Altra Industrial Motion
Altra Holdings, Inc. (Form: 10-Q, Received: 08/09/2011 06:03:33)
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 2011
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 001-33209
ALTRA HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
     
Delaware   61-1478870
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
300 Granite Street, Suite 201, Braintree, MA   02184
(Address of principal executive offices)   (Zip code)
(781) 917-0600
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large Accelerated filer o   Accelerated filer þ   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company.)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of August 5, 2011, 26,846,529 shares of Common Stock, $.001 par value per share, were outstanding.
 
 

 

 


 

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  EX-2.1 Sale and Purchase Agreement among Danfoss Bauer GmbH, Danfoss A/S and Altra Holdings, Inc. (and certain of its subsidiaries), dated February 25, 2011.
  EX-31.1 Section 302 Certification of Chief Executive Officer
  EX-31.2 Section 302 Certification of Chief Financial Officer
  EX-32.1 Section 906 Certification of Chief Executive Officer
  EX-32.2 Section 906 Certification of Chief Financial Officer
  EX-101 INSTANCE DOCUMENT
  EX-101 SCHEMA DOCUMENT
  EX-101 CALCULATION LINKBASE DOCUMENT
  EX-101 LABELS LINKBASE DOCUMENT
  EX-101 PRESENTATION LINKBASE DOCUMENT

 

 


Table of Contents

Item 1.   Financial Statements
ALTRA HOLDINGS, INC.
Condensed Consolidated Balance Sheets
Amounts in thousands, except share amounts
                 
    July 2,     December 31,  
    2011     2010  
    (Unaudited)  
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 90,487     $ 72,723  
Trade receivables, less allowance for doubtful accounts of $1,293 and $1,111 at July 2, 2011 and December 31, 2010, respectively
    108,373       67,403  
Inventories
    119,630       88,217  
Deferred income taxes
    4,413       4,414  
Income tax receivable
    3,834       4,126  
Assets held for sale
          1,484  
Prepaid expenses and other current assets
    6,712       4,168  
 
           
Total current assets
    333,449       242,535  
 
               
Property, plant and equipment, net
    125,572       105,298  
Intangible assets, net
    82,769       69,250  
Goodwill
    85,072       76,897  
Deferred income taxes
    78       82  
Other non-current assets, net
    16,558       14,040  
 
           
Total assets
  $ 643,498     $ 508,102  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 49,829     $ 40,812  
Accrued payroll
    19,477       18,486  
Accruals and other current liabilities
    38,514       24,142  
Deferred income taxes
    54       59  
Current portion of long-term debt
    958       3,393  
 
           
Total current liabilities
    108,832       86,892  
 
               
Commitments and contingencies (Note 14)
               
Long-term debt — less current portion and net of unaccreted discount
    274,476       213,109  
Deferred income taxes
    29,987       20,558  
Pension liablities
    12,015       11,031  
Long-term taxes payable
    11,283       10,892  
Other long-term liabilities
    1,005       868  
Stockholders’ equity:
               
Common stock ($0.001 par value, 90,000,000 shares authorized, 26,495,025 and 26,466,216 issued and outstanding at July 2, 2011 and December 31, 2010, respectively)
    26       26  
Additional paid-in capital
    149,800       133,861  
Retained earnings
    65,176       45,536  
Accumulated other comprehensive income
    (9,102 )     (14,671 )
 
           
Total stockholders’ equity
    205,900       164,752  
 
           
 
               
Total liabilities and stockholders’ equity
  $ 643,498     $ 508,102  
 
           
The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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ALTRA HOLDINGS, INC.
Condensed Consolidated Statements of Income
Amounts in thousands, except per share data
                                 
    Quarter Ended     Year to Date Ended  
    July 2,     July 3,     July 2,     July 3,  
    2011     2010     2011     2010  
    (Unaudited)     (Unaudited)  
Net sales
  $ 165,395     $ 132,988     $ 325,242     $ 260,694  
Cost of sales
    116,985       92,861       228,997       183,164  
 
                       
Gross profit
    48,410       40,127       96,245       77,530  
 
                               
Operating expenses:
                               
Selling, general and administrative expenses
    26,912       22,215       52,428       43,187  
Research and development expenses
    2,426       1,631       4,743       3,410  
Restructuring expense
          642             1,688  
 
                       
 
    29,338       24,488       57,171       48,285  
 
                               
Income from operations
    19,072       15,639       39,074       29,245  
 
                               
Other non-operarting (income) expense:
                               
Interest expense, net
    6,153       4,956       11,316       9,896  
Other non-operating (income) expense, net
    (599 )     727       (885 )     1,022  
 
                       
 
    5,554       5,683       10,431       10,918  
 
                               
Income before income taxes
    13,518       9,956       28,643       18,327  
Provision for income taxes
    4,600       3,117       9,003       5,749  
 
                       
 
                               
Net income
  $ 8,918     $ 6,839     $ 19,640     $ 12,578  
 
                       
 
                               
Consolidated Statement of Comprehensive (loss) income
                               
Minimum pension liability adjustment
  $     $ (343 )   $     $ (343 )
Foreign currency translation adjustment
    (149 )     (5,187 )     5,569       (8,833 )
 
                       
Comprehensive income
  $ 8,769     $ 1,309     $ 25,209     $ 3,402  
 
                       
 
                               
Weighted average shares, basic
    26,491       26,362       26,491       26,349  
Weighted average shares, diluted
    26,613       26,487       26,657       26,465  
 
                               
Net income per share:
                               
Basic
  $ 0.34     $ 0.26     $ 0.74     $ 0.48  
Diluted
  $ 0.34     $ 0.26     $ 0.74     $ 0.48  
The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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ALTRA HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
Amounts in thousands
                 
    Year to Date Ended  
    July 2, 2011     July 3, 2010  
    (Unaudited)  
 
   
Cash flows from operating activities
               
Net income
  $ 19,640     $ 12,578  
Adjustments to reconcile net income to net cash flows:
               
Depreciation
    8,420       8,192  
Amortization of intangible assets
    2,863       2,350  
Amortization and write-offs of deferred financing costs
    784       416  
(Gain) loss on foreign currency, net
    (158 )     361  
Accretion of debt discount, net
    1,045       148  
Fixed asset impairment/disposal
          207  
Stock-based compensation
    1,374       1,120  
Changes in assets and liabilities:
               
Trade receivables
    (22,275 )     (18,570 )
Inventories
    (8,318 )     (4,023 )
Accounts payable and accrued liabilities
    6,301       19,099  
Other current assets and liabilities
    (625 )     (1,672 )
Other operating assets and liabilities
    (1,896 )     (173 )
 
           
Net cash provided by operating activities
    7,155       20,033  
 
           
Cash flows from investing activities
               
Purchase of property, plant and equipment
    (8,898 )     (7,762 )
Additional purchase price paid for acquisition
          (1,177 )
Proceeds from sale of Chattanooga Facility
    1,484        
Acquisition of Bauer, net of $41 cash received
    (62,291 )      
 
           
Net cash used in investing activities
    (69,705 )     (8,939 )
 
           
Cash flows from financing activities
               
Payment of issuance costs for Convetible Notes
    (3,414 )      
Payment of issuance costs for 8 1 / 8 Senior Secured Notes
          (122 )
Proceeds from issuance of Convertible Notes
    85,000        
Shares surrendered for tax withholdings
    (65 )     (288 )
Redemption of bonds related to Chattanooga
    (2,290 )      
Payment on mortgages
    (197 )     (418 )
Net payments on capital leases
    (400 )     (381 )
 
           
Net cash provided by (used in) financing activities
    78,634       (1,209 )
 
           
Effect of exchange rate changes on cash and cash equivalents
    1,680       (3,179 )
 
           
Net change in cash and cash equivalents
    17,764       6,706  
Cash and cash equivalents at beginning of year
    72,723       51,497  
 
           
Cash and cash equivalents at end of period
  $ 90,487     $ 58,203  
 
           
 
               
Cash paid during the period for:
               
Interest
  $ 8,737     $ 9,636  
Income taxes
  $ 8,290     $ 860  
The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
1. Organization and Nature of Operations
Headquartered in Braintree, Massachusetts, Altra Holdings, Inc. (the “Company”), through its wholly-owned subsidiary Altra Industrial Motion, Inc. (“Altra Industrial”), is a leading multi-national designer, producer and marketer of a wide range of mechanical power transmission products. The Company brings together strong brands covering over 50 product lines with production facilities in nine countries and sales coverage in over 70 countries. The Company’s leading brands include Boston Gear, Warner Electric, TB Wood’s, Formsprag Clutch, Ameridrives Couplings, Industrial Clutch, Kilian Manufacturing, Marland Clutch, Nuttall Gear, Stieber Clutch, Wichita Clutch, Twiflex Limited, Bibby Transmissions, Matrix International, Inertia Dynamics, Huco Dynatork, Warner Linear, and Bauer Gear Motor.
2. Basis of Presentation
The Company was formed on November 30, 2004 following acquisitions of The Kilian Company (“Kilian”) and certain subsidiaries of Colfax Corporation (“Colfax”). During 2006, the Company acquired Hay Hall Holdings Limited (“Hay Hall”) and Bear Linear (“Warner Linear”). On April 5, 2007, the Company acquired TB Wood’s Corporation (“TB Wood’s”), and on October 5, 2007, the Company acquired substantially all of the assets of All Power Transmission Manufacturing, Inc. (“All Power”). On May 29, 2011, the Company acquired substantially all of the assets of Danfoss Bauer GmbH relating to its gear motor business (“Bauer”).
The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America. These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position as of July 2, 2011 and December 31, 2010, results of operations for the quarter and year to date periods ended July 2, 2011 and July 3, 2010, and cash flows for the year to date periods ended July 2, 2011 and July 3, 2010.
The December 31, 2010 consolidated balance sheet data presented for the Company follows a four, four, five week calendar per quarter with all quarters consisting of thirteen weeks of operations with the fiscal year end always on December 31.
3. Fair Value of Financial Instruments
The carrying values of financial instruments, including accounts receivable, cash equivalents, accounts payable and other accrued liabilities, approximate their fair values due to their short-term maturities. The carrying amount of the 8 1 / 8 % Senior Secured Notes was $210.0 million at each of July 2, 2011 and December 31, 2010. The estimated fair value of the 8 1 / 8 % Senior Secured Notes at July 2, 2011 and December 31, 2010 was $226.8 million and $221.0 million, respectively, based on quoted market prices for such notes (level 1).
The carrying amount of the 2.75% Convertible Senior Notes was $85.0 million at July 2, 2011. The estimated fair value of the 2.75% Convertible Senior Notes at July 2, 2011, was $97.1 million, based on quoted market prices for such notes (level 1).
Included in cash and cash equivalents as of July 2, 2011 and December 31, 2010 are money market fund investments of $55.1 million and $34.0 million, respectively, which are reported at fair value based on quoted market prices for such investments (level 1).
4. Net Income per Share
Basic earnings per share is based on the weighted average number of shares of common stock outstanding, and diluted earnings per share is based on the weighted average number of shares of common stock outstanding and all potentially dilutive common stock equivalents outstanding. Common stock equivalents are included in the per share calculations when the effect of their inclusion would be dilutive.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
The following is a reconciliation of basic to diluted net income per share:
                                 
    Quarter Ended     Year to Date Ended  
    July 2,     July 3,     July 2,     July 3,  
    2011     2010     2011     2010  
 
                               
Net income
  $ 8,918     $ 6,839     $ 19,640     $ 12,578  
 
                               
Shares used in net income per common share — basic
    26,491       26,362       26,491       26,349  
 
                               
Incremental shares of unvested restricted common stock
    122       125       166       116  
 
                       
Shares used in net income per common share — diluted
    26,613       26,487       26,657       26,465  
 
                               
Earnings per share:
                               
Basic
  $ 0.34     $ 0.26     $ 0.74     $ 0.48  
Diluted
  $ 0.34     $ 0.26     $ 0.74     $ 0.48  
The Company excluded 784,890 shares related to the Convertible Senior Notes (See Note 11) from the above earnings per share calculation as these shares were anti-dilutive.
5. Acquisitions
In May 2011, the Company consummated an agreement to acquire substantially all of the assets and liabilities of Danfoss Bauer GmbH relating to its gear motor business for a cash consideration of €43.1 million ($62.3 million). Following closing, the Company made additional payments in the amount of €4.7 million ($6.8 million) to reflect an adjustment for working capital and other items.
Bauer is a European manufacturer of high-quality gear motors, offering engineered solutions to a variety of industries, including material handling, metals, food processing and energy. In addition to a presence in Germany, Bauer has a well-established sales network in 15 additional countries in Western and Eastern Europe, China, and the United States. The Company expects that the Bauer acquisition will be accretive to earnings in 2011 and future periods. The Bauer acquisition opened certain previously underpenetrated geographic regions and the Company believes it will provide a favourable environment to continue to further execute the Company’s acquisition strategy.
The closing date of the Bauer acquisition was May 29, 2011, and as a result, the Company’s consolidated financial statements reflect Bauer’s results of operations from the beginning of business on May 30, 2011 forward. Revenue and earnings for the one month of Bauer activity included in the quarter and year to date period ended July 2, 2011 was $8.8 million and -$0.9 million, respectively.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
The Company is in the process of completing its final purchase price allocation. The value of the acquired assets, assumed liabilities and identified intangibles from the acquisition of Bauer, as presented below, are based upon the Company’s preliminary estimate of the fair value as of the date of the acquisition. The purchase price allocation as of the acquisition date is as follows:
         
Total purchase price, excluding acquisition costs of approximately $2.9 million
  $ 62,332  
Cash and cash equivalents
    41  
Trade receivables
    18,248  
Inventories
    21,397  
Prepaid expenses and other
    2,331  
Property, plant and equipment
    18,516  
Intangible assets
    15,458  
 
     
Total assets acquired
  $ 75,991  
Accounts payable
    3,946  
Accrued expenses and other current liabilities
    7,571  
Other liabilities
    9,019  
 
     
Total liabilities assumed
  $ 20,536  
Net assets acquired
    55,455  
Excess purchase price over fair value of net assets acquired
  $ 6,877  
 
     
The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill. The Company is currently in the process of analyzing tax deductable goodwill for Bauer. The Company expects to develop synergies, such as lower cost country sourcing, global procurement, ability to cross-sell product, as well as penetrating certain geographic areas, as a result of the acquisition of Bauer.
The estimated amounts recorded as intangible assets consist of the following:
         
Customer relationships, subject to amortization
  $ 12,063  
Trade names and trademarks, not subject to amortization
    3,395  
 
     
Total intangible assets
  $ 15,458  
 
     
Customer relationships are subject to amortization which will be straight-lined over their estimated useful lives of 9 years representing the anticipated period over which the Company estimates it will benefit from the acquired assets.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
The following table sets forth the unaudited pro forma results of operations of the Company for the year and quarter to date periods ended July 2, 2011 and July 3, 2010 as if the Company had acquired Bauer at the beginning of the respective periods. The pro forma information contains the actual operating results of the Company and Bauer, adjusted to include the pro forma impact of (i) additional depreciation expense as a result of estimated depreciation on fair value of fixed assets; (ii) additional expense as a result of estimated amortization of identifiable intangible assets; (iii) additional interest expense associated with the Convertible Notes issued on March 7, 2011 in connection with the Bauer acquisition; (iv) elimination of certain acquisition related costs; and (v) the elimination of additional expense as a result of fair value adjustment to inventory recorded in connection with the acquisition. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisitions occurred at the beginning of the respective periods or that may be obtained in the future.
                                 
    Pro Forma (unaudited)     Pro Forma (unaudited)  
    Quarter to Date Period Ended     Year to Date Period Ended  
    July 2,     July 3,     July 2,     July 3,  
    2011     2010     2011     2010  
Total revenues
  $ 185,153     $ 159,955     $ 375,173     $ 310,800  
Net income
  $ 11,029     $ 5,701     $ 22,521     $ 8,102  
Basic earnings per share:
                               
Net income
  $ 0.42     $ 0.22     $ 0.85     $ 0.31  
Diluted earnings per share:
                               
Net income
  $ 0.41     $ 0.22     $ 0.84     $ 0.31  
6. Inventories
Inventories located at certain subsidiaries are stated at the lower of cost or market, principally using the last-in, first-out (“LIFO”) method. The remaining subsidiaries are stated at the lower of cost or market, using the first-in, first-out (“FIFO”) method. Market is defined as net realizable value. Inventories at July 2, 2011 and December 31, 2010 consisted of the following:
                 
    July 2,     December 31,  
    2011     2010  
Raw materials
  $ 48,676     $ 32,826  
Work in process
    25,788       16,223  
Finished goods
    45,166       39,168  
 
           
Inventories
  $ 119,630     $ 88,217  
 
           
Approximately 10% of total inventories were valued using the LIFO method as of July 2, 2011 and approximately 12% of total inventories were valued using the LIFO method as of December 31, 2010. The Company recorded a $0.1 million provision as a component of cost of sales to value the inventory on a LIFO basis for each of the quarters ended July 2, 2011 and July 3, 2010. The Company recorded a $0.3 million adjustment and $0.2 million adjustment as a component of cost of sales to value the inventory on a LIFO basis for the year to date periods ended July 2, 2011 and July 3, 2010, respectively.
As part of the Bauer acquisition, the Company valued the acquired inventory at estimated fair market value less cost to sell. The resulting valuation increased the carrying value of the inventory by $0.5 million and was included as part of cost of goods sold during the second quarter of 2011.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
7. Goodwill and Intangible Assets
Changes to goodwill from December 31, 2010 through July 2, 2011 were as follows:
         
    2011  
Gross goodwill balance as of January 1
  $ 108,707  
Additional goodwill from Bauer acquisition
    6,877  
Impact of changes in foreign currency
    1,298  
 
     
Gross goodwill balance as of July 2
    116,882  
 
     
 
       
Accumulated impairment as of January 1
    (31,810 )
Impairment charge during the period
     
 
     
Accumulated impairment as of July 2
    (31,810 )
 
     
Net goodwill balance July 2, 2011
  $ 85,072  
 
     
Other intangible assets as of July 2, 2011 and December 31, 2010 consisted of the following:
                                 
    July 2, 2011     December 31, 2010  
            Accumulated             Accumulated  
    Cost     Amortization     Cost     Amortization  
Other intangible assets
                               
Intangible assets not subject to amortization:
                               
Tradenames and trademarks
  $ 34,125     $     $ 30,730     $  
Intangible assets subject to amortization:
                               
Customer relationships
    74,101       26,194       62,038       23,821  
Product technology and patents
    5,632       5,409       5,435       4,919  
Impact of changes in foreign currency
    514             (213 )      
 
                       
Total intangible assets
  $ 114,372     $ 31,603     $ 97,990     $ 28,740  
 
                       
Related to the Bauer acquisition, the Company recorded an additional $15.5 million of intangible assets of which $12.1 million related to customer relationships which will be amortized on a straight line basis over 9 years, and $3.4 million related to tradenames and trademarks which are unamortized.
The Company recorded $1.5 million and $1.0 million of amortization expense in each of the quarters ended July 2, 2011 and July 3, 2010, respectively, and recorded $2.9 million and $2.4 million of amortization expense in the year to date periods ended July 2, 2011 and July 3, 2010, respectively.
The estimated amortization expense for intangible assets is approximately $3.4 million for the remainder of 2011, $6.8 million in 2012, and $6.3 million in each of the next three years and then $19.6 million thereafter.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
8. Warranty Costs
The contractual warranty period generally ranges from three months to two years with a few extending up to thirty-six months based on product and application of the product. Changes in the carrying amount of accrued product warranty costs for each of the year to date periods ended July 2, 2011 and July 3, 2010 are as follows:
                 
    July 2,     July 3,  
    2011     2010  
 
               
Balance at beginning of period
  $ 3,583     $ 4,047  
Additional warranty related to Bauer
  $ 825     $  
Accrued current period warranty expense
    262       702  
Payments
    (975 )     (1,346 )
 
           
Balance at end of period
  $ 3,695     $ 3,403  
 
           
9. Income Taxes
The estimated effective income tax rates recorded for the quarters ended July 2, 2011 and July 3, 2010, were based upon management’s best estimate of the effective tax rate for the entire year.
The Company and its subsidiaries file a consolidated federal income tax return in the United States as well as consolidated and separate income tax returns in various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities in all of these jurisdictions. With the exception of certain foreign jurisdictions, the Company is no longer subject to income tax examinations for the tax years prior to 2007. Additionally, the Company has indemnification agreements with the sellers of the Colfax, Kilian and Hay Hall entities, which provide for reimbursement to the Company for payments made in satisfaction of tax liabilities relating to pre-acquisition periods.
10. Pension and Other Employee Benefits
Defined Benefit (Pension) and Post-retirement Benefit Plans
The Company sponsors various defined benefit (pension) and post-retirement (medical, dental and life insurance coverage) plans for certain, primarily unionized, active employees.
The following table represents the components of the net periodic benefit cost associated with the respective plans for the quarter and year to date periods ended July 2, 2011 and July 3, 2010:
                                 
    Quarter Ended  
    Pension Benefits     Other Benefits  
    July 2,     July 3,     July 2,     July 3,  
    2011     2010     2011     2010  
Service cost
  $ 25     $     $     $  
Interest cost
    291       314       4       7  
Expected return on plan assets
    (266 )     (305 )            
Amortization of prior service income
                      (171 )
Amortization of net gain
    7             (13 )     (41 )
 
                       
Net periodic benefit cost (income)
  $ 57     $ 9     $ (9 )   $ (205 )
 
                       

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
                                 
    Year to Date Ended  
    Pension Benefits     Other Benefits  
    July 2,     July 3,     July 2,     July 3,  
    2011     2010     2011     2010  
Service cost
  $ 50     $     $ 1     $ 1  
Interest cost
    572       628       8       13  
Expected return on plan assets
    (512 )     (610 )            
Amortization of prior service income
                (1 )     (343 )
Amortization of net gain
    25             (26 )     (81 )
 
                       
Net periodic benefit cost (income)
  $ 135     $ 18     $ (18 )   $ (410 )
 
                       
The Company made $2.3 million of payments to the pension plan in the year to date period ended July 2, 2011 of which $0.8 million where required payments.
11. Debt
Outstanding debt obligations at July 2, 2011 and December 31, 2010 were as follows:
                 
    July 2,     December 31,  
    2011     2010  
 
               
Debt:
               
Revolving Credit Agreement
  $     $  
Convertible Notes
    85,000        
Senior Secured Notes
    210,000       210,000  
Variable rate demand revenue bonds
    3,000       5,300  
Mortgages
    2,397       2,372  
Capital leases
    800       1,257  
 
           
Total debt
    301,197       218,929  
Less: debt discount, net of accretion
    (25,763 )     (2,427 )
 
           
Total long-term debt, net of unaccreted discount
  $ 275,434     $ 216,502  
 
           
Less current portion of long-term debt
    958       3,393  
 
           
Total long-term debt
  $ 274,476     $ 213,109  
 
           
Convertible Senior Notes
On March 7, 2011, the Company issued $85.0 million of Convertible Senior Notes (the “Convertible Notes”) due on March 1, 2031. Interest on the Convertible Notes is payable semiannually in arrears, on March 1 and September 1 of each year, commencing on September 1, 2011 at an annual rate of 2.75%. Proceeds from the offering were $81.6 million, net of fees and expenses which were capitalized. The proceeds from the offering were used in part to fund the acquisition of substantially all the assets and liabilities of Danfoss Bauer GmbH relating to its gear motor business and also to bolster the Company’s cash position.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
The Convertible Notes will mature on March 1, 2031, unless earlier redeemed, repurchased by the Company or converted, and are convertible into cash or shares, or a combination thereof, at the Company’s election. The Convertible Notes are convertible into shares of the Company’s common stock based on an initial conversion rate, subject to adjustment, of 36.0985 shares per $1,000 principle amount of notes (which represents an initial conversion price of approximately $27.70 per share of our common stock), in certain circumstances. Prior to March 1, 2030, the Convertible Notes are convertible only in the following circumstances: (1) during any fiscal quarter commencing after June 30, 2011 if the last reported sale price of the Company’s common stock is greater than or equal to 130% of the applicable conversion price for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; (2) during the five business day period after any 10 consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principle amount of notes for each trading day in the measurement period was less than 97% of the product of the last reported sale price of the Company’s common stock and the conversion rate on such trading day; (3) if the Convertible Notes have been called for redemption; or (4) upon the occurrence of specified corporate transactions. On or after March 1, 2030, and ending at the close of business on the second business day immediately preceding the maturity date, holders may convert their Convertible Notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of common stock, or a combination thereof, at the Company’s election. The Company intends to settle the principle amount in cash and any additional amounts in shares of stock.
If a fundamental change occurs, the Convertible Notes are redeemable at a price equal to 100% of the principle amount of the notes to be repurchased, plus accrued and unpaid interest (including contingent interest and additional interest, if any) to, but excluding, the repurchase date. The Convertible Notes are also redeemable on each of March 1, 2018, March 1, 2021, and March 1, 2026 for cash at a price equal to 100% of the principle amount of the notes to be repurchased, plus accrued and unpaid interest (including contingent interest and additional interest, if any) to, but excluding, the option repurchase date.
On or after March 1, 2015, the Company may call all or part of the Convertible Notes at a redemption price equal to 100% of the principle amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, plus a “make-whole premium” payment in cash, shares of the Company’s common stock, or combination thereof, at the Company’s option, equal to the sum of the present values of the remaining scheduled payments of interest on the Convertible Notes to be redeemed through March 1, 2018 to, but excluding, the redemption date, if the last reported sale price of the Company’s common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the trading day prior to the date the Company provides notice of redemption exceeds 130% of the conversion price in effect on each such trading day. On or after March 1, 2018, the Company may redeem for cash all or a portion of the notes at a redemption price of 100% of the principle amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest (including contingent and additional interest, if any) to, but not including, the redemption date.
The Company separately accounted for the debt and equity components of the Convertible Notes to reflect the issuer’s non-convertible debt borrowing rate, which interests costs are to be recognized in subsequent periods. The note payable principal balance at the date of issuance of $85.0 million was bifurcated into a debt component of $60.5 million and an equity component of $24.5 million. The difference between the note payable principal balance and the value of the debt component is being accreted to interest expense over the term of the notes. The debt component was recognized at the present value of associated cash flows discounted using a 8.25% discount rate, the borrowing rate at the date of issuance for a similar debt instrument without a conversion feature. The Company paid approximately $3.4 million of issuance costs associated with the Convertible Notes. The Company recorded $1.0 million of debt issuance costs as an offset to additional paid-in capital. The balance of $2.4 million of debt issuance costs is classified as other non-current assets and will be amortized over the term of the notes using the effective interest method.
The carrying amount of the equity component and the principal amount of the liability component, the unamortized discount, and the net carrying amount are as follows as of July 2, 2011:
         
    July 2,  
    2011  
 
       
Principal amount of debt
  $ 85,000  
Unamortized discount
    23,604  
 
     
Carrying value of debt
  $ 61,396  
 
     

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Interest expense associated with the Convertible Notes consisted of the following for the year to date period ended July 2, 2011:
         
    July 2,  
    2011  
 
       
Contractual coupon rate of interest
  $ 779  
Accretion of convertible notes discount and amortization of deferred financing costs
    1,002  
 
     
Interest expense for the Convertible Notes
  $ 1,781  
 
     
The effective interest yield of the Convertible Notes due in 2031 is 8.5% at July 2, 2011 and the cash coupon interest rate is 2.75%.
Senior Secured Notes
In November 2009, the Company issued 8 1 / 8 % Senior Secured Notes (the “Senior Secured Notes”) with a face value of $210 million. Interest on the Senior Secured Notes is payable semi-annually in arrears, on June 1 and December 1 of each year, commencing on June 1, 2010 at an annual rate of 8 1 / 8 %. The effective interest rate of the Senior Secured Notes was approximately 8.75% after consideration of the $6.7 million of deferred financing costs (included in other non-current assets) which are being amortized over the term using the effective interest method. The principal balance of the Senior Secured Notes matures on December 1, 2016.
The Senior Secured Notes are guaranteed by the Company’s U.S. domestic subsidiaries and are secured by a second priority lien, subject to first priority liens securing the Revolving Credit Agreement, on substantially all of the Company’s assets and those of its domestic subsidiaries. The indenture governing the Senior Secured Notes contains covenants which restrict the Company and its subsidiaries. These restrictions limit or prohibit, among other things, the Company’s ability to incur additional indebtedness; repay subordinated indebtedness prior to stated maturities; pay cash dividends on or redeem or repurchase stock or make other distributions; make investments or acquisitions; sell certain assets or merge with or into other companies; sell stock in our subsidiaries; and create liens on their assets. There are no financial covenants associated with the Senior Secured Notes.
Revolving Credit Agreement
Concurrently with the closing of the offering of the Senior Secured Notes, Altra Industrial entered into a new senior secured credit facility (the “Revolving Credit Agreement”), that provides for borrowing capacity in an initial amount of up to $50.0 million (subject to adjustment pursuant to a borrowing base and subject to increase from time to time in accordance with the terms of the credit facility). The Revolving Credit Agreement replaced Altra Industrial’s then existing senior secured credit facility (the “Old Revolving Credit Agreement”), and the TB Wood’s existing credit facility (the “Old TB Wood’s Revolving Credit Agreement”). The Company can borrow up to $37.5 million under the Revolving Credit Agreement without being required to comply with any financial covenants under the agreement. The Company may use up to $30.0 million of its availability under the Revolving Credit Agreement for standby letters of credit issued on its behalf, the issuance of which will reduce the amount of borrowings that would otherwise be available to the Company. The Company may re-borrow any amounts paid to reduce the amount of outstanding borrowings; however, all borrowings under the Revolving Credit Agreement must be repaid in full as of November 25, 2012.
There were no borrowings under the Revolving Credit Agreement at July 2, 2011 and December 31, 2010, however, the lender had issued $6.6 million and $10.1 million of outstanding letters of credit on behalf of the Company as of July 2, 2011 and December 31, 2010, respectively.
Altra Industrial and all of its domestic subsidiaries are borrowers (collectively, the “Borrowers”) under the Revolving Credit Agreement. Certain of our existing and subsequently acquired or organized domestic subsidiaries that are not Borrowers do and will guarantee (on a senior secured basis) the Revolving Credit Agreement. Obligations of the other Borrowers under the Revolving Credit Agreement and the guarantees are secured by substantially all of Borrowers’ assets and the assets of each of our existing and subsequently acquired or organized domestic subsidiaries that is a guarantor of our obligations under the Revolving Credit Agreement (with such subsidiaries being referred to as the “U.S. subsidiary guarantors”), including but not limited to: (a) a first-priority pledge of all the capital stock of subsidiaries held by Borrowers or any U.S. subsidiary guarantor (which pledge, in the case of any foreign subsidiary, will be limited to 100% of any non-voting stock and 65% of the voting stock of such foreign subsidiary) and (b) perfected first-priority security interests in and mortgages on substantially all tangible and intangible assets of each Borrower and U.S. subsidiary guarantor, including accounts receivable, inventory, equipment, general intangibles, investment property, intellectual property, certain real property, and cash and proceeds of the foregoing (in each case subject to materiality thresholds and other exceptions).

