Preliminary Prospectus Supplement

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-139854
333-139854-01
333-139854-02
333-139854-03

The information in this preliminary prospectus supplement is not complete and may be changed. This preliminary prospectus supplement is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

We will pay interest on the notes on February 15 and August 15 of each year, commencing on August 15, 2007. The notes will mature on February 15, 2017. We may redeem the notes at any time prior to February 15, 2012, in whole or in part, at 100% of their principal amount plus a make-whole premium described in this prospectus supplement. On or after February 15, 2012, we may also redeem the notes at any time at the prices set forth in this prospectus supplement. In addition, prior to February 15, 2010, we may redeem up to 35% of the notes from the proceeds of certain registered equity offerings. Redemption prices are set forth under “Description of Notes — Optional Redemption.”

The closing of this offering is conditioned on the concurrent consummation of our acquisition of substantially all of the Power Systems business of Rockwell Automation, Inc. Concurrently with this offering, we are offering common stock and mandatorily convertible preferred stock. This offering is not conditioned on the consummation of the concurrent offerings.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or passed upon the adequacy or accuracy of this prospectus supplement. Any representation to the contrary is a criminal offense.

There is no market through which the notes may be sold and purchasers may not be able to resell notes purchased under this prospectus supplement.

Investing in the notes involves a high degree of risk. See “ Risk Factors” beginning on page S-17.

The initial public offering price set forth above does not include accrued interest, if any. Interest on the notes will accrue from the date of issue and must be paid by the purchasers if the notes are delivered after , 2007.

We expect that delivery of the notes will be made to investors in book-entry form through The Depository Trust Company in New York, New York on or about , 2007.

This document consists of two parts. The first part is this prospectus supplement, which describes the specific terms of this offering and other important information relating to this offering. The second part is the accompanying prospectus, which describes more general information, some of which may not apply to this offering. You should read both this prospectus supplement and the accompanying prospectus, together with additional information described below under the headings “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference.”

If the description of the offering varies between this prospectus supplement and the accompanying prospectus, you should rely on the information in this prospectus supplement.

Any statement made in this prospectus supplement or in a document incorporated by reference in this prospectus supplement will be deemed to be modified or superseded for purposes of this prospectus supplement to the extent that a statement contained in this prospectus supplement or in any other subsequently filed document that is also incorporated by reference in this prospectus supplement modifies or supersedes that statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus supplement. See “Incorporation of Certain Documents by Reference.”

The information in this prospectus supplement is current only as of the date on its cover, and may change after that date. For any time after the date of this prospectus supplement, we do not represent that our affairs are the same as described or that the information in this prospectus supplement is correct — nor do we imply those things by delivering this prospectus supplement or selling securities to you.

We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission, or the SEC. You can inspect and copy these reports, proxy statements and other information at the Public Reference Room of the SEC, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. Our SEC filings will also be available to you on the SEC’s website at http://www.sec.gov and through the New York Stock Exchange, 20 Broad Street, New York, NY 10005, on which our common stock is listed.

This prospectus supplement and the accompanying prospectus, which forms a part of the registration statement, do not contain all the information that is included in the registration statement. You will find additional information about us in the registration statement. Any statements made in this prospectus supplement or the accompanying prospectus concerning the provisions of legal documents are not necessarily complete and you should read the documents that are filed as exhibits to the registration statement or otherwise filed with the SEC for a more complete understanding of the document or matter.

The SEC allows the “incorporation by reference” of the information filed by us with the SEC into the accompanying prospectus, which means that important information can be disclosed to you by referring you to those documents and those documents will be considered part of the accompanying prospectus, as supplemented by this prospectus supplement. Information that we file later with the SEC will automatically update and supersede the previously filed information. The documents listed

below and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than any portion of any such filing that is furnished under applicable SEC rules, are incorporated by reference herein:

If you make a request for such information in writing or by telephone, we will provide you, without charge, a copy of any or all of the information incorporated by reference into the prospectus. Any such request should be directed to:

We obtained the industry, market and competitive position data and forecasts used throughout this prospectus supplement from independent industry or general publications, surveys or studies conducted by third parties, our own research, and other publicly available information. Such industry sources include ARC Advisory Group, The Freedonia Group, Inc., Goulden Reports, and Industrial Market Information, Inc. Independent industry publications and surveys generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. While we believe that each of these publications and surveys is reliable, neither we nor the underwriters have independently verified such data. Forecasts are particularly likely to be inaccurate, especially over long periods of time. In addition, we do not know what assumptions, including assumptions regarding general economic growth, were used in preparing the forecasts included in this prospectus supplement. Similarly, we believe our internal research is reliable, but it has not been verified by any independent sources.

This prospectus supplement, the accompanying prospectus and the documents incorporated by reference into the prospectus contain statements that are forward-looking. The forward-looking statements contained in these documents (generally identified by words or phrases indicating a projection or future expectation such as “optimistic,” “will,” “continue,” “expect,” “believe,” “should,” “assumption,” “may,” “estimate,” “judgment,” “anticipate,” or any grammatical forms of these words or other similar words) are based on our current expectations and are subject to risks and uncertainties. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. The factors that might cause such differences include, among others, the following:

“Baldor^®”, “Super-E^®”, “Standard-E^®”, “SSE™ Washdown Duty”, “Dirty Duty^®”, “H2^® Inverter Drive”, “H2^® Vector Control”, “H2^® Servo Control”, “FLEX FLOW™”, “MultiFlex^®”, “MicroFlex^®”, “MotiFlex^®”, “Flex+^®”, “Flex+II^®”, “MINT™”, “Pow’r Guard^® Generators”, “Pow’r Lite^® Portable Light Towers”, “Power Chief^®”, and “Premier^® Portable Generators” are registered or unregistered trademarks of Baldor Electric Company. “Reliance^®”, “Reliance Electric™”, “Dodge^®”, “EZ-KLEEN^®”, “EZ-KLEEN PLUS^®”, “ULTRA KLEEN^® Motors”, “Grip Tight^®”, “V*S^®”, “Sabre^®”, “Calibre^®”, “RPM^® AC Motors”, “Liberator^®”, “Para-Flex^®”, “Torque-Arm™”, “Unisphere II”, “EZ Link^®”, “Quantis^®” and “Tigear^®” are registered or unregistered trademarks of Reliance Electric Company. This prospectus supplement and the accompanying prospectus may also contain trademarks and service marks of other companies.

This summary may not contain all the information that may be important to you in making an investment decision. You should read this entire prospectus supplement, the accompanying prospectus and the documents incorporated by reference into the prospectus, including the risk factors and the financial statements and related notes, before making an investment decision.

Except as otherwise indicated, this prospectus supplement does not give pro forma effect to the Transactions. Unless otherwise indicated, references to fiscal year refer to the fiscal year of Baldor, which ends on the Saturday nearest December 31, which results in either a 52-week or 53-week year. The fiscal year of Power Systems ends on September 30.

Baldor is a leading manufacturer of industrial electric motors, drives, and generators, currently supplying over 8,000 customers in more than 160 industries. We sell our products to original equipment manufacturers (“OEMs”) and distributors serving markets in the United States and throughout the world. We focus on providing customers with value through a combination of quality products and customer service, as well as short lead times and attractive total cost of ownership, which takes into account initial product cost, product life, maintenance costs and energy consumption. We estimate that the initial purchase price and lifetime maintenance costs of a typical electric motor represent approximately 2% of the cost of the electricity consumed by a motor run continuously over its lifetime. We believe that due to high energy prices, our customers increasingly base their purchasing decisions on the energy efficiency of our motors and other products, rather than on the price alone.

Over the past 15 years, our revenue has grown at a 6.4% compounded annual growth rate. We have achieved most of this growth organically through product innovation, increased market share and expansion into new markets. For the year ended December 31, 2005 and the nine months ended September 30, 2006, we had net sales of $721.6 million and $610.8 million, operating profit of $69.4 million and $60.7 million and net earnings of $43.0 million and $35.9 million, respectively.

On November 6, 2006, we entered into the Acquisition Agreement with Rockwell Automation and certain of its subsidiaries to acquire the Reliance Electric industrial motors business and Dodge mechanical power transmission business for $1.8 billion, subject to adjustment. For the year ended December 31, 2005 and the nine months ended September 30, 2006, on a pro forma basis giving effect to the Transactions, we would have had net sales of $1.6 billion and $1.4 billion, operating profit of $150.5 million and $156.3 million and net earnings of $14.2 million and $38.7 million, respectively.

Baldor industrial motors, drives and generators have a reputation of being premium products in the markets we serve. We believe we have a leading position in the one to 25 horsepower industrial motor market and the broadest offering of premium energy-efficient industrial motors in the industry. Our AC motors range in size from fractional to 1,500 horsepower and our DC motors range from fractional to 600 horsepower. Our motors are used in a wide variety of essential applications including unit handling (conveyor belts and other material handling equipment), air handling (fans and blowers), and fluid handling (pumps). Our motors are used in many industries, including agriculture, chemical, food and beverage, machinery manufacturing, medical equipment, mining, paper and packaging, semiconductor manufacturing and water supply. For the nine months ended September 30, 2006, approximately half of our sales were to OEMs and half were to distributors. We believe that this diversification across industries and customers allows us to be less dependent on any particular industry or customer segment.

Our motors are designed as both stock and custom products that are built to customer specifications. For the nine months ended September 30, 2006, stock motors represented approximately 61.3% of domestic motor sales. Stock motors are available for immediate shipment from current finished inventory. Custom motors are typically built and shipped within 2-3 weeks of order entry. Industrial motors represented approximately 78.3% of our net sales in 2005 and 80.7% of our net sales for the nine months ended September 30, 2006.

We also manufacture drives, which are electronic controls used to adjust the speed and torque of an electric motor to match an end application. Our drives also include linear and rotary servo motors and motion control products, which are used to automate manual processes. Generally, our drives and motion control products are used in the same industries and applications as our motors. Drives represented approximately 14.7% of our net sales in 2005 and 13.9% of our net sales for the nine months ended September 30, 2006.

Our generator product line ranges from 1.3 kilowatts to 2.0 megawatts, and includes portable generators, industrial towable generators, mobile light towers, emergency and standby generators, prime power generators and peak-shaving generators. We sell our generators to companies in a variety of industries, including agriculture, construction, equipment rental, military, municipal and telecom. Generators represented 7.0% of our net sales in 2005 and 5.4% of our net sales for the nine months ended September 30, 2006.

We entered into the Acquisition Agreement with Rockwell Automation to acquire the Acquired Business, which consists of the Reliance Electric industrial motors business and the Dodge mechanical power transmission business. The Acquired Business is included within Rockwell Automation’s Power Systems segment, together with the Reliance Electric and Reliance branded drives business, which will be retained by Rockwell Automation. We expect the Acquisition to close at the end of January 2007

concurrently with this offering. The total consideration will be approximately $1.8 billion, including a payment of $1.75 billion in cash, subject to adjustment, and the issuance of 1.58 million shares of our common stock to Rockwell Automation.

Reliance Electric’s industrial motors business designs and manufactures industrial electric AC and DC motors, ranging from fractional to 15,000 horsepower, and specializes in high horsepower motors ranging from 60 to 5,000 horsepower. Reliance Electric’s industrial motors are used in a variety of applications and industries, including forest products, heating, ventilating and air conditioning (“HVAC”), metals, mining and petrochemicals. Reliance Electric’s motor offering expands Baldor’s current offering to include larger, variable speed AC motors and specialty motors serving underground mining, navy, and nuclear applications. For the year ended September 30, 2006, approximately 75% of Reliance Electric motors were custom-built. In addition, Reliance Electric provides product repair and reconditioning, preventive and diagnostic maintenance, plant improvement assessments, and training and consulting services.

The Dodge mechanical power transmission business designs and manufactures mounted bearings, enclosed shaft mount, helical and worm gearing, and other power transmission components such as bushings, sheaves and conveyor pulleys. Enclosed gearing and power transmission components adjust the speed and the torque of the motion produced by an electric motor, allowing the matching of the motor to the driven application. Mounted bearings support rotating shafts, minimizing vibration, limiting friction and extending machine life. We will be able to offer Dodge power transmission components combined with Baldor and Reliance electric motors to provide a complete power train for a broad range of industrial applications. We believe that Dodge holds leading market positions in mounted bearings and enclosed shaft mount gearing. For the year ended September 30, 2006, approximately 78% of Dodge domestic sales were through the distributor channel.

For the year ended September 30, 2006, Power Systems had total sales of $1.0 billion, of which $544.0 million was for the Electrical operating segment and $487.9 million was for the Mechanical operating segment. In addition, earnings before interest and taxes for the Power Systems’ segments were $53.2 million for the Electrical segment and $109.1 million for the Mechanical segment and $(16.2) million for Headquarters and Other expenses. Headquarters and Other expenses include costs related to Rockwell Automation’s corporate allocation, Reliance Electric’s non-operating subsidiaries and incremental acquisition related expenses resulting from purchase accounting adjustments such as intangible asset amortization and depreciation related to Reliance Electric’s previous acquisitions.

The Acquired Business operates 11 manufacturing plants located in the United States and one in each of Mexico, Canada and China and also has 15 service centers located in the same countries. The Acquired Business sells products to a diverse global customer base consisting of OEMs, distributors and end-users.

We believe that the Acquisition provides a number of strategic benefits, including the following:

The demand for products in the electric motor and generator and power transmission industries is closely tied to growth trends in the economy and levels of industrial activity and capital investment. We believe that specific drivers of demand for our products include process automation, efforts in energy conservation and productivity improvement, regulatory and safety requirements, new technologies and replacement of worn parts. Our products are typically critical parts of their end-applications, and the end user’s cost associated with their failure is high. We believe that end users of our products base their purchasing decisions on quality, reliability and availability as well as customer service, rather than the price alone. We believe that key success factors in our industry include strong reputation and brand preference, good customer service and technical support, product availability, and a strong distribution network.

According to Goulden Reports, an independent market research firm, in 2005, the global market for industrial electric motors with output greater than one horsepower was estimated at $17.9 billion. The U.S. domestic market was estimated at $2.8 billion and represented the second largest national market. The largest national market was China, valued at $3.2 billion and accounting for 17% of the overall world market. According to The Freedonia Group Inc., an independent market research firm, the U.S. market for generator sets in 2004 was estimated at $2.7 billion. Although the motor industry is fragmented, several large competitors maintain substantial market shares similar to ours, including General Electric Co., Emerson Electric Co., Regal-Beloit Corp., Siemens AG, WEG S.A. and A.O. Smith Corp. In generators, our competitors include Kohler Co., Caterpillar, Inc., Cummins, Inc. and Honda Motor Co Ltd. According to The Freedonia Group, Inc., U.S. demand for motors and generators is expected to increase 4.8% annually from 2004 to 2009.

According to ARC Advisory Group, an independent consulting firm, in 2004, the market for low power AC drives globally and in North America was estimated at $5.1 billion and $1.1 billion, respectively. In the drives business, we compete with ABB Ltd., Danaher Corporation, Mitsubishi Heavy Industries, Ltd., Siemens AG, and Rockwell Automation, Inc., among others. Between 2004 and 2009, the global and North American drives markets are expected to grow at an 8.6% and 6.8% compounded annual growth rate, respectively.

According to Industrial Market Information, Inc., an independent market research firm, in 2005 the U.S. mechanical power transmission industry was over $40 billion, of which the market for Dodge’s

product offerings represented approximately $11 billion. The U.S. power transmission industry is highly

fragmented containing approximately 200 suppliers. Many of these competitors have limited product lines serving specific geographies, with only a few national and international competitors with the size and breadth of product offerings comparable to Dodge, including Rexnord Corp., Emerson Electric Co., Altra Industrial Motion, Inc. and Regal-Beloit Corp. According to The Freedonia Group, Inc., U.S. demand for power transmission components is expected to increase 4.9% annually from 2005 to 2010.

We believe that we are well positioned in the markets in which we compete based on the following competitive strengths, which will be enhanced by the Acquisition:

The Baldor, Reliance, Reliance Electric and Dodge brand names are associated with high-quality innovative products, engineering expertise, excellent customer service, and an overall leadership position in the industry. Baldor, Reliance Electric and Dodge were founded in 1920, 1904 and 1878, respectively. Baldor was the preferred brand in 19 of 21 independent surveys of industrial electric motor users conducted over the past five years.

We provide value to our customers by offering a broad range of high quality products, short lead times on custom products, quick delivery for stock products and local customer service and support. We also offer the capability to design and manufacture custom products that address the requirements of our customers. We believe we are well positioned relative to many of our competitors who emphasize low price.

In the year ended December 31, 2005, our products and those of the Acquired Business were sold to more than 4,000 OEMs and 5,000 distributors across a wide variety of end markets. On average, our top 20 customers in the nine months ended September 30, 2006 have been doing business with us for 22 years. For the nine months ended September 30, 2006, approximately half of our sales were to OEMs and half were to distributors. For the year ended September 30, 2006, approximately 52% of Power Systems’ domestic revenues were generated through distributors. We believe the different purchasing patterns among our customers in the various end markets we serve allows us to reduce the overall sensitivity of demand for our products due to changes in the economy. Also, we believe our large installed base and specification of our products by leading OEMs as original equipment creates significant replacement demand.

For over 86 years, Baldor has introduced many innovative new products, including our Super-E branded line of premium energy efficient motors. We estimate that the initial purchase price and lifetime maintenance costs of a typical electric motor represent approximately 2% of the cost of the electricity consumed by a motor run continuously over its lifetime. For example, the energy cost of a typical 100 horsepower motor run continuously can exceed $25,000 annually. In addition, our recently developed H2 inverter drive has been designed to be the most reliable, easy to use, and efficient drive available in the market. Dodge products are also recognized for innovation. For example, customers are able to configure Dodge bearings with (i) a Grip Tight feature that allows it to be easily attached to standard sized shafts, (ii) an EZ-KLEEN feature that seals the bearing in order to allow a wash-down of the application, and (iii) an air-handling bearing that provides quiet, high-speed operation.

Our employees are highly motivated and productive. Our shared values, commitment to education and training, retention practices and the ability to participate in equity ownership through profit sharing, stock options and 401(k) plans help us keep motivated and productive employees. Prior to the Transactions, we estimate that our employees and retirees held over 16% of our outstanding common stock. We are committed to an operating environment that is conducive to operational excellence and invest regularly to make sure our plants are modern, clean and safe for our employees. We believe the Acquired Business has a similar operating philosophy.

Our senior management team has significant experience in industrial manufacturing, marketing and sales at Baldor through a range of economic conditions. The members of our senior management team have been with us on average for over 20 years and are dedicated to the success of our company.

Our mission is to be the best (as determined by our customers) marketers, designers and manufacturers of industrial electric motors, drives and generators. Our strategies to achieve our mission include:

Leverage existing customer relationships and realize cross-selling opportunities.

The addition of the Acquired Business’s product portfolio will expand our presence at each level of the power train that facilitates the conversion of power to motion. We intend to use this expanded product offering to strengthen our relationships with customers and enhance our ability to obtain additional business.

We intend to realize synergies and cost savings by integrating the Acquired Business and our existing business. We expect to be able to achieve cost savings by integrating our purchasing, engineering and working capital management, reducing overhead, increasing productivity, implementing best practices and combining our manufacturing footprint. We currently expect to realize annual pre-tax synergies of approximately $30 million in three years.

We continually evaluate our products to find ways to improve performance and reduce the material needed to meet our customers’ demands. On average, we release 250 new product line additions a year and approximately 25% of our annual sales in each of the past five years were from newly developed products, defined as products developed in the prior five year period.

We intend to reduce our financial leverage with cash flow generated from operations.

We believe the end-markets we serve provide attractive growth opportunities. We expect to continually develop new products and enhance existing products to meet customers’ end-use applications. In addition, we intend to expand our global reach by capitalizing on high growth regions such as China with our broadened product offering, local service and support and manufacturing capabilities.

This offering of notes is part of the financing for the Acquisition described under the caption “The Transactions” in this prospectus supplement. Concurrently with this offering, we intend to offer (i) $150 million of our mandatorily convertible preferred stock and (ii) $200 million of our common stock. See “Description of Certain Indebtedness and Preferred Stock—Mandatorily Convertible Preferred Stock” and “Description of Notes.” This offering, the mandatorily convertible preferred stock offering and the common stock offering are expected to be closed at the time of the completion of the Acquisition. The closing of this offering, and the closing of the offerings of mandatorily convertible preferred stock and common stock, are not conditioned on each other but are conditioned on the concurrent consummation of the Acquisition.

In addition, we intend to enter into a new senior secured credit facility at or prior to the closing of the Acquisition. See “Description of Certain Indebtedness and Preferred Stock—Senior Secured Credit Facility.” We intend to use $1.0 billion in borrowings under the term loan portion of our new senior secured credit facility, together with the proceeds from the Securities Financing Transactions and the 1.58 million shares of our common stock to be issued to Rockwell Automation, to finance the Acquisition, to repay substantially all of our existing indebtedness and to pay related fees and expenses of the Transactions.

We have received a commitment, subject to certain conditions, for our $1.2 billion senior secured credit facility, consisting of a $1.0 billion term loan and a $200.0 million revolving credit facility. In addition, we have received a commitment, subject to certain conditions, for additional financing required for the Acquisition through a $900.0 million bridge loan facility in the event that sufficient funds are not raised from the Securities Financing Transactions to pay the purchase price for the Acquisition. See “Description of Certain Indebtedness and Preferred Stock—Bridge Loan Facility” and “Underwriting.”

The following table sets forth the estimated sources and uses of funds for the Transactions assuming a January 31, 2007 closing date. No assurance can be given that the information in the following table will not change depending on the nature of our financings. See “Risk Factors—Risks Related to the Offering—If we are unable to raise sufficient proceeds through the Securities Financing Transactions, we may draw down on a bridge loan facility in order to close the Acquisition, which could significantly increase our indebtedness.”

Unless we specifically state otherwise, the information on this prospectus supplement assumes that the underwriters for the common stock and mandatorily convertible preferred stock do not exercise their options to purchase additional shares to cover over-allotments, if any.

Orders and sales grew at a slower pace during October and November compared to earlier in 2006, but improved during December, resulting in increased sales for the fourth quarter 2006 compared to the same period in 2005. The strongest growth came from sales of industrial motors, particularly in premium energy-efficient motors and large motors. Generator sales improved slightly for the quarter, and drives sales were flat.

We currently expect fourth quarter 2006 diluted earnings per share to be similar to fourth quarter 2005 diluted earnings per share, after deducting adjustments to our self-insurance liabilities and income tax liabilities in the fourth quarter of 2005.

Because the fourth quarter has recently ended, this information is, by necessity, preliminary in nature and based only upon preliminary information available to us as of the date of this prospectus supplement. Investors should exercise caution in relying on the information contained herein and should not draw any inferences from this information regarding financial or operating data that is not discussed herein.

See “Risk Factors” following this summary for a discussion of certain risks relating to the offering.

Our principal executive offices are located at 5711 R.S. Boreham, Jr. Street, Fort Smith, Arkansas 72901. Our telephone number is (479) 646-4711 and our website address is www.baldor.com. The information contained on our website is not a part of this prospectus supplement.

The summary below describes the principal terms of the notes. Some of the terms and conditions described below are subject to important limitations and exceptions. For a more complete understanding of the notes, please refer to the section of this prospectus supplement entitled “Description of Notes.”

The following summary historical consolidated financial data for the three fiscal years ended December 31, 2005 is derived from our audited consolidated financial statements. The following summary historical consolidated financial data as of September 30, 2006 and for the nine months ended October 1, 2005 and September 30, 2006 is derived from our unaudited interim condensed consolidated financial statements. Our interim financial statements were prepared on a consistent basis to our annual financial statements and contain all adjustments necessary for a fair presentation of the interim period. The results for an interim period are not necessarily indicative of our results for a full year.

Our fiscal year ends on the Saturday nearest to December 31, which results in a 52-week or 53-week year. Fiscal year 2005 contained 52 weeks, fiscal year 2004 contained 52 weeks, and fiscal year 2003 contained 53 weeks.

The unaudited pro forma condensed combined balance sheet gives effect to the Transactions as if they occurred on September 30, 2006 and combines the historical balance sheets of Baldor and Power Systems as of September 30, 2006. The unaudited pro forma condensed combined statement of earnings for the year ended December 31, 2005 gives effect to the Transactions as if they occurred on January 2, 2005 and combines the historical consolidated statement of earnings of Baldor for the year ended December 31, 2005 with the historical statement of operations of Power Systems for the year ended September 30, 2005. The unaudited pro forma condensed combined statement of earnings for the nine months ended September 30, 2006 gives effect to the Transactions as if they occurred on January 2, 2005 and combines the historical consolidated statement of earnings of Baldor for the nine months ended September 30, 2006 with the historical statement of operations of Power Systems for the nine months ended June 30, 2006.

Beginning in the first quarter of 2006, profit sharing expense is classified as an operating expense in cost of goods sold and selling and administrative expenses. Prior to 2006, profit sharing expense was classified as a non-operating expense. The reclassification has been applied to all historic periods presented in this document, consequently certain amounts presented differ from those included in previous filings incorporated by reference into this prospectus supplement.

The pro forma condensed combined financial information is presented for illustrative purposes only and is not necessarily indicative of what the actual combined financial position or results of operations would have been had the Transactions been completed on the dates described above. The adjustments reflected in the pro forma condensed combined financial information are based on preliminary purchase price allocations and assumptions management believes are reasonable. These adjustments may change when additional information becomes available. Differences between the preliminary and final purchase price allocations could have a material impact on the pro forma financial information presented. The pro forma condensed combined financial information does not reflect costs we may incur to integrate the Acquired Business, and these costs may be material. Accordingly, the pro forma condensed consolidated financial information does not purport to be indicative of the financial position or results of operations as of the effective date of the Transactions, as of the date of this prospectus supplement, or as of any other future date or period.

This information is only a summary and should be read together with “Unaudited Pro Forma Condensed Combined Financial Information” and the historical financial statements, the related notes and other financial information included or incorporated by reference into this prospectus supplement.

EBITDA is not a recognized measurement under U.S. Generally Accepted Accounting Principles (“GAAP”). When evaluating our operating performance or liquidity, investors should not consider EBITDA in isolation of, or as a substitute for, measures of our financial performance and liquidity as determined in accordance with GAAP, such as net earnings, operating income or net cash provided by operating activities. EBITDA may have material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations, including our cash used for capital expenditures, working capital and to make payments of interest or principal on our indebtedness. Because other companies may calculate EBITDA differently than we do, EBITDA may not be comparable to similarly titled measures reported by other companies.

The following summary historical financial data as of September 30, 2004, 2005 and 2006 and for the years ended September 30, 2003, 2004, 2005 and 2006 is derived from the audited financial statements of Power Systems. The financial statements of Power Systems include the results of operations of the Reliance Electric and Reliance branded drives business, which we are not acquiring from Rockwell Automation. The Reliance Electric and Reliance branded drives business was not a significant part of the results of operations and financial condition of Power Systems. Rockwell Automation is also retaining certain pension related assets and liabilities and is indemnifying Baldor for certain asbestos litigation and legacy environmental and income tax contingency liabilities.

This information is only a summary and should be read together with “Unaudited Pro Forma Condensed Combined Financial Information,” “Discussion and Analysis of Results of Operations of Power Systems” and the historical financial statements, the related notes and other financial information included or incorporated by reference into this prospectus supplement.


	Year Ended September 30,
(in thousands)	2003		2004		2005		2006
Net income	$	13,164	$	23,704	$	61,878	$	90,102
Income tax provision		10,789		14,356		32,353		53,099
Interest expense		7,344		56		17		1,800
Depreciation and amortization		50,072		46,644		38,868		35,809

EBITDA	$	81,369	$	84,760	$	133,116	$	180,810

Historical results of Power Systems include the following income (expense) items during the periods indicated:


	Year Ended September 30,
(in thousands)	2003			2004			2005			2006
Contribution of custom drives business to pre-tax earnings (1)	$	971		$	2,137		$	3,031		$	4,049
Historical pension & post-retirement expense related to obligations retained by Rockwell Automation (2)		(15,363	)		(17,556	)		(18,300	)		(22,089	)
Environmental charges (3)		—			(6,170	)		(1,328	)		—
NASCAR expenses (4)		(1,160	)		(1,338	)		(2,235	)		(2,292	)
Indemnified legal costs (5)		(334	)		(711	)		(562	)		(810	)
Historic corporate allocations by Rockwell Automation (6)		(8,800	)		(10,100	)		(10,000	)		(11,600	)

Investing in our notes involves a high degree of risk. In addition to the other information included and incorporated by reference in this prospectus supplement and accompanying prospectus, you should carefully consider the risks described below before purchasing our notes. If any of the following risks actually occurs, our business, results of operations and financial condition will likely suffer and you might lose part or all of your investment.

Our future results are subject to fluctuations in the price of raw materials.

The principal raw materials used to produce our electric motors are steel, copper and aluminum. The prices of those raw materials are susceptible to significant fluctuations due to supply/demand trends, transportation costs, government regulations and tariffs, price controls, economic conditions and other unforeseen circumstances. If we are unable to mitigate raw materials price increases through product design improvements, price increases to our customers, and hedging transactions, future profitability could be adversely affected.

Our future results may be impacted by the effects of, and changes in, worldwide economic conditions.

Our business may be adversely affected by factors in the United States and other countries that are beyond our control, such as an economic downturn in a specific country or region, or in the various industries we serve; social or political conditions in a specific country or region; or potential adverse changes in tax laws in the jurisdictions in which we operate.

We operate in markets that are highly competitive. Some of our competitors are larger in size or are divisions of large diversified companies and have substantially greater financial resources than us. Demand for our products may be affected by our ability to respond to downward pricing pressure, to continue to provide shorter lead time and quicker delivery of our products than our competitors, and to respond to changes in customer order patterns.

An inability to anticipate changes in customer preferences could result in decreased demand for our products.

Our future success depends both on our ability to continue developing new and improved products in line with technological advancements that meet the evolving requirements of our customers, and our ability to bring these products rapidly to market. New products, or refinements and improvements of existing products, may have technical failures, their introduction may be delayed, they may have higher production costs than originally expected or they may not be accepted by our customers. If we are not able to anticipate, identify, develop and market products that respond to changes in customer preferences, demand for our products could decline and our operating results would be adversely affected.

We rely on independent distributors and the loss of these distributors would 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 are supported by an extensive distribution network, with over 10,000 distributor locations worldwide. Rather than serving as passive conduits for delivery of product, our industrial distributors are active participants in the overall competitive dynamics in our industry. Industrial distributors play a significant role in determining which of our products are stocked, and therefore are readily accessible to end-users, and the price at which our products are sold. During the year ended December 31, 2005, approximately 50% of domestic net sales were generated through distributors. For the year ended September 30, 2006, approximately 52% of Power Systems’ domestic revenues were generated through distributors. Almost all of the distributors with whom we transact business offer products and services of our competitors to our customers. In addition, the distribution agreements we have are typically not exclusive and are cancelable by the distributor after a short notice period. The impairment of our relationship with our distributors, the loss of a substantial number of these distributors or an increase in the distributors’ sales of our competitors’ products to our customers could materially reduce our sales and profits.

The Acquired Business relies on a limited number of customers for a material portion of its sales.

Sales to Power Systems’ two largest customers comprised 12.5% and 8.3% of Power Systems’ sales in 2006, 14.1% and 10.1% in 2005 and 13.4% and 10.2% in 2004, respectively. Reliance Electric’s ten largest domestic customers accounted for approximately 20% of Power Systems’ net domestic revenues in fiscal 2006. Dodge’s ten largest domestic customers accounted for approximately 30% of Power Systems’ net domestic revenues in fiscal 2006. If Power Systems’ relationship with any of these customers were to be impaired, Power Systems’ sales, operating results and cash flows could be adversely affected.

We are subject to the risks of doing business outside of the United States.

Future growth rates and success of our business depend in part on continued growth in our non-U.S. operations. We have both sales and manufacturing operations outside of the United States. In addition, as a result of the Acquisition, we will acquire additional operations in Mexico, Canada and China. Numerous risks and uncertainties affect our non-U.S. operations. These risks and uncertainties include political and economic instability, changes in local governmental laws, regulations and policies, including those related to tariffs, investments, taxation, exchange controls, employment regulations and repatriation of earnings, and enforcement of contract and intellectual property rights. International transactions may also involve increased financial and legal risks due to differing legal systems and customs, including risks of non-compliance with U.S. and local laws affecting our activities abroad. Rockwell Automation has recently disclosed potential violations of the U.S. Foreign Corrupt Practices Act (“FCPA”) in connection with certain of Power Systems’ foreign operations. We have been indemnified by Rockwell Automation against government penalties arising from these potential violations, but this indemnification is subject to limitations and there can be no assurance that Rockwell Automation will be able to pay on the indemnity at the time we make a claim against the indemnity. Our foreign operations may be adversely affected by the change in business practices made necessary by the FCPA. See “Business—Litigation—Acquired Business.” In addition, we are affected by changes in foreign currency exchange rates, inflation rates and interest rates. While these factors and the impact of these factors are difficult to predict, any one or more of them could adversely affect our business, financial condition or operating results.

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

We face a 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 damage. We currently maintain product liability insurance

coverage; however, 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 prospects 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.

Our future results may be affected by various legal and regulatory proceedings.

From time to time we are party to legal and regulatory proceedings in the normal course of business. We and the Acquired Business have been named as defendants in lawsuits alleging personal injury as a result of exposure to asbestos. In addition, the Acquired Business recently disclosed potential violations of the U.S. Arms Export Control Act and the International Traffic in Arms Regulations (“ITAR”). See “Business—Litigation—Acquired Business.” The outcome of legal proceedings could differ from our expectations since the outcomes of litigation, including regulatory matters, and our ability to collect from our insurers or on indemnities from third parties, are sometimes difficult to predict. As a result, we could be required to change current estimates of liabilities as litigation matters develop. Changes in these estimates or changes in our business as a result of legal and regulatory proceedings could have an adverse effect on our results of operations.

Our total assets include goodwill. If we determine that goodwill has become impaired in the future, net income could be adversely affected.

Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. On a pro forma basis after giving effect to the Transactions, we would have had $956.3 million of goodwill as of September 30, 2006. We review goodwill and other intangibles at least annually for impairment and any excess in carrying value over the estimated fair value is charged to the results of operations. A reduction in net income resulting from the write down or impairment of goodwill could have a material adverse effect on our financial results.

Our future results may be affected by environmental, health and safety laws, and regulations.

We are subject to various laws and regulations relating to the protection of the environment and human health and safety and have incurred and will continue to incur capital and other expenditures to comply with those regulations. Failure to comply with certain regulations could subject us to future liabilities, fines or penalties or the suspension of production. In addition we incur, in the normal course of business, various remediation expenses related to our manufacturing sites, none of which is expected to be material. If remediation obligations were to increase beyond our expectations or if we incurred fines, penalties, or suspension of production, future results could be adversely affected. The Acquired Business had been named as a potentially responsible party at clean-up sites, and may be so named in the future as well and the costs associated with these current and future sites may be significant. We have been indemnified by Rockwell Automation against environmental liabilities relating to certain properties that had been formerly owned or operated by the Acquired Business but this indemnification is subject to limitations and there can be no assurance that Rockwell Automation will be able to pay on the indemnity at the time we make a claim against the indemnity. See “Business—Environmental Matters.”

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 process. Any interruption in our manufacturing process would interrupt our production of products, reduce our income and cash flow and could result in a material adverse effect on our business.

Strikes or work stoppages by our unionized employees could disrupt our manufacturing operations, reduce our revenues or increase our people costs.

Currently, no Baldor employees are covered by collective bargaining agreements. After completing the Acquisition, approximately 7% of our employees will be covered by collective bargaining agreements. Employees of the Acquired Business at its Columbus, Indiana facility went on strike for 10 days in August 2006. Any potential strikes or work stoppages, and the resulting adverse impact on our relationships with customers, could disrupt our manufacturing operations, reduce our revenue or increase our people costs, which could have a material adverse effect on our business, financial condition or results of operations.

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

As part of the Acquisition, we will assume liability for retiree healthcare obligations with respect to active and retired employees covered by collective bargaining agreements and certain other active employees. As of September 30, 2006, the accumulated post-retirement benefit obligation of Power Systems was approximately $51 million related to those obligations assumed. The actual cost of funding such obligation is subject to unpredictable healthcare cost inflation. We have also agreed to fund healthcare expenses incurred by or on behalf of Acquired Business employees that are not paid as of closing. Such expenses are estimated in a range of $3-5 million. In addition, we will establish certain defined benefit plans similar to those of Rockwell Automation to cover some of the employees of the Acquired Business. The additional costs associated with these and other benefits to employees of the Acquired Business could have an adverse effect on our financial condition.

Our failure to attract and retain qualified personnel could lead to a loss of revenue or profitability.

Our success depends in part on the efforts and abilities of our senior management team and key employees. Their skills, experience and industry contacts significantly benefit our operations and administration. In addition, while most of the Acquired Business’s key personnel have indicated that they will remain with us after the Acquisition, we cannot assure you that these individuals will stay with us. Joseph D. Swann, Power Systems’ President, has indicated he intends to retire upon closing of the Acquisition. The failure to attract and retain members of our or the Acquired Business’s senior management team and key employees could have a negative effect on our operating results.

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

We depend heavily on our information technology 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.

The inability to secure and maintain rights to intellectual property could harm our business and our customers.

We and the Acquired Business own the rights to many patents, trademarks, brand names and trade names that are important to our business. The loss of patents or licenses used in principal portions of our business may have an adverse effect on our results of operations. Expenses related to enforcing our intellectual property rights could be significant. In addition, others may assert intellectual property infringement claims against us or our customers. We sometimes provide a limited intellectual property indemnity in connection with our terms and conditions of sale to our customers and in other types of contracts with third parties. Indemnification payments and legal costs to defend claims could have an adverse effect on our business.

We cannot assure you that the Acquisition will be consummated in accordance with the anticipated timing or at all.

Although we expect to close the Acquisition by the end of January 2007, there can be no assurance that the Acquisition will be completed in accordance with the anticipated timing or at all. In order to consummate the Acquisition, we and Rockwell Automation must obtain certain regulatory and other approvals and consents in a timely manner. If these approvals or consents are not received, or they are not received on terms that satisfy the conditions set forth in the Acquisition Agreement, then we and/or Rockwell Automation will not be obligated to complete the Acquisition. Also, we and/or Rockwell Automation may not receive these approvals or consents by the end of January 2007. The Acquisition Agreement also contains customary and other closing conditions, which may not be satisfied or waived. In addition, under circumstances specified in the Acquisition Agreement, we or Rockwell Automation may terminate the Acquisition Agreement.

The Securities Financing Transactions are conditioned on the concurrent consummation of the Acquisition. If the Acquisition does not occur, we will not be obligated to complete this offering.

We will be required to pay significant costs incurred in connection with the Acquisition, including legal, accounting, financial advisory and other costs, which could have a material adverse effect on our business, financial condition and results of operations.

We will substantially increase our leverage in order to finance the Acquisition and we will be subject to restrictive covenants that will limit our flexibility.

To pay for the Acquisition, we intend to borrow money and issue equity or equity-linked securities. As of September 30, 2006, on a pro forma basis after giving effect to the Transactions, we would have had approximately $1.56 billion of indebtedness. However, if we are not able to successfully complete this offering and the mandatorily convertible preferred stock offering within the required timeframe, total indebtedness could increase to up to $1.9 billion. See “—Risks Related to the Offering—If we are unable to raise sufficient proceeds through the Securities Financing Transactions, we may draw down on the bridge loan facility in order to close the Acquisition, which could significantly increase our indebtedness.” Increased indebtedness may reduce our flexibility to respond to changing business and economic conditions or fund capital expenditure or working capital needs because we will require additional funds to service our indebtedness. On a pro forma basis after giving effect to the

Transactions, for the year ended December 31, 2005 and nine months ended September 30, 2006, we would have had $130.4 million and $97.9 million of interest expense. In addition, financial and other covenants we make with our lenders will limit our ability to incur additional indebtedness, make investments, pay dividends and engage in other transactions, and the leverage may cause potential lenders to be less willing to loan funds to us in the future. Our failure to comply with these covenants could result in an event of default that, if not waived or cured, could result in the acceleration of all our indebtedness.

Even though we have acquired businesses in the past, the Acquisition constitutes the largest acquisition we have ever undertaken and, although Rockwell Automation has agreed to provide various services to us during a transition period, the magnitude of the Acquisition may present significant integration challenges and costs to us. Realization of the benefits of the Acquisition will require the integration of some or all of the sales and marketing, distribution, manufacturing, engineering, finance, information technology systems and administrative operations of the Acquired Business with Baldor. The successful integration of the Acquired Business will require substantial attention from our senior management and the management of the Acquired Business, which may decrease the time they devote to normal and customary operating, selling and administrative functions. If we cannot successfully integrate the Acquired Business on a reasonable time frame, we may not be able to realize the potential benefits anticipated from the Acquisition. Our financial condition, results of operations, and cash flows could be materially and adversely affected if we do not successfully integrate the Acquired Business.

Furthermore, even if we are able to integrate successfully the operations of the Acquired Business, we may not be able to realize the cost savings, synergies and revenue enhancements that we anticipate from the Acquisition, either in the amount or within the time frame that we expect, and the costs of achieving these benefits may be higher than, and the timing may differ from, what we expect. Our ability to realize anticipated cost savings, synergies and revenue enhancements may be affected by a number of factors, including the following:

As a result of the Acquisition, we will have assumed the Acquired Business’s liabilities, other than certain pension liabilities. There may be liabilities that we failed or were unable to discover in the course of performing due diligence investigations on the Acquired Business. We cannot assure you that rights to indemnification by sellers of assets to us will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with the business or property acquired. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business. After the Acquisition, we may learn additional information about the Acquired Business that adversely affect us, such as unknown or contingent liabilities and issues relating to compliance with applicable laws.

The historical and pro forma financial information included elsewhere in this prospectus supplement may not be representative of our results as a combined company after the Acquisition, and accordingly you have limited financial information on which to evaluate the Acquired Business, the combined company and your investment decision.

The audited financial statements of Power Systems that are included in this prospectus supplement include the results and operations and financial condition attributable to the Reliance Electric and Reliance branded drives business, which we are not acquiring in the Acquisition. Consequently, the audited financial statements are not an accurate representation of the results of operations, financial condition and cash flows of the Acquired Business.

We and the Acquired Business have been operating as separate companies prior to the Acquisition. We have had no prior history as a combined entity and our operations have not previously been managed on a combined basis. Preparing the pro forma financial information contained in this prospectus supplement involved making several assumptions, including the allocation of the purchase price to tangible and intangible assets and assumed liabilities and the makeup of our capital structure after the consummation of the Financing Transactions. These assumptions may prove to be inaccurate and the allocation of the purchase price is only preliminary and could change materially. Therefore, the historical financial statements and pro forma financial statements incorporated by reference or presented in this prospectus supplement may not reflect what our results of operations, financial position and cash flows would have been had we operated on a combined basis and may not be indicative of what our results of operations, financial position and cash flows will be in the future.

Despite indebtedness levels following the Transactions, we may still incur more indebtedness. This could further exacerbate the risks described above.

The terms of the indenture governing the notes and our new senior secured credit facility restrict our ability to incur but do not prohibit us from incurring significant additional indebtedness in the future. In addition, we may refinance all or a portion of our indebtedness, including borrowings under our new senior secured credit facility, and incur more indebtedness as a result. If new indebtedness is added to our and our subsidiaries’ current debt levels, the related risks that we and they now face could intensify. Upon the completion of the Transactions, we will have the ability to borrow an additional approximately $200.0 million under the revolving loan portion of our new senior secured credit facility. See “Description of Certain Indebtedness and Preferred Stock.”

Servicing our indebtedness will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to make payments on our indebtedness, including the notes, and on the mandatorily convertible preferred stock, and to fund planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive and other factors that are beyond our control.

