ARGO TECH CORP, 10-K405, 2000-01-28

ARGO TECH CORP
10-K405, 2000-01-28
AIRCRAFT ENGINES & ENGINE PARTS

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended October 30, 1999 Commission File No. 333-38223

ARGO-TECH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
23555 Euclid Avenue, Cleveland, Ohio
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
31-1521125
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
44117

(ZIP CODE)

Registrant's Telephone Number, Including Area Code: (216) 692-6000

Securities Registered Pursuant to Section 12(b) of The Act: None

Securities Registered Pursuant to Section 12(g) of The Act: None

Indicate by checkmark whether the registrant: (1) has filed all reports 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
requirement for the past 90 days. Yes [X] No [ ]

Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Annual Report on Form 10-K or any
amendment to this Form 10-K. [X]

All of the outstanding capital stock of the registrant is held by AT
Holdings Corporation.

As of January 25, 2000, one share of the Registrant's Common Stock, $.01
par value per share, was outstanding.

Documents incorporated by reference: None
<PAGE> 2

PART I

ITEM 1. BUSINESS.

We are a leading designer, manufacturer and servicer of high performance
fuel flow devices for the aerospace industry. We provide a broad range of
products and services to substantially all commercial and domestic military
engine and airframe manufacturers, to airlines worldwide and to the U.S. and
certain foreign militaries. We are the world's leading supplier of main engine
fuel pumps to the commercial aircraft industry and are a leading supplier of
airframe products and aerial refueling systems. Since 1991, until the
acquisition of J.C. Carter Company, Inc., we were primarily a manufacturer of
main engine fuel pumps. In September 1997, we expanded our product lines through
the acquisition of the outstanding capital stock of Carter, a California
corporation. Carter's product lines include airframe pumps and accessories,
military aerial refueling systems and other fuel system components such as
valves and ground fueling components, as well as the production and service of
liquid natural gas pumps. In August 1999, we acquired the outstanding capital
stock of Durodyne, Inc., an Arizona corporation. Durodyne is a manufacturer of
speciality industrial hose for aerospace, chemical transfer and marine
applications. Durodyne is operated as a subsidiary of Carter. We also operate a
materials laboratory and a business park in Cleveland, Ohio, where we maintain
our headquarters and primary production facilities.

Main engine fuel pumps are precision mechanical pumps, mounted to the
aircraft's engines that maintain the flow of fuel to the engine at a precise
rate and pressure. Airframe fuel pumps and airframe accessories are used to
transfer fuel to the engine systems and to shift and control fuel between tanks
in order to maintain aircraft balance. Aerial refueling systems permit military
aerial tankers to refuel fighter, bomber and other military aircraft while in
flight. Ground fueling systems transfer fuel from fueling trucks and underground
tanks to the underwing fuel receptacle of the aircraft.

PRODUCTS

Aerospace OEM

Main Engine Fuel Pumps. All Argo-Tech main engine fuel pumps are designed
at our Cleveland facility. These pumps consist of an aluminum body which is cast
by certified subcontractors. We then machine the casting, add a variety of gears
and other components, and perform rigorous testing at our Cleveland facility.

We are the sole source supplier of main engine fuel pumps for all CFM56
series engines, one of the most popular series of large commercial aircraft
engines used today. The CFM56 series engines power the Airbus A-319, A-320,
A-321 and A-340 and the Boeing 737 aircraft. We are also the sole source
supplier of main engine fuel pumps for all engines used on the Boeing 777
aircraft.

Our products also include large regional and business jet applications,
including the main engine fuel pumps used on the BR710 engine, which is used on
the high-end Bombardier Canadair Aerospace Global Express and the Gulfstream
Aerospace Corp. V aircraft. We also supply main engine fuel pumps for the GE
CF34-8C engine program, which is used on the Canadair RJ700 regional and
business aircraft and has been selected as the engine for the Embraer ERJ-170 70
passenger regional jet.

Airframe Products. Fuel pumps and other airframe fuel transfer control
systems in the airframe are necessary to transfer fuel to the engine systems and
to maintain aircraft balance by shifting fuel between tanks. We manufacture
boost and transfer fuel pumps and fuel transfer control components, including
fuel flow proportioners, fuel system gate assemblies, and a variety of airframe
valves, adapters, nozzles and caps. These components are used to manage storage,
fueling, transfer and engine feed functions during ground and flight operations.
The acquisition of Carter in September 1997 significantly increased our presence
in the airframe fuel transfer control systems market.

Aerial Refueling Systems. We are a major supplier of components for aerial
refueling systems, which are produced only for military applications. Aerial
refueling components we manufacture, including pumps and couplers, are, or are
scheduled to be, installed in the refueling systems of 100% of U.S. designed
military aircraft equipped with such capability.

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New Products. We are continually developing new market opportunities, which
include lube oil and scavenge pumps as well as fuel flow dividers. Lube oil and
scavenge pumps supply lubrication to aerospace and industrial gas turbine engine
components. Fuel flow dividers divide fuel flow into precisely metered portions
for more efficient combustion and lower emissions. We secured a contract with
Rolls-Royce to supply components on an industrial power generation platform
which is currently in production. Due to aggressive marketing and an established
record of performance with our engine customers, we have also gained entry into
the land-based gas turbine business, securing development and production
contracts with GE, Pratt and Whitney, Rolls-Royce and Siemens Westinghouse.