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
An event of default under the Revolving Credit Agreement would occur in connection with a change of control, among other things, if: (i) Altra Industrial ceases to own or control 100% of each of its borrower subsidiaries, or (ii) a change of control occurs under the Senior Secured Notes, or any other subordinated indebtedness.
An event of default under the Revolving Credit Agreement would also occur if an event of default occurs under the indentures governing the Senior Secured Notes or if there is a default under any other indebtedness of any borrower involving an aggregate amount of $10 million or more and such default: (i) occurs at final maturity of such debt, (ii) allows the lender there under to accelerate such debt or (iii) causes such debt to be required to be repaid prior to its stated maturity. An event of default would also occur under the Revolving Credit Agreement if any of the indebtedness under the Revolving Credit Agreement ceases, with limited exception, to be secured by a full lien on the assets of Borrowers and guarantors.
Variable Rate Demand Revenue Bonds
In connection with the acquisition of TB Wood’s, the Company assumed obligations for certain Variable Rate Demand Revenue Bonds outstanding as of the acquisition date. TB Wood’s had assumed obligations for approximately $3.0 million and $2.3 million of Variable Rate Demand Revenue Bonds issued under the authority of the industrial development corporations of the City of San Marcos, Texas and City of Chattanooga, Tennessee, respectively. The Company sold the Chattanooga facility on April 14, 2011 and redeemed the bonds associated with the facility at the time. The bonds associated with the San Marcos facility bear a variable interest rate (less than 1% as of July 2, 2011) and mature in April 2024. The bonds were issued to finance a production facility for TB Wood’s manufacturing operations in the city of San Marcos and are secured by a letter of credit issued under the terms of the Revolving Credit Agreement.
Mortgage
In June 2006, the Company entered into a mortgage on its building in Heidelberg, Germany with a local bank. In 2009, the Company refinanced the Heidelberg mortgage and increased the amount borrowed by an additional €1.0 million. The new mortgage has an interest rate of 2.9% and is payable in monthly installments over the next six years. As of July 2, 2011 and December 31, 2010, the mortgage had a remaining principal of €1.7 million or $2.4 million, and of €1.8 million or $2.4 million, respectively.
Capital Leases
The Company leases certain equipment under capital lease arrangements, whose obligations are included in both short-term and long-term debt. Capital lease obligations amounted to approximately $0.8 million and $1.3 million at July 2, 2011 and December 31, 2010, respectively. Assets subject to capital leases are included in property, plant and equipment with the related amortization recorded as depreciation expense.
Overdraft Agreements
Certain of our foreign subsidiaries maintain overdraft agreements with financial institutions. There were no borrowings as of July 2, 2011 and December 31, 2010 under any of the overdraft agreements.
12. Stockholders’ Equity
Stock-Based Compensation
The Company’s Board of Directors established the 2004 Equity Incentive Plan (the “Plan”) that provides for various forms of stock-based compensation to independent directors, officers and senior-level employees of the Company. The restricted shares of common stock issued pursuant to the Plan generally vest ratably over a period ranging from immediately to 5 years, provided that the vesting of the restricted shares may accelerate upon the occurrence of certain liquidity events, if approved by the Board of Directors in connection with the transactions. Common stock awarded under the Plan is generally subject to restrictions on transfer, repurchase rights, and other limitations and rights as set forth in the applicable award agreements. The shares are valued based on the share price on the date of grant.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
The Plan permits the Company to grant restricted stock, among other things, to key employees and other persons who make significant contributions to the success of the Company. The restrictions and vesting schedule for restricted stock granted under the Plan are determined by the Personnel and Compensation Committee of the Board of Directors. Compensation expense recorded during the year to date periods ended July 2, 2011 and July 3, 2010 was $1.4 million and $1.1 million, respectively. Compensation expense recorded during the quarter to date periods ended July 2, 2011 and July 3, 2010 was $0.7 million and $0.6 million, respectively. Stock-based compensation has been recorded as an adjustment to selling, general and administrative expenses in the accompanying condensed consolidated statements of income. Stock-based compensation expense is recognized on a straight-line basis over the vesting period.
The following table sets forth the activity of the Company’s unvested restricted stock grants in the year to date period ended July 2, 2011:
                 
            Weighted-average  
    Shares     grant date fair value  
 
               
Restricted shares unvested January 1, 2011
    287,586     $ 9.66  
Shares granted
    114,266       21.94  
Shares for which restrictions lapsed
    (32,194 )     16.94  
 
           
Restricted shares unvested July 2, 2011
    369,658     $ 12.83  
 
           
Total remaining unrecognized compensation cost was $3.3 million as of July 2, 2011, which will be recognized over a weighted average remaining period of three years. The fair market value of the shares in which the restrictions have lapsed during the year to date period ended July 2, 2011 was $0.7 million. Restricted shares granted are valued based on the fair market value of the stock on the date of grant.
13. Concentrations of Credit, Segment Data and Workforce
Financial instruments, which are potentially subject to counter party performance and concentrations of credit risk, consist primarily of trade accounts receivable. The Company manages these risks by conducting credit evaluations of customers prior to delivery or commencement of services. When the Company enters into a sales contract, collateral is normally not required from the customer. Payments are typically due within thirty days of billing. An allowance for potential credit losses is maintained, and losses have historically been within management’s expectations. No customer represented greater than 10% of total sales for each of the quarters ended July 2, 2011 and July 3, 2010.
The Company is also subject to counter party performance risk of loss in the event of non-performance by counterparties to financial instruments, such as cash and investments. Cash and investments are held by international or well established financial institutions.
With the acquisition of Bauer, the Company has six operating segments that are regularly reviewed by our chief operating decision maker. Each of these operating segments represents a unit that produces mechanical power transmission products. The Company aggregates all of the operating segments into one reportable segment. The six operating segments have similar long-term average gross profit margins. All of our products are sold by one global sales force and we have one global marketing function with the exception of the newly acquired Bauer gear motor business, for which the Company is developing a plan to integrate sales and marketing activities. Strategic markets and industries are determined for the entire company and then targeted by the brands. All of our operating segments have common manufacturing and production processes. Each segment includes machine shops which use similar equipment and manufacturing techniques. Each of our segments uses common raw materials, such as aluminum, steel and copper. The Company is in the process of converging the purchasing process so that these materials are purchased and procurement contracts are negotiated by one global purchasing function.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
We serve the general industrial market by selling to original equipment manufacturers (“OEM”) and distributors. Our OEM and distributor customers serve the general industrial market. Resource allocation decisions such as capital expenditure requirements and headcount requirements are made at a consolidated level and allocated to the individual operating segments.
Discrete financial information is not available by product line at the level necessary for management to assess performance or make resource allocation decisions.
Net sales to third parties by geographic region are as follows:
                                 
    Net Sales     Net Sales  
    Quarter Ended     Year to Date Ended  
    July 2,     July 3,     July 2,     July 3,  
    2011     2010     2011     2010  
 
                               
North America (primarily U.S.)
  $ 112,058     $ 99,219     $ 229,141     $ 192,383  
Europe
    43,444       26,683       77,539       54,572  
Asia and other
    9,893       7,086       18,562       13,739  
 
                       
Total
  $ 165,395     $ 132,988     $ 325,242     $ 260,694  
 
                       
Net sales to third parties are attributed to the geographic regions based on the country in which the shipment originates.
The net assets of our foreign subsidiaries at July 2, 2011 and December 31, 2010 were $98.4 million and $92.3 million, respectively.
14. Commitments and Contingencies
General Litigation
The Company is involved in various pending legal proceedings arising out of the ordinary course of business. These proceedings primarily involve commercial claims, product liability claims, personal injury claims, and workers’ compensation claims. None of these legal proceedings are expected to have a material adverse effect on the results of operations, cash flows, or financial condition of the Company. With respect to these proceedings, management believes that the Company will prevail, has adequate insurance coverage or has established appropriate reserves to cover potential liabilities. Any costs that management estimates may be paid related to these proceedings or claims are accrued when the liability is considered probable and the amount can be reasonably estimated. There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these legal proceedings were to be determined adversely to the Company, there could be a material adverse effect on the results of operations, cash flows, or financial condition of the Company. As of July 2, 2011 and December 31, 2010, the Company cannot estimate the likelihood or potential amount of the liability related to these proceedings. As a result, no amounts were accrued in the accompanying condensed consolidated balance sheets for potential litigation losses at those dates.
The Company also risks exposure to product liability claims in connection with products it has sold and those sold by businesses that the Company acquired. Although in some cases third parties have retained responsibility for product liability claims relating to products manufactured or sold prior to the acquisition of the relevant business and in other cases the persons from whom the Company has acquired a business may be required to indemnify the Company for certain product liability claims subject to certain caps or limitations on indemnification, the Company cannot assure that those third parties will in fact satisfy their obligations with respect to liabilities retained by them or their indemnification obligations. If those third parties become unable to or otherwise do not comply with their respective obligations including indemnity obligations, or if certain product liability claims for which the Company is obligated were not retained by third parties or are not subject to these indemnities, the Company could become subject to significant liabilities or other adverse consequences. Moreover, even in cases where third parties retain responsibility for product liability claims or are required to indemnify the Company, significant claims arising from products that have been acquired could have a material adverse effect on the Company’s ability to realize the benefits from an acquisition, could result in the reduction of the value of goodwill that the Company recorded in connection with an acquisition, or could otherwise have a material adverse effect on the Company’s business, financial condition, or operations.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
15. Restructuring, Asset Impairment and Transition Expenses
In March 2009, the Company adopted a restructuring plan (“2009 Altra Plan”) to improve the utilization of the manufacturing infrastructure and to realign the business with the current economic conditions. The 2009 Altra Plan was intended to improve operational efficiency by reducing headcount and consolidating facilities. The Company’s total restructuring expense was $1.0 million for the year to date period ended July 3, 2010. The Company substantially completed the 2009 Altra Plan in the fourth quarter of 2010.
The Company’s restructuring expense, by major component for the year to date period ended July 3, 2010, was as follows:
         
    Year to Date Ended  
    July 3, 2010  
    2009 Altra  
    Plan  
 
       
Expenses
       
Severance
    980  
Moving and relocation
    387  
Other cash expenses
  $ 114  
 
     
 
       
Total cash expenses
    1481  
 
     
 
       
Non-cash asset impairment and loss on sale of fixed asset
    207  
 
     
 
       
Total restructuring expenses
  $ 1,688  
 
     
The following is a reconciliation of the accrued restructuring costs between December 31, 2010 and July 2, 2011:
         
    2009 Altra Plan  
 
       
Balance at December 31, 2010
  $ 159  
Cash restructuring expense incurred
     
Cash payments
    (9 )
 
     
Balance at July 2, 2011
  $ 150  
 
     

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
The total restructuring reserve as of July 2, 2011 relates to severance costs to be paid to employees and is recorded in accruals and other current liabilities on the condensed consolidated balance sheet. As of July 2, 2011, the Company has incurred $10.0 million of cumulative expense related to the 2009 Altra Plan. The Company does not expect to incur any additional expenses associated with the consolidation of facilities under the 2009 Altra Plan for the remainder of 2011.
16. Guarantor Subsidiaries
All of the Company’s direct and indirect 100% owned U.S. domestic subsidiaries are guarantors of the Company’s Senior Secured Notes. The following condensed consolidating financial statements present separately the financial position, results of operations, and cash flows for (a) the Company, as parent, (b) the guarantor subsidiaries of the Company consisting of all of the, directly or indirectly, 100% owned U.S. subsidiaries of the Company, (c) the non-guarantor subsidiaries of the Company consisting of all non-domestic subsidiaries of the Company, and (d) eliminations necessary to arrive at the Company’s information on a consolidated basis. These statements are presented in accordance with the disclosure requirements under the Securities and Exchange Commission’s Regulation S-X, Rule 3-10. Separate financial statements of the Guarantor Subsidiaries are not presented because their guarantees are full and unconditional and joint and several.

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Unaudited Condensed Consolidating Balance Sheet
July 2, 2011
                                         
            Guarantor     Non Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
ASSETS
                                       
Current assets:
                                       
Cash and cash equivalents
  $     $ 56,542     $ 33,945     $     $ 90,487  
Trade receivables, less allowance for doubtful accounts
          56,163       52,210             108,373  
Loans receivable from related parties
    288,188                   (288,188 )      
Inventories
          67,675       51,955             119,630  
Deferred income taxes
          3,814       599             4,413  
Income tax receivable
          3,834                   3,834  
Prepaid expenses and other current assets
          3,599       3,113             6,712  
 
                             
Total current assets
    288,188       191,627       141,822       (288,188 )     333,449  
 
                                     
 
   
Property, plant and equipment, net
          74,968       50,604             125,572  
Intangible assets, net
          52,294       30,475             82,769  
Goodwill
          56,446       28,626             85,072  
Deferred income taxes
                78             78  
Investment in subsidiaries
    180,901                   (180,901 )      
Other non-current assets
    8,152       7,838       568             16,558  
 
                             
 
                                       
Total assets
  $ 477,241     $ 383,173     $ 252,173     $ (469,089 )   $ 643,498  
 
                             
 
                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
Current liabilities:
                                       
Accounts payable
  $     $ 27,395     $ 22,434     $     $ 49,829  
Accrued payroll
          8,191       11,286             19,477  
Accruals and other current liabilities
    2,201       15,535       20,778             38,514  
Deferred income taxes
                54             54  
Current portion of long-term debt
          589       369             958  
Loans payable to related parties
          206,119       82,069       (288,188 )      
 
                             
Total current liabilities
    2,201       257,829       136,990       (288,188 )     108,832  
 
                                       
Long-term debt — less current portion and net of unacreted discount
    269,140       3,184       2,152             274,476  
Deferred income taxes
          21,931       8,056             29,987  
Pension liablities
          5,703       6,312             12,015  
Long-term taxes payable
          11,283                   11,283  
Other long-term liabilities
          774       231             1,005  
Total stockholders’ equity
    205,900       82,469       98,432       (180,901 )     205,900  
 
                             
 
                                       
Total liabilities and stockholders’ equity
  $ 477,241     $ 383,173     $ 252,173     $ (469,089 )   $ 643,498  
 
                             

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Condensed Consolidating Balance Sheet
December 31, 2010
                                         
            Guarantor     Non Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
ASSETS
                                       
Current assets:
                                       
Cash and cash equivalents
  $     $ 37,125     $ 35,598     $     $ 72,723  
Trade receivables, less allowance for doubtful accounts
          44,020       23,383             67,403  
Loans receivable from related parties
    204,667                   (204,667 )      
Inventories
          63,226       24,991             88,217  
Deferred income taxes
          3,813       601             4,414  
Assets held for sale
          1,484                   1,484  
Income tax receivable
          4,126                   4,126  
Prepaid expenses and other current assets
          2,282       1,886             4,168  
 
                             
Total current assets
    204,667       156,076       86,459       (204,667 )     242,535  
 
                                       
Property, plant and equipment, net
          74,956       30,342             105,298  
Intangible assets, net
          54,321       14,929             69,250  
Goodwill
          56,446       20,451             76,897  
Deferred income taxes
                82             82  
Investment in subsidiaries
    163,069                   (163,069 )      
Other non-current assets
    6,020       7,905       115             14,040  
 
                             
 
                                       
Total assets
  $ 373,756     $ 349,704     $ 152,378     $ (367,736 )   $ 508,102  
 
                             
 
                                       
LIABILITIES AND STOCKHOLDERS’ EQUITY
                                       
Current liabilities:
                                       
Accounts payable
  $     $ 26,497     $ 14,315     $     $ 40,812  
Accrued payroll
          12,364       6,122             18,486  
Accruals and other current liabilities
    1,422       15,458       7,262             24,142  
Deferred income taxes
                59             59  
Current portion of long-term debt
          3,028       365             3,393  
Loans payable to related parties
          185,768       18,899       (204,667 )      
 
                             
Total current liabilities
    1,422       243,115       47,022       (204,667 )     86,892  
 
                                       
Long-term debt — less current portion and net of unaccreted discount
    207,582       3,338       2,189             213,109  
Deferred income taxes
          13,043       7,515             20,558  
Pension liablities
          7,596       3,212             10,808  
Other post retirement benefits
          223                   223  
Long-term taxes payables
          10,892                   10,892  
Other long-term liabilities
          762       106             868  
Total stockholders’ equity
    164,752       70,735       92,334       (163,069 )     164,752  
 
                             
 
                                       
Total liabilities and stockholders’ equity
  $ 373,756     $ 349,704     $ 152,378     $ (367,736 )   $ 508,102  
 
                             

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Unaudited Condensed Consolidating Statement of Income
                                         
    Year to Date Ended July 2, 2011  
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Net sales
  $     $ 233,802     $ 112,444     $ (21,004 )   $ 325,242  
Cost of sales
          169,729       80,272       (21,004 )     228,997  
 
                             
Gross profit
          64,073       32,172             96,245  
Selling, general and administrative expenses
          35,044       17,384             52,428  
Research and development expenses
          2,656       2,087             4,743  
 
                             
Income from operations
          26,373       12,701             39,074  
Interest expense, net
    10,870       406       40             11,316  
Other non-operating income, net
          (463 )     (422 )           (885 )
Equity in earnings of subsidiaries
    27,776                   (27,776 )      
 
                             
Income before income taxes
    16,906       26,430       13,083       (27,776 )     28,643  
Provision (benefit) for income taxes
    (2,734 )     9,251       2,486             9,003  
 
                             
Net income
  $ 19,640     $ 17,179     $ 10,597     $ (27,776 )   $ 19,640  
 
                             
Unaudited Condensed Consolidating Statement of Income
                                         
    Year to Date Ended July 3, 2010  
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Net sales
  $     $ 196,482     $ 83,680     $ (19,468 )   $ 260,694  
Cost of sales
          145,340       57,292       (19,468 )     183,164  
 
                             
Gross profit
          51,142       26,388             77,530  
Selling, general and administrative expenses
    46       29,214       13,927             43,187  
Research and development expenses
          2,048       1,362             3,410  
Restructuring costs
          978       710             1,688  
 
                             
Income (loss) from operations
    (46 )     18,902       10,389             29,245  
Interest expense, net
    9,061       724       111             9,896  
Other non-operating expense, net
          126       896             1,022  
Equity in earnings of subsidiaries
    17,832                   (17,832 )      
 
                             
Income before income taxes
    8,725       18,052       9,382       (17,832 )     18,327  
Provision (benefit) for income taxes
    (3,853 )     6,318       3,284             5,749  
 
                             
Net income
  $ 12,578     $ 11,734     $ 6,098     $ (17,832 )   $ 12,578  
 
                             

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Unaudited Condensed Consolidating Statement of Income
                                         
    Quarter Ended July 2, 2011  
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Net sales
  $     $ 114,241     $ 61,559     $ (10,405 )   $ 165,395  
Cost of sales
          82,066       45,324       (10,405 )     116,985  
 
                             
Gross profit
          32,175       16,235             48,410  
Selling, general and administrative expenses
          17,372       9,540             26,912  
Research and development expenses
          1,232       1,194             2,426  
 
                             
Income from operations
          13,571       5,501             19,072  
Interest expense, net
    5,913       222       18             6,153  
Other non-operating income, net
          (321 )     (278 )           (599 )
Equity in earnings of subsidiaries
    13,551                   (13,551 )      
 
                             
Income before income taxes
    7,638       13,670       5,761       (13,551 )     13,518  
Provision (benefit) for income taxes
    (1,280 )     4,785       1,095             4,600  
 
                             
Net income
  $ 8,918     $ 8,885     $ 4,666     $ (13,551 )   $ 8,918  
 
                             
Unaudited Condensed Consolidating Statement of Income
                                         
    Quarter Ended July 3, 2010  
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Net sales
  $     $ 101,398     $ 41,686     $ (10,096 )   $ 132,988  
Cost of sales
          74,026       28,931       (10,096 )     92,861  
 
                             
Gross profit
          27,372       12,755             40,127  
Selling, general and administrative expenses
    20       15,718       6,477             22,215  
Research and development expenses
          964       667             1,631  
Restructuring costs
          180       462             642  
 
                             
Income (loss) from operations
    (20 )     10,510       5,149             15,639  
Interest expense, net
    4,565       339       52             4,956  
Other non-operating expense, net
          52       675             727  
Equity in earnings of subsidiaries
    8,807                   (8,807 )      
 
                             
Income before income taxes
    4,222       10,119       4,422       (8,807 )     9,956  
Provision (benefit) for income taxes
    (2,617 )     3,938       1,796             3,117  
 
                             
Net income
  $ 6,839     $ 6,181     $ 2,626     $ (8,807 )   $ 6,839  
 
                             

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Unaudited Condensed Consolidating Statement of Cash Flows
                                         
    Year to Date Ended July 2, 2011  
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Cash flows from operating activities
                                       
Net income
  $ 19,640     $ 17,179     $ 6,098     $ (23,277 )   $ 19,640  
Undistributed equity in earnings of subsidiaries
    (23,277 )                 23,277        
Adjustments to reconcile net income to net cash flows:
                                     
Depreciation
          5,422       2,998             8,420  
Amortization of intangible assets
          2,070       793             2,863  
Amortization and write-offs of deferred financing costs
    560       224                   784  
Loss on foreign currency, net
                (158 )           (158 )
Accretion of debt discount, net
    1,045                         1,045  
Stock-based compensation
          1,374                   1,374  
Changes in assets and liabilities:
                                     
Trade receivables
          (12,786 )     (9,489 )           (22,275 )
Inventories
          (3,750 )     (4,568 )           (8,318 )
Accounts payable and accrued liabilities
    779       (2,071 )     7,593             6,301  
Other current assets and liabilities
          (1,317 )     692             (625 )
Other operating assets and liabilities
          (2,161 )     265             (1,896 )
 
                             
Net cash provided by (used in) operating activities
    (1,253 )     4,184       4,224             7,155  
 
                             
 
                                       
Cash flows used in investing activities
                                       
Purchase of property, plant and equipement
          (5,179 )     (3,719 )           (8,898 )
Acquisition of Bauer net of cash $41 thousand cash received
          (1,146 )     (61,145 )           (62,291 )
Proceeds from sale of Chattanooga
          1,484                   1,484  
 
                             
Net cash used in investing activities
          (4,841 )     (64,864 )           (69,705 )
 
                             
 
                                       
Cash flows from financing activities
                                       
Proceeds from issuance of Convertible Notes
    85,000                         85,000  
Payment of debt issuance costs
    (3,414 )                       (3,414 )
Shares surrendered for tax withholdings
    (65 )                       (65 )
Redemption of bonds related to Chattanooga
          (2,290 )                 (2,290 )
Payments on mortgages
                (197 )           (197 )
Payments on capital leases
          (151 )     (249 )           (400 )
Change in affiliate debt
    (80,268 )     22,515       57,753              
 
                             
Net cash provided by financing activities
    1,253       20,074       57,307             78,634  
 
                             
 
                                       
Effect of exchange rate changes on cash and cash equivalents
                1,680               1,680  
 
                             
Net change in cash and cash equivalents
          19,417       (1,653 )           17,764  
Cash and cash equivalents at beginning of year
          37,125       35,598             72,723  
 
                             
Cash and cash equivalents at end of period
  $     $ 56,542     $ 33,945     $     $ 90,487  
 
                             

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
Unaudited Condensed Consolidating Statement of Cash Flows
                                         
    Year to Date Ended July 3, 2010  
            Guarantor     Non-Guarantor              
    Issuer     Subsidiaries     Subsidiaries     Eliminations     Consolidated  
Cash flows from operating activities
                                       
Net income
  $ 12,578     $ 11,734     $ 6,098     $ (17,832 )   $ 12,578  
Undistributed equity in earnings of subsidiaries
    (17,832 )                 17,832        
Adjustments to reconcile net income to net cash flows:
                                       
Depreciation
          6,289       1,903             8,192  
Amortization of intangible assets
          2,025       325             2,350  
Amortization and write-offs of deferred financing costs
    416                         416  
Fixed asset impairment/disposal
          207                   207  
Loss on foreign currency, net
                361             361  
Accretion of debt discount
    148                         148  
Stock based compensation
          1,120                   1,120  
Changes in assets and liabilities:
                                       
Trade receivables
          (12,494 )     (6,076 )           (18,570 )
Inventories
          (1,616 )     (2,407 )           (4,023 )
Accounts payable and accrued liabilities
    879       13,300       4,920             19,099  
Other current assets and liabilities
          (953 )     (719 )           (1,672 )
Other operating assets and liabilities
    (77 )     (74 )     (22 )           (173 )
 
                             
Net cash provided by (used in) operating activities
    (3,888 )     19,538       4,383             20,033  
 
                             
 
                                       
Cash flows from investing activities
                                       
Purchase of fixed assets
          (6,783 )     (979 )           (7,762 )
Additional purchase price paid for acquisition
          (645 )     (532 )           (1,177 )
 
                             
Net cash used in investing activities
          (7,428 )     (1,511 )           (8,939 )
 
                             
 
                                       
Cash flows from financing activities
                                       
Payment of debt issuance costs
    (123 )     1                   (122 )
Shares surrendered for tax withholdings
    (288 )                       (288 )
Payments on mortgages
                (418 )           (418 )
Change in affiliate debt
    4,299       (6,562 )     2,263              
Payment on capital leases
          (318 )     (63 )           (381 )
 
                             
Net cash (used in) provided by financing activities
    3,888       (6,879 )     1,782             (1,209 )
 
                             
 
                                       
Effect of exchange rate changes on cash and cash equivalents
                (3,179 )           (3,179 )
 
                             
Net change in cash and cash equivalents
          5,231       1,475             6,706  
Cash and cash equivalents at beginning of year
    1       19,744       31,752             51,497  
 
                             
Cash and cash equivalents at end of period
  $ 1     $ 24,975     $ 33,227     $     $ 58,203  
 
                             

 

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ALTRA HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
Amounts in thousands, unless otherwise noted
17. Subsequent Events
The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The Company has evaluated subsequent events through the date the financial statements were issued and determined that no material subsequent events have occurred that would effect the information presented in these condensed consolidated financial statements or require additional disclosure.

