Engineering Consultants, LLC, TB Wood’s Enterprises, Inc., TB Wood’s Corporation and Wells Fargo Foothill, Inc.
	10	.37⁽⁴⁾*	Patent Security Agreement, dated as of April 5, 2007, among TB Wood’s Incorporate, Plant Engineering Consultants, LLC, TB Wood’s Enterprises, Inc., TB Wood’s Corporation and Wells Fargo Foothill
	10	.38⁽⁴⁾*	Trademark Security Agreement, dated as of April 5, 2007, among TB Wood’s Incorporated, Plant Engineering Consultants, LLC, TB Wood’s Enterprises, Inc., TB Wood’s Corporation and Wells Fargo Foothill, Inc.
	10	.39⁽⁴⁾*	Amended and Restated Intercreditor and Lien Subordination Agreement, dated as of April 5, 2007, among Wells Fargo Foothill, Inc., The Bank of New York Trust Company, N.A., Altra Industrial Motion, Inc. and certain subsidiaries of Altra
	10	.40⁽⁴⁾*	Intercompany Subordination Agreement, dated as of April 5, 2007, among TB Wood’s Corporation, Plant Engineering Consultants, LLC, TB Wood’s Enterprises, Inc., TB Wood’s Corporation and Wells Fargo Foothill, Inc.
	10	.41⁽⁴⁾*	Patent Security Agreement, dated as of April 5, 2007, among TB Wood’s Corporation, TB Wood’s Incorporated, Plant Engineering Consultants, LLC, TB Wood’s Enterprises, Inc. and Wells Fargo Foothill, Inc.
	10	.42⁽⁴⁾*	Trademark Security Agreement, dated as of April 5, 2007, among TB Wood’s Corporation, TB Wood’s Incorporated, Plant Engineering Consultants, LLC, TB Wood’s Enterprises, Inc. and Wells Fargo Foothill, Inc.
	10	.43⁽⁴⁾*	Patent Security Agreement, dated as of April 5, 2007, among TB Wood’s Corporation, TB Wood’s Incorporated, Plant Engineering Consultants, LLC, TB Wood’s Enterprises, Inc. and Wells Fargo Foothill, Inc.
	10	.44⁽⁴⁾*	Trademark Security Agreement, dated as of April 5, 2007, among TB Wood’s Corporation, TB Wood’s Incorporated, Plant Engineering Consultants, LLC, TB Wood’s Enterprises, Inc. and Wells Fargo Foothill, Inc.
	21	.1*	Subsidiaries of Altra Holdings, Inc.
	23	.1	Consent of Ernst & Young LLP, independent registered public accounting firm
	31	.1	Certification of Chief Executive Officer
	31	.2	Certification of Chief Financial Officer
	32	.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32	.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


(1)		Incorporated by reference to Altra Industrial Motion, Inc. Registration Statement on Form S-4 (File No. 333-124944) filed with the Securities and Exchange Commission on May 16, 2005.

(2)		Incorporated by reference to Altra Industrial Motion, Inc.’s Current Report on Form 8-K (File No. 333-124944) filed with the Securities and Exchange Commission on February 14, 2006.

(3)		Incorporated by reference to Altra Industrial Motion, Inc.’s Annual Report on Form 10-K (File. No. 333-124944) filed with the Securities and Exchange Commission on May 15, 2006.

(4)		Incorporated by reference to Altra Industrial Motion, Inc’s Registration Statement on Form S-4 (File No. 333-124944) filed with the Securities and Exchange Commission on May 8, 2007.

(5)		Incorporated by reference to Altra Industrial Motion, Inc.’s Current Report on Form 8-K (File No. 333-124944) filed with the Securities and Exchange Commission on March 28, 2007.


(6)		Incorporated by reference to Altra Industrial Motion, Inc.’s Current Report on Form 8-K (File No. 333-124944) filed with the Securities and Exchange Commission on April 11, 2007.

(7)		Incorporate by reference to Altra Industrial Motion, Inc. Registration Statement on Form S-1/A (File No. 333-124944) filed with the Securities and Exchange Commission on December 4, 2006.

(8)		Incorporated by reference to Altra Industrial Motion, Inc.’s Current Report on Form 8-K (File No. 333-124944) filed with the Securities and Exchange Commission on December 5, 2006.

*		Filed previously.

Item 16(b)

ALTRA HOLDINGS, INC. (PARENT COMPANY)

SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED BALANCE SHEETS


	December
	2007		2006
	(Amounts in thousands, except shares amounts)

ASSETS
Current assets	$	10,709	$	—

Investment in subsidiaries		135,723		79,519

	$	146,432	$	79,519


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accruals and other current liabilities		—		103

Total liabilities	$	—	$	103

Stockholders’ equity		146,432		79,416

	$	146,432	$	79,519

See accompanying notes.

ALTRA HOLDINGS, INC. (PARENT COMPANY)

SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT — (Continued)

CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)


	Year-Ended December 31,
	2007			2006			2005
	(Amounts in thousands)

Condensed Statement of Operations
Net sales	$	—		$	—		$	—
Cost of sales		—			—			—

Gross profit		—			—			—
Selling, general and administrative expenses		51			20			59
Research and development expenses		—			—			—

Loss from operations		(51	)		(20	)		(59	)
Interest expense		—			1,957			2,449
Equity in earnings of subsidiaries		11,511			10,363			4,444

Income before income taxes		11,460			8,386			1,936
Benefit for income taxes		—			(555	)		(568	)

Net income	$	11,460		$	8,941		$	2,504

Condensed Statement of Comprehensive Income (Loss)
Pension liability adjustment		482			696			(700	)
Foreign currency translation adjustment		4,505			677			(6,400	)

Other comprehensive income (loss)		4,987			1,373			(7,100	)

Comprehensive income (loss)	$	16,447		$	10,314		$	(4,596	)

ALTRA HOLDINGS, INC. (PARENT COMPANY)

SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT — (Continued)

CONDENSED STATEMENTS OF CASH FLOWS


	Year-Ended December 31,
	2007			2006			2005
	(Amounts in thousands)

Cash flows from operating activities:
Net income (loss)	$	11,460		$	8,941		$	2,504
Undistributed equity in earnings of subsidiaries		(11,511	)		(10,363	)		(4,444	)
Adjustments to reconcile net loss to cash used in operating activities:
Amortization and write-off of deferred loan costs		—			287			48
Stock based compensation		—			—			59
Provision for deferred taxes		—			—			(23	)
Changes in operating assets and liabilities:
Accrued expenses and other liabilities		9			(1,150	)		44

Net cash used in continuing operating activities		(42	)		(2,285	)		(1,812	)
Cash flows from investing activities:		—			—			—
Proceeds from sale of Electronics		10,828

Net cash provided by investing activities		10,828
Cash flows from financing activities:
Proceeds from initial public offering		—			41,850			—
Proceeds from secondary public offering		49,592
Initial public offering transaction costs		(2,180	)		(1,176	)		—
Proceeds from sale of preferred stock		—			—			400
Payment of paid-in-kind interest		—			—			(198	)
Proceeds from issuance of subordinated notes		—			—			—
Payment of subordinated notes		—			(14,000	)		—
Payment of debt issuance costs		—			—			—
Change in affiliate debt		(46,297	)		(24,389	)		1,610

Net cash provided by financing activities		1,115			2,285			1,812

Change in cash and cash equivalents		—			—			—
Cash and cash equivalents, beginning of period		—			—			—

Cash and cash equivalents, end of period	$	11,901		$	—		$	—

Non-Cash Financing:
Accrual of initial public offering costs	$	—		$	1,304		$	—
Conversion of preferred stock	$	—		$	35,500		$	—

See accompanying notes

ALTRA HOLDINGS, INC. (PARENT COMPANY)

SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT — (Continued)

NOTES TO CONDENSED FINANCIAL STATEMENTS


1.	Basis of Presentation

In the parent-company-only financial statements, the Company’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. The parent-company-only financial statements should be read in conjunction with the Company’s consolidated financial statements.


2.	Restriction

The Company’s wholly owned subsidiary, Altra Industrial Motion, Inc. (Altra Industrial), issued 9% senior secured notes in an aggregate principal amount of $270.0 million due in 2011 (the Notes). The Notes are secured on a second-priority basis, by security interests in substantially all of the Company’s domestic restricted subsidiaries. The indenture governing the Notes contains covenants which restrict the Company’s restricted subsidiaries. These restrictions limit or prohibit, among other things, their ability to incur additional indebtedness; repay subordinated indebtedness prior to stated maturities; pay dividends on or redeem or repurchase stock or make other distributions; make investments or acquisitions; sell certain assets or merge with or into other companies; sell stock in the Company’s subsidiaries; and create liens. The net assets of the domestic restricted subsidiaries were $335.9 million and $211.4 million at December 31, 2007 and 2006, respectively.

Item 21(b)

Altra Holdings, Inc.

SCHEDULE II-Valuation and Qualifying Accounts


	Balance at
	Beginning of							Balance at
Reserve for Excess, Slow-Moving and Obsolete Inventory:	Period		Additions		Deductions			End of Period

For the year ended December 31, 2005	$	6,361	$	2,385	$	(1,903	)	$	6,843
For the year ended December 31, 2006		6,843		5,596		(2,276	)		10,163
For the year ended December 31, 2007	$	10,163	$	7,170	$	(3,926	)	$	13,407


	Balance at
	Beginning of							Balance at
Reserve for Uncollectible Accounts:	Period		Additions		Deductions			End of Period

For the year ended December 31, 2005	$	1,424	$	687	$	(314	)	$	1,797
For the year ended December 31, 2006		1,797		923		(703	)		2,017
For the year ended December 31, 2007	$	2,017	$	682	$	(1,151	)	$	1,548


	Balance at
	Beginning of							Balance at
Income Tax Assets Valuation Allowance:	Period		Additions		Deductions			End of Period

For the year ended December 31, 2005	$	18,374		—	$	(1,985	)	$	16,389
For the year ended December 31, 2006		16,389		1,252		(16,389	)		1,252
For the year ended December 31, 2007	$	1,252	$	84		—		$	1,336

SIGNATURES

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

ALTRA HOLDINGS, INC.


	By:	/s/ Michael L. Hurt

Name: Michael L. Hurt


	Title:	Chairman and Chief Executive Officer

March 17, 2008


	By:	/s/ Christian Storch

Name: Christian Storch


	Title:	Chief Financial Officer

March 17, 2008


	By:	/s/ Edmund M. Carpenter

Name: Edmund M. Carpenter


	Title:	Director

March 17, 2008


	By:	/s/ Todd Patriacca

Name: Todd Patriacca


	Title:	Chief Accounting Officer

March 17, 2008


	By:	/s/ Lyle G. Ganske

Name: Lyle G. Ganske


	Title:	Director

March 17, 2008


	By:	/s/ Michael S. Lipscomb

Name: Michael S. Lipscomb


	Title:	Director

March 17, 2008


	By:	/s/ Larry P. McPherson

Name: Larry P. McPherson


	Title:	Director

March 17, 2008


	By:	/s/ James H. Woodward, Jr.

Name: James H. Woodward, Jr.


	Title:	Director

March 17, 2008

EX-10.6 2 b68970ahexv10w6.htm EX-10.6 PLANT CLOSING AGREEMENT exv10w6

Exhibit 10.6

Plant Closing Agreement
AMERIDRIVES INTERNATIONAL AND UNITED STEEL, PAPER AND
FORESTRY, RUBBER, MANUFACTURING ENERGY, ALLIED INDUSTRIAL
AND SERVICE WORKERS INTERNATIONAL UNION LOCAL 3199-10

1. This Agreement is between American Enterprises MPT, L.P., its parent, subsidiaries, affiliates, officers, directors, agents and representatives (hereinafter referred to as “the Company” or “the Employer”) and United Steel, Paper and Forestry, Rubber, Manufacturing Energy, Allied Industrial and Service Workers International Union, AFL-CIO-CLC and its Local Union 3199-10 (hereinafter referred to as “the Union”).

2. The parties have had the opportunity to discuss all issues associated with the Employer’s decision to close the facility located at 1802 Pittsburgh Avenue, Eric Pennsylvania 16502. This Agreement sets forth their understandings and commitments related to the closing of the facility.

3. To be eligible for the package of separation benefits provided by this Agreement, each individual employee must be on the payroll as of September 20, 2007 and remain employed by the Company until the termination date assigned to him/her by the Employer, the closing date or date otherwise agreed to by the Employer and the Union. Employees who separate their employment prior to such date will not be eligible for the severance, completion bonus or other monetary benefits as provided in this Agreement.

4. The Company will allow employees to volunteer for layoff as employment is reduced during the plant close down. Approval of such requests will be based on the determination by the Company that it will be able to cover the necessary skills and resources required to perform the work with the remaining employees. Where there are multiple requests for voluntary layoff within a job classification, seniority will be given preference provided the remaining employees are able to perform the work remaining.

5. The Employer and the Union, agree that it is in the mutual interests of all parties to assure that the closure of this facility be done in a cooperative manner and that needs of the Company’s employees and customers are met to the best of the Company’s and employee’s abilities.

6. The Employer will not contest the unemployment compensation eligibility of employees whose employment is terminated as a result of the plant closing and will cooperate with State of Pennsylvania unemployment compensation representatives to facilitate the receipt of unemployment compensation and any and all other local, state and/or federal benefits.

7. An employee who leaves active employment with the Employer, for reasons other than medical leave, layoff, or company approval, prior to the termination date assigned to him/her by the Employer, the closing date or date otherwise agreed to by the Employer and the Union is not entitled to any of the separation benefits provided in this Agreement.

8. This is the complete Agreement between the Employer and the Union related to the closure of the Employer’s facility located at 1802 Pittsburgh Avenue, Erie Pennsylvania. If part of the Agreement is deemed unenforceable, the parties desire that the remaining provisions of the Agreement remain in effect. The parties agree that if any portion is deemed unenforceable the parties will meet to negotiate a settlement for the portion(s) deemed unenforceable within fifteen (15) working days of such knowledge.

9. Any dispute over the interpretation or application of this Agreement will be handled under the grievance/arbitration procedure provided in the current collective bargaining agreement, or through appropriate judicial remedies.

10. The current Collective Bargaining Agreement will remain in effect until the terms of this Agreement are complied with. In the event the Company does not shut down its facility located at 1802 Pittsburgh Avenue, Erie Pennsylvania and terminate all bargaining unit employees, the current Collective Bargaining Agreement dated September 20, 2004 through September 19, 2007 remains in effect.

11. Any conflict between the current Collective Bargaining Agreement and this Agreement will result in this Agreement being the controlling document. If the Company reverses its decision to close this facility, this Agreement will be voided, and the Collective Bargaining Agreement dated September 20, 2004 through September 19, 2007 will remain in effect.

12. The Company has requested and the Union and bargaining unit employees have agreed to cooperate and to use their best efforts to effectuate a smooth relocation of production operations. For this consideration and cooperation, the Company agrees to provide the following benefits within one week of each employee’s date of separation from the Company:

	a)		Payment for vacation earned but not yet taken;

	b)		Their final paycheck;

	c)		Payment for any holidays occurring during the month of the employee’s separation for which he or she has not already received payment.

	d)		Completion Bonus as provided for in Appendix A.

13. The Company shall also pay severance pay as provided in Appendix B to all eligible employees. Employees will have up to twelve (12) months following the date they are separated to request payment of their severance pay. Receipt of severance pay will terminate the seniority rights of the employee. An employee’s seniority rights will automatically terminate after twelve (12) months from his or her date of separation and

payment of severance pay will occur following this date. The amount of severance pay an employee is entitled to will be determined based on the date the employee is laid off, not the date the employee requests payment of his/her severance pay.

14. The supplemental Unemployment Benefit Fund program will be discontinued as of October 1, 2007. All monies in the SUB fund will be distributed to all employees as soon as possible.

15. All unresolved grievances still outstanding at the time of plant closing may proceed to arbitration after the completion of a third step grievance meeting.

16. The Company will keep the Union and all employees updated on the person(s) responsible for benefits administration. Employees must keep the Company informed of their current mailing address.

17. The Company will work with pension administrator Prudential to facilitate the pension calculation and retirement process for employees separated as a result of the plant closing.

IN WITNESS WHEREOF, the Employer and the Union have signed this Closing Agreement this: day of 2007.


FOR THE UNION:		FOR THE COMPANY:

/s/ [ILLEGIBLE]		/s/ [ILLEGIBLE]

Exhibit A

Completion Bonus


	Estimated Number of
Anticipated Date of	Associates to be	Completion Bonus per
Separation	Separated	Associate
From September 2007 - December 2007	23	$ 750
From January 2008 - March 2008	20	$1,750
From April 2008 - December 2008	31	$4,250
From January 2009 - December 2009	0	$7,500

In the event an employee is laid off and subsequently returns to work, he or she shall receive the highest completion bonus to which he or she is eligible. Any earlier paid completion bonus will be off-set against a later paid completion bonus.