Our business may not be able to generate sufficient cash flow from operations or future borrowings may not be available to us under our new senior secured credit facility or otherwise in an amount sufficient to enable us to pay our indebtedness, including the notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. However, we may not be able to complete such refinancing on commercially reasonable terms or at all.

If we are unable to raise sufficient proceeds through the Securities Financing Transactions, we may draw down on a bridge loan facility in order to close the Acquisition, which could significantly increase our indebtedness.

The offering of the notes is part of the financing for the Acquisition described elsewhere in this prospectus supplement. See “The Transactions—The Financing Transactions.” Concurrently with this offering, we are offering our mandatorily convertible preferred stock and common stock by means of separate prospectus supplements. In addition, we intend to enter into a new senior secured credit facility at or prior to the Acquisition that will replace our existing senior secured credit facility. We intend to use initial borrowings under our new senior secured credit facility, together with the proceeds from the Securities Financing Transactions, to finance the Acquisition and to pay fees and expenses of the Transactions. See “Use of Proceeds.” Our obligations under the Acquisition Agreement are not conditioned upon the consummation of any or all of the Financing Transactions. We have received a commitment, subject to certain conditions, for our new senior secured credit facility, consisting of a $1.0 billion term loan and a $200.0 million revolving credit facility, and, subject to certain conditions, for additional financing required for the Acquisition through a $900.0 million bridge loan facility in the event that sufficient proceeds are not raised from the Securities Financing Transactions. See “Description of Certain Indebtedness and Preferred Stock—Bridge Loan Facility.”

In the event that we are unable to raise sufficient proceeds through the consummation of the Securities Financing Transactions, we may draw down on the bridge loan facility, in whole or in part, in order to finance the Acquisition. In the event of such draw down, we may be more highly leveraged. Our interest expense would increase and require us to dedicate a more substantial portion of our cash flow from operations to payments in respect of our outstanding indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, dividend payments and other general corporate expenditures. Our substantial indebtedness could adversely affect our financial condition.

The indenture governing the notes and our new senior secured credit facility impose significant operating and financial restrictions which may adversely affect our ability to operate our business.

The indenture governing the notes and our new senior secured credit facility impose significant operating and financial restrictions on us and our restricted subsidiaries. These restrictions limit our ability to, among other things:

These restrictions could limit our ability to finance our future operations or capital needs, make acquisitions or pursue available business opportunities. In addition, our new senior secured credit

facility will require us to maintain specified financial ratios and satisfy certain financial covenants, including maintaining maximum senior and total leverage ratios, a minimum fixed charge coverage ratio, and a limit on the amount of our annual capital expenditures. We may be required to take action to reduce our indebtedness or to act in a manner contrary to our business objectives to meet these ratios and satisfy these covenants. Our failure to comply with any of the covenants under our new senior secured credit facility and the indenture governing the notes could cause an event of default under such documents and result in an acceleration of all of our outstanding indebtedness. Any such acceleration would adversely affect us.

Your right to receive payments on the notes is effectively subordinated to the rights of our existing and future secured creditors.

Our obligations under the notes and our guarantors’ obligations under their guarantees of the notes will be unsecured. As a result, the notes and the related guarantees will be effectively subordinated to all of our and the guarantors’ secured indebtedness to the extent of the value of the assets securing the indebtedness. Our obligations under our new senior secured credit facility will be secured by a first priority interest in all of the tangible and intangible assets of Baldor and the guarantors (but not more than 65% of the voting stock of first tier foreign subsidiaries). In the event that we or a guarantor are declared bankrupt, become insolvent or are liquidated or reorganized, our obligations under the new senior secured credit facility and any other secured obligations will be entitled to be paid in full from our assets or the assets of the guarantor, as the case may be, securing such obligation before any payment may be made with respect to the notes. Holders of the notes would participate ratably in our remaining assets or the assets of the guarantor, as the case may be, with all holders of unsecured indebtedness that are deemed to rank equally with the notes based upon the respective amount owed to each creditor. In addition, if we default under our new senior secured credit facility, the lenders could declare all of the funds borrowed thereunder, together with accrued interest, immediately due and payable. If we were unable to repay such indebtedness, the lenders could foreclose on the pledged assets to the exclusion of holders of the notes, even if an event of default exists at such time under the indenture under which the notes will be issued at such time. In any such event, because the notes will not be secured by any of our assets or the equity interests in subsidiary guarantors, it is possible that there would be no assets remaining from which your claims could be satisfied or, if any assets remained, they might be insufficient to satisfy your claims fully. See “Description of Certain Indebtedness and Preferred Stock.”

As of September 30, 2006, on a pro forma basis giving effect to the Transactions and our repayment of 8.0 million of indebtedness in December 2006, we would have had approximately $1,002.0 million of secured indebtedness, and approximately $200.0 million would have been available for additional borrowing under our new senior secured credit facility. Subject to covenant restrictions, we will be permitted to incur substantial additional indebtedness, including secured debt, in the future. See “Description of Certain Indebtedness and Preferred Stock.”

Only some of our subsidiaries will guarantee the notes. Your right to receive payments on the notes could be adversely affected if any of our non-guarantor subsidiaries declare bankruptcy, liquidate or reorganize.

Not all of our subsidiaries will guarantee the notes; only those that guarantee our new senior secured credit facility. Accordingly, the notes will be effectively subordinated to the prior payment of debts and other liabilities (including trade payables) of our non-guarantor subsidiaries. In the event of a bankruptcy, liquidation or reorganization of any of our non-guarantor subsidiaries, holders of their

indebtedness and their trade creditors will generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us.

Baldor’s subsidiaries had $75.6 million of liabilities (including trade payables and excluding intercompany balances) as of September 30, 2006, and these subsidiaries represented 6.3% of Baldor’s net sales for the nine months ended September 30, 2006. None of these subsidiaries will guarantee the notes and $71.2 million of these liabilities related to indebtedness will be repaid as part of the Transaction. The entities of the Acquired Business that will not guarantee the notes had $20.3 million of liabilities (including trade payables) as of September 30, 2006 and represented 12.1% of Power Systems’ sales for the year ended September 30, 2006.

The notes are a new issue of securities for which there is currently no trading market. Although the underwriters have advised us that they currently intend to make a market in the notes following completion of this offering, they have no obligation to do so and may discontinue such activity at any time without notice. We cannot be sure that an active trading market will develop for the notes. Moreover, if a market were to develop, the notes could trade at prices that may be lower than their initial offering price because of many factors, including, but not limited to:

If we are required by the indenture governing the notes to offer to repurchase the notes upon a change of control, we may not have the necessary funds to do so.

Upon the occurrence of certain specific kinds of change of control events, we will be required to offer to repurchase all outstanding notes at 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. Any future agreements relating to indebtedness to which we become a party may contain similar provisions. However, it is possible that we will not have sufficient funds at the time of the change of control transaction to make the required repurchase of notes or that restrictions in our senior secured credit facility will not allow such repurchases. See “Description of Notes—Repurchase at the Option of Holders—Change of Control.” In addition, a change of control will be an event of default under our senior secured credit facility.

The indebtedness represented by the notes and the guarantees may be unenforceable due to fraudulent conveyance statutes.

We believe that the indebtedness represented by the notes and the guarantees is being incurred for proper purposes and in good faith and that, based on present forecasts, asset valuations and other financial information, we and our guarantors are, and after the consummation of this offering, we and the guarantors will be, solvent and will have sufficient capital for carrying on our business and will be able to pay our debts as they come due. Notwithstanding this belief, however, under federal or state fraudulent transfer laws, if a court of competent jurisdiction in a suit by an unpaid creditor or representative of creditors (such as a trustee in bankruptcy or a debtor-in-possession) were to find that we or our guarantors did not receive fair consideration (or reasonably equivalent value) for issuing the notes or the guarantees and for any indebtedness refinanced by the notes and at the time of the issuance of that indebtedness or those guarantees, we or our guarantors were insolvent, were rendered insolvent by reason of that incurrence, were engaged in a business or transaction for which our remaining assets constituted unreasonably small capital, intended to incur, or believed that we would incur, debts beyond our ability to pay such debts as they became due, or that we intended to hinder, delay or defraud our creditors, then that court could, among other things, (i) void all or a portion

of our obligations to the holders of the notes or our guarantors’ obligations under the guarantees, (ii) recover all or a portion of the payments made to holders of the notes and/or (iii) subordinate our or our guarantors’ obligations to the holders of the notes to our other existing and future indebtedness to a greater extent than would otherwise be the case, the effect of which would be to entitle those other creditors to be paid in full before any payment could be made on the notes. The measure of insolvency for purposes of the foregoing will vary depending upon the law of the relevant jurisdiction. Generally, however, a company would be considered insolvent for purposes of the foregoing if the sum of that company’s debts was greater than all of that company’s assets at a fair valuation, or if the present fair saleable value of that company’s assets was less than the amount that would be required to pay the probable liability on its existing debts as they become absolute and due. There can be no assurance as to what standards a court would apply to determine whether we or our guarantors were solvent at the relevant time, or whether, whatever standard was applied, the notes would not be voided on another of the grounds set forth above.

On November 6, 2006, we entered into the Acquisition Agreement with Rockwell Automation to acquire the Acquired Business. The total consideration will be approximately $1.8 billion, comprised of $1.75 billion in cash and 1.58 million shares of our common stock to be issued to Rockwell Automation. The purchase price is subject to adjustment following the closing date of the Acquisition, as provided in the Acquisition Agreement, based on the difference between the amount of working capital of the Acquired Business as of the closing date of the Acquisition compared to the amount of working capital of the Acquired Business as of June 30, 2006. If working capital as of the closing date exceeds $230 million, we will be required to pay to Rockwell Automation an amount equal to the excess. Conversely, if working capital as of the closing date is less than $200 million, Rockwell Automation will pay us the shortfall. If we are required to pay additional amounts to Rockwell Automation, we expect to fund such payment from borrowings under our senior secured credit facility.

The Acquisition Agreement contains representations, warranties and covenants typical for transactions of this type. Rockwell Automation has agreed not to compete with the Acquired Business for a period of three years following the closing date of the Acquisition. Until the closing date of the Acquisition, Rockwell Automation has agreed to operate its business in the ordinary course and not to take certain enumerated corporate actions, as more fully described in the Acquisition Agreement. Rockwell Automation has agreed to indemnify us for material breaches of representations or warranties contained in the Acquisition Agreement, subject to certain limitations, including a cap of $180 million. Rockwell Automation has also agreed to indemnify us for certain legacy environmental matters, asbestos litigation and FCPA claims relating to the Acquired Business, subject to certain limitations, including a cap of $1.8 billion on all indemnification claims made by us under the Acquisition Agreement.

The Acquisition Agreement contains certain conditions to the closing of the Acquisition, including: the absence of any change in the Acquired Business that would have a material adverse effect, the accuracy of representations and warranties of each party (other than inaccuracies that would not have a material adverse effect on the Acquired Business), each party having performed their agreements and covenants in all material respects, no decree or order issued that would restrain or prohibit the consummation of the Acquisition, waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act (“HSR”) having expired, and the receipt of governmental approvals, except for those approvals which would not, if not obtained, have a material adverse effect. The Acquisition is not conditioned on us obtaining financing to pay the purchase price. The waiting period under the HSR expired on December 18, 2006. Consequently, subject to the satisfaction or waiver of the remaining closing conditions, closing of the Acquisition is expected to occur on January 31, 2007.

If certain China regulatory approvals required to transfer the China entity of the Acquired Business have not been received by the time all other closing conditions have been satisfied, then closing of the Acquisition will proceed on all of the Acquired Business other than the China entity. We will, however, pay the purchase price in full, without deduction for the China entity, at closing. Closing on the China entity will then occur upon receipt of the necessary approvals. In the interim period, Rockwell Automation will pass through to us the benefits and risks of operations of the China entity.

After Closing, Rockwell Automation has agreed to provide us with certain transition services for which we will pay customary fees. In addition, the parties have agreed to sell certain products for resale to each other pursuant to supply agreements, including standard Reliance Electric drives.

This offering of our notes is part of the financing for the Acquisition. Concurrently with this offering, we intend to offer (i) $150 million of our mandatorily convertible preferred stock and (ii) $200 million of our common stock. See “Description of Notes” and “Description of Certain Indebtedness and Preferred Stock—Mandatorily Convertible Preferred Stock.” The Financing Transactions are expected to be closed at the time of the completion of the Acquisition. The closing of the Financing Transactions are not conditioned on each other but are conditioned on the concurrent consummation of the Acquisition.

In addition, we intend to enter into a new senior secured credit facility at or prior to the closing of the Acquisition. See “Description of Certain Indebtedness and Preferred Stock—Senior Secured Credit Facility.” We intend to use $1.0 billion in borrowings under the term loan portion of our new senior secured credit facility, together with the proceeds from the Securities Financing Transactions and the 1.58 million shares of our common stock to be issued to Rockwell Automation to finance the Acquisition, to repay substantially all of our existing indebtedness and to pay related fees and expenses of the Transactions.

We have received a commitment, subject to certain conditions, for our $1.2 billion senior secured credit facility consisting of a $1.0 billion term loan and a $200.0 million revolving credit facility. In addition, we have received a commitment, subject to certain conditions, for additional financing required for the Acquisition through a $900.0 million bridge loan facility in the event that sufficient funds are not raised from the Securities Financing Transactions to pay the purchase price for the Acquisition. See “Description of Certain Indebtedness and Preferred Stock—Bridge Loan Facility.” In the event that we are unable to raise sufficient proceeds through the consummation of Securities Financing Transactions, we may draw down on the bridge loan facility, in whole or in part, in order to finance the Acquisition.

See “Use of Proceeds” for the estimated sources and uses of funds for the Transactions assuming a January 31, 2007 closing date.

We estimate that the net proceeds from the sale of the notes we are offering will be approximately $ million, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us.

We intend to use the proceeds from this offering and the offerings of mandatorily convertible preferred stock and common stock, together with $1.0 billion in term loan borrowings under our new senior secured credit facility and the issuance of common stock to Rockwell Automation, to (i) finance the Acquisition, (ii) repay substantially all of our existing indebtedness and (iii) pay fees and expenses for the Transactions. The closing of this offering, and the closing of the offerings of mandatorily convertible preferred stock and common stock, are conditioned on the concurrent consummation of the Acquisition. Our existing indebtedness matures between 2007 and 2013 and bears interest at various interest rates. Affiliates of certain of the underwriters are holders of our existing indebtedness. See “Underwriting.”

If the underwriters exercise their over-allotment option in full in connection with the common stock offering, and also exercise their over-allotment option in full in connection with our mandatorily convertible preferred stock offering, we will receive an estimated additional $ and $ , respectively, in net proceeds. We expect to use these additional net proceeds to repay indebtedness under our new senior secured credit facility.

The following table sets forth our cash, cash equivalents, marketable securities and capitalization as of September 30, 2006:

Because of the variability of the purchase price in the Acquisition, primarily due to the working capital adjustment following the consummation of the Acquisition, and the actual amount of fees and expenses, our capitalization may change.

We have received a commitment, subject to certain conditions, for our new $1.2 billion senior secured credit facility, consisting of a $1.0 billion term loan and a $200.0 million revolving credit facility, and, subject to certain conditions, for additional financing required for the Acquisition through a $900.0 million bridge loan facility in the event that sufficient funds are not raised from the Securities Financing Transactions to pay the cash purchase price for the Acquisition. See “Description of Certain Indebtedness and Preferred Stock—Bridge Loan Facility.”

You should read this table together with “Unaudited Pro Forma Condensed Combined Financial Information,” “Selected Consolidated Financial Information of Baldor,” “Selected Financial Information of Power Systems,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Baldor,” “Discussion and Analysis of Results of Operations of Power Systems” and the historical financial statements, including the related notes, included or incorporated by reference in this prospectus supplement and in the accompanying prospectus.

On November 6, 2006, Baldor entered into the Acquisition Agreement with Rockwell Automation and certain of its subsidiaries to acquire the Acquired Business from Rockwell Automation for total consideration of approximately $1.8 billion, subject to adjustment. The purchase consideration includes a payment of $1.75 billion in cash, subject to adjustment, and the issuance of 1.58 million shares of Baldor’s common stock to Rockwell Automation.

Prior to the Acquisition, the Acquired Business sourced certain custom drives from Rockwell Automation, which it sold at predetermined prices to third-party customers. After the Acquisition, the Acquired Business will no longer be able to source these custom drives from Rockwell Automation.

The following unaudited pro forma condensed combined financial information is derived from and should be read in conjunction with historical financial statements and related notes of Baldor and Power Systems which are included elsewhere in this prospectus supplement.

The unaudited pro forma condensed combined balance sheet as of September 30, 2006 and the unaudited pro forma condensed combined statements of earnings for the year ended December 31, 2005 and the nine months ended September 30, 2006 are presented herein. The unaudited pro forma condensed combined balance sheet gives effect to the Transactions as if they occurred on September 30, 2006 and combines the historical balance sheets of Baldor and Power Systems as of September 30, 2006. The unaudited pro forma condensed combined statement of earnings for the year ended December 31, 2005 gives effect to the Transactions as if they occurred on January 2, 2005 and combines the historical consolidated statement of earnings of Baldor for the year ended December 31, 2005 with the historical statement of operations of Power Systems for the year ended September 30, 2005. The unaudited pro forma condensed combined statement of earnings for the nine months ended September 30, 2006 gives effect to the Transactions as if they occurred on January 2, 2005 and combines the historical consolidated statement of earnings of Baldor for the nine months ended September 30, 2006 with the historical statement of operations of Power Systems for the nine months ended June 30, 2006.

Beginning in the first quarter of 2006, profit sharing expense is classified as an operating expense in our cost of goods sold and selling and administrative expenses. Prior to 2006, profit sharing expense was classified as a non-operating expense. The reclassification has been applied to all historic periods for Baldor presented in this prospectus supplement, consequently certain amounts presented differ from those included in previous filings incorporated by reference into this prospectus supplement.

The historical financial statements have been adjusted to give effect to pro forma items that are (i) directly attributable to the Transactions and (ii) factually supportable. With respect to the statement of earnings, the pro forma events must be expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not necessarily indicative of what the actual combined financial position or results of operations would have been had the Transactions been completed on the dates indicated or what such financial position or results would be for future periods.

The unaudited pro forma condensed combined financial statements were prepared using the purchase method of accounting to account for the Acquisition. Accordingly, we have adjusted the historical consolidated financial information to give effect to the consideration issued in connection with the Acquisition. In the unaudited pro forma condensed combined financial statements, Baldor’s cost to acquire the Acquired Business has been allocated to the assets acquired and the liabilities assumed based upon management’s preliminary estimate of their respective fair values. Any excess of the fair

value of the consideration issued over the fair value of the assets acquired and liabilities assumed will be recorded as goodwill. The amounts allocated to the assets acquired and liabilities assumed in the unaudited pro forma condensed combined financial information are based upon management’s preliminary valuation estimates. Definitive allocations will be finalized based on certain valuations and other studies that will be performed by Baldor, in some cases with the assistance of outside valuation specialists, after the closing of the Acquisition. Accordingly, the purchase price allocation adjustments and related amortization reflected in the unaudited pro forma condensed combined financial statements are preliminary, have been made solely for the purpose of preparing these statements and are subject to revision based on a final determination of fair value after closing of the Acquisition, and such revisions could have a material effect on the accompanying unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined statements of earnings do not include the impacts of any revenue, cost or other operating synergies that may result from the Acquisition or any related restructuring costs. Cost savings, if achieved, could result from material sourcing and elimination of redundant costs, including headcount and facilities. The unaudited pro forma condensed combined statements of earnings also do not reflect certain amounts resulting from the Acquisition because we consider them to be of a non-recurring nature. Such amounts may be comprised of restructuring and other exit costs and non-recurring costs relating to the integration of Baldor and the Acquired Business. To the extent the exit costs relate to the Acquired Business and meet certain criteria, they will be recognized in the opening balance sheet in accordance with EITF 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination.

Based on Baldor’s review of Power Systems’ summary of significant accounting policies disclosed in the latter’s historical financial statements, the nature and amount of any adjustments to the historical financial statements of Power Systems to conform their accounting policies to those of Baldor are not expected to be significant. Upon consummation of the Acquisition, further review of Power Systems’ accounting policies and financial statements may result in required revisions to Power Systems’ policies and classifications to conform to Baldor’s accounting policies.

Set forth below are the estimated sources and uses of funds reflected in the Transactions column.

For purposes of the pro forma financial statements the value of common stock to be issued to Rockwell Automation is based upon the average closing sale price per share of our common stock on the NYSE for each of the ten consecutive trading days ending prior to November 6, 2006, the date the Acquisition Agreement was signed. Upon closing, Baldor will issue 1,579,280 shares to Rockwell Automation. The value assigned to the shares issued in the final purchase allocation will be based upon the price of Baldor’s stock at closing.

The estimated purchase price and the allocation of the estimated purchase price discussed below are preliminary as the proposed Acquisition has not yet been completed. The following is a preliminary estimate of the purchase price for the Acquisition:

Under the purchase method of accounting, the total estimated purchase price as shown in the table above is allocated to net tangible and intangible assets of the Acquired Business based on their estimated fair values as of the date of the Acquisition. The management of Baldor has allocated the preliminary estimated purchase price based on preliminary estimates. The allocation of the preliminary purchase price and the estimated useful lives associated with certain assets are as follows:

Definitive allocations will be finalized based on certain valuations and other studies that will be performed by Baldor, in some cases with the assistance of outside valuation specialists, after closing the Acquisition. Accordingly, the purchase price allocation adjustments and related depreciation and amortization reflected in the foregoing unaudited pro forma condensed combined financial statements are preliminary, have been made solely for the purpose of preparing these statements and are subject to revision based on a final determination of fair value after closing of the Acquisition, and such revisions could have a material effect on the accompanying unaudited pro forma condensed combined financial statements. Such revisions could include changes to the fair values assigned to tangible or intangible assets acquired or liabilities assumed, or changes to the estimated useful lives assigned to tangible or intangible assets.

Identifiable intangible assets: Customer relationships relate primarily to underlying customer relationships with distributor networks, original equipment manufacturers and other customers of the Acquired Business. Acquired trade names include the Dodge and Reliance Electric trade names and other product names. Technology relates to both patented and unpatented technology.

Baldor expects to amortize the fair value of customer relationships and technology based on the pattern in which the economic benefits of these intangible assets will be consumed. Additionally, the customer relationships and technology will be tested for impairment whenever circumstances indicate that the carrying amount may not be recoverable. The fair value of acquired trade names will not be amortized but instead will be tested for impairment at least annually (more frequently if indicators of impairment are present). In the event that management determines that the value of the acquired customer relationships, technology or trade names has become impaired, Baldor will incur an accounting charge for the amount of impairment during the period in which the amount is determined.

Goodwill: Approximately $893,066 has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and intangible assets. In accordance with Statement of Financial Accounting Standards (“SFAS”) 142, Goodwill and Other Intangible Assets, goodwill will not be amortized but instead will be tested for impairment at least annually (more frequently if indicators of impairment are present). In the event that management

determines that the value of the goodwill has become impaired, Baldor will incur an accounting charge for the amount of impairment during the period in which the amount is determined.

Fixed assets: Management has estimated that at acquisition date the fair values of certain fixed assets of the Acquired Business will be higher than their respective book values in Power Systems’ historical financial statements.

Pro forma retention adjustments give effect to the exclusion of certain activities included in the historical financial statements of Power Systems that will not be acquired by Baldor. Pro forma adjustments for the Transactions give effect to the Acquisition under the purchase method of accounting, the offering of mandatorily convertible preferred stock and common stock (to Rockwell and through this offering), the issuance of new senior notes, the entry into and initial borrowings under the new senior secured credit facility, the repayment of Baldor’s existing indebtedness, the payment of fees and expenses, and the recording of certain additional assets acquired and liabilities assumed (including indemnities that will be received from Rockwell Automation to settle certain liabilities recorded in Power Systems’ historical financial statements). The pro forma adjustments assume that the underwriters do not exercise their option to purchase additional shares of Baldor’s common stock to cover over-allotments, if any, in connection with this offering or their option to purchase additional mandatorily convertible preferred stock to cover over-allotments in connection with the offering of such preferred stock.

The pro forma adjustments included in the unaudited pro forma condensed combined balance sheet are as described below.

The pro forma adjustments included in the unaudited pro forma condensed combined statements of earnings are as described below.

The following selected consolidated financial information for each of the years in the five year period ended December 31, 2005 is derived from our audited consolidated financial statements. The following selected consolidated financial information as of September 30, 2006 and for the nine months ended October 1, 2005 and September 30, 2006 is derived from our unaudited interim condensed consolidated financial statements. Our interim financial statements were prepared on a consistent basis to our annual financial statements and contain all adjustments necessary for a fair presentation of the interim period. The results for an interim period are not necessarily indicative of our results for a full year.

This information is only a summary and should be read together with “Unaudited Pro Forma Condensed Combined Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Baldor” and the historical financial statements, the related notes and other financial information included or incorporated by reference into this prospectus supplement.

The following selected financial information as of September 30, 2004, 2005 and 2006 and for the years ended September 30, 2003, 2004, 2005 and 2006 is derived from the audited financial statements of Power Systems. The financial statements of Power Systems include the results of operations of the Reliance Electric and Reliance branded drives business, which we are not acquiring from Rockwell Automation, Inc. The drives business was not a significant part of the results of operations and financial condition of Power Systems’ business. Rockwell Automation is also retaining certain pension related assets and liabilities and is indemnifying Baldor for certain asbestos litigation and legacy environmental and income tax contingency liabilities.

Historical results of Power Systems include the following income (expense) items during the periods indicated:

Our financial performance is driven by industrial spending and the strength of the economies in which we sell our products generally, and is also influenced by:

Our net sales were adversely affected during the U.S. economic slowdown that began in mid-2000 and became an economic recession in 2001 and was characterized by weak industrial markets throughout 2002 and 2003. The U.S. industrial economy began to strengthen in early 2004 and has continued to grow through 2006. Our financial performance is affected primarily by the U.S. economy, with 85% of our net sales for the nine months ended September 30, 2006 generated in the United States. This strength in the U.S. economy and price increases due to raw material costs have led to sales increases of 11.3% for 2005 compared to 2004 and 13.3% for the nine months ended September 30, 2006 compared to the same period in the prior year, although we expect this sales growth to moderate in 2007.

We are not dependent on any one industry or customer for our financial performance, with no single customer representing more than 5% of our net sales for fiscal 2005. For the nine months ended September 30, 2006, approximately 50% of our domestic net sales were generated through distributors, which represents primarily sales of replacement products. Domestic sales to OEMs were approximately 50% for the nine months ended September 30, 2006. OEMs primarily use our products in new installations, which expands our installed base and leads to replacement product sales by distributors in the future.

We manufacture substantially all of our products. Consequently, our costs include the cost of raw materials, including steel, copper and aluminum, and energy costs. Each of these costs has increased in the past few years due to growing global demand for these commodities, impacting our cost of sales. We seek to offset these increases in our costs through a continued focus on product design improvements, including redesigning our products to reduce material content and investing in capital equipment that assists in eliminating waste, and by modest price increases in our products. Our manufacturing facilities are also significant sources of fixed costs. Our margin is impacted when we cannot promptly decrease these costs to match declines in net sales.

We have a profit-sharing plan covering most of our employees with more than two years of service. We contribute approximately 12% of our earnings before income taxes and the earnings before income taxes of participating subsidiaries to the plan. Beginning in the first quarter of 2006,

profit sharing expense is classified as an operating expense in cost of goods sold and selling and administrative expenses. Prior to 2006, profit sharing expense was classified as a non-operating expense. The reclassification has been applied to all historic periods presented in this prospectus supplement, consequently certain amounts presented differ from those included in previous filings incorporated by reference into this prospectus supplement.

The demand for products in the electric motor and generator and power transmission industries is closely tied to growth trends in the economy and levels of industrial activity and capital investment. We believe that specific drivers of demand for our products include process automation, efforts in energy conservation and productivity improvement, regulatory and safety requirements, new technologies and replacement of worn parts. Our products are typically critical parts of their end-applications, and the end user’s cost associated with their failure is high. Consequently, we believe that end users of our products base their purchasing decisions on quality, reliability and availability as well as customer service, rather than the price alone. We believe that key success factors in our industry include strong reputation and brand preference, good customer service and technical support, product availability, and strong distribution network.

According to The Freedonia Group Inc., between 2004 and 2009, the U.S. electric motors and generator market is expected to grow at a compounded annual growth rate of 4.8%, driven by the improved domestic economy and increased capital spending by end-users. According to ARC Advisory Group, between 2004 and 2009, the markets for drives in North America and globally are expected to grow at an 8.6% and 6.8% compounded annual growth rate, respectively. According to The Freedonia Group Inc., the mechanical power transmission components market is expected to grow at a rate of 4.9% annually until 2010, driven by continued spending for replacement products and capital spending improvements across key end-markets.

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Management believes the following accounting policies could have the most significant effect on our reported results and require subjective or complex judgments by management.

Revenue Recognition: We sell products to our customers Free on Board (“FOB”) shipping point. Title passes to the customer when the product is shipped. Accordingly, revenue is recognized when the product is shipped. We have no further obligations associated with the product sale that would impact revenue recognition after the product is shipped.

Allowance for Doubtful Accounts: We record allowances for doubtful accounts based on customer-specific analysis, general matters such as current assessments of past due balances and historical experience. Additional allowances for doubtful accounts may be required if there is deterioration in past due balances, if economic conditions are less favorable than anticipated, or for customer-specific circumstances, such as financial difficulty.

Inventories: Inventories are valued at the lower of cost or market, with cost being determined principally by the last-in, first-out (“LIFO”) method, except for non-U.S. inventories, which are determined by the first-in, first-out (“FIFO”) method. The valuation of LIFO inventories is made at the end of each year based on inventory levels and costs at that time. The net realizable value of inventory is reviewed on an on-going basis, with consideration given to deterioration, obsolescence, and other factors. If actual market conditions differ from those projected by management, adjustments to inventory values may be required.

Self-Insurance Liabilities: Our self-insurance programs primarily include product liability, workers’ compensation, and health insurance. We self-insure from the first dollar of loss up to specified

retention levels. Eligible losses in excess of self-insurance retention levels and up to stated limits of liability are covered by policies purchased from third-party insurers. The aggregate self-insurance liability is estimated using claims experience and risk exposure levels for the periods being valued and current conditions. Adjustments to the self-insurance liabilities may be required to reflect emerging claims experience and other factors.

Goodwill: Goodwill and intangible assets with indefinite useful lives are tested at least annually for impairment and more frequently if indicators of impairment warrant additional analysis. Goodwill represents the excess of the purchase price of acquisitions over the fair value of the net assets acquired. Goodwill is evaluated for impairment by first comparing management’s estimate of the fair value of a reporting unit with its carrying value, including goodwill. Management utilizes a discounted cash flow analysis to determine the estimated fair value of our reporting units. Judgments and assumptions related to revenue, gross margin, operating expenses, interest, capital expenditures, cash flow, and market assumptions are inherent in these estimates. As a result, use of alternate judgments and/or assumptions could result in a fair value that differs from our estimate and ultimately results in the recognition of impairment charges in the financial statements. We utilize various assumption scenarios and assign probabilities to each of these scenarios in our discounted cash flow analysis. The results of the discounted cash flow analysis are then compared to the carrying value of the reporting unit. If the carrying value of a reporting unit exceeds its fair value, a computation of the implied fair value of goodwill is compared with its related carrying value. If the carrying value of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in the amount of the excess.

Share-Based Compensation: Beginning in fiscal year 2006, we apply the fair value method, pursuant to Statement of Financial Accounting Standards (“SFAS”) No. 123(R) “Share-Based Payments”, in accounting for share-based compensation plans. Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123(R) using the modified prospective transition method. As a result, we recognize the fair value of share-based compensation over the vesting period of the related awards.

The fair value of the options is estimated using a Black-Scholes option pricing formula. The variables used in the option pricing formula for each grant are determined at the time of grant as follows: (1) volatility is based on the daily composite closing price of our stock over a look-back period of time that approximates the expected option life; (2) risk-free interest rates are based on the yield of U.S. Treasury Strips as published in the Wall Street Journal on the date of the grant for the expected option life; (3) dividend yields are based on our dividend yield published in the Wall Street Journal on the date of the grant; and (4) expected option life represents the period of time the options are expected to be outstanding and is estimated based on historical experience. Assumptions used in the fair-value valuation are periodically monitored and adjusted to reflect current developments. The volatility factor for 2006 options is greater than that used to value previous grants. Future expense may be higher than past pro forma expense because the greater volatility factor acts to increase the value of the granted options.

Nine months ended September 30, 2006 versus nine months ended October 1, 2005

Net sales for the first nine months of 2006 increased 13.3% to $610.8 million, compared to sales of $538.9 million in the first nine months of 2005. Sales of industrial electric motor products grew 17.5% compared to the first nine months of 2005 and that growth was spread among most of the industries and geographical areas we serve. Industrial electric motors comprised 80.7% of net sales in the first nine months of 2006 compared to 77.8% in the comparable period of 2005. Sales of drives and

motion control products were 5.9% higher in the first nine months of 2006 compared to the first nine months of 2005, fueled by growth in Europe in the third quarter. Drive products accounted for 13.9% of net sales in the first nine months of 2006 compared to 14.9% in the comparable period of 2005. For the first nine months of 2006, sales of generator products decreased by 15.9% from the same period of 2005 and comprised 5.4% of net sales in the first nine months of 2006 compared to 7.3% in the first nine months of 2005. Decreased military and hurricane-related demand during the third quarter 2006 was the primary contributor to the year-to-date decline. While we expect military shipments to resume during early 2007, we believe that military and hurricane-related shipments are unpredictable and will continue to be a smaller percentage of our overall generator business. Other industrial generators sales were up 14.1% in the first nine months of 2006, indicating growth in distribution channels and market share.

Gross margin improved to 26.3% in the first nine months of 2006 compared to 25.9% in first nine months of 2005. Prices for copper and aluminum continued to rise through the first nine months of 2006. Continued increasing material costs in 2006 had a negative impact on margins; however, improvements in manufacturing efficiencies and strong sales growth resulted in overall improvement in the gross margin. During the first nine months of 2005, certain accrued insurance obligations were adjusted to reflect current exposure, improving gross margin by 0.3%.

Operating margin for the first nine months of 2006 improved to 9.9% from 9.1% in the first nine months of 2005. As a result of not adding substantial fixed selling and administrative costs during the first nine months of 2006, total selling and administrative expenses amounted to 16.4% of sales compared to 16.8% of sales in the first nine months of 2005. In the first nine months of 2006, we adjusted our allowance for doubtful accounts receivable to reflect current exposure resulting in an increase in the operating margin of 0.2%. Selling and administrative expense for the nine months ended September 30, 2006 included $1.8 million of non-cash expense due to the adoption of SFAS 123(R).

Pre-tax margin improved to 9.3% for the first nine months of 2006 from 8.8% for the comparable period of 2005. Interest expense increased compared to the same period of 2005 due to rising interest rates and additional borrowings related to share repurchases. Improvements in gross and operating margins more than offset this increase.

As a result of improved margins, net earnings of $35.9 million for the first nine months of 2006 were up 20.2% from net earnings of $29.9 million for the first nine months of 2005. Diluted earnings per common share for the first nine months of 2006 grew by 22.5% to $1.09 compared to $0.89 for the first nine months of 2005. During 2006 and 2005, certain liabilities were adjusted to reflect current exposure. Reduction of allowance for doubtful accounts receivable during the first nine months of 2006 increased diluted earnings per common share by $0.02. Adjustments to our self-insurance liabilities during the first nine months of 2005 increased diluted earnings per common share by $0.03.

Net sales for 2005 increased 11.3% to $721.6 million, compared to sales of $648.2 million in 2004. Sales of industrial electric motor products grew 14.3% during 2005 and that growth was spread among most of the industries and geographical areas we serve. Large motors (60-1500 horsepower) and Super-E high-efficiency motors in all sizes had the strongest growth in 2005. As energy costs have increased, our Super-E high-efficiency motors have become increasingly valuable to our industrial users. Industrial electric motors comprised 78.3% of net sales in 2005 compared to 76.2% in 2004. During 2005, sales of generator products rose 16.5% from 2004 levels and comprised 7.0% of net sales in 2005 compared to 6.7% in 2004. While a portion of the growth was related to the need for alternate power in areas affected by the hurricanes, we saw substantial growth in a number of customer markets. Sales of drives and motion control products declined 3.9% in 2005, following strong growth in 2004. During 2005, we completed development of new motion control products and the first phase of our H2 series of drives. Drive products accounted for 14.7% of net sales in 2005 and 17.1% in 2004.

Gross margin was 26.9% in 2005 compared to 26.0% in 2004. During 2005, copper prices reached record highs, driving up the cost of our materials. A continued focus on product design improvements, along with a modest price increase on our products, helped to mitigate the effects of increased material costs. Those initiatives combined with improved manufacturing efficiencies and increased sales volume accounted for most of the improvement in gross margin for 2005. During 2005 we adjusted certain self-insurance liabilities to reflect current exposures, resulting in an increase in the gross margin by 0.5%.

Operating margin for 2005 improved to 9.6% from 8.3% in 2004. Selling and administrative expenses decreased to 17.3% of sales in 2005 compared to 17.7% in 2004, as a result of only modest increases in fixed selling and administrative costs during 2005. As a result, total selling and administrative expenses for 2005 declined as a percentage of sales. Our ability to support increased 2005 sales volume without the addition of significant overhead, along with the product design improvements and manufacturing efficiencies, resulted in improved operating margin.

Pre-tax margin improved to 9.3% for 2005 from 8.1% in 2004. Interest rates on outstanding long-term debt facilities increased during 2005. In response, we utilized a portion of operating cash flows to reduce our debt by approximately $9.0 million. While we incurred more interest expense than in 2004, we reduced our exposure to continued rising rates with the reduction of a portion of our variable rate debt. Net earnings for 2005 of $43.0 million were up 22.7% from 2004 earnings of $35.1 million. Diluted earnings per share grew by 21.8% to $1.28 compared to $1.05 in 2004. Adjustments to our self-insurance liabilities during the fourth quarter of 2005 increased diluted earnings by $0.04 per share. In addition, income tax liabilities were adjusted in the fourth quarter of 2005 due to resolution of certain state tax liabilities, resulting in an increase in diluted earnings per share of $0.01 per share. These adjustments compared to adjustments of income tax liabilities made in the fourth quarter of 2004 amounting to $0.06 per diluted share.

Net sales for 2004 were $648.2 million, rising 15.5% above 2003 net sales of $561.4 million. Sales of electric motors increased 13.5% in 2004 and amounted to 76.2% of net sales compared to 77.5% in 2003. Sales of drives products were up 15.7% for the year and amounted to 17.1% of total product sales in 2004 compared to 17.0% in 2003. Sales of generator products rose 41.8% during the year and comprised 6.7% of total product sales versus 5.5% in 2003.

Gross margin of 26.0% in 2004 declined from 26.3% in 2003. During 2004, raw material costs increased sharply and although productivity and product design improvements and price increases mitigated some of the effects of increased copper and steel costs, gross margin suffered during 2004.

Operating margin of 8.3% in 2004 was an increase over 2003 operating margin of 7.2%. Most of the 2004 improvement resulted from our ability to support a 15.5% increase in 2004 net sales without adding fixed selling and administrative costs. Selling and administrative costs were 17.7% of sales in 2004 compared to 19.1% in 2003. During the fourth quarter of 2004, certain contingent liabilities were adjusted by approximately $1.5 million to reflect current exposures, resulting in a reduction in selling and administrative expenses of 0.2% of sales.

While increased material costs in 2004 had a negative effect on the 2004 gross margin, efficiencies in selling and administrative costs combined with increased sales volume resulted in a pre-tax margin of 8.1% for 2004 compared to 7.0% in 2003. Net earnings increased to $35.1 million, or $1.05 per diluted share, in 2004 compared to $24.8 million, or $0.74 per diluted share, in 2003. During the fourth quarter of 2004, certain accrued income tax liabilities were adjusted to reflect current exposure, resulting in an increase in earnings of $0.06 per diluted share.

International sales increased 2.0% in 2005 to $103.1 million compared to $101.1 million in 2004 and $82.8 million in 2003. International sales are comprised of sales made directly by us and sales made by affiliates. In 2005, our export sales from the U.S. to non-affiliate customers increased 17.1% or $7.9 million. Sales from our European affiliates to foreign customers declined 10.0% primarily due to general business conditions in Europe and the anticipated availability in early 2006 of new motion control products.

In the third quarter of 2006, we completed the move of our large motor production into a new facility in Columbus, Mississippi. The new facility replaced our existing facility in Columbus and provides additional efficiencies and capacity. On July 21, 2005, we entered into a five-year operating lease agreement on this new facility. At the end of the initial five-year lease term, we have the option to either extend the lease for up to two successive five-year periods under terms similar to the terms of the original lease or purchase the property at a stated amount that approximates the fair value of the property. See Note G to our audited consolidated financial statements included in this prospectus supplement.

Our financial condition remained strong through third quarter 2006. We continued to maintain financial strength while investing in research and development for new and existing products, making capital investments in our manufacturing facilities and information systems, expanding into new markets, and continuing to invest in both our employees’ and customers’ education and training. We believe the investment in our employees through training and education is a key to continued success and improved shareholder value. Our commitment to research and development continues to help us maintain a leadership position in the marketplace and satisfy customers’ needs. We continue to make investments in new product development as well as in existing products for improved performance, increased energy efficiency, and manufacturability.

Our liquidity position remained solid in the first nine months of 2006. Working capital amounted to $207.0 million at September 30, 2006, and $189.0 million at December 31, 2005. The ratio of current assets to current liabilities was 2.8 to 1 at both September 30, 2006, and year-end 2005.

Liquidity was supported by cash flows from operations of $40.2 million in the first nine months of 2006 compared to $37.8 million in the first nine months of 2005. While we were able to reduce the number of days it takes to collect our accounts receivable during the first nine months of 2006, the strong sales growth resulted in additional investment in accounts receivable of $22.6 million compared to $17.1 million for the same period in 2005. Increased accounts payable contributed $13.2 million more in operating cash flows when compared to the first nine months of 2005 and is primarily attributable to higher production levels to support sales growth and the timing of cash disbursements. In the first nine months of 2006, we made estimated tax payments greater than those made in the same period 2005, reducing operating cash flows by approximately $8.4 million. In the first nine months of 2006, we utilized operating cash flows, along with accumulated cash and marketable securities and long-term debt, to fund property, plant and equipment additions of $14.4 million, pay dividends to our shareholders of $16.3 million, and repurchase 1.2 million shares of our common stock for $38.5 million. During the first nine months of 2005, operating cash flows and accumulated cash

were utilized to fund property, plant and equipment additions of $15.6 million, pay dividends to our shareholders of $15.3 million, and repurchase 113,000 shares of our common stock for $2.8 million.

Total long-term debt, including $25.0 million classified as current maturities, was $105.0 million at September 30, 2006, and $95.0 million at December 31, 2005. Of the additional $30.0 million borrowed in first quarter 2006 to fund share repurchases, $10.0 million was repaid during both subsequent quarters of 2006. Baldor’s credit agreements contain various financial covenants, and we were in compliance with those covenants.

We expect that, following the Transactions, our primary sources of liquidity will be cash flow from operations as well as funds available under our new senior secured credit facility, as discussed below. We expect that on-going requirements for debt service, operations, capital expenditures and dividends will be funded from these sources.

In connection with the Acquisition, we expect to enter into a new senior secured credit facility in an aggregate amount of up to $1.2 billion. The senior secured credit facility is expected to consist of a $1.0 billion senior secured term loan facility and a $200 million senior secured revolving credit facility, with up to $20 million of this revolving amount available for the issuance of letters of credit.