Ground Fueling Products

We manufacture various ground fueling hydrants, couplers and nozzles for
commercial and military airports around the world. Ground fueling systems are
used to transfer fuel from underground fuel tanks and ground fueling trucks to
the underwing fuel receptacle of the aircraft. In addition to nozzles, couplers
and hydrants, we also sell pressure control valves and systems. We have also
developed the AVR2000 Fuel Delivery Meter, a hardware and software system for
customized fuel utilization management, data collection and billing.

New Products. We recently developed digital pressure control valves. These
valves incorporate a microprocessor to enhance fuel flow control and allow for
accurate measurement of pressure into fuel tanks. In addition, we have
identified three new potential product applications for our ground fueling
technology: railroad fuel transfers, fueling of off-road construction and mining
equipment and liquified natural gas nozzles and receptacles for use on
alternative fuel vehicles.

Industrial

We have been widely recognized as a leading designer and supplier of high
performance submerged motor pumps for liquefied gas. In 1987, we sold the
original equipment manufacture (OEM) business for industrial liquid natural gas
pumps installed outside North America. However, an agreement concluded in
January 2000 will allow us to re-enter the OEM business. The sale of OEM pumps
will add to our current business of providing spare parts, testing, and
performing upgrade and repair services on our existing installed base of pumps.

AFTERMARKET SALES

Aftermarket sales comprise the largest component of our business.
Aftermarket sales consist of spare parts sales and overhaul, retrofit, repair
and technical support services to commercial and military customers worldwide.
Currently, approximately 30% of our spare parts sales are attributable to
overhaul and repair services that we perform, with the remaining sales resulting
from spare part purchases by third-party shops and airlines. We overhaul and
repair approximately 25% of the Argo-Tech products we manufacture. We also
perform overhaul services for products manufactured by third parties.

CUSTOMERS

Aerospace

OEM customers for our aerospace products include the world's major aircraft
engine manufacturers: Allison Engine, BMW/Rolls-Royce (BRR), GE, Pratt and
Whitney (including Pratt and Whitney Canada), Rolls-Royce, SNECMA/GE (CFMI) and
Williams International Corp. Customers for our airframe pumps and valves include
Airbus, Boeing, Cessna, Gulfstream, Lear Corp., Lockheed Martin, Raytheon and
various U.S. government agencies. Orders for military components come through
customers such as Lockheed Martin, Boeing and Pratt and Whitney. Our aftermarket
customers include all major aircraft and engine repair facilities and all major
airlines worldwide. Currently, the total number of airline and third party
customers for our spare parts and overhaul services exceeds 200.

Upsilon International Corporation, in its capacity as distributor of
certain of our products to foreign customers, accounted for approximately 17% of
our net revenues for the fiscal year ended October 30, 1999. No other customer
accounted for more than 10% of our revenues during this period.

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Ground Fueling

Most ground fueling products are sold to customers through independent
distributors. Customers in the domestic markets include a variety of airlines,
airports and various fixed base operators. In international markets, our ground
fueling products are purchased by several oil companies, including several
state-run oil companies and airport authorities. In fiscal 1999, approximately
42% of our ground fueling sales were to customers outside the U.S.

Industrial

The industrial customer base includes shipping vessels operated by domestic
and foreign carriers, liquefied gas ship loading terminal owners, liquefied gas
receiving terminals, petrochemical plants, large architectural and engineering
companies worldwide and electric power generation companies.

SALES AND MARKETING

Engine and airframe OEMs select suppliers of aerospace components primarily
on the basis of custom design capabilities, product quality and performance,
prompt delivery, price and aftermarket service. We believe that we meet these
requirements in a timely, responsive manner which has resulted in an extensive
installed base of components and substantial aftermarket sales. We also staff an
on-site design engineer with three of our customers to represent our products
and to work closely with the customer to develop new components.

We market and sell our aerospace and ground fueling products and services
through a combination of direct marketing, sales personnel, independent
manufacturing representatives and U.S. and international distributors. We supply
spare parts directly to domestic airlines and third-party overhaul shops.
Foreign customers that purchase Argo-Tech products receive their spare parts
through Upsilon International, which operates a distribution facility in
Torrance, California. Foreign customers receive spare parts for Carter aerospace
products directly from our Costa Mesa facility.

SUPPLIERS AND RAW MATERIALS

We use a certified supplier program that demands a commitment to 100%
quality and on-time deliveries. Supplier performance is measured by our
comprehensive supplier rating system. Currently, our supplier base includes
approximately 600 companies.

Our largest expenditure for Carter products relates to outsourcing of
component machining. We have derived significant savings by taking advantage of
advances in machining technologies and by coordinating engineering with our
suppliers. Three long term suppliers provide most of the component machining for
Carter products.

Aluminum castings are the highest volume raw material supplied to us for
the manufacture of Argo-Tech products. Five certified suppliers provide these
castings under long-term arrangements. We also buy quantities of steel bar stock
to produce gears and shafts from multiple producers. However, CPM-10V, a
powdered metal essential for the manufacture of certain of our main engine fuel
pumps, is a proprietary product available only from Crucible Specialty Metals.
We do not have a contractual arrangement with Crucible Specialty Metals, but we
purchase CPM-10V pursuant to standard purchase orders. Another material has been
identified as an alternative to CPM-10V, but that material has not yet been
certified by our customers.

MANUFACTURING

We manufacture a major portion of our Argo-Tech products at our Cleveland
facility. This facility houses our senior management and the majority of our
aerospace engineering and design staff, sales team, and production and main
distribution facilities. This facility is organized around four manufacturing
"cells" that operate bearing, gear, housing and shaft productions. By creating
cells, the necessary people, machinery, materials and methods are organized into
four distinct business teams. Within each manufacturing cell are members from
each of the Manufacturing, Quality, Production Control, Statistical Process
Control, and Manufacturing Engineering disciplines. Our design engineering staff
is also organized into cells which

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correspond to and complement the manufacturing cells. The manufacturing and
engineering cells work together to meet our integrated operating plan and to
ensure timely production of our products.