Exhibit B

Severance Package


Years of Service
(Number of people in group)		Dollars per Person
< 5 Years (14)		$ 2,000
5 but < 10 Years (2)		$ 2,500
10 but < 15 Years (5)		$ 4,500
15 but < 20 Years (7)		$ 7,000
20 but < 25 Years (40)		$10,000
25 but < 30 Years (3)		$13,000
30 + Years (3)		$15,000

EX-10.7 3 b68970ahexv10w7.htm EX-10.7 LABOR AGREEMENT, DATED AUGUST 13, 2007 exv10w7

Exhibit 10.7

2007 — 2010
Agreement Between

Wichita Falls Facility
Warner Electric, LLP

International Association of Machinists & Aerospace
Workers A.F.L. — C.I.O. and Aeronautical Industrial
District Lodge 776
Local Lodge 2771

Page 1 of 64

Table of Contents


1. Article 1 - Recognition		Page 3

2. Article 5 - Hours of Work & Overtime		Page 6

3. Article 6 - Seniority		Page 9

4. Article 7 - Leave of Absence		Page 17

5. Article 8 - Grievance Procedures & Arbitration		Page 18

6. Article 9 - Vacation		Page 21

7. Article 10 - Holidays & Paid Personal Time Off		Page 25

8. Article 12 - Group Insurance		Page 26

9. Article 13 - Wages		Page 28

10. Article 16 - Safety & Health		Page 32

11. Article 27 - Term of Agreement		Page 41

12. Addendum B - Job Classifications		Page 42

13. Wage Rate Structure		Page 43

14. Addendum F - Retirement & Savings Plan		Page 47

15. Addendum G - 2^nd Shift		Page 49

16. Addendum L - Severance Pay		Page 57

17. Plant Rules & Regulations		Page 58

Page 2 of 64

Agreement

This agreement has been made and entered into this 13^th day of August 2007, by and between the Wichita Falls Plant, Warner Electric LLC. Wichita Falls, Texas, hereafter referred to as the “Company”, and the International Association of Machinists and Aerospace Workers, AFL-CIO, and Aeronautical Industrial District Lodge 776, Local Lodge 2771, hereafter referred to as the “Union”.

The purpose of this agreement is to set forth terms and conditions of employment, to prevent interruptions of work and interference with the efficient operations of the Company’s business, to secure fair and prompt disposition of grievances, to establish satisfactory working conditions, hours of work and wages for employees covered by the agreement, and generally to promote sound labor-management relations.

NOW THEREFORE, IT IS AGREED AS FOLLOWS

Article 1
Recognition

1.1 The Company recognizes the International Association of Machinists and Aerospace Workers, AFL-CIO, and Aeronautical Industrial District Lodge 776, Local Lodge 2771 as the sole authorized representative for the purpose of collective bargaining with respect to rates of pay, hours of employment, and other conditions of employment for all employees generally engaged in the manufacturing, maintenance, and production at the Wichita Falls Plant, located at 2800 Fisher Road, Wichita Falls, TX. 76302

This agreement does not cover supervisory forces as defined by the laws of the United States, nor does it include office clerical employees, office janitors, technical employees, drafters, drafting room employees, a Working Supervisor on the second shift and one on the third shift as defined in paragraph 1.3 of this article, and accounting employees or outside service personnel.

1.2 The term employee or employees when used in this agreement shall refer to those employees within the bargaining unit employed by Wichita Falls Plant located at 2800

Page 3 of 64

Fisher Road, Wichita Falls, TX. 76302

1.3 The provisions of this agreement shall not prevent supervisors from performing work when necessary in the performance of their regular duties. However, except for the second and third shift-working supervisors, it shall be considered a violation of this agreement for any supervisor to perform work covered by the agreement, which takes more than twenty (20) percent of his/her time on any day or any one shift. Except for the second and third shift working supervisors, in no event shall the supervisors be permitted to continue for a period in excess of five (5) consecutive days, except when bargaining unit people are not available to do the work due to reasons beyond the Company’s control.

The Company may have a working supervisor on the second and third shifts until there are ten (10) bargaining unit people on second shift, and five (5) bargaining unit people on third shift, at which time they will become full time supervisors and subject to the limitations above.

The second and third shift working supervisors shall be permitted to perform bargaining unit work, but not to exceed twenty (20) hours per week excluding the staging of parts and unplanned absences. Overtime work performed when all qualified employees on such shift have been offered the overtime assignment shall also be excluded from the twenty (20) hour limitation.

1.4 Non-bargaining unit employees shall have the right to set up automatic machines in the plant; and may spend a reasonable amount of time in the introduction of any new technology in the plant; and, in the case of supervisors, the time consumed in doing this shall not be considered in arriving at the twenty (20) percent.

Article 2
Management Rights

All rights of management not specifically limited by the provisions of other articles of this agreement are retained by the Company, including, but not limited to, the right to plan, direct, and control all the operations or services to be performed; to assign and transfer employees; to schedule the working hours; to hire and promote; to demote; to suspend, discipline or discharge for just cause; to relieve employees from duty because of lack of work or for other legitimate reasons; establish, revise and enforce shop rules and

Page 4 of 64

regulations; to introduce new job classifications, methods, materials, equipment or facilities; to establish and revise appropriate machine speeds and feeds and other job specifications; to establish and enforce production standards; to determine the process of manufacturing and assembling; to decide and determine all matters affecting designing and engineering; to determine and control all materials, semi-manufactured and/or finished products which may be incorporated in the products manufactured; to determine the price at which the products of the Company may be sold; to determine which products to manufacture; to determine the location of the work force; and to determine any other policy or practice which is customarily or usually left to management of a Company.

The Company shall also have the right to establish, maintain, and enforce reasonable rules and regulations to maintain order and efficiency in its plants, it being understood and agreed that such rules and regulations shall not be discriminatory nor inconsistent or in conflict with the provisions of this Agreement. The Company shall furnish the Union with a written copy of all such rules and regulations and all changes therein. Except when health and safety of employees create an emergency requiring sooner effort, changes in existing rules and regulations, as well as new rules and regulations promulgated by the Company, shall not become effective until three (3) work days after copies thereof have been furnished to the Union and posted on the Company’s bulletin boards. The Company reserves the right to add, delete, or amend any rule and regulation at such time as is necessary to maintain proper Company policies and employee relations.

Article 3
No Strike — No Lockout

3.1 No Strike — The Union agrees that during the life of this Agreement there shall be no work stoppage, shutdown, or strikes of any nature. The grievance and arbitration procedure shall be the sole means of settling contract disputes between the employees and/or the Union and the Company. Provided however, that the restriction against strikes and lockout activity as set forth in this Article shall not apply to the Company or the Union if the other party refuses to abide by an arbitrator’s lawful award rendered in accordance with this Agreement. An employee who aids, assists, or participates in any interruption of production during the life of this Agreement shall be subject to immediate dismissal from the employ of the Company.

3.2 No Lockout — The Company agrees not to lockout employees during the life of this Agreement. A layoff or shutdown for business reasons (including taking inventory) shall

Page 5 of 64

not be construed as a lockout.

Article 4
No Discrimination

4.1 The Company and the Union recognized their respective responsibilities concerning Presidential Executive Orders and Federal and State Legislation regarding Equal Employment Opportunity requirements.

4.2 In recognition of the practical and moral values of these responsibilities, the parties hereby affirm these commitments not to discriminate because of race, color, religion, national origin, sex, handicap, age, ancestry, or having been a Vietnam Veteran.

4.3 The Company and the Union mutually agree not to discriminate against any employee because of membership or non-membership in the Union. The Company recognizes and will not interfere with the rights of the employee to become a member of the Union and will not coerce or intimidate such employees from becoming members of the Union. The Union agrees it will not solicit employees to become members of the Union on Company time, and it further agrees it will not in any way seek to coerce or intimidate employees into joining the Union at any time.

4.4 Any reference in this Agreement or other documents executed by the parties, relating to employees of either sex shall be considered as being equally applicable to employees of both sexes.

Article 5
Hours of Work & Overtime

5.1 Nothing in this Agreement is to be construed as an obligation on the part of the Company to employ any person or persons for any definite period of time. The provisions of this article shall not be construed as a guarantee of any number of hours of work per day or per week, nor as a limitation upon the Company’s right to schedule more or less hours per day or week as in it’s judgment the operations of the plant requires. Overtime shall not be paid more than once for the same hours worked and hours for which an overtime

Page 6 of 64

premium is paid shall not be used in computation made for the purpose of determining whether premiums are to be paid for other hours. There shall be no pyramiding of overtime premiums.

5.2 The normal workweek shall consist of five (5) consecutive workdays, Monday through Friday. The normal workday shall consist of eight (8) consecutive hours excluding a one-half (1/2) hour unpaid lunch period.

5.3 For payroll purposes, the workweek shall be a seven (7) consecutive day period starting at 11:00pm on Sunday. For payroll purposes, the workday shall be the twenty-four (24) hour period beginning at 12:01 A.M. each day. All employees covered by this agreement shall be paid weekly and the Company agrees not to withhold more than one (1) week’s pay.

5.4 The Company shall have the right from time to time to adjust the normal shift starting times by department between 6:00am and 8:00am for the first shift, between 2:30pm and 4:30pm for the second shift and between 10:00pm and 12:00am for the third shift. When all employees in a department are not affected by a change in shift hours, the Company will first solicit volunteers.

5.5 Scheduled starting and quitting times for employees accepting daily overtime assignments shall be at the discretion of the Company.

5.6 Distribution of Overtime. Both parties agree that it is fair to make every reasonable effort to divide overtime work, so far as practical within each job classification, department and shift based upon the qualifications of the employee to perform such work without displacing the employees normally performing that work during the normal work week. Saturday and Sunday will not be construed as part of the normal workweek except in the case of mandatory overtime. An employee wishing to be removed from the voluntary overtime offer list can request an Overtime Refusal Form from his Supervisor. After completing and turning said form in to his Supervisor, the employee will not be asked for overtime until such time that employee requests to be asked, in writing, to their Supervisor. As the employee’s name comes up on the overtime roster they will be charged as refused overtime.

The Company shall require each supervisor to keep a record of each employee working under his direction who is offered overtime and does not work the overtime offered. The Company shall maintain overtime records by department, classification and shift. As an

Page 7 of 64

individual’s name comes up on the overtime tally, he will be charged such overtime, whether or not he accepts the assignment. Employees absent from work and receiving pay from the Company will not be charged for overtime hours. Sickness, Accident and Workers Compensation excluded. Employees can only be charged overtime hours for the number of hours offered to them. The shop committee shall at all reasonable times have access to overtime records, and will be given a copy upon request. Hires, rehires, or employees who change job classifications or shifts shall be assigned the average hours charged to the employee already in the classification, department, and shift. It is understood that beginning with the effective date of this agreement and each contract anniversary thereafter, all overtime records will be reset to zero.

Every effort will be made to make overtime assignments outside of departments to qualified employees lowest on the overtime tally, but only after department and shift requirements have been met. Overtime worked in other job classifications, departments, or shifts shall be charged to the employee on the overtime record.

5.7 It is agreed that in the event of change in the starting or ending time of a shift, the Company will notify the affected employees in such department during the preceding shift of such change. When the Company changes the scheduled report time for the beginning of a shift and the first day of the work week results in the starting time of the new week overlapping into the last day of the previous work week nothing in this article is to be construed to require the Company to pay overtime because of this overlap. Provided further however, if at the start of a new work day at 12:01 A.M. and an employee is already working, and at that time is being paid an overtime rate by reason that he had worked in excess of eight (8) hours or ten (10) hours during the work day immediately preceding, he shall continue to receive the appropriate overtime rate and not have pay reduced because of the advent of the new work day. For pay purposes a new work day will be established only after the employee leaves the premises. When a department or part of a department is scheduled to work on Saturday the employees involved will be notified, in all cases possible, before the end of the shift on Thursday. Thereafter changes necessary will be made as soon as practical. Employees will not be charged for any weekend overtime hours refused if the hours were offered after the end of their shift on Thursday. Employees may refuse daily and Saturday overtime, provided however that in the event no qualified employee(s) accepts such overtime work, qualified employees in that job classification, department, and shift affected having the least overtime charged shall work the assigned overtime. As an option, qualified employees as determined by the Company in other classifications and on the same shift may be assigned the overtime assignment. Employees may refuse overtime on Holidays and on Sunday.

Employees failing to work accepted weekend overtime hours will be subject to Plant Rule # 43.

Page 8 of 64

To provide opportunity for others to work in the place of employees who may not desire to do so, an employee when contacted about working overtime shall give a “Yes” or “No” answer within thirty (30) minutes. Employees will not be charged for any overtime hours refused if the hours were offered within the final one half hour of their shift.

5.8 Overtime Premium (1 1/2) Overtime Premiums of time and one-half (1 1/2) of the straight time hourly rate shall be paid as follows:

	A.		For all hours worked in excess of eight (8) hours in any one (1) workday.

	B.		For all hours worked in excess of forty (40) hours in anyone (1) workweek.

	C.		For all hours worked by an employee on Saturday in any workweek.

5.9 Double-time Premium (2) Overtime premiums of two (2) times the straight time hourly rate shall be paid as follows:

	A.		For all hours worked by an employee on Sunday in any workweek.

	B.		For all hours worked in excess of ten (10) hours in any one (1) workday.

	C.		For all hours worked on days defined as Holidays under this Agreement, except when such hours are part of a shift commencing on the one day and carrying over into the Holiday.

Article 6
Seniority

6.1 The term “seniority” as used in this contract is hereby defined as the length of an employee’s continuous service with the Company dating from his last date of hire. When two (2) or more employees have the same seniority date, this seniority shall be determined by a toss of a coin. The Chairman of the Grievance Committee shall be given an updated plant-wide seniority list of employees upon request at least every six months.

Page 9 of 64

6.2 Probationary Period. A new employee, including an employee who is rehired after a break in continuity of service with the Company, shall be regarded as a probationary employee until he has completed two (2) months of service with the Company following the day of his last date of hire. During the probationary period an employee may be discharged for any cause whatsoever and shall have no recourse or right to grieve against such discharge. Upon successful completion of the probationary period, the employee shall have seniority status and will be considered a seniority employee.

6.3 Loss of Seniority. The seniority status and continuous service of an employee shall be terminated for any of the following reasons:

	A.		Resigns, quits, or retires.

	B.		Discharged for just cause.

	C.		Absent due to layoff for a period not to exceed the length of service at the time of layoff, or two (2) years, whichever is less.

	D.		Fails to respond to a recall from layoff within seventy-two (72) hours (excluding Saturdays, Sundays, and Holidays) following the date of receipt of notice of recall. Notice by the Company shall be sufficient if given by certified mail, return receipt requested, and sent to the employee’s last known address. Recalled employees who intend to return to work must contact the Plant Manager / Human Resources Representative or their Designee within a three (3) day period to make his intentions known to the Company. Such employee may have five (5) additional days if he has been reemployed and the employer requires a quit notice. Evidence of the need for this five (5) day extension may be required. Such employees who fail to report by the end of the time period will be removed from the seniority roster.

	E.		Absence due to sickness or injury including on the job injuries as follows:


Seniority at Time of Illness or Injury		Time Limit

Less than six (6) months		Three (3) months
Six (6) months but less than one(1) year		Six (6) months
One (1) year but less than two (2) years		Twelve (12) months
Two (2) years or more		Twenty Four (24) months

Page 10 of 64

	F.		Fails to report to work following the conclusion of an approved leave of absence or vacation.

	G.		Fails to report or contact the Plant Manager / Human Resources Representative or their Designee within one (1) workday after having been released from the doctor, provided however a reasonable amount of time for reporting to work will be given if unusual circumstances exist and the employee has contacted the Plant Manager / Human Resources Representative or their Designee.

6.4 Departments as currently constituted are:

07 Assembly
30 Mesur-Fil Cell
44 Machine Shop
54 Maintenance
81 Shipping/Receiving/Warehouse
00 Helper

6.5 In all cases of promotion, permanent transfer, layoffs, and recalls of employees who have been laid off because of lack of work, the following factors shall be considered:

	A.		Seniority

	B.		Ability and qualifications to perform the work skillfully and efficiently.

When factor B. is relatively equal, seniority shall govern.

6.6 Bidding. When the Company establishes a new job and/or determines that a permanent vacancy exists in a job classification other than Group Leader, Journeyman or Helper, the resulting job vacancy will be filled in accordance with the following section:

	A.		When a permanent job vacancy exists, notice of such jobs will be posted on the main bulletin boards for three (3) working days (72 hours) not including Saturdays, Sundays and Holidays. The posting will set forth the date posted, time posted, job title, number of openings, shift, and the rate range for the job. A permanent job vacancy will exist when a job is expected to be needed for a period of at least sixty (60) consecutive calendar days.