 

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the Company’s current estimates, expectations and projections about the Company’s future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning the Company’s possible future results of operations including revenue, costs of goods sold, and gross margin, future profitability, future economic improvement, business and growth strategies, financing plans, the Company’s competitive position and the effects of competition, the projected growth of the industries in which we operate, and the Company’s ability to consummate strategic acquisitions and other transactions. Forward-looking statements include statements that are not historical facts and can be identified by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “plan,” “may,” “should,” “will,” “would,” “project,” and similar expressions. These forward-looking statements are based upon information currently available to the Company and are subject to a number of risks, uncertainties, and other factors that could cause the Company’s actual results, performance, prospects, or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Important factors that could cause the Corporation’s actual results to differ materially from the results referred to in the forward-looking statements the Corporation makes in this report include:
    the Company’s access to capital, credit ratings, indebtedness, and ability to raise additional capital and operate under the terms of the Company’s debt obligations;
    the risks associated with our debt;
    the effects of intense competition in the markets in which we operate;
    the Company’s ability to successfully execute, manage and integrate key acquisitions and mergers, including the Bauer Acquisition;
    the Company’s ability to obtain or protect intellectual property rights;
    the Company’s ability to retain existing customers and our ability to attract new customers for growth of our business;
    the effects of the loss or bankruptcy of or default by any significant customer, suppliers, or other entity relevant to the Company’s operations;
    the Company’s ability to successfully pursue the Company’s development activities and successfully integrate new operations and systems, including the realization of revenues, economies of scale, cost savings, and productivity gains associated with such operations;
    the Company’s ability to complete cost reduction actions and risks associated with such actions;
    the Company’s ability to control costs;
    failure of the Company’s operating equipment or information technology infrastructure;
    the Company’s ability to achieve its business plans, including with respect to an uncertain economic environment;
    the effects of unanticipated deficiencies, if any, in the disclosure controls and internal controls of Bauer;
    changes in employment, environmental, tax and other laws and changes in the enforcement of laws;
    the accuracy of estimated forecasts of OEM customers and the impact of the current global economic environment on our customers;
    fluctuations in the costs of raw materials used in our products;
    the Company’s ability to attract and retain key executives and other personnel;
    work stoppages and other labor issues;
    changes in the Company’s pension and retirement liabilities;
    the Company’s risk of loss not covered by insurance;
    the outcome of litigation to which the Company is a party from time to time, including product liability claims;
    changes in accounting rules and standards, audits, compliance with the Sarbanes-Oxley Act, and regulatory investigations;
    changes in market conditions that would result in the impairment of goodwill or other assets of the Company;
    changes in market conditions in which we operate that would influence the value of the Company’s stock;

 

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    the effects of changes to critical accounting estimates; changes in volatility of the Company’s stock price and the risk of litigation following a decline in the price of the Company’s stock;
    the cyclical nature of the markets in which we operate;
    the risks associated with the global recession and volatility and disruption in the global financial markets;
    political and economic conditions nationally, regionally, and in the markets in which we operate;
    natural disasters, war, civil unrest, terrorism, fire, floods, tornadoes, earthquakes, hurricanes, or other matters beyond the Company’s control;
    the risks associated with international operations, including currency risks;
    the risks associated with the Company’s planned investment in a new manufacturing facility in China; and
    other factors, risks, and uncertainties referenced in the Company’s filings with the Securities and Exchange Commission, including the “Risk Factors” set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.
ALL FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS REPORT. EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT ANY EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS REPORT OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR ANY PERSON ACTING ON THE COMPANY’S BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS CONTAINED OR REFERRED TO IN THIS SECTION AND IN OUR RISK FACTORS SET FORTH IN PART I, ITEM 1A OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2010, AND IN OTHER REPORTS FILED WITH THE SEC BY THE COMPANY.
The following discussion of the financial condition and results of operations of Altra Holdings, Inc. and its subsidiaries should be read together with the audited financial statements of Altra Holdings, Inc. and its subsidiaries and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Unless the context requires otherwise, the terms “Altra Holdings,” “ the Company,” “we,” “us,” and “our” refer to Altra Holdings, Inc. and its subsidiaries.
General
Altra Holdings, Inc. is the parent company of Altra Industrial Motion, Inc. (“Altra Industrial”), and owns 100% of Altra Industrial’s outstanding capital stock. Altra Industrial, directly or indirectly, owns 100% of the capital stock of its 58 subsidiaries. The following chart illustrates a summary of our corporate structure:

 

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(FLOW CHART)
Although we were incorporated in Delaware in 2004, much of our current business has its roots with the prior acquisition by Colfax Corporation, or Colfax, of a series of power transmission businesses. In December 1996, Colfax acquired the MPT group of Zurn Technologies, Inc. Colfax subsequently acquired Industrial Clutch Corp. in May 1997, Nuttall Gear Corp. in July 1997 and the Boston Gear and Delroyd Worm Gear brands in August 1997 as part of Colfax’s acquisition of Imo Industries, Inc. In February 2000, Colfax acquired Warner Electric, Inc., which sold products under the Warner Electric, Formsprag Clutch, Stieber, and Wichita Clutch brands. Colfax formed Power Transmission Holding LLC, or “PTH”, in June 2004 to serve as a holding company for all of these power transmission businesses. Boston Gear was established in 1877, Warner Electric, Inc. in 1927, and Wichita Clutch in 1949.
On November 30, 2004, we acquired our original core business through the acquisition of PTH from Colfax. We refer to this transaction as the PTH Acquisition.
On October 22, 2004, The Kilian Company, or Kilian, a company formed at the direction of Genstar Capital, then the largest stockholder of Altra Holdings, acquired Kilian Manufacturing Corporation from Timken U.S. Corporation. At the completion of the PTH Acquisition, (i) all of the outstanding shares of Kilian capital stock were exchanged for shares of our capital stock and (ii) Kilian and its subsidiaries were transferred to Altra Industrial.
On February 10, 2006, we purchased all of the outstanding share capital of Hay Hall Holdings Limited, or Hay Hall. Hay Hall was a UK-based holding company established in 1996 that was focused primarily on the manufacture of couplings and clutch brakes.
On May 18, 2006, we acquired substantially all of the assets of Bear Linear Inc., or Warner Linear. Warner Linear manufactures high value-added linear actuators which are electromechanical power transmission devices designed to move and position loads linearly for mobile off-highway and industrial applications.
On April 5, 2007, the Company acquired all of the outstanding shares of TB Wood’s Corporation, or TB Wood’s. TB Wood’s is an established designer, manufacturer and marketer of mechanical and electronic industrial power transmission products with a history dating back to 1857.
On October 5, 2007, we acquired substantially all of the assets of All Power Transmission Manufacturing, Inc., or All Power, a manufacturer of universal joints.

 

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On December 31, 2007, we sold the TB Wood’s adjustable speed drives business, or Electronics Division. We sold the Electronics Division in order to continue our strategic focus on our core electro-mechanical power transmission business.
On May 29, 2011, the Company acquired substantially all of the assets of Danfoss Bauer GmbH relating to its gear motor business (“Bauer”). Bauer is a European manufacturer of high-quality gearmotors, offering engineered solutions to a variety of industries, including material handling, metals, food processing and energy.
We are a leading global designer, producer and marketer of a wide range of MPT and motion control products with a presence in over 70 countries. Our global sales and marketing network includes over 1,000 direct OEM customers and over 3,000 distributor outlets. Our product portfolio includes industrial clutches and brakes, enclosed gear drives, open gearing, couplings, engineered bearing assemblies, linear components and other related products. Our products serve a wide variety of end markets including energy, general industrial, material handling, mining, transportation and turf and garden. We primarily sell our products to a wide range of OEMs and through long-standing relationships with industrial distributors such as Motion Industries, Applied Industrial Technologies, Kaman Industrial Technologies and W.W. Grainger.
While the power transmission industry has undergone some consolidation, we estimate that in 2010 the top five broad-based MPT companies represented approximately 20% of the U.S. power transmission market. The remainder of the power transmission industry remains fragmented with many small and family-owned companies that cater to a specific market niche often due to their narrow product offerings. We believe that consolidation in our industry will continue because of the increasing demand for global distribution channels, broader product mixes and better brand recognition to compete in this industry.
Our products, principal brands and markets and sample applications are set forth below:
             
Products   Principal Brands   Principal Markets   Sample Applications
 
   
Clutches and Brakes
  Warner Electric, Wichita
Clutch, Formsprag Clutch,
Stieber Clutch, Matrix,
Inertia Dynamics, Twiflex,
Industrial Clutch,
Marland Clutch
  Aerospace, energy, material handling, metals, turf and garden, mining   Elevators, forklifts, lawn
mowers, oil well draw
works, punch presses,
conveyors
Gearing
  Boston Gear, Nuttall Gear,
Delroyd, Bauer Gear Motor
  Food processing,
material handling,
metals, transportation
  Conveyors, ethanol mixers,
packaging machinery, metal
processing equipment
Engineered Couplings
  Ameridrives, Bibby
Transmissions, TB Wood’s
  Energy, metals,
plastics, chemical
  Extruders, turbines, steel
strip mills, pumps
Engineered Bearing Assemblies
  Kilian   Aerospace, material
handling,
transportation
  Cargo rollers, seat
storage systems, conveyors
Power Transmission Components
  Warner Electric, Boston
Gear, Huco Dynatork,
Warner Linear, Matrix, TB
Wood’s
  Material handling, metals, turf and garden   Conveyors, lawn mowers,
machine tools
Engineered Belted Drives
  TB Wood’s   Aggregate, HVAC,
material handling
  Pumps, sand and gravel conveyors, industrial fans
Our Internet address is www.altramotion.com. By following the link “Investor Relations” and then “SEC filings” on our Internet website, we make available, free of charge, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as reasonably practicable after such forms are filed with or furnished to the SEC. We are not including the information contained on or available through our website as a part of, or incorporating such information by reference into, this Form 10-Q.

 

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Business Outlook
Our future financial performance depends, in large part, on conditions in the markets that we serve and on the U.S. and global economies in general. In 2011, we expect to continue to focus on the execution of our long-term growth strategy, and will also to focus on the integration of Bauer. Among other items, we expect our growth initiatives in 2011 will continue to include investing in organic growth, pursuing strategic acquisitions, targeting key underpenetrated geographic regions, entering new high-growth markets, enhancing our efficiency and productivity through the Altra Business System and focusing on the development of our people and processes.
During 2011, as a result of the positive demand environment for our products, we expect that early-cycle and late-cycle markets will continue to be strong for the remainder of the year although growth rates for early-cycle business are moderating as a result of a difficult year-over-year comparison. We expect that the Bauer acquisition will be accretive to earnings in 2011 and future periods. The Bauer acquisition has opened certain previously underpenetrated geographic regions and we believe it will provide a favorable environment to continue to further execute our acquisition strategy.
Critical Accounting Policies
The preparation of our condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect our reported amounts of assets, revenues and expenses, as well as related disclosure of contingent assets and liabilities. We base our estimates on past experiences and other assumptions we believe to be appropriate, and we evaluate these estimates on an on-going basis. With the exception of business combinations noted below, management believes there have been no significant changes in our critical accounting policies since December 31, 2010. See the discussion of critical accounting policies in our Annual Report on Form 10-K for the year ended December 31, 2010.
Business Combinations
Business combinations are accounted for at fair value. Acquisition costs are generally expensed as incurred and recorded in selling, general and administrative expenses; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally affect income tax expense. The accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets and liabilities acquired. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of finite-lived intangible assets.

 

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Results of Operations
                                 
    Quarter Ended     Year to Date Ended  
    July 2,     July 3,     July 2,     July 3,  
(In thousands, except per share data)   2011     2010     2011     2010  
Net sales
  $ 165,395     $ 132,988     $ 325,242     $ 260,694  
Cost of sales
    116,985       92,861       228,997       183,164  
 
                       
Gross profit
    48,410       40,127       96,245       77,530  
Gross profit percentage
    29.27 %     30.17 %     29.59 %     29.74 %
Selling, general and administrative expenses
    26,912       22,215       52,428       43,187  
Research and development expenses
    2,426       1,631       4,743       3,410  
Restructuring costs
          642             1,688  
 
                       
Income from operations
    19,072       15,639       39,074       29,245  
Interest expense, net
    6,153       4,956       11,316       9,896  
Other non-operating (income) expense, net
    (599 )     727       (885 )     1,022  
 
                       
Income before income taxes
    13,518       9,956       28,643       18,327  
Provision for income taxes
    4,600       3,117       9,003       5,749  
 
                       
Net income
  $ 8,918     $ 6,839     $ 19,640     $ 12,578  
 
                       
Quarter Ended July 2, 2011 compared with Quarter Ended July 3, 2010
(Amounts in thousands unless otherwise noted)
                                 
    Quarter Ended  
    July 2,     July 3,              
    2011     2010     Change     %  
 
                               
Net sales
  $ 165,395     $ 132,988     $ 32,407       24.4 %
The majority of the increase in sales during the second quarter of 2011 is due to improvements in the end markets we serve compared to 2010. Of the increase in sales, approximately $8.8 million relates to the one month of additional sales related to the acquisition of Bauer and $3.7 million is related to the impact of foreign exchange rate increases attributed to the increase in the Euro and British Pound rates compared to 2010. We expect that demand at our late-cycle markets will remain strong and that we will see further improvement from many of our late-cycle markets, such as mining, power generation, and oil production, as the year progresses. We expect to see continued increases in sales in 2011 compared to 2010.

 

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    Quarter Ended  
    July 2,     July 3,              
    2011     2010     Change     %  
 
                               
Gross Profit
  $ 48,410     $ 40,127     $ 8,283       20.6 %
Gross Profit as a percent of sales
    29.3 %     30.2 %                
The decrease in gross profit as a percentage of sales was primarily due to higher material costs in the second quarter of 2011, primarily relating to copper and steel, and the inclusion of one month of Bauer results which incorporates an inventory step up charge of $0.5 million. This has been offset by the effect of price increases of $1.7 million. We expect to be able to offset the majority of material cost increases with price increases to our customers during future periods. We expect our gross profit as a percentage of sales to improve in the second half of 2011 as price increases continue to be implemented.
                                 
    Quarter Ended  
    July 2,     July 3,              
    2011     2010     Change     %  
 
                               
Selling, general and administrative expense (“SG&A”)
  $ 26,912     $ 22,215     $ 4,697       21.1 %
SG&A as a percent of sales
    16.3 %     16.7 %                
SG&A increased compared to the second quarter of 2010 due to the reinstatement of certain employee benefits that were temporarily suspended during 2009 and not reinstated until July 2010. These include wage increases and company contributions to 401(k) plans. Costs associated with the acquisition of Bauer of $1.0 million and additional headcount to meet increased demand also contributed to the increase in SG&A, as well as the impact of foreign exchange of $0.1 million. During the remainder of 2011, we expect SG&A as a percentage of sales to remain consistent with the second quarter of 2011.
                                 
    Quarter Ended  
    July 2,     July 3,              
    2011     2010     Change     %  
 
                               
Restructuring Expense
  $     $ 642     $ (642 )     -100.0 %
In March 2009, we adopted a restructuring plan to continue to improve the utilization of our manufacturing infrastructure and to realign our business with economic conditions by consolidating certain facilities. We substantially concluded our restructuring efforts as of the fourth quarter 2010 and expect no additional expense associated with this restructuring effort going forward.
                                 
    Quarter Ended  
    July 2,     July 3,              
    2011     2010     Change     %  
 
                               
Interest Expense, net
  $ 6,153     $ 4,956     $ 1,197       24.2 %
Net interest expense increased due to the issuance of $85 million of Convertible Notes in March 2011.

 

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    Quarter Ended  
    July 2,     July 3,              
    2011     2010     Change     %  
 
                               
Other non-operating (income)expense, net
  $ (599 )   $ 727     $ (1,326 )     -182.4 %
Other non-operating (income) expense in both the second quarter 2011 and 2010 relates primarily to changes in foreign currency, primarily the British Pound Sterling and Euro.
                                 
    Quarter Ended  
    July 2,     July 3,              
    2011     2010     Change     %  
 
                               
Provision for income taxes
  $ 4,600     $ 3,117     $ 1,483       47.6 %
Provision for income taxes as a % of income before income taxes
    34.0 %     31.3 %                
The 2011 second quarter provision for income taxes, as a percentage of income before taxes, was higher than that of the second quarter 2010. The primary reason for the increase is due to the release of a valuation allowance on previously unrecognized foreign net operating losses in 2010.

 

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Year to Date Period Ended July 2, 2011 compared with the Year to Date Period Ended July 3, 2010
(Amounts in thousands unless otherwise noted)
                                 
    Year to Date Period Ended  
    July 2,     July 3,              
    2011     2010     Change     %  
 
                               
Net sales
  $ 325,242     $ 260,694     $ 64,548       24.8 %
The majority of the increase in sales during 2011 is due to improvements in the end markets we serve compared to 2010 and to a lesser extent, the acquisition of Bauer. Of the increase in sales, approximately $8.8 million relates to the one month of additional sales related to the acquisition of Bauer, $4.1 million is related to the impact of foreign exchange rate increases attributed to the increase in the Euro and British Pound rates compared to 2010, and the impact of price increases of $3.5 million. Organic growth of approximately $51.6 million is attributed to increased demand in our early and late-cycle markets. We expect to see continued increases in sales in 2011 compared to 2010, but do not expect the second half of 2011 to be as strong as the first half due to seasonality.
                                 
    Year to Date Period Ended  
    July 2,     July 3,              
    2011     2010     Change     %  
 
                               
Gross Profit
  $ 96,245     $ 77,530     $ 18,715       24.1 %
Gross Profit as a percent of sales
    29.6 %     29.7 %                
The decrease in gross profit as a percentage of sales was primarily due to increases in material costs, specifically related to the price of copper and steel. Gross profit was favorably impacted by the effect of foreign exchange of $1.5 million when compared to 2010, primarily related to the increase in the Euro and British Pound exchange rates, off-set by the incorporation of one months results for Bauer which includes the inventory step up of $0.5 million. We expect our full year 2011 gross profit as a percentage of sales to increase when compared to 2010 as we expect to continue to implement price increases to offset rising material costs.
                                 
    Year to Date Period Ended  
    July 2,     July 3,              
    2011     2010     Change     %  
 
                               
Selling, general and administrative expense (“SG&A”)
  $ 52,428     $ 43,187     $ 9,241       21.4 %
SG&A as a percent of sales
    16.1 %     16.6 %                
SG&A increased due to the increased headcount and expenses related to the acquisition of Bauer as well as the reinstatement of certain employee benefits that were temporarily suspended during 2009 and not reinstated until July 2010. The increase in SG&A costs is also attributed to approximately $2.1 million of acquisition costs related to the Bauer acquisition as well as the effect of foreign exchange of $0.9 million. However, due to our cost reduction efforts over the past two years that were focused on headcount reductions and the elimination of non-critical expenses, SG&A as a percentage of sales decreased in the year to date period ended July 2, 2011 when compared to the year to date period ended July 3, 2010. During the remainder of 2011, we expect to focus on maintaining our reduced cost base and to develop synergies as we incorporate Bauer into our corporate structure.

 

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    Year to Date Period Ended  
    July 2,     July 3,              
    2011     2010     Change     %  
 
                               
Restructuring expenses
  $     $ 1,688     $ (1,688 )     -100.0 %
In March 2009, we adopted a restructuring plan to continue to improve the utilization of our manufacturing infrastructure and to realign our business with economic conditions by consolidating certain facilities. We substantially concluded our restructuring efforts as of the fourth quarter 2010 and expect no additional expense associated with this restructuring effort going forward.
                                 
    Year to Date Period Ended  
    July 2,     July 3,              
    2011     2010     Change     %  
 
                               
Interest Expense, net
  $ 11,316     $ 9,896     $ 1,420       14.3 %
Net interest expense increased due to the issuance of $85.0 million of Convertible Notes in March 2011.
                                 
    Year to Date Period Ended  
    July 2,     July 3,              
    2011     2010     Change     %  
 
                               
Other non-operating (income) expense, net
  $ (885 )   $ 1,022     $ (1,907 )     -186.6 %
Other non-operating (income) expense in both the year to date periods ended July 2, 2011 and July 3, 2010 primarily relates to changes in foreign currency, primarily the British Pound Sterling and Euro.
                                 
    Year to Date Period Ended  
    July 2,     July 3,              
    2011     2010     Change     %  
 
                               
Provision for income taxes
  $ 9,003     $ 5,749     $ 3,254       56.6 %
Provision for income taxes as a % of income from operations before income taxes
    31.4 %     31.4 %                
The 2011 year to date provision for income taxes, as a percentage of income before taxes, was approximately the same as that of 2010. The increase in the amount of the provision for income taxes in 2011 is due to the increased earnings of the Company. In the year to date period ended July 2, 2011, there was a favorable discrete item related to a refund of foreign withholding tax that previously impacted the Company’s effective tax rate, partially offset by the interest accrual on unrecognized tax benefits. In the year to date period ended July 3, 2010, there were favorable discrete items that primarily consisted of recognition of previously unrecognized deferred tax assets and benefits received from statutes of limitations expiring on unrecognized tax benefits.

 

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Liquidity and Capital Resources
Overview
We finance our capital and working capital requirements through a combination of cash flows from operating activities and borrowings under our senior secured revolving credit facility (“Revolving Credit Agreement”). We expect that our primary ongoing requirements for cash will be for working capital, debt service, capital expenditures, acquisitions and pension plan funding. In the event additional funds are needed, we could borrow additional funds under our Revolving Credit Agreement, or attempt to raise capital in the equity and debt markets. Presently, we have capacity under our Revolving Credit Agreement to borrow up to approximately $50.0 million, based on monthly asset collateral calculations, including letters of credit of which we currently have $6.6 million outstanding. Of this total capacity, we can currently borrow up to an additional $30.9 million without being required to comply with any financial covenants under the agreement. There can be no assurance however that additional debt financing will be available on commercially acceptable terms, or at all. Similarly, there can be no assurance that equity financing will be available on commercially acceptable terms, or at all.
Borrowings
                 
    Amounts in millions  
    July 2,     December 31,  
    2011     2010  
 
               
Debt:
               
Revolving Credit Agreement
  $     $  
Convertible Notes
    85.0        
Senior Secured Notes
    210.0       210.0  
Variable rate demand revenue bonds
    3.0       5.3  
Mortgages
    2.4       2.4  
Capital leases
    0.8       1.3  
 
           
Total Debt
  $ 301.2     $ 219.0  
 
           
Convertible Senior Notes
In March 2011, the Company issued Convertible Senior Notes (the “Convertible Notes”) due on March 1, 2031. The Convertible Notes are guaranteed by the Company’s U.S. domestic subsidiaries and are secured by a second priority lien, subject to first priority liens securing our Revolving Credit Agreement, on substantially all of our assets and those of our domestic subsidiaries. Interest on the Convertible Notes is payable semi-annually in arrears, on March 1 and September 1 of each year, commencing on September 1, 2011 at an annual rate of 2.75%. Proceeds from the offering were $81.6 million, net of fees and expenses which were capitalized. The proceeds from the offering were used to fund the Bauer acquisition, as well as bolster the Company’s cash position.
Senior Secured Notes
In November 2009, the Company issued $210 million of 8 1 / 8 % Senior Secured Notes (the “Senior Secured Notes”). The Senior Secured Notes are guaranteed by the Company’s U.S. domestic subsidiaries and are secured by a second priority lien, subject to first priority liens securing our Revolving Credit Agreement, on substantially all of our assets and those of our domestic subsidiaries. Interest on the Senior Secured Notes is payable in arrears, semi-annually on June 1 and December 1 of each year, commencing on June 1, 2010. The indenture governing the Senior Secured Notes contains covenants which restrict the Company and our subsidiaries. These restrictions limit or prohibit, among other things, the ability to incur additional indebtedness; repay subordinated indebtedness prior to stated maturities; pay dividends on or redeem or repurchase stock or make other distributions; make investments or acquisitions; sell certain assets or merge with or into other companies; sell stock in our subsidiaries; and create liens on their assets. We were in compliance in all material respects with all covenants of the indenture governing the Senior Secured Notes at July 2, 2011.

 

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Revolving Credit Agreement
Concurrently with the closing of the offering of the Senior Secured Notes, Altra Industrial entered into the Revolving Credit Agreement, which provides for borrowing capacity in an initial amount of up to $50.0 million (subject to adjustment pursuant to a borrowing base and subject to increase from time to time in accordance with the terms of the credit facility). The Revolving Credit Agreement replaced Altra Industrial’s then existing senior secured credit facility and the TB Wood’s existing credit facility.
Altra Industrial and all of its domestic subsidiaries are borrowers, or “Borrowers”, under the Revolving Credit Agreement. Certain of our existing and subsequently acquired or organized domestic subsidiaries that are not Borrowers do and will guarantee (on a senior secured basis) the Revolving Credit Agreement. Obligations of the other Borrowers under the Revolving Credit Agreement and the guarantees are secured by substantially all of Borrowers’ assets and the assets of each of our existing and subsequently acquired or organized domestic subsidiaries that is a guarantor of our obligations under the Revolving Credit Agreement (with such subsidiaries being referred to as the “U.S. subsidiary guarantors”), including but not limited to: (a) a first-priority pledge of all the capital stock of subsidiaries held by Borrowers or any U.S. subsidiary guarantor (which pledge, in the case of any foreign subsidiary, will be limited to 100% of any non-voting stock and 65% of the voting stock of such foreign subsidiary) and (b) perfected first-priority security interests in and mortgages on substantially all tangible and intangible assets of each Borrower and U.S. subsidiary guarantor, including accounts receivable, inventory, equipment, general intangibles, investment property, intellectual property, certain real property, cash and proceeds of the foregoing (in each case subject to materiality thresholds and other exceptions).
An event of default under the Revolving Credit Agreement would occur in connection with a change of control, among other things, if: (i) Altra Industrial ceases to own or control 100% of each of its Borrower subsidiaries, or (ii) a change of control occurs under the Senior Secured Notes, or any other subordinated indebtedness.
An event of default under the Revolving Credit Agreement would also occur if an event of default occurs under the indentures governing the Senior Secured Notes or if there is a default under any other indebtedness that any Borrower may have involving an aggregate amount of $10 million or more and such default: (i) occurs at final maturity of such debt, (ii) allows the lender there under to accelerate such debt or (iii) causes such debt to be required to be repaid prior to its stated maturity. An event of default would also occur under the Revolving Credit Agreement if any of the indebtedness under the Revolving Credit Agreement ceases with limited exception to be secured by a full lien of the assets of Borrowers and guarantors.
As of July 2, 2011, we were in compliance in all material respects with all covenant requirements associated with all of our borrowings. As of July 2, 2011, we had no borrowings and $6.6 million in letters of credit outstanding under the Revolving Credit Agreement.
Cash and Cash Equivalents
                                 
    Year to Date Period Ended  
    July 2,     December 31,              
(in thousands)   2011     2010     Change     %  
 
                               
Cash and cash equivalents
  $ 90,487     $ 72,723     $ 17,764       24.4 %
Cash Flows for year to date period ended July 2, 2011
The primary sources of funds provided by operating activities of $7.2 million for the year to date period ended July 2, 2011 resulted from cash provided from net income of $19.6 million which was offset by the net impact of the add-back of non-cash depreciation, amortization, stock-based compensation, accretion of debt discount, deferred financing costs, non-cash gain on foreign currency offset by a net increase in working capital all totaling $12.4 million. While a variety of factors can influence our ability to project future cash flow, we expect to continue to see positive cash flows from operating activities during the remainder of 2011.

 

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Net cash used in investing activities was $69.7 million for the year to date period ended July 2, 2011. The increase from 2010 primarily relates to the acquisition of Bauer for $62.3 million as well as capital expenditures of $8.9 million offset by proceeds from the sale of our Chattanooga facility of $1.5 million. We expect to incur between $16.5 million and $18.5 million of additional capital expenses in 2011.
Net cash provided by financing activities was $78.6 million for the year to date period ended July 2, 2011. This resulted primarily from the proceeds of the issuance of $85.0 million in Convertible Notes, offset by the payments of capital lease obligations of $0.4 million, $0.2 million of payments on mortgages, $2.3 million related to the redemption of bonds in connection with the sale of our Chattanooga facility, $0.1 million of shares repurchased to satisfy employee tax withholdings upon vesting, and $3.4 million of costs associated with the issuance of the Convertible Notes.
We intend to use our remaining existing cash and cash equivalents and cash flow from operations to provide for our working capital needs, to fund potential future acquisitions, debt service, capital expenditures, pension funding, and to repay our debt. We believe our future operating cash flows will be sufficient to meet our future operating and investing cash needs. Furthermore, the existing cash balances and the availability of additional borrowings under our Revolving Credit Agreement provide additional potential sources of liquidity should they be required.
Contractual Obligations
There were no significant changes in our contractual obligations subsequent to December 31, 2010, with the exception of the issuance of $85.0 million of Convertible Notes in March 2011, due on March 1, 2031. Interest on the Convertible Notes is payable semi-annually in arrears, on March 1 and September 1 of each year, commencing on September 1, 2011 at an annual rate of 2.75%. Interest payments on these notes will be approximately $1.9 million in 2011 and approximately $2.3 million of interest will be due each year from 2012 through 2031 when the Convertible Notes become due.
Item 3.   Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risk factors such as fluctuating interest rates, changes in foreign currency rates, and changes in commodity prices. At present, we do not utilize derivative instruments to manage these risks. During the reporting period, there have been no material changes to the quantitative and qualitative disclosures regarding our market risk set forth in our Annual Report on Form 10-K for the year ended December 31, 2010.
Item 4.   Controls and Procedures
Disclosure Controls and Procedures
As of July 2, 2011, our management, under the supervision and with the participation of our chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended or the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in reports filed under the Exchange Act, such as this Form 10-Q, is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to management, including the principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosures. Based upon that evaluation, our chief executive officer and chief financial officer have concluded that, as of July 2, 2011, our disclosure controls and procedures are effective at a reasonable assurance level.
Changes in Internal Control Over Financial Reporting
With the exception of the addition of Bauer, there has been no change in our internal control over financial reporting (as defined in Rule 13a—15(f) under the Exchange Act) that occurred during our fiscal quarter ended July 2, 2011, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Note Regarding Acquisition
In making its assessment of disclosure controls and procedures and of changes in internal control over financial reporting as of July 2, 2011, management has excluded the operations of various legal entities which make up the Bauer acquisition (consolidated by the Company as of May 30, 2011). The Company is currently assessing the control environment of this acquired business.
The Company’s consolidated financial statements reflect Bauer’s results of operations from the beginning of business on May 30, 2011 forward. The acquired business’ total revenue were less than 10% of the Company’s total revenue at July 2, 2011.