In contrast to our substantial reliance on internal manufacturing of
Argo-Tech products, we outsource most of the machining and pre-assembly
production of Carter products to external providers. However, we do maintain
internal equipment capacity at our Costa Mesa facility, which enables us to
produce small quantity, quick turn components and to reduce setup/breakdown
times on smaller jobs. We have lowered the cost of Carter products by
outsourcing capital intensive tasks such as casting and machining, while
completing final assembly and testing on the premises.

In addition to our manufacturing facilities, we maintain sophisticated
testing facilities at our Cleveland, Ohio, Inglewood, California and Costa Mesa,
California locations. These testing facilities allow for simulation of typical
conditions and stresses that will be endured by our products during use. Our
products are also thoroughly tested for design compliance, performance and
durability. To facilitate quality control and product development, we maintain a
sophisticated chemistry and metallurgy laboratory at our Cleveland facility. The
equipment at this laboratory includes a scanning electron microscope.

We have obtained and preserved our ISO certifications, which are becoming a
prerequisite for selling to customers located in Europe. ISO-9001 certifications
are recognized by most of our customers, as well as by the FAA and U.S.
government supply organizations, as the most widely accepted replacement for the
Military Standards formerly used in the aerospace industry.

ENVIRONMENTAL MATTERS

Our operations are subject to federal, state and local environmental laws
and to regulation by government agencies, including the EPA. Among other
matters, these regulatory authorities impose requirements that regulate the
emission, discharge, generation, management, transportation and disposal of
pollutants and hazardous substances. These authorities govern response actions
to hazardous substances which may be or have been released to the environment,
and require us to obtain and maintain permits in connection with our operations.
This extensive regulatory framework imposes significant compliance burdens and
risks.

Although we believe that our operations and facilities are currently in
compliance in all material respects with applicable environmental laws, there
can be no assurance that future changes in such laws, regulations or
interpretations of such laws or the nature of our operations will not require us
to make significant additional expenditures to ensure compliance in the future.
Currently, we do not believe that we will have to make material capital
expenditures for environmental remediation for the 2000 fiscal year.

Our Cleveland facility is currently the subject of environmental
remediation activities. The cost of these activities is the responsibility of
TRW under the terms of the purchase agreement by which we acquired TRW's Power
Accessories Division in 1986. Remediation has been underway since 1989 and is
expected to continue for the foreseeable future. We have not paid for any
material portion of the cost of the remediation and do not expect to do so in
the future. TRW has funded all necessary remediation costs and we expect that
TRW will continue to do so in the future. We estimate that TRW has spent in
excess of $10 million for environmental remediation at our Cleveland facility.

The TRW purchase agreement also requires TRW, for a period of 20 years, to
indemnify us for:

- costs associated with third party environmental claims relating to
environmental conditions arising from activities conducted by TRW during
its operation of its Power Accessories Division that have not been
conducted by us after our purchase of the assets of the division in 1986,
and

- a portion of the costs associated with third party environmental claims
arising from activities conducted by TRW and us, the portion of the costs
to be paid by each party being determined based on the length of time
each party conducted the activity giving rise to the claim.

To date, there have been no third party environmental claims relating to us
or to the Cleveland facility.

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In March 1986, a two thousand gallon spent underground storage tank was
removed from our Costa Mesa facility. Petroleum hydrocarbon soil contamination
was discovered during the removal of the tank, prompting the Orange County
Health Care Agency to require a site assessment. Subsequent site investigations
revealed that groundwater underlying the site is impacted by trichloroethene and
perchloroethylene. In 1990, the Regional Water Quality Control Board issued a
Cleanup and Abatement Order to Carter relating to the investigation and
remediation of groundwater contamination. To date, the full extent of the
groundwater contamination has not been ascertained. By virtue of our acquisition
of Carter, we have assumed responsibility for satisfying the cleanup order.
However, we have obtained indemnification from Carter's selling stockholders
for, among other things, all costs and expenses related to satisfaction of the
order. However, there can be no assurance that such indemnification obligations
with respect to the cleanup order will be satisfied. See "Risk
Factors--Potential Exposure to Environmental Liabilities."

PATENTS AND TRADEMARKS

We have a number of patents and trademarks and pending patent applications
related to our products. While in the aggregate our patents and trademarks are
of material importance to our business, we believe no single patent or trademark
or group of patents or trademarks is of material importance to our business as a
whole.

GOVERNMENT REGULATIONS

The commercial aerospace industry is highly regulated by both the FAA in
the United States and by the Joint Aviation Authorities in Europe, while the
military aerospace industry is governed by military quality (ISO-9000)
specifications. We are required to be certified by one or more of these
entities, and, in some cases, by individual OEMs, in order to engineer and
service parts and components used in specific aircraft models. We must also
satisfy the requirements of our customers, including OEMs and airlines, that are
subject to FAA regulations, and provide these customers with products and
services that comply with the government regulations applicable to commercial
flight operations. In addition, the FAA requires that various maintenance
routines be performed on aircraft components. We currently satisfy or exceed
these maintenance standards in our repair and overhaul services. Several of our
operating divisions include FAA-approved repair stations.