We expect to fully draw down on the term loan facility, the funds from which will be used, together with the proceeds of the Securities Financing Transactions, to finance the Acquisition, to repay our indebtedness and to pay fees and expenses for the Transactions. If the underwriters exercise in full their option to purchase additional shares of common stock and mandatorily convertible preferred stock solely to cover over-allotments, we would receive an estimated additional $ in net proceeds, which we expect to use to repay indebtedness under our senior secured credit facility. Also see “Use of Proceeds—Sources and Uses of Funds.”

The new senior secured credit facility will be guaranteed by all of our significant subsidiaries, other than foreign subsidiaries, which immediately after the Acquisition will be Reliance Electric Company, Reliance Electric Technologies, LLC and REC Holding, Inc. In addition, it will be secured by liens on substantially all of our assets and the assets of the guarantors of the senior secured credit facility, but no more than 65% of the voting stock of any first-tier foreign subsidiaries.

The term loan and the revolving credit facilities will mature in seven and five years, respectively, from the closing date of the new senior secured credit facility. The term loan facility will amortize on a quarterly basis as described in “Description of Certain Indebtedness and Preferred Stock—Senior Secured Credit Facility.” Borrowings under the new senior secured credit facility will bear interest at an alternate base rate plus an applicable margin, or at an adjusted Eurodollar rate plus an applicable margin, in each case as described in “Description of Certain Indebtedness and Preferred Stock—Senior Secured Credit Facility.”

There are certain affirmative and negative covenants (including financial covenants) placed on us under the new senior secured credit facility, including, but not limited to, restrictions on payment of dividends on our capital stock, the issuance of additional debt, incurrence of liens and capital expenditures and the repayment of other debt. In addition, we will be required to maintain maximum total leverage and senior secured debt ratios, a minimum fixed charge coverage ratio and a limit on the amount of our annual capital expenditures.

As of September 30, 2006, on a pro forma basis giving effect to the Transactions, we would have had approximately $1.56 billion of indebtedness. Of this total, approximately $1.0 billion would have been our secured indebtedness under our new senior secured credit facility. Interest payments on the

senior notes and on borrowings under the new senior secured credit facility and, to the extent declared by our board of directors, dividends on our mandatorily convertible preferred stock and common stock, will significantly increase our liquidity requirements. We anticipate that capital expenditures will be approximately $35 million in 2007. We expect to suspend our share repurchase program.

Based upon our current level of operations, we believe that our existing cash on hand, marketable securities and our cash from operating activities, together with borrowings expected to be available under our new senior secured credit facility, will be adequate to meet our anticipated requirements for working capital and capital expenditures and other uses of liquidity.

In the event that we are unable to raise sufficient proceeds through the consummation of the Securities Financing Transactions, we may draw down, in whole or in part, on a $900.0 million bridge loan facility in order to finance the Acquisition. See “Description of Certain Indebtedness and Preferred Stock—Bridge Loan Facility.” In the event of such draw down, we would be more highly leveraged.

The table below summarizes our contractual obligations as of December 31, 2005 and does not reflect the impact of the Transactions.

In June 2006, the Financial Accounting Standards Board (the “FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FAS 109”. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FAS 109, “Accounting for Income Taxes”. Among other items, FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We are required to adopt FIN 48 for fiscal year 2007 and management is currently evaluating what impact, if any, FIN 48 will have on our financial results.

In September 2006, the FASB issued FAS 157, “Fair Value Measurements”. FAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Baldor is required to adopt FAS 157 for fiscal year 2008 and management is currently evaluating what impact, if any, FAS 157 will have on our financial results.

We have presented below a discussion and analysis of Power Systems’ results of operations for the years ended September 30, 2006, 2005 and 2004. We have included this information because we believe it is useful for investors in assessing the results of operations of Power Systems. The results of operations of Power Systems presented below include the results of operations of the Reliance and Reliance Electric branded drives business, which is being retained by Rockwell Automation. Rockwell Automation is also retaining certain pension related assets and liabilities and is indemnifying Baldor for certain asbestos litigation and legacy environmental and income tax contingency liabilities. See “Unaudited Pro Forma Condensed Combined Financial Information.”

All date references to years refer to the Power Systems fiscal year ending September 30, unless otherwise stated. Power Systems has two operating segments: Mechanical and Electrical. The following table reflects the sales and earnings before interest and taxes (“EBIT”) of Power Systems’ segments.

Among other considerations, management evaluates performance and allocates resources based upon segment EBIT which excludes income taxes and interest expense. Costs related to Rockwell Automation’s corporate allocation, Reliance Electric non-operating subsidiaries and incremental acquisition related expenses resulting from purchase accounting adjustments such as intangible asset amortization and depreciation are contained within the Headquarters and Other caption above.

Sales increased 14.5% in 2006 compared to 2005 with growth of 11.4% and 17.4% in the Mechanical and Electrical operating segments, respectively. Sales benefited from U.S. based customers in industries which experienced high energy and commodity prices investing in capacity expansion after several years of under-investment and reduced capital spending.

Mechanical sales increased 11.4% in 2006 compared to 2005. North American sales benefited from strong project activity related to ethanol plants and airport baggage handling systems. Increased domestic sales to distributors, though solid at 10.0%, lagged the increase in domestic OEM sales where new products and focused selling efforts delivered 12.0% growth. Commodity prices stabilized in 2006 and price increases were

consistent with normal historic levels. Sales in the Asia-Pacific region were also strong in the mining and power generation industries.

Electrical sales for 2006 increased 17.4% in 2006 compared to 2005. The growth was fueled by improved economic climates within the mining, oil and gas, and petrochemical industries and the international expansion of Electrical’s service offerings. Increased demand for Electrical’s motor products, due to the strong economic climate in Electrical’s served industries, resulted in a 17.9% increase in sales coupled with an increase in Electrical’s service offering sales of 25.4% as compared to 2005. Price increases related to commodity cost increases also contributed to the year over year growth. The improved economic climate in the Asia-Pacific region and the Alberta Oil Sands also contributed to the increase as it allowed for further expansion into these markets.

Mechanical EBIT grew 32.9% and achieved 22.4% margin due to favorable pricing, higher volume and the implementation of productivity improvement programs. Segment EBIT in 2006 included $1.8 million of stock based compensation expense due to the adoption of a new accounting standard, SFAS 123(R) and increased pension and retiree medical expenses compared to 2005.

Electrical EBIT grew 79.6% due to higher volume, productivity initiatives and lower restructuring costs. Price increases offset higher material costs for copper and aluminum. The margin expansion benefited from prior restructuring actions and channel growth. Segment EBIT in 2006 included $2.1 million of stock based compensation expense due to the adoption of a new accounting standard, SFAS 123(R), and increased pension and retiree medical expenses compared to 2005. Segment EBIT in 2005 included a charge of $5.0 million associated with a facility closure and the corresponding write-down of property to its fair value.

Headquarters and Other expense was $16.2 million in 2006 compared to $17.4 million in 2005. The decrease is primarily due to lower purchase accounting depreciation and amortization expense of $2.0 million related to certain assets becoming fully amortized during the year. Environmental charges decreased by $1.0 million primarily related to lower costs in 2006 compared to 2005 for the former Toledo Scale manufacturing location in Orlando, Florida. These decreases in Headquarters and Other were partially offset by an increase in corporate cost allocations of $1.6 million related to management services provided by Rockwell Automation.

Interest expense was $1.8 million in 2006 compared to a negligible amount in 2005. The increase was due to the classification of rental payments as interest expense on certain properties sold pursuant to a sale-leaseback transaction (see Note 14 to Power Systems’ financial statements).

Sales in 2005 were $901.1 million, an increase of 17.1% compared to 2004. Each of Power Systems’ operating segments contributed, with Mechanical growing by 17.4% and Electrical increasing by 16.7%. The increase in Mechanical sales was primarily due to an increase in the power transmission industries OEM customer base. Electrical sales benefited from growth in the end-user and OEM customer base and the positive impact of the economic recovery on its service offerings.

Mechanical sales increased 17.4% in 2005 compared to 2004. Strong demand for power transmission products in several key industries was a primary driver of the growth. Project activity and capital spending in mining, aggregate and cement were particularly robust. In addition, domestic distributor channel revenue grew approximately 15.0% as a result of strong market activity, focused selling efforts and excellent finished good product availability. Pricing actions were also implemented during the year to offset higher purchased commodity costs.

Electrical sales increased by $66.3 million in 2005 compared to 2004. The 16.7% improvement was driven by 20.6% growth in Electrical’s motor product offerings while sales related to Electrical’s service offerings grew 11.2% as compared to 2004. Motor sales benefited from higher activity in the underground mining industry as well as a resurgence in the petrochemical industry, primarily related to drilling and pumping applications. Price increases to offset higher raw material commodity costs also contributed to the growth. Service sales benefited from the overall economic recovery as the domestic field service and repair businesses grew 11.5% and 10.1%, respectively.

Mechanical segment EBIT increased by 53.3% in 2005 compared to 2004. The increase in segment EBIT was primarily due to higher volume and improved productivity. Mechanical plants had improved asset utilization and reduced costs through Lean manufacturing techniques. Aggressive pricing actions have mitigated margin erosion due to material increases. Segment EBIT in 2004 also included a charge of $4.0 million associated with a closure of a European manufacturing facility.

Electrical segment EBIT grew 119.7% due to higher volume and increased productivity somewhat offset by higher material costs. Margin expansion benefited from material cost reduction efforts and product mix. Segment EBIT in 2005 included a charge of $5.0 million associated with a facility closure and the corresponding write-down of property to its fair value compared to $0.9 million of charges related to restructuring activities in 2004.

Headquarters and Other expense was $17.4 million in 2005 compared to $28.9 million in 2004. The decrease is primarily due to lower purchase accounting depreciation and amortization expense of $7.1 million related to certain assets becoming fully amortized during the year. Environmental charges decreased by $4.7 million primarily related to lower costs in 2005 compared to 2004 for the former Toledo Scale manufacturing location in Orlando, Florida.

Baldor is a leading manufacturer of industrial electric motors, drives, and generators, currently supplying over 8,000 customers in more than 160 industries. We sell our products to original equipment manufacturers and distributors serving markets in the United States and throughout the world. We focus on providing customers with value through a combination of quality products and customer service, as well as short lead times and attractive total cost of ownership, which takes into account initial product cost, product life, maintenance costs and energy consumption. We estimate that the initial purchase price and the lifetime maintenance costs of a typical electric motor represent approximately 2% of the cost of the electricity consumed by a motor run continuously over its lifetime. We believe that due to high energy prices, our customers increasingly base their purchasing decisions on the energy efficiency of our motors and other products, rather than on the price alone. Over the past 15 years, our revenue has grown at a 6.4% compounded annual growth rate. We have achieved most of this growth organically through product innovation, increased market share and expansion into new markets.

We believe that we are well positioned in the markets in which we compete based on the following competitive strengths, which will be enhanced by the Acquisition:

In the year ended December 31, 2005, our products and those of the Acquired Business were sold to more than 4,000 OEMs and 5,000 distributors across a wide variety of end markets. On average, Baldor’s top 20 customers in the nine months ended September 30, 2006 have been doing business with us for 22 years. For the nine months ended September 30, 2006, approximately half of our sales were to OEMs and half were to distributors. For the year ended September 30, 2006, approximately 52% of Power Systems’ domestic revenues were generated through distributors. We believe that the different purchasing patterns among our customers in the various end markets we serve allow us to reduce the overall sensitivity of demand for our products due to changes in the economy. Also, we believe our large installed base and specification of our products by leading OEMs as original equipment creates significant replacement demand.

Leverage existing customer relationships and realize cross-selling opportunities.

We continually evaluate our products to find ways to improve performance and reduce the material needed to meet our customers’ demands. On average, we release 250 new product line additions a

year and approximately 25% of our annual sales in each of the past five years were from newly developed products, defined as products developed in the prior five year period.

We intend to reduce our financial leverage with cash flow generated from operations.

We believe the end-markets we serve provide attractive growth opportunities. We expect to continually develop new products and enhance existing products to meet customers’ end-use applications. In addition we intend to expand our global reach by capitalizing on high-growth regions such as China with our broadened product offering, local service and support and manufacturing capabilities.

Motors. Our motor products have a reputation of being premium products in the markets we serve. Our industrial motor product line includes both AC and DC electric motors. Our AC motors range in size from fractional to 1,500 horsepower and our DC motors range from fractional to 600 horsepower. Our motors are used in a wide variety of essential applications, including unit handling (conveyor belts and other material handling equipment), air handling (fans and blowers), and fluid handling (pumps). Our motors are used in many industries, including agriculture, chemical, food and beverage, machinery manufacturing, medical equipment, mining, paper and packaging, semiconductor manufacturing and water supply. We believe that this diversification across industries allows us to be less dependent on any particular industry or customer segment. We also manufacture gear motors and speed reducers.

Our motors are designed as both stock and custom products. For the nine months ended September 30, 2006 stock motors represented approximately 61.3% of our domestic motor sales. Stock motors are available for immediate shipment from current finished inventory. Custom motors are built to customer specifications and are typically built and shipped within 2-3 weeks of order entry. Industrial motors represented approximately 78.3% of our net sales in 2005 and 80.7% of our net sales for the nine months ended September 30, 2006.

Our current motor product offering and their primary applications are summarized in the table below:

Drives. We also manufacture drives, which are electronic controls used to adjust the speed and torque of an electric motor to match an end application. We also make a line of drives, such as linear and rotary servo motors and motion control products, which are used to automate manual processes. Generally, our industrial drives and motion control products are used in the same industries and applications as our motors. Drives represented approximately 14.7% of our net sales in 2005 and 13.9% of our net sales for the nine months ended September 30, 2006.

Our current drives product offering and their primary applications are summarized in the table below:

Generators. Our generator product line ranges from 1.3 kilowatts to 2.0 megawatts, and includes portable generators, industrial towable generators, mobile light towers, emergency and standby generators, prime power generators and peak-shaving generators. We sell our generators to companies in a variety of industries, including agriculture, construction, equipment rental, military, municipal, and telecom. Generators represented 7.0% of our net sales in 2005 and 5.4% of our net sales for the nine months ended September 30, 2006.

Our current generator product offering and their primary applications are summarized in the table below:

Reliance Electric. Reliance Electric’s business is composed of standard and engineered motors and services. Reliance Electric produces large AC and custom motors that range from 300 to 15,000 horsepower as well as small and medium AC motors that range from fractional to 300 horsepower.

Reliance Electric’s motors are used in many industries such as mining, power generation, petroleum and chemical, petroleum exploration and production (drilling, in particular), plastic extrusion, paper and metal processing, and military. Reliance Electric’s motors are also used in a wide variety of applications, including unit handling, pumps, compressors, fans and blowers found in a wide range of commercial and industrial equipment.

Reliance Electric’s current product offering and their primary applications are summarized in the table below:

The services unit of Reliance Electric repairs and reconditions Reliance Electric and Dodge products as well as those of competitors, performs diagnostic maintenance to enhance customer productivity and avoid downtime, and offers plant improvement assessments. The services unit has 11 service centers in the U.S., two in Mexico, one in Canada and one in China.

Reliance Electric’s business generated 52.7% of Power Systems’ sales for year ended September 30, 2006.

Dodge. The Dodge mechanical power transmission business designs and manufactures mounted bearings, enclosed shaft mount, helical and worm gearing, and other power transmission components such as bushings, sheaves and conveyor pulleys. Dodge’s business generated 47.3% of Power Systems’ sales for year ended September 30, 2006.

Dodge’s current product offerings and their primary applications are summarized in the table below:

We manufacture all products we sell, including many of the components used in our products, such as laminations, stamped steel parts, and aluminum die castings. In addition to manufacturing components, our motor manufacturing operations include machining, welding, winding, assembling, and finishing operations. Manufacturing many of our own components permits us to better manage cost, quality, and availability. Our FLEX FLOW manufacturing process enables us to provide short lead times.

The raw materials and parts necessary for our manufacturing operations are available from several sources. These materials include steel, copper wire, gray iron castings, aluminum, insulating materials, electronic components, and combustion engines. Many of these materials and parts are purchased from more than one supplier. We believe that alternative sources are available for such materials and parts.

Reliance Electric and Dodge manufacturing processes are vertically integrated and include machining, hobbing, honing, grinding, stamping, forming, welding, stator winding, die casting, heat treating, assembling and testing. The raw materials and parts necessary for the Acquired Business’s processes are very similar to those of Baldor, except combustion engines.

Our products are marketed throughout the United States and in more than 60 foreign countries. Our field sales organization, comprised of independent manufacturer’s representatives and Baldor sales personnel, is located in more than 70 offices, which includes 40 locations in North America, and each offers the entire product line in their territory.

Custom products and stock products are sold to OEMs and to independent distributors for resale, often as replacement components in industrial machinery that is being modernized or upgraded for improved performance. For the fiscal year ended December 31, 2005, approximately 50% of our domestic net sales were generated through distributors. Because of our broad customer base, in fiscal 2005 no single customer represented more than 5% of our net sales and our largest OEM did not constitute more than 2% of our net sales.

Reliance Electric and Dodge market their products through a single sales organization responsible for distributors, OEMs and end-users. The sales organization is segmented into five regions with sales engineers located in U.S., Canada, Latin America (including Mexico), Europe and Asia Pacific. The sales organization is responsible for all products offered by Reliance Electric and Dodge and is augmented by distributor channel managers and industry business teams. Typically, sales personnel of the Acquired Business are employees of the Acquired Business. Reliance Electric sells directly to over 2,500 OEMs, end-user customers and distributors. Reliance Electric’s ten largest customers accounted for approximately 20% of Power Systems’ net domestic revenue in fiscal 2006. Mining OEMs, petroleum and chemical users and industrial distributors were among the largest customers.

Dodge sells its products to more than 1,000 customers in 16 countries. In fiscal 2006, Dodge earned approximately 78% of its net domestic revenue from industrial distributors, who resell these products to both OEMs and end-users. Dodge’s remaining net revenue was made from sales directly to OEMs and end-users. During the same year, Dodge earned 90% of its net revenue from customers based in the United States. Dodge’s ten largest customers accounted for approximately 30% of Power Systems’ net domestic revenue in fiscal 2006.

International sales were approximately 14% of net sales in 2005, 16% of net sales in 2004, and 15% of net sales in 2003.

Our products are distributed in more than 60 foreign countries, principally in Canada, Mexico, Europe, Australia, the Far East, and Latin America. Baldor’s wholly-owned affiliate, Baldor UK Ltd., has sales offices and a development and manufacturing facility in the UK. Baldor has sales offices in Germany and Switzerland. We also own Australian Baldor Pty. Limited which has locations in Sydney and Melbourne. We own Baldor Electric (Asia) Pte. Ltd. located in Singapore which has sales offices in Taiwan, Korea, and China and Baldor de Mexico, S.A. de C.V. located in Leon, Mexico. We own 90% of Baldor Japan Corporation located in Yokohama, Japan.

International sales (foreign affiliates and exports) were approximately 15% of total sales in fiscal 2006, 13% of total sales in fiscal 2005, and 13% of total sales in fiscal 2004. Reliance Electric and Dodge products are distributed in more than 30 foreign countries, principally in Canada, Mexico, Europe, Asia Pacific, and Latin America. The Acquired Business owns a manufacturing facility in China which manufactures both Dodge and Reliance Electric products, a facility in Mexico which manufactures Dodge products, and a facility in Canada which manufactures Dodge and Reliance products. In addition, Reliance Electric has two service centers in Mexico, one in Canada and one in China.

We face substantial competition in all markets served. Some of our competitors are larger in size or are divisions of large diversified companies and have substantially greater financial resources. We focus on providing customers with value through a combination of quality products and customer service, as well as short lead times and attractive total cost of ownership, which takes into account initial product cost, product life, maintenance costs and energy consumption. Our primary competitors in the motors industry, in addition to Reliance, include General Electric Co., Emerson Electric Co., Regal-Beloit Corp., Siemens AG, WEG S.A. and A.O. Smith Corp. In generators, our competitors include Kohler Co., Caterpillar, Inc., Cummins, Inc. and Honda Motor Co Ltd. In the drives business, we compete with ABB Ltd., Danaher Corporation, Mitsubishi Heavy Industries, Ltd., Siemens AG, and Rockwell Automation, Inc., among others.

Reliance Electric’s primary competitors in motors, in addition to ourselves, include A.O. Smith Corp., Emerson Electric Co., General Electric Co., Regal-Beloit Corp., Siemens AG, WEG S.A., TECO-Westinghouse Motor Co. and Toshiba.

Dodge competes with many companies, including Altra Industrial Motion, Inc., Emerson Electric Co., Martin Sprocket & Gear, Inc., Regal-Beloit Corp., Rexnord Corp., SEW-EURODRIVE GmbH, Siemens AG, SKF AB, and TB Woods Corp.

Our design and development of electric motors, drives and generators include both the development of products, which extend our product lines, and the modification of existing products to meet new application requirements. New products are typically the result of customer driven application requirements, enhancing current product performance or the development of a complete new product solution. Additional development work is performed to improve production methods. Costs associated with research, new product development, and product and cost improvements are expensed when incurred and amounted to approximately $24.4 million in 2005, $25.4 million in 2004, and $21.9 million in 2003. On average, we release 250 new product line additions a year and approximately 25% of our annual sales in each of the past five years were from newly developed products, defined as products developed in the prior five year period.

The Acquired Business’s engineering department supports both Dodge and Reliance Electric products. Engineering’s responsibilities include research in fields of emerging technologies, new product development, cost reduction, custom order engineering, design for manufacturability, manufacturing support and customer application assistance. Product development engineering is segmented into basic product groups for both Dodge and Reliance Electric products. Costs associated with research, new product development, and product improvements amounted to approximately $20.4 million in 2005, $19.0 million in 2004, and $19.3 million in 2003.

Emerging technology development is conducted in the Acquired Business’s Advanced Technology Labs located in Cleveland, Ohio. The Acquired Business also has a dedicated engineering facility in Greenville, South Carolina that includes new product development and a “state-of-the-art” testing facility.

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 our industry. With the exception of our brand names, we do not believe any single patent, trademark or trade name is material to our business as a whole. Some of our trademarks include: Baldor, Super-E, H2, FLEX FLOW, and MINT.

The Acquired Business owns or licenses numerous patents and patent applications related to its products and operations. Any issued patents that cover the Acquired Business’s proprietary technology and any of its other intellectual property rights may not provide the Acquired Business with adequate protection or be commercially beneficial and, if applied for, may not be issued. The issuance of a patent is not conclusive as to its validity or its enforceability. While in the aggregate the Acquired Business’s patents and licenses are important in the operation of its business, we do not believe that loss or termination of any one of them would materially affect its business or financial condition.

The Acquired Business’s trademarks Reliance, Reliance Electric and Dodge are important to its business. In addition, the Acquired Business’s own other important trademarks it uses for certain products and services, such as EZ-KLEEN, Grip Tight, V*S, Para-Flex and Torque-Arm.

The Company also has approximately 350,000 sq. ft. of space available for expansion, currently fully leased to outside firms.

The following table contains information with respect to Acquired Business’s properties.

In addition, Power Systems leases 11 service centers throughout the United States, as well as one in each of Canada, Mexico and China. Power Systems also owns one service center in Mexico.

We are party to a number of legal proceedings incidental to our business, none of which we expect to have a material adverse impact on our business.

The Acquired Business is or may be a party to various lawsuits, claims and proceedings relating to the conduct of its business, including those pertaining to product liability, workers compensation, intellectual property, employment and contract matters. The Acquired Business is named in one product liability case in which the damages claim exceeds $1 million.

The Acquired Business has been named as a defendant in lawsuits alleging personal injury as a result of exposure to asbestos that was used in certain components of its products many years ago. Currently there are hundreds of claimants in lawsuits that name the Acquired Business as a defendant, together with hundreds of other companies. The great bulk of the complaints, however, do not identify any of the Acquired Business’s products or specify which of these claimants, if any, were exposed to asbestos attributable to the Acquired Business’s products; and past experience has shown that the vast majority of the claimants will never identify any of the Acquired Business’s products. For those claimants who do show that they worked with the Acquired Business’s products, we believe the Acquired Business has meritorious defenses, in substantial part due to the lack of asbestos in its products, the integrity of its products, the encapsulated nature of any asbestos-containing components, and the lack of any impairing medical condition on the part of many claimants.

As a result of an internal review, Rockwell Automation determined during the fourth quarter of 2006 that actions by a small number of employees at certain of the Acquired Business’s operations in one jurisdiction may have violated the FCPA or other applicable laws. The Acquired Business does business in this jurisdiction with government owned enterprises or government owned enterprises that are evolving to commercial businesses. These actions involved payments for non-business travel expenses and certain other business arrangements involving potentially improper payment mechanisms for legitimate business expenses. Special outside counsel has been engaged by Rockwell Automation to investigate the actions and report to Rockwell Automation’s Audit Committee. Their review is ongoing.

Rockwell Automation voluntarily disclosed these actions to the U.S. Department of Justice (“DOJ”) and the SEC beginning in September 2006. Rockwell Automation and the Acquired Business are implementing thorough remedial measures, and are cooperating on these issues with the DOJ and SEC. Rockwell Automation has agreed to update the DOJ and SEC periodically regarding any further developments as the investigation continues. If violations of the FCPA occurred, Rockwell Automation and the Acquired Business may be subject to consequences that could include fines, penalties, other costs and business-related impacts. Rockwell Automation and the Acquired Business could also face similar consequences from local authorities.

The Acquired Business recently identified potential violations of the U.S. Arms Export Control Act and the International Traffic in Arms Regulations (“ITAR”). The Acquired Business voluntarily disclosed these potential violations to the U.S. Office of Defense Trade Controls Compliance. The potential violations involved exports without proper license from the U.S. Department of State of certain vessel motors that were built to U.S. Navy specifications. Based on an initial review, the exports primarily were made to Canada and Australia and small quantities also were exported to the United Kingdom and the Federal Republic of Germany.

The investigation into the potential violations is still in its early stages. The Acquired Business has notified the U.S. Office of Defense Trade Controls Compliance that it has established a procedure to ensure that it seeks State Department licenses for future exports of vessel motors that have been adapted to meet U.S. Navy performance characteristics. It also has notified the U.S. Office of Defense Trade Controls Compliance that it has undertaken a review of its export compliance program to ensure that all ITAR requirements are met in the future. If violations of ITAR occurred, the Acquired Business may be subject to consequences that could include fines, penalties, other costs, loss of ability to do business with the U.S. government and other business-related impacts.

Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably, we believe the disposition of matters that are pending or asserted will not have a material adverse effect on the Acquired Business’s business or financial condition. In addition, Rockwell Automation has agreed to indemnify us for asbestos claims related to products manufactured or sold prior to the Acquisition closing and for any governmental penalties that may be imposed in relation to the FCPA review.

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. Many of our operations require environmental permits and controls to prevent and limit air and water pollution. These permits contain terms and conditions that impose limitations on our manufacturing activities, production levels and associated activities 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 are also subject to the federal Occupational Health and Safety Act and similar state and foreign laws which impose requirements and standards of conduct on our operations for the health and safety of our workers. We periodically review our operations, procedures and policies for compliance with environmental and health and safety requirements. We believe that our operations generally comply with applicable environmental regulatory requirements or that any non-compliances will not result in a material liability or cost to achieve compliance.

Certain environmental laws in the United States, such as the federal Superfund law and similar state laws, impose liability for the entire cost of investigation or remediation of contaminated sites upon the current site owners, the site owners and operators at the time the contamination occurred, and upon parties who generated wastes or transported or sent those wastes to an off-site facility for treatment or disposal, regardless of whether the owner owned the site at the time of the release of the hazardous substances or the lawfulness of the original waste disposal activity. As a practical matter, however, the costs of investigation and remediation are generally allocated among the viable responsible parties on some form of equitable basis. There is or could be contamination at some of our current or formerly owned or operated facilities, primarily related to historical operations at those sites, for which we could be liable under applicable environmental laws. We currently have not been identified as a potentially responsible party at any of our current or formerly owned sites.

The Acquired Business’s manufacturing operations are affected by federal, state and local requirements relating to the discharge of substances into the environment, the disposal of hazardous wastes and other activities affecting the environment. Thus far, compliance with environmental requirements and resolution of environmental claims have been accomplished without material effect on the Acquired Business’s liquidity and capital resources, competitive position or financial condition.

Reliance Electric has been designated as a potentially responsible party at four Superfund sites. The Acquired Business estimates the highest total reasonably possible costs it could incur for the Remediation of these Superfund sites at September 30, 2006 to be $200,000 of which $50,000 has been accrued.

The Acquired Business is indemnified by Exxon Mobil Corporation (“Exxon”) for substantially all costs associated with environmental matters of Federal Pacific Electric Company, a non-operating subsidiary of Reliance Electric. This indemnity right is being transferred to Rockwell Automation, and Rockwell Automation has agreed to indemnify Baldor with respect to costs associated with environmental claims of Federal Pacific Electric Company. The indemnification agreement covers claims for which Reliance Electric gave notice to Exxon before December 29, 2006. The Acquired Business also faces certain environmental claims associated with other discontinued and former operations of Reliance Electric, including the ongoing remediation of a former Toledo-Scale manufacturing facility located in Orlando, Florida. There the Acquired Business is currently implementing a cleanup pursuant to a Consent Order with the Florida Department of Environmental Protection. Rockwell Automation has agreed to indemnify us for these environmental matters related to the Orlando, Florida facility.

As of December 31, 2006, we had approximately 3,950 employees, including 250 part-time employees, and the Acquired Business had approximately 4,300 employees. Approximately 13% of the Acquired Business’s North American employees are represented by labor unions. The six U.S. collective bargaining agreements to which the Acquired Business is a party will expire in June 2008, November 2009, July 2010, December 2010, August 2011 and September 2011.

The following table sets forth certain information regarding our executive officers as of December 31, 2006.

Each of the executive officers has served as an officer or in a management capacity with Baldor for the last five years. There are no family relationships among the directors or executive officers.

The following table sets forth certain information regarding our directors as of December 31, 2006. Unless otherwise indicated, each director has held his or her indicated occupation for the last five years.

The following table sets forth information as of December 15, 2006, regarding all persons known to Baldor to be the beneficial owners, which includes voting or investment power with respect to such shares, of more than five percent of Baldor’s common stock. The table also includes beneficial ownership for each director of Baldor, each of the executive officers named in the Summary Compensation Table in Baldor’s 2006 Proxy Statement, and all executive officers and directors as a group.

We have received a commitment for our senior secured credit facility. The following summary is qualified in its entirety by reference to the commitment letter, a copy of which has been filed as an exhibit to a current report on Form 8-K incorporated by reference into this prospectus supplement. Because the definitive loan documentation is subject to negotiation, the final terms, conditions and covenants of our senior secured credit facility may differ from those described below.

We expect to enter into the senior secured credit facility simultaneously with the closing of this offering. The closing of the senior secured credit facility is conditioned upon the closing of the Acquisition. The senior secured credit facility will consist of a $1.0 billion, seven-year term loan and a $200.0 million, five-year revolving credit facility that includes up to $20.0 million for the issuance of letters of credit and up to $20.0 million limit for the issuance of swingline loans. The revolving credit facility is expected to be undrawn at closing, but may be utilized to pay any working capital adjustment required under the Acquisition Agreement.

All of the obligations under our senior secured credit facility will be unconditionally guaranteed by each of our significant domestic subsidiaries, which immediately after the Acquisition will be Reliance Electric Company, Reliance Electric Technologies, LLC and REC Holding, Inc. Obligations under the senior secured credit facility, including the related guarantees, will be secured by a first priority security interest in all of the tangible and intangible assets of Baldor and each of the guarantors, including, without limitation, intellectual property and real property (but not more than 65% of the voting stock of any first-tier foreign subsidiaries).

Amounts under the term loan facility will be due and payable in quarterly installments equal to 1.0% of the principal amount on an annual basis in years one through six of the facility, with the balance payable in equal quarterly installments totaling 94.0% of the outstanding principal amount in year seven. Indebtedness under the senior secured credit facility will bear interest, at our option, at a floating rate per annum of (i) one, two, three or six month reserve adjusted LIBOR plus the applicable margin, or (ii) an alternative base rate plus the applicable margin, except that indebtedness in respect of swingline loans and unpaid reimbursement obligations under letters of credit shall bear interest only at the rate referred to in clause (ii). The applicable margin is dependent upon our total leverage ratio and the interest rate option we choose. Interest will be payable in cash quarterly in arrears, except that interest calculated under clause (ii) will be payable in arrears on the last day of the relevant interest period and, for any LIBOR interest period longer than three months, quarterly. Any default on the payment of principal shall bear interest at 2% above the rate otherwise applicable, and overdue interest, fees and other amounts shall bear interest at 2% above the rate referred to in clause (ii) above regardless of the type of loan to which such amount relates. All overdue amounts shall be payable on demand.

Our senior secured credit facility agreement will contain certain customary representations and warranties, and will contain customary covenants that restrict our ability to, among other things (i) create, incur or assume any indebtedness (including guarantees), (ii) incur liens, (iii) engage in mergers, consolidations, amalgamations, liquidation or acquisitions or dispose of all or a substantial part of our business or property, (iv) expand our lines of business to any material extent, (v) make loans and investments, (vi) make certain restricted payments, including dividends, or redeem or repurchase capital stock, (vii) enter into transactions with affiliates, (viii) enter into any agreement that would (a) restrict or impose any condition upon our ability to create, incur or permit to exist any lien upon any of our property or assets or (b) impair the ability of any subsidiary to make distributions with respect to its capital stock, to make or repay loans or advances to us or any other subsidiary or to

guarantee indebtedness of us or any other subsidiary, (ix) make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption of, or otherwise voluntarily or optionally defease, certain of our securities, including the senior notes and the mandatorily convertible preferred stock, or enter into any derivative or other transaction obligating us or any subsidiary to make payments to any counterparty as a result of any change in market value of certain of our securities or modify any of the terms of certain of our securities, including in either case the senior notes and the mandatorily convertible preferred stock and (x) enter into any sale and leaseback transactions. Our senior secured credit facility also requires us to comply with certain financial and affirmative covenants, including maintaining maximum total leverage and senior secured debt ratios, a minimum fixed charge coverage ratio and a limit on the amount of our annual capital expenditures. We will be required to repay amounts under the term loan facility and permanently reduce the revolving credit facility in an amount equal to: (x) the net proceeds of any sale or disposition of assets other than inventory sold in the ordinary course of business, (y) the net proceeds from any sale or issuance of equity or the incurrence of certain indebtedness when our total leverage ratio exceeds a certain level and (z) a certain percentage of our excess cash flow when our total leverage ratio exceeds a certain level.

Our senior secured credit facility agreement will contain events of default that will include, but are not limited to, (i) our failure to pay principal or interest when due, (ii) our material breach of any representation or warranty, (iii) covenant defaults, (iv) bankruptcy, (v) cross default to certain other indebtedness, (vi) unsatisfied final judgments over a threshold to be determined, (vii) material environmental claims which are asserted against us, and (viii) a change of control.

We have received a commitment for a bridge loan facility in the event that sufficient funds are not raised from the Securities Financing Transactions to pay the purchase price for the Acquisition. The following summary is qualified in its entirety by reference to the commitment letter, a copy of which has been filed as an exhibit to a current report on Form 8-K incorporated by reference into this prospectus supplement. Because the definitive loan documentation is subject to negotiation, the final terms, conditions and covenants of our bridge loan facility may differ from those described below.

We do not intend to draw down on the bridge loan facility unless any of the Securities Financing Transactions is not consummated at the time of the closing of the Acquisition. The closing of the bridge loan facility is conditioned upon the closing of the Acquisition. The commitments available under the bridge facility consist of up to $600.0 million senior loans and up to $300.0 million senior subordinated loans, to be allocated at the discretion of the bridge lenders. The bridge loans will mature one year from the date they are issued. If any bridge loan has not been previously paid on its maturity date, and certain events of default have not occurred, then each senior bridge loan shall automatically convert into a senior unsecured term loan, and each senior subordinated bridge loan shall automatically convert into a senior subordinated term loan, maturing one and two years, respectively, after the original maturity date of the term loans under the senior secured credit facility. At the option of the lenders, the converted senior unsecured term loans and senior subordinated term loans may be exchanged in whole or in part for senior unsecured exchange notes or senior subordinated exchange notes, as the case may be, having principal amounts and maturity dates equivalent to the relevant converted senior unsecured term loans and senior subordinated term loans.

All of the obligations under our bridge loans, converted term loans and exchange notes will be unconditionally guaranteed by the same subsidiaries that guarantee the senior secured credit facility. The bridge loans, the converted term loans and the exchange notes, and the related guarantees, are not secured by collateral.

The senior bridge loans and senior unsecured term loans (and the guarantees thereof) will rank pari passu in right of payment with the senior secured credit facility and the senior notes. The senior

subordinated bridge loans and senior subordinated term loans (and the guarantees thereof) will be subordinated to the senior secured credit facility and the senior notes.

The bridge loans will bear interest at a floating rate per annum equal to the three-month reserve adjusted LIBOR rate plus a spread determined by the amount of time the loan has been outstanding plus a margin equal to the annual yield of the securities issued pursuant to the Securities Financing Transactions minus the three-month reserve adjusted LIBOR for any senior bridge loan and 5.60% per annum for any senior subordinated bridge loan, respectively, or a margin of 6.10% or 7.60% per annum, respectively, for any senior unsecured term loan or senior subordinated term loan, respectively. At no time shall the per annum interest rate exceed (i) 11.00% for any senior bridge loan or senior unsecured term loan or (ii) 13.50% for any senior subordinated bridge loan or senior subordinated term loan, nor shall the per annum interest rate be lower than (i) 9.50% for any senior bridge loan or senior unsecured term loan or (ii) 11.00% for any senior subordinated bridge loan or senior subordinated term loan. The exchange notes will bear interest at a fixed rate equal to the interest rate on the senior unsecured term loan or senior subordinated term loan surrendered in exchange for such exchange notes as of the date of such exchange. Interest will be paid in cash quarterly in arrears. If an event of default occurs under our bridge loans, converted term loans or exchange notes, interest shall accrue at a rate equal to the then applicable rate on the respective indebtedness plus an additional 2.00% per annum and shall be payable on demand.

The loan documentation for our bridge loans and converted term loans will contain representations, warranties and covenants, including financial and affirmative covenants, substantially similar to those expected to be included in our senior secured credit facility and will require us to refinance the bridge loans and converted term loans upon certain conditions. The documentation will also require us to repay amounts under the bridge facility (or the converted term loans or exchange notes, as the case may be) in connection with the sale or disposition of certain assets or the sale or issuance of equity or the incurrence of certain indebtedness when our total leverage ratio exceeds a certain level. The documentation will also give a put right to lenders under the bridge facility, the converted term loans and the exchange notes in the event of a change of control. We will be required to pay outstanding amounts under the senior secured credit facility, or obtain a waiver, before such put right is exercised.

Our bridge facility agreement is expected to contain events of default applicable to the bridge loans and the converted term loans that are substantially similar to the events of default expected to be included in our senior secured credit facility. The exchange notes will be subject to events of default that are customary for publicly traded high yield debt securities.

Concurrently with this offering, we are offering $150 million of our % mandatorily convertible preferred stock, or $ if the underwriters exercise their overallotment option in full. The mandatorily convertible preferred stock is expected to have a liquidation preference of $250 per share, plus accrued and unpaid dividends. Dividends will accrue and cumulate on the mandatorily convertible preferred stock from the date of issuance and, to the extent that we are legally permitted to pay dividends and our board of directors, or an authorized committee of our board of directors, declares a dividend payable, we will pay dividends in cash on , , and of each year prior to , 2010. Each share of mandatorily convertible preferred stock will automatically convert on , 2010 into a number of shares of common stock determined based on the price of our common stock at such time, and holders will be entitled to receive an amount of cash equal to all accrued and unpaid dividends from legally available funds. In addition, holders of the mandatorily convertible preferred stock are expected to have the right to convert, at any time, the mandatorily convertible preferred stock into shares of our common stock at the minimum conversion rate of shares of our common stock per share of mandatorily convertible preferred stock plus an amount of cash equal to all accrued and unpaid dividends.

Whenever dividends on the mandatorily convertible preferred stock or any other class or series of stock ranking on a parity with the mandatorily convertible preferred stock with respect to the payment of dividends are in arrears in an amount equivalent to six full quarterly dividends, then the holders of mandatorily convertible preferred stock (voting separately as a class with all other series of preferred stock upon which like voting rights have been conferred and are exercisable) will be entitled to elect two additional directors to our board of directors until all dividends accumulated on the mandatorily convertible preferred stock have been fully paid or set apart for payment. The term of office of all directors elected by holders of the mandatorily convertible preferred stock will terminate immediately upon the termination of the rights of the holders of the mandatorily convertible preferred stock to vote for directors and the number of directors constituting our board will be reduced accordingly.

The mandatorily convertible preferred stock will be senior to all classes of common stock and junior to all of our existing and future debt obligations and all of our subsidiaries’ existing and future liabilities.

Baldor will issue the Notes under a base indenture (the “Base Indenture”) between itself and Wells Fargo Bank, N.A. as trustee (the “Trustee”) and a supplemental indenture among itself, the initial guarantors and the Trustee (the “Supplemental Indenture” and together with the Base Indenture, the “Indenture”). To the extent that there exists a conflict between the terms and conditions of a Base Indenture and the Supplemental Indenture, the terms of the Supplemental Indenture shall govern. The terms of the Notes will include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”).

The following description is a summary of the material provisions of the Indenture. It does not restate the Indenture in its entirety. We urge you to read the Indenture because it, and not this description, defines your rights as Holders of the Notes. You can find the definitions of certain terms used in this description under the caption “Certain Definitions.” Certain defined terms used in this description but not defined below under “—Certain Definitions” have the meanings assigned to them in the Indenture. In this description, the word “Baldor” refers only to Baldor Electric Company and not to any of its subsidiaries.

The registered Holder of a Note will be treated as the owner of it for all purposes. Only registered Holders will have rights under the Indenture.

As of September 30, 2006, on a pro forma basis giving effect to the Transactions, Baldor would have had $1.56 billion of Indebtedness, $1.0 billion of which would have been secured. See “Risk Factors—Risks Related to the Offering—Your right to receive payments on the notes is effectively subordinated to the rights of our existing and future secured creditors.”

The Notes will be guaranteed by each of Baldor’s direct and indirect Restricted Subsidiaries that are domestic Subsidiaries on the date of the Indenture that guarantee Indebtedness under the Credit Agreement.

As of September 30, 2006, on a pro forma basis giving effect to the Transactions, Baldor would have had $1.56 billion of Indebtedness.

Baldor’s subsidiaries had $75.6 million of liabilities (including trade payables and excluding intercompany balances) as of September 30, 2006, and these subsidiaries represented 6.3% of Baldor’s net sales for the nine months ended September 30, 2006. None of these subsidiaries will guarantee the Notes and $71.2 million of these liabilities related to indebtedness will be repaid as part of the Transaction. The entities of the Acquired Business that will not guarantee the Notes had $20.3 million of liabilities (including trade payables) as of September 30, 2006 and represented 12.1% of Power Systems’ sales for the year ended September 30, 2006. See “Risk Factors—Risks Related to the Offering—Only some of our subsidiaries will guarantee the notes. Your right to receive payments on the notes could be adversely affected if any of our non-guarantor subsidiaries declare bankruptcy, liquidate or reorganize.”

As of the date of the Indenture, all of our Subsidiaries will be “Restricted Subsidiaries.” However, under the circumstances described below under the caption “—Certain Covenants—Designation of Restricted and Unrestricted Subsidiaries,” we will be permitted to designate certain of our Subsidiaries as “Unrestricted Subsidiaries.” Our Unrestricted Subsidiaries will not be subject to the restrictive covenants in the Indenture and will not guarantee the Notes.