 

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PART II—OTHER INFORMATION
Item 1.   Legal Proceedings
We are, from time to time, party to various legal proceedings arising out of our business. During the reporting period, there have been no material changes to the description of legal proceedings set forth in our Annual Report on Form 10-K for the year ended December 31, 2010.
Item 1A.   Risk Factors
The reader should carefully consider the Risk Factors described in our Annual Report on Form 10-K for the year ended December 31, 2010 and our Quarterly Report on Form 10-Q for the quarter ended April 2, 2011 filed with the Securities and Exchange Commission. Those risk factors described below, elsewhere in this report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2010 and our Quarterly Report on Form 10-Q for the quarter ended April 2, 2011 are not the only ones we face, but are considered to be the most material. These risk factors could cause our actual results to differ materially from those stated in forward looking statements contained in this Form 10-Q and elsewhere. All risk factors stated in our Annual Report on Form 10-K for the year ended December 31, 2010 and our Quarterly Report on Form 10-Q for the quarter ended April 2, 2011 are incorporated herein by reference.
During the reporting period, except as set forth below, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2010 and our Quarterly Report on Form 10-Q for the quarter ended April 2, 2011.
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes our share repurchase activity by month for the quarter ended July 2, 2011.
                                 
                    Total Number of     Dollar Value of  
    Total Number     Average     Shares Purchased as     Shares That May Yet be  
    of Shares     Price Paid per     Part of Publicly     Purchased Under  
Approximate Period   Purchased (1)     Share     Announced Plans or Programs     The Plans or Programs  
April 3, 2011 to April 30, 2011
        $           $  
May 1, 2011 to May 28, 2011
        $           $  
May 29, 2011 to July 2, 2011
    145     $ 24.66           $  
 
     
(1)   We repurchased these shares of common stock in connection with the vesting of certain stock awards to cover minimum statutory withholding taxes.
Item 3.   Defaults Upon Senior Securities
None.
Item 4.   (Removed and Reserved)
Item 5.   Other Information
None.

 

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Item 6.   Exhibits
The following exhibits are filed as part of this report:
         
Exhibit    
Number   Description
       
 
  2.1 *+  
Sale and Purchase Agreement among Danfoss Bauer GmbH, Danfoss A/S and Altra Holdings, Inc. (and certain of it subsidiaries), dated February 25, 2011.
       
 
  3.1 (1)  
Second Amended and Restated Certificate of Incorporation of the Registrant.
       
 
  3.2 (2)  
Second Amended and Restated Bylaws of the Registrant.
       
 
  31.1 *  
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
 
  31.2 *  
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
 
  32.1 **  
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
       
 
  32.2 **  
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
       
 
  101 ***  
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Unaudited Condensed Consolidated Statement of Earnings, (ii) the Unaudited Condensed Consolidated Balance Sheet, (iii) the Unaudited Condensed Consolidated Statement of Cash Flows, and (iv) Notes to Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text.
 
     
*   Filed herewith.
 
**   Furnished herewith.
 
***   As provided in Rule 406T of Regulation S-T, this information is furnished herewith and not filed for purposes of sections 11 and 12 of the Securities Act of 1933, as amended, or section 18 of the Securities Exchange Act of 1934, as amended.
 
+   Schedules and exhibits to the Sale and Purchase Agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish supplemental copies of such omitted schedules and exhibits to the Securities and Exchange Commission upon request.
 
(1)   Incorporated by reference to Altra Holdings, Inc.’s Registration Statement on Form S-1A, as amended, filed with the Securities and Exchange Commission on December 4, 2006.
 
(2)   Incorporated by reference to Altra Holdings, Inc.’s Current Report on form 8-K filed on October 27, 2008.

 

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  ALTRA HOLDINGS, INC.
 
 
August 8, 2011  By:   /s/ Carl R. Christenson    
    Name:   Carl R. Christenson   
    Title  President and Chief Executive Officer   
     
August 8, 2011  By:   /s/ Christian Storch    
    Name:   Christian Storch   
    Title:   Vice President and Chief Financial Officer   
     
August 8, 2011  By:   /s/ Todd B. Patriacca    
    Name:   Todd B. Patriacca   
    Title:   Vice President of Finance, Corporate Controller and Treasurer   

 

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EXHIBIT INDEX
         
Exhibit    
Number   Description
       
 
  2.1* +  
Sale and Purchase Agreement among Danfoss Bauer GmbH, Danfoss A/S and Altra Holdings, Inc. (and certain of it subsidiaries), dated February 25, 2011.
       
 
  31.1 *  
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
 
  31.2 *  
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
 
  32.1 **  
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
       
 
  32.2 **  
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
       
 
  101 ***  
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Unaudited Condensed Consolidated Statement of Earnings, (ii) the Unaudited Condensed Consolidated Balance Sheet, (iii) the Unaudited Condensed Consolidated Statement of Cash Flows, and (iv) Notes to Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text.
 
     
*   Filed herewith.
 
**   Furnished herewith.
 
***   As provided in Rule 406T of Regulation S-T, this information is furnished herewith and not filed for purposes of sections 11 and 12 of the Securities Act of 1933, as amended, or section 18 of the Securities Exchange Act of 1934, as amended.
 
+   Schedules and exhibits to the Sale and Purchase Agreement have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish supplemental copies of such omitted schedules and exhibits to the Securities and Exchange Commission upon request.

 

41

Exhibit 2.1
Roll of Deeds No. 115/2011/C
(LOGO)
RECORDED
in Frankfurt am Main on February 25, 2011
Before me, the undersigned civil law notary in the district of the Court of Frankfurt am Main
WOLFGANG COUTANDIN-GERISCHER
with offices at Rossmarkt 14, 60311 Frankfurt am Main,
appeared on this day in the premises of Hogan Lovells International LLP, Untermainanlage 1, 60329 Frankfurt am Main:
1.  
Mr. Karl Peter Simon, born on November 01, 1955, having his business address at Eberhard-Bauer-Straße 36-60, 73734 Esslingen am Neckar, presenting his valid identity card, acting not in his own name but in the name and on behalf of
   
Danfoss Bauer GmbH registered with the commercial register of the local court of Stuttgart under HRB 213759, Eberhard-Bauer-Str. 36-60, 73734 Esslingen am Neckar,
Seller ,
   
as its sole managing director.
   
The civil law notary herewith certifies after today’s inspection of the electronical commercial register under HRB-No. 213759 at the Local Court at Stuttgart that Mr. Karl Peter Simon as Managing Director is solely authorized to represent and act legally for and on behalf of Danfoss Bauer GmbH .

 

 


 

2.  
Mr. Niels Bjerregaard, born on October 13, 1974, having his business address at Nordborgvej 81, DK-6430 Nordborg, presenting his valid passport,
3.  
Mr. Thomas Christoffer Bobzin, born on February 8, 1973, having his business address at Nordborgvej 81, DK-6430 Nordborg, presenting his valid passport,
   
each acting not in their own name but in the name and on behalf of
   
Danfoss A/S , a corporation organized and existing under the laws of Denmark, registered in the Erhvervs- og Selskabsstyrelsen under CVR-no. 20165715, Nordborgvej 81, DK-6430 Nordborg
Seller’s Parent ,
   
authorized by notarized power of attorney dated February 8, 2011, a certified copy of which is attached hereto,
4.  
Dr. Daniel Weiß, born on September 30, 1976, having his business address c/o Hogan Lovells International LLP, Alstertor 21, 20095 Hamburg, presenting his valid identity card,
 
   
acting not in his own name but in the name and on behalf of
   
Danfoss GmbH, registered with the commercial register of the local court of Offenbach, HRB 41812, Carl-Legien-Straße 8, 63073 Offenbach
   
authorized by power of attorney dated February 11, 2011, a certified copy of which is attached hereto,
   
hereinafter referred to as “DANFOSS GMBH”, which until accession by it to this Agreement pursuant to clause 24.1 and 9.3 (f) shall become a party to this Agreement only for the purposes of clauses 11.6 and 11.8.
on the one hand
and
5.  
Mr. Karsten Kühnle, born on May 19, 1973, having his business address at Stephanstraße 15, 60313 Frankfurt am Main, personally known to the civil law notary, acting not in his own name but in the name and on behalf of
a)
   
Blitz S11-131 GmbH , Stuttgart, registered with the commercial register of the local court of Stuttgart under HRB 736269,
Purchaser
   
authorized by notarized power of attorney dated February 23, 2011, a certified copy of the power of attorney will be attached hereto.

 

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b)
   
Altra Holdings, Inc. , 300 Granite Street, Suite 201, Braintree, MA 02184, registered in Delaware, USA, with the I.R.S. Employer Identification No. 61-1478870,
Purchaser’s Parent ,
   
authorized by notarized power of attorney dated February 18, 2011, a certified copy of the power of attorney is attached hereto.
on the other hand.
The Seller on the one side and the Purchaser on the other side are also referred to individually as “ Sales Party ” and collectively as “ Sales Parties ”.
The Seller Companies (as defined below) and the Seller’s Parent on the one side and the Purchaser Companies (as defined below) and the Purchaser’s Parent on the other side are also referred to individually as “ Party ” and collectively as “ Parties ”.
The persons appearing requested that this Protocol be recorded in the English language and stated that they were in sufficient command of the English language. The civil law notary, who himself is in sufficient command of the English language, verified that the persons appearing were, in fact, in such sufficient command of the English language. Advised by the civil law notary of their rights to have the assistance of a sworn interpreter and to have a certified translation attached to this Protocol, the persons appearing waived such rights.
Upon request by the civil law notary according to § 3 (1) no. 7 German Notarization Code ( Beurkundungsgesetz ) the persons appearing declared that neither they nor the companies they represent in this Protocol have been involved with the civil law notary and his office in this transaction.
The civil law notary advised that the personal data of the persons appearing will be stored at the civil law notary’s office by means of electronic data processing and will possibly be notified to third parties in connection with obligations of the civil law notary to inform third parties; the persons appearing agreed therewith.
The persons appeared approved any declaration made by Ms Viola Grimm in the Reference Deed of the civil law notary Wolfgang Coutandin-Gerischer, Roll of Deeds No. 114/Year 2011/C, dated February 23, 24 and 25, 2011. The persons appeared referred to such Reference Deed in accordance with Section 13a of the German Notarization Act and declared that its contents are fully known to them and shall be considered part of this protocol. The persons appeared furthermore waived their right to read out the Reference Deed and attach it to that deed.
Any attachment referred to in the following is contained in the Reference Deed if not expressly marked as attachment to this protocol.
Then the persons appearing requested the notarization of the following:

 

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Table of Content
         
1. Sale and Purchase of the Business     11  
2. Transfer of Title to Assets Sold     15  
3. Sale and Assignment of Agreements     15  
4. Assumption of Liabilities     16  
5. Consent of Third Parties     17  
6. Employees     17  
7. Status of Annexes     21  
8. Merger control, IT-Systems     21  
9. Purchase Price, Closing     22  
10. Management of the Business prior to Closing     30  
11. Obligations after the Transfer Date     32  
12. Guarantees     35  
13. Procedure and Remedies for claims under the Guarantees     36  
14. Tax Indemnity     38  
15. Environmental Indemnity     39  
16. Special Indemnities     41  
18. Danfoss brand     44  
19. Seller’s Registered Company Name     45  
20. Confidentiality and Press Releases     45  
21. Notices and Bank Accounts     46  
22. Purchaser’s Parent Guarantee     47  
23. Seller’s Parent obligations and Parent Guarantee     47  
24. Accession/Local Sale and Transfer Agreements/Joint Liability     48  
25. General limitation period and overall limitation of liability     49  
26. Governing Law     50  
27. Dispute Resolution     50  
28. Miscellaneous     50  

 

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Table of Definitions
     
Actual Accounted IFRS Pension Accruals
  shall have the meaning as defined under Clause 9.1(c)
 
   
Affiliate
  shall have the meaning as defined in Sec. 15 et. seq. of the German Stock Companies Act (AktG)
 
   
Agreed Purchase Price
  shall have the meaning as defined under Clause 9.1(a)
 
   
Agreement
  shall have the meaning as defined in the Preamble
 
   
Assets Sold
  shall have the meaning as defined under Clause 1.2
 
   
Assumed Accounted IFRS Pension Accruals
  shall have the meaning as defined under Clause 9.1(c)
 
   
Assumed Liabilities
  shall have the meaning as defined under Clause 4.1
 
   
Assumed Working Capital
  shall have the meaning as defined under Clause 9.7(b)
 
   
Bank Business Day
  shall have the meaning as defined under Clause 28.9
 
   
Basket Amount
  shall have the meaning as defined under Clause 13.10
 
   
BGB
  shall mean the German Civil Code (Bürgerliches Gesetzbuch)
 
   
Breach
  shall have the meaning as defined under Clause 13.1
 
   
Business
  shall have the meaning as defined in the Preamble
 
   
Business Days
  shall have the meaning as defined under Clause 28.8
 
   
Business Employee
  shall have the meaning as defined under Clause 6.1
 
   
Business Employees
  shall have the meaning as defined under Clause 6.1
 
   
Cap
  shall have the meaning as defined under Clause 13.11
 
   
Closing
  shall have the meaning as defined under Clause 9.3
 
   
Closing Actions
  shall have the meaning as defined under Clause 9.3
 
   
Closing Conditions
  shall have the meaning as defined under Clause 9.2
 
   
Closing Day
  shall have the meaning as defined under Clause 9.3
 
   
Closing Memorandum
  shall have the meaning as defined under Clause 9.4
 
   
Completion Condition
  shall have the meaning as defined under Clause 9.5
 
   
Contracts
  shall have the meaning as defined under Clause 3.2
 
   
Danfoss-Group
  shall have the meaning as defined under Clause 18.1(a)
 
   
De Minimis Threshold
  shall have the meaning as defined under Clause 13.10

 

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Development and Support Contract
  shall have the meaning as defined under Clause 11.7
 
   
Dutch Accrual Repayment
  shall have the meaning as defined under Clause 9.8
 
   
Environment
  shall have the meaning as defined under Clause 15.1(a)
 
   
Environmental Authority
  shall have the meaning as defined under Clause 15.1(b)
 
   
Environmental Condition
  shall have the meaning as defined under Clause 15.1(c)
 
   
Environmental Laws
  shall have the meaning as defined under Clause 15.1(d)
 
   
Environmental Losses
  shall have the meaning as defined under Clause 15.1(e)
 
   
Environmental Proceedings
  shall have the meaning as defined under Clause 15.1(f)
 
   
Excluded Assets
  shall have the meaning as defined under Clause 1.3
 
   
Excluded Contracts
  shall have the meaning as defined under Clause 3.3
 
   
Excluded Liabilities
  shall have the meaning as defined under Clause 4.2
 
   
Excluded Records
  shall have the meaning as defined under Clause 1.2(h)
 
   
Final Working Capital Calculation
  shall have the meaning as defined under Clause 9.7(d)
 
   
German Premises
  shall have the meaning as defined in the Preamble
 
   
German Premises Lease Agreements
  shall have the meaning as defined under Clause 11.6
 
   
German VAT Act
  shall have the meaning as defined under Clause 9.11
 
   
HGB
  shall have the meaning as defined under Clause 1.2(a)
 
   
ISD-Motors
  shall have the meaning as defined in the Preamble
 
   
Local Assumed Working Capital
  Shall have the meaning as defined under Clause 9.3(f)
 
   
Local Holdback Amount
  Shall have the meaning as defined under 9.3(c)
 
   
Local Sale and Transfer Agreements
  shall have the meaning as defined under Clause 9.3(b)
 
   
Local Purchaser
  shall have the meaning as defined under Clause 1.1(b)
 
   
Manufacturing Contract
  shall have the meaning as defined under Clause 11.8
 
   
Notice
  shall have the meaning as defined under Clause 13.1
 
   
One Gear Drive
  shall have the meaning as defined in the Preamble
 
   
One Gear Drive Project
  shall have the meaning as defined in the Preamble
 
   
Open Claim Amount
  shall have the meaning as defined under Clause 23.3
 
   
Other Contracts
  shall have the meaning as defined under Clause 3.2

 

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Other Employees
  shall have the meaning as defined under Clause 6.8
 
   
Payment
  shall have the meaning as defined under Clause 9.3(c)
 
   
Transfer Date
  shall have the meaning as defined under Clause 9.5
 
   
Parties
  shall have the meaning as defined in the party section of this Agreement
 
   
Party
  shall have the meaning as defined in the party section of this Agreement
 
   
Petty Cash Amount
  shall have the meaning as defined under Clause 9.1(d)
 
   
Premises
  shall have the meaning as defined in the Preamble
 
   
Purchase Price
  shall have the meaning as defined under Clause 9.1
 
   
Purchaser
  shall have the meaning as defined in the party section of this Agreement
 
   
Purchaser Companies
  shall have the meaning as defined under Clause 1.1(b)
 
   
Purchaser Company
  shall have the meaning as defined under Clause 1.1(b)
 
   
Purchaser’s Acts
  shall have the meaning as defined under Clause 15.1(g)
 
   
Purchaser’s Parent
  shall have the meaning as defined in the party section of this Agreement
 
   
Real Estate
  shall have the meaning as defined under Clause 15.1(h)
 
   
Records
  shall have the meaning as defined under Clause 1.2(h)
 
   
Remediation Work
  shall have the meaning as defined under Clause 15.1(i)
 
   
Reverse IP License Agreement
  shall have the meaning as defined under Clause 11.9
 
   
Sales Business
  shall have the meaning as defined in the Preamble
 
   
Sales Companies
  shall have the meaning as defined in the Preamble
 
   
Sales Contracts
  shall have the meaning as defined under Clause 3.1
 
   
Sales Party
  shall have the meaning as defined in the party section of this Agreement
 
   
Sales Party’s Working Capital Calculation
  shall have the meaning as defined under Clause 9.7(c)
 
   
Sales Parties
  shall have the meaning as defined in the party section of this Agreement
 
   
Sales Parties’ Working Capital Calculation
  shall have the meaning as defined under Clause 9.7(c)
 
   
SAP ERP Structure
  shall have the meaning as defined in Annex 8.2(a)(i)
 
   
Seller
  shall have the meaning as defined in the party section of this Agreement

 

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Seller Companies
  shall have the meaning as defined in the Preamble
 
   
Seller’s Business
  shall have the meaning as defined in the Preamble
 
   
Seller’s Best Knowledge
  shall have the meaning as defined under Clause 12.3
 
   
Seller’s Guarantee
  shall have the meaning as defined under Clause 12.1
 
   
Seller’s Guarantees
  shall have the meaning as defined under Clause 12.1
 
   
Seller’s Parent
  shall have the meaning as defined in the party section of this Agreement
 
   
Signing Date
  shall be the day hereof
 
   
Slovakian Premises
  shall have the meaning as defined in the Preamble
 
   
Slovakian Purchaser
  shall have the meaning as defined under Clause 1.1(d)
 
   
Supply Parts
  shall have the meaning as defined under Clause 11.11
 
   
Taxes
  shall mean all taxes, duties, or charges accessory to taxes and liability claims for taxes of a third party imposed by any tax authority or other governmental authority responsible for the imposition thereof including, without limitation, all taxes within the meaning of Section 3 para. 1 of the German General Tax Code ( Abgabenordnung ), duties or charges accessory to taxes ( steuerliche Nebenleistungen ) within the meaning of Section 3 para. 4 of the German General Tax Code and liability claims ( Haftungsschulden ) for taxes of a third party under Section 75 of the German Tax Code ( Abgabenordnung )
 
   
Third Party Claim
  shall have the meaning as defined under Clause 13.2
 
   
Transaction
  shall have the meaning as defined in the Preamble
 
   
Transfer Date
  shall have the meaning as defined under Clause 9.5
 
   
VAT
  shall mean value added tax chargeable under or pursuant to the EC Council Directive 2006/112/EC on the common system of value added tax or any similar sales, purchase or turnover tax chargeable outside the European Union, including, but not limited to, US sales taxes and Chinese business tax
 
   
VAT Amount
  shall have the meaning as defined under Clause 9.11
 
   
Working Capital
  shall have the meaning as defined under Clause 9.7(a)

 

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Table of Annexes
         
Annex P1 — German Premises
    52  
Annex P2 — Slovakian Premises
    53  
Annex P3 — Sales Companies
    54  
Annex 1.2(a) — Trademarks
    55  
Annex 1.2(b) — Fixed Assets
    56  
Annex 1.2(c) — Stocks
    57  
Annex 1.2(g) — Sold registered patents, utility models and designs
    58  
Annex 1.2(i) — Software Licenses
    59  
Annex 1.3(f) — Software owned by Seller’s Parent
    60  
Annex 1.3(j) — Excluded registered patents, utility models and designs
    61  
Annex 1.3(k) — Assets and rights exclusively pertaining to the One Gear Drive Project
    62  
Annex 1.3(o) — ISD Assembly Line
    63  
Annex 3.1 — Sales Contracts with certain open claims
    64  
Annex 3.2 — License, lease and other contracts
    65  
Annex 3.3 — Excluded Contracts
    66  
Annex 4.1 — Assumed Liabilities
    67  
Annex 4.2 — Financial Debt Definition
    68  
Annex 6.1 — Business Employees
    69  
Annex 8.2(a)(i) — Definition of SAP ERP stand alone structure
    70  
Annex 8.2(a)(ii) — IT Carve-out Plan
    71  
Annex 8.2(b) — Specifications for acceptance test
    72  
Annex 9.1(a) — Allocation of the Agreed Purchase Price
    73  
Annex 9.1(c) — Actual Accounted IFRS Pension Accruals
    74  
Annex 9.3(b) — Local Sale and Transfer Agreements
    75  
Annex 9.3(f) — Procedure in The Netherlands
    76  
Annex 9.4 — Closing Memorandum
    77  
Annex 9.7(a) — Working Capital
    78  
Annex 9.7(b) — Breakdown of the Assumed Working Capital
    79  
Annex 11.1 — Framework Service Agreement
    80  
Annex 11.6 — German Premises Lease Agreements
    81  
Annex 11.7 — Development and Support Contract
    82  
Annex 11.8 — Manufacturing Contract
    83  
Annex 11.9 — Reverse IP License Agreement
    84  
Annex 11.11 — Supply Parts
    85  
Annex 12.1— Seller’s Guarantees
    86  

 

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Annex 12.3 — Persons relevant for Seller’s Best Knowledge
    87  
Annex 13.7(i) — Data Room Index
    88  
Annex 13.7(ii) — Persons relevant for Purchaser’s Knowledge
    89  
Annex 15.1(h) — Real Estate occupied by the Business
    90  
Annex 16.3 — Employees affected by the reconciliation of interest and social plan
    91  
Annex 17.1(b)(i) — Criteria for the One Gear Drive
    92  
Annex 17.1(b)(ii) — List of end customers
    93  
Annex 20.2 — Press Releases
    94  

 

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Preamble
WHEREAS, the Seller is a German company that develops, produces and markets gear motors;
WHEREAS, the gear motor business of the Seller is carried out from the Seller’s premises in Eberhard-Bauer-Str. 36-60, 73734 Esslingen am Neckar, Germany, a plan of which is attached hereto as Annex P1 , (“ German Premises ”) and from the premises of a dependent branch of the Seller in Továrenská 49, 953 01 Zlaté Moravce, a plan of which is attached hereto as Annex P2 ( “Slovakian Premises” ), together referred to as the “ Premises ”.
WHEREAS, the Seller together with Affiliates is in the process of developing a new type of gear motor (hereinafter referred to as the “ One Gear Drive ” and all activities related to the One Gear Drive referred to as “ One Gear Drive Project ”). In the process to a marketable product the One Gear Drive Project has already passed 4 of 5 milestones. As the Seller expects that products of Affiliates, especially a frequency converter of Danfoss’ Power Electronics business unit, could be better marketed in combination with this One Gear Drive, Seller wishes to finalise the development of the One Gear Drive and to keep all assets and rights exclusively pertaining to this One Gear Drive and to have the right to use all other rights necessary to produce, market and to enhance the One Gear Drive also in the future;
WHEREAS, the Seller presently markets its products via affiliated sales companies listed in Annex P3 (“ Sales Companies ”) which sell the products of the Seller to their own customers in their own name and for their own account;
WHEREAS, as part of the Business, the Seller assembles for various Danfoss entities Integrated Servo Drive Motors ( “ISD-Motors” ), where all rights pertaining to the ISD-Motors are owned by and will remain with the various Danfoss entities;
WHEREAS, the activities of the Seller regarding the gear motor business excluding, for the avoidance of doubt, any sales activities of the Sales Companies and further excluding the assets, contracts and liabilities exclusively pertaining to the One Gear Drive Project as defined above and, for the avoidance of doubt, the ISD-Motors, is hereinafter referred to as the “Seller’s Business” ; the sales activities of the Sales Companies exclusively relating to the sale of the gear motors produced by the Seller is hereinafter referred to as the “ Sales Business ”; the Seller’s Business and the Sales Business is hereinafter referred to as the “ Business ”.
WHEREAS, the Seller and the Sales Companies (collectively the “ Seller Companies ”) wish to sell the Business to the Purchaser and affiliated companies of the Purchaser, and the Purchaser and its affiliated companies wish to acquire the Business, all upon the terms and conditions set forth in this agreement and its Annexes (“ Transaction ”). This agreement and its Annexes are hereinafter referred to as “ Agreement ”.
NOW, THEREFORE, the Parties agree as follows:
1.  
Sale and Purchase of the Business
 
1.1  
Sale and Purchase
  (a)  
The Seller hereby offers to sell to the Purchaser, and the Seller and the Seller’s Parent hereby offer to procure that the Sales Companies will at Closing under the Local Sale and Transfer Agreements sell, to the Purchaser or Affiliates of the Purchaser as designated by the Purchaser, subject to the provisions of Clause 1.3 its respective assets pertaining to the Business as of the Transfer Date (as defined in Clause 9.5) subject to, and in accordance with, the provisions of this Agreement, that is the Seller and the Sales Companies each sell their respective assets. With regard to the sale and transfer of the assets of the Sales Companies in The

 

-11-


 

     
Netherlands, Italy, France and Denmark, the offer to procure that these Sales Companies will at Closing sell their respective assets is subject to that the mandatory local rules on the involvement of the respective Unions and/or employees and/or employee representatives have been fully complied with and the Parties acknowledge that under applicable law no decision on the purchase or sale of a business in these jurisdictions can be made before the respective employees’ representatives have been properly informed and consulted; the Seller and the Seller’s Parent insofar offer to procure that the respective Sales Companies will sell their respective assets under the Local Sale and Transfer Agreements as set out above as soon as reasonable possible after the mandatory local rules have been fully complied with, at the earliest however at Closing, unless a sale is then not permissible under local law. If the Local Sale and Transfer Agreement in The Netherlands is not signed within 6 months after the Transfer Date, Seller and Seller’s parent are not under an obligation to procure the signing of the Dutch Local Sale and Transfer Agreement any more. The Purchaser hereby accepts that offer. Subject to the adjustments according to Clause 7 and without prejudice to the generality of the foregoing, this sale shall, without limitation, include the assets mentioned in Clause 1.2.
 
  (b)  
The Purchaser, the Slovakian Purchaser (as defined in Clause 1.1(d) below, if any) and all legal entities designated by the Purchaser to buy assets pertaining to the Business (each of the latter a “Local Purchaser” ) are jointly referred to as “Purchaser Companies” and each of them “Purchaser Company” .
 
  (c)  
The designation of a Local Purchaser can only be made in a way so that the Assets Sold, Contracts and Assumed Liabilities of each Sales Company are always sold and transferred/assumed to/by the same Local Purchaser. All Local Purchasers must be subsidiaries of the Purchaser’s Parent, that are controlled ( beherrscht ) by the Purchaser’s Parent. The designation of a Local Purchaser must not result in other merger control filing requirements than those existing at signing.
 
  (d)  
With regard to the assets owned by the Seller, which are sold to the Purchaser, the Purchaser can designate an Affiliate to whom the Assets Sold pertaining to the production in the Slovak Republic are to be transferred (such Affiliate the “ Slovakian Purchaser ”) if the Slovakian Purchaser agrees to also assume the Contracts and Assumed Liabilities of the Seller pertaining to the production in the Slovak Republic. Clause 1.1(c) applies mutatis mutandis .
1.2  
Assets Sold
 
   
Subject to the provisions of Clause 1.3, the assets sold/to be sold by the Seller Companies to the Purchaser Companies pursuant to Clause 1.1 (“ Assets Sold ”) shall, without limitation, include the following assets pertaining to the Business on the Transfer Date:
  (a)  
all goodwill (supplier and customer relations) and all other intangible assets within the meaning of Section 266 para. 2 (A. I.) German Commercial Code (“ HGB ”) pertaining to the Business, all domain names pertaining to the Business, the trademarks ( Marken ) listed in Annex 1. 2(a) and the corporate designation ( Unternehmenskennzeichen ) “Bauer” including the right to use the trademarks and the corporate designation for the Business;

 

-12-


 

  (b)  
the fixed assets ( Gegenstände des Sachanlagevermögens ) pertaining to the Business, including but not restricted to the assets within the meaning of Section 266 para. 2 (A. II. No. 2 to 4) HGB, irrespective of their value, listed in Annex 1. 2(b) hereto, and in particular including overhead cranes, all racks and shelves as well as the paint systems;
 
  (c)  
the stocks ( Vorräte ) within the meaning of Section 266 para. 2 (B. I.) HGB pertaining to the Business; for illustration, Annex 1. 2(c) lists the stocks that were in stock on 31 January 2011;
 
  (d)  
accounts receivables pertaining to the Business within the meaning of Section 266 para. 2 (B. II.) No. 1 HGB;
 
  (e)  
other assets pertaining to the Business within the meaning of Section 266 para. 2 (B. II.) No. 4 HGB
 
  (f)  
Petty cash ( Kassenbestand ) within the meaning of Section 266 para. 2 (B. IV.) HGB;
 
  (g)  
the registered patents, utility models, designs and domain names listed in Annex 1.2(g) ;
 
  (h)  
all know-how and other technical knowledge with all its related documentation pertaining to the Business as well as the business records and books pertaining to the Business including, but not limited to, information relating to customers and suppliers, price lists, marketing lists, marketing material which relate to the Business, all contractual documentation including all correspondence relating to the Business but excluding invoices (“ Records ”). Excluded are books and records which Seller Companies are legally obliged to keep, as are accounting data, financial statements, tax returns and assessment notices, and other records to be kept by Seller Companies as corporate entities, in particular (but without limitation) corporate books and records, and (without limitation) invoices (“ Excluded Records ”), provided however, that the Purchaser Companies will receive a copy of these Excluded Records in accordance with Clause 11.3 to the extent pertaining to the Business.
 