Our aviation and metals operations are also subject to a variety of worker
and community safety laws. The Occupational Safety and Health Act of 1970
("OSHA") mandates general requirements for safe workplaces for all employees. In
addition, OSHA provides special procedures and measures for the handling of
certain hazardous and toxic substances. We believe that our operations are in
material compliance with OSHA's health and safety requirements.

COMPETITION

Competition among aerospace component manufacturers is based on product
quality, reliability and on-time delivery. Our primary main engine fuel pump
competitors are Hamilton Sundstrand, BF Goodrich Company and TRW. Hamilton
Sundstrand is our closest competitor in the main engine fuel pump market.

Competitors in our other product lines range in size from divisions of
large corporations to small privately held entities, with only one or two
components in their entire product line. Our primary airframe pump competitors
are BAE Systems, Crane-Hydroaire and Intertechnique, S.A.; our primary airframe
valve competitors are Parker-Hannifin Corporation, ITT Aerospace Controls and
Whittaker Controls; our primary ground fueling competitor is Whittaker; and our
primary aerial refueling competitor is Parker-Hannifin.

BACKLOG

We believe that unfilled orders are not necessarily an indicator of future
shipment levels of our products. As customers demand shorter lead times and
flexibility in delivery schedules, they have also revised their purchasing
practices. As a result, notification of firm orders may occur only within thirty
to sixty days of delivery. In addition, due to the government funding process,
backlog can vary on a period to period basis depending on the stage of
completion of the contracts represented by such backlog. Therefore, we believe
that the backlog of

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unfilled orders at fiscal year end cannot be relied upon as a valid indication
of our sales or profitability in a subsequent year.

EMPLOYEES

As of October 30, 1999, we had 790 full-time employees of which 478 are
salaried and 312 are hourly. Over 36% of the salaried employees have college
degrees, with over 10% holding advanced degrees. The 214 hourly employees
located at our Cleveland facility are represented by the UAW under a collective
bargaining agreement expiring on March 31, 2000 and have an average of over 18
years of experience in the industry.

ITEM 2. PROPERTIES.

We own and operate a 150-acre business park in Cleveland, Ohio, which
includes 1.8 million square feet of engineering, manufacturing and office space.
We occupy approximately 475,000 square feet for our main engine fuel pump
business and lease almost one million square feet of the facility to third
parties. We believe that this facility's machinery, plants and offices are in
satisfactory operating condition. We also believe that it has sufficient
capacity to meet our foreseeable future needs without significant additional
capital expenditures.

We also own a 9.2 acre facility in Costa Mesa, California, which
encompasses 165,000 covered square feet. We manufacture certain of our airframe
products and accessories, ground fueling and aerial refueling equipment at this
facility. We believe that our Costa Mesa facility has sufficient capacity to
permit further growth in those product lines without significant additional
capital expenditures.

Durodyne's leased facility in Tucson, Arizona encompasses 85,000 square
feet and includes available space for expansion. We manufacture specialty
industrial hose for aerospace, chemical transfer and marine applications at this
facility. We believe this facility has sufficient capital and capacity to permit
further growth in those product lines without significant additional capital
expenditures.

Our Inglewood, California leased facility occupies approximately 10,000
square feet and includes available space for expansion. Its primary purpose is
to repair and overhaul main engine fuel pumps owned by airline customers.
Inglewood's assets include test stands for testing fuel pumps after overhaul and
a small machine shop for simple rework of pump components.

ITEM 3. LEGAL PROCEEDINGS.

While we are not presently involved in any material legal proceedings,
during the ordinary course of business, we are, from time to time, threatened
with, or may become a party to, legal actions and other proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of our security holders.

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PART II

ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

We are a wholly owned subsidiary of AT Holdings Corporation. We have no
equity securities that trade.

ITEM 6. SELECTED FINANCIAL DATA.

SELECTED HISTORICAL FINANCIAL AND OTHER DATA OF ARGO-TECH CORPORATION

The following table sets forth selected historical financial and other data
of Argo-Tech for the fiscal years 1995 through 1999, which have been derived
from our audited consolidated financial statements for those years. Our fiscal
year ends on the last Saturday in October and is identified according to the
calendar year in which it ends. For example, the fiscal year ended October 30,
1999 is referred to as "fiscal 1999." The fiscal year ended October 30, 1999
consisted of 52 weeks, the fiscal year ended October 31, 1998 consisted of 53
weeks and the remaining fiscal years presented consisted of 52 weeks. The
information presented below should be read together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and related notes included elsewhere
herein.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 25, OCTOBER 26, OCTOBER 28,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.................. $176,540 $174,143 $117,086 $ 96,437 $ 86,671
-------- -------- -------- -------- --------
Gross profit.................. 79,758 66,940 46,132 38,555 32,449
Operating expenses............ 45,912 38,881 19,482 19,277 17,390
-------- -------- -------- -------- --------
Income from operations........ 33,846 28,059 26,650 19,278 15,059
Interest expense.............. 25,003 21,030 12,827 10,138 11,924
Other, net.................... (516) (268) (404) (112) (588)
Income tax provision.......... 4,021 3,400 4,841 3,608 1,553
Extraordinary loss(a)......... -- -- 1,529 -- --
-------- -------- -------- -------- --------
Net income.................... $ 5,338 $ 3,897 $ 7,857 $ 5,644 $ 2,170
======== ======== ======== ======== ========
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets.................. $294,745 $288,195 $300,960 $167,106 $167,057
Working capital............... 35,378 36,917 42,647 25,531 23,098
Long-term debt (including
current maturities)......... 276,987 227,386 248,862 107,607 118,607
Redeemable preferred stock.... -- -- -- 25,908 25,908
Redeemable common stock....... -- 6,713 4,813 4,067 3,311
Redeemable ESOP stock, net.... 43,212 32,235 18,906 11,974 5,767
Shareholder's
equity/(deficiency)(b)...... (78,955) (36,286) (27,941) (28,219) (25,617)
OTHER DATA:
Gross margin.................. 45.2% 38.4% 39.4% 40.0% 37.4%
Adjusted EBITDA(c)............ $ 52,284 $ 56,940 $ 38,591 $ 29,069 $ 23,901
Adjusted EBITDA margin(d)..... 29.6% 32.7% 33.0% 30.1% 27.6%
Net cash flows provided by
operating activities........ $ 15,298 $ 29,771 $ 17,597 $ 15,942 $ 17,846
Net cash flows used in
investing activities........ (8,637) (5,610) (110,252) (3,355) (2,918)
Net cash flows provided by
(used in) financing
activities.................. (14,366) (21,994) 88,460 (11,000) (19,730)
</TABLE>