	B.		During the three (3) days that a job is posted, eligible bidders must contact the

Page 11 of 64

Human Resources Department to have their name placed into consideration for the jobs. Employees who are on vacation may contact the Human Resources Department prior to leaving on vacation and file a written advanced bid. The advanced bid will only be good for the specific job classification that the employee indicated on his advanced bid.

Eligible bidders are employees who have completed their probationary period prior to the posting of the job and who have not been a successful bidder for the last six (6) months. This six (6) month restriction shall be reduced to sixty (60) days only for the purposes of shift bids within the employee’s existing job classification.

6.7 Job Bidding Award. Each job will be awarded in accordance with seniority and ability and qualification to perform the job skillfully and efficiently as described earlier in this article, however, in the following sequence:

	A.		First preference for a vacancy shall be given to the eligible bidder within the same classification and department regardless of shift.

	B.		Second preference for a vacancy shall be given to the eligible bidder within the same department but in a different classification, and or shift.

	C.		Third preference for a vacancy shall be given to the eligible bidder from any other department, classification, and or shift.

When qualifications are equal seniority shall govern.

No employee shall be awarded any job unless the minimum job requirements have been met.

Minimum requirements are basically defined as education and/or experience sufficient to learn and perform the defined duties of the specific classification. The purpose is to teach the skills of the job and not the basics necessary to understand them.

A time limit for announcing a job award after closing the bids will be fourteen (14) calendar days; but should extenuating circumstances arise, vacations, shift differences, etc. and should this be required, the Chairman of the Shop Committee will be notified.

Journeyman positions are not posted, but any employee wishing to request a Journeyman Classification will be required to submit a Journeyman Request Form to their supervisor. After having received said form, the supervisor will give an answer in writing, of approved, denied, or show proficiency, to the requester. The answer shall be given within fourteen

Page 12 of 64

(14) calendar days or the request will be considered approved.

A time of up to sixty (60) calendar days will be given to arrange for the testing of any discrepancies (Special arrangements may be mutually agreed upon by the Company and the Union to allow for showing of proficiencies by employees.) After being approved for the Journeyman Classification an employee will have a sixty (60) day trial period for this classification. If an employee fails to perform skillfully and efficiently they will be moved back to their prior classification.

Only one request may be submitted in any six (6) month period. Requests for the training to achieve this classification will be accepted, but will be provided as workloads permit or by special arrangements agreed upon by the Company and the Union.

Helper positions are not posted when an opening is deemed by the Company to exist. Should an employee desire a helper job, the employee should make a request in writing to the Plant Manager / Human Resources Representative or their Designee for consideration.

In the event that the Company is unable to fill the vacancy pursuant to the provisions of the bidding procedure, the Company may fill the vacancy by offering it to other employees or by hiring a new employee. A vacancy that remains unfilled for three (3) months shall be considered cancelled. However, should an applicant be offered a job prior to the expiration date but report to work after, it shall not be deemed a violation of the agreement. Also vacancies that are being held awaiting trainees to finish school are not subject to this provision.

Employees that are awarded jobs and are unable to perform them skillfully and efficiently shall be removed from the job classification. They will be placed in their previous job classification if placement is made within two (2) months of the job award. This shall not apply for any reasons except where employees are unable to perform skillfully and efficiently. Provided further however, both parties agree that employees are required to continually perform skillfully and efficiently in their job classification.

An employee who has been awarded a job will be moved into the job on a Monday following the award as soon as it is practical for the Company to do so. If it is not practical for the Company to transfer the employee to the awarded job within fourteen (14) working days after it has been awarded, the employee will be officially transferred with a rate adjustment if appropriate and then temporarily loaned to his old job until he can be replaced.

When an employee is awarded a job from one job classification to another job classification he shall take all of his seniority to the new job classification.

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6.8 Layoff. In the event of a reduction in the working force of a job classification, employees working within the job classification, department, and shift affected shall be displaced in reverse order of seniority.

Employees displaced in accordance with this section may elect to be laid off, or in the alternative, shall bump other least senior employees as follows:

	1.		The displaced employee shall bump the least senior employee working in the same job classification and department on another shift. If there is no one to bump, then,

	2.		He shall bump the least senior employee regardless of shift in an equal rated job classification in any department provided he has successfully held such job with the Company for a period of not less than three (3) months (the classification of the employee to be bumped). A ten (10) working day trial period will not be required if the classification had been held as stated. If not successful above, the displaced employee shall be given an opportunity to bump a less senior employee in any department or classification in which they have the ability to perform the minimum duties of that job. If there is a dispute as to employee’s ability to perform the job, it will be resolved by the Plant Manager / Human Resources Representative, Committee Chairman and employee prior to the bump. If the bump is allowed, a ten (10) working day trial period will be given and if the employee fails to demonstrate to the Company the ability to perform the job they shall then relinquish all rights to any other bumping option other than a less senior employee in the helper classification.

	B.		In no event will an employee be allowed to bump upward.

	C.		The Company shall give at least seven (7) calendar days notice to employees that are to be laid off, provided however that this applies only to the original employee(s) and not to employees that may be bumped as a result of the announced layoff. The Union will be given a list of the original employees to be laid off and also a list of successive laid off employees.

	D.		Employees who leave the Company area after being told of the layoff without making their bumping plans known to their supervisor or the Plant Manager / Human Resources Representative will be considered to have elected to be placed on layoff and that they will not exercise bumping.

	E.		When an employee terminates for any reason, or when an employee requests tools

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to be removed from Company premises, that portion of the tools that are being purchased on a payroll deduction basis by the employee will be released only to the extent that the tools have been paid for by the person. If only a portion of the tools have been paid for at layoff or termination, only that portion of the tools may be removed from the Company premises.

6.9 Recall. An employee who is laid off from his/her original job due to a reduction in force will be placed on a list for recall maintained by job classification and department in seniority order for a period not to exceed the length of service at the time of layoff, or two (2) years, whichever is less. Benefits will be reinstated the first (1^st) of the month after recall.

In the event that a job within a classification, department, and shift needs to be filled after a reduction in force, the senior eligible employee as defined in Article 6.8 “Layoff”, section A, paragraph 2, will be recalled first.

If an employee who has bumped to another job is a successful bidder, he loses all rights to his original job before the layoff.

An employee may not elect to remain on a job that was gained by bumping if he is recalled to his original job unless there is no one to be recalled, and he would not be blocking the return of a laid off employee.

At the time of the notice of layoff, if an individual elects not to bump, but accepts layoff instead, he shall have the right to return to his last level job or any higher rated job he previously held when recall occurs. He shall have no other recall rights.

6.10 Five Day Transfers. The parties recognize that from time to time disruptions caused by but not limited to the following: Absenteeism, vacations, shortages of materials, critical customer order, meeting delivery dates may necessitate the transfer of employees from their regular jobs to other jobs, on a temporary basis. First, qualified volunteers (as determined by the Department Manager) will be accepted by the Company and if additional employees are needed, then the employees will be selected with due regard to their seniority status. The parties recognize that seniority is a factor for consideration when a temporary transfer is to be made; however, the parties also recognize that from a practical point of view because of numerous such transfers necessary for efficient operation, seniority may not always be accommodated.

The five (5) day limitation shall not apply to a temporarily transferred employee who has replaced an employee who is absent or on light duty until the replaced employee returns to full duty. This period of time also does not apply when employees temporarily fill jobs

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that the Company is in the process of filling permanently by job posting or recall from layoff.

Helper classified employees can be temporarily transferred for a maximum of sixty (60) days where there is no working employee present. Qualified transferred helpers (as determined by the Department Manager) will receive payment equal to the minimum rate of the classification of the employee normally performing the work. Unqualified transferred helpers (as determined by the Department Manager) will be considered as “in training” and receive payment equal to the minimum rate of the lowest classification in that department. Once the transferred helper becomes qualified (as determined by the Department Manager) payment will be equal to the minimum rate of the classification of the employee being assisted or normally performing the work.

Employees temporarily transferred to other jobs will continue to receive their regular rate of pay or the minimum of the rate range, to which they are transferred, whichever is higher. In no event will the employee’s rate of pay be lowered while temporarily transferred.

6.11 Extended Transfers.

Employees may be temporarily transferred for a maximum of thirty (30) calendar days to any shift in order to complete special projects or start a new shift.

Employees may also be transferred, on a voluntary basis, to other departments for a period of not more than sixty (60) calendar days. In cases of equal qualifications, seniority will apply.

In all cases, the Union will be notified in advance of all such transfers.

6.12 Temporary Employees — The Company may hire one (1) temporary employee at a time to replace employees on vacation or medical leave of absence. The temporary employee could work only three (3) months each calendar year. The temporary employee would be paid the minimum rate of the classification of the employee they are replacing. The temporary employee shall not be eligible for any benefits provided in this agreement with the exception of scheduled holidays during their employment at the Company. Any exceptions to the above will be made by mutual agreement of the parties.

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Article 7
Leave of Absence

7.1 Any employee covered by this agreement desiring a leave of absence on account of ill health, personal business or for any other good cause upon making application to the Plant Manager / Human Resources Representative or their Designee may be granted a leave of absence up to thirty (30) days and the Company may extend such leave upon request of the employee for good cause. Should any employee on leave of absence engage in any other employment he shall be terminated. A copy of all approved leaves of absence will be given to the Chairman of the Grievance Committee.

7.2 Local Union Business. For the purpose of attending conventions, conferences, meetings, and other usual and proper functions of the Union, a leave of absence without pay not to exceed two (2) weeks, unless otherwise agreed to by the parties, shall be granted to Union members provided written request is made to the Plant Manager / Human Resources Representative or their Designee as far in advance as possible and not more than one employee from a single department is gone at the same time.

7.3 Employees who are appointed to non-bargaining unit jobs with the Company after August 14, 1983, and who the Company thereafter decides to reassign to the bargaining unit must be reassigned within one (1) year from the date of appointment to the non-bargaining unit position. Such a non-bargaining unit employee who does not return to the bargaining unit on or before the end of one (1) year will be credited only with the seniority accumulated prior to leaving the bargaining unit.

7.4 The Company and the Union agree to adhere to applicable Federal laws governing leaves of absence for employees on military service.

7.5 Employees with at least five (5) years of service who are selected or appointed to a full-time office of the Union shall, upon advance written notice, be granted a leave of absence not to exceed one (1) year. Such leave may be renewed provided a written request for the extension is submitted to the Company within thirty (30) days prior to the completion of each year of leave. Such employee will continue to accumulate only his seniority while on such leave and any economic benefits will not continue nor accrue during

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said absence. Not more than one employee shall be granted such leave of absence at a time.

Article 8
Grievance Procedures & Arbitration

8.1 Method of Adjusting Grievances. For the purpose of this Agreement, a grievance is defined as any dispute or difference of opinion between the Company and the Union or between the Company and any employee covered by this Agreement involving the meaning, interpretation, or application of the provisions of this Agreement. When an employee is suspended without pay, he must be discharged or reinstated by written notice to the employee and the Union within three (3) workdays after the first day of the suspension. All grievances (except discharge cases which shall start at Step 2) shall be handled in the following manner:

Step 1 — Any employee who believes he has a grievance shall first present it verbally to his immediate supervisor / manager accompanied by his Committeeman if the employee so desires. If the grievance is not settled satisfactorily and the Union desires to further process the grievance, the grievance shall be reduced to writing by the Committeeman and the written grievance shall state the facts upon which it is based, when they occurred, and the specific section of this Agreement which has allegedly been violated. Such document must be signed by the employee who filed the grievance (other than the Committeeman) and must be presented to the aggrieved employee’s immediate supervisor / manager, by the Committeeman in person, not mailed, within five (5) working days following the initial contact with the supervisor / manager. The immediate supervisor / manager shall respond in writing within five (5) working days to the grievance and shall furnish a copy of such response to the Committeeman in person, not mailed.

Step 2 — If the grievance is not settled in Step 1, and the Union desires to further appeal, a committeeman shall appeal in writing and give the grievance in person, not mailed, to the Department Manager within three (3) working days after the answer in Step 1 has been given. A meeting between the Department Manager and the Committeeman shall be held at a mutually agreeable time. The Department Manager shall give the Company’s written answer on the grievance to the Committeeman in person, not mailed, within three (3) working days following the meeting.

Step 3 — If the grievance is not settled in Step 2 and the Union desires to further

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appeal, the Chairman of the Grievance Committee shall appeal in writing and give the grievance to the Plant Manager / Human Resources Representative or their Designee in person, not mailed, within three (3) working days after the answer in Step 2 has been given.

The Plant Manager / Human Resources Representative or their Designee shall contact the International Representative and a meeting to discuss the grievance shall be held at a mutually agreeable time. Within five (5) working days following the meeting the Plant Manager / Human Resources Representative or their Designee in person, not mailed, shall give the Company’s final written answer to the Chairman of the Grievance Committee.

If the grievance is not settled in Step 3 above and the Union desires to appeal the grievance to arbitration, the International Representative of the Union shall give written notice of the Union’s desire to arbitrate to the Plant Manager / Human Resources Representative or their Designee within five (5) working days of the date of the Company’s final answer in Step 3 above.

Such written notice shall identify the specific grievance appealed to arbitration and the specific section or sections of this Agreement allegedly violated. If the Company and the Union cannot agree to an arbitrator, the parties shall send a joint letter to the Federal Mediation and Conciliation Service requesting said agency to submit a list of five (5) arbitrators, specifying that such arbitrators be members of the National Academy of Arbitrators. Upon receipt of such list, the Union and the Company shall strike two names there from and the arbitrator whose name is not struck shall be deemed selected and a joint letter of selection shall be sent to that arbitrator. The party that strikes first will be determined by the Union’s Business Representative and the Company’s Representative In either case, the joint letter of selection shall identify the specific issue involved in the grievance and shall request that the arbitrator select a date for hearing subject to availability of Company and Union representatives.

The arbitrator shall only have the power and authority to interpret and apply the provision of this Agreement to the grievance presented and his decision shall apply only to the specific issue identified in writing to him. The arbitrator shall have no authority to alter, amend, modify, nullify, ignore, or add to the provisions of this Agreement. Copies of all arbitration awards shall be given to the Company and the Union. The award of the arbitrator shall be final and binding upon the Company, the Union and the employee or employees involved. The expenses of arbitration shall be shared equally by the Company and the Union. Other expenses incurred such as preparation of briefs and data to be presented to the arbitrator and furnishing of witnesses other than employees shall be borne separately by the respective parties.

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8.2 Time Limits. No grievance shall be entertained or processed unless it is submitted to the Company, in writing within five (5) working days of the event giving arise to the grievance. Any grievance not appealed within the time limits set forth in each step of the grievance procedure shall be considered settled on the basis of the last answer given by the Company. Any grievance not entertained or processed by the Company within the time limits set forth in each step of the grievance procedure shall be considered settled on the basis of the last action requested by the Union within the confines of the current agreement. Either party may request of the other party a reasonable extension of the time limits as outlined in this section.

8.3 Grievance Investigation and Presentation. The Union shall furnish to the Company a certified list of elected officers and Committeemen. The Committeemen shall consist of not more than two (2) employees from the plant on the day shift.

One Committeeman may be named by the Union for other shifts when at least 8 bargaining unit people are employed on such shift. One of the above day shift Committeemen will be named by the Union as Chairman of the Grievance Committee. The Chairman of the Grievance committee shall be permitted to attend the second step of the grievance hearing if deemed necessary by them and a request is made in advance by the Chairman of the Grievance Committee to the Plant Manager / Human Resources Representative or their Designee.

It is the intent and desire of the Company and the Union that the investigation and discussion of grievances will be conducted in accordance with the grievance procedure set forth in this article and in a manner which minimizes lost time and interference with production. Committeemen shall not engage in solicitation of grievances and shall not leave their workstations without receiving permission from their immediate supervisors. Upon entering another department, they shall inform the supervisor of such department of the nature of their business. The Union agrees that the Company has the right to expect that supervisors will know the whereabouts of their employees throughout the day. Accordingly, employees and Committeemen must notify the supervisor prior to leaving their department or stopping work to discuss grievances. Permission to leave or stop working will not be unnecessarily withheld. But, critical production requirements may necessitate the rescheduling of discussion concerning grievances which do not demand immediate attention.

8.4 The Union will be provided with a copy of any disciplinary action issued to a bargaining unit employee within the shift that it was issued, or as soon thereafter as possible.

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8.5 Notwithstanding, anything herein or in the general body of labor law to the contrary, it is understood and agreed that any disciplinary action by the Company after the date hereof shall not be affected by the past practices of the Company or by any alleged prior inconsistent application of the Company’s rules, if prior to the date hereof.