  (i)  
the software licenses listed in Annex 1. 2(i) and all other software licenses pertaining to the Business, except for the software licenses listed in Annex 1.3(f) below; in the event that the transfer of a certain software license would trigger a transfer fee, the respective Seller Company shall bear such transfer fee.
1.3  
Excluded Assets
 
   
The Assets Sold do (for the avoidance of doubt) not comprise the following excluded assets (“ Excluded Assets ”) which are not sold/not to be sold pursuant to Clause 1.1:
  (a)  
any real estate ( Grundstücke ), rights similar to real property ( grundstücksgleiche Rechte ) or constructions ( Bauten ) within the meaning of § 266 para. 2 (A. II. No. 1) HGB, in particular not the German Premises;
 
  (b)  
any receivables against affiliates and businesses with which a company relationship ( Beteiligungsverhältnis ) exists within the meaning of § 266 para. 2 (B. II. No. 2 and 3) HGB except to the extent that such receivables qualify as trade receivables;
 
  (c)  
open claims of the Seller Companies for reimbursement of VAT ( Vorsteuererstattungsansprüche ) resulting from supplies to the Business before the Transfer Date;

 

-13-


 

  (d)  
any financial assets ( Finanzanlagen ) within the meaning of § 266 para. 2 (A. III.) HGB and any securities ( Wertpapiere ) within the meaning of § 266 para. 2 (B. III.) HGB;
 
  (e)  
any cheques, cash or money in bank accounts within the meaning of § 266 para. 2 (B IV.) HGB except for the petty cash mentioned in Clause 1.2(f));
 
  (f)  
the software licenses listed in Annex 1.3(f) ;
 
  (g)  
Seller’s shares in Danfoss GmbH (registered with the commercial register at the local court of Offenbach am Main under registration number HRB 41812);
 
  (h)  
Seller’s shares in DONATA Grundstücks-Verwaltungsgesellschaft mbH & Co. oHG (registered with the commercial register at the local court of Munich under registration number HRA 67122) and Donata Grundstücks-Verwaltungsgesellschaft mbH (registered with the commercial register at the local court of Munich under registration number HRB 84873);
 
  (i)  
Seller’s shares in Esslinger Wohnungsbau GmbH (registered with the commercial register at the local court of Stuttgart under registration number HRB 210007);
 
  (j)  
the registered patents, utility models and designs listed in Annex 1.3(j) ;
 
  (k)  
any assets and rights exclusively pertaining to the One Gear Drive Project, in particular those listed or described in Annex 1.3(k) ;
 
  (l)  
the following know-how and other technical knowledge:
  (i)  
all samples of the One Gear Drive,
 
  (ii)  
all data and reports on tests conducted with any version of the One Gear Drive,
 
  (iii)  
all construction sketches and plans, engineering drawings, product specifications and development plans of the One Gear Drive,
 
  (iv)  
all construction sketches and plans, engineering drawings, product specifications and development plans of the brake, the interim and final terminal boxes and the gearwheel of the One Gear Drive, in each case to the extent it exclusively pertains to the One Gear Drive,
 
  (v)  
all cost calculations regarding the variable production costs of the One Gear Drive, which shall include
  (1)  
calculations for the costs of external suppliers including quotes obtained for such suppliers and
 
  (2)  
calculations as to the internal assembly costs, and
  (vi)  
all other documentation exclusively pertaining to the One Gear Drive Project as well as the business records and books exclusively pertaining to the One Gear Drive Project including, but not limited to, information relating to customers and suppliers, price lists and marketing lists, irrespective of whether the aforementioned information (numbers (ii) to (v)) is available in tangible form or in form of data files;
  (m)  
subject to Clause 18, any rights to use the Danfoss brand, firm name and trademark and any domain names containing the term “Danfoss”;

 

-14-


 

  (n)  
assets owned by third parties, e.g. tools; and
 
  (o)  
the assembly line located on the Slovakian Premises for the assembly of the ISD-Motors as further described in Annex 1.3(o) .
2.  
Transfer of Title to Assets Sold
 
2.1  
The Seller Companies will transfer title to the Assets Sold at Closing.
 
2.2  
The risk of incidental loss ( zufälliger Untergang ) or incidental deterioration ( zufällige Verschlechterung) of the Assets Sold passes to the Purchaser Companies at the Transfer Date. The benefits and burdens ( Nutzungen und Lasten ) of the Assets Sold shall accrue to the Purchaser Companies at the same time.
 
3.  
Sale and Assignment of Agreements
 
3.1  
Subject to Clause 3.3, the Seller hereby offers to sell to the Purchaser, and the Seller and the Seller’s Parent hereby offer to procure that the Sales Companies will at Closing sell, to the Purchaser or a Local Purchaser as designated by the Purchaser in accordance with Clause 1.1(c) as a whole ( Vertragsübernahme ) all of their respective not yet completely fulfilled sales agreements (for the avoidance of doubt including Repair&Service Contracts and Development Contracts) with customers pertaining to the Business and all not yet completely fulfilled purchase agreements with suppliers pertaining to the Business, respectively, in each case with all rights and obligations resulting therefrom ( “Sales Contracts” ), in particular (but without limitation) those with open primary claims ( Hauptleistungspflichten) listed in Annex 3.1 . The Seller sells the Sales Contracts to which the Seller is a party and the Sales Companies sell the Sales Contracts to which the respective Sales Company is a party. The Purchaser hereby accepts such offer. Not completely fulfilled within the meaning of this Clause 3 shall mean a contract which has not been completely fulfilled as of the Transfer Date, irrespective of whether primary ( Hauptleistungspflichten) or secondary ( Sekundäransprüche ) claims are outstanding.
 
3.2  
Subject to Clause 3.3, the Seller hereby offers to sell to the Purchaser, and the Seller and the Seller’s Parent hereby offer to procure that the Sales Companies will at Closing sell, to the Purchaser or a Local Purchaser as designated by the Purchaser in accordance with Clause 1.1(c) as a whole all other not yet completely fulfilled agreements pertaining to the Business, other than the Sales Contracts (such agreements the “Other Contracts” ), including but not limited to the licence contracts and the lease agreements listed in Annex 3.2 . The Seller sells the Other Contracts to which the Seller is a party and the Sales Companies sell the Other Contracts to which the respective Sales Company is a party. The Purchaser hereby accepts such offer. The Other Contracts together with the Sales Contracts hereinafter referred to as the Contracts (“ Contracts ”).
 
3.3  
Notwithstanding Clauses 3.1 and 3.2, not sold/not to be sold and transferred are, and they therefore do neither qualify as Sales Contracts or Other Contracts, (i) any agreements exclusively pertaining to the One Gear Drive and/or the ISD-Motors which are in particular the contracts identified under the heading “One Gear Drive/ISD” in Annex 3.3 as well as (ii) the agreements listed under the heading “further agreements” in Annex 3.3 (the agreements referred to in (i) and (ii) above collectively the “ Excluded Contracts ”). In the event that a certain liability which the Purchaser Companies do not assume according to Clause 4.2 has its legal foundation in a contract, the relevant contract shall not be sold and transferred to the Purchaser Companies and does qualify as an “Excluded Contract”.

 

-15-


 

3.4  
The offer to procure the sale of the Contracts is with regard to The Netherlands, Italy, France and Denmark subject to the compliance with the mandatory local rules on the involvement of the respective Union, employees and/or employees representatives as set out in Clause 1.1(a).
 
3.5  
The assignment of the Contracts will take place at Closing.
 
3.6  
After the Transfer Date, each Purchaser Company will indemnify and hold harmless the Seller Companies from all claims and liabilities relating to the Contracts assumed by it, irrespective of whether such claims are related to time periods before or after the Transfer Date, except to the extent that such claims or liabilities are Excluded Liabilities or to the extent that the Purchaser Companies have a claim against the Seller in respect of any such claims or liabilities relating to the Contracts under or in connection with this Agreement.
 
3.7  
The Purchaser Companies assume inter alia all warranty liabilities or warranty obligations of the Seller Companies pertaining to the Contracts even if they result from sales prior to the Transfer Date, except to the extent that such liabilities or obligations are Excluded Liabilities or to the extent that the Purchaser Companies have a claim against the Seller in respect of any such liabilities or obligations under or in connection with this Agreement.
 
4.  
Assumption of Liabilities
 
4.1  
Subject to Clause 4.2, the Purchaser hereby offers to assume, and the Purchaser and the Purchaser’ Parent offer to procure that the Purchaser Companies will at Closing assume, under release of the Seller Companies all obligations, debts, and/or other liabilities, including contingent liabilities pertaining to the Business, in each case as of the Transfer Date irrespective whether they are due for payment or not with the exception, however, of the Excluded Liabilities (such liabilities with the exception of the Excluded Liabilities the “ Assumed Liabilities ”), in particular but not limited to those listed in Annex 4.1 . The Seller hereby accepts such offer. The Purchaser has the right to designate which Purchaser Company will assume the Assumed Liabilities from which Sales Company; Clause 1.1(c) applies mutatis mutandis .
 
4.2  
The Purchaser Companies do not assume any liabilities relating to (i) former employees, i.e., employees no longer employed on the Transfer Date, including social security contributions and liabilities relating to pensions and other benefits, (ii) employees, including social security contributions and liabilities relating to pensions and other benefits, other than as provided for and/or described in Clause 6 of this Agreement, (iii) Taxes, public duties ( Zölle ), and any other public impositions, (iv) intra-group debts other than trade liabilities (trade liabilities in any case including all liabilities under the Contracts), (v) any financial debt as defined in Annex 4.2 , (vi) the restructuring in respect of the site in Munich, (vii) any of the contracts excluded from the Transaction pursuant to Clause 3.3 and (viii) Environmental Conditions or breaches by any of the Seller Companies of Environmental Laws, provided, for the avoidance of doubt, that any liability of Purchaser Companies under applicable law relating to Environmental Conditions or breaches of Environmental Laws shall remain unaffected and recourse of the Purchaser Companies for such liability against the Seller Companies shall exclusively be governed by Clause 15 (the items in (i) through (viii) together the “ Excluded Liabilities ”).
 
4.3  
The offer to procure the assumption of obligations, debts and/or other liabilities, including contingent liabilities, is with regard to The Netherlands, Italy, France and Denmark subject to the compliance with the mandatory local rules on the involvement of the respective Union, employees and/or employees representatives as set out in Clause 1.1(a).

 

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4.4  
Each Purchaser Company will indemnify and hold harmless the Seller Companies and their Affiliates from all claims and liabilities relating to the Assumed Liabilities assumed by it, irrespective of whether such claims are related to time periods before or after the Transfer Date, except to the extent that the Purchaser Companies have a claim against the Seller in respect of any such claims or liabilities relating to the Assumed Liabilities under or in connection with this Agreement.
 
5.  
Consent of Third Parties
 
5.1  
If and to the extent the transfer or assignment of Assets Sold, Contracts or Assumed Liabilities under this Agreement and/or the Local Sale and Transfer Agreements requires the consent of the other contracting party or another third party, the Parties shall use all commercially reasonable efforts to obtain such consent after the Transfer Date without undue delay.
 
5.2  
The Parties shall (i) for the period after the Transfer Date until the necessary consent from the contracting party or a third party has been obtained or (ii) if the consent has been denied or (iii) if it is impossible or impractical to obtain the consent required for the legally effective transfer of title to an Asset Sold or assignment of a Contract or assumption of an Assumed Liability treat each other internally ( im Innenverhältnis ) as if the transfer or assignment had validly taken place on the Transfer Date.
 
5.3  
In the cases described in Clause 5.2 of this Agreement, the Seller Companies will externally ( im Aussenverhältnis ), remain the owner of the relevant Asset Sold or remain the party to the relevant Contract or remain the debtor of the relevant Assumed Liability but will hold the relevant Asset Sold and be responsible for the relevant Contract or Assumed Liability internally for the account and according to the instruction of the Purchaser Companies.
 
5.4  
The provisions of this Clause 5 shall also apply if and to the extent that the transfer or assignment of any Assets Sold or Contract to, or the assumption of any Assumed Liability by, the Purchaser Companies is subject to the fulfilment of any requirements other than the consent of a third party.
 
6.  
Employees
 
6.1  
The Seller Companies and the Purchaser Companies agree that Annex 6.1 hereto lists all employees (broken down for each Seller Company and listed with their name or, to the extent required by applicable data protection law, their initials, age, date of commencement of employment, position (in particular whether white collar or blue collar worker), regular place of work, applicable notice period, any special dismissal protection (e.g. disabled, pregnant, on parental leave, member of the works council), and entire annual gross remuneration) who on the Signing Date are employed by the Seller Companies and pertain to the Business (such employees listed in Annex 6.1 individually referred to a “ Business Employee ” and collectively the “ Business Employees ”).
 
6.2  
The Parties acknowledge that the employment relationship with all employees in countries other than China, Russia, Ukraine and the U.S. relating to the Business in accordance with applicable local law on the Transfer Date (including, but not limited to, any employee who is on a leave of absence for any reason in particular employees on maternity leave or other kind of statutory leave) shall transfer to the relevant Purchaser Company on the Transfer Date by operation of law.

 

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6.3  
In respect of the Business Employees in China, Russia, Ukraine and the U.S., without undue delay after the Transfer Date the Purchaser will make, or will procure that the Slovakian Purchaser and a Local Purchaser will make, an offer to each of those Business Employees for employment on the same terms and conditions as previously employed by the relevant Seller Companies. The Purchaser Companies shall be free (but under no obligation) to make an offer for employment to some or all of these Business Employees on terms more favourable than previously applicable. The Seller Companies shall in no event interfere with such offers and shall in particular omit anything to keep or make a counter offer to such employees. In the event that a Business Employee in China, Russia, Ukraine and the U.S. does not accept the relevant Purchaser Company’s offer for employment, the Seller Companies shall give notice of termination of the employment contracts of such Business Employees without undue delay after the relevant Purchaser Company has notified the relevant Seller Company thereof and the Seller Companies shall use their best efforts that such employment contracts be successfully terminated as soon as possible after the Transfer Date.
 
6.4  
For the avoidance of doubts the Seller Companies do not guarantee that all of the employees listed in Annex 6.1 or such number of employees will transfer to, or accept the offer for employment by, the Purchaser, the Slovakian Purchaser or the relevant Local Purchaser.
 
6.5  
Without undue delay after the Signing Date, the Seller and the German Sales Company will inform all Business Employees employed by them in Germany pursuant to Section 613a para. 5 BGB and the Business Employees employed by them in Slovakia pursuant to corresponding legislation in Slovakia, and the Seller Companies employing Business Employees in Austria, Belgium, Czech Republic, Denmark, Finland, France, Great Britain, Italy, The Netherlands, Slovakia and Spain will inform the Business Employees in accordance with corresponding legislation applicable in such countries. The Purchaser Companies will assist the relevant Seller Companies and co-operate as closely as possible in this information; in particular, the Purchaser Companies will, upon the relevant Seller Companies’ request, provide all information which is necessary for a complete and factually and legally correct information about the legal, commercial and social consequences of the transfer of the Business Employees concerned and any actions intended to be taken with regard to the Business Employees concerned by the Purchaser Companies. This includes also information about economic difficulties of the Purchaser Companies, if any, and restructuring plans of the Purchaser Companies, if any, in the case of a restructuring. The Purchaser Companies are responsible for the correctness of the information and text passages provided by the Purchaser Companies. If the information letter provided by the relevant Seller Companies was incomplete, or, factually or legally incorrect as a result of incomplete or inaccurate information provided by the Purchaser Companies to the relevant Seller Companies and as a consequence a Business Employee (i) claims that the objection term has not started to run and therefore the Business Employee objects to the transfer or (ii) claims damages from the Seller Companies, the Purchaser Companies will indemnify the Seller Companies and hold the Seller Companies harmless from and against all claims and costs caused thereby (including, but not limited to continued payment of salaries and benefits, tax and social security, termination costs including but not limited to severances and appropriate legal fees). The indemnification and holding harmless has to be effected by payment to the Employee or to the respective Seller Company, at the discretion of the Seller.

 

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6.6  
Each Seller Company with respect to Business Employees (formerly) employed by such Seller Company and the Seller will satisfy any claims of Business Employees relating to the employment of the Business Employees (including, for the avoidance of doubt, pensions, social security contributions and withholding taxes) and having fallen due prior to the Transfer Date. The respective Seller Company and the Seller will fully indemnify the Purchaser Companies from any such claims having fallen due prior to the Transfer Date. The Purchaser Companies will fully indemnify the Seller Companies from any claim (including, for the avoidance of doubt, pensions, social security contributions and withholding taxes) by any Business Employee falling due on or after the Transfer Date, regardless whether the claim — in whole or in part — relates to the time before the Transfer Date; for the avoidance of doubt, this indemnification obligation does not apply to any claims of Business Employees under defined benefit schemes in the UK, since defined benefit schemes in the UK shall not be transferred to the Purchaser Companies, In relation to Business Employees and Other Employees within the United Kingdom, each Seller Company shall indemnify the Purchaser Companies in relation to any liability that arises from any claim made or brought against any of the Purchaser Companies by a Business Employee or Other Employee that he is entitled to any defined benefits payable on early retirement or redundancy which derive from the Business Employee’s or Other Employee’s membership of the Danfoss Holdings (UK) Pension Scheme as established by a trust deed and rules dated 27 November 1998 (as amended) (or any previous defined benefit scheme where such rights transferred to a Seller Company).
 
6.7  
Notwithstanding Clause 6.5 , as far as Business Employees exercise their objection right pursuant to Section 613a para. 6 BGB or any other corresponding legislation or do not accept an offer for employment by a Purchaser Company, the Seller Companies will use best efforts to terminate the employment contracts of such Business Employees exercising their objection right pursuant to Section 613a para. 6 BGB or any other corresponding legislation, if legally possible. The Purchaser Companies will indemnify and hold harmless the Seller Companies from any costs which the Seller Companies incur for (i) the ongoing employment of the employee up to the earliest possible termination date after the relevant employee objected to the transfer including, but not limited to, salaries, benefits, bonuses or similar one-time-payments, remuneration in kind, and applicable social security contributions, and (ii) counsel (to the extent reasonable) engaged in connection with the termination of the employment relationship and any relevant court fees and (iii) severance payments, provided that the Seller may not commit to any severance payments or similar settlement payments to those Business Employees that are employed by the Seller without the prior written consent of the Purchaser where such severance payments or similar settlement payments or in lieu payments are obviously not required to validly terminate the relevant employment relationship. This indemnification obligation of the Purchaser Companies is limited to an amount of EUR 20,000 (in words: twentythousand Euros) per employee and an aggregate compensation amount of EUR 250,000 (in words: twohundredfiftythousand Euros) for the aggregated costs regarding all employees of all Seller Companies objecting to their transfer or not accepting an offer for employment by any of the Purchaser Companies. The Purchaser will pay to the Seller the amounts of the accounted accruals for the pension promises owed to these employees, to the extent that the accruals were included in the calculation of the Actual Accounted IFRS Pension Accruals; such payments, which shall be payable only after the difference was paid in accordance with Clause 9.8, will be deemed an increase of the Purchase Price and the Parties undertake to make any amendments to any agreement necessary to reflect such increase.

 

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6.8  
Notwithstanding Clause 6.5 , if employees other than those listed in Annex 6.1 (“ Other Employees ”) transfer to any of the Purchaser Companies, the relevant Purchaser Companies will terminate the contracts of the Other Employees, if legally possible, and to this end give notice of termination to the relevant Other Employees. Notwithstanding the previous sentence, the Purchaser Companies are free to determine not to terminate any such Other Employee, provided that in such case the Purchaser Companies are not entitled to bring any claims against the Seller Companies under this Clause 6.8 related to such Other Employee anymore; if the relevant Purchaser Company has not given notice of termination to an Other Employee within eight weeks after the Transfer Date, it is unrebuttably assumed ( unwiderleglich vermutet ) that the relevant Purchaser Company determined not to terminate such Other Employee. If the relevant Purchaser Company has given notice of termination to the relevant Other Employee within such eight weeks period, each Seller Company will with respect to the Business Employees formerly employed by such Seller Company indemnify and hold harmless the Purchaser Companies from any costs which the Purchaser Companies incur (i) for the ongoing employment of the employees including, but not limited to, salaries, benefits, bonuses or similar one-time-payments, remuneration in kind, applicable social security contributions, with the exception of such ongoing employment costs which relate to periods during which a relevant employee is actively performing work for any of the Purchaser Companies (provided that the Purchaser Companies shall be free at any time after notice of termination has been given to release any such employee from its duties and to thereby reject that any such employee will actively perform work for any of the Purchaser Companies) and (ii) in connection with the termination of such employees including, but not limited to, for counsel (to the extent reasonable) engaged in connection with the termination of the employment relationship and any relevant court fees, severance payments or similar settlement payments, costs resulting from a social plan and in lieu payments, provided that the Purchaser Companies must not commit to any social plans, severance payments or similar settlement payments or in lieu payments without the Seller’s consent where such social plan, severance payments or similar settlement payments or in lieu payments are obviously not required to validly terminate the relevant employment relationship. The Seller will pay to the Purchaser the amounts of the accounted accruals for the pension promises owed to these employees, to the extent that the accruals were not included in the calculation of the Actual Accounted IFRS Pension Accruals and only to the extent that the Purchaser Companies are liable for them; such payments, which shall be payable only after the difference was paid in accordance with Clause 9.8, will be deemed a decrease of the Purchaser Price and the Parties undertake to make any amendments to any agreement necessary to reflect such decrease. The transfer of employees which have been hired in accordance with Clause 10 do not entitle the Purchaser Companies to any claims.
 
6.9  
For the avoidance of doubts, the Purchaser Companies will not assume any pension liabilities for former employees (other than Business Employees and possibly Other Employees) of the Seller Companies. These obligations will remain with the Seller Companies, while the pension liabilities for the Business Employees and possibly Other Employees transfer to the Purchaser Companies, with the exception of defined benefit schemes (but only defined benefit schemes) in the UK.
 
6.10  
The Seller shall pay to the Purchaser Companies an amount equal to any cost or liability incurred from time to time by any of the Purchaser Companies in connection with the membership of the Business Employees or the Other Employees in any defined benefit scheme of any of the Seller Companies in the UK and under or in relation to:
  (a)  
a contribution notice issued under section 38 or section 47 of the Pensions Act 2004;
 
  (b)  
a financial support direction issued under section 43 of the Pensions Act 2004; and/or
 
  (c)  
any investigation into the transaction by the UK Pensions Regulator;
   
in respect of any defined benefit scheme of any of the Seller Companies in the UK.

 

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6.11  
The Seller Companies and the Purchaser Companies agree that Mr. Franz Schuur who works only for the One Gear Drive Project shall not transfer to the Purchaser Companies; they undertake to use best efforts that he will remain/or become again an employee of the Seller.
 
7.  
Status of Annexes
 
7.1  
Assets sold by the Seller Companies in the ordinary course of business and Contracts completely fulfilled in the meaning of Clause 3.1 of this Agreement between the Signing Date and the Transfer Date are not/will not be sold, assigned and title to them is not/will not be transferred to the Purchaser Companies, even if listed in the respective Annexes. Seller Companies’ obligations pursuant to Clause 10 shall remain unaffected.
 
7.2  
Assets acquired in the ordinary course of business between the Signing Date and the Transfer Date and Contracts entered into in the ordinary course of business, in each case if pertaining to the Business, are/will be sold, assigned and title to them is/will be transferred to the Purchaser Companies, even if not listed in the Annexes. Seller Companies’ obligations pursuant to Clause 10 shall remain unaffected.
 
7.3  
The Annexes of this Agreement reflect the status as of the Signing Date or the date mentioned in the respective Annex. The Seller Companies shall update the Annexes to this Agreement as of the Transfer Date but only in order to reflect the changes mentioned in Clauses 7.1 and 7.2. The Seller Companies shall further update Annex 4.1, Annexes 3.1 and 3.2 so that they reflect, in accordance with this Agreement, the status as of the Transfer Date. The sub-sets of these Annexes applicable to the respective Sales Company and updated in accordance with the aforementioned provision shall form the Annexes referenced to in the Local Sale and Transfer Agreements and the transfer agreements to be signed at Closing defining the Assets Sold, Contracts and Assumed Liabilities sold and/or transferred at Closing and shall be binding for the Seller Companies and the Purchaser Companies. Seller Companies’ obligations pursuant to Clause 10 shall remain unaffected.
 
8.  
Merger control, IT-Systems
 
8.1  
Merger Control
  (a)  
The execution of the Transaction is by law prohibited before all necessary merger control clearances have been obtained.
 
  (b)  
The Purchaser shall notify the Transaction to the Anti-Monopoly Committee of Ukraine in cooperation with the Seller as soon as reasonably possible after the Signing Date. The Parties are obligated to support one another in the procedure before the Anti-Monopoly Committee of Ukraine through communication and the provision of necessary documents and the Seller procures to arrange for the support of the Sales Companies while the Purchaser procures to arrange for the support of the Purchaser Companies. The Purchaser shall notify the Seller when the merger control clearance has been obtained.
 
  (c)  
If the Anti-Monopoly Committee of Ukraine denies clearance of the Transaction or approves the Transaction only on certain conditions, the Sales Parties shall in good faith discuss whether they want to challenge the relevant decision or how to otherwise deal therewith, provided that no Sales Party (and no Seller Company and no Purchaser Company) shall be under any obligation to challenge the decision of the Anti-Monopoly Committee of Ukraine or to comply with any of the conditions imposed by that authority.

 

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8.2  
IT-Systems
  (a)  
The Seller shall as soon as possible after the Signing Date use best efforts to set up a SAP ERP Structure for the Business in line with the requirements described in Annex 8. 2(a)(i) . The Parties commit to fulfil their obligations and comply with their responsibilities assigned to them in the three step carve out project as described in Annex 8. 2(a)(ii) .
 
  (b)  
After the completion of the setup of the SAP ERP Structure for the Business in accordance with Step 1 as described in Annex 8.2(a)(i) the Seller shall, without undue delay after the Seller is of the opinion that the required functionality and capacity is achieved, invite the Purchaser to a test run in accordance with the specifications of Annex 8.2(b) . If the Sales Parties do not agree on a different place and / or time, the test shall take place at the Seller’s headquarter in Esslingen one week after the Seller has informed the Purchaser that he is of the opinion that Step 1 is completed.
 
  (c)  
In the event that the Sales Parties do not agree that Step 1 of the set up of the SAP ERP Structure for the Business has been successfully completed the completion shall be verified within 2 weeks after the provided test date by Mr. Dipl.-Inf. Markus Schmidt, c/o fast-detect GmbH, Ehrengutstr. 1, D-80469 München acting as expert ( Schiedsgutachter ), who also determines on who shall bear the costs of his involvement between the Sales Parties in accordance with Sec. 91 et seq. of the German Code of Civil Procedure ( Zivilprozessordnung, ZPO ).
 
  (d)  
If Step 2 (as defined in Clause 1.2 of Annex 8.2(a)(ii)) has, due to fault by the Seller Companies, not been completed in accordance with Clause 1.2(c) of Annex 8.2(ii) by the end of the ninth calendar month following the Transfer Date, (i) the service fees payable by any of the Purchaser Companies under any Service Orders to the Framework Services Agreement relating to IT ERP and IT DSI shall be reduced to zero, until Step 2 has been completed, and (ii) upon request of the Purchaser the term of any such Service Orders shall be extended by a period to be determined by the Purchaser which may last up to 6 months after Step 2 was completed. As of completion of Step 2, the original service fee applies again. The Parties procure that the necessary changes to the Service Orders will be made.
9.  
Purchase Price, Closing
 
9.1  
The aggregate purchase price (“ Purchase Price ”) for the assets and contracts sold under this Agreement and the Local Sale and Transfer Agreements (net of VAT) is
  (a)  
the agreed purchase price (“ Agreed Purchase Price ”) of EUR 43,117,886.— (in words: Euro fortythreemillion onehundredseventeenthousand eighthundredeightysix); the allocation of the Agreed Purchase Price to the sale from the Seller to the Purchaser and the various sales under the Local Sale and Transfer Agreements is set out in Annex 9.1(a) ;
 
  (b)  
plus / minus the amount by which the Working Capital as of the Transfer Date exceeds / falls short of the Assumed Working Capital;

 

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  (c)  
plus / minus the amount by which the accounted accruals for pension promises of the Seller Companies (excluding the Sales Company in UK) to the Business Employees as of the Transfer Date, calculated in accordance with IFRS and in accordance with past practice as applied in the consolidated financial statements of the Danfoss group as well as based on the assumptions set out in Annex 9. 1(c) (“ Actual Accounted IFRS Pension Accruals ”) fall short of / exceed the Assumed Accounted IFRS Pension Accruals; the Parties agree that the “ Assumed Accounted IFRS Pension Accruals ” shall be EUR 2,020,000 (in words: Euro two million twenty thousand). Whether the pension plan of the Sales Company in The Netherlands, which is currently in the process of being converted from a defined benefit scheme to a defined contribution scheme will be included in the calculation of the Actual Accounted IFRS Pension Accruals will depend on whether under IFRS an accrual has to be made for such plan at the Transfer Date (then it will be included) or not (then it will not be included).
 