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- ---------------

(a) The extraordinary loss, net of federal income tax benefits of $1,019,
relates to the write-off of unamortized debt issuance costs of a credit
facility that was refinanced on July 18, 1997.

(b) Includes a dividend of $50.0 million to AT Holdings. These funds came from
the issuance of $55.0 million in principal amount of 8 5/8% senior
subordinate notes, issued at a 5% discount, due 2007.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 25, OCTOBER 26, OCTOBER 28,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income from operations........... $ 33,846 $ 28,059 $ 26,650 $ 19,278 $ 15,059
Depreciation, goodwill and
intangible amortization........ 14,039 14,289 7,525 7,462 7,172
Compensation expense -- ESOP..... 4,322 3,911 2,920 2,329 1,670
Write-off of inventory
acquisition
step-up........................ 77 10,681 1,496 -- --
-------- -------- -------- -------- --------
Adjusted EBITDA.................. $ 52,284 $ 56,940 $ 38,591 $ 29,069 $ 23,901
======== ======== ======== ======== ========
</TABLE>

- ---------------

Our Adjusted EBITDA is not intended to represent cash flow from operations as
defined by generally accepted accounting principles and should not be
considered as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity. We have included
information concerning Adjusted EBITDA because we understand that it is used
by certain investors as one measure of a borrower's historical ability to
service its debt. Adjusted EBITDA, as presented, may not be comparable to
similarly titled measures reported by other companies, since not all
companies necessarily calculate Adjusted EBITDA in an identical manner, and
therefore is not necessarily an accurate means of comparison between
companies.

(d) Adjusted EBITDA margin is computed as Adjusted EBITDA as a percentage of net
revenues.

(e) Cash interest expense represents interest expense less amortization of
deferred financing fees of $1,934,000, $990,000, $887,000, $1,191,000, and
$1,405,000, in the fiscal years ended October 30, 1999, October 31, 1998,
October 25, 1997, October 26, 1996, and October 28, 1995, respectively.

(f) For purposes of determining the ratio of earnings available to cover fixed
charges, earnings consist of income before taxes and the extraordinary loss
plus fixed charges. Fixed charges consist of interest on indebtedness
including amortization of deferred financing fees and fixed loan guarantee
fees.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

In fiscal 1999, the aerospace business generated approximately 85% of our
net revenues. The balance of our net revenues were generated from sales of
ground fueling equipment, certain industrial products and revenues from the
operation of Heritage Business Park. Approximately 80% of the aerospace revenues
were derived from sales to commercial OEMs and commercial aftermarket customers,
while military revenues represented approximately 20% of our aerospace revenues.

In fiscal 1999, sales to commercial OEMs represented approximately 33% of
our commercial aerospace revenues. As is customary in the commercial aerospace
industry, we incur substantial costs, for which we are generally not reimbursed,
to design, test and qualify original equipment for OEMs. Once qualified, OEM
products generally are sold at or below cost of production in anticipation of
receiving orders for commercial spare parts and overhaul services at
significantly higher margins. Over the approximately 25 year life cycle of an
aircraft program, commercial spare parts and overhaul services for products we
manufacture often generate six or more times the aggregate net revenues of the
OEM program.

In contrast to the practice in the commercial aerospace industry, we are
generally reimbursed for the design, test and qualification costs of equipment
used on military aircraft. Military original equipment shipments generally are
sold at cost plus a reasonable profit. Due to lower aircraft utilization,
military aftermarket sales are less significant than commercial aftermarket
sales. Aftermarket margins for military products are at a level higher than
original equipment shipments.

GENERAL

The following should be read together with "Selected Historical Financial
and Other Data of Argo-Tech Corporation" and our Financial Statements and the
related notes included elsewhere in this report. Our fiscal year ends on the
last Saturday of October and is identified according to the calendar year in
which it ends. For example, the fiscal year ended October 30, 1999 is referred
to as "fiscal 1999." The fiscal year ended October 30, 1999 consisted of 52
weeks, the fiscal year ended October 31, 1998 consisted of 53 weeks and the
fiscal year ended October 25, 1997 consisted of 52 weeks.

Our historical financial results are affected by a variety of factors which
impact the aerospace industry, in general, or Argo-Tech, in particular.
Significant factors are:

- the cyclicality of the commercial aerospace industry,

- the funding of new aerospace product development programs,

- the formation of our Employee Stock Ownership Plan (the "ESOP") in
1994, and

- our ownership of Heritage Business Park.