Baldor will issue $550.0 million in aggregate principal amount of Notes in this offering. Baldor may issue additional Notes (“Additional Notes”) under the Indenture from time to time after this offering. Any issuance of Additional Notes under the Indenture is subject to all of the covenants in the Indenture, including the covenant described below under the caption “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock.” The Notes and any Additional Notes subsequently issued under the Indenture will be treated as a single class for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. Baldor will issue Notes in denominations of $2,000 and integral multiples of $1,000. The Notes will mature on February 15, 2017.

Interest on the Notes will accrue at the rate of % per annum and will be payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2007. Interest on overdue principal and interest will accrue at a rate that is 1% higher than the then applicable interest rate on the Notes. Baldor will make each interest payment to the Holders of record on the immediately preceding February 1 and August 1.

Interest on the Notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

If a Holder of Notes has given wire transfer instructions to Baldor, Baldor will pay all principal, interest and premium on that Holder’s Notes in accordance with those instructions. All other payments on the Notes will be made at the office or agency of the paying agent and registrar within the City and

State of New York unless Baldor elects to make interest payments by check mailed to the noteholders at their address set forth in the register of Holders.

The Trustee will initially act as paying agent and registrar. Baldor may change the paying agent or registrar without prior notice to the Holders of the Notes, and Baldor or any of its Subsidiaries may act as paying agent or registrar.

A Holder may transfer Notes in accordance with the provisions of the Indenture. The registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents in connection with a transfer of Notes, Holders will be required to pay all taxes and fees due on transfer. Baldor will not be required to transfer or exchange any Note selected for redemption. Also, Baldor will not be required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed.

The Notes will be guaranteed (the “Note Guarantees”) by each of Baldor’s direct and indirect Restricted Subsidiaries that are domestic Subsidiaries on the date of the Indenture that guarantee Indebtedness under the Credit Agreement. These Note Guarantees will be joint and several obligations of the Guarantors. The obligations of each Guarantor under its Note Guarantee will be limited as necessary to prevent that Note Guarantee from constituting a fraudulent conveyance under applicable law. See “Risk Factors—Risks Related to the Offering —The indebtedness represented by the notes and the guarantees may be unenforceable due to fraudulent conveyance statutes.”

A Guarantor may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person, other than Baldor or another Guarantor, unless:

(1) immediately after giving effect to that transaction, no Default or Event of Default exists; and

(a) the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger is organized or existing under the laws of the United States, any state thereof or the District of Columbia and assumes all the obligations of that Guarantor under the Indenture and its Note Guarantee pursuant to a supplemental indenture satisfactory to the Trustee; or

(b) the transaction complies with the covenant described under “—Repurchase at the Option of Holders—Asset Sales.”

(1) in connection with any sale or other disposition of all of the Capital Stock of that Guarantor to a Person that is not (either before or after giving effect to such transaction) Baldor or a Restricted Subsidiary of Baldor, if the sale or other disposition complies with the covenant described under “—Repurchase at the Option of the Holders—Asset Sales”;

(2) if Baldor designates that Guarantor to be an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture; or

(3) if (i) such Guarantor is released from its obligations as a guarantor under the Credit Agreement and any other Indebtedness of Baldor and (ii) no Indebtedness, Disqualified Stock or Preferred Stock incurred or issued by such Guarantor is outstanding.

All Note Guarantees will be released upon legal defeasance or satisfaction and discharge of the Indenture as provided below under the captions “—Legal Defeasance and Covenant Defeasance” and “—Satisfaction and Discharge.”

At any time prior to February 15, 2010, Baldor may redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture (including any Additional Notes) at a redemption price of % of the principal amount, plus accrued and unpaid interest to the redemption date, with the net cash proceeds of one or more Equity Offerings; provided that:

(1) at least 65% of the aggregate principal amount of Notes originally issued under the Indenture (including Additional Notes but excluding Notes held by Baldor and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption; and

(2) the redemption occurs within 90 days of the date of the closing of such Equity Offering.

At any time prior to February 15, 2012, Baldor may redeem all or part of the Notes upon not less than 30 nor more than 60 days’ prior notice at a redemption price equal to the sum of (i) 100% of the principal amount thereof, plus (ii) the Applicable Premium as of the date of redemption, plus (iii) accrued and unpaid interest to the redemption date.

Except pursuant to the preceding paragraphs, the Notes will not be redeemable at Baldor’s option prior to February 15, 2012.

On or after February 15, 2012, Baldor may redeem all or a part of the Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest on the Notes redeemed to the applicable redemption date, if redeemed during the twelve-month period beginning on February 15 of the years indicated below, subject to the rights of Holders of Notes on the relevant record date to receive interest on the relevant interest payment date:

If less than all of the Notes are to be redeemed at any time, the Trustee will select Notes for redemption on a pro rata basis unless otherwise required by law or applicable stock exchange requirements.

No Notes of $2,000 or less can be redeemed in part. Notices of redemption will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of the Indenture. Notices of redemption may not be conditional.

If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the principal amount of that Note that is to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the Holder of Notes upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of Notes called for redemption.

Baldor is not required to make mandatory redemption or sinking fund payments with respect to the Notes.

If a Change of Control occurs, each Holder of Notes will have the right to require Baldor to repurchase all or any part (equal to $2,000 or an integral multiple of $1,000) of that Holder’s Notes pursuant to an offer (a “Change of Control Offer”) on the terms set forth in the Indenture. In the Change of Control Offer, Baldor will offer payment (a “Change of Control Payment”) in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest on the Notes repurchased to the date of purchase (the “Change of Control Payment Date”). Within 30 days following any Change of Control, Baldor will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the Change of Control Payment Date, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by the Indenture and described in such notice. Baldor will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the Indenture, Baldor will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Change of Control provisions of the Indenture by virtue of such compliance.

(1) accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer;

(2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and

(3) deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by Baldor.

The paying agent will promptly mail or wire transfer to each Holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any, provided that each such new Note will be in a principal amount of $2,000 or an integral multiple thereof. Baldor will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.

The provisions described above that require Baldor to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of the Indenture are

applicable. Except as described above, with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that Baldor repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction.

Baldor will not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by Baldor and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer, or (2) notice of redemption for all outstanding Notes has been given pursuant to the Indenture as described above under the caption “—Optional Redemption,” unless and until there is a default in payment of the applicable redemption price.

The definition of Change of Control includes a phrase relating to the direct or indirect sale, transfer, conveyance or other disposition of “all or substantially all” of the properties or assets of Baldor and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of Notes to require Baldor to repurchase its Notes as a result of a sale, transfer, conveyance or other disposition of less than all of the assets of Baldor and its Subsidiaries taken as a whole to another Person or group may be uncertain.

The Credit Agreement contains, and future agreements may contain, prohibitions of and restrictions on certain events, including events that would constitute a Change of Control and including repurchases of or other prepayments in respect of the Notes. The exercise by the Holders of Notes of their right to require Baldor to repurchase the Notes upon a Change of Control could cause a default under these other agreements, even if the Change of Control itself does not, due to the financial effect of such repurchases on Baldor. In the event a Change of Control occurs at a time when Baldor is prohibited from purchasing Notes, Baldor could seek the consent of its other lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If Baldor does not obtain a consent or repay those borrowings, Baldor will remain prohibited from purchasing Notes. In that case, Baldor’s failure to purchase tendered Notes would constitute an Event of Default under the Indenture which could, in turn, constitute a default under other Indebtedness.

Baldor will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:

(1) Baldor (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; and

(2) at least 75% of the consideration received in the Asset Sale by Baldor or such Restricted Subsidiary is in the form of cash. For purposes of this provision, each of the following will be deemed to be cash:

(a) any liabilities, as shown on Baldor’s most recent consolidated balance sheet, of Baldor or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Note Guarantee and liabilities to the extent owed to Baldor or any Affiliate of Baldor) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases Baldor or such Restricted Subsidiary from further liability; and

(b) any securities, Notes or other obligations received by Baldor or any such Restricted Subsidiary from such transferee that are, promptly, but in any event within 60 days of such

Asset Sale, converted by Baldor or such Restricted Subsidiary into cash, to the extent of the cash received in that conversion; and

Within 365 days after the receipt of any Net Proceeds from an Asset Sale, Baldor (or the applicable Restricted Subsidiary, as the case may be) may apply such Net Proceeds:

(1) to repay Indebtedness and other Obligations under a Credit Facility and, if the Indebtedness repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto;

(2) to acquire all or substantially all of the assets of, or any Capital Stock of, another Person engaged in a Permitted Business, if (in case of the acquisition of Capital Stock), after giving effect to any such acquisition of Capital Stock, the Permitted Business is or becomes a Restricted Subsidiary of Baldor;

(4) to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business;

provided that, if during such 365-day period Baldor or Restricted Subsidiary enters into a definitive written agreement committing it to apply such Net Proceeds in accordance with the requirements of clause (2), (3) or (4), such 365-day period shall be extended with respect to the amount of Net Proceeds so committed until required to be paid in accordance with such agreement (or, if earlier, until termination of such agreement).

Pending the final application of any Net Proceeds, Baldor may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by the Indenture.

Any Net Proceeds from Asset Sales that are not applied or invested as provided in the second paragraph of this covenant will constitute “Excess Proceeds.” When the aggregate amount of Excess Proceeds exceeds $25.0 million, within five days thereof, Baldor will make an Asset Sale Offer to all Holders of Notes and all Holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem such Indebtedness with the proceeds of sales of assets to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. At such time, the entire utilized amount of Excess Proceeds (not only the amount in excess of $25.0 million) will be applied as provided in this paragraph. The offer price in any Asset Sale Offer will be equal to 100% of the principal amount of the Notes and such other pari passu indebtedness plus accrued and unpaid interest to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, Baldor may use those Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee will select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the Excess Proceeds subject to such Asset Sale Offer will no longer be deemed to be Excess Proceeds.

Baldor will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions of the Indenture,

Baldor will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Asset Sale provisions of the Indenture by virtue of such compliance.

The Credit Agreement contains, and future agreements may contain, prohibitions of and restrictions on certain events, including events that would constitute an Asset Sale and including repurchases of or other prepayments in respect of the Notes. The exercise by the Holders of Notes of their right to require Baldor to repurchase the Notes upon a an Asset Sale could cause a default under these other agreements, even if the Asset Sale itself does not, due to the financial effect of such repurchases on Baldor. In the event an Asset Sale occurs at a time when Baldor is prohibited from purchasing Notes, Baldor could seek the consent of its other lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If Baldor does not obtain a consent or repay those borrowings, Baldor will remain prohibited from purchasing Notes. In that case, Baldor’s failure to purchase tendered Notes would constitute an Event of Default under the Indenture which could, in turn, constitute a default under other Indebtedness.

Baldor will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:

(1) declare or pay (without duplication) any dividend or make any other payment or distribution on account of Baldor’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving Baldor or any of its Restricted Subsidiaries) or to the direct or indirect Holders of Baldor’s or any of its Restricted Subsidiaries’ Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of Baldor and other than dividends or distributions payable to Baldor or a Restricted Subsidiary of Baldor);

(2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving Baldor or any of its Restricted Subsidiaries) any Equity Interests of Baldor or any Guarantors or any direct or indirect parent of Baldor;

(3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of Baldor or any Guarantor that is subordinated to the Notes or any Note Guarantee (excluding any intercompany Indebtedness between or among Baldor and any of its Restricted Subsidiaries), except a payment of interest or principal at the Stated Maturity thereof; or the purchase, repurchase or other acquisition of any such Indebtedness in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such purchase, repurchase or other acquisition; or

(all such payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as “Restricted Payments”), unless, at the time of and after giving effect to such Restricted Payment:

(1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment;

(2) Baldor would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock”; and

(3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by Baldor and its Restricted Subsidiaries since the date of the Indenture (excluding Restricted Payments permitted by clauses (2), (3), (6), (7), (8), (9) and (13) of the next succeeding paragraph), is less than the sum, without duplication, of:

(a) 50% of the Consolidated Net Income of Baldor for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of the Indenture to the end of Baldor’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit); plus

(b) 100% of the aggregate net cash proceeds received by Baldor since the date of the Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of Baldor (other than Disqualified Stock and Equity Interests issued in the Transactions) or from the issue or sale of Disqualified Stock or Indebtedness of Baldor that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or Indebtedness) issued or sold to a Subsidiary of Baldor); plus

(c) with respect to Restricted Investments made by Baldor and its Restricted Subsidiaries after the date of the Indenture, an amount equal to the net reduction in such Restricted Investments in any Person resulting from repayments of loans or advances, or other transfers of assets, in each case to Baldor or any Restricted Subsidiary or from the net cash proceeds from the sale of any such Restricted Investment (except, in each case, to the extent any such payment or proceeds are included in the calculation of Consolidated Net Income), from the release of any Guarantee (except to the extent any amounts are paid under such Guarantee) or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries, not to exceed, in each case, the amount of Restricted Investments previously made by Baldor or any Restricted Subsidiary in such Person or Unrestricted Subsidiary after the date of the Indenture; plus

So long as no Default or Event of Default has occurred and is continuing or would be caused thereby, the preceding provisions will not prohibit:

(1) the payment of any dividend within 60 days after the date of declaration of the dividend, if at the date of declaration, the dividend would have complied with the provisions of the Indenture;

(2) the making of any Restricted Payment in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of Baldor) of, Equity Interests of Baldor (other than Disqualified Stock) or from the substantially concurrent contribution of common equity capital to Baldor; provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment will be excluded from clause (3)(b) of the second preceding paragraph;

(3) the repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of Baldor or any Guarantor that is subordinated to the Notes or to any Note Guarantee with the net cash proceeds from a substantially concurrent incurrence of Permitted Refinancing Indebtedness;

(4) the payment of any dividend or distribution by a Restricted Subsidiary of Baldor to the Holders of its Equity Interests on a pro rata basis;

(5) the repurchase of Equity Interests deemed to occur upon the exercise of stock options to the extent such Equity Interests represent a portion of the exercise price of those stock options;

(6) the declaration and payment of regularly scheduled or accrued dividends to Holders of any class or series of Disqualified Stock of Baldor or any Restricted Subsidiary of Baldor issued on or

after the date of the indenture in accordance with the “—Incurrence of Indebtedness and Issuance of Preferred Stock” covenant;

(7) payments made with respect to extinguishment of fractional shares in connection with the exercise of warrants, stock options or other securities convertible into or exchangeable for Equity Interests;

(8) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of Baldor or any Restricted Subsidiary of Baldor held by any present or former officer, director or employee of Baldor or any of its Restricted Subsidiaries pursuant to any stock option agreement, stockholders’ agreement or similar agreement and the acquisition of Equity Interests of Baldor or any Restricted Subsidiary of Baldor in connection with the issuance of Equity Interests to officers, directors or other employees of Baldor or any Restricted Subsidiary of Baldor or for contribution to employee stock purchase, deferred compensation, 401(k) or other employee benefit plans; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $10.0 million in any calendar year;

(10) the declaration and payment of dividends to holders of Mandatorily Convertible Preferred Stock outstanding on the date of the Indenture or to be issued in the Transactions in accordance with the terms of the Mandatorily Convertible Preferred Stock as in effect on the date of the Indenture;

(11) dividends paid by Baldor on its common stock, or the acquisition in open market purchases or otherwise of common stock of Baldor, in an annual aggregate amount not to exceed (a) $30.0 million plus (b) an amount equal to 6% of net cash proceeds received by Baldor or reduction of liquidation preferences of Mandatorily Convertible Preferred Stock or principal amount of Indebtedness of Baldor from the issuance, exchange or sale of Baldor’s common stock after the date of the Indenture;

(12) purchases of receivables pursuant to a Receivables Repurchase Obligation in connection with a Qualified Receivables Transaction and the payment or distribution of Receivables Fees; and

(13) other Restricted Payments in an aggregate amount not to exceed $25.0 million since the date of the Indenture.

For the avoidance of doubt, Restricted Payments shall not include the payment by Baldor or any Restricted Subsidiary for administrative costs and expenses or indemnification, including payments in the form of forgiveness of any amounts outstanding and owed, required to be paid by Baldor to The Baldor Electric Company Employees’ Profit Sharing and Savings Plan.

The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by Baldor or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The Fair Market Value of any assets or securities that are required to be valued by this covenant will be determined in good faith by the Board of Directors of Baldor, whose determination will be conclusive if evidenced by a board resolution. Notwithstanding the foregoing, the Board of Directors’ determination of Fair Market Value must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing, if the Fair Market Value exceeds $15.0 million. Not later than the date of making any Restricted Payment, Baldor will deliver to the Trustee an Officers’ Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this “Restricted Payments” covenant were computed, together with a copy of any required board resolution, opinion or appraisal.

Baldor will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, “incur”) any Indebtedness (including Acquired Debt), and Baldor will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of Preferred Stock or Disqualified Stock; provided, however, that Baldor may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, and any Guarantor or any Foreign Subsidiary may incur Indebtedness (including Acquired Debt) or issue Preferred Stock or Disqualified Stock, if the Fixed Charge Coverage Ratio for Baldor’s most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on such additional Indebtedness is incurred or such Preferred Stock or such Disqualified Stock is issued, as the case may be, would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Preferred Stock or Disqualified Stock has been issued, as the case may be, at the beginning of such four-quarter period.

The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, “Permitted Debt”):

(1) the incurrence by Baldor and any Restricted Subsidiary of Indebtedness under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of Baldor and its Restricted Subsidiaries thereunder) not to exceed $1,200 million less the aggregate amount of all Net Proceeds of Asset Sales applied by Baldor or any of its Restricted Subsidiaries since the date of the Indenture to permanently repay any such Indebtedness pursuant to the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales;”

(2) the incurrence by Baldor and its Restricted Subsidiaries of Existing Indebtedness;

(3) the incurrence by Baldor and the Guarantors of Indebtedness represented by the Notes and the related Note Guarantees to be issued on the date of the Indenture;

(4) the incurrence by Baldor or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of design, construction, installation or improvement of property, plant or equipment used in the business of Baldor or any of its Restricted Subsidiaries, provided that the aggregate principal amount of any such incurrence does not cause the aggregate principal amount of Indebtedness then outstanding under this clause (4), including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (4), to exceed the greater of $60.0 million and 5.0% of Baldor’s Consolidated Tangible Assets as set forth on the most recent balance sheet of Baldor and its Restricted Subsidiaries, on a consolidated basis, determined in accordance with GAAP;

(5) the incurrence by Baldor or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge any Indebtedness (other than intercompany Indebtedness) that was permitted by the Indenture to be incurred under the first paragraph of this covenant or clauses (2), (3), (4), (5) or (17) of this paragraph;

(6) the incurrence by Baldor or any of its Restricted Subsidiaries of intercompany Indebtedness between or among Baldor and any of its Restricted Subsidiaries; provided, however, that:

(a) if Baldor or any Guarantor is the obligor on such Indebtedness, such Indebtedness must be unsecured and expressly subordinated to the prior payment in full in cash of all

Obligations then due with respect to the Notes, in the case of Baldor, or the Note Guarantee, in the case of a Guarantor;

(b) Indebtedness owed to Baldor or any Guarantor must be evidenced by an unsubordinated promissory Note, unless the obligor under such Indebtedness is Baldor or a Guarantor; and

(c) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than Baldor or a Restricted Subsidiary of Baldor and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either Baldor or a Restricted Subsidiary of Baldor,

will be deemed, in each case, to constitute an incurrence of such Indebtedness by Baldor or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6);

(7) the issuance by any of Baldor’s Restricted Subsidiaries to Baldor or to any of its Restricted Subsidiaries of shares of Preferred Stock; provided, however, that;

(a) any subsequent issuance or transfer of Equity Interests that results in any such Preferred Stock being held by a Person other than Baldor or a Restricted Subsidiary of Baldor, and

(b) any sale or other transfer of any such Preferred Stock to a Person that is not either Baldor or a Restricted Subsidiaries of Baldor,

will be deemed, in each case, to constitute an issuance of such Preferred Stock by such Restricted Subsidiary that was not permitted by this clause (7);

(8) the incurrence by Baldor or any of its Restricted Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing, hedging or swapping interest rate, commodity price or foreign currency exchange rate risk (or to reverse or amend any such agreements previously made for such purposes), and not for speculative purposes, and that do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in interest rates, commodity prices or foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder;

(9) the incurrence by Baldor or any of its Restricted Subsidiaries of Indebtedness arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of Baldor or any of its Restricted Subsidiaries pursuant to such agreements, in any case incurred in connection with the acquisition or disposition of any business, assets or Restricted Subsidiary (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition);

(10) the guarantee by Baldor or any of the Guarantors of Indebtedness of Baldor or a Restricted Subsidiary of Baldor that was permitted to be incurred by another provision of this covenant; provided that if the Indebtedness being guaranteed is subordinated to or pari passu with the Notes, then the guarantee shall be subordinated or pari passu, as applicable, to the same extent as the Indebtedness guaranteed;

(11) the incurrence by Baldor or any of its Restricted Subsidiaries of Indebtedness in respect of workers’ compensation claims, self-insurance obligations, bankers’ acceptances, performance and surety bonds in the ordinary course of business;

(12) the incurrence by Baldor or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument

drawn against insufficient funds, so long as such Indebtedness is extinguished within five business days;

(13) the Incurrence by Baldor or any of its Restricted Subsidiaries of Indebtedness constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business; provided that, upon the drawing of such letters of credit or the Incurrence of such Indebtedness, such obligations are reimbursed within 30 days following such drawing or Incurrence;

(14) Incurrence of Indebtedness by any Foreign Subsidiary for working capital purposes not to exceed the greater of (a) $5 million and (b) the sum of (i) 75% of the book value of accounts receivables of such Foreign Subsidiary and (ii) 50% of the book value of inventory of such Foreign Subsidiary;

(15) the Incurrence by Baldor of Indebtedness to the extent that the net proceeds thereof are promptly deposited to defease or to satisfy and discharge the Notes;

(16) Indebtedness of a Receivables Subsidiary incurred pursuant to a Qualified Receivables Transaction that is not recourse to Baldor or any Restricted Subsidiary other than a Receivables Subsidiary (except for Standard Securitization Undertakings);

(17) the incurrence by Baldor or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount at any time outstanding, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (17), not to exceed $50.0 million.

Baldor will not incur any Indebtedness that is subordinate in right of payment to any other Indebtedness of Baldor unless it is subordinate in right of payment to the Notes to the same extent. Baldor will not permit any Guarantor to incur any Indebtedness that is subordinate in right of payment to any other Indebtedness of such Guarantor unless it is subordinate in right of payment to such Guarantor’s Note Guarantee to the same extent. For purposes of the foregoing, no Indebtedness will be deemed to be subordinated in right of payment to any other Indebtedness of Baldor or any Guarantor, as applicable, solely by reason of any Liens or Guarantees arising or created in respect thereof or by virtue of the fact that the Holders of any secured Indebtedness have entered into intercreditor agreements giving one or more of such Holders priority over the other Holders in the collateral held by them.

For purposes of determining compliance with this “Incurrence of Indebtedness and Issuance of Preferred Stock” covenant, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (17) above, or is entitled to be incurred pursuant to the first paragraph of this covenant, Baldor will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this covenant. Indebtedness under Credit Facilities outstanding on the date of the Indenture will initially be deemed to have been incurred on such date in reliance on the exception provided by clause (1) of the definition of Permitted Debt. The accrual of interest, the accretion or amortization of original issue discount and the reclassification of Preferred Stock as Indebtedness due to a change in accounting principles will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this covenant; provided, in each such case, that the amount of any such accrual, accretion or amortization will be included in Fixed Charges of Baldor as accrued. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that Baldor or any Restricted Subsidiary may incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values.

(1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount;

(2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and

(3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of:

Baldor will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind (other than Permitted Liens) upon any of their property or assets, now owned or hereafter acquired, unless all payments due under the Indenture and the Notes or Notes Guarantee of such Restricted Subsidiary are secured on an equal and ratable basis with the obligations so secured (or, in the case of Indebtedness subordinated to the Notes or the related Note Guarantees, prior or senior thereto, with the same relative priority as the Notes or Notes Guarantees will have with respect to such subordinated Indebtedness) until such time as such obligations are no longer secured by a Lien.

Baldor will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:

(1) pay dividends or make any other distributions on its Capital Stock to Baldor or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to Baldor or any of its Restricted Subsidiaries;

(3) sell, lease or transfer any of its properties or assets to Baldor or any of its Restricted Subsidiaries.

However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:

(1) agreements governing Existing Indebtedness and Credit Facilities as in effect on the date of the Indenture and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the date of the Indenture;

(3) applicable law, rule, regulation, order, approval, license, permit or similar restriction;

(4) any instrument governing Indebtedness or Capital Stock of a Person acquired by Baldor or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or

assets of any Person, other than the Person, or the property or assets of the Person, so acquired, and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of any such instrument; provided that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in such instrument;

(5) customary non-assignment provisions in contracts and licenses entered into in the ordinary course of business;

(6) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that in each case impose restrictions solely on the property purchased or leased of the nature described in clause (3) of the preceding paragraph;

(7) any agreement for the sale or other disposition of all or substantially all of the Capital Stock of, or property and assets of, a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending the sale or other disposition;

(8) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;

(9) Liens permitted to be incurred under the provisions of the covenant described above under the caption “—Liens” that limit the right of the debtor to dispose of the assets subject to such Liens;

(10) provisions limiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into with the approval of Baldor’s Board of Directors, which limitation is applicable only to the assets that are the subject of such agreements;

(11) any agreement pursuant to which any Guarantor or Foreign Subsidiary incurs Indebtedness after the date of the Indenture in accordance the covenant entitled “—Incurrence of Indebtedness and Issuance of Preferred Stock;” provided that the encumbrances or restrictions contained in such agreement relate only to such Guarantor or Foreign Subsidiary, as the case may be;

(12) any encumbrance or restriction pursuant to the terms of any agreement entered into in connection with any Qualified Receivables Transaction; provided however, that such encumbrance or restriction applies only to a Receivables Subsidiary;

(13) restrictions on cash or other deposits or net worth imposed by customers or required by insurance, surety or bonding companies, in each case under contracts entered into in the ordinary course of business; and

(14) restrictions arising or agreed to in the ordinary course of business, not relating to any Indebtedness or Preferred Stock of a Restricted Subsidiary and that do not individually or in the aggregate detract from the value of property or assets of Baldor or any Restricted Subsidiary thereof in any manner material to Baldor or any Restricted Subsidiary thereof.

Baldor will not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not Baldor is the surviving corporation) or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of Baldor and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person, unless:

(1) either: (a) Baldor is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than Baldor) or to which such sale, assignment, transfer,

conveyance or other disposition has been made is a corporation organized or existing under the laws of the United States, any state of the United States or the District of Columbia;

(2) the Person formed by or surviving any such consolidation or merger (if other than Baldor) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of Baldor under the Notes and the Indenture pursuant to agreements reasonably satisfactory to the Trustee;

(4) Baldor or the Person formed by or surviving any such consolidation or merger (if other than Baldor), or to which such sale, assignment, transfer, conveyance or other disposition has been made would, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock;”

(5) each Guarantor, unless such Guarantor is the Person with which Baldor has entered into a transaction under this covenant, will have by amendment to its Note Guarantee confirmed that its Note Guarantee will apply to the obligations of Baldor or the surviving Person in accordance with the Notes and the Indenture; and

(6) Baldor delivers to the Trustee an Officers’ Certificate (attaching the arithmetic computation to demonstrate compliance with clause (4) above) and opinion of counsel, in each case stating that such transaction complies with this covenant and that all conditions precedent provided for herein relating to such transaction have been complied with.

Upon any consolidation or merger, or any sale, assignment, transfer, conveyance or other disposition of all or substantially all of the assets of Baldor in accordance with this covenant, the successor corporation formed by such consolidation or into or with which Baldor is merged or to which such sale, assignment, transfer, conveyance or other disposition is made will succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, assignment, conveyance or other disposition, the provisions of the Indenture referring to the “Company” will refer instead to the successor corporation and not to Baldor), and may exercise every right and power of, Baldor under the Indenture with the same effect as if such successor Person had been named as Baldor in the Indenture.

In addition, Baldor will not, directly or indirectly, lease all or substantially all of the properties and assets of Baldor and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to any other Person.

Clause (4) above of this covenant will not apply to any merger, consolidation or sale, assignment, transfer, conveyance or other disposition of assets between or among Baldor and any of its Restricted Subsidiaries.

Baldor will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of Baldor (each, an “Affiliate Transaction”), unless:

(1) the Affiliate Transaction is on terms that are no less favorable to Baldor or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by Baldor or such Restricted Subsidiary with an unrelated Person; and

(a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $15.0 million, a resolution of the Board of Directors of Baldor set forth in an Officers’ Certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors of Baldor; and

(b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25.0 million, an opinion as to the fairness to Baldor or such Subsidiary of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing.

The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:

(1) any employment agreement, employee benefit plan, indemnification agreement or any similar arrangement entered into by Baldor or any of its Restricted Subsidiaries in the ordinary course of business and payments pursuant thereto;

(3) any transaction with a Receivables Subsidiary pursuant to a Qualified Receivables Transaction;

(5) any issuance or sale of Equity Interests (other than Disqualified Stock) of Baldor;

(6) Restricted Payments that do not violate the provisions of the Indenture described above under the caption “—Restricted Payments”; and

(7) payment of reasonable and customary fees and expenses of any law, investment banking or advisory firm, a partner or executive of which serves on the Board of Directors of Baldor.

If any Restricted Subsidiary that is a Domestic Subsidiary (other than a Guarantor or a Receivables Subsidiary)

(a) guarantees of any Indebtedness of Baldor or any of its Restricted Subsidiaries, or

(b) incurs any Indebtedness or issues any shares of Disqualified Stock or Preferred Stock permitted to be incurred or issued pursuant to the covenant entitled “Incurrence of Indebtedness and Issuance of Preferred Stock”

then such Restricted Subsidiary will become a Guarantor and execute a supplemental indenture and deliver an opinion of counsel satisfactory to the Trustee within 30 days of such guarantee, incurrence or issuance.

The Board of Directors of Baldor may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default or an Event of Default and is otherwise permitted hereunder. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by Baldor and its Restricted Subsidiaries in the Subsidiary designated as Unrestricted (and all Subsidiaries of such Subsidiary) will be deemed to be an Investment made as of the time of the designation and will reduce the amount

available for Restricted Payments under the covenant described above under the caption “—Restricted Payments” or under one or more clauses of the definition of Permitted Investments, as determined by Baldor. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors of Baldor may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if that redesignation would not cause a Default.

Any designation of a Subsidiary of Baldor as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a certified copy of a resolution of the Board of Directors giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption “—Restricted Payments.” If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of Baldor as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock,” Baldor will be in default of such covenant. The Board of Directors of Baldor may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of Baldor; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of Baldor of any outstanding Indebtedness of such Unrestricted Subsidiary, and such designation will only be permitted if (1) such Indebtedness is permitted under the covenant described under the caption “—Incurrence of Indebtedness and Issuance of Preferred Stock”; and (2) no Default or Event of Default would be in existence following such designation.

Baldor will not, and will not permit any of its Restricted Subsidiaries to, engage in any businesses other than Permitted Businesses, except to such extent as would not be material to Baldor and its Restricted Subsidiaries taken as a whole.

Baldor will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture, the Notes or the Guarantees unless such consideration is offered to be paid and is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.

Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, Baldor will furnish to the Holders of Notes or cause the Trustee to furnish to the Holders of Notes, within one business day of the time periods specified in the SEC’s rules and regulations:

(1) all quarterly and annual reports that would be required to be filed with the SEC on Forms 10-Q and 10-K if Baldor were required to file such reports; and

(2) all current reports that would be required to be filed with the SEC on Form 8-K if Baldor were required to file such reports.

All such reports will be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports. Each annual report on Form 10-K will include a report on

Baldor’s consolidated financial statements by Baldor’s certified independent accountants. In addition, Baldor will file a copy of each of the reports referred to in clauses (1) and (2) above with the SEC for public availability whether or not Baldor is subject to the periodic reporting requirements of the Exchange Act within one business day of the time periods specified in the rules and regulations applicable to such reports (unless the SEC will not accept such a filing) and will post the reports on its website within those time periods.

Baldor will not take any action for the purpose of causing the SEC not to accept any such filings. If, notwithstanding the foregoing, the SEC will not accept Baldor’s filings for any reason, Baldor will post the reports referred to in the preceding paragraphs on its website within one business day of the time periods that would apply if Baldor were required to file those reports with the SEC.

If Baldor has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraphs will include the information required with respect to such Subsidiaries by Rule 3-10 of Regulation S-X promulgated by the SEC (or any successor provision).

(2) default in the payment when due (at maturity, upon acceleration, redemption or otherwise) of the principal of, or premium, if any, on, the Notes;

(3) failure by Baldor or any of its Restricted Subsidiaries to comply with the provisions described under the captions “—Repurchase at the Option of Holders—Change of Control,” “—Repurchase at the Option of Holders—Asset Sales,” or “—Certain Covenants—Merger, Consolidation or Sale of Assets;”

(4) failure by Baldor or any of its Restricted Subsidiaries for 30 days after notice to Baldor by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding to comply with any of the other agreements in the Indenture not specified in clauses (1) through (3) above;

(5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by Baldor or any of its Restricted Subsidiaries (or the payment of which is guaranteed by Baldor or any of its Restricted Subsidiaries), whether such Indebtedness or Guarantee now exists, or is created after the date of the Indenture, if that default:

(a) is caused by a failure to make any payment when due at the final maturity of such Indebtedness (a “Payment Default”); or

(b) results in the acceleration of such Indebtedness prior to its express maturity,

and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $20.0 million or more;

(6) failure by Baldor or any of its Restricted Subsidiaries to pay final judgments entered by a court or courts of competent jurisdiction aggregating $20.0 million or more (net of any insurance or similar payments received in respect thereof or, if such judgment or decree is covered by insurance, net of any coverage amounts), which judgments are not paid, discharged or stayed for a period of 60 days following the entry of such judgment;

(7) except as permitted by the Indenture, any Note Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect, or any Guarantor, or any Person acting on behalf of any Guarantor, denies or disaffirms its obligations under its Note Guarantee; and

(8) certain events of bankruptcy or insolvency described in the Indenture with respect to Baldor, any Guarantor or any of its Restricted Subsidiaries that is a Significant Subsidiary (or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary).

In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to Baldor, any Guarantor or any Restricted Subsidiary that is a Significant Subsidiary of Baldor (or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary), all outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately.

Subject to certain limitations, Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal, interest or premium.

Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any Holders of Notes unless such Holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest when due, no Holder of a Note may pursue any remedy with respect to the Indenture or the Notes unless:

(1) such Holder has previously given the Trustee notice that an Event of Default is continuing;

(2) Holders of at least 25% in aggregate principal amount of the then outstanding Notes have requested the Trustee to pursue the remedy;

(3) such Holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense;

(4) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity; and

(5) Holders of a majority in aggregate principal amount of the then outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period.

The Holders of a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may, on behalf of the Holders of all of the Notes, rescind an acceleration or waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium on, or the principal of, the Notes.

Baldor is required to deliver to the Trustee annually a statement regarding compliance with the Indenture. Upon becoming aware of any Default or Event of Default, Baldor is required to deliver to the Trustee a statement specifying such Default or Event of Default.

No director, Officer, employee, incorporator or stockholder of Baldor or any Subsidiary of Baldor, as such, will have any liability for any obligations of Baldor or any Guarantors under the Notes, the

Guarantees, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws.

Baldor may at any time, at the option of its Board of Directors evidenced by a resolution set forth in an Officers’ Certificate, elect to have all of its obligations discharged with respect to the outstanding Notes and all obligations of the Guarantors discharged with respect to their Note Guarantees (“Legal Defeasance”) except for:

(1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium on, such Notes when such payments are due from the trust referred to below;

(2) Baldor’s obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust;

(3) the rights, powers, trusts, duties and immunities of the Trustee, and Baldor’s and the Guarantors’ obligations in connection therewith; and

In addition, Baldor may, at its option and at any time, elect to have the obligations of Baldor and the Guarantors released with respect to certain covenants (including its obligation to make Change of Control Offers and Asset Sale Offers) in the Indenture (“Covenant Defeasance”) and thereafter any omission to comply with those covenants will not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under “—Events of Default and Remedies” will no longer constitute an Event of Default with respect to the Notes.

(1) Baldor must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, or interest and premium on, the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and Baldor must specify whether the Notes are being defeased to such stated date for payment or to a particular redemption date;

(2) in the case of Legal Defeasance, Baldor must deliver to the Trustee an opinion of counsel reasonably acceptable to the Trustee confirming that (a) Baldor has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel will confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;

(3) in the case of Covenant Defeasance, Baldor must deliver to the Trustee an opinion of counsel reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes

will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;

(4) no Default or Event of Default has occurred and is continuing (a) on the date of such deposit; or (b) insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91^st day after the date of deposit;

(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the Indenture) to which Baldor or any of its Subsidiaries is a party or by which Baldor or any of its Subsidiaries is bound;

(6) Baldor must deliver to the Trustee an Officers’ Certificate stating that the deposit was not made by Baldor with the intent of preferring the Holders of Notes over the other creditors of Baldor with the intent of defeating, hindering, delaying or defrauding any creditors of Baldor or others; and

(7) Baldor must deliver to the Trustee an Officers’ Certificate and an opinion of counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.

Except as provided in the next two succeeding paragraphs, the Indenture or the Notes or the Note Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing Default or Event of Default or compliance with any provision of the Indenture or the Notes or the Note Guarantees may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes).

Without the consent of each Holder of Notes affected, an amendment, supplement or waiver may not (with respect to any Notes or Note Guarantees held by a non-consenting Holder):

(1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver;

(2) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than provisions relating to the covenants described above under the caption “—Repurchase at the Option of Holders”);

(3) reduce the rate of or change the time for payment of interest, including default interest, on any Note;

(4) waive a Default or Event of Default in the payment of principal of, or interest or premium, on, the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration);

(6) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, or interest or premium on, the Notes;

(7) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption “—Repurchase at the Option of Holders”);

(8) release any Guarantor from any of its obligations under its Note Guarantee or the Indenture, except in accordance with the terms of the Indenture;

(10) impair the right to institute suit for the enforcement of any payment on or with respect to the Notes or the Note Guarantees; or

(11) amend, change or modify the obligation of Baldor to make and consummate an Asset Sale Offer with respect to any Asset Sale in accordance with the covenant described under the caption “—Repurchase at the Option of Holders—Asset Sales,” after the obligation to make such Asset Sale Offer has arisen, or the obligation of Baldor to make and consummate a Change of Control Offer in the event of a Change of Control in accordance with the covenant described under the caption “—Repurchase at the Option of Holders—Change of Control,” after such Change of Control has occurred, including, in each case, amending, changing or modifying any definition relating thereto.

Notwithstanding the preceding, without the consent of any Holder of Notes, Baldor, the Guarantors and the Trustee may amend or supplement the Indenture, the Notes or the Note Guarantees:

(2) to provide for uncertificated Notes in addition to or in place of certificated Notes;

(3) to provide for the assumption of Baldor’s or a Guarantor’s obligations to Holders of Notes and Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of Baldor’s or such Guarantor’s assets, as applicable;

(4) to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder;

(5) to comply with requirements of the SEC in order to maintain the qualification of the Indenture under the Trust Indenture Act;

(6) to evidence and provide for the acceptance of appointment by a successor Trustee;

(7) to conform the text of the Indenture, the Note Guarantees or the Notes to any provision of this Description of Notes to the extent that such provision in this Description of Notes was intended to be a verbatim recitation of a provision of the Indenture, the Note Guarantees or the Notes;

(8) to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture as of the date of the Indenture; or

(9) to allow any Guarantor to execute a supplemental indenture and for a Note Guarantee with respect to the Notes.

The Indenture will be discharged and will cease to be of further effect as to all Notes issued thereunder, when:

(a) all Notes that have been authenticated, except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has been deposited in trust and thereafter repaid to Baldor, have been delivered to the Trustee for cancellation; or

(b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and Baldor or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium and accrued interest to the date of maturity or redemption;

(2) no Default or Event of Default has occurred and is continuing on the date of the deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) and the deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which Baldor or any Guarantor is a party or by which Baldor or any Guarantor is bound;

(3) Baldor or any Guarantor has paid or caused to be paid all sums payable under the Indenture; and

(4) Baldor has delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited money toward the payment of the Notes at maturity or on the redemption date, as the case may be.

In addition, Baldor must deliver an Officers’ Certificate and an opinion of counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.

If the Trustee becomes a creditor of Baldor or any Guarantor, the Indenture limits the right of the Trustee to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as Trustee or resign.

The Indenture provides that in case an Event of Default occurs and is continuing, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in the conduct of such person’s own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Notes, unless such Holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.

Except as set forth below, the notes will be issued in registered, global form in minimum denominations of $2,000 and integral multiples of $1,000 in excess of $2,000. Notes will be issued at the closing of this offering only against payment in immediately available funds.

Notes will be initially represented by one or more registered global Notes (the “Global Notes”). The initial Global Notes will be deposited with the Trustee as custodian for The Depository Trust Company (“DTC”), in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant in DTC as described below. Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for Notes in certificated form except in the limited circumstances described below. See

“—Exchange of Global Notes for Certificated Notes.” Except in the limited circumstances described below, owners of beneficial interests in the Global Notes will not be entitled to receive physical delivery of Notes in certificated form. Transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants, which may change from time to time.

The following description of the operations and procedures of DTC, Euroclear and Clearstream provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them. We take no responsibility for these operations and procedures and urge investors to contact the system or their participants directly to discuss these matters.

DTC has advised Baldor that DTC is a limited-purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a “clearing agency” within the meaning of the Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participating organizations (collectively, the “Participants”) and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the underwriters), banks, trust companies, clearing corporations and certain other organizations. Access to DTC’s system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the “Indirect Participants”). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants.

(1) upon deposit of the Global Notes, DTC will credit the accounts of Participants designated by the underwriters with portions of the principal amount of the Global Notes; and

(2) ownership of these interests in the Global Notes will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Notes).

Investors in the Global Notes who are Participants in DTC’s system may hold their interests therein directly through DTC. Investors in the Global Notes who are not Participants may hold their interests therein indirectly through organizations (including Euroclear and Clearstream) which are Participants in such system. Euroclear and Clearstream will hold interests in the Global Notes on behalf of their participants through customers’ securities accounts in their respective names on the books of their respective depositories, which are Euroclear Bank S.A./N.V., as operator of Euroclear, and Citibank, N.A., as operator of Clearstream. All interests in a Global Note, including those held through Euroclear or Clearstream, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Clearstream may also be subject to the procedures and requirements of such systems. The laws of some states require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such Persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants, the ability of a Person having beneficial interests in a Global Note to pledge such interests to Persons that do not participate in the

DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests.

Except as described below, owners of an interest in the Global Notes will not have Notes registered in their names, will not receive physical delivery of Notes in certificated form and will not be considered the registered owners or “Holders” thereof under the Indenture for any purpose.

Payments in respect of the principal of, and interest and premium and additional interest, if any, on a Global Note registered in the name of DTC or its nominee will be payable to DTC in its capacity as

the registered Holder under the Indenture. Under the terms of the Indenture, Baldor and the Trustee will treat the Persons in whose names the Notes, including the Global Notes, are registered as the owners of the Notes for the purpose of receiving payments and for all other purposes. Consequently, neither Baldor, the Trustee nor any agent of Baldor or the Trustee has or will have any responsibility or liability for:

(1) any aspect of DTC’s records or any Participant’s or Indirect Participant’s records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any of DTC’s records or any Participant’s or Indirect Participant’s records relating to the beneficial ownership interests in the Global Notes; or

(2) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants.

DTC has advised Baldor that its current practice, upon receipt of any payment in respect of securities such as the Notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date unless DTC has reason to believe it will not receive payment on such payment date. Each relevant Participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of Notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the Trustee or Baldor. Neither Baldor nor the Trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the Notes, and Baldor and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.