  (d)  
plus an amount equal to the petty cash sold in accordance with Clause 1.2(f) (“ Petty Cash Amount ”).
9.2  
The obligation of the Parties to complete this Agreement by taking the closing actions provided for in Clause 9.3 shall be subject to the following conditions (the “ Closing Conditions ”):
  (a)  
all merger control clearances have been obtained;
 
  (b)  
a test run regarding the SAP ERP Structure built up for the Business has been undertaken in accordance with Clause 8.2(b) and the Parties or the expert as set out in Clause 8.2(c), respectively, have confirmed that the setup of SAP ERP Structure for the Business within the Danfoss IT-systems and on Danfoss hardware as described as Step 1 in Annex 8.2(a)(ii) has been successfully completed.
 
  (c)  
the Purchaser has instructed the Seller about the Local Purchasers and the Slovakian Purchaser, if any; if the Purchaser has not given such instruction within two Business Days after all Closing Conditions under 9.2(a) and 9.2(b) are fulfilled, but not earlier than 15 Business Days after Signing, then all sales and transfers shall be made to the Purchaser and this Closing Condition is also deemed to be fulfilled;
 
  (d)  
No material adverse change to the Business has occurred which for the purposes of this Agreement shall be any damage occurred to the Business, the Assets Sold, the Contracts or the Assumed Liabilities, the amount of which would, if the damage was remedied in accordance with the principles of Clause 13.4, exceed the Cap as defined pursuant to Clause 13.11, except to the extent that the relevant damage is a result of general changes in the markets in which the Business operates.
   
The Purchaser may waive the Closing Condition pursuant to Clause 9.2(d). Any waiver by the Purchaser shall only be valid if made in writing to the Seller.
 
9.3  
The Parties shall meet at 11 a.m. in the Frankfurt Office of Hogan Lovells International LLP (i) on the last Bank Business Day of the month in which the last of the Closing Conditions pursuant to Clauses 9.2(a) through 9.2(c) outstanding has occurred or (ii) if the last outstanding Closing Condition has occurred on one of the last five Bank Business Days of a month, then on the last Bank Business Day of the following month, or (iii) any other date which the Parties may mutually agree on, in respect of (i) and (ii) above, however, at the earliest on 29 April 2011 (such day the “ Closing Day ”). On the Closing Day the following actions (the “Closing Actions” ) shall be taken; all Closing Actions and related acts and declarations together referred to as the “Closing” :
  (a)  
concurrently (Zug-um-Zug) with the Payment, the Seller shall transfer to the Purchaser and the Slovakian Purchaser (if designated by the Purchaser) the Assets Sold and the Contracts, in each case as sold by it hereunder, and the Purchaser and the Slovakian Purchaser (if designated by the Purchaser) shall assume the Assumed Liabilities of the Seller in accordance with Clause 4.1 ;

 

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  (b)  
concurrently ( Zug-um-Zug ) with the Payment, the Sales Companies and the respective Purchaser Companies as designated by the Purchaser shall sign, however (i) with regard to the Local Sale and Purchase Agreement relating to the Sales Business in Italy subject to the fulfilment of the Italian mandatory consultation procedure with unions set forth by article 47 of Law no. 428 of 1990 and (ii) with regard to the Local Sale and Purchase Agreement relating to the Sales Business in The Netherlands subject to the fulfilment of all relevant provisions of the Dutch Social and Economic Council Merger Regulation 2000 (“SER-besluit Fusiegedragsregels 2000”) (to the extent applicable) and the Dutch Works Council Act (Wet op de Ondernemingsraden) and (iii) with regard to the Local Sale and Purchase Agreement relating to the Sales Business in France subject to the fulfilment of all relevant provisions of article L 2323-2 to L 2323-5 of the French labour code and (iv) with regard to the Local Sale and Purchase Agreement relating to the Sales Business in Denmark subject to the fulfilment of all relevant provisions of lov bkg. 2002-08-20 nr. 710 om lønmodtageres retsstilling ved virksomhedsoverdragelser and (v) with regard to the Local Sale and Purchase Agreement relating to the Sales Business in China subject to the existence and due registration of the Local Purchaser purchasing the Sales Business in China and the obtaining by such Local Purchaser of all licenses and approvals to operate the Sales Business in China, notarially recorded by a German notary and, to the extent applicable, in accordance with local form requirements, the agreements for the sale and transfer of the Assets Sold, the assignment of the Contracts and the assumption of the Assumed Liabilites, ( “Local Sale and Transfer Agreements” ) in the form attached hereto in Annex 9.3(b) .
 
  (c)  
The Purchaser Companies shall pay the Agreed Purchase Price plus the Petty Cash Amount by intra-day payment to the Seller Companies or, to the extent that a Local Sale and Transfer Agreement cannot be signed at Closing due to any of the reservations made in subclause (b) above, the Agreed Purchase Price plus the Petty Cash Amount minus the sum of the Local Holdback Amounts as defined below for each Local Sale and Transfer Agreements, other than relating to the Chinese Sales Company, that cannot be signed at Closing (“ Payment ”). The “Local Holdback Amount” for the countries mentioned in the following is calculated as follows: it is the portion of the Agreed Purchase Price allocated to the sale under the respective Local Sale and Transfer Agreement in Annex 9. 1(a) plus a proportion of the goodwill, such proportion calculated based on that entity’s share of total net assets of the Business; based on such formula, the Local Holdback Amount for the French Local Sale and Transfer Agreement is EUR 690,000 and the Local Holdback Amount for Denmark is EUR 90,000. The Local Holdback Amount for the Dutch Local Sale and Transfer Agreement is, irrespective of the formula, EUR 1.0 Million. For the period between Closing and the signing of the Local Sale and Transfer Agreement ( “Local Closing” ) the Seller Companies and the Purchaser Companies will modify the internal pricing between the Purchaser and the respective Sales Company so that the Sales Company is only covering its own fixed costs.
 
  (d)  
[intentionally left blank];

 

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  (e)  
the Local Purchasers and the Slovakian Purchaser, if any, shall, however (i) with respect of the Local Purchaser purchasing the Sales Business in Italy subject to the fulfilment of the Italian mandatory consultation procedure with unions set forth by article 47 of Law no. 428 of 1990 and (ii) with respect of the Local Purchaser purchasing the Sales Business in The Netherlands subject to the fulfilment of all relevant provisions of the Dutch Social and Economic Council Merger Regulation 2000 (to the extent applicable) and the Dutch Works Council Act (Wet op de Ondernemingsraden) and (iii) with respect to the Local Purchaser purchasing the Sales Business in France subject to the fulfilment of all relevant provisions of article L 2323-2 to L 2323-5 of the French labour code and (iv) with respect to the Local Purchaser purchasing the Sales Business in Denmark subject to the fulfilment of all relevant provisions of lov bkg. 2002-08-20 nr. 710 om lønmodtageres retsstilling ved virksomhedsoverdragelser and (v) with regard to the Local Purchaser purchasing the Sales Business in China subject to the existence and due registration of such Local Purchaser and the obtaining by such Local Purchaser of all licenses and approvals to operate the Sales Business in China, accede ( beitreten ), notarially recorded by a German notary, to this Agreement and thereby accept all obligations and burdens of the respective Purchaser Company and for the avoidance of doubt, if applicable, of the Slovakian Purchaser, set out in this Agreement;
 
  (f)  
each Sales Company shall accede ( beitreten ), however (i) with respect of the Sales Company selling the Sales Business in Italy subject to the fulfilment of the Italian mandatory consultation procedure with unions set forth by article 47 of Law no. 428 of 1990 and (ii) with respect of the Sales Company selling the Sales Business in The Netherlands subject to the fulfilment of all relevant provisions of the Dutch Social and Economic Council Merger Regulation 2000 (to the extent applicable) and the Dutch Works Council Act and (iii) with respect to the Sales Company selling the Sales Business in France subject to the fulfilment of all relevant provisions of article L 2323-2 to L 2323-5 of the French labour code and (iv) with respect of the Sales Company selling the Sales Business in Denmark subject to the fulfilment of all relevant provisions of lov bkg. 2002-08-20 nr. 710 om lønmodtageres retsstilling ved virksomhedsoverdragelser and (v) with regard to the Sales Company selling the Sales Business in China subject to the existence and due registration of such Local Purchaser and the obtaining by such Local Purchaser of all licenses and approvals to operate the Sales Business in China, notarially recorded by a German notary to this Agreement and thereby accept all obligations and burdens of the respective Seller Company set out in this Agreement.
   
To the extent that any of the Closing Actions cannot be taken due to any of the reservations made in Clauses 9.3(b), 9.3(e) and 9.3(f) above, all other Closing Actions shall remain unaffected and shall be taken by the Parties on the Transfer Date as provided for in this Clause 9.3. The Parties undertake to take all actions and to make all statements to ensure that any Closing Actions that could not be taken on the Transfer Date will be taken as soon as possible after the Transfer Date; during that period the respective Local Sales Company shall continue to be active in the Business as before. With regard to The Netherlands, it is acknowledged that the decision on the sale of the Dutch Sales Business can only be made after the Works Council was duly consulted; with regard to The Netherlands the obligation to ensure that any Closing Actions will be taken as soon as possible after the Transfer Date is limited to a period of 6 months after the Transfer Date; within this 6 months period, the procedure as set out in Annex 9. 3(f) shall be adhered to. Any Local Holdback Amount that has not been paid because a Local Sale and Transfer Agreement could not be signed at Closing shall be paid and only be paid concurrently with the signing of the Local Sale and Transfer Agreement relating to the relevant Local Holdback Amount. Clause 10.4 shall continue to apply with respect to the relevant local Sales Business beyond the Transfer Date until the relevant Local Sale and Transfer Agreement has been signed, but with regard to The Netherlands not longer than until 6 months after the Transfer Date. The

 

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Working Capital of a Sales Business with respect to which a Local Sale and Transfer Agreement has not been signed on the Transfer Date shall be excluded from the calculation of the Working Capital as of the Transfer Date and the Working Capital as of the Transfer Date so calculated shall be compared against the Assumed Working Capital minus the portion of the Assumed Working Capital that is allocated in Annex 9.7 (b) to such Sales Company where the Local Sale and Transfer Agreement has not been signed; as an example: if the Local Sale and Transfer Agreement in The Netherlands is not signed, then the calculation of the Working Capital as of the Transfer Date shall be made under exclusion of the Working Capital in Danfoss B.V. and it shall be compared against an Assumed Working Capital of EUR 16,000,000 (= (16,500,000 — 500,000)). Upon signing of any such deferred Local Sale and Transfer Agreement, the Parties shall establish the relevant Working Capital for the relevant local Sales Business in accordance with Clause 9.7, provided that the Working Capital of such local Sales Business shall be established as of the date of signing of such Local Sale and Transfer Agreement and that the payments according to Clause 9.7(h) are based on the portion of the Assumed Working Capital that is allocated in Annex 9.7(b) to such Sales Company, e.g. in case of The Netherlands EUR 500,000. The provisions of Clause 9.7 apply mutatis mutandis .
 
9.4  
The Parties shall execute the closing memorandum substantially in the form as attached as Annex 9.4 hereto by which the Parties confirm that the Closing has taken place, that all Closing Conditions were fulfilled or waived and that all Closing Actions have been taken or waived (“ Closing Memorandum ”).
 
9.5  
The completion condition is fulfilled when the Seller (for itself and on behalf of the Sales Companies) and the Seller Companies referred to in Clause 21.3 (a), (b) and (c) have received the Payment in full ( “Completion Condition” ). The moment when the Completion Condition is fulfilled is the “Transfer Date” ( “Transfer Date” ).
 
9.6  
The Seller and the Purchaser shall be entitled to withdraw from the Agreement (zurücktreten), in each case also with effect for the respective Parent, through written declaration if by 30 September 2011 Closing has not taken place as a result of the non-occurrence of the Closing Condition pursuant to Clause 9.2(a). The Purchaser shall be entitled to withdraw from the Agreement also with effect for the Purchaser’s Parent through written declaration if by 30 September 2011 Closing has not taken place as a result of the non-occurrence of the Closing Condition pursuant to Clauses 9.2(b) or 9.2(d). The Seller shall be entitled to withdraw from the Agreement also with effect for the Purchaser’s Parent through written declaration if by 30 September 2011 Closing has not taken place as a result of the non-occurrence of the Closing Condition pursuant to Clause 9.2(c). In each of the cases of this Clause 9.6, claims for damages remain unaffected.
 
9.7  
The difference between the Working Capital as of the Transfer Date and the Assumed Working Capital must be paid by the debtor to the creditor not later than 10 Business Days after the Final Working Capital Calculation has been established in accordance with the following rules:
  (a)  
The working capital of the Business (“ Working Capital ”) shall be calculated in accordance with IFRS as set out in Annex 9.7(a) ; for the avoidance of doubt only such assets and liabilities shall be taken into account for the calculation of the Working Capital which are sold and transferred or assumed in accordance with this Agreement. Further for the avoidance of doubt, this clause does not override the provisions of this Agreement on what is sold and transferred/assumed to/by the Purchaser Companies. By way of illustration, Annex 9.7(a) shows a sample calculation of the Working Capital Calculation, based on the financial figures of the Business as of 30 September 2010.

 

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  (b)  
The Parties assume that the Working Capital as of the Transfer Date will be EUR 16,500,000.00 (in words: Euro sixteenmillionfivehundredthousand) (such amount the “ Assumed Working Capital ”). Annex 9. 7(b) shows the breakdown of the Assumed Working Capital to (i) the Seller’s Business in Germany, (ii) the Seller’s Business in the Slovak Republic, and (iii) the various Sales Companies.
 
  (c)  
Immediately after the Transfer Date, each of the Sales Parties will prepare a calculation of the Working Capital as of the Transfer Date in accordance with the principles set out in Annex 9. 7(a) (also showing the allocation of the positions to the various Seller Companies and Purchaser Companies) (each a “Sales Party’s Working Capital Calculation” and collectively the “Sales Parties’ Working Capital Calculation” ); the Purchaser will provide the Seller with access to all information necessary to enable the Seller to prepare its Sales Party’s Working Capital Calculation. The Sales Parties will forward their respective Sales Party’s Working Capital Calculation to the relevant other Sales Party not later than 15 Business Days after the Transfer Date.
 
  (d)  
If both Sales Parties’ Working Capital Calculations arrive at the same amount of Working Capital and the allocation of the positions to the various Seller Companies and Purchaser Companies, such Sales Parties’ Working Capital Calculations shall become final and shall form the “Final Working Capital Calculation”) .
 
  (e)  
Whenever the Seller and the Purchaser agree on a calculation of the Working Capital and the allocation of the various positions, the agreed amount becomes the Final Working Capital Calculation.
 
  (f)  
If the Sales Parties Working Capital Calculations do not arrive at the same amount of Working Capital and/or do differ in the allocation of the positions among the Seller Companies and the Purchaser Companies, and if the Seller and the Purchaser cannot agree on such items within 20 Business Days after the last Sales Party received the Sales Party’s Working Capital Calculation of the relevant other Sales Party, the Working Capital and the allocation of the positions shall be determined by a certified public accountant ( Wirtschaftsprüfer ) acting as expert ( Schiedsgutachter ). After the lapse of the aforementioned 20 Business Days period, each Sales Party has the right to appoint the expert in the name and on behalf of the Sales Parties. The Sales Parties already now agree PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft to be the expert. If they do not accept the assignment as expert, then the accountant shall be appointed by the German chamber of accountants ( Wirtschaftsprüferkammer ), Rauchstraße 26, D-10787 Berlin. Each Sales Party has the right to ask the German chamber of accountants to appoint the expert after PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft did not accept the assignment as expert. The expert shall be engaged on the basis of the then current version of the General Terms and Conditions for the Engagement of Accountants ( Allgemeine Auftragsbedingungen für Wirtschaftsprüfer und Wirtschaftsprüfungsgesellschaften ). The expert shall decide all disputes and prepare and provide the Sales Parties with the Final Working Capital Calculation within 30 Business Days after his appointment. The Final Working Capital Calculation must state the Working Capital as calculated by the expert and the individual allocated items as a specific number. In preparing the Final Working Capital Calculation the expert is not bound by the numbers or the allocation of items presented by the Sales Parties in any of the Sales Parties’ Working Capital Calculation presented to him. However, the expert shall only take into account any remaining differences between the Sales Parties that are still unresolved. The Sales Parties shall cooperate with and assist, and shall cause their respective Affiliates, their accountants and the directors, employees and accountants of the Business to cooperate with and assist, the expert in the conduct of his review. The expert shall also decide about the allocation of the costs for his involvement between the Sales Parties in accordance with Section 91 et seq. of the German Code of Civil Procedure ( Zivilprozessordnung, ZPO ).

 

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  (g)  
The Seller Companies and the Purchaser Companies accept that the Final Working Capital Calculation is also binding for them and will change the purchase price under the Local Sale and Transfer Agreements accordingly, if necessary.
 
  (h)  
If the Working Capital of the Business as of the Transfer Date pursuant to the Final Working Capital Calculation is higher than the Assumed Working Capital, the Purchaser shall pay the difference on a Euro for Euro base to the Seller. If the Working Capital of the Business as of the Transfer Date pursuant to the Final Working Capital Calculation is lower than the Assumed Working Capital, the Seller shall pay the difference on a Euro for Euro base to the Purchaser. The payable amount bears interest of eight percentage points above the base rate ( Basiszinssatz in accordance with Section 247 BGB) from the Transfer Date.
9.8  
The difference between the Actual Accounted IFRS Pension Accruals and the Assumed Accounted IFRS Pension Accruals must be paid by the debtor to the creditor not later than 10 Business Days after the amount of the Actual Accounted IFRS Pension Accruals was established by the independent actuary Towers Watson GmbH, Eschersheimer Landstraße 50, 60322 Frankfurt/Main, Germany. The Seller and the Purchaser shall jointly instruct such independent actuary with the valuation within 5 Business Days after the Transfer Date and the independent actuary shall deliver the Actual Accounted IFRS Pension Accruals within 30 days after his engagement. If the Actual Accounted IFRS Pension Accruals are lower than the Assumed Accounted IFRS Pension Accruals, the Purchaser shall pay the difference on a Euro for Euro base to the Seller. If the Actual Accounted IFRS Pension Accruals are higher than the Assumed Accounted IFRS Pension Accruals, the Seller shall pay the difference on a Euro for Euro base to the Purchaser. The payable amount bears interest of eight percentage points above the base rate ( Basiszinssatz in accordance with Section 247 BGB) from the Transfer Date. If the Actual Accounted IFRS Pension Accruals included an accrual for the pension plan in the Dutch Sales Company, which is currently in conversion from a defined benefit scheme to a defined contribution scheme, then the Purchaser will pay to the Seller an amount equal to that amount by which the Purchaser Company taking over the pension obligation has the right to dissolve the accrual ( “Dutch Accrual Repayment” ); the Dutch Accrual Repayment becomes due 10 Business Days after the respective Purchaser Company had the right to dissolve the accrual. The respective Purchaser Company has the right to deduct from the Dutch Accrual Repayment that amount, which the respective Purchaser Company had to pay to the provider of the new defined contribution plan for the funding of the new defined contribution plan; if the payments from the respective Purchaser Company to the provider of the new defined contribution plan exceed the Dutch Accrual Repayment, then the Seller will reimburse the respective Purchaser Company for that amount within 10 Business Days after the respective Purchaser Company informed the Seller about the dissolution of the accrual and the excess amount. The Purchaser Companies undertake to use best efforts to finalize the conversion process of the plan from a defined benefit scheme to a defined contribution scheme and the Seller Companies undertake to use best efforts to finalize the conversion process of the plan, preferably before Closing, from a defined benefit scheme to a defined contribution scheme.
 
9.9  
The Seller shall inform the Purchaser before the Closing about the exact amount of the petty cash which will transfer to the Purchaser upon Closing.

 

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9.10  
All set-off rights ( Aufrechnungsrechte ) and all retention rights ( Zurückbehaltungsrechte ) against the claim for the Purchase Price are excluded. All set-off rights ( Aufrechnungsrechte ) and all retention rights ( Zurückbehaltungsrechte ) against the claim for the payment of the difference amount under Clause 9.8 are excluded.
 
9.11  
All payments to be made pursuant to this Agreement are (save where otherwise specifically stated) exclusive of VAT and any VAT chargeable in respect of the matters giving rise to such payments shall be added to the amount and paid in addition to the amount, subject to the provision of a valid VAT invoice in accordance with applicable local law and permitting deduction of input VAT for the Purchaser. The Parties assume that the sale of the Business pursuant to this Agreement (i) is subject to VAT in Slovakia, Austria, Ukraine, Russia, China and (ii) constitutes a transfer of a business as a going concern according to Section 1 para. 1a of the German Value Added Tax Act (“ German VAT Act ”) which is not subject to VAT and that it is neither subject to VAT in the other involved jurisdictions (other than those mentioned in (i) above) which have implemented the concept of a transfer of a business as a going concern in accordance with Art. 19 EC Council Directive 2006/112/EC on the common system of value added tax or have a similar concept according to local VAT law. To the extent that the jurisdictions referred to in (ii) are concerned, the Parties will use all reasonable endeavours to ensure that the sale of the assets pertaining to the local part of the Business is treated as a transfer of a business as a going concern under local VAT law and will also effect any necessary applications or notifications required under local VAT law to the local authorities. However, if and to the extent that (a) pursuant to a final and binding VAT assessment from the tax authorities, the tax authorities assess VAT on the sale of the Business, and (b) such VAT is not chargeable at the level of the Purchaser Companies on a reverse charge basis, the Purchaser Companies shall pay to the Seller Companies such VAT (“ VAT Amount ”). To the extent that the jurisdictions referred to in (i) are concerned, the Parties will use all reasonable endeavours to ensure that the sale of the assets pertaining to the local part of the Business is treated as being subject to VAT and will also effect any necessary applications or notifications required under local VAT law to the local authorities. However, if and to the extent that pursuant to a final and binding VAT assessment from the tax authorities, the tax authorities assess that the sale of the Business is not subject to VAT and such VAT was charged by the Seller Companies to the Purchaser Companies the Seller Companies shall reimburse to the Purchaser Companies the VAT paid. To the extent that the input VAT deduction is denied pursuant to a final and binding VAT assessment based on reasons caused by the Seller Companies, the Seller Companies shall reimburse the amount of non deductible VAT to the Purchaser Companies.
 
9.12  
Any interest, penalties or surcharges due on any VAT payable by any of the Seller Companies or the Purchaser Companies as a result of the sale of assets contemplated hereunder shall be equally borne by the Seller and the Purchaser. The VAT Amount plus any interest, penalties and surcharges to be borne by the Purchaser shall become due and payable within 10 Business Days after the respective Purchaser Company receives from the respective Seller Company (i) a proper invoice within the meaning of Sections 14, 14a of the German VAT Act or any corresponding foreign tax law permitting deduction of input VAT for the Purchaser and (ii) regarding any interest, penalties or surcharges, a copy of the relevant VAT assessment notice. If the VAT is chargeable at the level of the Purchaser Companies on a reverse charge basis, the share of any penalty, interest and surcharge to be borne by any of the Seller Companies will become due and payable upon written request of the relevant Purchaser Company attaching a copy of the relevant VAT assessment notice which includes the relevant interest, penalties or surcharges. The Seller Companies undertake not to exercise any VAT option they may have under applicable law. The Purchaser Company may where permissible under local tax law settle the VAT Amount in full or in part by assignment of its claim of refund of excess input VAT ( Anspruch auf Erstattung eines Vorsteuerüberhangs ) for the preliminary VAT assessment period ( Voranmeldungszeitraum ) in which the VAT Amount may be claimed as input VAT. In such case, such claim shall be transferred on account of fulfilment ( erfüllungshalber ). To this end, the Parties agree to closely cooperate with each other and, to the extent reasonable, take all measures necessary or useful. The VAT payment claim of the Seller Companies shall not become time-barred prior to six months after the assessment of VAT on the sale of the Business has become final and non-appealable ( materiell bestandskräftig ).

 

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10.  
Management of the Business prior to Closing
 
10.1  
Without undue delay after the Signing Date the Seller Companies and the Purchaser Companies shall apply for, and use their best efforts to obtain, all approvals from employees’ representative bodies and shall comply with all notification obligations towards such bodies that are by applicable law required to be made before Closing.
 
10.2  
Without undue delay after the Signing Date or the Transfer Date, as may be required by applicable law, the Seller Companies and the Purchaser Companies will procure that any announcements be made that are required to be made in connection with the sale of the Sales Business in France.
 
10.3  
Upon request of the Purchaser, the Seller Companies undertake to cooperate without undue delay with the Purchaser Companies to achieve any registration that may be necessary to prevent the automatic transfer of all liabilities pertaining to the Sales Business in Austria to the extent this does not make a voluntary transfer impossible. It is understood that the Seller Companies are not under an obligation to support registrations which indicate that liabilities, which according to this Agreement shall transfer to the Purchaser Companies, did not transfer.
 
10.4  
In the period between the Signing Date and Closing the Seller and Seller’s Parent shall ensure that
  (a)  
the Business is properly managed and carried on in the ordinary and usual course of business and consistent with the practice as applied over the past 12 months,
 
  (b)  
the Purchaser is kept informed of all matters relating to the Business which have a material effect for the Business as a going concern;
 
  (c)  
it and the Seller Companies obtain the prior consent of the Purchaser regarding any of the following matters of the Seller Companies pertaining to the Business, such consent not to be unreasonably withheld by the Purchaser:
  (i)  
Acquisition or sale, encumbrance, pledge or other disposal of any fixed assets in excess of EUR 5,000 individually pertaining to the Business, except
  (1)  
pursuant to existing commitments forming part of the sale pursuant to this Agreement or
 
  (2)  
otherwise in the ordinary course of business consistent with past practice;
  (ii)  
Acquisition or disposal of any business or part of a business or shares or other participations (including sub-participations) in any other business;

 

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  (iii)  
Acquisition of any real estate or rights equivalent to real estate ( grundstücksgleiche Rechte ) pertaining to the Business;
 
  (iv)  
Making of any capital expenditure or commitment for any capital expenditure pertaining to the Business in excess of EUR 50,000.00 individually or EUR 100,000.00 in the aggregate, except pursuant to existing commitments forming part of the sale pursuant to this Agreement or otherwise in the ordinary course of business consistent with past practice;
 
  (v)  
Conclusion of or entering into any material contract forming part of the sale pursuant to this Agreement, which for the purposes of this item means a contract involving a total payment obligation of EUR 100,000.00 or a fixed term of one year or longer or a notice period of one year or longer;
 
  (vi)  
The hiring of employees who are not replacements for any other employees
 
  (vii)  
the hiring of employees which are replacements for any other employees if the annualised total salary (including bonus payments and other incentives or benefits, but excluding social security contributions) of the newly hired employee is more than (i) EUR 50,000.00 in Germany and (ii) EUR 20,000.00 in any other country;
 
  (viii)  
The increase of wages, salaries, compensation, bonuses, pensions or other benefits payable to any Business Employees, except as required by law or any collective bargaining agreement or involving ordinary increases consistent with past practice;
 
  (ix)  
Entering into, amendment or termination of any shop agreements ( Betriebsvereinbarung );
 
  (x)  
Settlement of any material action, suit, litigation or other proceeding, whether administrative, civil or criminal, or before any governmental entity or in any arbitral proceeding pertaining to the Business involving an amount in dispute of more than EUR 50,000;
 
  (xi)  
Implementation of any merger, split-off, hive-down or other action pursuant to the German Transformation Act ( Umwandlungsgesetz ) or corresponding actions under any other jurisdiction.
     
Any request by the Seller for consent to any of the aforementioned matters shall be made by the Seller simultaneously by email to the following three email addresses:
1.) carl.christenson@altramotion.com
2.) christian.storch@altramotion.com
3.) Craig.Schuele@altramotion.com
     
The consent by the Purchaser can be granted by any communication means, in particular also by phone, e-mail and telefax; from the Purchaser, the following individuals are authorized to each grant or deny such consent individually and solely: Carl Christenson, Christian Storch and Craig Schuele. If the consent is not denied within three days after the three individuals received the request for consent, then the consent is deemed to be given. If Seller in its reasonable discretion concludes that it requires the Purchaser’s decision on the relevant request earlier than after three days and the request is explicitly marked as “urgent” in the headline of the request email, then the consent is deemed to be given if the consent is not denied within 24 hours.

 

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11.  
Obligations after the Transfer Date
 
11.1  
The Seller (and Affiliates of the Seller) will provide the Purchaser Companies with transition services for IT and other transition services as set out in the Framework Service Agreement enclosed as Annex 11.1 to this Agreement, which the parties to such agreement hereby enter into subject to fulfilment of the Completion Condition.
 
11.2  
Subject to the provisions of the Framework Service Agreement and any separate transition service agreements entered into by the Parties, the Seller Companies and the Seller’s Parent are not obliged to provide any transfer services to the Purchaser Companies.
 