During the period 1993 to 1995, the aerospace industry experienced a
significant downturn in its business cycle. In fiscal 2000, we anticipate
another, but less significant, downturn in the commercial aerospace business
cycle. We believe the decrease in our aerospace revenue will be offset by an
increase in ground fueling equipment and industrial product revenues. This
change in the sales mix will result in lower gross profit primarily due to
unabsorbed fixed factory cost in the Cleveland facility. In addition, we
anticipate a continued reduction in the reimbursement of development programs
and higher research and development costs partially offset by a decrease in
selling, general and administrative expenses. This will reduce EBITDA and
operating income for fiscal 2000.

DEVELOPMENT EXPENSE TRENDS

In connection with new aerospace product development programs, we incur
significant research and development expenditures to design, test and qualify
main engine fuel pumps and accessories for engine and airframe OEMs. Prior to
1990, these engine and airframe OEMs reimbursed us for a majority of these
research and development expenditures. Since 1990, commercial OEMs have
significantly reduced, and in many cases eliminated, the reimbursement of these
development programs. This has resulted in an increase in the level of

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<PAGE> 11

research and development expenditures we fund. Research and development
expenditures are expensed as incurred, and such expenses are expected to
continue at historical levels.

ESOP

We established our ESOP in 1994 by purchasing 420,000 shares of common
stock of our parent company, AT Holdings Corporation, with the proceeds of a
$16.8 million ten-year loan funded through a credit facility which was
refinanced on July 18, 1997. The ESOP, which includes approximately 300 of our
salaried employees, represents an ownership interest in AT Holdings of
approximately 57%. GAAP requires that non-cash ESOP compensation expense and a
corresponding increase in stockholders' equity be recorded annually as shares
held by the ESOP are allocated to participants and the loan made to the ESOP is
repaid. GAAP also requires that this non-cash ESOP compensation expense be added
back to net income in the determination of cash flow from operations. The
aggregate amount of such non-cash ESOP compensation expense was $4.3 million,
$3.9 million and $2.9 million for the fiscal years ended 1999, 1998 and 1997,
respectively. We believe that our ESOP has been successful in motivating and
compensating our salaried employees on a cost-efficient basis.

BUSINESS PARK

We own and operate Heritage Business Park, a 150 acre, 1.8 million square
foot business park in Cleveland, Ohio. In 1990, we underwent a corporate
restructuring and disposed of substantially all of our operations except for our
aircraft accessories business and Heritage Business Park. We entered into
certain lease and service agreements with the operations located in Heritage
Business Park that were disposed of in the restructuring. These service
agreements covered support functions, including computerized information
services, equipment maintenance, and certain office administrative services. The
service agreements ensured that these businesses would have the necessary
support functions to operate during a four to seven year transition period until
they became self sufficient. The planned elimination of services to these
tenants has resulted in a continual reduction of service-related revenues during
the transition period. In addition to providing space and services to operations
formerly owned by us, we also lease space in Heritage Business Park to other
manufacturers. We are working to increase our rental and other income from the
business park.

ACQUISITIONS

On September 26, 1997 we acquired all of the outstanding shares of Carter,
a manufacturer of aircraft fluid control component parts, industrial marine
cryogenic pumps, and ground fueling components for $107.6 million, including
acquisition costs. The acquisition was funded by the issuance of $140 million in
principal amount of our 8 5/8% senior subordinated notes. The results of
Carter's operations have been combined with our results of operations since the
date of the acquisition. The purchase price of $107.6 million exceeded the net
assets of Carter at the date of acquisition by $99.7 million. Of that excess,
$60.6 million was assigned to identified intangible assets and the remainder of
$39.1 million was considered goodwill that is being amortized on a straight-line
basis over 40 years. The acquisition was accounted for using the purchase method
of accounting and accordingly, an allocation of the purchase price has been made
using estimated fair market values of the assets acquired and liabilities
assumed as of the acquisition date.

On August 19, 1999, Carter purchased all of the outstanding stock of
Durodyne, Inc., a manufacturer of specialty industrial hose for aerospace,
chemical transfer and marine applications for $3.4 million, including
acquisition costs. The acquisition was funded with $2.3 million of cash and a
note payable for $1.1 million. Durodyne is a subsidiary of Carter. The
acquisition was accounted for using the purchase method of accounting and
accordingly, an allocation of the purchase price has been made using estimated
fair market values of the assets acquired and liabilities assumed as of the
acquisition date. The results of its operations have been included since the
date of acquisition. The purchase price of $3.4 million exceeded the net assets
of Durodyne at the date of acquisition by $1.6 million. This amount was
considered goodwill that is being amortized on a straight-line basis over 40
years.

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<PAGE> 12

EXPORT SALES

Substantially all of our export sales are all denominated in U.S. dollars.
Export sales for fiscal years 1999, 1998 and 1997 were $80.7 million, $82.2
million and $59.5 million, respectively. Sales to Europe were $30.5 million,
$29.8 million and $18.8 million. Export sales to all other regions, individually
less than 10%, were $50.2 million, $52.4 million and $40.7 million for fiscal
years 1999, 1998 and 1997, respectively.

YEAR 2000

Argo-Tech did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, Argo-Tech does not expect any significant
impact to its on-going business as a result of the "Year 2000 issue." However,
it is possible that the full impact of the date change, which was of concern due
to computer programs that use two digits instead of four digits to define years,
has not been fully recognized. For example, it is possible that Year 2000 or
similar issues such as leap year-related problems may occur with billing,
payroll, or financial closings at month, quarter or year-end periods. Argo-Tech
believes that any such problems are likely to be minor and correctable. In
addition, Argo-Tech could still be negatively impacted if its customers or
suppliers are adversely affected by the Year 2000 or similar issues. Argo-Tech
currently is not aware of any significant Year 2000 or similar problems that
have arisen for its customers and suppliers.