Transfers between the participants will be effected in accordance with DTC’s procedures, and will be settled in same-day funds, and transfers between participants in Euroclear and Clearstream will be effected in accordance with their respective rules and operating procedures.

Cross-market transfers between the Participants, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected through DTC in accordance with DTC’s rules on behalf of Euroclear or Clearstream, as the case may be, by their respective depositaries; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositories for Euroclear or Clearstream.

DTC has advised Baldor that it will take any action permitted to be taken by a Holder of Notes only at the direction of one or more Participants to whose account DTC has credited the interests in the

Global Notes and only in respect of such portion of the aggregate principal amount of the Notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the Notes, DTC reserves the right to exchange the Global Notes for legended Notes in certificated form, and to distribute such Notes to its Participants.

Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Notes among participants, it is under no obligation to perform such procedures, and such procedures may be discontinued or changed at any time. Neither Baldor nor the Trustee nor any of their respective agents will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

(1) DTC (a) notifies Baldor that it is unwilling or unable to continue as depositary for the Global Notes or (b) has ceased to be a clearing agency registered under the Exchange Act and, in each case, a successor depositary is not appointed;

(2) Baldor, at its option, notifies the Trustee in writing that it elects to cause the issuance of the certificated Notes; or

(3) there has occurred and is continuing a default with respect to the Notes entitling the Holder to accelerate the maturity of the Notes.

In all cases, certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures).

Baldor will make payments in respect of the Notes represented by the Global Notes (including principal, premium, if any, interest and additional interest, if any) by wire transfer of immediately available funds to the accounts specified by the Global Note Holder. Baldor will make all payments of principal, interest and premium and additional interest, if any, with respect to certificated Notes by wire transfer of immediately available funds to the accounts specified by the Holders of the certificated Notes or, if no such account is specified, by mailing a check to each such Holder’s registered address. The Notes represented by the Global Notes are expected to trade in DTC’s Same-Day Funds Settlement System, and any permitted secondary market trading activity in such Notes will, therefore, be required by DTC to be settled in immediately available funds. Baldor expects that secondary trading in any certificated Notes will also be settled in immediately available funds.

Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a Global Note from a Participant will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of DTC. DTC has advised Baldor that cash received in Euroclear or Clearstream as a result of sales of interests in a Global Note by or through a Euroclear or Clearstream participant to a Participant will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following DTC’s settlement date.

Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all defined terms used therein, as well as any other capitalized terms used herein for which no definition is provided.

(1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; and

(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.

“Acquisition” means the acquisition by Baldor of the Reliance Electric and Dodge businesses of Rockwell Automation Inc., as described more fully elsewhere in this prospectus under the heading “The Transactions.”

“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control,” as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms “controlling,” “controlled by” and “under common control with” have correlative meanings.

“Applicable Premium” means, with respect to a Note at any date of redemption, the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess of (A) the present value at such date of redemption of (1) the redemption price of such Note at February 15, 2012 (such redemption price being described under “—Optional Redemption”) plus (2) all remaining required interest payments due on such Note through February 15, 2012 (excluding accrued but unpaid interest to the date of redemption), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the principal amount of such Note.

(1) the sale, lease, conveyance or other disposition of any assets or rights; provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of Baldor and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption “—Repurchase at the Option of Holders—Change of Control” and/or the provisions described above under the caption “—Certain Covenants—Merger, Consolidation or Sale of Assets” and not by the provisions of the Asset Sale covenant; and

(2) the issuance of Equity Interests in any of Baldor’s Restricted Subsidiaries or the sale of Equity Interests in any of its Subsidiaries.

Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:

(1) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than $10.0 million;

(2) a transfer of assets between or among Baldor and its Restricted Subsidiaries;

(3) an issuance of Equity Interests by a Restricted Subsidiary of Baldor to Baldor or to a Restricted Subsidiary of Baldor;

(4) the sale or lease of products, services or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete assets in the ordinary course of business;

(5) the sale or other disposition of cash or Cash Equivalents to the extent not otherwise prohibited hereunder;

(6) a Restricted Payment that does not violate the covenant described above under the caption “—Certain Covenants—Restricted Payments” or a Permitted Investment;

(7) a transfer of accounts receivable and related assets of the type specified in the definition of Qualified Receivables Transaction (or a fractional undivided interest therein) by a Receivables Subsidiary in a Qualified Receivables Transaction;

(8) dispositions of accounts receivable in connection with the compromise, settlement or collection thereof in the ordinary course of business or in bankruptcy or similar proceedings; and

“Asset Sale Offer” has the meaning assigned to that term in the Indenture.

“Attributable Debt” in respect of sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, however, that if such sale and leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of “Capital Lease Obligation.”

“Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular “person” (as that term is used in Section 13(d)(3) of the Exchange Act), such “person” will be deemed to have beneficial ownership of all securities that such “person” has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.

(1) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;

(2) with respect to a partnership, the Board of Directors of the general partner of the partnership; and

(3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and

(4) with respect to any other Person, the board or committee of such Person serving a similar function.

“Capital Lease Obligation” means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet prepared in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last

payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty.

(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;

(3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and

(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person

but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.

(1) United States dollars, pounds sterling, euros, the national currency of any member state of the European Union or, in the case of any Foreign Subsidiary that is a Restricted Subsidiary, such local currency held by it from time to time in the ordinary course of business;

(2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support thereof) maturing, unless such securities are deposited to defease any Indebtedness, not more than two years from the date of acquisition;

(3) certificates of deposit and eurodollar time deposits with maturities of two years or less from the date of acquisition, bankers’ acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of “B” or better;

(4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;

(5) commercial paper having the highest rating obtainable from Moody’s or S&P and, in each case, maturing within one year after the date of acquisition; and

(6) securities issued and fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, rated at least “A” by Moody’s or S&P and having maturities of not more than two years from the date of acquisition;

(7) Indebtedness issued by Persons with a rating of “A-2” or higher from Moody’s or “A” or higher from S&P in each case with maturities not exceeding two years from the date of acquisition; and

(8) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (6) of this definition.

(1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the

properties or assets of Baldor and its Subsidiaries taken as a whole to any “person” (as that term is used in Section 13(d) of the Exchange Act);

(2) the adoption of a plan relating to the liquidation or dissolution of Baldor;

(3) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any “person” (as defined above) becomes the Beneficial Owner, directly or indirectly, of more than 30% of the Voting Stock of Baldor, measured by voting power rather than number of shares; or

(4) the first day on which a majority of the members of the Board of Directors of Baldor are not Continuing Directors.

“Change of Control Offer” has the meaning assigned to that term in the Indenture.

“Consolidated Cash Flow” means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication:

(1) an amount equal to any extraordinary net loss plus any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale (without regard to the dollar amount limitations contained in the definition thereof), to the extent such losses were deducted in computing such Consolidated Net Income; plus

(2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus

(3) the Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus

(4) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses including, without duplication, impairment charges and the impact of purchase accounting including, but not limited to, the amortization of inventory step-up (but excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus

(5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business,

Notwithstanding the preceding, the provision for taxes based on the income or profits of, the Fixed Charges of and the depreciation and amortization and other non-cash expenses of, a Restricted Subsidiary of Baldor will be added to Consolidated Net Income to compute Consolidated Cash Flow of Baldor (A) in the same proportion that the Net Income of such Restricted Subsidiary was added to compute such Consolidated Net Income of Baldor and (B) only to the extent that a corresponding amount would be permitted at the date of determination to be dividended or distributed to Baldor by such Restricted Subsidiary without prior governmental approval (that has not been obtained), and without direct or indirect restriction pursuant to the terms of its charter and all agreements, instruments, judgments, decrees, orders, statutes, rules and governmental regulations applicable to that Subsidiary or its stockholders.

“Consolidated Net Income” means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that:

(1) the Net Income or loss of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person;

(2) the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement or instrument applicable to that Restricted Subsidiary or its stockholders, or by operation of the terms of any judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders;

(3) the Net Income of any Person acquired during the specified period for any period prior to the date of such acquisition will be excluded;

(4) the cumulative effect of a change in accounting principles will be excluded;

(5) non-cash compensation charges, including any such charges arising from stock options, restricted stock grants or other equity incentive programs will be excluded; and

(6) notwithstanding clause (1) above, the Net Income (or loss) of any Unrestricted Subsidiary will be excluded, whether or not distributed to the specified Person or one of its Subsidiaries.

“Consolidated Tangible Assets” means, with respect to any specified Person for any period, total assets (less accumulated depreciation and valuation reserves and other reserves and items deductible from gross book value of specific asset accounts under GAAP) of such Person for such period after deducting therefrom (1) any item representing investments in Unrestricted Subsidiaries and (2) all goodwill, trade names, trademarks, patents, unamortized debt discount, organization expenses and other like intangibles, all as set forth on the most recent balance sheet of such Person, on a consolidated basis, determined in accordance with GAAP.

“Continuing Directors” means, as of any date of determination, any member of the Board of Directors of Baldor who:

(2) was nominated for election or elected to such Board of Directors with the approval or subsequent ratification of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election.

“Credit Agreement” means that certain Credit Agreement, by and among Baldor, the guarantor subsidiaries named therein, BNP Paribas as administrative agent for the lenders and as lead arranger and syndication agent and the other lenders named therein, and other parties thereto, including any related Notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, and, in each case, as amended, restated, modified, renewed, refunded, replaced (whether upon or after termination or otherwise) or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time.

“Credit Facilities” means, one or more debt facilities (including, without limitation, the Credit Agreement) or commercial paper facilities, in each case, with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of

receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced (whether upon or after termination or otherwise) or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time.

“Default” means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.

“Disqualified Stock” means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the Holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the Holders of the Capital Stock have the right to require Baldor to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that Baldor may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption “—Certain Covenants—Restricted Payments.” The amount of Disqualified Stock deemed to be outstanding at any time for purposes of the Indenture will be the maximum amount that Baldor and its Restricted Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends.

“Domestic Subsidiary” means any Restricted Subsidiary of Baldor that was formed under the laws of the United States or any state of the United States or the District of Columbia.

“Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

“Equity Offering” means any offer and sale of Capital Stock (other than Disqualified Stock) of Baldor pursuant to a registration statement that has been declared effective by the SEC pursuant to the Securities Act (other than a registration statement on Form S-8 or otherwise relating to equity securities issuable under any employee benefit plan of Baldor).

“Existing Indebtedness” means the aggregate amount of Indebtedness of Baldor and its Restricted Subsidiaries (other than Indebtedness under the Credit Agreement or under the Notes and the related Note Guarantees) in existence on the date of this Indenture (after giving effect to the Transactions), including any interim Indebtedness incurred in lieu of any other financing contemplated in the definition of the “Transactions” to finance the Acquisition not to exceed $350 million, until such amounts are repaid.

“Fair Market Value” means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party.

“Fixed Charge Coverage Ratio” means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness or issues, repurchases or redeems Preferred Stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “Fixed

Charge Ratio Calculation Date”), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of Preferred Stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period.

(1) Investments, acquisitions, dispositions, mergers, consolidations and disposed operations (as determined in accordance with GAAP) that have been made by Baldor or any of its Restricted Subsidiaries during the four-quarter reference period or subsequent to such reference period and on or prior to or simultaneously with the Fixed Charge Ratio Calculation Date shall be calculated on a pro forma basis, assuming that all such Investments, acquisitions, dispositions, mergers, consolidations and disposed operations had occurred on the first day of the four-quarter reference period. If since the beginning of such period any Person that subsequently became a Restricted Subsidiary or was merged with or into Baldor or any of its Restricted Subsidiaries since the beginning of such period shall have made any Investment, acquisition, disposition, merger, consolidation or disposed operation that would have required adjustment pursuant to this definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect thereto for such period as if such Investment, acquisition, disposition, merger, consolidation or disposed operation had occurred at the beginning of the applicable four-quarter period;

(2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP will be excluded;

(3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Fixed Charge Ratio Calculation Date;

(4) any Person that is a Restricted Subsidiary on the Fixed Charge Ratio Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period;

(5) any Person that is not a Restricted Subsidiary on the Fixed Charge Ratio Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and

(6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Fixed Charge Ratio Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Fixed Charge Ratio Calculation Date in excess of 12 months).

For purposes of this definition, whenever pro forma effect is to be given to any pro forma event, the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of Baldor.

“Fixed Charges” means, with respect to any specified Person for any period, the sum, without duplication, of:

(1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other

fees and charges incurred in respect of letter of credit or bankers’ acceptance financings or any Qualified Receivables Transaction which are payable to Persons other than Baldor and its Restricted Subsidiaries, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates; plus

(2) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period, whether paid or accrued; plus

(3) any interest on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus

(4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of Disqualified Stock or Preferred Stock of such Person and Disqualified Stock or Preferred Stock of any of its Restricted Subsidiaries (other than dividends payable solely in Equity Interests (other than Disqualified Stock) of Baldor or to Baldor or a Restricted Subsidiary of Baldor, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP.

“Foreign Subsidiary” means any Restricted Subsidiary of Baldor that is not a Domestic Subsidiary.

“GAAP” means generally accepted accounting principles set forth in the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of the Indenture.

“Government Securities” means securities that are direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged.

“Guarantee” means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise).

“Guarantor” means any Subsidiary of Baldor that executes a Note Guarantee in accordance with the provisions of the Indenture and its respective successors and assigns, in each case, until the Note Guarantee of such Person has been released in accordance with the provisions of the Indenture.

“Hedging Obligations” means, with respect to any specified Person, the net obligations of such Person under:

(1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements and other agreements or arrangements with respect to interest rates;

(2) commodity swap agreements, commodity option agreements, forward contracts and other agreements or arrangements with respect to commodity prices; and

(3) foreign exchange contracts, currency swap agreements and other agreements or arrangements with respect to foreign currency exchange rates.

“Indebtedness” means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent:

(2) evidenced by bonds, Notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);

(4) representing Capital Lease Obligations or Attributable Debt in respect of sale and leaseback transactions;

(5) representing the balance deferred and unpaid of the purchase price of any property or services, except an aggregate balance that constitutes an accrued expense or trade payable, due more than six months after such property is acquired or such services are completed; or

if and to the extent any of the preceding items (other than letters of credit, Attributable Debt and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term “Indebtedness” includes (A) for purposes of the covenants in the indenture, any Obligations incurred in connection with any accounts receivables financing including any Qualified Receivables Transaction, and (B) all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person.

“Investments” means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans or other extensions of credit (including Guarantees or other obligations), advances or capital contributions, purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If Baldor or any Restricted Subsidiary of Baldor sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of Baldor such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of Baldor, Baldor will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of Baldor’s Investments in such Subsidiary that were not sold or disposed of. The acquisition by Baldor or any Restricted Subsidiary of Baldor of a Person that holds an Investment in a third Person will be deemed to be an Investment by Baldor or such Restricted Subsidiary in such third Person in an amount equal to the Fair Market Value of the Investments held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of the covenant described above under the caption “—Certain Covenants—Restricted Payments.” Except as otherwise provided in the Indenture, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.

“Mandatorily Convertible Preferred Stock” means the % mandatorily convertible preferred stock of Baldor to be issued in the Transactions.

“Moody’s” means Moody’s Investors Service, Inc. or any successor thereto.

“Net Income” means, with respect to any specified Person for any period the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends, excluding, however:

(1) any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with: (a) any Asset Sale (without regard to the dollar amount limitations contained in the definition thereof) or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and

(2) any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss.

“Net Proceeds” means the aggregate cash proceeds received by Baldor or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than Indebtedness under a Credit Facility, secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP and appropriate amounts to be provided by Baldor or its Restricted Subsidiaries as a reserve against liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in accordance with GAAP; provided that (a) excess amounts set aside for payment of taxes pursuant as described above remaining after such taxes have been paid in full or the statute of limitations therefor has expired and (b) amounts initially held in reserve in relation to pension, environmental or other liabilities, as described above, no longer so held, will, in the case of each of subclause (a) and (b), at that time become Net Proceeds.

(1) as to which neither Baldor nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender;

(2) no default with respect to which (including any rights that the Holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any Holder of any other Indebtedness of Baldor or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity; and

(3) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of Baldor or any of its Restricted Subsidiaries.

“Note Guarantee” means the Guarantee by each Guarantor of Baldor’s obligations under the Indenture and the Notes, executed pursuant to the provisions of the Indenture.

“Obligations” means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.

“Officer” means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person.

“Officers’ Certificate” means a certificate signed on behalf of Baldor by at least two Officers of Baldor, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of Baldor, that meets the requirements of the Indenture.

“Opinion of Counsel” means an opinion from legal counsel who is reasonably acceptable to the Trustee (who may be an employee of Baldor) that meets the requirements of the Indenture.

“Permitted Business” means any business conducted or proposed to be conducted by Baldor or any Restricted Subsidiary on the date of the Indenture and any business that is reasonably related, ancillary or complementary thereto.

(3) any Investment by Baldor or any Restricted Subsidiary of Baldor in a Person, if as a result of such Investment:

(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, Baldor or a Restricted Subsidiary of Baldor;

(4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption “—Repurchase at the Option of Holders—Asset Sales;”

(5) any Investments received in compromise or resolution of (A) obligations of trade creditors or customers that were incurred in the ordinary course of business of Baldor or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (B) litigation, arbitration or other disputes with Persons who are not Affiliates;

(6) Hedging Obligations that are Incurred for the purpose of fixing, hedging or swapping interest rate, commodity price or foreign currency exchange rate risk (or to reverse or amend any such agreements previously made for such purposes), and not for speculative purposes, and that do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in interest rates, commodity prices or foreign currency exchange rates or by reason of fees, indemnifies and compensation payable thereunder;

(7) advances to customers or suppliers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable, prepaid expenses or deposits on the balance sheet of Baldor or its Restricted Subsidiaries and endorsements for collection or deposit arising in the ordinary course of business;

(8) commission, payroll, travel and similar advances to officers and employees of Baldor or any of its Restricted Subsidiaries that are expected at the time of such advance ultimately to be recorded as an expense in conformity with GAAP;

(9) Investments in negotiable instruments held for collection and lease, utility and workers’ compensation, performance and other similar deposits in the ordinary course of business;

(10) Investments in a Receivables Subsidiary, or any Investment by a Receivables Subsidiary in another Person, in each case in connection with a Qualified Receivables Transaction; provided, however, that such Investment is in the form of a purchase money note, equity or residual interest or limited liability company interest;

(11) Investments in joint ventures (in each case that are not Subsidiaries of Baldor) that are engaged in a Permitted Business (measured on the date each such Investment was made and without giving effect to subsequent changes in value), in an aggregate amount not to exceed $25.0 million at any one time outstanding;

(12) Investments in existence on the date of this Indenture (after giving effect to the Transactions); and

(13) other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (13), not to exceed the greater of $60 million and 5% of Baldor’s Consolidated Tangible Assets as set forth on the most recent balance sheet of Baldor and its Restricted Subsidiaries, on a consolidated basis, determined in accordance with GAAP.

(1) Liens on assets of Baldor or any Restricted Subsidiary securing Indebtedness in an aggregate amount at the time of incurrence not to exceed the greater of (a) $1,200 million and (b) the maximum principal amount of Indebtedness that, as of the date such Indebtedness was incurred and the application of the proceeds therefrom on such date, would not cause the Priority Debt Ratio to exceed 3.50 to 1.00;

(3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with Baldor or any Restricted Subsidiary of Baldor; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with Baldor or the Subsidiary;

(4) Liens on property (including Capital Stock) existing at the time of acquisition of the property by Baldor or any Subsidiary of Baldor; provided that such Liens were in existence prior to, such acquisition, and not incurred in contemplation of, such acquisition;

(5) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of the covenant entitled “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock” covering only the assets acquired with or financed by such Indebtedness; provided that such Indebtedness is incurred within 180 days after the date of the purchase of such assets;

(7) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor;

(8) Liens imposed by law, such as carriers’, warehousemen’s, landlord’s and mechanics’ Liens, in each case, incurred in the ordinary course of business;

(9) Liens created for the benefit of (or to secure) the Notes (or the Note Guarantees);

(10) Liens securing Permitted Refinancing Indebtedness; provided that such Liens do not extend to any property or assets other than the property or assets that secure the Indebtedness being refinanced;

(11) Liens securing Hedging Obligations not incurred in violation of the Indenture, provided that with respect to Hedging Obligations relating to Indebtedness, such Lien extends only to the property securing Indebtedness;

(12) Liens incurred or deposits made in the ordinary course of business in connection with worker’s compensation, unemployment insurance or other social security obligations;

(13) Lien, deposits or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of Indebtedness), leases, or other similar obligations arising in the ordinary course of business;

(14) survey exceptions, encumbrances, easements or reservations of, or rights of other for, rights of way, zoning or other restrictions as to the use of properties, and defects in title which, in

the case of any of the foregoing, were not incurred or created to secure the payment of Indebtedness, and which in the aggregate do not materially adversely affect the value of such properties or materially impair the use for the purposes of which such properties are held by Baldor or any of its Restricted Subsidiaries;

(15) judgment and attachment Liens not giving rise to an Event of Default and notices of lis pendens and associated rights related to litigation being contested in good faith by appropriate proceedings and for which adequate reserves have been made;

(16) Liens, deposits or pledges to secure public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds or obligations; and Liens, deposits or pledges in lieu of such bonds or obligations, or to secure such bonds or obligations, or to secure letters of credit in lieu of or supporting the payment of such bonds or obligations;

(17) Liens in favor of collecting or payor banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of Baldor or any Subsidiary thereof on deposit with or in possession of such bank;

(18) Liens arising from precautionary UCC financing statements regarding operating leases or consignments;

(19) Liens of franchisors in the ordinary course of business not securing Indebtedness;

(20) Liens on accounts receivables or inventory of Foreign Subsidiaries to secure Indebtedness of such Foreign Subsidiaries permitted by clause (14) of the second paragraph of the covenant entitled “—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock”;

(21) Liens on accounts receivables and related assets of the type specified in the definition of “Qualified Receivables Transaction” and incurred in connection with a Qualified Receivables Transaction; and

(22) Liens incurred in the ordinary course of business of Baldor or any Subsidiary of Baldor with respect to obligations that do not exceed the greater of $25 million and 2.0% of Consolidated Tangible Assets as set forth on the most recent balance sheet of Baldor and its Restricted Subsidiaries on a consolidated basis, determined in accordance with GAAP, at any one time outstanding.

“Permitted Refinancing Indebtedness” means any Indebtedness of Baldor or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, refund, refinance,

replace, defease or discharge other Indebtedness of Baldor or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that:

(1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged (plus all accrued interest on the Indebtedness and the amount of all reasonable and necessary fees and expenses, including premiums, incurred in connection therewith);

(2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged;

(3) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; and

(4) such Indebtedness is incurred either by Baldor or by the Restricted Subsidiary who is the obligor on the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged.

“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.

“Preferred Stock” means, with respect to any Person, any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions upon liquidation.

“Priority Debt Ratio” means, at any date, the ratio of (i) the amount of secured Indebtedness of Baldor or any Guarantor plus the amount of any Indebtedness, Disqualified Stock or Preferred Stock of any Restricted Subsidiary of Baldor other than a Guarantor as of such date (determined on a consolidated basis in accordance with GAAP) to (ii) Consolidated Cash Flow of Baldor for the four fiscal quarters immediately preceding such date. In the event that Baldor or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness or issues, repurchases or redeems Preferred Stock or Disqualified Stock subsequent to the commencement of the period for which the Priority Debt Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Priority Debt Ratio is made (the “Priority Debt Ratio Calculation Date”), then the Priority Debt Ratio will be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of Preferred Stock or Disqualified Stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period.

For purposes of making the computation referred to above, Investments, acquisitions, dispositions, mergers, consolidations and disposed operations (as determined in accordance with GAAP) that have been made by Baldor or any of its Restricted Subsidiaries during the four-quarter reference period or subsequent to such reference period and on or prior to or simultaneously with the Priority Debt Ratio Calculation Date shall be calculated on a pro forma basis, assuming that all such Investments, acquisitions, dispositions, mergers, consolidations and disposed operations had occurred on the first day of the four-quarter reference period. If since the beginning of such period any Person that

subsequently became a Restricted Subsidiary or was merged with or into Baldor or any of its Restricted Subsidiaries since the beginning of such period shall have made any Investment, acquisition, disposition, merger, consolidation or disposed operation that would have required adjustment pursuant to this definition, then the Priority Debt Ratio shall be calculated giving pro forma effect thereto for such period as if such Investment, acquisition, disposition, merger, consolidation or disposed operation had occurred at the beginning of the applicable four-quarter period.

“Qualified Receivables Transaction” means any transaction or series of transactions entered into by Baldor or any of its Restricted Subsidiaries pursuant to which Baldor or any of its Restricted Subsidiaries sells, conveys or otherwise transfers to (i) a Receivables Subsidiary (in the case of a transfer by Baldor or any of its Restricted Subsidiaries) and (ii) any other Person (in the case of a transfer by a Receivables Subsidiary), or grants a security interest in, any accounts receivable (whether now existing or arising in the future) of Baldor or any of its Restricted Subsidiaries, and any assets related thereto, including all collateral securing such accounts receivable, all contracts and all guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets (including contract rights) which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable.

“Receivables Fees” means distributions or payments made directly or by means of discounts with respect to any participation interests issued or sold in connection with, and all other fees paid to a Person that is not a Restricted Subsidiary in connection with, any Qualified Receivables Transaction.

“Receivables Repurchase Obligation” means any obligation of a seller of receivables in a Qualified Receivables Transaction to repurchase receivables arising as a result of a breach of a representation, warranty, or covenant or otherwise, including as a result of a receivable or portion thereof becoming subject to any asserted defense, dispute, set-off or counterclaim of any kind as a result of any action taken by, or failure to take action by or any other event relating to the seller.

“Receivables Subsidiary” means a Subsidiary of Baldor which engages in no activities other than in connection with the financing of accounts receivable or related assets (including contract rights) and which is designated by the Board of Directors of Baldor (as provided below) as a Receivables Subsidiary (a) no portion of the Indebtedness or any other Obligations (contingent or otherwise) of which (i) is Guaranteed by Baldor or any of its Restricted Subsidiaries (but excluding Standard Securitization Undertakings in connection with a Qualified Receivables Transaction), (ii) is recourse to or obligates Baldor or any of its Restricted Subsidiaries in any way other than pursuant to Standard Securitization Undertakings in connection with a Qualified Receivables Transaction or (iii) subjects any property or asset (including contract rights) of Baldor or any of its Restricted Subsidiaries (other than accounts receivable and related assets as provided in the definition of “Qualified Receivables Transaction”), directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings entered into in connection with a Qualified Receivables Transaction, (b) with which neither Baldor nor any of its Restricted Subsidiaries has any material contract, agreement, arrangement or understanding other than on terms no less favorable to Baldor or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of Baldor, other than customary fees payable in connection with servicing accounts receivable and (c) with which neither Baldor or any of its Restricted Subsidiaries has any obligation to maintain or preserve such Subsidiary’s financial condition or cause such Subsidiary to achieve certain levels of operating results. Any such designation by the Board of Directors of Baldor will be evidenced to the trustee by filing with the trustee a certified copy of the resolution of the Board of Directors of Baldor giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the foregoing conditions.

“Restricted Investment” means an Investment other than a Permitted Investment.

“Restricted Subsidiary” of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary.

“S&P” means Standard & Poor’s Ratings Group, a division of McGraw Hill, or any successor thereto.

“Significant Subsidiary” means any Subsidiary that would be a “significant subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the Indenture.

“Standard Securitization Undertakings” means representations, warranties, covenants, indemnities and guarantees of performance entered into by Baldor or any Subsidiaries of Baldor which Baldor determined in good faith to be customary in a receivables financing including, without limitation, those relating to the servicing of the assets of a Receivables Subsidiary, it being understood that any Receivables Repurchasing Obligation shall be deemed to be a Standard Securitization Undertaking.

“Stated Maturity” means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the date of the Indenture, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.

(1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and

(2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof) or more Subsidiaries of that Person (or any combination thereof).

“Transactions” means the Acquisition including a payment of $1.75 billion in cash, subject to adjustment, and the issuance of 1.58 million shares of common stock of Baldor, to Rockwell Automation Inc. (or an affiliate thereof validly designated by it) and the transactions to be entered into in connection therewith; the offering of the Notes, the offering by Baldor of its Mandatorily Convertible Preferred Stock (including any shares issued pursuant to the overallotment option of the underwriters of such securities) and the offering by Baldor of shares of its common stock (including any shares issued pursuant to the overallotment option of the underwriters of such securities) (together, the “Securities Offering Transactions”); Baldor’s entry into the Credit Agreement and borrowings thereunder; and the application of the borrowings under the Credit Agreement and the proceeds from the Securities Offering Transactions to finance the Acquisition, refinance the indebtedness of Baldor and pay the fees and expenses for all the foregoing transactions.

“Treasury Rate” means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) which has become publicly available at least two Business Days prior to the date fixed for prepayment (or, if such Statistical Release is no longer published, any publicly available source for similar market data)) most nearly equal to the then remaining term of the Notes to February 15, 2012; provided, however, that if the then remaining term of the Notes to February 15, 2012 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate will be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the then remaining term of the Notes to February 15, 2012 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.

“Unrestricted Subsidiary” means any Subsidiary of Baldor that is designated by the Board of Directors of Baldor as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, but only to the extent that such Subsidiary:

(2) except as permitted by the covenant described above under the caption “—Certain Covenants—Transactions with Affiliates,” is not party to any agreement, contract, arrangement or understanding with Baldor or any Restricted Subsidiary of Baldor unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to Baldor or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of Baldor;

(3) is a Person with respect to which neither Baldor nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results;

(4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of Baldor or any of its Restricted Subsidiaries; and

(5) has at least one director on its Board of Directors that is not a director or officer of Baldor or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or officer of Baldor or any of its Restricted Subsidiaries.

“Voting Stock” of any specified Person as of any date means the Capital Stock of such Person that is ordinarily entitled to vote in the election of the Board of Directors of such Person.

“Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing:

(1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by

The following discussion is a general summary of certain material U.S. federal income tax considerations of the purchase, ownership and disposition of the Notes. This discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations, Internal Revenue Service (“IRS”) rulings, and administrative and judicial decisions currently in effect, all of which are subject to change (possibly with retroactive effect) or possible differing interpretations. This discussion is for general information only and is not tax advice. Accordingly, all prospective Holders of our Notes should consult their own tax advisors with respect to the U.S. federal, state, local and non-U.S. tax consequences of an investment in our Notes. No assurance exists that the IRS will not challenge any of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, an opinion of counsel with respect to the U.S. federal income or estate tax consequences to Holder of our Notes.

This discussion applies only to Notes that are held as capital assets (generally, for investment purposes) by a Holder that acquires the Note pursuant to this offering at the initial offering price. This discussion does not address all aspects of U.S. federal income taxation that may be applicable to investors in light of their particular circumstances, or to investors subject to special treatment under U.S. federal income tax law, such as financial institutions, regulated investment companies, real estate investment trusts, tax-exempt organizations, dealers in securities or currencies, traders in securities that elect to mark to market, persons deemed to sell the Notes under the constructive sale provisions of the Code, persons that hold the Notes as part of a straddle, hedge, conversion transaction or other integrated investment or persons subject to the alternative minimum tax. This discussion does not address the tax consequences to partnerships or other pass-through entities or persons investing through such partnerships or entities. Furthermore, except to the extent set forth below, this discussion does not address any U.S. federal estate or gift tax laws or any state, local or foreign tax laws.

For purposes of this discussion, “U.S. Holder” means a beneficial owner of a Note that is, for U.S. federal income tax purposes, (i) a citizen or individual resident of the U.S., (ii) a corporation (or other entity taxed as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source or (iv) a trust whose administration is subject to the primary supervision of a court within the United States and which has one or more U.S. persons with the authority to control all substantial decisions of the trust, or a trust in existence on August 20, 1996 that has elected to be treated as a “United States person” (as defined for federal income tax purposes).

If a partnership holds a Note, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If a U.S. Holder is a partner of a partnership holding a Note, such Holder is urged to consult its tax advisors.

“Non-U.S. Holder” means any beneficial owner of a Note that is a is neither a U.S. Holder nor a partnership.

PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES.

Interest on a Note will be taxable to a U.S. Holder as ordinary income at the time it is received or accrued, depending on the U.S. Holder’s method of accounting for U.S. federal income tax purposes.

Upon a sale, exchange, redemption, retirement or other taxable disposition of a note, a U.S. Holder generally will recognize gain or loss equal to the difference between the amount received (less any amount attributable to accrued interest which will be taxable as ordinary income, if not previously taken into gross income) and such U.S. Holder’s adjusted tax basis in the note at that time. A U.S. Holder’s adjusted tax basis in its Notes generally will equal the amount it paid for the Notes and decreased by any principal payments it receives on the Notes.

Gain or loss realized on the sale, exchange, redemption, retirement or other taxable disposition of a Note generally will be capital gain or loss. This capital gain or loss will be long-term capital gain or loss if, at the time of sale, exchange, redemption, retirement or other taxable disposition, the Note has been held for more than one year. Under current law, long-term capital gains of certain non-corporate holders are generally taxed at lower rates than items of ordinary income. The deductibility of capital losses is subject to limitations.

In general, information reporting will apply to certain payments of principal and interest on the notes and to the proceeds from the sale or other disposition of a note paid to a U.S. Holder unless such U.S. Holder is an exempt recipient (e.g., a corporation). Additionally, a backup withholding tax (currently at a rate of 28%) will apply to such payments if a U.S. Holder fails to provide a correct taxpayer identification number or certification of exempt status (e.g., on IRS Form W-9) or fails to report full dividend and interest income or otherwise fail to comply with applicable requirements of the backup withholding rules.

Backup withholding is not an additional tax. If the backup withholding applies to a U.S. Holder, it may use the amounts withheld as a refund or credit against its U.S. federal income tax liability, as long as it timely provide certain information to the IRS.

Payments of interest by Baldor or any of its paying agents to any Non-U.S. Holder will not be subject to U.S. federal income tax and U.S. federal withholding tax will not be required if (a) the Non-U.S. Holder does not actually or constructively own 10% or more of the total combined voting power of all classes of stock of Baldor entitled to vote, (b) the Non-U.S. Holder is not a controlled foreign corporation that is related to Baldor through stock ownership, (c) either (i) the Non-U.S. Holder certifies to Baldor or its agent, under penalties of perjury and in accordance with applicable Treasury regulations, that it is not a U.S. Holder and provides its name and address and certain other information (e.g., on IRS Form W-8BEN), (ii) a securities clearing organization, bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business (a “financial institution”) and holds the Note in such capacity certifies to Baldor or its agent under penalties of perjury that such statement has been received from the beneficial owner by it or by a financial institution between it and the beneficial owner and furnishes the payor with a copy thereof and (d) such payments are not effectively connected with the conduct of a trade or business in the United States by the Non-U.S. Holder.

If a U.S. Holder does not satisfy the preceding requirements, the interest it receives on a Note that is not effectively connected with a United States trade or business would generally be subject to United States withholding tax at a flat rate of 30% unless that rate is reduced or eliminated pursuant to an applicable tax treaty, provided certain certification requirements are met (e.g., IRS Form W-8BEN).

A Non-U.S. Holder will not be subject to U.S. federal income tax on gain realized on the sale, exchange or redemption of the Note, unless (a) such gain is effectively connected with the conduct by the Holder of a trade or business in the United States (and, in the case of an applicable income tax treaty, is attributable to a permanent establishment or fixed base maintained by the Non-U.S. Holder in the United States) or (b) in the case of gain realized by an individual Non-U.S. Holder, the Non-U.S. Holder is present in the U.S. for 183 days or more in the taxable year of the sale and certain conditions are met.

If a Non-U.S. Holder is engaged in trade or business in the United States, and if interest on a note or gain from the sale, taxable exchange, redemption, exchange, retirement or other taxable disposition of the Notes is effectively connected with the conduct of that trade or business (and, in the case of an applicable income tax treaty, is attributable to a permanent establishment or fixed base maintained in the United States by such Non-U.S. Holder), such Non-U.S. Holder will be exempt from United States withholding tax but will be subject to regular U.S. federal income tax on the interest in the same manner as if it were a U.S. person. In order to establish an exemption from U.S. withholding tax, a Non-U.S. Holder must provide to Baldor or its agent, a properly completed and executed IRS Form W-8ECI or applicable substitute form. In addition to regular U.S. federal income tax, if a Non-U.S. Holder is a corporation, it may be subject to an additional United States branch profits tax at a rate of 30% (unless reduced or eliminated by an applicable income tax treaty).

A Note held by an individual who at death is not a citizen or resident of the U.S. will not be includible in the individual’s gross estate for purposes of the U.S. federal estate tax as a result of the individual’s death if (a) the individual did not actually or constructively own 10% or more of the total combined voting power of all classes of stock of Baldor entitled to vote and (b) the income on the Note would not have been effectively connected with a U.S. trade or business of the individual at the individual’s death.

Under current law, information reporting on IRS Form 1099 and backup withholding will not apply to payments of principal, premium (if any) and interest made by Baldor or a paying agent to a Non-U.S. Holder on a Note, provided that the certification described in clause (c) above under “Non-U.S. Holders” above is received and provided further that the payor does not have actual knowledge, or reason to know, that the Holder is a U.S. Holder. Baldor or a paying agent, however, generally will be required to report (on IRS Form 1042S) payments of interest on Notes.

In general, payment of the proceeds from the sale of Notes to or through a U.S. office of a broker is subject to both U.S. backup withholding and information reporting unless the Non-U.S. Holder or beneficial owner certifies its non-U.S. status under penalties of perjury or otherwise establishes an exemption. Payments of the proceeds from the sale by a Non-U.S. Holder of a Note made to or through a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, information reporting requirements (but not backup withholding) generally will apply to a payment made outside the United States of the proceeds of a sale of a Note through an office outside the United States of a broker (i) that is a U.S. person, (ii) 50% or more of the gross income of which for a specified three-year period is effectively connected with the conduct of a trade or

business in the United States, (iii) that is a “controlled foreign corporation” , or (iv) that is a foreign partnership, if at any time during its tax year, one or more of its partners are U.S. persons (as defined in U.S. Treasury regulations) who in the aggregate hold more than 50% of the income or capital interest in the partnership or if, at any tie during its tax year, such foreign partnership is engaged in a U.S. trade or business, unless the broker has documentary evidence in its files that the beneficial owner is a Non-U.S. Holder or the beneficial owner otherwise establishes an exemption.

Backup withholding is not an additional tax. Any amount withheld under the backup withholding rules from a payment to a holder is allowable as a credit against such holder’s U.S. federal income tax, which may entitle the holder to a refund, provided that the holder timely provides the required information to the IRS.

Subject to the terms and conditions of an underwriting agreement between us and the underwriters, the underwriters have agreed to purchase from us severally, and we have agreed to sell to the underwriters, all of the notes in this offering.

The underwriting agreement provides that the obligations of the underwriters are subject to certain conditions precedent, and that the underwriters are committed to take and pay for all of the notes, if any are taken as indicated in the table below. Under the underwriting agreement, we have agreed to indemnify the underwriters and their controlling persons against certain liabilities in connection with the offering, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make in respect thereof.

Notes sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus supplement. Any notes sold by the underwriters to securities dealers may be sold at a discount from the initial public offering price of up to % of the principal amount of notes. Any such securities dealers may resell any notes purchased from the underwriters to certain other brokers or dealers at a discount from the initial public offering price of up to % of the principal amount of notes. If all the notes are not sold at the initial offering price, the underwriters may change the offering price and the other selling terms.

We have agreed, without the prior written consent of BNP Paribas Securities Corp., not to, during the period ending 90 days after the date of the purchase agreement, issue, sell, offer to sell, contract to agree to sell or otherwise dispose of any debt securities issued by us or any of our subsidiaries having a tenor of more than one year.

The notes are a new issue of securities with no established trading market. We have been advised by the underwriters that the underwriters intend to make a market in the notes but are not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the notes.

In connection with the offering of the notes, the underwriters may purchase and sell notes in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of notes than they are required to purchase in the offering of the notes. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the notes while the offering is in progress.

The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting commission received by it because the representatives have repurchased notes sold by or for the account of such underwriter in stabilizing or short covering transactions.

These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the notes. As a result, the price of the notes may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected in the over-the-counter market or otherwise.

(a) has not made or will not make an offer of notes to the public in the United Kingdom within the meaning of section 102B of the Financial Services and Markets Act 2000 (as amended) (“FSMA”) except to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities or otherwise in circumstances which do not require the publication by the company of a prospectus pursuant to the Prospectus Rules of the Financial Services Authority (FSA);

(b) has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) to persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or in circumstances in which section 21 of FSMA does not apply to the company; and

(c) has complied with, and will comply with, all applicable provisions of FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date), an offer of shares to the public in that Relevant Member State has not been made and will not be made prior to the publication of a prospectus in relation to the notes which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that an underwriter may, with effect from and including the Relevant Implementation Date, make an offer of notes to the public in that Relevant Member State at any time:

(a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or

(c) in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer of notes to the public” in relation to any notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the notes to be offered so as to enable an investor to decide to purchase or subscribe the notes, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

As described in “Use of Proceeds,” $95.0 million of the proceeds of the Financing Transactions will be used to repay existing indebtedness of Baldor. Because more than 10% of the proceeds of this

offering, not including underwriting compensation, could be deemed to be received by affiliates of the underwriters in this offering, this offering is being conducted in compliance with National Association of Securities Dealers (“NASD”) Conduct Rule 2710(h). Pursuant to that rule, the yield on the notes can be no lower than that recommended by a “qualified independent underwriter,” as defined by the NASD, which has participated in the preparation of the prospectus supplement and performed its usual standard of due diligence with respect to that prospectus supplement. Lehman Brothers Inc. has agreed to act as qualified independent underwriter for the offering and to perform a due diligence investigation and review and participate in the preparation of the prospectus supplement. We have agreed to indemnify Lehman Brothers Inc. against liabilities incurred in connection with acting as a qualified independent underwriter, including liabilities under the Securities Act.

The underwriters and their affiliates have provided and may provide certain commercial banking, financial advisory and investment banking services for us for which they receive fees. An affiliate of each of BNP Paribas Securities Corp. and SunTrust Capital Markets Inc. has provided a commitment for a portion of our new senior secured credit facility and the bridge loan facility and an affiliate of Lehman Brothers Inc. has provided a commitment for a portion of the bridge loan facility. SunTrust Capital Markets Inc. is acting as underwriter in the offering of our mandatorily convertible preferred stock. $95.0 million of the proceeds from the Financing Transactions will be used to repay existing indebtedness of Baldor, all of which is held by affiliates of BNP Paribas Securities Corp. or SunTrust Capital Markets Inc.

The underwriters and their affiliates may from time to time in the future engage in transactions with us and perform services for us in the ordinary course of their business.

We estimate that our offering expenses, excluding the underwriters’ commission, will be approximately $1.1 million.

A prospectus in electronic format may be made available on the web sites maintained by one or more of the underwriters for this offering.

Various legal matters with respect to the validity of the notes offered by this prospectus will be passed upon for us by Thompson Coburn LLP. Richard J. Jaudes, a partner at Thompson Coburn LLP, is a director of Baldor. Shearman & Sterling LLP is counsel for the underwriters in connection with this offering.

Ernst & Young LLP, independent registered public accounting firm, has audited Baldor Electric Company and Affiliates’ consolidated financial statements and schedule included in our Annual Report on Form 10-K for the year ended December 31, 2005, and management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 as set forth in their reports, which are incorporated by reference or included in this prospectus supplement and elsewhere in the registration statement. Our financial statements and schedule and management’s assessment are incorporated by reference or included herein in reliance on Ernst & Young LLP’s reports, given on their authority as experts in accounting and auditing.