8.6 In the event that the Company should discharge or suspend an employee during the time of this Agreement, and it is thereafter determined by agreement of the parties or in arbitration that such employee is entitled to compensation for the period of time (or any part thereof) after such action by the Company, then, in such case, the compensation due to such employee shall be reduced by the total of all accrued compensation earned and/or unemployment compensation received.

8.7 The Company agrees to continue the monthly meeting with the first shift Committeemen and the Plant Manager / Human Resources Representative or their Designee on the second Tuesday of each month. The date may be changed for each monthly meeting by mutual agreement between the Company and the Union.

8.8 All grievances including arbitration shall be handled during regular working hours without loss of time to the Committeeman or directly involved employees.

Article 9
Vacation

9.1 Each employee with one (1) year and less than eight (8) years of continuous service as of January 1 shall be eligible for two (2) weeks vacation. Employees with less than one (1) year of continuous service each January 1 shall be eligible for two (2) weeks vacation after their anniversary date. Each employee with eight (8) years and less than fifteen (15) years of continuous service as of January 1 shall be eligible for three (3) weeks vacation. Each employee with fifteen (15) years and over of continuous service as of January 1 shall be eligible for four (4) weeks vacation. An employee who during the year after January 1 reaches eight (8) years shall be eligible for the third week on January 1 of that same year. An employee who during the year after January 1 reaches fifteen (15) years shall be eligible for the fourth week on January 1 of that same year. Employees shall schedule their

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vacation during the calendar year at the time that they are eligible and at a time that the Company approves.

9.2 An employee who is eligible for vacation benefits shall be paid their benefits if they leave the Company for any reason whatsoever except quit with no notice, and provided he has not already received his vacation pay. Employees that have received a portion of their vacation during the calendar year shall be entitled to the remainder. Employees that voluntarily quit must give the Company at least one (1) weeks notice to be eligible to receive vacation pay.

9.3 Vacation pay will be computed on the basis of two (2) percent of the employee’s previous calendar year’s W-2 wages or 40 hours of straight time pay, whichever is higher, for each week of vacation eligibility. Work credit shall not be given for any type of absences including worker compensation.


Length of Vacation		Vacation Pay
1 Week		2% or 40 Hours whichever is greater
2 Weeks		4% or 80 Hours whichever is greater
3 Weeks		6% or 120 Hours whichever is greater
4 Weeks		8% or 160 Hours whichever is greater

Vacation pay for an employee’s first vacation after completing one (1) year of continuous service shall be computed on the basis of the employee’s earnings, described above, received during the one (1) year period immediately preceding his anniversary date. Vacation pay for subsequent vacation shall be computed on the basis of the employee’s earnings received during the calendar year preceding the year in which the employee becomes eligible for vacation.

9.4 Vacation Eligibility Period shall mean the calendar year January 1 to December 31st; provided however, that the vacation eligibility period for a new employee’s first vacation will be the twelve (12) consecutive months immediately preceding his anniversary date. (Example — a new employee is hired March 14, he is eligible for the first vacation March 15 of the following year.)

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9.5 Vacation time may be scheduled by the employee at any time during the calendar year after becoming eligible and at a time that the Company approves. The Company shall consider the seniority and the job classification of employees when making vacation scheduling decisions. The Company will solicit vacation preference from each employee on or before February 1st of each year. Should an employee elect not to schedule his vacation when contacted by the Company, his vacation must be scheduled by his supervisor. After all employees have received their full week first choices, employees electing to split their vacations may then choose from the remaining vacation times.

9.6 After the master vacation schedule has been turned in to the Human Resources Department, a change may still be made by the employee by the following procedure:

	A.		Employee obtains “Request for Vacation Change Form”.

	B.		Employee obtains written approval from his supervisor by using form.

	C.		Employee sends approval form to Human Resources Department.

9.7 Employees that change job classification and/or shifts shall have their vacation schedule changed to accommodate the workload and to work around employees who already have their vacation scheduled if necessary without regard to seniority.

9.8 Vacations may be scheduled in 1, 2, 3 or 4 day increments when approved in advance by the Company. This will be permitted only after all full week vacation requests which are submitted between January 1st and February 1st each year are considered according to Art. 9.5. Payment for such day(s) will be pro-rated and paid on the following payday.

Otherwise, vacations must be scheduled in one (1) week blocks (five work days) with a Monday week starting date. Employees shall not be required to work Saturday or Sunday during their vacation week nor the Saturday or Sunday of the preceding week, however they shall be charged overtime as though worked.

9.9 Employees shall not schedule their vacation at the end of one calendar year and at the beginning of the next calendar year so as to take a vacation from two years together.

9.10 Employees may elect to receive vacation pay in lieu of time off for one (1) week of eligible

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vacation time. This applies to full week vacations only. However all other eligible vacation time must be taken during the calendar year or employees will lose their vacation benefit. The Company may also allow, at its discretion, pay in lieu of up to a maximum of 3 weeks.

9.11 Employees who elect to receive one (1) week of vacation pay instead of time off must notify the Company of such request, and payment will be made on payday of the following week. Pay for the one (1), two (2), three (3) or four (4) day vacations shall be given to employees as described in 9.8. All other vacation pay shall be given to employees on their last payday before leaving on vacation provided the Human Resources Department is notified in writing at least seven (7) days prior to the first day of vacation. Should an employee decide, on his very first vacation, to schedule it immediately after completing one (1) year of continuous service, his check will not be given to him until the third payday after his anniversary date. Also, pay for subsequent vacation, if scheduled during the first or second week of the calendar year, will be received by the employee the third payday of January.

9.12 Any Holiday (as defined in Art. 10.1) occurring during an employee’s vacation shall be recognized on the workday immediately following the employees vacation, or payment (as defined in Art. 10.2) may be received in lieu of time off, if the employees’ supervisor is notified by the last work day preceding the vacation.

9.13 If an employee dies while on the payroll of the Company, vacation pay as provided in this Article shall be paid to their legal heir or estate.

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Article 10
Holidays & Paid Personal Time Off

10.1 Holidays Observed. During the term of this Agreement, the following days shall be considered Holidays:


		Good Friday		Friday after Thanksgiving
		Memorial Day		Christmas Eve
		Fourth of July		Christmas Day
		Labor Day		New Year’s Day
		Thanksgiving		Paid Personal Time Off (PPTO) (2 Days)

The following three (3) floating holidays have been specifically assigned for the term of this agreement;

	•		Monday December 31st, 2007

	•		Friday December 26th, 2008

	•		Friday January 2nd, 2009

10.2 Holiday and Eligibility. Employees, not on layoff or leave of absence when a Holiday occurs, shall receive Holiday Pay equal to eight (8) times their regular straight time hourly rate including any applicable shift and or group leader premiums for all Holidays (as defined in Art. 10.1). Employees must work all scheduled hours (excluding tardiness as defined in Plant Rule #42) on their last scheduled workday prior to the Holiday, or on their next scheduled workday following their Holiday unless the absence is due to sickness or injury supported by proper evidence, or any other leave for which the employee is receiving pay under appropriate provisions of this agreement.

10.3 Weekend Holidays. Holidays falling on Sunday shall be observed on the following Monday. Holidays falling on Saturday shall be observed on the preceding Friday. If two consecutive Holidays fall on Friday and Saturday, the Holidays will be observed on Thursday and Friday. If two consecutive Holidays fall on Sunday and Monday, the Holidays will be observed on Monday and Tuesday.

10.4 Holidays and Overtime. Employees who receive Holiday pay for un-worked Holidays pursuant to this Article shall be regarded as having worked eight (8) hours on Holiday for

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the purpose of computing premium for subsequent hours worked during the same workweek.

10.5 Employees are eligible for all Holidays immediately on employment with the Company, with the exception of new hires, who will be eligible for only one PPTO day during their first six months of employment.

10.6 The paid personal time off (PPTO) may be taken by the employee at any time during the calendar year by providing at least thirty (30) minutes notice prior to the beginning of the employees shift.

Employees may elect to receive pay in-lieu-of PPTO. If an employee elects this option, the pay in-lieu-of PPTO will be paid in the following weeks pay period. PPTO may be scheduled in four (4) or eight (8) hour increments.

Article 11
Pension Plan

Effective December 31, 2007 the defined benefit pension plan will be frozen and no additional years of credited service will accrue after this date. Effective January 1, 2008 the Company will implement an enhanced 401(k) plan as provided in Addendum F of this Agreement.

Article 12
Group Insurance

12.1 The following insurance program is provided for employees only:

Life Insurance:

•

$50,000 – Effective September 15th, 2007 and for the life of the contract.

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Accidental Death and dismemberment:

•

$50,000 – Effective September 15th, 2007 and for the life of the Contract

Short Term Disability Weekly Sickness and Accident (non-occupational) administered by the National I.A.M. Benefit Trust – Pays 70% of gross weekly wages up to $350.00 per week for maximum 26 weeks. Payable first day for accident or hospital admission; 8th day for illness.

12.2 For Employees and Dependents:

The National I.A.M. Benefit Trust Fund will administer Health, Rx, Dental and Vision Insurance effective November 1st, 2007. The details of the entire program of insurance benefits will be set forth in Plan Summary booklets to be issued to covered employees by The National I.A.M. Benefit Trust.

12.3 Employee Weekly Contribution Rates for Healthcare, Rx, Dental and Vision


	Year 1		Year 2		Year 3
	(Nov 1, 2007)		(Nov 1, 2008)		(Nov 1, 2009)

Employee	$	25.50	$	27.50	$	29.50
Employee + Spouse	$	55.50	$	58.50	$	62.50
Employee + Child	$	50.50	$	53.50	$	56.50
Family	$	74.50	$	79.50	$	85.50

Plan Type	IAM H001		IAM H001		IAM H001

The Union agrees that if the annual premiums exceed a 5% increase, the Company has the right to re-open the insurance provision upon written 30 day notice sent by registered or certified mail to the Union. The parties agree that in the event of an impasse in bargaining and written notice to the Union of the Employer’s intention to implement a change to the medical plan or employee contribution that article 3, no strike no lockout provision of the agree shall also be opened. The rest of the agreement shall remain in full force and effect.

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Retail Prescription Drug Employee Co-Pay covered at pharmacy – 34-day supply


	Effective
	November 1, 2007
Generic	$	10.00
Preferred	$	20.00
Non-Preferred	$	30.00

Mail Order Prescription Drug Employee Co-Pay mail order program – 90-day supply


	Effective
	November 1, 2007
Generic	$	20.00
Preferred	$	30.00
Non-Preferred	$	40.00

12.4 Future Retirees: Effective for retirees after August 8, 1998 the Company will pay $20.00 per month toward Medicare for retirees 65 and older. Early retirees may elect to stay in the group hospital medical program by paying their own monthly premium until age 65.

Article 13
Wages

13.1 The list of job classifications and corresponding labor grades and the rate schedule are set forth in Addendum “B” and attached hereto and made a part hereof, as though fully written herein.

Listed rates will reflect the following wage increases across the board for all labor grades:

	•		+2.50% Increase per hour effective August 11, 2007

	•		Lump sum payment equal to 3.5% of base annual wage effective August 11, 2008

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•

+2.50% Increase per hour effective August 10, 2009

Effective Date of Progression Rate Increases — The effective date of each progression increase will always be on a Monday. The Monday effective date of each progression increase depends on where the three (3) month period is completed and will be administered as follows:


3 Month Period Completed		Effective Date of Progressive Increase

Monday		Same Monday
Tuesday		Prior Monday
Wednesday		Prior Monday
Thursday through Sunday		Next Monday

The above applies to the three (3) month period completed after the effective date of an employee’s last increase (excluding annual increase), a new hire completing three (3) months from his employment date, or the completion of a three (3) month period after the effective date of a promotion. The three (3) month progression period shall be extended only by the amount of all absences from work of thirty (30) consecutive days or more. Each increase shall be in the amount of twenty cents ($.20c) for every three (3) months until the maximum is reached. If twenty cents ($.20c) would take an employee over the maximum, then the employee will receive only the maximum rate for the classification.

13.2 Shift Premium. Second shift employees shall receive a premium of fifty cents (.50c) per hour and third shift employees shall receive a premium of fifty cents (.50c) per hour in addition to their regular straight time hourly rate.

13.3 Group Leader Pay. All Group Leaders may receive fifty cents (.50c) more than the highest employee over whom they are responsible. For pay purposes, a Group Leader may not be responsible for another Group Leader.

13.4 Job Description. The Company and the Union agree that the manual of job descriptions discussed in negotiations is a part of the contract but will be maintained in a Manual B-2 separate from the contract booklet.

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13.5 Successful Bidder. Employees who successfully bid on vacancies in higher rated classifications shall, upon moving to their new job, commence to receive a rate within the rate range which is at least equal to their former rate. Any successful bidder to a higher labor grade than job classification prior to successful bid will receive at least ten cents (.10c) per hour rate adjustments unless it would cause rate to be outside rate range. The adjustment shall be more than ten cents (.10c) if needed to reach the minimum of the rate range. Employees who successfully bid on vacant positions in lower rated classifications shall, upon moving to their new classification, receive a rate within the rate range which is closest to but does not exceed their former rate of pay. Employees who successfully bid on vacant positions in equal rated classification shall continue to receive their former rate of pay if it falls in that rate range.

13.6 Bumped/Displaced. Employees who are displaced from their jobs and bump other employees shall be paid as follows: If the employee bumps to a classification in a labor grade which is equal to his labor grade, he shall receive the same rate of pay if it falls in that range. If the employee bumps to a classification in a lower labor grade, he shall receive the rate in the lower labor grade that does not exceed the rate which he was receiving in his regular labor grade, but is within the lower labor grade rate range.

13.7 Bereavement Pay. In the case of the death of an employee’s current spouse, parent, stepparent, child, stepchild, brother, stepbrother, sister, stepsister, mother-in-law, father-in-law, current brother in-law, current sister in-law, current son in-law, current daughter in-law, grandparents, spouse’s grandparents or employee’s grandchildren, the affected employee, upon making written application to his/her supervisor, shall be entitled to receive pay at eight (8) hours of straight-time pay excluding overtime, for not more than three (3) days absence from work to attend the funeral. This provision does not apply to the employee who is on layoff or leave of absence.

Employees claiming bereavement pay will be required to submit proof which is deemed satisfactory by the Company concerning the death and family relationship. Employees who falsely claim bereavement pay shall be discharged. The intent is to provide paid leave for necessary time to take care of and attend the funeral. It is not intended to provide time for other purposes.

13.8 Jury Pay. Employees who are subpoenaed for jury service and who serve as a juror shall receive eight (8) hours at regular hourly straight time rate, including the employee’s regular shift premium, if any and he may keep the amount received as jury pay, but in no case shall the total pay from the Company exceed forty (40) hours pay per week at regular

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hourly straight time rate. The employee must present proof of service from the court. Night shift workers scheduled for jury duty will not be required to work if they actually serve on the jury during the day. Hours paid for pursuant to this section shall be considered hours worked for the purpose of computing overtime premium for subsequent hours worked within the same work week.

13.9 Call Back and Reporting Pay. An employee who reports for work as scheduled without having been notified otherwise that there will be no work shall be given a minimum of four (4) hours work or shall receive four (4) hours pay at the appropriate rate. This however, does not apply where the failure to provide work results from emergencies beyond the control of the Company, such as major accidents, fires, storms, floods, power failures, or other similar events. The Company shall pay reporting pay however for other reasons unless the employee was notified in advance by the Company. The Company shall be obligated to call by telephone to the last number provided to the Human Resources Department by the employee. Whenever an employee reports for work and is offered work by the Company in other job classifications and the employee refuses such work, he shall not receive any reporting pay. If the employee accepts and performs such work he shall receive his regular rate of pay. Whenever an employee reports for work and starts working and the Company is unable to give him four (4) hours of work in his regular job classification and department, but offers other work which is refused by the employee, he shall be paid only for the hours actually worked at his regular hourly rate of pay.

Employees who are called back to work after completing their scheduled work shift and after they have left the Company’s premises will be given a minimum of four (4) hours work or four (4) hours pay at time and one-half (1 1/2). Provided further, however, that should the hours paid at time and one-half (1 1/2) extend beyond the normal reporting time straight time shall apply.

13.10 Emergency Service Away From Shop. Employees assigned to work at the Company shop under the terms of this Agreement may be assigned to work away from the shop. When so assigned they will be paid at their regular rate for all time spent in traveling in the employee’s conveyance, or in traveling in a car or truck furnished by the Company. If they travel by common carrier, or in transportation furnished by the Company, except the Company’s car or truck, they shall be paid eight (8) hours pay for each twenty-four (24) hours of travel time. Such employees, if they are required to wait at the place where they are told to work away from the plant for parts or equipment, will be paid the amount of time which they wait, not to exceed however, eight (8) hours for each twenty-four (24) hours of such waiting. If their travel time is done or waiting is done on Saturday or Sunday, they will be paid on the same basis as though such work were done at the plant of the Company on these particular days. The employee shall also be allowed reasonable expenses for traveling, meals and lodging while away from the Company shop.