Argo-Tech expended $1.5 million on Year 2000 readiness efforts from 1997 to
1999. These efforts included replacing some outdated, noncompliant hardware and
noncompliant software as well as identifying and remediating Year 2000 problems.

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, selected items in
our consolidated statements of income as a percentage of net revenues.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------
OCTOBER 30, 1999 OCTOBER 31, 1998 OCTOBER 25, 1997(a)
---------------- ---------------- -------------------
<S> <C> <C> <C>
Net revenues.................. 100.0% 100.0% 100.0%
Gross profit.................. 45.2% 38.4% 39.4%
Operating expenses............ 26.0% 22.3% 16.6%
Income from operations........ 19.2% 16.1% 22.8%
Interest expense.............. 14.2% 12.1% 11.0%
Other, net.................... (0.3)% (0.2)% (0.3)%
Income before income taxes.... 5.3% 4.2% 12.1%
Income tax provision.......... 2.3% 2.0% 4.1%
Income before extraordinary
items....................... 3.0% 2.2% 8.0%
Extraordinary loss............ -- -- 1.3%
Net income.................... 3.0% 2.2% 6.7%
</TABLE>

- ---------------

(a) Includes the results of Carter from September 26, 1997, the date of
acquisition, to October 25, 1997.

FISCAL 1999 COMPARED WITH FISCAL 1998

Net revenues for fiscal 1999 increased $2.4 million, or 1.4%, to $176.5
million from $174.1 million for fiscal 1998. This change was primarily due to a
decrease in aerospace revenues of $3.2 million offset by a $5.6 million increase
in industrial and other revenues. The decrease in aerospace revenues was
attributable to a decrease of $3.5 million in commercial revenue and an increase
of $0.3 million in military revenues. Commercial OEM revenues decreased $2.7
million, or 6.4%, to $39.5 million and commercial aftermarket revenues decreased
$0.8 million, or 1.0%, to $79.8 million. The decrease in commercial aerospace
revenues can be attributable to one

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<PAGE> 13

less week being reported in the period ended October 30, 1999 as compared to the
period ended October 31, 1998 and a slight weakening in demand for aerospace
products as we enter the downturn in the business cycle. Military revenues
increased $0.3 million, or 1.0%, to $30.1 million primarily due to the initial
production of the F-18E/F 480 gallon fuel tank program offset by decreased F-15
foreign military sales. Industrial revenues included increased ground fueling
revenues of $4.7 million, or 47.0%, to $14.7 million, increased industrial
marine revenues of $0.6 million, or 10.0%, to $6.6 million and increased rental
revenues at Heritage Business Park of $0.3 million, or 6.4%, to $5.0 million.
Materials Lab service revenues of $0.8 million remained unchanged from the prior
fiscal year. Approximately 45.7% of fiscal 1999 net revenues were attributable
to export sales to foreign customers compared to 47.2% in fiscal 1998.
Substantially all such sales were denominated in U.S. dollars.

Gross profit for fiscal 1999 increased $12.8 million, or 19.1%, to $79.7
million from $66.9 million for fiscal 1998. Gross margin increased to 45.2% for
fiscal 1999 from 38.4% in fiscal 1998. The increase in gross profit and gross
margin is due to the non-recurrence of $10.7 million of amortization related to
the step-up of Carter inventory to fair market value that occurred in fiscal
1998 and improved operating performance in the Cleveland facility partially
offset by an unfavorable Carter sales mix. Excluding the $10.7 million charge
for amortization related to the step-up of Carter inventory to fair market
value, gross margin for fiscal 1998 would have been 44.6%.

Operating expenses for fiscal 1999 increased $7.0 million, or 18.0% to
$45.9 million from $38.9 million in fiscal 1998. This increase is primarily
attributable to non-cash compensation expense of $2.8 million associated with
the vesting of stock options and stock appreciation rights in connection with
the repurchase of common stock from AT Holdings' largest shareholder on January
4, 1999, a $2.4 million increase in research and development expense, the $0.8
million settlement agreement and mutual release resulting from the international
arbitration award granted in favor of Alsthom, a French shipbuilding concern,
against Carter, and a $1.0 million increase in general corporate expenses
associated with severance and non-compete agreements. Operating expenses as a
percent of revenues increased to 26.0% for fiscal 1999 from 22.3% in fiscal
1998. Excluding the $2.8 million non-recurring non-cash compensation expense,
operating expenses as a percent of sales were 24.4% for fiscal 1999.

Income from operations for fiscal 1999 increased $5.7 million, or 20.3%, to
$33.8 million from $28.1 million for fiscal 1998 and increased as a percentage
of net revenue to 19.2% in fiscal 1999 from 16.1% in fiscal 1998. These
increases were primarily due to the non-recurrence of $10.7 million of
amortization related to the step-up of inventory in 1998 and improved operating
performance at the Cleveland facility offset by non-cash compensation expense
related to the vesting of the stock options and stock appreciation rights in
connection with the stock repurchase and increased corporate and research and
development expenses.

Interest expense for fiscal 1999 increased $4.0 million, or 19.0%, to $25.0
million from $21.0 million for fiscal 1998 primarily due to the issuance of
$55.0 million of senior subordinated notes in connection with the stock
repurchase on January 4, 1999, partially offset by a lower level of term loans.