The financial statements of Power Systems Group of Rockwell Automation, Inc. as of September 30, 2006 and 2005 and for each of the three years in the period ended September 30, 2006 included and incorporated by reference in this prospectus supplement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein and incorporated by reference herein (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standard No. 123R, Share-Based Payment and of FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations), and are included and incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

We have audited the accompanying consolidated balance sheets of Baldor Electric Company and Affiliates as of December 31, 2005, and January 1, 2005, and the related consolidated statements of earnings, cash flows, and shareholders’ equity for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the 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 Baldor Electric Company and Affiliates at December 31, 2005, and January 1, 2005, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Baldor Electric Company and Affiliates’ internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2006 expressed an unqualified opinion thereon.

Inventory transferred to other assets, for rental, amounted to $3.3 million in 2005.

Line of Business: The Company operates in one industry segment that includes the design, manufacture and sale of industrial electric motors, drives and generators. The products of the Company are marketed throughout the United States and in more than 60 foreign countries.

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 amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

Consolidation: The consolidated financial statements include the accounts of the Company and all its affiliates. Intercompany accounts and transactions have been eliminated in consolidation. The Company does not have any investments in, or contractual arrangements with, any variable interest entities.

Fiscal Year: The Company’s fiscal year ends on the Saturday nearest to December 31, which results in a 52-week or 53-week year. Fiscal year 2005 contained 52 weeks. Fiscal year 2004 contained 52 weeks, and fiscal year 2003 contained 53 weeks.

Cash Equivalents: Cash equivalents consist of highly liquid investments having original maturities of three months or less.

Marketable Securities: All marketable securities are classified as available-for-sale and are available to support current operations or to take advantage of other investment opportunities. Those securities are stated at estimated fair value based upon market quotes. Unrealized gains and losses, net of tax, are computed on the basis of specific identification and are included in accumulated other comprehensive income. Realized gains, realized losses, and declines in value, judged to be other than temporary, are included in other income. The cost of securities sold is based on the specific identification method and interest earned is included in other income.

Accounts Receivable: Trade receivables are recorded in the balance sheet at outstanding principal, adjusted for charge-offs and allowances for doubtful accounts. Allowances for doubtful accounts are recorded based on customer-specific analysis, general matters such as current assessments of past due balances and economic conditions, and historical experience. Concentrations of credit risk with respect to receivables are limited due to the large number of customers and their dispersion across geographic areas. No single customer represents greater than 10% of net accounts receivable at December 31, 2005, and January 1, 2005.

Inventories: The Company values inventories at the lower of cost or market, with cost being determined principally by the last-in, first-out method (LIFO), except for $13.4 million in 2005 and $16.8 million in 2004, at foreign locations, valued by the first-in, first-out method (FIFO).

Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation and amortization are computed principally using the straight-line method over the estimated useful lives of the assets ranging from 10 to 39 years for buildings and improvements and 3 to 15 years for machinery and equipment. Capitalized software costs amounting to $24.6 million and $24.8 million, net of accumulated amortization, at December 31, 2005, and January 1, 2005, respectively, are included in machinery and equipment and are amortized over their estimated useful life of 15 years. Costs associated with repairs and maintenance are expensed as incurred.

Fair Value of Financial Instruments: The Company’s methods and assumptions used to estimate the fair value of financial instruments include quoted market prices for marketable securities and discounted cash flow analysis for fixed rate long-term debt. The Company estimates that the fair value of its financial instruments approximates carrying value at December 31, 2005, and January 1, 2005. The carrying amounts of cash and cash equivalents, receivables, and trade payables approximated fair value at December 31, 2005, and January 1, 2005, due to the short-term maturities of these instruments.

Self-Insurance Liabilities: The Company’s self-insurance programs include primarily product liability, workers’ compensation, and health. The Company self-insures from the first dollar of loss up to specified retention levels. Eligible losses in excess of self-insurance retention levels and up to stated limits of liability are covered by policies purchased from third-party insurers. The aggregate self-insurance liability is estimated using the Company’s claims experience and risk exposure levels for the periods being valued and current conditions. Certain self-insurance liabilities were reduced by approximately $3.5 million in 2005 to reflect changes in expected liabilities. Further adjustments to the self-insurance liabilities may be required to reflect emerging claims experience and other factors.

Goodwill: Goodwill and intangible assets with indefinite useful lives are tested at least annually for impairment. Goodwill represents the excess of the purchase price of acquisitions over the fair value of the net assets acquired. Goodwill is evaluated for impairment by first comparing management’s estimate of the fair value of a reporting unit with its carrying value, including goodwill. Management utilizes a discounted cash flow analysis to determine the estimated fair value of the Company’s reporting units. Judgments and assumptions related to revenue, gross margin, operating expenses, interest, capital expenditures, cash flow, and market assumptions are inherent in these estimates. As a result, use of alternate judgments and/or assumptions could result in a fair value that differs from management’s estimate and ultimately results in the recognition of impairment charges in the financial statements. The Company utilizes various assumption scenarios and assigns probabilities to each of these scenarios in the discounted cash flow analysis. The results of the discounted cash flow analysis are then compared to the carrying value of the reporting unit. If the carrying value of a reporting unit exceeds its fair value, a computation of the implied fair value of goodwill is compared with its related carrying value. If the carrying value of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in the amount of the excess. If an impairment charge is incurred, it would negatively impact the Company’s results of operations and financial position. The annual analysis is performed during the fourth quarter of each fiscal year and in any other period in which indicators of impairment warrant an additional analysis. The 2005 and 2004 annual impairment tests resulted in no impairment.

Long-Lived Assets: Impairment losses are recognized on long-lived assets when information indicates the carrying amount of these assets will not be recovered through future operations or sale.

Derivatives: The Company recognizes all derivatives on the balance sheet at fair value. Derivatives that are not designated as hedges are adjusted to fair value through earnings. If the derivative is a cash flow hedge, changes in the fair value are recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings. If a hedge transaction is terminated, any unrealized gain (loss) at the date of termination is carried in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is recognized in earnings in the period of change. The ineffective portion of the Company’s cash flow hedges was not material during the years 2005, 2004, and 2003.

Benefit Plans: The Company has a profit-sharing plan covering most employees with more than two years of service. The Company contributes 12% of pre-tax earnings of participating companies to the Plan.

Income Taxes: Income taxes are provided based on the liability method of accounting. Deferred income taxes are provided for the expected future tax consequences of temporary differences between the basis of assets and liabilities reported for financial and tax purposes.

Research and Engineering: Costs associated with research, new product development, and product and cost improvements are treated as expenses when incurred and amounted to approximately $24.4 million in 2005, $25.4 million in 2004, and $21.9 million in 2003.

Shipping and Handling Costs: The Company classifies all amounts billed to customers for shipping and handling as revenue and classifies gross shipping and handling costs paid as selling expense. Costs included in selling and administrative expenses related to shipping and handling amounted to approximately $25.8 million in 2005, $22.8 million in 2004, and $20.9 million in 2003.

Revenue Recognition: The Company sells products to its customers FOB shipping point. Title passes to the customer when the product is shipped. Accordingly, revenue is recognized when the product is shipped. The Company has no further obligations associated with the product sale that would impact revenue recognition after the product is shipped.

Earnings Per Share: Basic earnings per share is based upon the weighted average number of common shares outstanding and diluted earnings per share includes all dilutive common stock equivalents.

Stock-Based Compensation: The Company has certain stock-based employee compensation plans, which are described more fully in Note I. In accounting for these plans, the Company applies the intrinsic value method permitted under Statements of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations.

SFAS 123 requires pro forma disclosure of the effects on net income and earnings per share as if the fair value method of valuing stock-based compensation was applied. The following table sets forth the pro forma disclosure of net income and earnings per share using the Black-Scholes option-pricing model. For purposes of this disclosure, the estimated fair value of options is amortized over the applicable compensatory periods.

Product Warranties: The Company accrues for product warranty claims based on historical experience and the expected costs to provide warranty service. Changes in the carrying amount of product warranty reserves are as follows:

Amounts included in selling and administrative costs amounted to $5.0 million in 2005, $5.5 million in 2004, and $6.3 million in 2003.

Foreign Currency Translation: Assets and liabilities of foreign affiliates are translated into U.S. dollars at year-end exchange rates. Income statement items are generally translated at average exchange rates prevailing during the period. Translation adjustments, including those related to intercompany advances that are of a long-term investment nature, are recorded in accumulated other comprehensive income (loss) in shareholders’ equity.

Reclassifications: Certain prior year amounts have been reclassified to conform to current year presentation.

The Company uses derivative financial instruments to reduce its exposure to various market risks. The Company does not regularly engage in speculative transactions, nor does the Company regularly hold or issue financial instruments for trading purposes. Generally, contract terms of the financial instrument closely mirror those of the hedged item providing a high degree of risk reduction and correlation and are recorded using hedge accounting. Instruments that do not meet the criteria for hedge accounting are marked to fair value with unrealized gains or losses reported currently in earnings.

The Company had derivative contracts related to cash flow hedges, with a fair value of $0.9 million and $2.6 million recorded in other current assets at December 31, 2005, and January 1, 2005, respectively.

The amount recognized in cost of sales on cash flow hedges amounted to approximately $(4.7 million) in both 2005 and 2004. The Company expects that after-tax gains, totaling approximately $0.6 million recorded in accumulated other comprehensive income (loss) at December 31, 2005, related to cash flow hedges, will be recognized in cost of sales within the next twelve months. The Company generally does not hedge anticipated transactions beyond 18 months.

Baldor currently invests in only high-quality, short-term investments, which it classifies as available-for-sale. Differences between amortized cost and estimated fair value at December 31, 2005, and January 1, 2005, are not material and are included in accumulated other comprehensive income (loss). Because investments are predominantly short-term and are generally allowed to mature, realized gains and losses for both years have been minimal. The following table presents the estimated fair value breakdown of investments by category:

The estimated fair value of marketable securities at December 31, 2005, was $5.2 million due in one year or less, $19.0 million due in one to five years, $10.8 million due in five to ten years, and $2.5 million due after ten years. Estimated fair value was based on contractual maturities. Expected maturities and contractual maturities are generally the same.

In evaluating the Company’s unrealized loss positions for other-than-temporary impairment, management considers the credit quality of the issuer, the nature and cause of the unrealized loss and the severity and duration of the impairments. At December 31, 2005, and January 1, 2005, management determined that substantially all of its unrealized losses were the result of fluctuations in interest rates and did not reflect deteriorations of the credit quality of the investments. Accordingly, management believes that its unrealized losses on investment securities are temporary in nature. While the investment securities are classified as available for sale, the Company, depending upon its liquidity position, may have the ability to hold these investments until either such time as the investments’ fair value recovers above amortized cost or maturity.

The table below shows gross unrealized losses and estimated fair value of available-for-sale investment securities, aggregated by investment category and length of time that individual investment securities have been in a continuous unrealized loss position.

The Company made income tax payments of $22.8 million in 2005, $21.9 million in 2004, and $1.8 million in 2003. Income tax expense consists of the following:

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The sources of these differences relate primarily to depreciation, certain liabilities and bad debt expense.

The following table reconciles the difference between the Company’s effective income tax rate and the federal corporate statutory rate:

The Company adjusted certain income tax liabilities during the fourth quarter of 2005 and 2004 to reflect current exposure. These adjustments amounted to approximately $0.4 million in 2005 and $2.1 million in 2004 and accounted for the reduction in effective income tax rate for each year, respectively. The adjustments are included in “Other” in the above reconciliation.

Valuation allowance of $0.4 million is to adjust foreign net operating loss carryforwards to expected future utilization.

The Company has accumulated but undistributed earnings of foreign subsidiaries aggregating approximately $8.8 million at December 31, 2005, that are expected to be permanently reinvested in the business. It is not currently practicable to estimate the tax liability that might be payable on the repatriation of these foreign earnings.

Certain long-term obligations are collateralized by property, plant and equipment with a net book value of approximately $0.6 million at December 31, 2005.

Maturities of long-term obligations for the five-year period ending 2010 are: 2006—$25.0 million; 2007—$53.0 million; 2008—$0, 2009—$15.0 million, 2010 and thereafter—$2.0 million. Amounts included in current maturities are related to a note payable to bank with an original maturity date of October 25, 2009, containing a first call provision at October 25, 2006, which the Company expects to be exercised.

Certain long-term obligations require that the Company maintain various financial ratios. These ratios were all met for 2005 and 2004. At December 31, 2005, the Company had outstanding letters of credit totaling $2.3 million that will expire between February 28, 2006, and July 1, 2006. The Company expects to renew these letters of credit prior to expiration.

Interest paid was $3.8 million in 2005, $3.0 million in 2004, and $2.9 million in 2003.

The Company has a credit facility with a bank that provides up to $60.0 million of borrowing capacity. At December 31, 2005, the Company had borrowings of $41.0 million under the facility. Borrowings are secured by all trade accounts receivables. The Company utilizes a wholly owned special purpose entity (“SPE”) to securitize the receivables. The SPE has no other purpose other than the securitization and is consolidated in the Company’s financial statements.

The Company had lines of credit aggregating $25.0 million available at December 31, 2005, with $12.0 million borrowed under these lines. Interest on lines of credit is at rates mutually agreed upon at time of borrowing.

The Company maintains a shareholder rights plan intended to encourage a potential acquirer to negotiate directly with the Board of Directors. The purpose of the plan is to ensure the best possible treatment for all shareholders. Under the terms of the plan, one Common Stock Purchase Right (a Right) is associated with each outstanding share of common stock. If an acquiring person acquires 20% or more of the Company’s common stock then outstanding, the Rights become exercisable and would cause substantial dilution. Effectively, each such Right would entitle its holder (excluding the 20% owner) to purchase shares of Baldor common stock for half of the then current market price, subject to certain restrictions under the plan. A Rights holder is not entitled to any benefits of the Right until it is exercised. The Rights, which expire in May 2008, may be redeemed by the Company at any time prior to someone acquiring 20% or more of the Company’s outstanding common stock and in certain events thereafter.

Balances of related after-tax components comprising accumulated other comprehensive income (loss), included in shareholders’ equity are as follows:

During 2005, the Company, pursuant to its stock repurchase plan, repurchased approximately 300,000 shares of its common stock for cash in the amount of $7.6 million. No shares were repurchased in

2004. During 2003, the Company, pursuant to its stock repurchase plan, repurchased 1.5 million shares for cash in the amount of $26.7 million.

The Company leases certain computers, buildings, and other equipment under operating lease agreements. Related rental expense was $5.2 million in 2005, $6.1 million in 2004, and $6.6 million in 2003. Future minimum payments for operating leases having non-cancelable lease terms in excess of one year are: 2006—$2.0 million; 2007—$2.2 million; 2008—$2.0 million; 2009—$1.9 million; 2010 and thereafter—$5.9 million.

On July 21, 2005, the Company entered into a five-year operating lease agreement on a new facility in Columbus, Mississippi. Beginning in the fourth quarter of 2006, the Company will have annual operating lease commitments of approximately $850,000 related to the lease. The new facility will replace the Company’s existing facility in Columbus, Mississippi. During the construction period, the Company is acting as construction managers under a construction management agreement. In accordance with Emerging Issues Task Force (“EITF”) 97-10, “The Effect of Lessee Involvement in Asset Construction”, during the construction period, the Company has a maximum guarantee of 89.9% of the construction costs to date. As of December 31, 2005, the construction costs to date are approximately $5.4 million. As the likelihood of making any payments on this guarantee is remote, no liability has been accrued. As part of the lease agreement, the Company is subject to an 82% residual value guarantee at the end of the lease term in the event the value of the property has decreased. The maximum potential liability under the residual value guarantee would be approximately $13.6 million should the property become worthless by the end of the lease term. In accordance with Financial Interpretation (“FIN”) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, the Company has recorded a liability of approximately $393,000 classified in other liabilities, which represents the fair value of the guarantee, based on a probability-weighted calculation of the expected value of the property at the end of the lease term.

The Company is subject to a number of legal actions arising in the ordinary course of business. Management expects that the ultimate resolution of these actions will not materially affect the Company’s financial position, results of operations, or cash flows. During the fourth quarter of 2004, certain contingent liabilities were adjusted by approximately $1.5 million to reflect current exposures, resulting in a reduction in selling and administrative expenses.

The total number of anti-dilutive securities excluded from the above calculations was approximately 452,100 at December 31, 2005, 192,000 at January 1, 2005, and 747,000 at January 3, 2004.

At December 31, 2005, the Company had various stock plans. Grants can and have included: (1) incentive stock options to purchase shares at market value at grant date, and/or (2) non-qualified stock options to purchase shares of stock equal to and less than the stock’s market value at grant date. Grants from the 1990 Plan expire six years from the grant date. All other grants expire 10 years from the date of grant. The 1987, 1989, and 1996 Plans have expired except for options outstanding. A summary of the Company’s stock plans follows.

1990 Plan — Only non-qualified options can be granted from this Plan. Options vest and become 50% exercisable at the end of one year and 100% exercisable at the end of two years. Shares authorized for grants: 1990 Plan—501,600.

1987 and 1994 Plans — Incentive stock options vest and become fully exercisable with continued employment of six months for officers and three years for non-officers. Restrictions on non-qualified stock options normally lapse after a period of five years or earlier under certain circumstances. Related compensation expense for the non-qualified stock options is amortized over the applicable compensatory period. Shares authorized for grants: 1987 Plan—2,700,000; 1994 Plan—4,000,000.

1989, 1996 and 2001 Plans — Each non-employee director is granted an annual grant consisting of non-qualified stock options to purchase: (1) 3,240 shares at a price equal to the market value at grant date, and (2) 2,160 shares at a price equal to 50% of the market value at grant date. These options are immediately exercisable and related compensation expense on the options granted at 50% of market is recognized at date of grant. Shares authorized for grants: 1989 Plan—540,000; 1996 Plan—200,000; 2001 Plan—200,000.

A summary of the Company’s weighted average variables, using the Black-Scholes option pricing model, and stock option activity for fiscal years 2005, 2004, and 2003 follows.

The Company’s foreign operations include both export sales and the results of its foreign affiliates in Europe, Australia, Far East, and Mexico. Consolidated sales, earnings before income taxes, and identifiable assets consist of the following:

On October 11, 2005, the Company acquired the remaining 40% minority interest in its consolidated affiliate Australian Baldor Pty Limited for cash in the amount of $2.4 million. The acquisition has been accounted for as a purchase with resulting goodwill of approximately $258,000. The results of operations for the remaining 40% interest for the year ended January 31, 2005, were not material to the Company’s consolidated financial statements. Accordingly, pro forma information has not been presented. As of October 11, 2005, Australian Baldor Pty Limited is a wholly owned subsidiary of the Company.

On February 13, 2003, the Company acquired all of the stock of Energy Dynamics, Inc. (“EDI”) for cash in the amount of $5.8 million. EDI is a designer, assembler, and marketer of industrial generator sets. The acquisition has been accounted for as a purchase with resulting goodwill of approximately $5.8 million. EDI’s results of operations for the year ended January 3, 2004, were not material to the Company’s consolidated financial statements. Accordingly, pro forma information has not been presented. The Company’s consolidated financial statements include the results of operations and the assets and liabilities of EDI after February 12, 2003.

In November 2004, the Financial Accounting Standards Board (the “FASB”) issued Statements of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs”. SFAS 151 is an amendment of Accounting Research Bulletin (“ARB”) No. 43, “Inventory Pricing”. Among other items, SFAS 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). In accordance with SFAS 151, such items must be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal” and allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The Company is required to adopt SFAS 151 no later than January 1, 2006. Management does not expect adoption of SFAS 151 to have a significant impact on the Company’s financial statements.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”. SFAS 123(R) is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”. Among other items, SFAS 123(R) eliminates the use of APB 25 and the intrinsic value method of accounting, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. In accordance with SFAS 123(R), the cost will be based on the grant-date fair value of the award and will be recognized over the period for which an employee is required to provide service in exchange for the award. Baldor will adopt SFAS 123(R) on a modified prospective basis beginning January 1, 2006. While the Company is currently evaluating the impact SFAS 123(R) will have on its financial results, management does not expect the impact to differ materially from the pro forma disclosures currently required by SFAS 123 and described herein under “Stock-based Compensation”.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”. SFAS 154 replaces APB No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”. Among other items, SFAS 154 applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. The Company’s adoption of SFAS 143 on January 1, 2006, is not expected to have a significant effect on the financial statements.

Additional paid-in capital resulting from shares traded for option exercises amounted to $2,258 in the first nine-months of 2006 and $1,772 in the first nine-months of 2005.

Basis of Presentation: The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements, and therefore should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. The results of operations for the nine months ended September 30, 2006, may not be indicative of the results that may be expected for the fiscal year ending December 30, 2006.

Fiscal Year: The Company’s fiscal year ends on the Saturday nearest to December 31, which results in a 52-week or 53-week year. Fiscal year 2006 will contain 52 weeks. Fiscal year 2005 contained 52 weeks.

Segment Reporting: The Company operates in one industry segment that includes the design, manufacture and sale of industrial electric motors, drives and generators within the electrical equipment industry.

Financial Derivatives: The Company uses derivative financial instruments to reduce its exposure to the risk of increasing commodity prices. The Company does not regularly engage in speculative transactions, nor does the Company regularly hold or issue financial instruments for trading purposes. Generally, contract terms of the hedging instrument closely mirror those of the hedged forecasted transaction providing for the hedge relationship to be highly effective both at inception and continuously throughout the term of the hedging relationship.

The Company recognizes all derivatives on the balance sheet at fair value. Derivatives that do not meet the criteria for hedge accounting are adjusted to fair value through earnings. If the derivative is a cash flow hedge, changes in the fair value are recognized in accumulated other comprehensive income (loss) until the hedged forecasted transaction is recognized in earnings. If a hedging instrument is terminated, any unrealized gain (loss) at the date of termination is carried in accumulated other comprehensive income (loss) until the forecasted transaction is recognized in earnings. The ineffective portion of a derivative’s change in fair value is recognized in earnings in the period of change.

Product Warranties: The Company accrues for product warranty claims based on historical experience and the expected costs to provide warranty service. The changes in the carrying amount of product warranty reserves are as follows:

Comprehensive Income: Total comprehensive income, net of related tax was $44.1 million and $27.3 million for the first nine months of 2006 and 2005, respectively. The components of comprehensive income are illustrated in the table below:

Accounts Receivable: Trade receivables are recorded in the balance sheet at the outstanding balance, adjusted for charge-offs and allowances for doubtful accounts. Allowances for doubtful accounts are recorded based on customer-specific analysis, general matters such as current assessments of past due balances and historical experience. Concentrations of credit risk with respect to receivables are limited due to the large number of customers and their dispersion across geographic areas. No single customer represents greater than 10% of net accounts receivable at September 30, 2006, and December 31, 2005.

Inventories: The Company uses the last-in, first-out (LIFO) method of valuing inventory. An actual valuation of inventory under the LIFO method is made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs which are subject to the final year-end LIFO inventory valuation.

Self-Insurance Liabilities: The Company’s self-insurance programs primarily cover exposure to product liability, workers’ compensation and health insurance. The Company self-insures from the first dollar of loss up to specified retention levels. Eligible losses in excess of self-insurance retention levels and up to stated limits of liability are covered by policies purchased from third-party insurers. The aggregate self-insurance liability is estimated using the Company’s claims experience and risk exposure levels. Future adjustments to the self-insured liabilities may be required to reflect emerging claims experience and other factors.

Income Tax: The difference between the Company’s effective tax rate and the federal statutory tax rate for the nine months ended September 30, 2006, and October 1, 2005, relates to state income taxes, permanent tax items, and changes in management’s assessment of the outcome of certain tax matters. The significant permanent tax items primarily consist of the recently enacted deduction for domestic production activities and the expiring extraterritorial income exclusion.

In determining the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate based on forecasted annual income and permanent items, statutory tax rates and tax planning opportunities. The impact of significant discrete items is separately recognized in the quarter in which they occur.

Share-Based Compensation: The Company has certain share-based compensation plans, which are

described more fully herein under Note C – Stock Plans. Beginning in fiscal year 2006, the Company applies the fair value method, pursuant to Statement of Financial Accounting Standards (“FAS”) No. 123(R) “Share-Based Payments”, in accounting for these plans.

Reclassifications: Certain prior year amounts have been reclassified to conform to current year presentation.

The Company had derivative contracts that qualified as cash flow hedges with a fair value of $10.8 million and $938,000 recorded in other current assets at September 30, 2006, and December 31, 2005, respectively.

The amount recognized in cost of sales on cash flow hedges amounted to net reductions for the first nine months of 2006 and 2005 of $13.4 million and $3.4 million, respectively. The ineffective portion of the Company’s cash flow hedges was not material during the first nine months of 2006 or 2005. The Company expects that after-tax gains recorded in accumulated other comprehensive income (loss) related to cash flow hedges totaling $6.6 million at September 30, 2006, will be recognized in cost of sales within the next 15 months. The Company generally does not hedge forecasted transactions beyond 18 months.

On April 22, 2006, the Company’s shareholders approved the 2006 Equity Incentive Plan. This 2006 Plan authorizes the Company’s Board of Directors to grant: (a) stock appreciation rights, (b) restricted stock, (c) performance awards, (d) incentive stock options, (e) nonqualified stock options, and (f) stock units. When the 2006 Plan was adopted, the Company’s other stock plans were effectively cancelled and no further awards will be granted from those plans. The 2006 Plan is the only Plan under which awards can now be granted. A summary of the Company’s stock plans and summary details about each Plan as of September 30, 2006, follows.

1990 Plan: Only non-qualified options were granted from this Plan. Options vest and become 50% exercisable at the end of one year and 100% exercisable at the end of two years.

1987 and 1994 Plans: Incentive stock options vest and become fully exercisable with continued employment of six months for officers and three years for non-officers. Restrictions on non-qualified stock options normally lapse after a period of five years or earlier under certain circumstances.

1989, 1996, and 2001 Plans: Each non-employee director was granted an annual grant consisting of non-qualified stock options to purchase: (1) 3,240 shares at a price equal to the market value at date of grant, and (2) 2,160 shares at a price equal to 50% of the market value at date of grant. These options immediately vested and became exercisable on the date of grant.

2006 Plan: Awards granted under the 2006 Plan included: incentive stock options, non-qualified stock options, and non-vested stock units. Non-vested stock units were awarded with no exercise price. Other awards permitted under this Plan include: stock appreciation rights, restricted stock, and performance awards. However, no such awards have been granted.

The purpose of granting stock options and non-vested stock units is to encourage ownership in the Company. This provides an incentive for the participants to contribute to the success of the Company and align the interests of the participants with the interests of the shareholders of the Company.

A summary of option activity under the Plans during the nine-month period since December 31, 2005, and as of September 30, 2006, is presented below:

The weighted-average grant-date fair value of options granted during the first nine months was $11.72 in 2006 and $7.74 in 2005. The total intrinsic value of options exercised was $7.0 million during the first nine months of 2006 and $2.3 million for the same period of 2005. The total fair value of options vested during the first nine months was $1.4 million in 2006 and $1.6 million in 2005.

As of September 30, 2006, there was $804,000 of total unrecognized compensation cost related to non-vested options granted under the Plans. That cost is expected to be recognized over a weighted-average period of 2.0 years.

A summary of non-vested stock unit activity under the Plans during the nine-month period ended September 30, 2006, is presented below:

The total fair value of non-vested stock units that vested during the first nine months of 2006 was $416,000.

As of September 30, 2006, there was $1.1 million of total unrecognized compensation cost related to non-vested stock units granted under the Plans. That cost is expected to be recognized over a weighted-average period of 2.1 years.

On April 21, 2006, the Company modified certain stock options that were originally granted during the years 2000 through 2005 with an exercise price less than the fair market value of the stock on the original grant date. This modification affected 45 employees. The unexercised options were modified as follows:

The remaining incremental compensation cost to be recognized over the remaining 6 to 40-month time period as a result of these modifications totaled $543,000.

The fair value of options is estimated using a Black-Scholes option pricing formula and is amortized to expense over the options’ applicable vesting periods. The variables used in the option pricing formula for each grant are determined at the time of grant as follows: (1) volatility is based on the daily composite closing price of Baldor’s stock over a look-back period of time that approximates the expected option life; (2) risk-free interest rates are based on the yield of U.S. Treasury Strips as published in the Wall Street Journal on the date of the grant for the expected option life; (3) dividend yields are based on the Company’s dividend yield published in the Wall Street Journal on the date of the grant; and (4) expected option life represents the period of time the options are expected to be outstanding and is estimated based on historical experience. Assumptions used in the fair-value valuation are periodically monitored and adjusted to reflect current developments. Listed in the table below are the weighted-average assumptions and the weighted-average remaining contractual life for those options granted in the period indicated.

Prior to January 1, 2006, the Company accounted for its stock plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees”, and related Interpretations, as permitted by FAS 123, “Accounting for Stock-Based Compensation”. Stock-based employee compensation cost of $742,000, representing the related compensation expense for the non-qualified stock options granted at less than market on the date of grant, was recognized in the Statement of Earnings for third quarter 2005, and $1.3 million was recognized in the Statement of Earnings for the first nine months of 2005.

Effective January 1, 2006, the Company adopted the fair value recognition provisions of FAS 123(R) using the modified prospective transition method. Under that transition method, compensation cost

recognized in 2006 includes compensation costs for: (1) all share-based payments granted but not yet

vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the

provisions of FAS 123; and (2) all share-based payments granted subsequent to adoption based on the grant-date fair value estimated in accordance with the provisions of FAS 123(R).

As a result of adopting FAS 123(R) on January 1, 2006, the Company’s income from operations and earnings before income taxes for the first nine months of 2006 were $1.8 million lower, and net earnings was $1.1 million lower, than if the Company had continued to account for stock-based compensation under APB 25. Basic earnings per common share for the first nine months of 2006 were $0.04 lower than if the Company had continued to account for share-based compensation under APB 25 and diluted earnings per common share for the first nine months of 2006 were $0.03 lower than if the Company had continued to account for share-based compensation under APB 25.

Prior to the adoption of FAS 123(R), the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Statement of Cash Flows. FAS 123(R) requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. The $1.9 million excess tax benefit classified as a financing cash inflow for the nine months ended September 30, 2006, would have been classified as an operating cash inflow if the Company had not adopted FAS 123(R).

The following table illustrates the effect on net earnings and earnings per common share if the Company had applied the fair value recognition provisions of FAS 123 to options granted under the Company’s stock option plans in 2005.

On July 21, 2005, the Company entered into a five-year operating lease agreement on a new manufacturing facility in Columbus, Mississippi. At the end of the initial five-year lease term, the Company has the option to extend the lease for up to two successive five-year periods under terms similar to the terms of the original lease or purchase the property at a stated amount that approximates the fair value of the property. The Company has annual operating lease commitments of $850,000 related to the lease. During the construction period, the Company acted as construction manager under a construction management agreement. In accordance with Emerging Issues Task Force

(“EITF”) 97-10, “The Effect of Lessee Involvement in Asset Construction”, during the construction period, the Company had a maximum guarantee of 89.9% of the construction costs. As of September 30, 2006, the construction costs totaled $17.0 million. As the likelihood of making any payments on this guarantee is remote, no liability has been accrued. As part of the lease agreement, the Company is subject to an 82% residual value guarantee at the end of the lease term in the event the value of the property has decreased. The maximum potential liability under the residual value guarantee would be $13.6 million should the property become worthless by the end of the lease term. In accordance with Financial Interpretation (“FIN”) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, the Company has recorded a liability of $393,000 classified in other liabilities, which represents the fair value of the guarantee, based on a probability-weighted calculation of the expected value of the property at the end of the lease term.

At September 30, 2006, the Company had borrowings of $51.0 million under a credit facility with a bank that provided the Company up to $85.0 million of borrowing capacity. Although this capacity is subject to a borrowing base limitation, it was not limited at September 30, 2006. Of the $30.0 million borrowed since year-end 2005 to fund share repurchases, $20.0 million has been repaid through third quarter 2006. Borrowings are secured by all trade accounts receivables. The Company utilizes a wholly-owned special purpose entity (“SPE”) to securitize the receivables. The SPE has no other purpose other than the securitization and is consolidated in the Company’s financial statements. On October 25, 2006, a $25.0 million note payable, classified as current maturities of long-term obligations at September 30, 2006, matured and was renewed for a three-year term.

The following table sets forth the computation of basic and diluted earnings per common share (EPS):

In June 2006, the Financial Accounting Standards Board (the “FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FAS 109”. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FAS 109, “Accounting for Income Taxes”. Among other items, FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position and provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company is required to adopt FIN 48 for fiscal year 2007 and management is currently evaluating what impact, if any, FIN 48 will have on the financial results.

In September 2006, the FASB issued FAS 157, “Fair Value Measurements”. FAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement. The Company is required to adopt FAS 157 for fiscal year 2008 and management is currently evaluating what impact, if any, FAS 157 will have on the financial results.

On November 6, 2006, the Company entered into a definitive agreement with Rockwell Automation, Inc. (“Rockwell”) to acquire 100% of Rockwell’s equity interest in Reliance Electric Company and certain of its affiliated companies (“Power Systems”). Power Systems is a leading provider of electric motors and power conversion and transmission solutions. The agreed purchase price consists of: (a) a cash component of $1.75 billion payable at closing, and (b) the issuance of 1.58 million shares of the Company’s common stock, with a market value of $50 million, based on Baldor’s volume weighted average stock price over the ten trading days prior to signing the definitive agreement. Baldor has received a financing commitment to support the transaction and expects to finance the $1.75 billion cash consideration through a combination of debt and approximately $350 million of equity or equity-linked securities. The transaction is expected to close in the first quarter of 2007 and is subject to customary closing conditions and regulatory approvals.

The purchase price will be allocated to the underlying assets and liabilities, including any resulting goodwill, based on their estimated fair values. The purchase price allocation will be determined upon further analysis. For the fiscal year ended September 30, 2006, Power Systems had sales of approximately $979.7 million.

We have audited the accompanying balance sheets of Power Systems Group of Rockwell Automation, Inc. (the “Company”) as of September 30, 2006 and 2005, and the related statements of operations, cash flows and changes in Rockwell Automation’s invested equity and comprehensive income for each of the three years in the period ended September 30, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying financial statements have been prepared to present the balance sheet and related results of operations and cash flows of the Company, as described in Note 1 to the financial statements and may not necessarily be indicative of the conditions that would have existed or the results of operations and cash flows if the Company had been operated as an unaffiliated company. Portions of certain income and expenses represent allocations made from corporate office items applicable to Rockwell Automation, Inc. as a whole.

In our opinion, such financial statements present fairly, in all material respects, the financial position of Power Systems Group of Rockwell Automation, Inc. as of September 30, 2006 and 2005, and the results of its operations and its cash flows for the each of the three years in the period ended September 30, 2006 in conformity with accounting principles generally accepted in the United States of America.

As described in Note 2 to the financial statements, on October 1, 2005, the Company adopted Statement of Financial Accounting Standard No. 123R, Share-Based Payment. As described in Note 16 to the financial statements, on September 30, 2006, the Company adopted FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations.

In 1995, Rockwell Automation, Inc. (Rockwell Automation) acquired Reliance Electric Company (Reliance Electric). Reliance Electric primarily consists of the Reliance Electric^™ industrial electric motors business (Electrical) and the Dodge^® mechanical power transmission products business (Mechanical) included within Rockwell Automation’s Power Systems segment. The accompanying financial statements were prepared to present the financial position, results of operations and cash flows of Rockwell Automation’s Power Systems segment (the Company or Power Systems).

The Company is organized based upon products and services and has two operating segments consisting of Electrical and Mechanical. The Electrical segment’s products include industrial and engineered motors and standard AC and DC drives. In addition, the Electrical segment provides product repair, maintenance solutions, plant maintenance, training and consulting services to original equipment manufacturers (OEMs), end users and distributors. The Mechanical segment’s products include mounted bearings, gear reducers, standard mechanical drives, conveyor pulleys, couplings, bushings, clutches, motor brakes and repair services.

All significant intercompany accounts and transactions among the entities included in the financial statements have been eliminated. In the ordinary course of business, the Company purchases various products from and sells various products to other businesses of Rockwell Automation. Amounts related to intercompany purchases and sales are generally settled every 60 days. The period end balances for sales and purchases between the Company and Rockwell Automation are accounted for within Rockwell Automation’s Invested Equity balance in the accompanying Balance Sheet.

Investments in affiliates over which the Company has the ability to exert significant influence, but does not control and is not the primary beneficiary of, are accounted for using the equity method of accounting. Accordingly, the Company’s proportional share of the respective affiliate’s earnings or losses is included in other (expense) income in the Statement of Operations. These affiliated companies are not material individually or in the aggregate to the Company’s financial position, results of operations or cash flows.

The Company’s domestic and certain international operations participate in Rockwell Automation’s centralized cash management system. Accordingly, the financial statements exclude cash, debt and interest income and expense for locations participating in the centralized cash management system. However, cash, debt and interest income and expense for certain international locations not participating in the centralized cash management system and debt and interest expense of Reliance Electric have been included within the accompanying financial statements.

Accounts payable includes $3,133 at September 30, 2006 and $1,243 at September 30, 2005 related to checks drawn on bank accounts used exclusively by the Company and centralized disbursement payroll accounts that remained outstanding at the respective dates.

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and

assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. Estimates are used in accounting for, among other items, customer returns, rebates and incentives; allowance for doubtful accounts; excess and obsolete inventory; impairment of long-lived assets; product warranty obligations; retirement benefits; litigation, claims and contingencies, including environmental matters; conditional asset retirement obligations; and income taxes. Changes to estimates and assumptions are accounted for prospectively when warranted by factually based experience.

The Company recognizes sales of products and services when all of the following have occurred: an agreement of sale exists; pricing is fixed or determinable; collection is reasonably assured; and product has been delivered and acceptance has occurred, as may be required according to contract terms, or services have been rendered.

Contracts and customer purchase orders are utilized to determine the existence of an agreement of sale. The Company uses shipping documents and customer acceptance, when applicable, to verify delivery. The assessment of whether the fee is fixed or determinable is based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. Collectibility is assessed based on the creditworthiness of the customer as determined by credit evaluations and analysis, as well as the customer’s payment history.

Shipping and handling costs billed to customers are included in sales and the related costs are included in cost of sales in the Statement of Operations.

The Company’s primary incentive program provides distributors with account credits based on meeting specified program criteria. Other various incentive programs are also offered that provide distributors and direct sale customers with account credits or additional products and services. Certain distributors are offered a right to return product, subject to contractual limitations. Reserves for customer returns are based primarily on historical experience.

Accruals for customer rebates and incentives are recorded at the time orders are received and customer return accruals are recorded at time of sale. Returns, rebates and incentives are recognized as a reduction of sales if distributed in customer account credits at time of revenue recognition. Rebates and incentives are recognized in cost of sales for additional products and services to be provided. Amounts are expensed at the time of recognition of a sale to a distributor or direct sale customer. Accruals are reported as a current liability or, where a right of set-off exists, as a reduction of receivables.

Cash and cash equivalents include time deposits and certificates of deposits with original maturities of three months or less.

Allowances for doubtful accounts are recorded based on customer-specific analysis and general matters such as current assessments of past due balances and economic conditions. Receivables are stated net of allowances for doubtful accounts of $4,318 at September 30, 2006 and $3,518 at September 30, 2005.

Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method. Market is determined on the basis of estimated realizable values.

Property is stated at cost, net of accumulated depreciation. Depreciation of property is provided using the straightline method over 15 to 40 years for buildings and improvements, 3 to 14 years for machinery and equipment and 3 to 10 years for computer hardware and software. Maintenance and repairs are charged to expense.

Goodwill and other intangible assets generally result from business acquisitions. Business acquisitions are accounted for by allocating the purchase price to tangible and intangible assets acquired and liabilities assumed at their fair values, and the excess of the purchase price over the allocated amount is recorded as goodwill.

Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets, requires goodwill and other intangible assets with indefinite useful lives to be reviewed for impairment annually or more frequently if events or circumstances indicate an impairment may be present, rather than amortized as previous standards required. Any excess in carrying value over the estimated fair value is charged to results of operations.

The Company amortizes intangible assets with finite useful lives on a straight-line basis over their estimated useful lives, generally ranging from 3 to 40 years for distributor networks, and 10 to 14 years for patents.

The Company evaluates the recoverability of the recorded amount of long-lived assets whenever events or changes in circumstances indicate that the recorded amount of an asset may not be fully recoverable. An impairment is assessed when the undiscounted expected future cash flows derived from an asset are less than its carrying amount. If it is determined that an asset is impaired, the impairment to be recognized is measured as the amount by which the recorded amount of the asset exceeds its fair value. Assets to be disposed are reported at the lower of the recorded amount or fair value less cost to sell. Management determines fair value using a discounted future cash flow analysis.

Rockwell Automation enters into foreign currency forward exchange contracts on behalf of the Company to manage foreign currency risks. Foreign currency forward exchange contracts are utilized to fix the rate of currency on recorded accounts payable or accounts receivable denominated in a foreign currency. It is Rockwell Automation’s policy to execute such instruments with creditworthy banks and not to enter into foreign currency forward exchange contracts for speculative purposes. The fair value of the foreign currency forward exchange contracts, entered into by Rockwell Automation on behalf of the Company, are recorded within Other current assets in the accompanying Balance Sheet and were $67 at September 30, 2006 and $441 at September 30, 2005. All foreign currency-forward exchange contracts are denominated in currencies of major industrial countries.

Assets and liabilities of entities 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. Sales, costs and expenses are translated at average exchange rates effective during the respective period. Foreign currency translation adjustments are included as a component of other comprehensive income. Accumulated currency translation gains were $11,025 at September 30, 2006 and $8,276 at September 30, 2005. Currency transaction gains and losses are included in the results of operations in the period incurred.

Research and development (R&D) costs are expensed as incurred; these costs were $11,907 in 2006, $10,438 in 2005 and $9,868 in 2004. These amounts include research and development performed for the Company by Rockwell Scientific Company LLC, a related party entity, of approximately $112 in 2006, $236 in 2005 and $300 in 2004. In September 2006, Rockwell Automation sold its 50 percent ownership interest in Rockwell Scientific Company LLC. R&D expenses are included in cost of sales in the Statement of Operations.

The Company records a liability for income tax exposures when they are probable and the amount can be reasonably estimated. Tax benefits related to claims are also recognized when they become probable and reasonably estimable. When determining the probability and the estimability of the liability or tax benefit, the Company considers the relevant tax law as applied to it by the particular country, state, or other taxing authority.

Effective October 1, 2005, the Company adopted SFAS 123(R), Share-Based Payment (SFAS 123(R)), using the modified prospective application transition method. The Company recognizes share-based compensation expense on grants of share-based compensation awards on a straight-line basis over the service period of each award recipient. See Note 2 for additional information.

Accruals for product and workers’ compensation claims are recorded in the period in which they are probable and reasonably estimable. The Company is included within Rockwell Automation’s principal self-insurance programs, including product liability and workers’ compensation, where Rockwell Automation is self-insured up to a specified dollar amount. Claims exceeding this amount up to specified limits are covered by policies purchased by Rockwell Automation from commercial insurers.

The Company records accruals for environmental matters in the period in which its responsibility is probable and the cost can be reasonably estimated. Revisions to the accruals are made in the periods in which the estimated costs of remediation change. At environmental sites for which more than one potentially responsible party has been identified, a liability is recorded for the Company’s estimated allocable share of costs related to the Company’s involvement with the site as well as an estimated allocable share of costs related to the involvement of insolvent or unidentified parties. At environmental sites for which the Company is the only responsible party, a liability is recorded for the total estimated costs of remediation. Future expenditures for environmental remediation obligations are not discounted to their present value. If recovery from insurers or other third parties is probable, the Company records a receivable for the estimated recovery.

Conditional asset retirement obligations are accounted for under Financial Accounting Standards Board (FASB) Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN 47).