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Article 14
Training of Apprentices

The Company and the Union agree to continue the apprenticeship standards, which have heretofore been planned by them and the Federal Apprenticeship Committee, unless such plans are changed by mutual agreement.

Article 15
Non-Employee Trainees

Employees or other individuals who maintain or contract to maintain equipment of the Company, or employees of other individuals, corporations or governments, who have bought the Company’s equipment and who wish to train their men to operate or service and/or maintain such equipment, shall be permitted to perform actual work done in the maintenance and/or operation or repair in the shop or plant of the Company. It is understood, however, that in the performance of such actual work those persons (who are known as trainees) are not to replace any employee of the Company in the performance of such work, it being intended that such regular employees may stand and assist and/or supervise the work of the trainee. Although the Company may subcontract under the provision of Article 18 this Article is not intended for such purpose.

Article 16
Safety & Health

16.1 The Company and the Union agree to cooperate in carrying on a program to eliminate hazards to employee’s safety and health during working hours. The Company shall institute and maintain all reasonable and necessary precautions for safeguarding the health and safety of its employees. The Company and Union, as well as all employees, recognize their respective obligations to assist in the prevention, correction, and elimination of hazardous work conditions and practices.

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16.2 Insofar as practical all matters of occupational safety and health shall be handled between the employee and his immediate supervisor. It is agreed by the Company and the Union that all employees injured on the job, regardless of how minor the injury may be, must immediately report the injury to his immediate supervisor. Failure to do so may result in disciplinary action. The supervisor shall obtain first aid for such employee and in case of an emergency requiring an ambulance, one will immediately be called.

16.3 First aid facilities shall be maintained by the Company and qualified first aid attendants as required by law will be trained and available.

16.4 Employees injured on the job, treated on the same day of injury by a physician, and who are unable to return to work that same day as certified by a physician, shall be paid for the balance of their shift up to and including eight (8) hours at their regular straight time hourly rate.

16.5 If an employee is injured on the job and is required by the physician to return after the date of his injury and after he returns to work, he will be allowed pay for time lost for up to four (4) hours if necessary to see the physician. In no event however, shall an employee be eligible for pay for lost time, when totaled with time actually worked, will equal more than eight (8) hours pay at the employee’s regular straight time hourly rate. The Union and the employees agree that such return visits must be attempted to be scheduled by the employee at a time that will cause him to miss the least time from his work schedule and that his return visit will be coordinated in advance with the Company’s Industrial Medical Technician. The Union agrees that the employee shall cooperate with the Company’s Industrial Medical Technician to reschedule the return visits should the Company want to try to do so by contacting the physician. Employees shall be granted reasonable time necessary for personal cleanup prior to leaving the Company premises for a doctor’s appointment. Employees may leave the Company’s premises no earlier than thirty (30) minutes prior to the appointment time and will return no later than thirty (30) minutes after the doctor’s visit. This section is intended for return visits to local physicians and for employees that are continuing to work.

16.6 Cool drinking water shall be furnished at all times and sanitary drinking fountains shall be maintained. All Company machines and tools shall be maintained in a safe condition. Floors, lockers, locker rooms, toilets and washrooms shall be kept in a dry, clean and sanitary condition and lighted and heated in the best manner consistent with plant facilities.

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The Company and the Union agree to cooperate in every reasonable manner to eliminate all unsafe practices, to reduce industrial accidents to a minimum and to maintain efficient plant operation.

16.7 The Company and the Union shall continue with their Safety Committee. The Committee shall consist of one (1) Union Representative and one (1) Company Representative. The Company shall designate its representative to act as Chairman of the Safety Committee. Said Committee shall schedule regular meetings every two (2) months at their respective locations for the purpose of discussing safety measures. It is recognized that recommendations shall be of an advisory nature. The Committee will also conduct an inspection tour at each meeting called by the Chairman of the committee. The Chairman shall make written reports of each meeting and send them to the Plant Manager / Human Resources Representative or their Designee. The Union agrees to give the Company’s Plant Manager / Human Resources Representative or their Designee the name of the employee appointed to the Safety Committee at least thirty (30) days in advance of a change.

16.8 At the discretion of the Company, employees returning to work or when medical findings point out that they could return after being off due to an industrial accident may be required to take a physical examination. When so required the examination shall be paid for by the Company and shall be conducted by a physician selected by the Company. Should the employee’s Doctor and the Company’s Doctor have a difference of opinion, the Chairman of the Grievance Committee and the Plant Manager / Human Resources Representative shall meet in an effort to settle the issue. Should the issue not be settled the two shall select another Doctor, who is a specialist in the area of specialization needed, and his opinion shall be binding. The doctor’s expense shall be paid by the Company.

16.9 All employees are required to use and wear necessary protection equipment and apparel when so directed by the Company.

Safety toe shoes are required in all job classifications. The Company will reimburse up to $100.00 per calendar year or up to $200.00 for a two-year calendar period for one pair of safety shoes per employee.

16.10 The Company and the Union agree that when medical examination shows that an employee must change jobs that the Plant Manager/Human Resources Representative or their Designee and Chairman of the Grievance Committee shall meet to discuss a favorable remedy. Every reasonable effort will be made by the Company to place the

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employee if he must change jobs on a job equally rated. If this cannot be done then every reasonable attempt will be made to place him on a job rated as high as possible. The Union agrees that if a satisfactory arrangement can be made by the Plant Manager/Human Resources Representative or their Designee and the Chairman of the Grievance Committee that the job will not have to be posted. The Company shall not be required to create work or a job for this purpose.

16.11 Protective Glasses. The Company shall provide each employee with a pair of non-prescription protective glasses without cost to the employee. For those employees that require prescription glasses, the Company will fill the prescription with an initial pair of safety glasses. No additional glasses will be furnished for this individual until two years later when the second pair of prescription glasses will be furnished.

Each year thereafter, the Company will pay one-half (1/2) the cost to fill such employee’s prescription provided there has been a significant change in vision or, the Company will pay the entire cost of the new glasses if two years has passed between prescription change.

Article 17
Bulletin Boards

The Company shall maintain a bulletin board for the Union’s use. Such bulletin board shall be used only for posting notices of legitimate Union business, Union meetings, Union elections and appointments, results of Union elections and Union social activities. All notices must be submitted to the Plant Manager / Human Resources Representative or their Designee for approval before posting. No other place on Company property shall be used by the Union for posting of notices, advertisements, or information of any kind.

Article 18
Subcontracting

The Company agrees that during the term of the Agreement no work usually performed by the employees covered by the Agreement will be sub-contracted to another Company if the scheduled workweek of such employees is less than 40 hours or if there are qualified employees then laid off provided this restriction shall not apply if such contracted outside

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work requires machinery, equipment, or facilities not owned or operated by the Company, or if the work can be done more economically, and/or timely to meet the delivery requirements of the customers. It is understood, however, that the Company shall determine which products or portions thereof it shall make and which it shall have made by others.

Article 19
Union Security & Check Off

19.1 During the term of this contract the Company agrees that it will deduct from the first paycheck of each month, and remit to the Financial Secretary of the Union, all dues of all employees eligible for union membership who voluntarily execute a revocable dues deduction authorization and cause it to be placed in the hands of the employer. Such authorization shall be upon forms provided by the Union and shall be signed by the individual employee before they are placed in the hands of the Company for the deduction. Such authorization forms shall be made upon cards in a size and form mutually agreed upon between the Union and the Company.

19.2 Deductions shall be made on account of initiation fees or reinstatement fees from the first paycheck of the employee after receipt of the authorization.

19.3 If an employee has no earnings in the pay period in which the deduction is scheduled to be made, then the deduction shall be made from the first paycheck of the month in which this employee has earnings.

19.4 Employees who voluntarily execute deduction authorizations are bound by the above mentioned provisions unless or until voluntarily cancelled by the employee in writing to the Company and to the Union. Nothing herein contained shall be construed to require membership in the Union as a condition of employment with the Company and this Agreement shall not abridge the fundamental right of an employee to determine for himself, free of intimidation, coercion or discrimination from any source, whether or not to be a member of the Union.

19.5 The authorization Form listed below shall be the agreed form and no deduction shall be made until fully executed by the employee and presented to the Human Resources Department.

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INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE WORKERS
MEMBERSHIP APPLICATION AND/OR CHECK-OFF AUTHORIZATION


Name	Date	Card no.


Address				M o F o Date of birth


City	State/Province	Zip/Postal code

SS no.

Phone

Hire date


Employer				Hourly wage


Class of work	Years experience	Shift 1 o 2 o 3 o

Membership Application. Check here: o To the Officers and Members of Lodge No. (the “Lodge” or “Union”), I hereby tender my application for membership in the International Association of Machinists and Aerospace Workers (IAM). I understand that while I may be required to tender monthly fees to the Union, I am not required to apply for membership or be a member as a condition of employment and that this application for membership is voluntary. As a member, I agree to obey the Constitution of the IAM and the by-laws of my Lodge and to support the principles of trade unionism, and I authorize the IAM and/or its designated affiliate to act as my representative for collective bargaining.

If former member of IAM: Card no.

Lodge no.

Location

Last dues paid

Check-Off Authorization. Check here: o I authorize my Employer to deduct from my wages and forward to the Union: (1) monthly membership dues or an equivalent service fee; and (2) any required initiation or reinstatement fee as set forth in the collective bargaining agreement between the Employer and the Union and the by-laws of the Lodge. This authorization shall be irrevocable for one (1) year or until the termination of the collective bargaining agreement between my Employer and the Union, whichever occurs sooner. I agree that this authorization shall be automatically renewed for successive one (1) year periods or until the termination of the collective bargaining agreement, whichever is the lesser, unless I revoke it by giving written notice to my Employer and Union not more than twenty (20) and not less than five (5) days prior to the expiration of the appropriate yearly period or contract term. I expressly agree that this authorization is independent of, and not a quid pro quo, for union membership, but recognizes the value of the services provided to me by the Union. It shall continue in full force and effect even if I resign my Union membership, except if properly revoked in the manner prescribed above.

Important Notice. I have examined and acknowledge receipt of the attached “Notice to Employees Subject to Union Security Clauses” (on back of pink sheet). I also understand that IAM members have certain rights and privileges as set forth in the IAM Constitution and in various Federal laws, like the Labor Management Reporting and Disclosure Act (LMRDA). Copies of the IAM Constitution and the LMRDA may be obtained by contacting the IAM General Secretary-Treasurer, 9000 Machinists Place, Upper Marlboro, MD 20772. Union membership dues and agency fees are not deductible as charitable contributions for Federal income tax purposes. Dues and agency fees, however, may be deductible in limited circumstances subject to various restrictions imposed by the Internal Revenue Code.


		(Your signature) (Date)

This copy to be retained by Local Union No.

FORM NO. MR0001-06

For Official Use Only


Proposed by				Date


We, the undersigned Committee, report

		(Favorable or Unfavorable)


		Committee:


Amount paid $		Date


Balance of Fee Paid $		Date


Initiated o	Reinstated o	Date


Classification		Gender


Journeyman Specialist Production Worker Service Worker		Helper Apprentice Technician		Male Female

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19.6 The Company’s obligation to make deductions shall terminate in the event an employee for any reason shall cease to be a member of the bargaining unit. Should at a later date the person become a bargaining unit member again, a new authorization card must be given to the Company to cause deduction to be made again.

19.7 Before the authorization card will be accepted by the Company it must be completed in its entirety and must be readable. Special attention must be paid to the employee number and full name of the employee. Cards that are not properly filled out or cards that cannot be read shall not be accepted by the Company.

19.8 The Union shall indemnify the Company and hold it harmless against any and all suits, claims, demands and liabilities which arise out of or by reason of any action taken or not taken by the Company for the purpose of complying with any of the provisions of this section.

Article 20
Union Representation

The Business Representative or Representatives of the International Union shall have access to the Company’s plant during working hours for the purpose of investigation of grievances. He shall obtain from the Company specific authorization for each visit and such visit shall be subject to such regulations as may be made from time to time by the Company. The Company will not impose regulations which will exclude the International or Business Representative from its plant, nor render ineffective the intent of this provision.

Article 21
Increased Efficiency

The Union agrees to use its best efforts to support all of the Company’s efforts to increase the efficiency of the Company’s employees who it represents.

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Article 22
Negotiating Committee

The Company agrees that it will pay the employees that represent the Union at contract negotiations time during the life of the contract, for up to eight (8) hours pay at their regular straight time rate of pay for each day of negotiations. The Union agrees that the employees that represent the Union in negotiations for a new contract will not be more than two (2) in numbers.

Article 23
Successor

This contract and the letters of intent negotiated by the Company and the Union shall be binding upon the successors, assignees, and legal representatives of each of the parties hereto.

Article 24
Termination of Previous Agreement

This agreement shall supersede all previous agreements whether oral or written, made between the parties, except as provided for under the terms of this written agreement.

Article 25
Waiver & Entire Agreement

Neither the Company nor the Union shall be obligated to negotiate or bargain on any matter of any nature whatsoever not covered by the provisions of this Agreement, during the life of this Agreement.

In the event that any provision of this Agreement shall be declared void or illegal by a court

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of competent jurisdiction, such provision shall become inoperative but all other provisions of this Agreement shall remain in full force and effect for the duration of this Agreement.

Any portion of this agreement may be amended if mutually agreed upon in writing by the “Company” and the “Union” in accordance with Federal Labor laws and O.S.H.A. rules and regulations.

Article 26
Distribution of Agreement

The Company shall have copies of the collective bargaining agreement printed and distributed to each full time employee covered by the agreement within forty-five (45) days of the ratification of the Agreement.

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Article 27
Term of Agreement

This Agreement shall remain in full force and effect until August 13, 2010 and shall thereafter be continued for yearly periods unless notice of termination is given in writing by registered or certified mail by either party to the other at least sixty (60) days before August 13, 2010 or any subsequent annual expiration date.

FOR THE UNION:


Paul Black
IAM Business Representative

Bill Land
Chief Steward IAM

David Thames
Negotiating Committee IAM

FOR THE COMPANY:

Mark Stuebe
V.P. & General Manager — Wichita Clutch

Tim McGowan
V.P., Human Resources – Altra Industrial Motion

Eric Michaeli
Plant Manager – Wichita Clutch

Jennifer Ireland
HR Manager – Altra Industrial Motion

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Addendum B
Job Classifications


Job Title	Grade		Job Code

Journeyman Machinist		10		44-4
Journeyman Maintenance		10		54-4

Journeyman Assembler		9		07-4

Assembly Mechanic A		8		07-1
Cell Operator A		8		30-1
Machine Operator A		8		44-1
Maintenance A		8		54-1

Shipping/Receiving/Warehouse A		7		81-1

Assembly Mechanic B		6		07-2
Cell Operator B		6		30-2
Machine Operator B		6		44-2
Maintenance B		6		54-2

Shipping/Receiving/Warehouse B		5		81-2

Assembly Mechanic C		4		07-3
Cell Operator C		4		30-3
Machine Operator C		4		44-3
Maintenance C		4		54-3

Shipping/Receiving/Warehouse C		3		81-3

Helper		2		00-0

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Rate Structure

Effective August 11, 2007


Grade	Minimum	Maximum
10	$21.43	$21.43
9	$20.02	$20.02
8	$17.31	$18.62
7	$16.66	$17.78
6	$15.59	$16.59
5	$14.45	$15.25
4	$13.46	$14.13
3	$13.07	$13.54
2	$11.85	$12.69

Effective August 11, 2008


Grade	Minimum	Maximum
10	$21.43	$21.43
9	$20.02	$20.02
8	$17.31	$18.62
7	$16.66	$17.78
6	$15.59	$16.59
5	$14.45	$15.25
4	$13.46	$14.13
3	$13.07	$13.54
2	$11.85	$12.69

Effective August 10, 2009


Grade	Minimum	Maximum
10	$21.97	$21.97
9	$20.52	$20.52
8	$17.74	$19.09
7	$17.08	$18.22
6	$15.98	$17.00
5	$14.81	$15.63
4	$13.80	$14.48
3	$13.40	$13.88
2	$12.15	$13.01

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Addendum C
8-9-04
Letter of Intent

Mr. Paul Black I.A.M. Committee

Reference: Company Flowers

The Company will continue to send flowers as a result of the following situations:

	A.		Employees who are hospitalized

	B.		Deceased employee’s funeral

	C.		Member of employee’s family hospitalized

	D.		Deceased family member’s funeral

Please contact the Human Resource Department to arrange for flowers to be sent at the proper time.