11.3  
The Seller Companies have the right to retain copies of the Records. The Purchaser will at Seller Companies’ cost provide all documents, information, assistance and explanations which the Seller Companies, their accountants or auditors may reasonably require after the Transfer Date. The Seller will provide the Purchaser with copies of individual documents of any of the Excluded Records free of charge to the Purchaser if the Purchaser delivers sufficient detail to identify the relevant document and the relevant document is dated as of a point in time less than 10 years prior to the time of the request of Purchaser. The Seller will, in addition, at Purchaser Companies’ cost provide all documents, information, assistance and explanations which the Purchaser Companies, their accountants or auditors may reasonably require after the Transfer Date in relation to the Business, the Assets Sold, the Assumed Liabilities, the Contracts, the Records and the Excluded Records.
 
11.4  
The Purchaser Companies undertake not to perform, procure or allow any environmental test or evaluation at any Real Estate in the meaning of Clause 15.1(h) which they possess, unless the Purchaser Companies are required to do so by law. The Purchaser Companies undertake to procure that any third party to which any of the Purchaser Companies sub-leases any of the Real Estate or which with the consent of any of the Purchaser Companies uses any of the Real Estate will comply with this undertaking. Notwithstanding the preceding two sentences, the Purchaser Companies shall not be liable for any environmental test or evaluation conducted by a new owner of the Real Estate in the meaning of Clause 15.1(h). The Purchaser shall indemnify and hold harmless the Seller Companies from and against any liabilities, obligations, claims, costs (including reasonable legal costs) and expenses which any of the Seller Companies may be exposed to, incur, or suffer as a result of a any breach of the undertakings in this Clause 11.4; the provisions of Clauses 15.3 and 15.4 apply mutatis mutandis to this claim. For the avoidance of doubt, any other claim of the Seller Companies remains unaffected thereby.
 
11.5  
The Purchaser Companies are aware and accept that the Business and the Assets Sold as of the Transfer Date will not be covered by the group insurance program of the Danfoss-Group, including, without limitation, Danfoss’ master policy for public and product liability insurance.

 

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11.6  
Subject to the fulfilment of the Completion Condition the Purchaser and the Seller and Danfoss GmbH herewith enter into the lease agreements attached in Annex 11.6 (hereinafter referred to as “ German Premises Lease Agreements ”) for the parts of the German Premises which are required for the Business and which are required for the running of a canteen. Seller’s Parent shall procure that the 1 st Adendum to the Lease Agreement dated 25 February 2011 regarding building 10 on the German Premises (which Adendum is part of Annex 11.6) shall, in accordance with its terms, either not become effective or cease on 30 June 2015 at the latest. If Seller’s Parent fails to do so Seller’s Parent shall be liable to the Purchaser for any damage and costs caused to or incurred by the Purchaser as a result of the expiry of the German Premises Lease Agreement regarding building 10 at a point in time which is earlier than 20 years following the Transfer Date, including, without limitation, any costs and damages arising from any business interruption, any relocation of the business to new premises, reasonable costs (including agent’s fees) to find new premises, and increased leasing fees payable for new premises.
 
11.7  
Subject to the fulfilment of the Completion Condition, the Seller and the Purchaser hereby enter into the development and support contract attached as Annex 11.7 (“ Development and Support Contract ”) regarding the One Gear Drive Project (as defined in the Development and Support Contract). Subject to the Development and Support Contract, the Purchaser Companies are not obliged to provide any services or other assistance in connection with the One Gear Drive Project.
 
11.8  
The Purchaser undertakes to continue the assembly of the ISD-Motors for the Seller and its Affiliates on the basis of the manufacturing contract attached as Annex 11.8 (“ Manufacturing Contract ”) into which Danfoss GmbH and the Purchaser hereby enter into subject to fulfilment of the Completion Condition. In this regard the Purchaser will as of the Transfer Date receive possession of movable assets used for the assembly of ISD-Motors which do not belong to the Seller, but to Affiliates of the Seller. For the avoidance of doubts, the Purchaser does not acquire any title to these third party assets and undertakes to return the third party assets and the assembly line for the assembly of the ISD-Motors to the respective owner when the Manufacturing Contract has come to an end.
 
11.9  
Subject to the fulfilment of the Completion Condition, the Seller and the Purchaser hereby enter into the reverse intellectual property license agreement attached as Annex 11.9 (“ Reverse IP License Agreement ”). To the extent that the intellectual property rights licensed under the Reverse IP License Agreement are transferred under this Agreement to Purchaser Companies other than the Purchaser, the relevant Purchaser Companies hereby grant a license on the same terms as granted by the Purchaser under the Reverse IP License Agreement.
 
11.10  
The Purchaser acknowledges that the website of the Business (http://www.danfoss.com/Germany/BusinessAreas/Geared+Motors/) is technically integrated into the Danfoss website, but the Seller agrees that following the Transfer Date the Purchaser will have all rights to the data (but not the functionality) on the website for the Business and that Seller will provide assistance to enable the Purchaser to upload such data for any website set up for the Business after the Transfer Date.
 
11.11  
The Seller Companies are entitled to retain blueprints of the supply parts listed in Annex 11.11 (“ Supply Parts ”), which are used in the One Gear Drive Project and the ISD-Motors.
  (a)  
The Seller and its Affiliates are entitled to purchase the Supply Parts from the current suppliers regardless of any sale restrictions agreed on in the supply framework agreements assumed by the Purchaser Companies. The Purchaser Companies herewith relieve the suppliers from any respective sales restriction, such relief directly working for the benefit of the suppliers ( echter Vertrag zugunsten Dritter ).

 

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  (b)  
In the event that the supplier does not offer the Seller Companies the same prices or terms and conditions for the Supply Parts that it offers to the Purchaser Companies, the Purchaser Companies undertake to purchase the Supply Parts in their own name but for the account of the Seller Companies and to sell them on to the Seller Companies with a mark-up for the handling costs of 5% on the purchase value, such obligation to last for a period of two years from the Transfer Date.
 
  (c)  
The Seller Companies are entitled to use the Supply Parts for their products, to alter the blueprints and to order the Supply Parts from other suppliers based on their unchanged or altered blueprints.
11.12  
The Purchaser Companies are entitled to purchase the supply parts which the Seller Companies market under the product name “clean connector” from the current supplier regardless of any sale restriction agreed on in the respective supply framework agreement which — for the avoidance of doubts — is not assigned to the Purchaser Companies. The Seller Companies herewith relieve the supplier from any respective sales restriction, such relief directly working for the benefit of the supplier ( echter Vertrag zugunsten Dritter ).
  (a)  
The Purchaser Companies are only entitled to purchase and use unlabeled supply parts with no reference to the Seller or any of its Affiliates. The Purchaser Companies are not entitled to use the product name “clean connector”.
 
  (b)  
In the event that the supplier does not offer the Purchaser Companies the same prices or terms and conditions for this supply parts that it offers to the Seller Companies, the Seller Companies undertake to purchase this supply parts in their own name but for the account of the Purchaser Companies and to sell it on to the Purchaser Companies with a mark-up for the handling costs of 5% on the purchase value, such obligation to last for a period of two years from the Transfer Date.
11.13  
The Seller Companies undertake to forward to the Purchaser Companies any payments they may receive from third parties to which, according to the provisions of this Agreement and the Local Sale and Transfer Agreements, the Purchaser Companies are entitled. The Purchaser Companies undertake the same obligation vice versa .
 
11.14  
The Seller Companies undertake to fulfil in their own name all open Sales Contracts which are in their SAP systems at the Transfer Date and for which they have already ordered dedicated parts or for which they have already started manufacturing dedicated parts:
  (a)  
The Parties agree not to request the consent of the respective customers for a transfer of their respective open Sales Contracts so that the respective Seller Company remains to be the contracting party of the respective customer (for the avoidance of doubt, the sale of such contract remains effective and therefore all risks associated to such contract are with the Purchaser Companies; Clauses 5.2 and 5.3 apply). The respective Seller Company will fulfil the open Sales Contracts by purchasing the products from the respective Purchaser Company, reselling them to the respective customers and instructing the Purchaser Company to directly deliver the products to the customers. The respective Purchaser Company shall invoice the respective Seller Company for the delivery at the net sales price to the customer (as determined in the open Sales Contracts) and the respective Seller Company shall issue in its own name a corresponding invoice to the customer (it is understood that both the Purchaser Company and the Seller Company may have to charge VAT in addition to the net sales price). The Parties agree that the invoice amounts in the Purchaser Companies’ invoices shall not become due before the Seller Companies have received the respective payment regarding their own invoices from the customer.

 

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  (b)  
Every Wednesday the Seller Companies shall provide the Purchaser with (i) copies of all invoices which were issued by the Seller Companies since previous Wednesday and (ii) a list of all invoices issued by the Seller Companies stating which invoices have been paid by the customers and which are still outstanding. The Seller Companies shall further every Wednesday effect their payments with respect to the Purchaser Companies’ invoices, based on the payments they have received from the customers since previous Wednesday in relation to their issued invoices, to the Purchaser Companies’ account as stated in Clause 21.2(b).
 
  (c)  
All risks relating to the collection of payments, in particular the delcredere risk and the risk of default of a customer, remain with the Purchaser Companies.
 
  (d)  
The Seller Companies are not obliged to take any follow up or collection actions but shall assign to the Purchaser Companies upon request of the Purchaser Companies their respective payments claims against the customers in lieu of payment of the purchase price payable by the Seller Companies to the Purchaser Companies for purchasing the products from the Purchaser Companies. If a Purchaser Company requires additional information or assistance for the collection of the payments claims, the respective Seller Company will use best efforts to provide both. In the event that a claim for payment is for whatever reason not assignable, the Seller Companies would, upon request, pursue collection on Purchaser Companies’ behalf at Purchaser Companies’ expense.
11.15  
Seller’s Parent undertakes to transfer its software licences listed in Annex 1. 2(i) to the Purchaser.
 
12.  
Guarantees
 
12.1  
The Seller hereby guarantees to the Purchaser by way of an independent guarantee ( selbständiges Garantieversprechen ) within the meaning of Section 311 para. 1 BGB and subject to the limitations under Clause 13 (collectively “ Seller’s Guarantees ” and individually “ Seller’s Guarantee ”) that the statements set forth in Annex 12.1 are true as of the Signing Date and of any other date explicitly stated in Annex 12.1. These statements are subject to the limitations set out in this Agreement and they do not qualify as guarantees ( Garantien ) in the meaning of Section 443 BGB.
 
12.2  
Unless explicitly provided for otherwise in this Agreement, the Parties are in agreement that the Seller Companies and the Seller’s Parent do not make or give any representations, warranties or guarantees other than those of the Seller in Annex 12.1 of this Agreement.
 
12.3  
Any guarantee of the Seller which refers to “ Seller’s Best Knowledge ” is only breached if any person listed in Annex 12.3 had positive knowledge about the respective statement being false or should have had knowledge of the relevant fact. The standard for what a person listed should have had knowledge about is the standard of running the Business in the day-to-day operations as opposed to a higher standard that may possibly apply in case of the sale of the Business.

 

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13.  
Procedure and Remedies for claims under the Guarantees
 
13.1  
The Purchaser shall without undue delay after the discovery of any circumstance which in the opinion of the Purchaser, constitutes (or would constitute) a breach by the Seller of any of the Seller’s Guarantees (individually “Breach” ) notify the Seller in writing ( “Notice” ). The Notice shall contain all the relevant facts of the alleged Breach and shall indicate the relevant Seller’s Guarantee which it allegedly violated.
 
13.2  
In the event that any action, claim, demand or proceeding is asserted, announced or threatened by any third party, including any governmental agency against a Purchaser Company, or if a Purchaser Company is subjected to any audit or examination by any governmental authority ( “Third Party Claim” ) with respect to which the Seller may be liable to the Purchaser under this Agreement, the relevant Purchaser Company shall keep the Seller appropriately informed about the defence of the relevant Purchaser Company against the Third Party Claim. In the event that the Seller accepts in writing towards the Purchaser its liability for the Third Party Claim (without necessarily admitting a specific amount), the relevant Purchaser Company is obliged to diligently conduct the (further) defence according to any instructions by the Seller and to enter into a settlement only with the prior written consent of the Seller. In such case, the Seller shall indemnify and hold harmless the relevant Purchaser Company from and against all external costs and expenses incurred by the Purchaser Company prior to or after the acceptance of liability by the Seller in connection with the defence against the respective Third Party Claim, in particular its reasonable external legal costs. For the avoidance of doubts, no internal costs of the Purchaser Companies shall be compensated.
 
13.3  
In the event that any Seller’s Guarantee is incorrect or not complied with, Seller shall, after the Transfer Date, within a reasonable period of time, at the latest, however, within one month after the receipt of the Notice from the Purchaser according to Clause 13.1, (but not before one month after the Transfer Date) place the Purchaser, the Slovakian Purchaser and/or the Local Purchasers in a position which would have existed had the respective Seller’s Guarantee been correct or had the Breach of the respective Seller’s Guarantee not occurred (Naturalrestitution ).
 
13.4  
If the Seller (i) fails to remedy the Breach within the period set out in Clause 13.3 or (ii) such remedy according to Clause 13.3 is not possible due to the nature of the Breach or the remedy required, the Seller will be liable to pay damages ( Schadensersatz in Geld ) to the Purchaser, or in the discretion of the Purchaser, to the Slovakian Purchaser and/or the respective Local Purchaser, in an amount equal to the actual damage (including, for the avoidance of doubt, consequential damage) suffered by the Purchaser Companies as a result of such Breach. In no event shall the Seller be liable for any damages caused by a loss of reputation or for any damages calculated as a multiple of assumptions applied by the Purchaser Companies in the valuation of the Business. For the avoidance of doubt, the Seller’s Guarantees are given by the Seller to the Purchaser and therefore only the Purchaser and not the Slovakian Purchaser or the Local Purchasers can bring a claim under Clauses 13.3 and 13.4, provided, for the avoidance of doubt, that any damage incurred by any of the Slovakian Purchaser and Local Purchasers shall, within the limits provided for herein, be taken into account in the determination and calculation of any damages hereunder. Any payments under this clause are treated as reductions in the Purchase Price.
 
13.5  
The Parties hereby agree that as of the signing of this Agreement the remedies which the Purchaser Companies and/or the Purchaser’s Parent may have against the Seller Companies and the Seller’s Parent regarding (or factually based on) a defect ( Sach- oder Rechtsmangel ) (and all breaches of contract deemed equal to such defect) of the Business, the Assets Sold or the Contracts or the Assumed Liabilities are solely governed by this Agreement; in

 

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particular, the Sales Companies are not liable for any claims related to a Breach. Apart from the rights of the Purchaser explicitly set out in this Agreement, any rights or claims of the Purchaser Companies and the Purchaser’s Parent (including all contractual, statutory and other remedies) are, to the extent that they relate to, or are factually based on, a defect ( Sach- oder Rechtsmangel ), excluded, in particular the statutory rights of the Purchaser Companies in case of defects ( Rechte des Käufers bei Mängeln ), the rights of the Purchaser Companies to reduce the purchase price ( Minderung ), to ask for remedy in kind ( Nachbesserung ), the rights of the Purchaser Companies to withdraw from ( zurücktreten ), to challenge ( anfechten ) or to rescind ( kündigen ) this Agreement or any Local Sale and Transfer Agreement or to pay damages ( Schadensersatz ), whether based on
  (a)  
pre-contractual obligations ( culpa in contrahendo , including but not limited to claims arising under Sections 241 para. 2 and 311 para. 2 and 3 BGB);
 
  (b)  
ancillary obligations ( positive Forderungsverletzung , including but not limited to claims arising under Sections 280, 282 BGB);
 
  (c)  
frustration of contract pursuant to Section 313 BGB ( Störung der Geschäftsgrundlage );
 
  (d)  
as well as all remedies of the Purchaser Companies for defect of the purchase object under Sections 437 to 441 BGB; or
 
  (e)  
any other legal ground.
13.6  
Any claim of the Purchaser for a Breach is excluded and the Purchaser is not entitled to bring any such claim, if and to the extent that
  (a)  
the damage suffered by the Purchaser Company is compensated by a third party, in particular by an insurance company; however, the Purchaser is free to claim damages from the Seller if the Purchaser offers to assign the compensation claims of the Purchaser Company against the third party to the Seller (net of the present value of any increases in the insurance premium caused by the compensation claims);
 
  (b)  
the payment or settlement of any item giving rise to such claim results in a benefit to, or a saving for, the Purchaser Companies;
 
  (c)  
such claim results from the actions of the Purchaser Companies or a failure by the Purchaser Companies to mitigate damages pursuant to Section 254 BGB;
 
  (d)  
such claim results from or is increased by the coming into force of or any change in any law, statute, ordinance, rule, regulation, common law rule or administrative practice of any government, governmental department, agency or regulatory body after the Transfer Date;
 
  (e)  
the damage was caused by non-compliance of the Purchaser Companies with the procedure set forth in Clause 13 of this Agreement.
13.7  
The Purchaser is excluded with any claim for a Breach if such Breach is based on a fact, matter or circumstance which has been fairly disclosed in (i) this Agreement and its Annexes and Exhibits, (ii) the data room, the index of which is enclosed as Annex 13. 7(i) hereto or (iii) any other written information given to the Purchaser Companies before the Signing Date, provided in each case that such disclosure has been made “on the face” of a document and in a single document only. The contents of the data room as of 23 February 2011, 3.58 PMAST, the index of which is enclosed as Annex 13.7 (i) will be put onto a DVD. One copy of such DVD will be deposited with the acting notary at

 

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Closing on the basis of an escrow agreement (Hinterlegungsvereinbarung) and at Closing each Sales Party will receive a copy of such DVD. The Purchaser is also excluded with any claim for a Breach which is based on a fact, matter or circumstance which was known on or before the Signing Date to the Purchaser Companies, for which the knowledge of the individuals listed in Annex 13.7(ii) shall exclusively be relevant. For the avoidance of doubt, Sec. 442, para 1, 2nd sentence and para 2 of the German Civil Code and Sec. 377 of the German Commercial Code shall not apply.
 
13.8  
Claims of the Purchaser are not excluded if they are based on wrongful deceit ( arglistige Täuschung ) or other intentional breaches of contract ( vorsätzliche Vertragsverletzungen ) by the Seller.
 
13.9  
Claims of the Purchaser for a Breach shall become time-barred ( verjähren ) two years after the Transfer Date, except for claims for a Breach of number 1 and 2.3 of Annex 12.1 which shall become time barred five years after the Transfer Date. The statutory provisions regarding the suspension (Hemmung, Ablaufhemmung) and interruption (Neubeginn) of the time limitation shall remain unaffected.
 
13.10  
The Seller shall only be liable for a claim relating to a Breach to the extent that (i) the individual claim exceeds the amount of EUR 75,000 (in words: seventyfivethousand Euros) (“ De Minimis Threshold ”) and (ii) the aggregate amount of all individual claims exceeding the De Minimis Threshold exceed EUR 300,000 (in words: threehundredthousand Euros) (“ Basket Amount ”). If the Basket Amount is exceeded, the Purchaser can also claim the amounts below the Basket amount, and if an individual claim exceeds the De Minimis Threshold (but in any event only if it exceeds the De Minimis Threshold), the Purchaser can also claim the amounts below the De Minimis Threshold. Several claims based on the same Breach or the same factual circumstances leading to a Breach shall for the purposes of only this Clause 13.10 be deemed one individual claim only.
 
13.11  
The Seller’s liability for all claims related to a Breach, except for claims for a Breach of number 1 and 2.3 in Annex 12.1 , shall in the aggregate be limited ( “Cap” ) to EUR 14,100,000 (in words: fourteenmilliononehundredthousand Euros). As regards claims under the Seller’s Guarantees number 1 and 2.3 as set out in Annex 12.1 the Seller’s liability shall be limited to the Purchase Price. The overall liability of the Seller shall be limited to the Purchase Price.
 
14.  
Tax Indemnity
 
14.1  
The Seller shall indemnify and hold harmless the Purchaser Companies from and against any liability for Taxes (i) of the Seller and any Sales Company for which any Purchaser Company is held liable pursuant to Section 75 of the German General Tax Code ( Abgabenordnung ) or any other provision of applicable law, (ii) transferring from any of the Seller Companies to any of the Purchaser Companies in connection with this Agreement and (iii) relating to income of any of the Seller Companies having accrued in the Business until the Transfer Date or accruing in connection with this Agreement, in each cases of (i), (ii) and (iii) including any reasonable external costs and expenses incurred by any of the Purchaser Companies in connection with the defence of liability for such Taxes. Any payment under this Clause 14 shall be treated as a reduction of the Purchase Price.
 
14.2  
Clauses 13.1 and 13.2 shall apply mutatis mutandis to any claims of the Purchaser under this Clause 14. Otherwise, Clause 13 shall not apply.

 

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14.3  
Claims of the Purchaser Companies under this Clause 14 shall become time-barred at the later of (i) six months after the assessment of the relevant Tax has become final and binding ( formell und materiell bestandskräftige Festsetzung ) and (ii) six months after the respective Purchaser Company has been notified by the relevant tax authority that it is held liable for the relevant Tax. The statutory provisions regarding the suspension ( Hemmung, Ablaufhemmung ) and interruption ( Neubeginn ) of the time limitation shall remain unaffected.
 
14.4  
The Seller Companies and the Purchaser Companies shall, without undue delay after the Transfer Date, ensure that the transfer of the Business is notified to the competent tax authorities pursuant to Section 75 of the German General Tax Code and any other corresponding applicable local law.
 
15.  
Environmental Indemnity
 
15.1  
For the purposes of this Agreement, the terms Environment, Environmental Authority, Environmental Condition, Environmental Laws, Environmental Losses, Environmental Proceedings, Purchasers Acts, Real Estate and Remediation Works shall have the following meanings:
  (a)  
“Environment” means the air (including, without limitation, the air within buildings and other natural or manmade structures whether above or below ground), surface and ground water as well as water as defined in Sections 89, 48 of the German Water Code (Wasserhaushaltsgesetz), land (including, without limitation, soil and, in particular, soil within the meaning of sec. 2 sub-section 3 of the German Federal Soil Protection Act (Bundesbodenschutzgesetz) and sec. 2 of the German Environmental Damage Act (Umweltschadensgesetz), contaminated sites (Altlasten) within the meaning of sec. 2 sub-section 5 of the German Federal Soil Protection Act and sec. 2 of the German Environmental Damage Act, sub-soil, sediment or other terrestrial material) and buildings (above or below surface) or any organism (including, without limitation, man) or ecological system supported by any such media.
 
  (b)  
“Environmental Authority” means any competent governmental or regulatory agency or body with administrative powers or jurisdiction in relation to Environmental Laws.
 
  (c)  
“Environmental Condition” means any condition or circumstance existing or originating (or any event or occurrence taken place) at any time prior to the Transfer Date at the Real Estate which
(i) involves contamination or pollution or impairment of or harm or damage to, or
(ii) has contaminated or polluted or impaired or harmed or damaged or
(iii) poses a risk of contaminating or polluting or harming or damaging or impairing

 

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- in each of (i) through (iii) including, without limitation, with substances which are hazardous to health or environment within the meaning of Section 3a German Chemicals Act (ChemG) and/or Section 4 of the German Ordinance on Hazardous Substances (Gefahrstoffverordnung) or caused by materials such as asbestos, PCB, petroleum-derived hydrocarbon, BTEX, heavy metals — the Environment. The Seller shall have the burden to proof that a relevant condition or circumstance did not exist or originate prior to the Transfer Date and that a relevant event or occurrence did not take place prior to the Transfer Date; for any claim for any Environmental Condition made by any of the Purchaser Companies under Clause 15.2 after 31 December 2025 this burden of proof will shift to the Purchaser Companies, i.e. with respect to claims made by any of the Purchaser Companies under Clause 15.2 after that date the Purchaser Companies will have the burden of proof that a relevant condition or circumstance did exist or originate prior to the Transfer Date and that a relevant event or occurrence did take place prior to the Transfer Date. For the avoidance of doubt, to the extent that at the Transfer Date there was water within pipes, drains and sewers at the Real Estate or originating from the Real Estate which is water disposable in the ordinary course of business, such water shall not fall under the definition of “Environmental Condition” insofar as the water’s presence in pipes, drains or sewers at the Transfer Date was in compliance with Environmental Laws. To the extent that at the Transfer Date there was waste at the Real Estate which is waste disposable in the ordinary course of business, such waste shall not fall under the definition of “Environmental Condition”, insofar as the waste’s presence at the Real Estate at the Transfer Date was in compliance with Environmental Laws.
 
  (d)  
“Environmental Laws” means any statutes, regulations, orders and directives whose purpose is the protection of the Environment, whether European, national or local, and including, without limitation, the German Federal Soil Protection Act (Bundesbodenschutzgesetz) and the German Environmental Damage Act (Umweltschadengesetz).
 
  (e)  
“Environmental Losses” means
 
     
any damages, liabilities, losses, fines, penalties incurred from Environmental Proceedings, and/or
 
     
reasonable third party costs or expenses (including professional and/or consultants’ fees and expenses) in relation to Environmental Proceedings other than for works on site and/or
 
     
reasonable third party costs or expenses for works on site necessary in order to reduce or mitigate the impact of any Environmental Proceeding by an Environmental Authority or other third party under any Environmental Laws and/or
 
     
any damages, liabilities, losses, fines, penalties incurred from any Environmental Condition, and/or
 
     
reasonable third party costs or expenses for Remediation Work necessary under Environmental Proceedings or otherwise necessary for complying with Environmental Laws in relation to an Environmental Condition.
 
  (f)  
“Environmental Proceedings” means any criminal, civil, judicial, regulatory or administrative proceeding, suit, action, claim, demand, notice or requirement commenced, served, made or threatened in writing in relation to any Environmental Condition or breach by the Seller of any Environmental Laws or any permits, consents, licences, certificates and other authorizations and approvals required under Environmental Laws and obtained in connection with the use of or any activities or operations carried out at the Real Estate, except if the Seller can show that a relevant breach did not occur prior to the Transfer Date. With respect to any claims under Clause 15.2 for any such breach made by any of the Purchaser Companies after 31 December 2025, the burden of proof will shift to the Purchaser Companies, i.e. the Purchaser Companies will have to show that a relevant breach did occur prior to the Transfer Date.

 

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  (g)  
“Purchaser’s Acts” means all acts of the Purchaser Companies prior or after the Transfer Date in relation to any Environmental Condition or Environmental Proceeding. For the avoidance of doubt, acts of any managing directors, officers or employees of the Seller or Affiliates of Seller prior to the Transfer Date shall not be considered as Purchaser’s Acts even if such managing directors, officers or employees should be employed by one of the Purchaser Companies after the Transfer Date.
 
  (h)  
“Real Estate” means any real estate currently or in the past occupied by the Business, in particular the real estate currently occupied and listed in Annex 15.1(h) .
 
  (i)  
“Remediation Work” means any inspections, investigations, assessments, audits, sampling or monitoring and any works (including the installation, operation, repair or replacement of plant or equipment) in order to remove, remediate, ameliorate, clean-up or contain any Environmental Condition.
15.2  
The Seller shall indemnify and hold harmless the Purchaser Companies from and against any and all Environmental Losses incurred, suffered or sustained from any Environmental Proceedings except to the extent that Seller can show that the Environmental Losses have been caused by Purchaser’s Acts.
 
15.3  
Clauses 13.1, 13.2 and 13.6 shall apply mutatis mutandis to any claims of the Purchaser Companies under this Clause 15. Otherwise, Clause 13 shall not apply.
 
15.4  
Subject to the following sentence, claims under this Clause 15 shall become time barred at 31 December 2025. With regard to such part of the Real Estate which is defined as the Lease Object in the Lease Agreement for building 10 in Esslingen (Annex 11.6) only, claims under this Clause 15 shall become time barred at the later of (i) 31 December 2025 and (ii) the point in time when the Lease Agreement for building 10 has either been terminated or is no longer effective with a Purchaser Company as Tenant, but in no event later than 31 December 2030.
 
16.  
Special Indemnities
 
16.1  
The Seller shall indemnify and hold harmless the Purchaser Companies from and against any liabilities, obligations, claims, costs and expenses which any of the Purchaser Companies may be exposed to, incur, or suffer as a result of (i) the “Versorgungsordnung” of 9 October 1996 not effectively replacing, superseding, limiting or otherwise modifying the pension claims of Business Employees under the “Versorgungsordnung” of 15 November 1991 and the supplementary agreement of 15 November 1991, including, without limitation, potential liabilities, obligations, claims, costs and expenses under the “Versorgungsordnung” of 15 November 1991 related to Business Employees who joined after 31 December 1991, (ii) the “Versorgungsordnung” of 15 November 1991 and the supplementary agreement of 15 November 1991 not effectively replacing, superseding, limiting or otherwise modifying the pension claims of Business Employees under the “Versorgungsordnung” of December 1983 and the supplementary agreement of 9 December 1985, (iii) the “Versorgungsordnung” of December 1983 not effectively replacing, superseding, limiting or otherwise modifiying the pension claims of Business Employees under the “Versorgungsordnung” of December 1959 and the supplementary agreement of 8 June 1973, (iv) the “Versorgungsordnung” of December 1959 not effectively replacing, superseding, limiting or otherwise modifiying the pension claims of Business Employees under the “Versorgungsordnung” of January 1958 and (v) the “Versorgungsordnung” of January 1958 not effectively replacing, superseding, limiting or otherwise modifiying the pension claims of Business Employees under the “Versorgungsordnung” of 1954.

 

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16.2  
The Seller shall indemnify and hold harmless the Purchaser Companies from and against any liabilities, obligations, claims, costs and expenses which any of the Purchaser Companies may be exposed to, incur, or suffer as a result of the “Betriebsvereinbarung” of 29 September 2004 not effectively freezing or otherwise limiting in accordance with its terms the pension claims of Business Employees under the “Versorgungsordnung” of 9 October 1996.
 