The Company accrues for costs related to legal obligations associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, development or the normal operation of the long-lived asset. The obligation to perform the asset retirement activity is not conditional even though the timing or method may be conditional. See Note 16 for additional information related to these obligations.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — An Amendment of FASB Statements No. 87, 88, 106, and 132R (SFAS 158). SFAS 158 requires companies to recognize the funded status of pension and other postretirement benefit plans on sponsoring employers’ balance sheets and to recognize changes in the funded status in the year the changes occur. It also requires the measurement date of plan assets and obligations to occur at the end of the employers’ fiscal year. SFAS 158 is effective for the Company at the end of fiscal 2007, except for the change in measurement date, which is effective for the Company in fiscal 2008. The effect on the Company’s financial statements is dependent upon the discount rate at its fiscal 2007 measurement date (June 30, 2007) and actual returns on its pension plan assets during the year. The Company expects the statement to result in a reduction of Rockwell Automation’s Invested Equity balance.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. It also establishes a fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability. SFAS 157 will be effective for the Company beginning in fiscal 2008. The Company is evaluating the statement to determine the effect on its financial statements and related disclosures.

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (SAB 108), Financial Statements — Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 requires companies to quantify the impact of all correcting misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. This pronouncement is effective for the Company in fiscal 2007. The Company does not believe SAB 108 will have a material effect on its financial statements and related disclosures.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 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. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 will be effective for Power Systems beginning in fiscal 2008. The Company is evaluating the interpretation to determine the effect on its financial statements and related disclosures.

Effective October 1, 2005, the Company adopted SFAS 123(R), Share-Based Payment (SFAS 123(R)), using the modified prospective application transition method. Before the Company adopted SFAS 123(R), it accounted for share-based compensation in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.

During 2006, the Company recognized $3,936 in share-based compensation expense. The total income tax benefit recognized during 2006 was $1,555. The Company recognizes compensation expense on grants of share-based compensation awards on a straight-line basis over the service period of each award recipient. As of September 30, 2006, total unrecognized compensation cost related to share-based compensation awards was $3,431 net of estimated forfeitures, which the Company expects to recognize over a weighted average period of approximately 1.2 years. Rockwell Automation uses its treasury stock to deliver shares of its common stock under its share-based compensation plans.

Certain employees of the Company have been granted options to purchase Rockwell Automation common stock under Rockwell Automation’s stock-based compensation plans. Stock options granted under Rockwell Automation’s stock-based compensation plans are granted at exercise prices equal to the fair market value of the stock on the grant dates. The exercise price for some options granted under the plans may be paid in cash, shares of common stock or a combination of cash and shares. Stock options expire ten years after the grant date and vest ratably over three years.

The per share weighted average fair value of stock options granted during the years ended September 30, 2006, 2005, and 2004 was $17.47, $12.61 and $7.17, respectively. The Company estimated the fair value of each stock option on the date of grant using the Black-Scholes pricing model and the following assumptions:

The average risk-free interest rate is based on the five-year U.S. treasury security rate in effect as of the grant date. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of Rockwell Automation common stock as of the grant date. The Company determined expected volatility using a weighted average of daily historical volatility (90 percent) of Rockwell Automation’s stock price over the past four years (the period since Rockwell Automation’s spin off of Rockwell Collins, Inc.) and implied volatility (10 percent) based upon exchange traded options for Rockwell Automation common stock. The Company determined that a blend of historical volatility and implied volatility better reflects future market conditions and better indicates expected volatility than purely historical volatility. The Company determined the expected term of the stock options using historical data adjusted for the estimated exercise dates of unexercised options.

A summary of stock option activity for the years ended September 30, 2006, 2005 and 2004 are:

The table below presents stock option activity for years ended September 30, 2006, 2005, and 2004 (in thousands):

Certain key employees are also eligible to receive shares of Rockwell Automation common stock in payment of performance share awards granted to them. During 2006, 15 performance share awards were granted (for which up to 30 shares of Rockwell Automation common stock could be delivered in payment). Grantees of performance shares will be eligible to receive shares of Rockwell Automation common stock depending upon Rockwell Automation’s total shareowner return, assuming reinvestment of all dividends, relative to the performance of the S&P 500 over a three-year period. No performance share awards were outstanding as of September 30, 2005.

The per share fair value of performance shares granted during the year ended September 30, 2006 was $63.24 which the Company determined using a Monte Carlo simulation and the following assumptions:

The average risk-free interest rate is based on the three-year U.S. treasury security rate in effect as of the grant date. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of Rockwell Automation common stock as of the grant date. The Company determined expected volatility using a weighted average of daily historical volatility (90 percent) of Rockwell Automation’s stock price over the past four years (the period since Rockwell Automation’s spin off of Rockwell Collins, Inc.) and implied volatility (10 percent) based upon exchange traded options for Rockwell Automation common stock. The Company determined that a blend of historical volatility and implied volatility better reflects future market conditions and better indicates expected volatility than purely historical volatility. The Company determined the average S&P 500 expected volatility using daily historical volatility for the period from January 2002 through December 2004.

Rockwell Automation also grants restricted stock awards to certain employees. Restrictions lapse over periods ranging from three to five years. No restricted stock awards were outstanding as of, or prior to, September 30, 2005. During 2006, approximately 7 restricted stock awards were granted to employees of the Company. The per share fair value of restricted stock awards granted during the year ended September 30, 2006 was $56.36. The Company values restricted stock awards at the closing market value of Rockwell Automation common stock on the date of grant.

The following table illustrates the effect on net income as if the fair value-based method provided by SFAS No. 123, Accounting for Stock-Based Compensation, had been applied for all outstanding and unvested awards for periods before the Company adopted SFAS 123(R) (in thousands):

Pro forma net income for 2005 includes $1,197 after tax of compensation expense for retirement eligible stock option participants. Compensation expense for these participants was previously reported over the vesting period. Stock options granted to retirement eligible plan participants who retire under Rockwell Automation’s retirement plans on or after the first anniversary of the grant date continue to vest post-retirement in accordance with plan provisions and agreements related thereto. If the plan participant retires less than twelve months from the grant date, the options under that grant are forfeited. Stock compensation expense on grants to plan participants who are retirement eligible on the grant date or who will be retirement eligible in less than twelve months from the grant date is reported in pro forma net income over the twelve month period from the grant date. Stock compensation expense on grants to plan participants who become retirement eligible between twelve and thirty-six months after the grant date are reported in pro forma net income over the period from grant date to the retirement eligibility date.

Pro forma net income for 2004 includes $524 after tax of compensation expense related to performance-vesting options that vested in the first quarter of 2004 as a result of the market price of Rockwell Automation common stock reaching a specified level for a pre-determined period of time.

Services provided by the Company to Rockwell Automation and services provided by Rockwell Automation to the Company are accounted for within Rockwell Automation’s Invested Equity balance in the accompanying Balance Sheet.

The Company provides services to Rockwell Automation, including marketing, sales and engineering support. Costs for these services are billed by the Company based on an estimated usage and are included as a reduction to Selling, general and administrative expenses of approximately $2,463 for 2006, $2,564 for 2005 and $2,683 for 2004 in the accompanying Statement of Operations. Costs relating to engineering support approximating $67 for 2006 were recorded as a reduction of Cost of sales in the accompanying Statement of Operations.

Rockwell Automation provides various services to the Company that are billed based on estimated usage and are included in the accompanying Statement of Operations. Such services primarily consist of engineering and sales support as well as facilities services for employees of the Company located in facilities owned or leased by Rockwell Automation. The costs billed to the Company for engineering and sales support totaled approximately $4,233 for 2006, $3,287 for 2005 and $3,341 for 2004. The facilities and other costs billed totaled approximately $1,378 for 2006, $1,407 for 2005 and $1,782 for 2004. These costs are included within Cost of sales in the amount of $2,951 for 2006, $2,005 for 2005 and $1,901 for 2004 and within Selling, general and administrative expenses in the amount of $2,660 in 2006, $2,689 in 2005, and $3,222 in 2004 in the accompanying Statement of Operations.

Rockwell Automation also provides management services to the Company, including corporate oversight, financial, legal, tax, corporate communications, treasury, internal audit and human resources. The costs of providing these services have been allocated based on Company sales in proportion to total Rockwell Automation sales. These costs totaled $11,600 in 2006, $10,000 in 2005 and $10,100 in 2004 and are included within Selling, general and administrative expenses in the accompanying Statement of Operations. These allocations are not necessarily indicative of the costs that would have been incurred on a standalone basis, and other methods of allocating such costs could provide substantially different results.

Vermont Reserve Insurance Company (Vermont Reserve), a non-operating subsidiary of Reliance Electric, had an affiliate receivable with Reliance Electric as it deposited funds with Reliance Electric under an agreement that permits Vermont Reserve to deposit an unlimited amount of funds or to borrow up to $25,000. These deposited funds were transferred to Rockwell Automation in accordance with the Company’s participation in Rockwell Automation’s centralized cash management system. All amounts on deposit are payable to Vermont Reserve on demand.

On August 31, 2006 Reliance Electric distributed its ownership interest in Vermont Reserve to Rockwell Automation at its book value. The distribution of the ownership interest of Vermont Reserve, in the amount of $4,779 is reported as a non-cash transfer within the accompanying Statement of Cash Flows. As of September 30, 2006, all balances related to Vermont Reserve are reported within Rockwell Automation’s Invested Equity balance in the accompanying Balance Sheet.

In the ordinary course of business, the Company purchases various products from and sells various products to other businesses of Rockwell Automation at cost plus a markup of 10 percent to 20 percent, which does not necessarily represent a market price. The following table summarizes these purchases and sales (in thousands):

During 2006, the Company sold a portion of its ownership interest in CoLinx, LLC (CoLinx), a company that provides logistics and e-commerce services. This sale resulted in a gain of $758, and reduced the Company’s ownership interest from 25 percent to 20 percent. This ownership interest is accounted for using the equity method. The Company’s investment in CoLinx of $488 at September 30, 2006 and $143 at September 30, 2005 is included in Other assets in the accompanying Balance Sheet. The Company paid CoLinx $21,599 in 2006, $18,190 in 2005 and $16,925 in 2004, primarily for logistics services based upon actual usage. CoLinx paid the Company approximately $3,802 in 2006, $2,805 in 2005 and $2,154 in 2004 for the use of the Company’s Crossville, Tennessee facility and other services. The net amounts billed to and from CoLinx are included in Cost of sales in the accompanying Statement of Operations. The amounts due to CoLinx at September 30, 2006 and September 30, 2005 were $248 and $412, respectively, and are reflected within Accounts payable on the accompanying Balance Sheet. The amounts due from CoLinx at September 30, 2006 and 2005 were not significant.

The Company owns 20 percent of Endorsia.com International AB (Endorsia), a company that provides e-commerce services in Europe. This ownership interest is accounted for using the equity method. The Company’s investment in Endorsia of $1,529 at September 30, 2006 and $1,316 at September 30, 2005 is included in Other assets in the accompanying Balance Sheet. During the periods presented, the Company made payments to Endorsia for e-commerce services. The amounts paid to Endorsia were not significant.

On September 1, 2005, the Company’s Electrical segment acquired the assets of Quality Rewind & Electric, Inc.’s motor repair and management business based in Ft. McMurray, Alberta, Canada. The purchase price approximated $5,375.

The results of operations of this business have been included in the accompanying Statement of Operations since the date of acquisition. Pro forma financial information and allocation of the purchase price is not presented as the effect of this acquisition was not material to the Company’s results of operations or financial position.

The changes in the carrying amount of goodwill for the years ended September 30, 2005 and 2006 are (in thousands):

Goodwill of $145,068 pertains to the Company’s Mechanical segment and $2,140 relates to the Electrical segment. The Company performs its annual evaluation of goodwill and indefinite life intangible assets for impairment during the second quarter of each year and, based on its review in the second quarter of 2006, concluded that there was no impairment.

The Reliance and Dodge trademarks have been determined to have an indefinite life, and therefore are not subject to amortization.

Estimated amortization expense is $2,111 in 2007, $2,111 in 2008, $1,415 in 2009, $1,183 in 2010, and $1,183 in 2011.

Inventories are reported net of the allowance for excess and obsolete inventory of $10,029 at September 30, 2006 and $9,887 at September 30, 2005.

The decrease in the Company’s Land and Buildings and improvements balances in 2006 is the result of a sale-leaseback transaction of 16 properties that occurred during the year. See Note 14 for additional information.

The Company records a liability for product warranty obligations at the time of sale to a customer based upon historical warranty experience. Most of its products are covered under a warranty period that runs for twelve months from either the date of sale or from installation to an end-user or OEM customer. The Company records a liability for specific warranty matters when they become known and reasonably estimable. The Company’s product warranty obligations are included in Other current liabilities in the accompanying Balance Sheet.

Rockwell Automation sponsors funded and unfunded pension plans and other postretirement benefit plans for its employees. The pension plans cover most of the Company’s employees and provide for monthly pension payments to eligible employees after retirement. Pension benefits for salaried employees generally are based on years of credited service and average earnings. Pension benefits for hourly employees are primarily based on specified benefit amounts and years of service. Other postretirement benefits are primarily in the form of retirement medical plans that cover most of the Company’s United States employees and provide for the payment of certain medical costs of eligible employees and dependents after retirement. Retirement benefit costs and obligations, including pension and postretirement plans, related to all of the Company’s employees are included within the accompanying financial statements.

Benefit obligation, plan assets, funded status, and net liability information of the Company is summarized as follows (in thousands):

During 2006, the Company recorded a decrease to its minimum pension liability of $128,899 resulting primarily from the discount rate change and Rockwell Automation’s $450,000 contribution to its U.S. pension plan trust in October 2005 for which $84,107 was on behalf of the Company, resulting in an increase to Rockwell Automation’s Invested Equity. The decrease in the Company’s minimum pension liability and related deferred tax asset resulted in a net increase to Rockwell Automation’s Invested Equity (reported as a decrease in accumulated other comprehensive loss) of $78,227.

In 2005, the Company amended its U.S. pension plan, effective for 2006, to eliminate the early retirement subsidy for certain employees. The effect of the amendment is a reduction in the pension obligation of approximately $4,400 and a corresponding reduction in annual pension expense recognized over the average remaining service life of plan participants. In 2005, Rockwell Automation

made voluntary contributions of $28,407 to the U.S. qualified pension plan trust in which the Company participates, including $18,691 contributed in the fourth quarter.

The Company uses an actuarial measurement date of June 30 to measure its benefit obligations and to calculate its net periodic benefit cost for pension and other postretirement benefits.

The accumulated benefit obligation for the Company’s pension plans is $323,891 as of the 2006 measurement date and $356,360 as of the 2005 measurement date.

Significant assumptions used in determining net periodic benefit cost for the period ended September 30 are (in weighted averages):

Significant assumptions used in determining the benefit obligations are (in weighted averages):

Effective October 1, 2002, Rockwell Automation amended its United States postretirement healthcare benefit program in order to mitigate the increasing cost of postretirement healthcare services. Effective

January 1, 2004, Rockwell Automation began contributing 50 percent of the amount in excess of the 2003 per capita amount. However, Rockwell Automation’s calendar 2004 contribution was limited to a 7.5 percent increase from the 2003 per capita amount. Effective January 1, 2005, Rockwell Automation limited its future per capita maximum contribution to its calendar 2004 per capita contribution.

As a result of the finalization of the rules for the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act), net periodic postretirement benefit cost decreased by $1,300 in 2005.

In determining the expected long-term rate of return on assets assumption, Rockwell Automation equally considers the historical performance and the future expected performance for returns for each asset category, as well as the target asset allocation of the pension portfolios. Rockwell Automation management consulted with and considered the opinions of financial and other professionals in developing appropriate return assumptions. This resulted in the selection of the weighted average long-term rate of return on assets assumption. The Company’s weighted-average asset allocations at September 30, by asset category, are:

The investment objective for pension funds related to the Company’s defined benefit plans is to meet the plan’s benefit obligations, while maximizing the long-term growth of assets without undue risk. Rockwell Automation strives to achieve this objective by investing plan assets within target allocation ranges and diversification within asset categories. Target allocation ranges are guidelines that are adjusted periodically based on ongoing monitoring by plan fiduciaries. Investment risk is controlled by rebalancing to target allocations on a periodic basis and ongoing monitoring of investment manager performance relative to the investment guidelines established for each manager.

As of September 30, 2006 and 2005, the Company’s pension plans do not own Rockwell Automation common stock.

In certain non-U.S. countries in which the Company operates, there are no legal requirements or financial incentives provided to companies to pre-fund pension obligations. In these instances, the Company typically makes benefit payments directly from cash as they become due, rather than by creating a separate pension fund.

The following benefit payments, which include employees’ expected future service, as applicable, are expected to be paid (in thousands):

A one-percentage point change in assumed healthcare cost trend rates would have the following effect (in thousands):

Information regarding our pension plans with accumulated benefit obligations in excess of the fair value of plan assets (underfunded plans) as of the 2006 and 2005 measurement dates (June 30) are as follows (in thousands):

Rockwell Automation also sponsors certain defined contribution savings plans for eligible employees. The Company’s expense related to these plans was approximately $3,610 in 2006, $3,298 in 2005, and $3,705 in 2004.

All of the Company’s U.S. operations are included in the U.S. consolidated or combined income tax returns of Rockwell Automation. The accompanying Balance Sheets do not include current or prior period income tax receivables or payables related to wholly-owned U.S. and international subsidiaries which file on a consolidated basis with Rockwell Automation as they are included as a component of Rockwell Automation’s Invested Equity. Therefore, the current or prior year period income tax receivables or payables in the accompanying Balance Sheets relate to the Company’s legal entities in China and Mexico which are not combined for income tax filing purposes with other subsidiaries of Rockwell Automation. The income tax provisions have been determined as if the Company was a separate taxpayer.

The components of the income tax provision (benefit) are as follows (in thousands):

Net current deferred income tax assets at September 30, 2006 and 2005 consist of the tax effects of temporary differences related to the following (in thousands):

Net long-term deferred income tax assets (liabilities) at September 30, 2006 and 2005 consist of the tax effects of temporary differences related to the following (in thousands):

Total deferred tax assets were $34,589 at September 30, 2006 and $72,415 at September 30, 2005. Total deferred tax liabilities were $104,651 at September 30, 2006 and $107,820 at September 30, 2005.

The Company believes it is more likely than not it will realize current and long-term deferred tax assets through the reduction of future taxable income, other than as discussed below. Significant factors management considered in determining the probability of the realization of the deferred tax assets include: (a) the Company’s historical operating results (approximately $258,000 of United States

income from operations before income taxes over the past three years), (b) expected future earnings, and (c) the extended period of time over which the retiree medical benefits will be paid.

The Company has a $6,109 valuation allowance at September 30, 2006 for non-United States net operating loss carryforwards for which utilization is uncertain. The carryforward period for the non-United States net operating loss carryforwards is indefinite.

The Company’s tax audit accruals of $2,811 at September 30, 2006 and $2,210 at September 30, 2005 are recorded within Other liabilities in the accompanying Balance Sheet.

The effective income tax rate differed from the United States statutory tax rate for the reasons set forth below:

The Company obtained a tax holiday for its legal entity in China in 2005 and 2004 and reduced income tax rates for 2006 through 2008.

The Company calculated the income tax provisions based upon the following components of income (loss) before income taxes (in thousands):

The Company has not provided U.S. deferred taxes on cumulative earnings of non-U.S. locations that have been reinvested indefinitely. These earnings relate to ongoing operations and at September 30, 2006, were approximately $51,932. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the U.S. or state income tax liabilities that would be payable if such earnings were not reinvested indefinitely. Deferred taxes are provided for non-U.S. affiliates when we plan to remit those earnings.

Income taxes paid by Rockwell Automation in 2006, 2005 and 2004 for the Company’s operations that are included in the consolidated or combined returns of Rockwell Automation are included as a component of Rockwell Automation’s Invested Equity.

In 2005, the Company recorded special charges of $4,974 for costs associated with the closing of a facility, the reduction of workforce, inventory write-offs and asset impairments. Total cash expenditures in connection with this action approximated $379 and primarily related to employee severance and separation costs. As of September 30, 2006 the reserve balance related to these charges approximates $14 and is recorded within Other current liabilities.

In 2004, the Company closed a European manufacturing facility and recorded special charges of $4,893. The special charges included write-downs of inventory balances, asset impairments and a reduction in workforce. Total cash expenditures in connection with this action approximated $2,806 and primarily related to employee severance, benefits and equipment relocation costs. Cash expenditures of $1,759 were paid in 2004 with the remaining $1,047 being spent in 2005.

The special charges are reflected in the Statement of Operations for the year ended September 30, 2005 in Cost of sales in the amount of $4,974 and for the year ended September 30, 2004 in Cost of sales in the amount of $3,911 and in Selling, general and administrative expenses in the amount of $982.

Rental expense was $9,404 in 2006; $5,970 in 2005; and $5,530 in 2004. Minimum future rental commitments under operating leases having noncancelable lease terms in excess of one year aggregated $70,857 as of September 30, 2006 and are payable as follows (in thousands):

In November 2005, the Company completed a sale-leaseback transaction of 16 properties, including the land, buildings and improvements affixed to the properties. The lease terms vary from five to fifteen years depending on the property and have been classified as operating leases. One of the sold properties resulted in a loss of $387 that was recognized in the Company’s first quarter of 2006, and the remaining properties resulted in a gain on sale of $16,260 that will be amortized as a reduction of rent expense over the term of the respective leases. The net book value of the sold assets has been removed from the Company’s balance sheet, except for three properties where the Company has retained a right to re-acquire a subdivided portion of adjacent vacant land. For these properties, the Company will remove the assets from its balance sheet upon re-conveyance of the vacant land or termination of its right. The net proceeds related to these three properties of $18,690 is reported in Other liabilities in the accompanying Balance Sheet as of September 30, 2006. Rental payments for the year ended September 30, 2006 related to properties that had not yet been removed from the Company’s balance sheet were $1,732 and are included within interest expense in the accompanying Statement of Operations.

At September 30, 2006, the amounts related to the gain on sale are recorded within Other current liabilities in the amount of $1,018 and Other liabilities in the amount of $9,780 in the accompanying Balance Sheet.

The Company’s legal entity in China borrows funds under a local short-term credit facility to fund working capital needs. The outstanding balances at September 30, 2006 and 2005 were $760 and $1,112, respectively. The Company repaid $8,445 of industrial development revenue bonds prior to maturity in 2004. Interest payments were $68 during 2006, $17 during 2005 and $188 during 2004. See Note 14 for further information on the Company’s interest expense associated with the 2006 sale-leaseback transaction.

The Company from time to time has divested certain businesses. In connection with such divestitures, lawsuits, claims and proceedings may be instituted or asserted against the Company related to the period that it owned the business. Matters for which the Company’s responsibility is probable and the costs can be reasonably estimated are included within the accompanying financial statements.

Federal, state and local requirements relating to the discharge of substances into the environment, the disposal of hazardous wastes and other activities affecting the environment have and will continue to have an effect on the Company’s manufacturing operations. Thus far, compliance with environmental requirements and resolution of environmental claims have been accomplished without material effect on the Company’s liquidity and capital resources, competitive position or financial condition.

Reliance Electric has been designated as a potentially responsible party at four Superfund sites. The Company estimates the highest total reasonably possible costs it could incur for the Remediation of these Superfund sites at September 30, 2006 to be $200, of which $50 has been accrued.

The Company is indemnified by Exxon Mobil Corporation (Exxon) for substantially all costs associated with environmental matters of Federal Pacific Electric Company, a non-operating subsidiary of Reliance Electric. At September 30, 2006, the Company has recorded a liability of $22,380 within Other liabilities and a corresponding receivable from Exxon of $21,261 within Other assets on the accompanying Balance Sheet for these environmental matters. Management estimates the highest total reasonably possible costs for these matters to be approximately $27,000 based on claims made through September 30, 2006 for which Reliance Electric is substantially indemnified by Exxon. The indemnification agreement covers claims for which Reliance Electric gives, or gave, notice to Exxon before December 29, 2006.

The Company also faces certain environmental claims associated with other discontinued and former operations of Reliance Electric, including the ongoing remediation of a former Toledo-Scale manufacturing facility located in Orlando, Florida. There the Company is currently implementing a cleanup pursuant to a Consent Order with the Florida Department of Environmental Protection. Management estimates the highest total remaining reasonably possible costs for this matter to be approximately $9,800. The costs reflected within the accompanying Statement of Operations related to this environmental claim were $1,236 in 2005 and $6,170 in 2004. The liabilities related to this claim as of September 30, 2006 are included within Other current liabilities in the amount of $2,800 and Other liabilities in the amount of $3,671 on the accompanying Balance Sheet.

Based on its assessment, management believes that the Company’s expenditures for environmental capital investment and remediation necessary to comply with present regulations governing environmental protection and other expenditures for the resolution of environmental claims will not have a material adverse effect on the Company’s liquidity and capital resources, competitive position or financial condition. Management cannot assess the possible effect of compliance with future requirements or costs associated with sites that may be identified in the future requiring remediation.

Effective September 30, 2006, the Company adopted FIN 47, which clarifies the guidance included in SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS 143). Under FIN 47, companies must accrue for costs related to a legal obligation associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, development or the normal operation of the long-lived asset. The obligation to perform the asset retirement activity is not conditional even though the timing or method may be conditional.

Identified conditional asset retirement obligations pertain to soil contamination beneath current and previously divested facilities. The Company estimated conditional asset retirement obligations using site-specific knowledge and historical industry expertise. The application of FIN 47 resulted in a charge, net of tax, of $1,122 included in the Statement of Operations for the year ended September 30, 2006 as the cumulative effect of a change in accounting principle. The liability for conditional asset retirement obligations recognized at September 30, 2006 as the result of the application of FIN 47 was $1,824 and is recorded in Other liabilities in the accompanying Balance Sheet.

Pro forma amounts, as if FIN 47 had been applied for all periods (dollars in thousands):

As a result of an internal review, Rockwell Automation determined during the fourth quarter of 2006 that actions by a small number of employees at certain of the Company’s operations in one jurisdiction may have violated the U.S. Foreign Corrupt Practices Act (FCPA) or other applicable laws. The Company does business in this jurisdiction with government owned enterprises or government owned enterprises that are evolving to commercial businesses. These actions involved payments for non-business travel expenses and certain other business arrangements involving potentially improper payment mechanisms for legitimate business expenses. Special outside counsel has been engaged to investigate the actions and report to Rockwell Automation’s Audit Committee. Their review is ongoing.

Rockwell Automation voluntarily disclosed these actions to the U.S. Department of Justice (DOJ) and the SEC beginning in September 2006. Rockwell Automation and the Company are implementing thorough remedial measures, and are cooperating on these issues with the DOJ and SEC. Rockwell Automation has agreed to update the DOJ and SEC periodically regarding any further developments as the investigation continues. If violations of the FCPA occurred, Rockwell Automation and the Company may be subject to consequences that could include fines, penalties, other costs and business-related impacts.

Rockwell Automation and the Company could also face similar consequences from local authorities, Management is not in a position to reasonably estimate the potential consequences at this time.

Various lawsuits, claims and proceedings have been or may be instituted or asserted against the Company relating to the conduct of its business, including those pertaining to product liability, workers compensation, intellectual property, employment and contract matters. The Company has been named in two product liability cases in which the damages claim exceeds $1,000. In both cases, management believes that the Company has strong and meritorious defenses and the Company is defending the cases vigorously. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to the Company, management believes the disposition of matters that are pending or asserted will not have a material adverse effect on its business or financial condition.

The Company is also indemnified by Exxon for substantially all costs associated with product liability claims of Federal Pacific Electric Company, to the extent that Reliance Electric gives, or gave, notice of such claims to Exxon before December 29, 2006.

The Company has been named as a defendant in lawsuits alleging personal injury as a result of exposure to asbestos that was used in certain components of its products many years ago. Currently there are thousands of claimants in lawsuits that name the Company as a defendant, together with hundreds of other companies. The great bulk of the complaints, however, do not identify any of its products or specify which of these claimants, if any, were exposed to asbestos attributable to its products; and past experience has shown that the vast majority of the claimants will never identify any of the Company’s products. For those claimants who do show that they worked with the Company’s products, management nevertheless believes the Company has meritorious defenses, in substantial part due to the lack of asbestos in its products, the integrity of its products, the encapsulated nature of any asbestos-containing components, and the lack of any impairing medical condition on the part of many claimants. Management defends those cases vigorously.

The uncertainties of asbestos claim litigation make it difficult to predict accurately the ultimate outcome of asbestos claims. That uncertainty is increased by the possibility of adverse rulings or new legislation affecting asbestos claim litigation or the settlement process. Subject to these uncertainties and based on the Company’s experience defending asbestos claims, management does not believe these lawsuits will have a material adverse effect on the Company’s financial condition.

The Power Systems Group of Rockwell Automation is a provider of power conversion and transmission products and services. The Company is organized based upon products and services and has two operating segments: Dodge mechanical (Mechanical) and Reliance electrical (Electrical).

Mechanical’s products include mounted bearings, gear reducers, mechanical drives, conveyor pulleys, couplings, bushings, clutches and motor brakes which are utilized to optimize the transmission of power by matching speed and torque requirements to the driven application. These products are marketed under the Dodge^® brand name and are generally sold through an established distributor network.

Electrical’s products include industrial and engineered motors, adjustable speed drives, product repair, motor and mechanical maintenance solutions, training and consulting services to OEM’s, end-users and distributors. These products are marketed under the Reliance Electric^™ brand name and are generally sold through a direct sales force.

Sales to two customers of primarily the Mechanical segment comprised 12.5 and 8.3 percent of sales in 2006, 14.1 and 10.1 percent in 2005 and 13.4 and 10.2 percent in 2004, respectively. Amounts due from these customers were $14,668 at September 30, 2006 and $13,690 at September 30, 2005.

The following tables reflect the sales and earnings before interest and taxes (EBIT) of the Company’s reportable segments for the years ended September 30 (in thousands):

The following tables summarize the identifiable assets at September 30, the provision for depreciation and amortization and the amount of capital expenditures for property for the years ended September 30 for each of the reportable segments (in thousands):

Identifiable assets at Headquarters and Other Consist principally of cash, prepaid pension assets, purchase accounting goodwill and intangible assets, environmental and product liability indemnification receivables and deferred income taxes.

The following tables present sales and property by geographic region (in thousands):

Sales are attributed to the geographic regions based on the country of destination.

In June 2006, Rockwell Automation announced its intention to divest its Dodge mechanical and Reliance Electric motors and motor repair services businesses. These are the principal businesses of the Company. In November 2006, Rockwell Automation signed a definitive agreement to sell these businesses to Baldor Electric Company for $1.8 billion. Rockwell Automation will retain the Reliance Electric^™ and Reliance^® branded drives and related parts and services business. The transaction, subject to customary closing conditions and regulatory approval, is expected to close in the Company’s fiscal 2007 second quarter.

Baldor Electric Company from time to time, may offer to sell senior debt securities, preferred stock and common stock. The debt securities and preferred stock may be convertible into or exercisable or exchangeable for our common stock, our preferred stock, our other securities or the debt or equity securities of one or more other entities. Our common stock is listed on the New York Stock Exchange and trades under the ticker symbol “BEZ.”

We may offer and sell these securities to or through one or more underwriters, dealers and agents, or directly to purchasers, on a continuous or delayed basis.

This prospectus describes some of the general terms that may apply to these securities. The specific terms of any securities to be offered will be described in a supplement to this prospectus.

Neither the Securities and Exchange Commission nor any other state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

This prospectus is part of a registration statement that Baldor Electric Company, a Missouri corporation, which is also referred to as “Baldor,” “the Company,” “we,” “us” and “our,” has filed with the U.S. Securities and Exchange Commission, or the SEC, using a “shelf” registration procedure. Under this procedure, Baldor may offer and sell from time to time, any of the following securities, in one or more series:

To understand the terms of the securities offered by this prospectus, you should carefully read this prospectus and any prospectus supplement. You should also read the documents referred to under the heading “Where You Can Find More Information” for information on Baldor.

This prospectus provides you with a general description of the securities we may offer. Each time we offer securities, we will provide you with a prospectus supplement that will describe the specific amounts, prices and terms of the securities being offered. The prospectus supplement may also add, update or change information contained in this prospectus.

The prospectus supplement may also contain information about any material U.S. federal income tax considerations relating to the securities covered by the prospectus supplement.

We file annual, quarterly and special reports, proxy statements and other information with the SEC. You can inspect and copy these reports, proxy statements and other information at the Public Reference Room of the SEC, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. Our SEC filings will also be available to you on the SEC’s website at http://www.sec.gov and through the New York Stock Exchange, 20 Broad Street, New York, NY 10005, on which our common stock is listed.

This prospectus, which forms a part of the registration statement, does not contain all the information that is included in the registration statement. You will find additional information about us in the registration statement. Any statements made in this prospectus or any accompanying prospectus supplement concerning the provisions of legal documents are not necessarily complete and you should read the documents that are filed as exhibits to the registration statement or otherwise filed with the SEC for a more complete understanding of the document or matter.

The SEC allows the “incorporation by reference” into this prospectus of the information filed by us with the SEC, which means that important information can be disclosed to you by referring you to those documents and those documents will be considered part of this prospectus. Information that we file with the SEC will automatically update and supersede the previously filed information. The documents listed below and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than any portion of any such filing that is furnished under the applicable SEC rules, are incorporated by reference herein:

1. Our annual report on Form 10-K for the year ended December 31, 2005 (filed on March 10, 2006).

2. Our quarterly reports on Form 10-Q for the quarters ended April 1, 2006 (filed on May 11, 2006), July 1, 2006 (filed on August 8, 2006) and September 30, 2006 (filed on November 9, 2006).

3. Our current reports on Form 8-K filed on August 11, 2006, November 2, 2006, November 9, 2006, January 5, 2007 and January 8, 2007.

If you make a request for such information in writing or by telephone, we will provide you, without charge, a copy of any or all of the information incorporated by reference into this prospectus. Any such request should be directed to:

You should rely only on the information contained in, or incorporated by reference in, this prospectus. We have not authorized anyone else to provide you with different or additional information. This prospectus does not offer to sell or solicit any offer to buy any notes in any jurisdiction where the offer or sale is unlawful. You should not assume that the information in this prospectus or in any document incorporated by reference is accurate as of any date other than the date on the front cover of the applicable document.

This prospectus, any accompanying prospectus supplement and the documents incorporated by reference into this prospectus contains statements that are forward-looking. The forward-looking statements contained in these documents (generally identified by words or phrases indicating a projection or future expectation such as “optimistic,” “will,” “continue,” “expect,” “believe,” “should,” “assumption,” “may,” “estimate,” “judgment,” “anticipate,” or any grammatical forms of these words or other similar words) are based on our current expectations and are subject to risks and uncertainties. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward looking statements as a result of various factors. The factors that might cause such differences include, among others, the following:

We were incorporated as a Missouri corporation on March 11, 1920. Our common stock is listed on the New York Stock Exchange under the symbol “BEZ”. Our headquarters and principal executive offices are located at 5711 R. S. Boreham, Jr. Street, Fort Smith, Arkansas 72901. Our telephone number is (479) 646-4711.

You can obtain more information regarding our business in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and the other reports that we file with the SEC. See “Where You Can Find More Information.”

Investing in our securities involves risk. You should carefully consider the specific risks discussed or incorporated by reference in the applicable prospectus supplement, together with all the other information contained in the prospectus supplement or incorporated by reference in this prospectus. You should also consider the risks, uncertainties and assumptions discussed under the caption “Risk Factors” included in our Form 10-K for the year ended December 31, 2005 and each of our quarterly reports on Form 10-Q for the quarters ended April 1, 2006, July 1, 2006 and September 30, 2006, which are each incorporated by reference into this prospectus, and which each may be amended, supplemented or superseded from time to time by other reports we file with the SEC in the future.

We may offer debt securities. Our debt securities and any related guarantees will be issued under an indenture. Unless otherwise specified in the applicable prospectus supplement, the trustee under any indenture will be Wells Fargo Bank, National Association. Holders of our indebtedness will be structurally subordinated to holders of any indebtedness (including trade payables) of any of our subsidiaries that do not guarantee our payment obligations under such indebtedness.

We have summarized certain general features of the debt securities from the form of indenture filed as an exhibit to the registration statement of which this prospectus forms a part. The following description of the terms of the debt securities and the guarantees sets forth certain general terms and provisions. The particular terms of the debt securities and guarantees offered by any prospectus supplement and the extent, if any, to which such general provisions may apply to the particular debt securities and guarantees will be described in the related prospectus supplement. Accordingly, for a description of the terms of a particular issue of debt securities, reference must be made to both the related prospectus supplement and to the following description. Furthermore, since the terms of specific debt securities may differ from the general information we have provided below, you should rely on information in the applicable prospectus supplement that contradicts different information below.

The aggregate principal amount of debt securities that may be issued under the indenture is unlimited. The debt securities may be issued in one or more series as may be authorized from time to time.

Reference is made to the applicable prospectus supplement for the following terms of the debt securities (if applicable):

One or more series of debt securities may be sold at a substantial discount below their stated principal amount, bearing no interest or interest at a rate which at the time of issuance is below market rates. One or more series of debt securities may be variable rate debt securities that may be exchanged for fixed rate debt securities.

United States federal income tax consequences and special considerations, if any, applicable to any such series may be described in the applicable prospectus supplement.

Debt securities may be issued where the amount of principal and/or interest payable is determined by reference to one or more currency exchange rates, commodity prices, equity indices or other factors. Holders of such securities may receive a principal amount or a payment of interest that is greater than or less than the amount of principal or interest otherwise payable on such dates, depending upon the value of the applicable currencies, commodities, equity indices or other factors. Information as to the methods for determining the amount of principal or interest, if any, payable on any date, the currencies, commodities, equity indices or other factors to which the amount payable on such date is linked and certain additional U.S. federal income tax considerations will be set forth in the applicable prospectus supplement.

The term “debt securities” includes debt securities denominated in U.S. dollars or, if specified in the applicable prospectus supplement, in any other freely transferable currency or units based on or relating to foreign currencies.

We expect most debt securities to be issued in fully registered form without coupons and in denominations of $2,000 and integral multiples of $1,000. Subject to the limitations provided in the indenture and in the prospectus supplement, debt securities that are issued in registered form may be transferred or exchanged at the office of the trustee provided in the applicable prospectus supplement or the principal corporate trust office of the trustee, without the payment of any service charge, other than any tax or other governmental charge payable in connection therewith.

Any debt securities may be guaranteed by one or more of our direct or indirect subsidiaries. Each prospectus supplement will describe any guarantees for the benefit of the series of debt securities to which it relates, including required financial information of the subsidiary guarantors, as applicable.

The debt securities of a series may be issued in whole or in part in the form of one or more global securities that will be deposited with, or on behalf of, a depositary (the “depositary”) identified in the prospectus supplement. Global securities will be issued in registered form and in either temporary or definitive form. Unless and until it is exchanged in whole or in part for the individual debt securities, a global security may not be transferred except as a whole by the depositary for such global security to a nominee of such depositary or by a nominee of such depositary to such depositary or another nominee of such depositary or by such depositary or any such nominee to a successor of such depositary or a nominee of such successor. The specific terms of the depositary arrangement with respect to any debt securities of a series and the rights of and limitations upon owners of beneficial interests in a global security will be described in the applicable prospectus supplement.

The indenture, the debt securities and the guarantees shall be construed in accordance with and governed by the laws of the State of New York.

The following briefly summarizes the material terms of our preferred stock, other than pricing and related terms that will be disclosed in an accompanying prospectus supplement. You should read the particular terms of any series of preferred stock offered by us, which will be described in more detail in any prospectus supplement relating to such series, together with the more detailed provisions of our restated articles of incorporation, as amended, and the certificate of designation relating to each particular series of preferred stock for provisions that may be important to you. The certificate of designation relating to the particular series of preferred stock offered by an accompanying prospectus supplement and this prospectus will be filed as an exhibit to a report incorporated by reference into the prospectus. If any terms of the preferred stock described in any prospectus supplement are inconsistent with the general terms summarized below, the terms described in the prospectus supplement will supersede these general terms.

As of the date of this prospectus, we are authorized to issue up to 5,000,000 shares of preferred stock, par value $.10 per share. As of December 15, 2006, no shares of our preferred stock were outstanding. Under our restated articles of incorporation, as amended, our board of directors is authorized to issue shares of preferred stock in one or more series, and to establish from time to time a series of preferred stock with the following terms specified:

Prior to the issuance of any series of preferred stock, our board of directors will adopt resolutions creating and designating the series as a series of preferred stock and the resolutions will be filed in a certificate of designation as an amendment to the restated articles of incorporation. The term “board of directors” includes any duly authorized committee.

The rights of holders of the preferred stock offered may be adversely affected by the rights of holders of any shares of preferred stock that may be subsequently issued. Our board of directors, in its discretion, may cause shares of preferred stock to be issued in public or private transactions. Shares of preferred stock we issue may have the effect of rendering more difficult or discouraging an acquisition of us deemed undesirable by our board of directors.

The preferred stock will be, when issued, fully paid and nonassessable. Holders of preferred stock will not have any preemptive or subscription rights to acquire more of our stock.

The transfer agent, registrar, dividend disbursing agent and redemption agent for shares of each series of preferred stock will be named in the prospectus supplement relating to such series.

Unless otherwise specified in the prospectus supplement relating to the shares of a series of preferred stock, such shares will rank on an equal basis with each other series of preferred stock and prior to the common stock as to dividends and distributions of assets.

Holders of each series of preferred stock will be entitled to receive cash dividends when, as and if declared by our board of directors out of funds legally available for dividends. The rates and dates of payment of dividends will be set forth in the prospectus supplement relating to each series of preferred stock. Dividends will be payable to holders of record of preferred stock as they appear on our books or, if applicable, the records of the depositary referred to below on the record dates fixed by the board of directors. Dividends on a series of preferred stock may be cumulative or noncumulative. Dividends may be paid in shares of common stock or other securities as set forth in the prospectus supplement relating to each series of preferred stock.

We may not declare, pay or set apart for payment dividends on the preferred stock unless full dividends on other series of preferred stock that rank on a senior basis have been paid or sufficient funds have been set apart for payment for:

Partial dividends declared on shares of preferred stock and each other series of preferred stock ranking on an equal basis as to dividends will be declared pro rata. A pro rata declaration means that the ratio of dividends declared per share to accrued dividends per share will be the same for each series of preferred stock.

Similarly, we may not declare, pay or set apart for payment non-stock dividends or make other payments on the common stock or any other of our stock ranking junior to the preferred stock until full dividends on the preferred stock have been paid or set apart for payment for:

The prospectus supplement for a series of preferred stock will state the terms, if any, on which shares of that series are convertible into or exchangeable for shares of our common stock, our preferred stock, our other securities or the debt or equity securities of one or more other entities.

If so specified in the applicable prospectus supplement, a series of preferred stock may be redeemable at any time, in whole or in part, at our option or the option of the holder thereof and may be mandatorily redeemed. Any partial redemptions of preferred stock will be made in a way that the board of directors decides is equitable.

Unless we default in the payment of the redemption price, dividends will cease to accrue after the redemption date on shares of preferred stock called for redemption and all rights of holders of such shares will terminate except for the right to receive the redemption price.

No series of preferred stock will receive the benefit of a sinking fund except as set forth in the applicable prospectus supplement.

Upon any voluntary or involuntary liquidation, dissolution or winding up, holders of each series of preferred stock will be entitled to receive distributions upon liquidation in the amount set forth in the prospectus supplement relating to such series of preferred stock, plus an amount equal to any accrued and unpaid dividends. Such distributions will be made before any distribution is made on any securities ranking junior relating to liquidation, including common stock.

If the liquidation amounts payable relating to the preferred stock of any series and any other securities ranking on a parity regarding liquidation rights are not paid in full, the holders of the preferred stock of such series and such other securities will share in any such distribution of our available assets on a ratable basis in proportion to the full liquidation preferences. Holders of such series of preferred stock will not be entitled to any other amounts from us after they have received their full liquidation preference.