Mark J. Stuebe
Vice President & General Manager
Wichita Clutch

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Addendum D
8-9-04
Letter of Intent

Mr. Paul Black
I.A.M. Committee

Reference: Sub-Contracting

During this contract negotiation, the subject of outside contracting and its current and potential effect on the workforce was discussed at length. Any arbitration decision rendered that covers a period of the previous contract will be honored, but this Letter of Intent will supersede any period of time hereafter.

The Company desires to assure the Union that we have every intent to stabilize the workforce for the job security of our employees. While it is impossible to guarantee employment, we fully appreciate the apprehension of the Union caused by the nature of our business.

The nature of our operations demands that we continue our present practice on sub-contracting. However, the Company will, during periods of layoff, meet with the Union upon its request once each month, with or without the necessity for a grievance, to discuss outside contracting with the objective of returning to normal employment levels as soon as practical, and to discuss the economies, lead times, or other necessary business reasons.

Considerations used when sub-contracting include the operational needs of the business, the efficiency and the economics involved, as well as any adverse effect upon the employment of our people, including those on layoff.

The Company is committed to the concept of stabilizing the workforce, and it is understood that in many instances it will be to our mutual advantage to utilize our own equipment and manpower first.

Mark J. Stuebe
Vice President & General Manager
Wichita Clutch

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Addendum E
8-9-04
Letter of Intent

Mr. Paul Black
I.A.M. Committee

Reference: Cycle Counting

The parties have discussed the matter of cycle counting during these 2001 negotiations. While we know it would be desirable to assign the duties and responsibility to either bargaining unit people or non-bargaining unit people, it is not practical to do so at this time.

This is a function of a perpetual inventory control system. It is in the best interest of both parties to continue to share the responsibilities for physical inventory in the same spirit that we are mutually responsible for quality.

Mark J. Stuebe
Vice President & General Manager
Wichita Clutch

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Addendum F

401(k) SAVINGS PLAN FOR HOURLY/UNION EMPLOYEES

The Company established a Savings Plan for the bargaining unit employees of Warner Electric, Wichita Falls, Texas Plant. The Plan will be established and administered by the Company who will bear the fiduciary responsibility and the cost of its administration, arrange for a record keeper and trustee, produce and record all required reports filings and plan documentation, name a plan administrator, and arrange for audits as may be needed from time to time. It is understood and agreed that the Company through any communications that it may use to promote the plan, is not offering financial advice to any plan participant. A description of this plan is included herein, referred to as Addendum F.

OUTLINE OF SAVINGS PLAN PROVISIONS ELIGIBILITY AND ENROLLMENT: All bargaining unit employees will be eligible to enroll in the Savings Plan after the completion of their probationary period, or the effective date of this plan, which ever is later. Enrollments for employees already on the payroll will be effective as soon as practical following their execution of the appropriate enrollment and authorization forms provided by the Company. Each participant who enrolls will be provided an account in their name.

CONTRIBUTIONS: Each eligible participant will be entitled to have withheld from their pay up to fifty percent (50%) of their gross pay on a pre-tax basis (under section 401-K of the Internal Revenue Tax Code), and up to ten percent (10%) of gross pay on an after-tax basis. The Company will forward employee contributions to the record keeper/trustee, to be deposited in each employee’s account, as soon as possible following the end of each month. Enrollments and contributions will be cancelled or changed effective the first pay period following written authorization by the employee. Changes in contribution amounts will be allowed at any time. Re-enrollment after cancellation of contributions will be allowed at any time.

Effective January 1^st, 2008 the Company will match 50% up to the first 6% of the employee’s pre-tax contribution into the 401k plan.

All employee’s covered under this collective bargaining agreement and actively employed as of January 1^st, 2008 will receive a one time contribution of one thousand ($1,000) dollars plus an additional one hundred ($100) for each full year of service as of January 1^st, 2008 into their individual 401k account.

INVESTMENT OPTIONS: The Company will arrange for a choice of investment options

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in accordance with section 404(c) of the Internal Revenue Code. These options will be a least 1) a fixed income option, 2) a long-term bond fund, 3) an aggressive growth fund, 4) a money market fund, and 5) an intermediate growth stock fund. Participants will be allowed to reallocate their account balances between investment options at any time, unless specifically prohibited by the plan provisions. Reallocation of account balances will be in even dollar amounts only.

WITHDRAWALS: Withdrawals of a participant’s account balance will be available upon retirement, termination of employment with the company, death of a participant, total and permanent disability of the participant, or hardship. Hardship withdrawals will be determined based upon facts and circumstances in accordance with Internal Revenue Code. Each participant shall designate a beneficiary upon enrollment.

LOANS: Each participant will be able to take a loan of no more than one half of their account balance. Loans will be made in one hundred dollar ($100) increments not less than five hundred dollars ($500.00), and not to exceed current Internal Revenue Code limits. Loans will be repaid in no less than sixty (60) months, except for the purchase of a principle residence which will have an amortization period of not less than one hundred and twenty months (120) months, and at an interest rate set at the origination of the loan. Interest rates will be one percent (1%) above the prime rate in effect on, and published in the Wall Street Journal on the first day of each calendar quarter. A participant will have no more than one outstanding loan at any time. Each Participant will pay to the record keeper, out of the proceeds of their loan, a loan origination fee not to exceed thirty-five ($35), and an annual loan maintenance fee not to exceed twenty dollars ($20). Any participant who fails to make a loan repayment in any three-month period, or who fails to pay back the entire loan balance within the loan amortization period, will be in default of the loan. Upon default of a loan the record keeper will issue a 1099 form in the amount of the remaining loan balance. A participant who defaults on a loan will be barred from any further loan eligibility.

INFORMATION AND STATEMENTS: Participants will be provided a statement of their accounts twice per year. The Company will undertake reasonable efforts to establish a phone access for all participants with the record keeper as soon as possible after the implementation of the plan. The phone system will offer at least a toll-free phone number (pending availability of toll free numbers) with the ability to inquire account balance and originate loans.

APPLICABLE STATE AND FEDERAL LAWS: In all cases of the taxable nature of compensation and plan provisions, applicable Federal, State and Local Laws will apply regardless of plan provisions to the contrary. The Company will arrange for all tests required by the Internal Revenue Code and will be empowered to take any corrective action to participant’s accounts and or contributions that may be required within the scope of the applicable Code provisions.

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Addendum G
8-9-04
Letter of Intent
2^nd Shift

This agreement has been made and entered into this 13th Day of August, 2007, by and between the Wichita Clutch Company, and the IAM, Local Lodge 2771. It is the intent of this letter that only the amended articles listed below will be affected. Furthermore this letter will cover only second shift employees at Wichita Clutch Company.

NOW THEREFORE, IT IS AGREE AS FOLLOWS

Article 5
HOURS OF WORK AND OVERTIME

5.2

The normal workweek shall consist of four (4) consecutive workdays, Monday through Thursday. The normal workday shall consist of ten (10) consecutive hours excluding a one-half (1/2) hour unpaid lunch period.

5.3

For payroll purposes, the workweek shall be a seven (7) consecutive day period starting at 12:01 A.M. on Monday. For payroll purposes, the workday shall be the twenty-four — (24) hour period beginning at 2:01 A.M. each day. All employees covered by this agreement shall be paid weekly and the Company agrees not to withhold more than one (1) week’s pay.

5.4

The Company shall have the right from time to time to adjust the normal shift starting times by department between 2:30pm and 4:30pm. When all employees in a department are not affected by a change in shift hours, the Company will first solicit volunteers.

5.5

Scheduled starting and quitting times for employees accepting daily overtime assignments shall be at the discretion of the Company.

5.6

Distribution of Overtime. Both parties agree that it is fair to make every reasonable effort to divide overtime work, so far as practical within each job classification, department and shift based upon the qualifications of the employee to perform such work without displacing the employees normally performing that work during the normal work week. For the second shift only, Friday through Sunday will not be

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construed as part of the normal workweek except in the case of mandatory overtime.

5.7		It is agreed that in the event of change in the starting or ending time of a shift, the Company will notify the affected employees in such department during the preceding shift of such change. When the Company changes the scheduled report time for the beginning of a shift and the first day of the work week results in the starting time of the new week overlapping into the last day of the previous work week nothing in this article is to be construed to require the Company to pay overtime because of this overlap. Provided further however, if at the start of a new work day at 2:01 A.M. and an employee is already working, and at that time is being paid an overtime rate by reason that he had worked in excess of ten (10) hours or (twelve (12) hours during the work day immediately preceding, he shall continue to receive the appropriate overtime rate and not have pay reduced because of the advent of the new work day. For pay purposes a new workday will be established only after the employee leaves the premises. When a department or part of a department is scheduled to work on Saturday the employees involved will be notified, in all cases possible, before the end of the shift on Wednesday. Thereafter changes necessary will be made as soon as practical. Employees may refuse daily and Saturday overtime, provided however that in the event no qualified employee(s) accepts such overtime work, qualified employees in that job classification, department, and shift affected having the least overtime charged shall work the assigned overtime. As an option, qualified employees as determined by the Company in other classifications and on the same shift may be assigned the overtime assignment. Employees may refuse overtime on Holidays and on Sunday.

		Employees failing to work accepted weekend overtime hours will be subject to Plant Rule # 43.

		To provide opportunity for others to work in the place of employees who may not desire to do so, an employee when contacted about working overtime shall give a “Yes” or “No” answer within thirty (30) minutes. Employees will not be charged for any overtime hours refused if the hours were offered within the final one half hour of their shift.

5.8

Company Requested Overtime ( 1 ¹/2) Overtime Premiums of time and one-half (1 ¹/2) of the straight time hourly rate shall be paid as follows:

	A.		For all hours worked in excess of ten (10) hours in any one (1) workday

	B.		For all hours worked in excess of forty (40) hours in any one (1) workweek

	C.		For all hours worked by an employee on Saturday in any workweek.

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5.9

Double-time Premium (2) Overtime premiums of two (2) times the straight time hourly rate shall be paid as follows:

	A.		For all hours worked by an employee on Sunday in any workweek.

	B.		For all hours worked in excess of twelve (12) hours in any one (1) workday.

	C.		For all hours worked on days defined as Holidays under this Agreement, except when such hours are part of a shift commencing on the one day and carrying over into the Holiday.

Article 9
VACATION

Vacation days taken by second shift employees will be taken in ten (10) hour increments. All eligibility and requirements will follow Article 9 of the current contract. Any employee that changes shifts during the vacation year will be allowed to use any remaining vacation hours with approval of his Supervisor.

Article 10
HOLIDAYS

Holiday hours taken by second shift employees will be taken in ten (10) hour increments.

10.1

Holidays Observed. During the term of this Agreement, the following days shall be considered Holidays:


Good Friday		Friday after Thanksgiving

Memorial Day		Christmas Eve

Fourth of July		Christmas Day

Labor Day		New Year’s Day

Thanksgiving		Paid Personal Time Off (PPTO) (2 Days)

The following three (3) floating holidays have been specifically assigned for the term of this agreement;

	•		Monday December 31st, 2007

	•		Friday December 26th, 2008

	•		Friday January 2nd, 2009

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PPTO hours taken by second shift employees can be taken in five (5) or ten (10) hour increments. Any time missed in a workweek due to the employee taking PPTO will not be held against the employee for attendance purpose. It is the employee responsibility to request in advance, from the Area Managers, permission to come in early to make up any missed time. All missed time must be made up in the same workweek. The employee will make the request twenty-four hours in advance to ensure production needs do exist. No employees will be allowed to work past 2:00 A.M., unless requested by the Company.

All eligibility requirements as stated in Paragraph 10.2, Holiday Pay and Eligibility, shall apply to both PPTO days.

Article 12
GROUP INSURANCE

Short Term Disability Weekly Sickness and Accident (non-occupational) administered by the National I.A.M. Benefit Trust — Pays 70% of gross weekly wages up to $350.00 per week for maximum 26 weeks. Payable first day for accident or hospital admission; 8th day for illness.

Second shift employees will have the weekly sickness and accident payment of 70% of gross wages up to $350.00 per week, paid out for the normal second shift workweek. If a second shift employee gets into an accident or sick on a non-normal workday (Friday through Sunday) no benefit will apply. For example, a second shift employee will be paid twenty-five percent (25%) of the $350.00 for each of the four (4) days he/she is out, Monday through Thursday.

Article 13
WAGES

For the term of this agreement all holiday pay, PPTO time, Jury Duty and Bereavement leave shall be paid at 10 hours per day at the employee’s regular straight-time hourly rate of pay.

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Bereavement Pay

Bereavement hours taken by second shift employees will be taken in ten (10) hour increments. Any time missed in a workweek due to the employee taking bereavement will not be held against the employee for attendance purpose. It is the employee responsibility to request in advance, from the Area Managers, permission to come in early to make up any missed time. All missed time must be made up in the same workweek. The employee will make the request twenty-four hours in advance to ensure production needs do exist. No employees will be allowed to work past 2:00 A.M., unless requested by the Company.

Jury Pay

Jury duty hours taken by second shift employees will be taken in ten (10) hour increments. Any time missed in a workweek due to the employee taking jury duty will not be held against the employee for attendance purpose. It is the employee responsibility to request in advance, from the Area Managers, permission to come in early to make up any missed time. All missed time must be made up in the same workweek. The employee will make the request twenty-four hours in advance to ensure production needs do exist. No employees will be allowed to work past 2:00 A.M., unless requested by the Company.

TERM OF AGREEMENT

This Agreement for the 2^nd shift shall remain in full force and effect until midnight on August 13, 2010. The Company will commit to maintaining the present four (4), ten (10) hour shift schedule unless changed by mutual agreement. In the event, however, the Company chooses to implement a 3^rd shift the 2^nd shift hours will automatically revert to a five (5) day, eight (8) hour shift schedule.

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Addendum H
8-7-07
Letter of Intent

Mr. Paul Black
I.A.M. Committee

Reference: Health / Fitness Dues Reimbursement

The company is committed to maintaining a healthy and safe work environment for its associates. In furtherance of this commitment, the company has maintained a practice of reimbursing its associates for up to $32.00 per month for membership fees in a gym or fitness club with proof of participation of 10 visits per month. The company intends to continue this practice for the benefit of all of its associates but may in the future choose to modify or eliminate this practice at its sole discretion.

Mark J. Stuebe
Vice President & General Manager
Wichita Clutch

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Addendum J
8-9-04
Letter of Intent

Mr. Paul Black
I.A.M. Committee

Reference: Combining Departments

During the 2001 contract negotiations the discussion of promoting more cellular manufacturing was discussed. Some of the topics from that discussion were combining Department 20 and Department 30 to form more machining cells and better utilization of our equipment. There were also discussions of forming a Journeyman classification for that area. Although no decisions were made during the discussion, both parties agreed to leave this open for discussions during the term of the contract.

Mark J. Stuebe
Vice President & General Manager
Wichita Clutch

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Addendum K
8-7-07
Letter of Intent
Light Duty

The Company’s practice is to actively seek light duty assignments for employees who are not able to perform their regular job duties due to work place injuries.

Mark J. Stuebe
Vice President & General Manager
Wichita Clutch

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Addendum L
8-7-07
Severance Pay

In the event of the closing of the Plant, the Company will pay severance to all employees whose employment is terminated due to the plant closing based on the following schedule;

	•		0 to 5 years of service — 2 weeks straight-time pay

	•		6 to 10 years of service — 5 weeks straight-time pay

	•		11 to 15 years of service — 10 weeks straight-time pay

	•		16 to 20 years of service — 15 weeks straight-time pay

	•		21 or more years of service — 20 weeks straight-time pay

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Plant Rules & Regulations

All work places and businesses must have certain rules and regulations to enable the company to meet its overall goals and objectives without disruptions. Rules are established to benefit the employee and the company. Most employees working in industry today realize that one employee’s misconduct may harm the rest and they expect certain standards of conduct to be established and maintained.

Disciplinary action must always be intended to train, correct, and strengthen employees in their jobs. Whether discipline is in the form of oral warnings, written warnings, suspension without pay, or discharge, these actions in so far as practical will be applied uniformly for the purpose of preventing recurrence of the cause of such action. They are not designed to humiliate or retaliate.

A complete list of violations requiring disciplinary action probably is not possible to establish nor should it be necessary, as “common sense” should prevail between reasonable people. However, in an effort to better communicate with employees and to provide Supervisors with guidelines to go by, therefore causing more uniform application, the following general work rules and regulations are listed with the appropriate disciplinary action to be applied if violated.

In all possible cases, the Company shall issue disciplinary notices within five (5) working days following the completion of its investigation; extensions can be made by mutual agreement between the Company and the Union.