16.3  
The Seller shall indemnify and hold harmless the Purchaser Companies from and against (i) any liability for severance or similar payments committed by the Seller to Business Employees other than those listed in Annex 16.3 based on the reconciliation of interest ( Interessenausgleich ) and social plan ( Sozialplan ) of 13 July 2009 or based on an employment agreement making reference to such reconciliation of interest and social plan of 13 July 2009 and (ii) any liabilities, obligations, claims, costs and expenses which result from employment agreements of the employees listed in Annex 16.3 not effectively limiting an employee’s claim committed by any of the Seller Companies with reference to the reconciliation of interest ( Interessenausgleich ) and social plan ( Sozialplan ) of 13 July 2009.
 
16.4  
The Seller shall indemnify and hold harmless the Purchaser from and against any liabilities, obligations, claims, costs and expenses (including, for the avoidance of doubt, any fines) which any of the Purchaser Companies may be exposed to, incur, or suffer in connection with potential restrictions on competition, sourcing and pricing agreed under the agreements with Scheib Elektrotechnik GmbH of 11/25 November 1968 and Steinlen Elektromaschinenbau GmbH of 20 December 1988/6 February 1989 (in each case as amended). The Purchaser allows that the Seller before Closing implements, after consultation with the Purchaser, measures which will eliminate any potential future restrictions on competition, sourcing and pricing, e.g. by agreeing on amendments to the contracts with Scheib Elektrotechnik GmbH and Steinlen Elektromaschinenbau GmbH. To the extent that any such liabilities, obligations, claims, costs and expenses are caused or increased by any acts or omissions of the Purchaser Companies after the Transfer Date, the Purchaser shall be excluded from making a claim under this Clause 16.4.
 
16.5  
The Seller shall indemnify and hold harmless the Purchaser Companies from and against any liabilities, obligations, claims, costs and expenses which any of the Purchaser Companies may be exposed to, incur, or suffer as a result of any of the Business Employees exercising stock options in the stock of Danfoss A/S, which are existing as of the Transfer Date. The Seller confirms that none of the Business Employees have any rights to be granted stock options after the Transfer Date and shall, in case such confirmation should be inaccurate, indemnify the Purchaser Companies from any liabilities, costs and expenses which any of the Purchaser Companies may incur or suffer as a result of the existence of any such right to be granted stock options after the Transfer Date.
 
16.6  
The Seller shall indemnify and hold harmless the Purchaser from and against any liabilities, obligations, claims, costs (including reasonable legal costs) and expenses which any of the Purchaser Companies may be exposed to, incur, or suffer as a result of the “ALSTEF”-case disclosed in Exhibit 9 in excess of the warranty provision specifically included for such “ALSTEF”-case in the calculation of the Working Capital as of the Transfer Date as provided for in the Final Working Capital Calculation.

 

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16.7  
The Seller shall indemnify and hold harmless the Purchaser from and against any liabilities, obligations, claims, costs (including reasonable legal costs) and expenses which any of the Purchaser Companies may be exposed to, incur, or suffer as a result of any failure or invalidity of the conversion of the pension plan in the Dutch Sales Company from a defined benefit scheme to a defined contribution scheme. The Purchaser cannot claim indemnification from any liability, obligation, claim, cost or expense which the Purchaser Companies would have also been exposed to if the pension plan in the Dutch Sales Company would have remained a defined benefit plan from before the Transfer Date until when the Purchaser brings the claim.
 
16.8  
Any payment under this Clause 16 shall be treated as a reduction of the Purchase Price.
 
16.9  
Clauses 13.1, 13.2 and 13.6 shall apply mutatis mutandis to any claims of the Purchaser Companies under this Clause 16. Otherwise, Clause 13 shall not apply.
 
16.10  
Claims of the Purchaser Companies under this Clause 16 shall become time-barred on 31 December 2020.
 
17.  
Non compete and non solicit obligations
 
17.1  
With the exceptions stated below, the Seller and Seller’s Parent undertake vis-à-vis the Purchaser that they shall not, and shall ensure that any Affiliate of the Seller’s Parent shall not, for a period ending two years after the Transfer Date be engaged in any activity, directly or indirectly, of designing, producing, selling or distributing geared motors including, for the avoidance of doubt, the acquisition or holding of shares or voting rights or other participations in such a business representing more than 10% of the shares, voting rights or other equity participation in such business; for the avoidance of doubt, the One Gear Drive is (a new type of) a geared motor but the ISD-Motors are not. No further implied restrictions shall apply on the Seller, the Seller’s Parent or any Affiliate of the Seller’s Parent.
 
   
This non-competition undertaking does not apply to:
  (a)  
any activities of the Seller, the Seller’s Parent and any Affiliate of the Seller’s Parent that are related to the fact that a Local Sale and Transfer Agreement was not signed on the Closing Date, i.e. that the respective local Sales Business remains part of the Danfoss-group;
 
  (b)  
any activities of the Seller, the Seller’s Parent and any Affiliate of the Seller’s Parent related to the One Gear Drive, including, but not limited to, designing, improving, producing, selling and distributing, provided that
  (i)  
the One Gear Drive must fulfil the criteria as set out in Annex 17. 1(b)(i) ; and
 
  (ii)  
any sales of the One Gear Drive must only be made (directly or indirectly) (a) to either (i) an end-customer in the food and beverage industry or (ii) an end-customer listed in Annex 17. 1(b)(ii) or Affiliates of such end-customers;
  (c)  
any direct or indirect sales and deliveries of gearboxes or geared motors to third parties that approached the Seller, the Seller’s Parent or any Affiliate of the Seller’s Parent for the sale of gearboxes or geared motors (isolated or in connection with the sale of other products of the Seller, the Seller’s Parent or any Affiliate of the Seller’s Parent), provided that the Seller and the Seller’s Parent undertake vis-à-vis the Purchaser that the respective entity approached by a third party will source such gearboxes or geared motors from the Purchaser if the Purchaser offers to supply the gearboxes or geared motors at standard pricing then used in the Seller’s Business.

 

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For the avoidance of doubt, nothing in this Agreement shall restrict or otherwise limit any of the Purchaser Companies (i) to produce, sell, and market any products of the Bauer 2000 Series including all current and future designs, any aseptic drives, or any form of permanent magnet motors and (ii) to market or sell to the customers listed in Annex 17.1(b)(ii).
 
17.2  
The Seller and Seller’s Parent further undertake vis-à-vis the Purchaser that they shall not, and shall ensure that any Affiliate of the Seller’s Parent shall not, for the period ending two years after the Transfer Date (except with respect to any Business Employees pertaining to the Sales Business in Denmark, where the period is 6 months), actively solicit or entice away from employment any Business Employee that transfers to the Purchaser Companies as part of the Transaction, provided that such undertaking shall not restrict the Seller or any Affiliate of Seller’s Parent in placing any general employment advertisements.
 
17.3  
The Purchaser and the Purchaser’s Parent undertake vis-à-vis the Seller that they shall not, and shall ensure that any Affiliate of the Purchaser’s Parent shall not, for a period ending two years after the Transfer Date (except for Denmark, where the period is 6 months), actively solicit or entice away from employment any employee of the Seller or any employee of the Sales Companies that is employed by these entities after the Transaction was completed, provided that such undertaking shall not restrict the Purchaser or any Affiliate of Purchaser’s Parent in placing any general employment advertisements.
 
17.4  
The Seller’s Parent procures that the Seller will not claim competition-protection related to any activities of Mr. Karl-Peter Simon subsequent to the Transfer Date under a post-contractual non-competition covenant existing between Mr. Karl-Peter Simon and the Seller, provided that Mr. Karl-Peter Simon becomes an employee, a managing director or any similar partner of the Purchaser Companies within two months of the Transfer Date.
 
   
The Seller’s Parent procures that the Seller Companies will not claim competition-protection related to any activities of any Business Employee subsequent to the Transfer Date under a post-contractual non-competition covenant existing between the respective Business Employee and the Seller Companies, provided that the respective Business Employee becomes an employee, a managing director or any similar partner of the Purchaser Companies within two months of the Transfer Date.
 
17.5  
Claims under this Clause 17 shall become time barred six months after the Purchaser or the Seller, respectively, received knowledge of the factual circumstances ( Lebenssachverhalt ) of such claim, in any event not later then 30 September 2013.
 
18.  
Danfoss brand
 
18.1  
The Purchaser Companies and the Purchaser’s Parent will not:
  (a)  
represent itself or permit itself to be held out as being in any way connected with the Seller Companies, Danfoss A/S or any of their Affiliates (“ Danfoss-Group ”); or

 

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  (b)  
use, or interfere with the use by the Seller Companies and or/the Danfoss-Group or any of their licensees of any name, trademark or logo in which the Seller Companies and/or the Danfoss-Group or any of their licensees has a right of use, or use any confusingly similar name, trademark or logo, in particular the “Danfoss”-name and the “Danfoss”-trademark and logo.
18.2  
For the avoidance of doubt, the Seller Companies (or the Danfoss-Group, respectively) retain all rights to the Danfoss trademark, the Danfoss logo, and the Danfoss trade and corporate name. The Purchaser’s Parent and the Purchaser Companies procure that as of the Transfer Date neither the Purchaser Companies nor any Affiliate of the Purchaser shall use, directly or indirectly, the Danfoss trademark, the Danfoss logo, the Danfoss trade and corporate name or any other trademarks, logos or names owned by the Danfoss-Group or any name similar thereto (or possibly to be confused therewith) in any corporate name, trademarks, product labels, letterheads, promotional material, business cards, or otherwise. This does also apply to any use in connection with other trademarks, logos and names, in particular the “Bauer”-name.
 
18.3  
Notwithstanding the provisions of Clauses 18.1 and 18.2, the Purchaser Companies are entitled to sell parts or products in stock at the Transfer Date in a period of three months after the Transfer Date even if the Danfoss trademark, the Danfoss logo, or the Danfoss trade and corporate name is printed on or applied to these products. Notwithstanding the provisions of Clauses 18.1 and 18.2, the Purchaser Companies shall further be entitled for a period of three months after the Transfer Date to use any marketing materials and/or drawings in stock at the Transfer Date even if the Danfoss trademark, the Danfoss logo, or the Danfoss trade and corporate name is printed on or applied to these materials. The Purchaser Companies shall use all reasonable efforts to avoid the impression that the Purchaser Companies belong to the Danfoss-Group and shall apply additional signs that point to the transfer of the Business.
 
19.  
Seller’s Registered Company Name
 
19.1  
After the Transfer Date the Seller shall no longer be entitled to use the registered company name “Danfoss Bauer GmbH”. The Seller will change its registered company name in a way that the term “Bauer” and similar terms are not contained in the registered company name after the Transfer Date. The Seller will take without undue delay after the Transfer Date all necessary steps to change its registered name, but cannot be held responsible for the period of time the local authorities need to alter the registration.
 
20.  
Confidentiality and Press Releases
 
20.1  
No announcement or statement about this Agreement or the subject matter of, or any matter referred to in this Agreement, other than required by law or international accounting standards such as IFRS will be made or issued by or on behalf of either Sales Party or its Affiliates without the prior approval of the other Sales Party. Any compliance of the Seller Companies or any member of the Danfoss-Group with the internal Danfoss accounting standards, in particular the publication of the Purchase Price in the annual reports, is not to be considered a violation of this clause. Likewise, any compliance of the Purchaser Companies with any laws and regulations applicable to the Purchaser Companies or their Affiliates including, without limitation, the securities laws of the United States of America and the rules of the NASDAQ Global Markets, is not to be considered a violation of this Clause. The Parties are free to disclose the existence and the content of this Agreement and the Local Sale and Transfer Agreements to their advisors which are bound to confidentiality by their professional standards.

 

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20.2  
The Sales Parties have agreed on the press releases attached as Annex 20.2 which shall be released no earlier than 28 February 2011. Subject to the preceding sentence, the Seller and the Purchaser will coordinate any press release and any other declaration to the public in respect of this Agreement.
 
21.  
Notices and Bank Accounts
 
21.1  
Any notice or other communication to be given under this Agreement shall be in writing; the notice or communication may be delivered personally or sent by registered or certified mail (return receipt requested), facsimile or recognised courier or overnight delivery service addressed to the relevant other Parties to the addresses below or to such other addresses which may be specified by any Party to the other Party in the future in writing:
  (a)  
If to the Seller’s Parent or Seller Companies to:
 
     
Danfoss A/S
Anders Stahlschmidt
General Counsel
Nordborgvej 81
6430 Nordborg, Denmark
 
     
with a copy to:
 
     
Hogan Lovells International LLP
Dr. Henning Löwe, LL.M.
Alstertor 21,
20095 Hamburg, Germany
 
  (b)  
If to the Purchaser’s Parent or Purchaser Companies to:
 
     
Altra Holdings, Inc.
Glenn Deegan
Vice President and General Counsel
300 Granite Street, Suite 201,
Braintree, Massachusetts 02184, USA
 
     
with a copy to:
 
     
Norton Rose LLP
Dr. Nico Abel
Stephanstraße 15,
60313 Frankfurt am Main, Germany
21.2  
Except as provided for in Section 21.3 below, all payments to be made under this Agreement or the Local Sale and Transfer Agreements shall be made as follows:
  (a)  
to the Seller Companies funds to the following account:
     
Account Holder:
  Danfoss A/S
 
   
Bank:
  Danske Bank, Copenhagen, Denmark
 
   
SWIFT:
  DABADKKK
 
   
IBAN:
  DK4630003227871555

 

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  (b)  
to the Purchaser Companies funds to the following account:
     
Account Holder:
  Blitz S11-131 GmbH
 
   
Bank:
  Deutsche Bank München
 
   
SWIFT:
  DEUT DE DBMUC
 
   
IBAN:
  DE81700700240211482500
21.3  
The following payments shall be made in the following way and to the following accounts:
  (a)  
The purchase price for the Sales Business in the Ukraine shall be paid in Ukrainian Hryvnia (UAH) at the exchange rate to the Euro at the Transfer Date and shall be paid directly by the Purchaser Company designated to purchase the Sales Business in the Ukraine to the Seller Company selling the Sales Business in the Ukraine;
 
  (b)  
The purchase price for the Sales Business in Russia shall be paid in Russian Roubles (RUB) at the exchange rate to the Euro at the Transfer Date and shall be paid directly by the Purchaser Company designated to purchase the Sales Business in Russia to the Seller Company selling the Sales Business in Russia;
 
  (c)  
The purchase price for the Sales Business in China shall be paid in Chinese Renminbi (CNY) at the exchange rate to the Euro at the Transfer Date and shall be paid directly by the Purchaser Company designated to purchase the Sales Business in China to the Seller Company selling the Sales Business in China.
22.  
Purchaser’s Parent Guarantee
 
   
The Purchaser’s Parent undertakes to procure that the Purchaser Companies will not become insolvent until 3 months after the Transfer Date. The Purchaser’s Parent will take in that period all necessary measures to avoid an insolvency of the Purchaser Companies, in particular provide the Purchaser Companies with sufficient equity to timely satisfy their liabilities, in particular paying the Purchase Price.
 
23.  
Seller’s Parent obligations and Parent Guarantee
 
23.1  
The Seller’s Parent undertakes to procure that the Seller Companies will not become insolvent until 3 months after the Transfer Date. The Seller’s Parent will take in that period all necessary measures to avoid an insolvency of the Seller Companies, in particular provide the Seller Companies with sufficient equity and liquidity to timely satisfy their liabilities, in particular the remaining pensions liabilities.
 
23.2  
Seller’s Parent hereby guarantees by way of an independent guarantee ( selbständiges Garantieversprechen ) to the Purchaser the fulfilment by the Seller of any and all obligations and liabilities under Clauses 14, 15 and 16 of this Agreement such that Seller’s Parent shall be jointly and severally liable with the Seller for any and all such obligations under Clauses 14, 15 and 16 at the terms as set out in this Agreement.
 
23.3  
Seller’s Parent hereby guarantees by way of an independent guarantee ( selbständiges Garantieversprechen ) to the Purchaser up to an amount of EUR 14,100,000 (in words: Euro fourteenmilliononehundredthousand) performance by the Seller Companies of any and all obligations and liabilities of the Seller Companies under this Agreement such that Seller’s Parent shall be jointly and severally liable with the Seller Companies for any and all such obligations.

 

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This guarantee expires on the tenth anniversary of the Transfer Date, i.e. after the tenth anniversary of the Transfer Date there is no obligation of Seller’s Parent under this guarantee, unless on the day of the tenth anniversary of the Transfer Date any claim of any of the Purchaser Companies under this Agreement which has been notified to the Seller on or prior to the tenth anniversary of the Transfer Date has not been fully settled and paid by the Seller to the Purchaser ( “Open Claim Amount” ), in which case the guarantee is automatically reduced to 110% of the Open Claim Amount. Whenever a portion of the Open Claim Amount is settled, the guarantee is automatically reduced to 110% of the remainder of the Open Claim Amount.
 
24.  
Accession/Local Sale and Transfer Agreements/Joint Liability
 
24.1  
This Agreement is originally entered into by the Seller, the Seller’s Parent and the Purchaser and the Purchaser’s Parent and Danfoss GmbH and it is valid and binding on the Seller, the Seller’s Parent and the Purchaser and the Purchaser’s Parent and Danfoss GmbH with immediate effect, but with regard to Danfoss GmbH only Clauses 11.6 and 11.8 shall be binding. The Seller and the Seller’s Parent shall procure that at Closing the other Seller Companies including Danfoss GmbH will accede to this Agreement and the Purchaser and the Purchaser’s Parent procure that at Closing the other Purchaser Companies will accede to this Agreement; with the accession the Agreement also becomes binding on the acceding entity and such entity then has all rights, benefits, obligations and burdens as a Sales Company or a Local Purchaser or the Slovakian Purchaser, respectively, set out in this Agreement. To the extent that this Agreement provides for any obligations of any of the Sales Companies or any of the Slovakian Purchaser or Local Purchasers prior to their accession to this Agreement pursuant to the preceding sentence, the relevant obligations shall be read such that the Seller and the Seller’s Parent procure that the Sales Companies will comply with such obligations and the Purchaser and the Purchaser’s Parent shall procure that the Slovakian Purchaser and the Local Purchasers will comply with such obligations, respectively. The Sales Companies and the Slovakian Purchaser and the Local Purchasers only have claims or rights under this Agreement if expressly stated herein.
 
24.2  
The Parties want this Agreement to override the Local Sale and Transfer Agreements and to override any local mandatory law that is in conflict with the provisions of this Agreement. They are in agreement that the parties to the Local Sale and Transfer Agreements shall not have any claims under any Local Sale and Transfer Agreement other than claims for performance ( Erfüllung ) of the transfer/assumption of the Assets Sold, Contracts and Assumed Liabilities sold/assumed under such Local Sale And Transfer Agreement and the payment of the local purchase price agreed in such Local Sale and Transfer Agreement. The Parties therefore undertake to put each other always into a position that is in accordance with this Agreement, even if under a Local Sale and Transfer Agreement or any local mandatory law a Party would be entitled to be treated differently, and the Seller Companies agree to indemnify and hold harmless the Purchaser Companies from any liabilities which pursuant to this Agreement have been exempted from the sale hereunder but for which the Purchaser Companies are liable under applicable law and the Purchaser Companies agree to indemnify and hold harmless the Seller Companies from any liabilities which pursuant to this Agreement were sold to the Purchaser Companies but for which the Seller Companies are liable under applicable law.
 
24.3  
The Sales Companies and the Slovakian Purchaser and the Local Purchasers acknowledge that, in addition to the provisions explicitly applying to the Seller Companies and/or the Purchaser Companies, Clauses 20, 21, 24, 25, 26, 27 and 28 are also binding for them.

 

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24.4  
For the avoidance of doubt, unless expressly stated otherwise in this Agreement, the Sales Companies are not liable under this Agreement and there is no joint liability among the Sales Companies. The Seller is jointly and severally liable ( Gesamtschuld ) for any liabilities of the Sales Companies under this Agreement. The Sales Companies are not liable for the liabilities of the Seller under this Agreement.
 
24.5  
The Purchaser and the Slovakian Purchaser, if any, are each jointly and severally liable ( Gesamtschuld ) for each others’ liabilities and any liabilities of the Local Purchasers under this Agreement. Subject to the preceding sentence, nothing in this Agreement shall create any joint or joint and several liability among the Purchaser Companies, and the Local Purchasers shall only be liable for any obligations or liabilities under or in connection with this Agreement proportionately ( als Teilschuldner ) for the respective part of the obligation or liability that relates to the relevant Local Purchaser.
 
25.  
General limitation period and overall limitation of liability
 
25.1  
Unless any other provision in this Agreement provides for a specific limitation period, in which case such other period shall apply, all claims of the Purchaser Companies under this Agreement or related to this Agreement (excluding, for the avoidance of doubt, any claims under agreements entered into in connection with this Agreement and other than for fraudulent behaviour) shall become time-barred two years after the Transfer Date. The statutory provisions regarding the suspension (Hemmung, Ablaufhemmung) and interruption (Neubeginn) of a time limitation shall remain unaffected.
 
25.2  
Notwithstanding Clause 25.1 and unless any other provision in this Agreement provides for a specific limitation period, in which case such other period shall apply, claims for indemnification or being held harmless (e.g. Clauses 3.6, 4.3, 5.2-5.4, 6.5, 6.6, 6.7, 6.8, 11.13, 24.2) or being put into a situation in compliance with this Agreement (e.g. Clause 24.2), shall become time-barred 3 years after the end of the year in which the Party which is entitled under the relevant claim obtained knowledge of the specific claim (e.g., if a claim is for indemnification from a third party claim, this in any event requires that the third party claim became due and that the third party requested payment), but not later than 30 years after the date hereof.
 
25.3  
Unless expressly provided elsewhere in this Agreement, the Parties agree that the Purchaser’s Parent and the Purchaser Companies are in no event entitled to withdraw from ( zurücktreten ), to challenge ( anfechten ) or to rescind ( kündigen ) this Agreement or any Local Sale and Transfer Agreement due to a non-compliance of the Seller Companies with any of their obligations under this Agreement or the Local Sale and Transfer Agreements. Any claims related to wilful conduct ( Vorsatz ) or wrongful deceit ( Arglist ) remain unaffected.
 
25.4  
The provisions of Clause 13.6(a) through 13.6(d) shall apply mutatis mutandis to all claims under or related to this Agreement.
 
25.5  
Any damage or loss can only be requested to be compensated once (no double-dip).
 
25.6  
In no event shall the aggregate liability of the Seller’s Parent and the Seller Companies under this Agreement and all Local Sale and Transfer Agreements and all claims related thereto exceed the Purchase Price, except for claims under Clauses 14, 15, 16 and 17.
 
25.7  
Any sum paid to the Purchaser Companies by the Seller Companies in relation to a breach of this Agreement shall be treated as a reduction of the Purchase Price.

 

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26.  
Governing Law
 
26.1  
Annexes of this Agreement which are expressly governed by foreign laws are governed by the law chosen in the respective Annex.
 
26.2  
This Agreement shall exclusively be governed by substantive German law. The United Nations Convention on Contracts for the International Sale of Goods, any mandatory provisions of other laws that would otherwise apply and any choice of law or conflict of law provisions or rules shall not apply to this Agreement.
 
27.  
Dispute Resolution
 
27.1  
All disputes arising out of or in connection with this Agreement and the Local Sale and Transfer Agreements (including, for the avoidance of doubt, claims for set-off or counter-claims) or their validity shall initially be referred to the chief executive officers of the Purchaser’s Parent and the Seller’s Parent who shall enter into discussions in an attempt to reach a mutually satisfactory amicable solution.
 
27.2  
If the chief executive officers have not agreed upon a mutually satisfactory amicable solution by the end of the 20th business day following the day on which such referral has been made to them the dispute shall be referred to and shall be finally and exclusively adjudicated and finally settled in accordance with the Arbitration Rules of the German Institution of Arbitration e.V. (DIS) without recourse to the ordinary courts of law. The place of arbitration is Frankfurt/Main, Germany. The arbitral tribunal consists of three arbitrators. The language of the arbitral proceedings is English. The arbitral tribunal shall allow multiple plaintiffs and defendants.
 
27.3  
The time limitation ( Verjährung ) of all claims relating to the dispute brought to the attention of the chief executive officers is suspended ( gehemmt ) as of the referral to the respective CEOs for the duration of their talks; Sec. 203 BGB applies. In addition, nothing in this Clause 27 shall hinder any party from taking adequate action to hinder alleged claims from becoming time-barred.
 
28.  
Miscellaneous
 
28.1  
The Parties shall use their best efforts to ensure the implementation of the Transaction and all other measures contemplated by this Agreement, in particular, they will file the necessary changes with public registers. The Parties shall co-operate in good faith in all relevant matters. They shall support each other and co-ordinate all communications to authorities or to the public and provide each other with all information necessary in this context.
 
28.2  
To the extent that the validity of the transfer of assets, contracts or liabilities require further actions of implementation the Seller Companies and the Purchaser Companies undertake to take these further actions of implementation.
 
28.3  
Each Party bears its own costs and the costs of its advisers. Other transaction costs triggered by the conclusion or consummation of this Agreement and the Local Sale and Transfer Agreements including any possible transfer taxes shall, as between the Parties, be borne by the Purchaser. The Purchaser shall also bear the costs of any regulatory approval. The costs for the notarization of this Agreement and any other agreements that need to be notarized together with this Agreement and the Local Sale and Transfer Agreement shall up to an amount of EUR 50,000 be equally shared by the Sales Parties; any amount above EUR 50,000 shall be borne by the Purchaser alone. The costs for the translation of the Local Sales and Transfer Agreements regarding the Sales Businesses in the Ukraine, Italy, Russia, China, Slovakia and France from English into the relevant local language shall be equally split between Seller and Purchaser.

 

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28.4  
All Annexes to this Agreement constitute an integral part of this Agreement and any reference to this Agreement includes this Agreement and its Annexes as a whole.
 
28.5  
This Agreement supersedes all prior agreements, understandings or arrangements (both oral and written) relating to the subject matter of this Agreement. Side-letters to this Agreement do not exist.
 
28.6  
In this Agreement the headings are inserted for convenience only and shall not affect the interpretation of this Agreement. Where a German term has been inserted in italics and / or brackets it alone and not the English term to which it relates shall be authoritative for the purpose of the interpretation of this Agreement.
 
28.7  
No variation, supplement or replacement of this Agreement or any of its terms, including this provision, shall be effective unless in writing and signed by or on behalf of each Party, provided that no other form is required by any mandatory law.
 
28.8  
Business Days ” ( Werktage ) referred to in this Agreement shall be any other day than Saturday and Sunday or public holidays in Esslingen, Germany.
 
28.9  
Bank Business Day ” shall be any day on which banks both in Frankfurt am Main and Boston are open for general business.
 
28.10  
This Agreement shall not grant any rights to, and is not intended to operate for, the benefit of third parties unless otherwise explicitly provided for herein.
 
28.11  
The Parties are not entitled to assign any rights or claims under this Agreement without the prior written consent of the relevant other Sales Party, except assignments to Affiliates of the respective assigning party to which they can assign without the prior consent of the other Parties.
 
28.12  
If one or several provisions of this Agreement become invalid or unenforceable, the remaining provisions of the Agreement are not affected thereby, and instead of the invalid or unenforceable provision a provision applies which the Parties had chosen on entering into this Agreement in order to reach the economic effect of the provision to be replaced, if they had foreseen the invalidity or unenforceability. The foregoing applies accordingly to matters to which this Agreement is silent ( Vertragslücken ).

 

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This Deed has been read out in the presence of the civil law notary to the persons appeared and was approved by them and signed by them and the civil law notary in their own hands as follows:
signed by (gezeichnet) Karl Peter Simon
signed by (gezeichnet) Niels Bjerregaard
signed by (gezeichnet) Thomas Christoffer Bobzin
signed by (gezeichnet) Dr. Daniel Weiß
signed by (gezeichnet) Karsten Kühnle
signed by (gezeichnet) Wolfgang Coutandin-Gerischer
civil law notary
L.S.

 

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EXHIBIT 31.1
Certification of Chief Executive Officer
I, Carl R. Christenson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Altra Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
                 
Date: August 8, 2011   By:   /s/ Carl R. Christenson    
             
 
      Name:   Carl R. Christenson    
 
      Title:   President and Chief Executive Officer    

 

 

EXHIBIT 31.2
Certification of Chief Financial Officer
I, Christian Storch, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Altra Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
                 
Date: August 8, 2011   By:   /s/ Christian Storch    
             
 
      Name:   Christian Storch    
 
      Title:   Vice President and Chief Financial Officer    

 

 

Exhibit 32.1
Certification of Chief Executive Officer
In connection with the Quarterly Report of Altra Holdings, Inc. (the “Company”) on Form 10-Q for the period ended July 2, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Carl R. Christenson, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
                 
Date: August 8, 2011   By:   /s Carl R. Christenson    
             
 
      Name:   Carl R. Christenson    
 
      Title:   President and Chief Executive Officer    

 

 

Exhibit 32.2
Certification of Chief Financial Officer
In connection with the Quarterly Report of Altra Holdings, Inc. (the “Company”) on Form 10-Q for the period ended July 2, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christian Storch, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
                 
Date: August 8, 2011   By:   /s/ Christian Storch    
             
 
      Name:   Christian Storch    
 
      Title:   Vice President and Chief Financial Officer