The following description is a summary of elements of our capital stock and is subject to and qualified in its entirety by reference to the more complete descriptions set forth in our restated articles of incorporation, as amended, and our rights agreement, which are attached as exhibits to the registration statement of which this prospectus supplement forms a part.

We are authorized to issue 150,000,000 shares of common stock, $.10 par value. All of the issued and outstanding shares of our common stock are fully paid and nonassessable. Our common stock is entitled to such dividends as may be declared from time to time by our board of directors in accordance with applicable law. Our ability to pay dividends is dependent upon a number of factors, including our future earnings, capital requirements, general financial condition, general business conditions and other factors.

Except as provided under Missouri law, only the holders of our common stock will be entitled to vote for the election of members to our board of directors and on all other matters. Holders of our common stock are entitled to one vote per share of common stock held by them on all matters properly submitted to a vote of shareholders, subject to Section 351.407 of the General and Business Corporation Law of Missouri. See “—Statutory Provisions.” Shareholders have no cumulative voting rights, which means that the holders of shares entitled to exercise more than 50% of the voting power are able to elect all of the directors to be elected. Our board of directors is divided into three classes, with staggered terms of three years each.

All shares of common stock are entitled to participate equally in distributions in liquidation. Holders of common stock have no preemptive rights to subscribe for or purchase our shares. There are no conversion rights, sinking fund or redemption provisions applicable to our common stock.

The transfer agent for our common stock is Continental Stock Transfer & Trust Company.

We have entered into a rights agreement pursuant to which one common stock purchase right is associated with each outstanding share of our common stock. Each share of our common stock issued by us prior to the expiration of the rights agreement will have attached a right. Under circumstances described below, the rights will entitle the holder of the rights to purchase additional shares of our common stock. Unless the context requires otherwise, all references in this prospectus to our common stock include the accompanying rights.

Currently, the rights are not exercisable and trade with our common stock. If the rights become exercisable, then each full right, unless held by a person or group that beneficially owns more than 20% our outstanding common stock, will initially entitle the holder to purchase one share of our common stock at a purchase price of $120, subject to adjustment. The rights will become exercisable only at the time of a public announcement that, without our prior consent, a person or group has acquired ownership of 20% or more of our outstanding common stock, or ten days after a person or group has made a tender or exchange offer, or announced an intention to make a tender or exchange offer, which would result in that person or group owning 20% or more of our outstanding common stock.

Under some circumstances, including the existence of a 20% acquiring party, each holder of a right, other than the acquiring party, will be entitled to purchase at the right’s then-current exercise price, shares of our common stock having a market value of two times the exercise price. If another

corporation acquires us after a party acquires 20% or more of our common stock, then each holder of a right will be entitled to receive the acquiring corporation’s common shares having a market value of two times the exercise price.

The rights may be redeemed at a price of $0.05 at any time until a party acquires 20% or more of our common stock and, after that time, under certain circumstances. The rights expire on May 25, 2008, subject to extension. The rights do not have voting or dividend rights and, until they become exercisable, have no dilutive effect on our earnings.

The rights will not be triggered if a person becomes a beneficial owner of 20% or more of our outstanding common stock if that person represents to us that the person did not intend to own 20% or more of our outstanding common stock, that the person intends within five business days to sell enough of our common stock to own less than 20% and the person does in fact sell those shares to an unaffiliated party.

Under our articles of incorporation, our board of directors is divided into three classes of directors serving staggered terms of three years each. Each class is to be as nearly equal in number as possible, with one class being elected each year. Our articles of incorporation also provide that:

Our articles of incorporation provide that we may merge or consolidate with another corporation or dispose of all or substantially all of our assets only by obtaining the approval of not less than 66²/3% of the aggregate voting power of our outstanding stock entitled to vote. However, if any shareholder is a controlling shareholder by owning more than 20% of the voting power of our outstanding stock, then in order for us to merge, consolidate or dispose of all or substantially all of our assets, we must:

Section 351.459 of the General and Business Corporation Law of Missouri imposes a five-year prohibition on business combinations between certain Missouri corporations and an interested shareholder. An interested shareholder is a shareholder beneficially owning 20% or more of the voting stock of the Missouri corporation or who is an affiliate or associate of the Missouri corporation and at any time within the five-year period immediately prior to the date in question was the beneficial owner of 20% or more of the voting stock of the Missouri corporation.

The five-year prohibition does not apply if the business combination or the stock acquisition in which the interested shareholder became such is approved by the board of directors of the corporation on or prior to the stock acquisition date. Even after the expiration of the five-year period, business

combinations between the Missouri corporation and the interested shareholder are prohibited except for the following business combinations:

Section 351.407 of the General and Business Corporation Law of Missouri provides for limited voting rights for persons making a control share acquisition, which is the acquisition, directly or indirectly, of ownership of, or the power to direct the exercise of voting power with respect to control shares, which are the number of issued and outstanding shares of the corporation, which would entitle the holder to exercise or direct the exercise of the voting power of the issuing public corporation in the election of directors within any of the following ranges of voting power:

Shares of a corporation held for more than ten years are not deemed to be control shares. There are several exceptions to the control share acquisition statute, including an exception for an acquisition pursuant to a merger or consolidation. Control shares acquired in a control share acquisition have the same voting rights as were accorded the shares before the control share acquisition only to the extent granted by resolution approved by the holders of a majority of the shares entitled to vote of the issuing public corporation.

A Missouri corporation may opt out of Section 351.407 by amending its articles of incorporation. Our articles of incorporation do not contain such a provision. Therefore, we are subject to the control share acquisition statute.

The following table sets forth our ratio of earnings to fixed charges for the periods indicated:

During the periods presented in the table above, no preferred shares were outstanding.

We intend to use the net proceeds from the sales of the securities as set forth in the applicable prospectus supplement.

In connection with particular offerings of the securities in the future, and if stated in the applicable prospectus supplements, the validity of those securities may be passed upon for the Company by Thompson Coburn LLP, St. Louis, Missouri, and for any underwriters or agents by counsel named in the applicable prospectus supplement. Richard J. Jaudes, is a director of Baldor and is a partner at Thompson Coburn LLP.

Ernst & Young LLP, independent registered public accounting firm, has audited Baldor Electric Company and Affiliates’ consolidated financial statements and schedule included in our Annual Report on Form 10-K for the year ended December 31, 2005, and management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 as set forth in their reports, which are incorporated by reference in the registration statement. Our financial statements and schedule and management’s assessment are incorporated by reference in reliance on Ernst & Young LLP’s reports, given on their authority as experts in accounting and auditing.

The financial statements of Power Systems Group of Rockwell Automation, Inc. as of September 30, 2006 and 2005 and for each of the three years in the period ended September 30, 2006 incorporated in this prospectus by reference from the Current Report on Form 8-K of Baldor Electric Company dated January 8, 2007 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the adoption of Statement of Financial Accounting Standard No. 123R, Share-Based Payment and of FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations), which is incorporated herein by reference and has been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

We have not authorized any dealer, sales-person or other person to give any information or represent anything to you other than the information contained in this prospectus supplement. You must not rely on unauthorized information or representations. You should not assume that the information in this prospectus supplement and accompanying prospectus are accurate as of any date after their respective dates.


PRELIMINARY PROSPECTUS SUPPLEMENT	Subject to Completion	January 8, 2007
(To Prospectus dated January 8, 2007)


	Per Note	Total
Public offering price	%	$
Underwriting discounts and commissions	%	$
Proceeds, before expenses, to us	%	$


Sources of Funds	Amount		Uses of Funds	Amount
	(in millions)			(in millions)
Revolving loan(1)	$	0	Purchase price for the Acquired Business	$	1,800
Term loan		1,000	Repayment of substantially all of Baldor’s existing indebtedness(4)		95
Notes offered hereby		550	Acquisition fees and expenses		13
Mandatorily convertible preferred stock(2)		150	Financing Transactions fees and expenses		42
Common stock issued in concurrent offering(2)		200
Common stock issued to Rockwell Automation(3)		50

Total	$	1,950	Total	$	1,950


	Historical										Pro Forma
	Year Ended						Nine Months Ended				Year Ended December 31, 2005			Nine Months Ended September 30, 2006
(Dollars in thousands, except per share data)	January 3, 2004		January 1, 2005		December 31, 2005		October 1, 2005		September 30, 2006		Year Ended December 31, 2005			Nine Months Ended September 30, 2006
Statement of Earnings Data:
Net sales	$	561,391	$	648,195	$	721,569	$	538,907	$	610,826	$	1,603,719		$	1,356,728
Cost of goods sold		413,953		479,664		527,502		399,414		450,175		1,202,504			997,088

Gross profit		147,438		168,531		194,067		139,493		160,651		401,215			359,640
Selling and administrative		107,120		114,906		124,668		90,377		99,956		250,718			203,294

Operating profit		40,318		53,625		69,399		49,116		60,695		150,497			156,346
Other income, net		1,960		1,938		1,976		1,349		835		2,212			2,411
Interest expense		2,949		3,235		4,080		2,954		4,562		130,435			97,886

Earnings before income taxes		39,329		52,328		67,295		47,511		56,968		22,274			60,871
Income taxes		14,550		17,276		24,274		17,617		21,022		8,124			22,169

Net earnings	$	24,779	$	35,052	$	43,021	$	29,894	$	35,946	$	14,150		$	38,702
Preferred stock dividends		—		—		—		—		—		(10,688	)		(8,016	)

Net earnings available to common shareholders	$	24,779	$	35,052	$	43,021	$	29,894	$	35,946	$	3,462		$	30,686

Earnings Per Share Data:
Net earnings per share—basic	$	0.75	$	1.06	$	1.30	$	0.90	$	1.10	$	0.08		$	0.76
Net earnings per share—diluted	$	0.74	$	1.05	$	1.28	$	0.89	$	1.09	$	0.08		$	0.75
Weighted average shares outstanding—basic		32,928,369		32,953,382		33,170,241		33,185,585		32,589,502		40,999,521			40,418,782
Weighted average shares outstanding—diluted		33,404,733		33,485,261		33,727,946		33,762,071		32,988,590		41,557,226			40,817,870
Dividends declared and paid per common share	$	0.53	$	0.57	$	0.62	$	0.46	$	0.50	$	0.62		$	0.50
Balance Sheet Data (at period end):
Cash and cash equivalents	$	10,635	$	12,054	$	11,474	$	16,544	$	15,535				$	15,535
Total current assets		276,293		299,085		296,456		310,084		324,298					655,684
Total assets		478,355		502,900		506,441		515,718		535,298					2,886,844
Current liabilities		104,491		85,940		107,501		91,733		117,293					208,941
Total debt		105,284		104,025		95,025		99,418		105,025					1,560,025
Total liabilities		216,867		219,285		206,986		219,907		231,268					2,197,897
Total shareholders’ equity		261,488		283,615		299,455		295,811		304,030					688,947
Other Financial Information:
Net cash provided by operating activities	$	65,007	$	33,696	$	55,873	$	37,792	$	40,180
Net cash used in investing activities		32,835		16,764		23,712		13,522		5,908
Net cash used in financing activities		46,052		15,513		32,741		19,780		30,211
Depreciation and amortization		18,839		19,143		18,241		13,541		14,567		44,957			34,314
Additions to property, plant and equipment		17,368		20,612		22,375		15,595		14,351
EBITDA (1)		61,117		74,706		89,616		64,006		76,097		197,666			193,071
Ratio of earnings to fixed charges (2)		10.6		13.2		14.5		14.1		11.9


	Historical										Pro Forma
	Year Ended						Nine Months Ended				Year Ended December 31, 2005		Nine Months Ended September 30, 2006
(in thousands)	January 3, 2004		January 1, 2005		December 31, 2005		October 1, 2005		September 30, 2006		Year Ended December 31, 2005		Nine Months Ended September 30, 2006
Net earnings	$	24,779	$	35,052	$	43,021	$	29,894	$	35,946	$	14,150	$	38,702
Income taxes		14,550		17,276		24,274		17,617		21,022		8,124		22,169
Interest expense		2,949		3,235		4,080		2,954		4,562		130,435		97,886
Depreciation and amortization		18,839		19,143		18,241		13,541		14,567		44,957		34,314

EBITDA	$	61,117	$	74,706	$	89,616	$	64,006	$	76,097	$	197,666	$	193,071


	As of September 30, 2006
	Actual			Pro Forma
	(in thousands)
Cash, cash equivalents and marketable securities(1)	$	39,978		$	39,978

Long-term debt, including current portion:
Revolving loan(2)	$	—		$	—
Term loan		—			1,000,000
Notes offered hereby		—			550,000
Notes payable to banks due 2006-2009(1)		103,000			8,000
Industrial development bonds due 2013		2,025			2,025

Total long-term debt, including current portion		105,025			1,560,025

Shareholders’ equity:
Preferred stock, $0.10 par value; 5,000,000 shares authorized; Mandatorily convertible preferred stock 600,000 shares issued, entitled in liquidation to $150,000		—			144,175
Common stock, $0.10 par value; 150,000,000 shares authorized; 41,394,120 shares issued and 49,223,400 shares issued pro forma		4,139			4,922
Additional paid-in capital		86,435			326,394
Retained earnings		396,809			396,809
Accumulated other comprehensive income		5,771			5,771
Treasury stock, at cost, 9,075,406 shares		(189,124	)		(189,124	)

Total shareholders’ equity		304,030			688,947

Total capitalization	$	409,055		$	2,248,972


	Historical					Pro Forma
	Baldor			Power Systems		Retention Adjustments			Transaction Adjustments			Baldor Pro Forma
Assets
Current Assets:
Cash and cash equivalents	$	15,535		$	6,559	$	(6,559	) f	$			$	15,535
Marketable securities		24,443			—		—			—			24,443
Receivables, less allowances for doubtful accounts		130,410			136,309		(761	) b		—			265,958
Inventories		113,348			188,051		—			—			301,399
Other current assets		40,562			22,616		(18,194	) c,d		3,365	t		48,349

Total current assets		324,298			353,535		(25,514	)		3,365			655,684
Net property, plant and equipment		140,034			203,150		—			96,600	j,s		439,784
Goodwill		63,279			147,208		—			745,858	k		956,345
Other intangible assets, net		—			179,538		(145	) a		610,607	g		790,000
Prepaid pension		—			110,596		(109,953	) a		—			643
Other assets		7,687			26,980		(24,767	) a,b		34,488	i,t		44,388

Total assets	$	535,298		$	1,021,007	$	(160,379	)	$	1,490,918		$	2,886,844

Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	55,143		$	75,546	$	(311	) b	$	—		$	130,378
Employee compensation		8,165			20,589		(9,674	) e		—			19,080
Profit sharing		7,516			—		—			—			7,516
Accrued warranty costs		5,661			3,238		—			—			8,899
Other accrued expenses		15,808			28,786		(508	) b		(1,018	) s		43,068
Current maturities of long-term obligations		25,000			760		—			(25,760	) h,o		—

Total current liabilities		117,293			128,919		(10,493	)		(26,778	)		208,941
Long-term obligations		80,025			—		—			1,480,000	o		1,560,025
Retirement benefits		—			85,611		(59,056	) a		28,377	p		54,932
Other liabilities		437			68,987		(25,738	) a,b		(28,470	) s		15,216
Deferred income taxes		33,513			93,449		(93,449	) a,c		325,270	q		358,783
Shareholders’ Equity:
Mandatorily convertible preferred stock		—			—		—			144,175	n		144,175
Common stock, $0.10 par value		4,139			—		—			783	m		4,922
Additional paid-in capital		86,435			—		—			239,959	m		326,394
Total Rockwell Automation's invested equity		—			644,041		28,357	r		(672,398	) l		—
Retained earnings		396,809			—		—			—			396,809
Accumulated other comprehensive income		5,771			—		—			—			5,771
Treasury stock		(189,124	)		—		—			—			(189,124	)

Total shareholders’ equity		304,030			644,041		28,357			(287,481	)		688,947

Total liabilities and shareholders’ equity	$	535,298		$	1,021,007	$	(160,379	)	$	1,490,918		$	2,886,844


	Historical					Pro Forma
	Fiscal Year Ended December 31, 2005		Fiscal Year Ended September 30, 2005			Retention Adjustments			Transaction Adjustments			Baldor Pro Forma
	Baldor		Power Systems			Retention Adjustments			Transaction Adjustments			Baldor Pro Forma
Net sales	$	721,569	$	901,055		$	(18,905	) 3	$	—		$	1,603,719
Cost of goods sold		527,502		672,514			(15,874	) 3		18,362	1,5,7,10		1,202,504

Gross profit		194,067		228,541			(3,031	)		(18,362	)		401,215
Selling and administrative		124,668		133,207			(682	) 2,4		(6,475	) 9,10		250,718

Operating profit (1)		69,399											150,497
Other income, net		1,976		(1,086	)		1,322	2,6		—			2,212
Interest expense		4,080		17			—			126,338	8		130,435

Earnings before income taxes		67,295		94,231			(1,027	)		(138,225	)		22,274
Income taxes		24,274		32,353			(401	) 11		(48,102	) 11		8,124

Net earnings	$	43,021	$	61,878		$	(626	)	$	(90,123	)	$	14,150
Preferred stock dividends		—		—			—			(10,688	) 14		(10,688	)

Net earnings available to common shareholders	$	43,021	$	61,878		$	(626	)	$	(100,811	)	$	3,462

Net earnings per share— basic	$	1.30										$	0.08
Net earnings per share—diluted	$	1.28										$	0.08
Weighted average shares outstanding—basic		33,170,241								7,829,280 12			40,999,521
Weighted average shares outstanding—diluted		33,727,946								7,829,280 12			41,557,226


	Historical				Pro Forma
	Nine Months Ended September 30, 2006		Nine Months Ended June 30, 2006		Retention Adjustments			Transaction Adjustments			Baldor Pro Forma
	Baldor		Power Systems		Retention Adjustments			Transaction Adjustments			Baldor Pro Forma
Net sales	$	610,826	$	761,546	$	(15,644	) 3	$	—		$	1,356,728
Cost of goods sold		450,175		545,425		(12,686	) 2,3		14,174	1,5,7,10,13		997,088

Gross profit		160,651		216,121		(2,958	)		(14,174	)		359,640
Selling and administrative		99,956		108,366		(600	) 2,4		(4,428	) 9,10		203,294

Operating profit (1)		60,695										156,346
Other income, net		835		1,576		—			—			2,411
Interest expense		4,562		1,396		—			91,928	8,13		97,886

Earnings before income taxes		56,968		107,935		(2,358	)		(101,674	)		60,871
Income taxes		21,022		40,907		(920	) 11		(38,840	) 11		22,169

Net earnings	$	35,946	$	67,028	$	(1,438	)	$	(62,834	)	$	38,702
Preferred stock dividends		—		—		—			(8,016	) 14		(8,016	)

Net earnings available to common shareholders	$	35,946	$	67,028	$	(1,438	)	$	(70,850	)	$	30,686

Net earnings per share—basic	$	1.10									$	0.76
Net earnings per share—diluted	$	1.09									$	0.75
Weighted average shares outstanding—basic		32,589,502							7,829,280	12		40,418,782
Weighted average shares outstanding—diluted		32,988,590							7,829,280	12		40,817,870


Sources			Uses
Revolving loan		—	Purchase price for the Acquired Business	$	1,800,000
Term loan	$	1,000,000	Acquisition fees and expenses		12,950
Notes offered hereby		550,000	Financing Transactions fees and expenses		42,050
Mandatorily convertible preferred stock		150,000	Repayment of Baldor’s existing indebtedness		95,000
Common stock		200,000
Common stock issued to Rockwell Automation		50,000

Total Sources	$	1,950,000	Total Uses	$	1,950,000


	Amount
Cash and common stock to Rockwell	$	1,800,000
Estimated fees and expenses		12,950

Total estimated preliminary purchase price	$	1,812,950


	Amount			Estimated useful life
Net tangible assets at book value	$	345,797
Increase fixed assets to fair value		110,000		10 years
Intangible assets
Customer relationships		275,000		28 years
Trade names		405,000		indefinite
Technology		110,000		7 to 15 years
Indemnified liabilities		10,886
Short-term debt repaid by Rockwell Automation prior to closing		760
Increase in pension and post retirement obligations assumed by Baldor		(28,377	)
Reversal of deferred gains on sale – leaseback		16,088
Deferred tax liability		(325,270	)
Goodwill		893,066

Total estimated preliminary purchase price	$	1,812,950


	Year Ended										Nine Months Ended
(Dollars in thousands, except per share data)	December 29, 2001		December 28, 2002		January 3, 2004		January 1, 2005		December 31, 2005		October 1, 2005		September 30, 2006
Statement of Earnings Data:
Net sales	$	557,459	$	549,507	$	561,391	$	648,195	$	721,569	$	538,907	$	610,826
Cost of goods sold		405,888		401,360		413,953		479,664		527,502		399,414		450,175

Gross profit		151,571		148,147		147,438		168,531		194,067		139,493		160,651
Selling and administrative		111,972		108,147		107,120		114,906		124,668		90,377		99,956

Operating profit		39,599		40,000		40,318		53,625		69,399		49,116		60,695
Other income, net		839		1,383		1,960		1,938		1,976		1,349		835
Interest expense		4,906		3,454		2,949		3,235		4,080		2,954		4,562

Earnings before income taxes		35,532		37,929		39,329		52,328		67,295		47,511		56,968
Income taxes		13,147		14,034		14,550		17,276		24,274		17,617		21,022

Net earnings	$	22,385	$	23,895	$	24,779	$	35,052	$	43,021	$	29,894	$	35,946

Earnings Per Share Data:
Net earnings per share—basic	$	0.66	$	0.70	$	0.75	$	1.06	$	1.30	$	0.90	$	1.10

Net earnings per share—diluted	$	0.65	$	0.69	$	0.74	$	1.05	$	1.28	$	0.89	$	1.09

Weighted average shares outstanding—basic		33,896,164		34,060,853		32,928,369		32,953,382		33,170,241		33,185,585		32,589,502

Weighted average shares outstanding—diluted		34,505,550		34,622,136		33,404,733		33,485,261		33,727,946		33,762,071		32,988,590

Dividends declared and paid per common share	$	0.52	$	0.52	$	0.53	$	0.57	$	0.62	$	0.46	$	0.50


(In thousands)	Total		Payments due by years
(In thousands)	Total		Less than 1		2-3		4-5		More than 5
Contractual Obligations:
Long-term debt obligations (a)	$	101,831	$	29,132	$	54,823	$	15,663	$	2,213
Operating lease obligations		14,025		1,990		4,262		3,618		4,155
Other Commercial Commitments:
Letters of credit		2,257		2,257		—		—		—


(in thousands, except percentages)	2005			2006			Increase
Sales	$	437,826		$	487,904		$	50,078
Segment EBIT		82,077			109,118			27,041
Segment EBIT margin		18.7	%		22.4	%		3.7	pts


BNP PARIBAS		LEHMAN BROTHERS


Product Type	Power Range/Output	Main Applications/Industries
General Purpose*	Fractional – 1,500 HP	Blowers Fans Pumps Conveyors Semiconductor
Washdown Duty*	Fractional – 20 HP	Food Processing Pharmaceuticals
Severe Duty*	1 – 1,500 HP	Chemical Processing Petroleum Processing Aggregate
Explosion Proof	1 – 300 HP	Petroleum Processing Chemical Processing


LOCATION	PRIMARY USE	AREA (SQ. FT.)
Fort Smith, AR	AC motor production	384,969
	Distribution and service center	208,000
	Administration and engineering offices	79,675
	Aluminum die casting	79,330
	Drives production center	162,000

St. Louis, MO	Metal stamping and engineering toolroom	187,385

Columbus, MS	AC motor production	156,000	(a)

Westville, OK	AC and DC motor production	207,250

Fort Mill, SC	DC motor and AC motor production	108,000

Clarksville, AR	Subfractional AC and DC motors, gear motors and worm-gear speed reducers production	165,735	(a)

Ozark, AR	AC motor production	151,783

Four other domestic locations	Metal stamping and motor, drives, and generator production	256,400

15 foreign locations	Sales and distribution centers and electronic controls production	117,579	(b)

		2,264,106


LOCATION	PRIMARY USE	AREA (SQ. FT.)
	Reliance Electric Products

Athens, GA	Small and medium AC motor production	320,000	(a)

Gainsville, GA	Specialty, variable speed motors and small and medium AC and DC motor production for the electrical business	220,000	(a)

Kings Mountain, NC	Large AC, large DC, mining and hermetic motor production	245,000	(a)

Madison, IN	Small AC and hermetic motor production	213,200	(a)

	Dodge Products

Asheville, NC	Couplings, bushings and sheaves production	166,000	(a)

Belton, SC	Enclosed worm and helical gearing production	90,000

Clio, SC	Conveyor pulleys Torque Arm motor mounts and bearing take-up frames production	165,400

Columbus, IN	Clutch/brake modules, enclosed helical and custom gearing, large-bore roller and Sleevoil hydrodynamic bearings production	220,000	(a)

Greenville, SC	Shaft mount and concentric gear reducers production	239,000	(a)

Marion, NC	Mounted roller bearings production	174,000

Rogersville, TN	Mounted ball bearings and plain bearings production	221,000	(a)

	International Locations

Stratford, Canada	Large AC motor and CST production for both the electrical and mechanical businesses	55,000	(a)

Guadalajara, Mexico	Ball, roller and spherical bearings, V-belt and synchronous sheaves production and Quantis assembly center for the mechanical business	79,700

Shanghai, China	CST and RPM AC motor production for both the electrical and mechanical businesses	88,000	(a)

	Headquarters

Greenville, SC	Power Systems Headquarters	69,000

Cleveland, OH	Advanced Technology Laboratory Headquarters	6,300	(a)

		2,571,600


Name	Age	Position	Years with Baldor	Served as Officer Since
John A. McFarland	55	Chairman and Chief Executive Officer; former positions with Baldor include President, Executive Vice President Sales and Marketing, and Vice President International Sales	36	1990

Ronald E. Tucker	49	President, Chief Financial Officer and Secretary; former positions with Baldor include Controller, Treasurer, Director of Audit Services	23	1997

Randall P. Breaux	44	Vice President—Marketing; former positions with Baldor include Vice President—Customer Service and National Sales Manager	17	2001

Roger V. Bullock	56	Vice President—Drives; former position with Baldor includes Drives General Manager	20	2002

Randy L. Colip	47	Vice President—Sales; former positions with Baldor include National Sales Manager and Regional Sales Manager	18	1997

Gene J. Hagedorn	59	Vice President—Materials; former positions with Baldor include Materials Manager and Director of Audit Services	32	1994

Tracy L. Long	40	Vice President—Investor Relations and Assistant Secretary; former positions with Baldor include Treasurer and Manager of Treasury and Investor Development	18	2003

L. Edward Ralston	37	Vice President—Finance and Treasurer; former position with Baldor includes Director of Audit Services	11	2005

Ronald W. Thurman	52	Vice President—Engineering; former positions with Baldor include Manager of Design Engineering and Plant Manager	18	2005

Randal G. Waltman	57	Vice President—Operations; former positions with Baldor include Plant Manager and Manager of Design Engineering	22	1997


Name	Age	Principal Occupation/Affiliations
John A. McFarland	55	Baldor’s Chairman of the Board since January 2005, Chief Executive Officer since January 2000, President from 1996 through December 2004.

Merlin J. Augustine, Jr.	63	Assistant Vice Chancellor of Finance and Administration and Director of Customer Relations at the University of Arkansas in Fayetteville; Founder and Chief Executive Officer of M&N Augustine Foundation for Human Development, Inc. established in 1992.

Robert L. Proost	69	Financial Consultant and Lawyer; Former Director, Corporate Vice President, Chief Financial Officer, and Director of Administration of A.G. Edwards & Sons, Inc., a securities brokerage and investment banking firm which previously provided investment banking services to Baldor (retired 2001); Former Director, Vice President, and Chief Financial Officer of A.G. Edwards, Inc. (NYSE), and of various subsidiaries (retired 2001).

Jefferson W. Asher, Jr.	82	Independent Management Consultant, providing assistance to corporations, attorneys, banking institutions, and other creditors, for more than five years; Director of OhCal Foods, Inc. since January 2005.

Richard E. Jaudes	63	Partner at Thompson Coburn LLP, a law firm that provides legal counsel to Baldor.

Robert J. Messey	60	Senior Vice President and Chief Financial Officer of Arch Coal, Inc. (NYSE), the nation’s second largest coal producer in the United States; Director of Stereotaxis, Inc. (NASDAQ) since May 2005.

R. L. Qualls	73	Independent Business and Financial Consultant, providing assistance to corporations, including Baldor; Former Vice Chairman of the Board, Chief Executive Officer, and President (retired 2000); Director of Bank of the Ozarks, Inc. (NASDAQ) since 1997.

Barry K. Rogstad	66	Former President of the American Business Conference, a coalition of mid-size fast-growing firms, which promotes public policies to encourage growth, job creation, and a higher standard of living for all Americans, for more than five years (retired 2002); Former Partner and Chief Economist with Coopers and Lybrand.

Jean A. Mauldin	49	Chief Financial Officer of Merial Limited, a world-leading animal health company headquartered in Duluth, Georgia since June 2002; Former President of Phelps Dodge Wire and Cable, a division of Phelps Dodge Corporation.


Name	Amount and Nature of Beneficial Ownership		Percent of Class Prior to Transactions(1)		Percent of Class Following Transactions(1)
The Baldor Electric Company Employees’ Profit Sharing and Savings Plan P. O. Box 2400 Fort Smith, Arkansas 72902	2,538,617	(2)	7.8	%	6.3	%
Lord, Abbett & Co. LLC 90 Hudson Street Jersey City, New Jersey 07302	2,418,119	(3)	7.5		6.0
T. Rowe Price Associates, Inc. 100 E. Pratt Street Baltimore, Maryland 21202	2,336,040	(4)	7.2		5.8
John A. McFarland	403,949	(5)	1.2		1.0
R. L. Qualls	212,441	(6)	*		*
Charles H. Cramer	187,741	(7)	*		*
Gene J. Hagedorn	132,408	(8)	*		*
Jefferson W. Asher, Jr.	112,059	(9)	*		*
Robert L. Proost	100,991	(10)	*		*
Ronald E. Tucker	107,406	(11)	*		*
Randal G. Waltman	73,031	(12)	*		*
Robert J. Messey	71,697	(13)	*		*
Richard E. Jaudes	38,748	(14)	*		*
Barry K. Rogstad	34,580	(15)	*		*
Merlin J. Augustine, Jr.	34,000	(16)	*		*
Jean A. Mauldin	100	(17)	*		*
All executive officers and directors as a group (19 persons)	1,797,174	(18)	5.4		4.5


Year	Percentage
2012	%
2013	%
2014	%
2015 and thereafter	100.000	%


Underwriters		Principal Amount of notes
BNP Paribas Securities Corp.		$
Lehman Brothers Inc.
SunTrust Capital Markets, Inc.


Total		$550,000,000


		Page
Baldor Electric Company
Audited Financial Statements:
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets—as of December 31, 2005 and January 1, 2005		F-3
Consolidated Statements of Earnings—for the year ended December 31, 2005, January 1, 2005 and January 3, 2004		F-5
Consolidated Statements of Cash Flows—for the year ended December 31, 2005, January 1, 2005 and January 3, 2004		F-6
Consolidated Statements of Shareholders’ Equity—for the year ended December 31, 2005, January 1, 2005 and January 3, 2004		F-7
Notes to Consolidated Financial Statements		F-8

Unaudited Interim Financial Statements:
Consolidated Balance Sheets—as of September 30, 2006 and December 31, 2005		F-21
Consolidated Statements of Earnings—for the nine months ended September 30, 2006 and October 1, 2005		F-23
Consolidated Statements of Cash Flows—for the nine months ended September 30, 2006 and October 1, 2005		F-24
Notes to Unaudited Condensed Consolidated Financial Statements		F-25

Power Systems Group of Rockwell Automation, Inc.
Independent Auditors’ Report		F-33
Balance Sheets—as of September 30, 2006 and 2005		F-34
Statements of Operations—for the year ended September 30, 2006, 2005 and 2004		F-35
Statements of Cash Flows—for the year ended September 30, 2006, 2005 and 2004		F-36
Statements of Changes in Rockwell Automation’s Invested Equity and Comprehensive Income for the year ended September 30, 2006, 2005 and 2004		F-37
Notes to Financial Statements		F-38


	Year Ended
	Dec 31, 2005			Jan 1, 2005
	(In thousands, except share data)
Assets
Current Assets:
Cash and cash equivalents	$	11,474		$	12,054
Marketable securities		32,592			32,392
Receivables, less allowances for doubtful accounts of $3,124 in 2005 and $3,308 in 2004		106,327			102,428
Inventories:
Finished products		76,632			81,078
Work in process		12,670			12,239
Raw materials		60,401			59,732

		149,703			153,049
LIFO valuation adjustment		(35,607	)		(31,544	)

		114,096			121,505
Prepaid expenses		4,482			3,920
Other current assets and deferred income taxes		27,485			26,786

Total Current Assets		296,456			299,085
Property, Plant And Equipment:
Land and improvements		6,813			6,126
Buildings and improvements		56,980			60,179
Machinery and equipment		320,340			303,281
Allowances for depreciation and amortization		(243,838	)		(232,376	)

Net property, plant and equipment		140,295			137,210

Other Assets:
Goodwill		63,043			62,785
Other		6,647			3,820

Total Assets	$	506,441		$	502,900

Liabilities And Shareholders’ Equity
Current Liabilities:
Accounts payable	$	37,036		$	39,075
Employee compensation		9,201			7,825
Profit sharing		8,938			6,885
Accrued warranty costs		5,584			6,335
Accrued insurance obligations		7,421			11,613
Other accrued expenses		9,026			7,377
Dividends payable		5,295			4,959
Income taxes payable		—			1,871
Current maturities of long-term obligations		25,000			—

Total Current Liabilities		107,501			85,940
Long-Term Obligations		70,025			104,025

Other Liabilities		393			—

Deferred Income Taxes		29,067			29,320


	Common Stock			Additional Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock (at cost)
	Shares	Amount		Additional Capital		Retained Earnings						Treasury Stock (at cost)			Total
	(in thousands)
BALANCE AT DECEMBER 29, 2002	39,693	$	3,969	$	48,657	$	331,373		$	(4,880	)	$	(104,521	)	$	274,598
Comprehensive income
Net earnings							24,779									24,779
Other comprehensive income (loss)
Securities valuation adjustment, net of tax benefits of $85,000										(145	)					(145	)
Translation adjustments										2,809						2,809
Derivative unrealized gain adjustment, net of tax expense of $985,000										1,541						1,541

Total other comprehensive income																4,205

Total comprehensive income																28,984

Stock option plans (net of 134,890 shares exchanged and $321,000 tax benefit)	325		33		5,026								(3,011	)		2,048
Cash dividends at $0.53 per share							(17,518	)								(17,518	)
Acquisition							62									62
Common stock repurchased (1,500,000 shares)													(26,686	)		(26,686	)

BALANCE AT JANUARY 3, 2004	40,018	$	4,002	$	53,683	$	338,696		$	(675	)	$	(134,218	)	$	261,488
Comprehensive income
Net earnings							35,052									35,052
Other comprehensive income (loss)
Securities valuation adjustment, net of tax benefits of $92,000										(157	)					(157	)
Translation adjustments										1,746						1,746
Derivative unrealized gain adjustment, net of tax expense of $87,000										136						136

Total other comprehensive income																1,725

Total comprehensive income																36,777

Stock option plans (net of 124,769 shares exchanged and $630,000 tax benefit)	405		40		7,434								(3,072	)		4,402
Cash dividends at $0.57 per share							(19,052	)								(19,052	)

BALANCE AT JANUARY 1, 2005	40,423	$	4,042	$	61,117	$	354,696		$	1,050		$	(137,290	)	$	283,615
Comprehensive income
Net earnings							43,021									43,021
Other comprehensive income (loss)
Securities valuation adjustment, net of tax benefits of $245,000										(418	)					(418	)
Translation adjustments										(1,978	)					(1,978	)
Derivative unrealized loss adjustment, net of tax benefits of $667,000										(1,044	)					(1,044	)

Total other comprehensive income																(3,440	)

Total comprehensive income																39,581

Stock option plans (net of 120,289 shares exchanged and $494,000 tax benefit)	384		39		7,445								(3,105	)		4,379
Cash dividends at $0.62 per share							(20,563	)								(20,563	)
Common stock repurchased (300,231 shares)													(7,557	)		(7,557	)

BALANCE AT DECEMBER 31, 2005	40,807	$	4,081	$	68,562	$	377,154		$	(2,390	)	$	(147,952	)	$	299,455


*2005*
Net income, as reported				$	43,021
Add:	Stock-based compensation expense included in reported net income, net of tax effects				831
Less:	Stock-based compensation expense determined under fair value method, net of related tax effects				(1,654	)

Pro forma net income				$	42,198


		Basic		Diluted
Earnings per share:
Reported		$	1.30	$	1.28
Pro forma		$	1.27	$	1.25
*2004*
Net income, as reported				$	35,052
Add:	Stock-based compensation expense included in reported net income, net of tax effects				161
Less:	Stock-based compensation expense determined under fair value method, net of related tax effects				(632	)

Pro forma net income				$	34,581


		Basic		Diluted
Earnings per share:
Reported		$	1.06	$	1.05
Pro forma		$	1.05	$	1.03
*2003*
Net income, as reported				$	24,779
Add:	Stock-based compensation expense included in reported net income, net of tax effects				446
Less:	Stock-based compensation expense determined under fair value method, net of related tax effects				(807	)

Pro forma net income				$	24,418


		Basic		Diluted
Earnings per share:
Reported		$	0.75	$	0.74
Pro forma		$	0.74	$	0.73


	December 31, 2005			January 1, 2005
	(In thousands)
Balance at beginning of year	$	6,335		$	6,625
Charges to costs and expenses		5,027			5,486
Deductions		(5,778	)		(5,776	)

Balance at end of year	$	5,584		$	6,335


	December 31, 2005
	Less than 12 months				12 months or more				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
	(In thousands)
U.S. corporate debt securities	$	854	$	96	$	1,227	$	122	$	2,081	$	218
Obligations of states and political subdivisions		8,383		110		9,765		257		18,148		367
Securities of U.S. Government agencies		4,442		62		7,538		212		11,980		274

Total temporarily impaired securities	$	13,679	$	268	$	18,530	$	591	$	32,209	$	859


	January 1, 2005
	Less than 12 months				12 months or more				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
	(In thousands)
U.S. corporate debt securities	$	1,446	$	28	$	—	$	—	$	1,446	$	28
Obligations of states and political subdivisions		7,059		320		4,993		78		12,052		398
Securities of U.S. Government agencies		4,771		29		3,947		54		8,718		83

Total temporarily impaired securities	$	13,276	$	377	$	8,940	$	132	$	22,216	$	509


	Unrealized Gains (Losses) on						Foreign Currency Translation Adjustments			Total Accumulated Other Comprehensive Income (Loss)
	Securities			Derivatives			Foreign Currency Translation Adjustments			Total Accumulated Other Comprehensive Income (Loss)
	(In thousands)
Balance at December 29, 2002	$	181		$	(61	)	$	(5,000	)	$	(4,880	)
Net change 2003		(145	)		1,541			2,809			4,205

Balance at January 3, 2004		36			1,480			(2,191	)		(675	)
Net change 2004		(157	)		136			1,746			1,725

Balance at January 1, 2005		(121	)		1,616			(445	)		1,050
Net change 2005		(418	)		(1,044	)		(1,978	)		(3,440	)

Balance at December 31, 2005	$	(539	)	$	572		$	(2,423	)	$	(2,390	)


	1990 Plan	1987 and 1994 Plans	1989, 1996 and 2001 Plans
Type	Non-compensatory	Compensatory	Compensatory
Administrator	Compensation & Stock Option Committee	Compensation & Stock Option Committee	Executive Committee
Recipients	District Managers	Employees	Non-employee Directors
Status	Active	Active - 1994 Plan Expired - 1987 Plan	Active - 2001 Plan Expired -1989 & 1996 Plans


Options Outstanding at Fiscal Year-End	Granted at Market		Granted at Market		Granted at Less than Market		Granted at Market		Granted at Less than Market
Range of exercise prices	$	17.06-$24.75	$	14.44-$27.60	$	7.22-$20.70	$	15.38-$24.81	$	7.69-$11.70
Options outstanding		104,052		1,927,155		215,601		169,776		79,711
Weighted-average exercise price	$	22.29	$	22.20	$	11.53	$	21.89	$	10.62
Weighted-average remaining contractual life		3.9 years		5.7 years		6.2 years		5.9 years		5.1 years
Options currently exercisable		57,552		1,237,115		214,601		169,776		79,711
Weighted-average exercise price	$	20.31	$	20.53	$	11.49	$	21.89	$	10.62


Weighted Average Variables	2005	2004	2003
Volatility	1.0%	1.4%	2.0%
Risk-free interest rates	3.8%	4.0%	3.7%
Dividend yields	2.2%	2.3%	2.6%
Expected option life	5.2 years	7.5 years	6.7 years
Remaining contractual life	5.7 years	5.2 years	5.4 years


	Exercise Price			Fair Value		Exercise Price			Fair Value		Exercise Price			Fair Value
Per share price of options granted during year
At market price	$	27.05		$	1.87	$	23.85		$	2.34	$	20.27		$	1.45
At less than market price	$	13.63		$	7.59	$	11.70		$	6.14	$	10.11		$	4.55

Stock Option Activity	Shares			Weighted Average Price/ Share		Shares			Weighted Average Price/ Share		Shares			Weighted Average Price/ Share
Total options outstanding
Beginning Balance		2,269,875		$	18.82		2,491,187		$	17.99		2,499,790		$	17.26
Granted		677,966			25.07		244,600			23.10		421,500			18.85
Exercised		(384,196	)		15.66		(404,793	)		15.79		(325,170	)		16.30
Expired		(67,350	)		22.97		(61,119	)		22.42		(104,933	)		19.13

Ending Balance		2,496,295			20.89		2,269,875			18.82		2,491,187			17.99

Shares authorized for grant		8,141,600					8,141,600					8,141,600
Shares exercisable, at year end		1,758,755			19.10		1,907,875			18.32		1,993,787			17.29
Shares reserved for future grants, at year end		668,845					1,280,867					1,466,348


	(unaudited)
	Sep 30, 2006			Dec 31, 2005
	(In thousands, except share data)
Assets
Current Assets:
Cash and cash equivalents	$	15,535		$	11,474
Marketable securities		24,443			32,592
Receivables, less allowances for doubtful accounts of $1,616 at September 30, 2006 and $3,124 at December 31, 2005		130,410			106,327
Inventories:
Finished products		72,997			76,632
Work in process		14,431			12,670
Raw materials		64,312			60,401

		151,740			149,703
LIFO valuation adjustment		(38,392	)		(35,607	)

		113,348			114,096
Prepaid expenses		3,200			4,482
Other current assets and deferred income taxes		37,362			27,485

Total Current Assets		324,298			296,456
Property, Plant And Equipment:
Land and improvements		6,852			6,813
Buildings and improvements		61,867			56,980
Machinery and equipment		325,759			320,340
Allowances for depreciation and amortization		(254,444	)		(243,838	)

Net Property, Plant And Equipment		140,034			140,295
Other Assets:
Goodwill		63,279			63,043
Other		7,687			6,647

Total Assets	$	535,298		$	506,441

Liabilities And Shareholders’ Equity
Current Liabilities:
Accounts payable	$	55,143		$	37,036
Employee compensation		8,165			9,201
Profit sharing		7,516			8,938
Accrued warranty costs		5,661			5,584
Accrued insurance obligations		5,470			7,421
Dividends payable		—			5,295
Other accrued expenses		10,338			9,026
Current maturities of long-term obligations		25,000			25,000

Total Current Liabilities		117,293			107,501
Long-Term Obligations		80,025			70,025

Other Liabilities		437			393

Deferred Income Taxes		33,513			29,067