Stealing — Any act of theft of property belonging to the Company, another employee, or anyone doing business with the Company is strictly prohibited. (Discipline code 4)

Fighting — Provoking or instigating a fight or striking another person for any reason except in self-defense is absolutely prohibited. (Discipline code 4)

Intent to Harm/Destroy — Acts intended to destroy including defacing property or equipment of the company, another employee, or anyone doing business with the Company or acts intended to inflict bodily injury, whether or not destruction or injury actually occurs, and engaging in sabotage or espionage are absolutely prohibited. (Discipline code 4)

Encouraging Fellow Employees to Walk Off Job — Acts intended to coach, encourage, or in any way cause employees to walk off job whether or not employee engaging in such act leaves is strictly prohibited. (Discipline code 4)

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Use or Possession of Alcoholic Beverage and /or Illegal Drugs — Use or possession of alcoholic beverages and/or Illegal Drugs on company property will not at any time be permitted. (Discipline code 4)

Conviction of Crime — An employee found guilty of a crime, other than for a minor traffic violation or similar violation in any court of law is subject to discharge. (Discipline code 4)

Punching Another Employee’s Time Card — Willful punching of another employee’s time card is prohibited. (Discipline code 4)

Immoral Conduct — Engaging in or committing an immoral act at any time will be basis for discharge. (Discipline code 4)

Any Falsification of Company Records — Any willful or intentional falsifying of company records is strictly prohibited. (Discipline code 4)

10.

Borrowing Company Property — Borrowing Company materials and equipment without written permission, is absolutely prohibited. (Discipline code 4)

11.

Insubordination — Refusing or failure to perform work assigned by a Supervisor is prohibited. If instruction of Group Leaders acting on orders of Supervisor is refused, the Group Leader should turn over the situation to the Supervisor to handle. Threats or intimidation of management or malicious statements concerning management shall be considered insubordination and are prohibited. (Discipline code 3)

12.

Leaving Premises Without Permission — Employees that leave company property, except for lunch, during work hours without permission of their Supervisor are in violation of this work rule. (Discipline code 3)

13.

Reporting to Work Under Influence of Alcohol or Drugs — Reporting to work under the influence of alcohol or drugs is prohibited. This includes reporting to work at beginning of shift, after lunch, or at anytime during your work hours. (Discipline code 3)

14. Sleeping — Sleeping during work hours is prohibited. (Discipline code 3)

15.

Firearms, Explosives, Weapons — Possession of firearms, explosives, or weapons on company property are prohibited. Fireworks are considered explosives. (Discipline code 3)

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16.

Slowdown — Intentional holding back, slowing down, hindering, or limiting ones own production, or encouraging, coercing, or bribing others to do the same is prohibited. (Discipline code 3)

17.

Untruthful Statements — Untruthful statements by employees to management, including their Supervisor, who are responsible for the administration of company rules and regulations and the work agreement are a violation. (Discipline code 3)

18.

Disorderly Conduct/Horseplay — Disorderly conduct including but not limited to such things as so called practical jokes, horseplay, rowdiness, running, scuffling, throwing things, threatening, intimidating, coercing, interfering with other employees, shouting vulgarities, issuing false statements, etc., are prohibited. (Discipline code 2) Property damage as a result of violation of this rule must be paid for or the employee will be subject to discharge. (Discipline code 4)

19.

Bulletin Boards/Notices — Altering or removing any matter, which has been posted by the company on bulletin boards or other locations, is prohibited. (Discipline code 2)

20.

Notice Posting by Employees — Notices of any type posted by employees are prohibited unless authorized by a Supervisor. (Discipline code 2)

21.

Solicitation — Employees may not solicit or sell anything unless authorized by a Supervisor. This includes taking up collections for any reason or distribution of literature. (Discipline code 2)

22.

Perform Other Than Company Work — Performing work on company premises that is not authorized by the company is prohibited. (Discipline code 2)

23.

Rest Breaks — The policy for breaks is one (1) ten (10) minute break in the first part of the shift and one (1) ten (10) minute break in the last part of the shift. Employees will be allowed an additional break of ten (10) minutes by their Supervisor if overtime is worked but not unless the overtime is for over one and one half (1 ¹/2) hours in addition to the regular eight (8) hours. Taking unauthorized breaks as well as failure to begin work for any reason after break or lunch period is a violation. (Discipline code 2)

24.

Visitors — Bringing visitors into the plant or asking them to come in and visit is prohibited unless approval is granted by your Supervisor. (Discipline code 2)

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25.

Borrowing Tools From Other Employees —Borrowing tools from other employees without their permission is prohibited. (Discipline code 2)

26.

Vending Machine Damage — Abusing vending machines is prohibited. When malfunction occurs, report the problem to the proper person. (Discipline code 2) Property damage as a result of the violation must be paid for by the employee or the employee will be subject to discharge.

27.

Permission to Discuss Grievance — The Company has the right to expect employees and the Union committeemen to obtain permission from the respective Supervisors before stopping work and pursuing a grievance. In order to minimize loss of production the Supervisor may schedule the time for the discussion to take place at a later time. In no case will the Supervisor delay approval and scheduling of a grievance meeting requested of them later than the day after receiving such a request. Union committee members shall confine their grievance activities to matters arising within their area of jurisdiction. Failure to obtain permission of an employee’s and committeeman’s respective Supervisor before discussion of a grievance on company time is considered a violation. (Discipline code 2)

28.

Reading on Work Time — Reading literature not pertaining to business on the job during work hours is prohibited. (Discipline code 1)

29.

Leaving Work Station Without Permission -— Leaving the work station and/or department without permission from your Supervisor during work hours or failure to return within a reasonable time is a violation under this rule. Certainly permission is not necessary to go to the drinking fountain or restroom so long as the privilege is not abused. (Discipline Code 1)

30.

Loafing, Loitering — Employees are expected to work steadily each hour for which they are paid. Loafing, loitering in the work areas or restrooms, or engaging in excessive visiting during working hours is prohibited. (Discipline code 1)

31.

Safety — Employees are required to comply with all safety and health standards and all rules, regulations, and orders issued pursuant to Federal and State Safety and Health Laws and all rules, regulations, and requirements issued by the Company. (Discipline code 1)

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32.

Failure to Punch Own Time Card — Timekeeping is the law and failure to punch your card properly is considered a violation. (Discipline code 1)

33.

Unsatisfactory Work Performance — Anyone whose work is unsatisfactory will be given a fair amount of time to bring their performance up to a satisfactory level. Unsatisfactory performance by an employee cannot be allowed to continue. (Discipline code 1)

34.

Willful Littering / Poor Housekeeping — Willful littering and poor housekeeping are a violation. (Discipline code 2)

35.

Company Telephone Use — Use of a company telephone is prohibited; this includes the Pay Phone except during breaks and lunch, unless approved each time by a Supervisor. (Discipline code 1)

36.

Stopping Work Early Before Break, Lunch, End of Shift — Stopping early without approval of Supervisor is prohibited. (Discipline code 1)

37.

Entering Plant — Entering the plant or workplace at unauthorized points or after your shift ends is prohibited unless permission is granted by a Supervisor. (Discipline code 1)

38.

Absence Two (2) Consecutive Work Days — No Contact With Supervisor — Any employee who is absent for two (2) consecutive work days for any reason without notifying their Supervisor will be considered to have voluntarily quit. Employees will not be reinstated unless absence was for good and sufficient reason and the employee can show that he could not contact their Supervisor. (Discipline code 4)

39.

Multiple Violations —Any combination of infractions with Code violations that total up to 9 (except when the last infraction was six (6) months or more since the previous infraction). (Discipline code 4)


		Example: 2 Code 1’s = 2
		2 Code 2’s = 4
		1 Code 3 = 3

		9 = Code 4

40.

Failure to Immediately Report an On-The-Job Injury to Supervisor — Failure to immediately report an on-the-job injury to your Supervisor will result in

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disciplinary action. (Immediately means at least the same day of injury.) (Discipline code 3)

41.

Reporting to Work After Shift has Started—An employee that reports to work after the scheduled shift has began must notify their Supervisor before starting work. (Discipline code 1)

42.		Tardiness — Reporting to work within the first thirty (30) minutes after the starting time of the shift as well as the first thirty (30) minutes after the end lunch is considered tardiness. An employee that accumulates five (5) or more violations in a thirty (30) day period will result in disciplinary action. Any one (1) violation after the initial five (5) will result in the next step of discipline. (Discipline code 1)

43.		Absence — Failure to be present at work is of two (2) types of absence—Partial and Full.

		Partial Absence is when a person makes themselves available for less then the last seven and one-half (7 ¹/2) hours of a shift.

		Full Absence is when a person does not avail themselves for work during a scheduled shift.

		Both absences are serious problems, but partial absence has less impact on production requirements than full absences. Consequently, their impact is weighed accordingly. Each Partial Absence is a #1, and each Full Absence is a #2. Employee must contact their Supervisor each day to report an absence before the shift starts unless their Supervisor tells them otherwise.

		Any combination of absences with a weighted value of five (5) within any sixty (6) day period will result in Code 2 discipline.

		Only absences caused by medical disability and substantiated by written proof from a doctor will be excused. The first two consecutive work days absent for personal illness will be weighted as one absence; all following consecutive work days will be weighted as 1 day’s absence each. All other absences, regardless of reason, will be weighted for disciplinary purposes.

44.

Unauthorized Overtime — Exceeding the maximum number of overtime hours scheduled by supervision without authorization is prohibited. (Discipline code 2) (added January 8, 2007)

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45.

Leaving Company Property — Failure to punch out before leaving Company property while not on Company business is prohibited. (Discipline code 2) (added January 8, 2007).


Discipline	1^st	2^nd	3^rd	4^th
Code	Violation	Violation	Violation	Violation

1	Verbal	Written	Written	Discharge
	Warning	Warning	Warning
			3 day
			Suspension
			Without pay

2	Written	Written	Discharge
	Warning	Warning
		3 day
		Suspension
		Without pay

3	Written	Discharge
	Warning
	3 day
	Suspension
	Without pay

4	Discharge

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EX-10.12 4 b68970ahexv10w12.htm EX-10.12 EMPLOYMENT AGREEMENT, DATED DECEMBER 14, 2007 exv10w12

Exhibit 10.12

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”), dated as of December 14, 2007 (the “Effective Date”), is entered into among Altra Holdings, Inc., a Delaware corporation, (“Holdings”) Altra Industrial Motion, Inc., a Deleware owned subsidiary of Holdings (the “Company”), and Christian Storch (“Executive”). Certain capitalized terms used in this Agreement are defined in Section 12 hereof.

Holdings, the Company and Executive desire to enter into this agreement relating to Executive’s employment by the Company.

The parties hereto agree as follows:

1. Employment. The Company shall employ Executive, and Executive hereby agrees to be employed by the Company, upon the terms and conditions set forth in this Agreement for the period beginning on the Effective Date and ending as provided in Section 3 hereof (the “Employment Period”).

2. Position and Duties.

(a) Position. During the Employment Period, Executive shall serve as the Chief Financial Officer and Treasurer of the Company and in such capacity shall have the duties, responsibilities and authority that are normally associated with such office, subject to the direction and supervision of the Board. Executive shall report directly to the Michael L. Hurt, Chairman and Chief Executive Officer.

(b) Duties. Executive shall devote substantially all of his business time and attention (except for permitted vacation periods and periods of illness or incapacity and other activities approved by the Board from time to time) to the business and affairs of the Company and its Subsidiaries.

3. Termination. The Employment Period shall terminate on the fifth (5^th) anniversary of the Effective Date (the “Expiration Date”). Notwithstanding the foregoing, the Company and Executive agree that Executive is an “at-will” employee, subject only to the contractual rights upon termination set forth herein, and that the Employment Period (a) shall terminate automatically at any time upon Executive’s death, (b) shall terminate automatically at any time upon the Board’s determination of Executive’s Disability, (c) may be terminated by the Board or by the Chief Executive Officer (after consultation with the Board) at any time for any reason or no reason (whether for Cause or without Cause) by giving Executive written notice of the termination and (d) may be terminated by Executive for any reason or no reason (including for Good Reason) by giving the Company written notice at least 30 days in advance of his termination date. Notwithstanding anything herein to the contrary, if the Expiration Date occurs and this Agreement terminates automatically pursuant to this Section 3 because the Company and Executive have not extended the Expiration Date beyond the initial five-year period by means of an amendment to this Agreement, the obligations of the Executive under Section 8 (Noncompetition) shall terminate on the Expiration Date; provided, however, that the obligations

of Executive under Section 8 (Noncompetition) shall survive the Expiration Date and be enforceable thereafter during the Noncompete Period (as defined in Section 8) in the event the Company elects, in its sole and absolute discretion, to pay Executive the severance benefits described in Section 5(a) of this Agreement (in which event the Executive shall execute and deliver the release contemplated therein). The Company undertakes to advise Executive at least six months prior to the Expiration Date whether it intends to enter into discussions with Executive with respect to an extension, renegotiation or amendment of this Agreement beyond the Expiration Date. The date that the Employment Period is terminated for any reason is referred to herein as the “Termination Date.”

4. Base Salary and Benefits.

(a) Base Salary. During the Employment Period, Executive’s base salary shall be $340,000 per year (the “Base Salary”). The Base Salary shall be reviewed annually. The Base Salary shall not be reduced prior to the Expiration Date, and after any increase of such Base Salary approved by the Board, the term “Base Salary” in this Agreement shall refer to the Base Salary as so increased. The Base Salary shall be payable in regular installments in accordance with the Company’s general payroll practices.

(b) Performance Bonus. In addition to the Base Salary, Executive shall be eligible for a maximum annual incentive target bonus payment of 50% of his Base Salary (a “Performance Bonus”), in accordance with the Company’s bonus performance plan approved by the Board in its sole discretion.

(c) Special Signing Bonus. Included in your first paycheck upon joining Altra, the Company shall pay to Executive a special one-time signing bonus of $25,000. If you were to voluntarily leave employment with the Company, except for Good Reason, within the first year after your start date, you would be required to pay this amount back in its entirety before your termination date.

(d) Expenses. The Company will reimburse Executive for all reasonable travel and other business expenses incurred by Executive during the Employment Period in connection with the performance of his duties and obligations under this Agreement, subject to Executive’s compliance with such limitations and reporting requirements with respect to expenses as may be established by the Company from time to time.

(e) Other Benefits. During the Employment Period, Executive will be entitled to participate in all compensation or employment benefit plans or programs and receive all benefits and perquisites for which salaried employees of the Company generally are eligible under any plan or program now or established later by the Company on the same basis as other senior executives of the Company. Nothing in this Agreement will preclude the Company from amending or terminating any of the plans or programs applicable to salaried employees or senior executives as long as such amendment or termination is applicable to all salaried employees or all senior executives, as the case may be. Executive shall be entitled to four (4) weeks of paid vacation each year, which may be taken in accordance with the Company’s vacation policy.

(f) Indemnification. To the fullest extent permitted by law and the certificate of incorporation of the Company, the Executive (and his heirs, executors and administrators) shall be indemnified by the Company and its successors and assigns. The obligations of the Company pursuant to this Section shall survive the termination of the Employment Period.

5. Severance.

(a) Termination without Cause or for Good Reason. If, prior to the Expiration Date, the Employment Period is terminated by the Company without Cause or by the Executive for Good Reason, (i) Executive (or his estate) shall be entitled to receive for the Severance Period (A) his annual Base Salary as in effect immediately prior to the Termination Date paid in the same manner and in the same installments as previously paid and (B) to the extent permitted by such plans as in effect on the Termination Date, at the Company’s expense the continuation of medical and dental benefits through the Severance Period and (ii) Executive (or his estate) shall be entitled to receive (A) all earned or accrued but unpaid Base Salary, reimbursement of expenses and any other benefits to which Executive is entitled through the Termination Date, (B) any Performance Bonus that was earned, but not paid, as of, and pro rated through, the Termination Date, and (C) all amounts or benefits to which Executive is entitled under any applicable employee-benefit plan or arrangement of the Company in which Executive was a participant during his employment with the Company, in accordance with the terms of such plan or arrangement. When used herein, the “Severance Period” means the 12-month period from and after the Termination Date. The Company’s obligations under this Section 5(a) shall be subject to the condition that Executive deliver a complete release in favor of Holdings and the Company and their respective Subsidiaries, affiliates, officers, directors, employees, principals, and attorneys, in form and substance satisfactory to Holdings and Company.

(b) Death or Disability. In the event of the death or Disability of Executive during the Employment Period, the Company’s obligation to make payments or provide any other benefits under this Agreement shall cease as of the date of the death or Disability of Executive; provided that Executive (or his estate) shall be entitled to receive (i) all earned or accrued but unpaid Base Salary, reimbursement of expenses and any other benefits to which Executive is entitled through the Termination Date, (ii) any Performance Bonus that was earned, but not paid, as of, and pro rated through, the Termination Date, and (iii) all amounts or benefits to which Executive is entitled under any applicable employee-benefit plan or arrangement of the Company in which Executive was a participant during his employment with the Company, in accordance with the terms of such plan or arrangement.

(c) Other Termination. If the Employment Period is terminated by the Company for Cause or by Executive for any reason other than Good Reason, Executive shall not be entitled to any severance payments and all of Executive’s benefits shall cease to be effective immediately as of the Termination Date (except as required by law). All of Executive’s rights to fringe benefits and bonuses (if any) which accrue or become payable after the termination of the Employment Period shall cease upon such termination; provided that Executive (or his estate) shall be entitled to receive (x) all earned or accrued but unpaid Base Salary, reimbursement of expenses and any other benefits to which Executive is entitled through the Termination Date,

(y) any Performance Bonus that was earned, but not paid, as of, and pro-rated through, the Termination Date, and (z) all amounts or benefits to which Executive is entitled under any applicable employee-benefit plan or arrangement of the Company in which Executive was a participant during his employment with the Company, in accordance with the terms of such plan or arrangement.

(d) Other Benefits. Except as required by law or as specifically provided in this Section 5, the Company’s obligation to make any payments or provide any other benefits hereunder shall terminate automatically as of the Termination Date.

(e) Termination of Severance. If Executive breaches any of the provisions of Section 6 through 9 hereof, the Company shall no longer be obligated to make any additional payments or provide any other benefits pursuant to this Section 5.

(f) Pro Rated Performance Bonus. If Executive shall be entitled to any pro rated Performance Bonus pursuant to Section 5 (a), (b) or (c), the Company shall not be required to make payment to Executive of such pro rated Performance Bonus until such time that the Company makes payment of similar bonuses to other participants in the Company’s bonus performance plan after the completion of the fiscal year in which the bonuses were earned.

6. Confidential Information. Executive acknowledges that the information, observations and data (including without limitation trade secrets, know-how, research plans, business, accounting, distribution and sales methods and systems, sales and profit figures and margins and other technical or business information, business, marketing and sales plans and strategies, cost and pricing structures, and information concerning acquisition opportunities and targets nationwide in or reasonably related to any business or industry in which any of Holdings or the Company or their respective Subsidiaries is engaged) disclosed or otherwise revealed to him, or discovered or otherwise obtained by him or of which he becomes aware, directly or indirectly, while employed by the Company or its Subsidiaries (including, in each case, those obtained prior to the date of this Agreement) concerning the business or affairs of Holdings or the Company or any of their respective Subsidiaries (collectively, “Confidential Information”) are the property of Holdings or the Company or their respective Subsidiaries, as the case may be, and agrees that Holdings and Company have a protectable interest in such Confidential Information. Therefore, Executive agrees that he shall not (during his employment with the Company or at any time thereafter) disclose to any unauthorized person or use for his own purposes the Confidential Information without the prior written consent of the Board, unless and to the extent that the aforementioned matters: (a) become or are generally known to and available for use by the public other than as a result of Executive’s acts or omissions or (b) are required to be disclosed by judicial process or law (provided that Executive shall give prompt advance written notice of such requirement to the Company to enable the Company to seek an appropriate protective order or confidential treatment). Executive shall deliver to the Company at the termination of the Employment Period, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) which constitute Confidential Information or Work Product (as defined below) which he may then possess or have under his control.

7. Work Product. Executive hereby assigns to the Company all right, title and interest in and to all inventions, developments, methods, process, designs, analyses, reports and all similar or related information (in each case whether or not patentable), all copyrightable works, all trade secrets, confidential information and know-how, and all other intellectual property rights that both (a) are conceived, reduced to practice, developed or made by Executive while employed by the Company and its Subsidiaries and (b) either (i) relate to the Company’s or any of its Subsidiaries’ actual or anticipated business, research and development or existing or future products or services, or (ii) are conceived, reduced to practice, developed or made using any of equipment, supplies, facilities, assets or resources of the Company or any of its Subsidiaries (including but not limited to, any intellectual property rights) (“Work Product”). Executive shall promptly disclose such Work Product to the Board and perform all actions reasonably requested by the Board (whether during or after the Employment Period) to establish and confirm the Company’s ownership of the Work Product (including, without limitation, executing and delivering assignments, consents, powers of attorney, applications and other instruments).

8. Noncompetition. In further consideration of the compensation to be paid to Executive hereunder, Executive acknowledges that in the course of his employment with the Company and its Subsidiaries he has become and shall become familiar with the Company’s trade secrets and with other Confidential Information concerning the Company and its Subsidiaries and that his services have been and shall be of special, unique and extraordinary value to the Company and its Subsidiaries. Therefore, Executive agrees that, during the period of Executive’s employment with the Company and for 12 months thereafter (the “Noncompete Period”), he shall not, without prior written approval by the Board, directly or indirectly (whether for compensation or otherwise) own or hold any interest in, manage, operate, control, consult with, render services for, or in any manner participate in any business which competes in any material respect with the business of the Company or its Subsidiaries conducted or proposed to be conducted during the Employment Period (collectively, the “Business”), either as a general or limited partner, proprietor, common or preferred shareholder officer, director, agent, employee, consultant, trustee, affiliate or otherwise. Executive acknowledges that the Company’s and its Subsidiaries’ businesses are planned to be conducted nationally and internationally and agrees that the provisions in this Section 8 shall operate in the market areas of the United States and outside the United States in which the Company conducts or plans to conduct business on and prior to the Termination Date. Nothing in this Section 8 shall prohibit Executive from being a passive owner of not more then 2% of the outstanding securities of any publicly traded company engaged in the Business, so long as Executive has no active participation in the business of such company.

9. Non-Solicitation. During the Noncompete Period, Executive shall not directly or indirectly through another entity (i) induce or attempt to induce any employee of the Company or any Subsidiary to leave the employ of the Company or such Subsidiary, or in any way interfere with the relationship between the Company and any Subsidiary and any employee thereof, (ii) solicit to hire any person who was an employee of the Company or any Subsidiary at any time during the 12 months preceding the termination of the Employment Period or (iii) induce or attempt to induce any customer, client, member, supplier, licensee, licensor, franchisee or other business relation of the Company or any Subsidiary to cease doing business with the Company

or such Subsidiary, or in any way interfere with the relationship between any such customer, developer, client, member, supplier, licensee, licensor, franchisee or business relation and the Company or any Subsidiary (including, without limitation, making any negative statements or communications about the Company or its Subsidiaries).

10. Enforcement. If, at the time of enforcement of any sections 6 through 9, a court of competent jurisdiction shall hold that the period, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope or area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall be allowed and directed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by applicable law. The parties hereto acknowledge and agree that Executive’s services are unique and he has access to Confidential Information and Work Product, that the provisions of Section 6 through 9 are necessary, reasonable and appropriate for the protection of the legitimate business interests of Holdings and the Company and their respective Subsidiaries, that irreparable injury will result to Holdings and the Company and their respective Subsidiaries if Executive breaches any of the provisions of Section 6 through 9 and that money damages would not be an adequate remedy for ay breach by Executive of this Agreement and that neither Holdings nor the Company will have any adequate remedy at law for any such breach. Therefore, in the event of a breach or threatened breach of this Agreement, Holdings or the Company or any of their successors or assigns, in addition to other rights and remedies existing in their favor, shall be entitled to specific performance and/or immediate injunctive or other equitable relief from any court of competent jurisdiction in order to enforce or prevent any violations of the provisions hereof (without the necessity of showing actual money damages, or posting a bond or other security). Nothing contained herein shall be construed as prohibiting Holdings or the Company or any of their successors or assigns from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages.

11. Executive’s Representations and Acknowledgements. Executive hereby represents and warrants to Holdings and the Company that (i) the execution, delivery and performance of this Agreement by Executive do not and shall not conflict with, breach, violate or cause a default under any contract, agreement, instrument, order, judgment or decree to which Executive is a party or by which he is bound, (ii) Executive is not a party to or bound by any employment agreement, noncompete agreement or confidentiality agreement with any other Person that would interfere with Executive’s compliance with the terms and conditions of this Agreement (iii) Executive shall not use any confidential information or trade secrets of any third party in connection with the performance of his duties hereunder, and (iv) this Agreement constitutes the valid and binding obligation of Executive, enforceable against Executive in accordance with its terms. Executive hereby acknowledges and represents that he has consulted with independent legal counsel regarding his rights and obligations under this Agreement and that he fully understands the terms and conditions contained herein and intends for such terms and conditions to be binding on and enforceable against Executive. Executive acknowledges and agrees that the provisions of Section 6 through 9 are in consideration of: (i) Executive’s employment by the Company; and (ii) additional good and valuable consideration as set forth in the Agreement, the receipt and sufficiency of which are hereby acknowledged. Executive expressly agrees and acknowledges that the restrictions contained in Section 6 through 9 do not

preclude Executive from earning a livelihood, nor do they unreasonably impose limitations on Executive’s ability to earn a living. In Addition, Executive agrees and acknowledges that the potential harm to the Company and its non-enforcement outweighs any harm to Executive of its enforcement by injunction or otherwise. Executive acknowledges that he has carefully read this Agreement and has given careful consideration to the restraints imposed upon Executive by this Agreement, and is in full accord as to their necessity for the reasonable and proper protection of the Confidential Information. Executive expressly acknowledges and agrees that each and every restraint imposed by this Agreement is reasonable with respect to subject matter, time period and geographical area.

12. Definitions.

“Affiliate” means, with respect to any Person, any Person controlling, controlled by or under common control with such Person.

“Board” means the Board of Directors of the Company.

“Cause” means (i) Executive’s material breach of the terms of any agreement between Executive and Holdings or the Company; (ii) Executive’s willful failure or refusal to perform material duties as Chief Financial Officer; (iii) Executive’s willful insubordination or disregard of the legal directives of the Board or the Chief Executive Officer which are not inconsistent with the scope, ethics and nature of Executive’s duties and responsibilities; (iv) Executive’s engaging in misconduct which has a material adverse impact on the reputation, business, business relationships or financial condition of Holdings or the Company; (v) Executive’s commission of an act of fraud or embezzlement against Holdings or the Company or any of their Subsidiaries; or (vi) any conviction of, or plea of guilty or nolo contendere by, Executive with respect to a felony (other than a traffic violation), a crime involving moral turpitude, fraud or misrepresentation; provided, however, that Cause shall not be deemed to exist under any of the clauses (i), (ii), or (iii) unless Executive has been given reasonably detailed written notice of the grounds for such Cause and Executive has not effected a cure within twenty (20) days of the date of receipt of such notice.

“Disability” means a determination by independent competent medical authority (selected by the Board) that Executive is unable to perform his duties under this Agreement and in all reasonable medical likelihood such inability will continue for a period in excess of 120 days (whether or not consecutive) in any 365 day period.

“Good Reason” means any of the following: (i) without Executive’s express written consent, any change in Executives job title, any change in Executive’s reporting relationships or a significant reduction of Executive’s duties, position or responsibilities relative to Executive’s duties, position or responsibilities in effect immediately prior to such reduction, or Executive’s removal from such position, duties and responsibilities, unless he is provided with comparable duties, position and responsibilities; (ii) a material reduction by the Company in the kind or level of employee benefits to which he is entitled immediately prior to such reduction with the result that Executive’s overall benefits package is significantly reduced; or (iii) the

Company’s failure to cause Executive’s employment agreement and its obligations thereunder to be expressly assumed by the Company’s successor.

“Person” means an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.

“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by the Person or one or more of the other Subsidiaries of the Person or a combination thereof or (ii) if a limited liability company, partnership, association or other business entity (other then a corporation), a majority of partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of the Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity (other than a corporation) if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control any managing director or general partner of such limited company, partnership, association or other business entity. For purposes hereof, references to a “Subsidiary” of any Person shall be given effect only as such times that such Person has one or more Subsidiaries, and, unless otherwise indicated, the term “Subsidiary” refers to a Subsidiary of the Company.

13. Notices. Any notice provided for in this Agreement must be in writing and must be either personally delivered, mailed by first class mail (postage prepaid and return receipt requested), sent by reputable overnight courier service (charges prepaid), or faxed to the recipient at the address below indicated:

Altra Holdings Inc./Altra Industrial Motion, Inc.
14 Hayward Street
Quincy, MA 02171
Attention: Michael L. Hurt, Chief Executive Officer
Telecopy No.: ( 617 – 689 — 6202 )

With a copy to:

Weil, Gotshal & Manges LLP
201 Redwood Shores Parkway
Redwood Shores, CA 94065
Attention: Craig W. Adas
Telecopy No.: (650) 802-3100

To Executive:

Christian Storch
c/o Elizabeth Ewing
Heidrick & Struggles
One Logan Square
18^th & Cherry Streets, Suite 3075
Philadelphia, PA. 19103

Or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement shall be deemed to have been given when personally delivered, one business day after sent by reputable overnight courier service, five days after deposit in the U.S. mail (or when actually received, if earlier), or at such time as it is transmitted via facsimile, with receipt confirmed.

14. General Provisions.

(a) Expenses. The Company, Holdings and Executive will each pay their own costs and expenses incurred in connection with the negotiation and execution of this Agreement and the agreements contemplated hereby.

(b) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.

(c) Complete Agreement. This Agreement, those documents expressly referred to herein and other documents of even date herewith, embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.

(d) Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.

(e) Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by Executive, Holdings, the Company, and their respective successors and assigns, including any entity with which the Company may merge or consolidate or to which all or substantially all of its assets may be

transferred; provided, however, that any such assignment by the Company shall include all rights and obligations hereunder, including the severance obligations provided in Section 5; and, provided further, that Executive shall not be entitled to assign his rights or obligations under this Agreement without the prior written consent of Holdings and the Company.

(f) Governing Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts, without giving effect to any choice of law or conflict of law rules or provisions (whether of the Commonwealth of Massachusetts or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the Commonwealth of Massachusetts.

(g) Remedies. The parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement.

(h) Amendment and Waiver. The provisions of this Agreement may be amended and waived only with the prior written consent of the Company, Holdings and Executive.

(i) Business Days. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company’s chief executive office is located, the time period shall be automatically extended to the business day immediately following such Saturday, Sunday or holiday.

(j) No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party.

* * * *

IN WITNESS WHEREOF, the parties hereto have executed the Agreement on the date first written above.


		ALTRA INDUSTRIAL MOTION, INC.

		By:
				Michael L. Hurt
				Chairman & Chief Executive Officer

		ALTRA HOLDINGS, INC.

		By:
				Michael L. Hurt
				Chairman & Chief Executive Officer

		EXECUTIVE


		Christian		Storch

(SIGNATURE PAGE TO EMPLOYMENT AGREEMENT)

EX-23.1 5 b68970ahexv23w1.htm EX-23.1 CONSENT OF ERNST & YOUNG LLP exv23w1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-140349) pertaining to Altra Holdings Inc.’s 2004 Equity Incentive Plan of our reports dated March 12, 2008, with respect to the consolidated financial statements and schedules of Altra Holdings, Inc. and the effectiveness of the internal control over financial reporting, included in the Annual Report (Form 10-K) for the year ended December 31, 2007.

/s/ Ernst & Young LLP

Boston, Massachusetts
March 12, 2008

EX-31.1 6 b68970ahexv31w1.htm EX-31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER exv31w1

Exhibit 31.1

Certification of Chief Executive Officer

I, Michael L. Hurt, certify that:

1. I have reviewed this Annual Report on Form 10-K of Altra Holdings, Inc.;

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 in order 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 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 report (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s year ended December 31, 2007 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 and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


	By:	/s/ Michael L. Hurt

Name: Michael L. Hurt


	Title:	Chairman and Chief Executive Officer

Date: March 17, 2008

EX-31.2 7 b68970ahexv31w2.htm EX-31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER exv31w2

Exhibit 31.2

Certification of Chief Financial Officer

I, Christian Storch, certify that:

1. I have reviewed this Annual Report on Form 10-K of Altra Holdings, Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


	By:	/s/ Christian Storch

Name: Christian Storch


	Title:	Chief Financial Officer

Date: March 17, 2008

EX-32.1 8 b68970ahexv32w1.htm EX-32.1 SECTION 906 CERTIFICATION OF CEO exv32w1

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Altra Holdings. (“the Company”) for the year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael L. Hurt, the Chairman and Chief Executive Officer of Altra Holdings, Inc. certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


	By:	/s/ Michael L. Hurt

Name: Michael L. Hurt


	Title:	Chairman and Chief Executive Officer

Date: March 17, 2008

A signed original of this written statement required by Section 906 has been provided to Altra Holdings, Inc. and will be retained by Altra Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request

EX-32.2 9 b68970ahexv32w2.htm EX-32.2 SECTION 906 CERTIFICATION OF CFO exv32w2

Exhibit 32.2

CERTIFICATION PURSUANT TO SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Altra Holdings, Inc. (“the Company”) for the year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christian Storch, the Chief Financial Officer of Altra Holdings, Inc. certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


	By:	/s/ Christian Storch

Name: Christian Storch


	Title:	Chief Financial Officer

Date: March 17, 2008

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