The income tax provision for fiscal 1999 increased $0.6 million, or 17.6%,
to $4.0 million from $3.4 million in fiscal 1998. This increase is due to
pre-tax income of $9.3 million for fiscal 1999 as compared to $7.3 million for
fiscal 1998 and the effect of the non-deductible compensation expense associated
with the Employee Stock Ownership Plan and the vesting of stock options and
stock appreciation rights. The effective tax rate for fiscal 1999 was 43.0%
compared to 46.6% for fiscal 1998. This decrease is due to the effect of the
non-deductible amortization of intangible assets in proportion to higher pre-tax
income in fiscal 1999 as compared to fiscal 1998.

Net income for fiscal 1999 increased $1.4 million, or 35.9%, to $5.3
million from $3.9 million for fiscal 1998 primarily due to the revenue and
expense factors discussed above. Excluding the $10.7 million charge for
amortization related to the step-up of inventory to fair value in connection
with the acquisition of Carter, net income in fiscal 1998 would have been $10.3
million.

FISCAL 1998 COMPARED WITH FISCAL 1997

Net revenues for fiscal 1998 increased $57.0 million, or 48.7%, to $174.1
million from $117.1 million for fiscal 1997. This increase is due to an increase
of $42.3 million for aerospace products, including an increase of

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<PAGE> 14

$30.7 million of Carter aerospace products for a full year, and an increase of
$9.2 million and $5.6 million related to Carter ground fueling and industrial
marine products, respectively, for a full year, offset by a $0.1 million
reduction in Heritage Business Park revenues. Commercial aftermarket revenues
increased 16.3%, or $11.3 million, to $80.6 million and commercial OEM revenues
increased 40.7%, or $12.2 million, to $42.2 million. These increases are due to
the inclusion of a full year of Carter revenue of $6.7 million for commercial
aftermarket and $6.4 million for commercial OEM, and the continued increase in
both airline traffic and airline capital spending. Total military revenues
increased $18.8 million to $29.8 million primarily due to the addition of $17.6
million of Carter military sales for a full year. The decline in Heritage
Business Park revenues from the prior fiscal year was due to a reduction of $0.2
million in maintenance and other services offered to tenants offset by an
increase of $0.1 million due to a net increase in square footage rental.
Approximately 47.2% of fiscal 1998 net revenues were attributable to export
sales to foreign customers compared to 50.8% in fiscal 1997. Substantially all
such sales were denominated in U.S. dollars.

Gross profit for fiscal 1998 increased $20.8 million, or 45.1%, to $66.9
million from $46.1 million for fiscal 1997. Gross margin decreased to 38.4% for
fiscal 1998 from 39.4% in fiscal 1997 due to amortization related to the step-up
of Carter inventory to fair market value, partially offset by favorable Carter
sales mix and improved operating performance in our Cleveland facility.
Excluding the $10.7 million and $1.5 million charge for fiscal years 1998 and
1997, respectively, for amortization related to the step-up of Carter inventory
to fair market value, gross margin would have been 44.6% and 40.6%,
respectively.

Operating expenses for fiscal 1998 increased $19.4 million, or 99.5% to
$38.9 million from $19.5 million in fiscal 1997. The increase was primarily
attributable to the inclusion of a full year of Carter operating expenses and
amortization of intangible assets, $1.5 million for acquisition, initial public
offering and other corporate expenses and $0.4 million for the implementation of
a stock appreciation rights plan. Operating expenses as a percent of revenues
increased to 22.3% for fiscal 1998 from 16.6% in fiscal 1997. Excluding the $5.1
million of Carter amortization of intangible assets, operating expenses as a
percent of revenues would have been 19.4%.

Income from operations for fiscal 1998 increased $1.4 million, or 5.2%, to
$28.1 million from $26.7 million for fiscal 1997 and decreased as a percentage
of net revenue to 16.1% in fiscal 1998 from 22.8% in fiscal 1997. The increase
in income from operations was due to increased Argo-Tech aerospace sales and
improved operating efficiency in our Cleveland facility and the inclusion of a
full year of Carter operating results offset by the amortization related to the
step-up of Carter inventory to fair market value and amortization of Carter
intangible assets. Excluding the $10.7 million and $1.5 million charge for
fiscal years 1998 and 1997, respectively, for amortization related to the
step-up of Carter inventory to fair market value, income from operations would
have been 22.3% and 24.1%, respectively.

Interest expense for fiscal 1998 increased $8.2 million, or 64.1%, to $21.0
million from $12.8 million for fiscal 1997 primarily due to the issuance of our
8 5/8% senior subordinated notes in connection with the acquisition of Carter in
September, 1997 and the repurchase of all of our outstanding preferred stock in
March, 1997.

The income tax provision for fiscal 1998 decreased $1.4 million, or 29.2%,
to $3.4 million from $4.8 million in fiscal 1997 due primarily to a decrease of
$6.9 million in pre-tax income, to $7.3 million for fiscal 1998 from $14.2
million for fiscal 1997. The effective tax rate for fiscal 1998 was 46.6%
compared to 34.0% for fiscal 1997. This increase is due to the effect of the
non-deductible amortization of intangible assets in proportion to lower pre-tax
income in fiscal 1998 as compared to fiscal 1997 offset by a reduction in
taxable income subject to state and local taxes.

Income before extraordinary loss decreased $5.5 million, or 58.5%, to $3.9
million in fiscal 1998 from $9.4 million in fiscal 1997 primarily due to the
amortization related to the step-up of Carter inventory to fair market value and
other revenue and expense factors discussed above. Excluding the $10.7 million
charge for amortization related to the step-up of Carter inventory to fair
market value in connection with the acquisition, income before extraordinary
loss would have been $10.3 million.

Net income for fiscal 1998 decreased $3.9 million, or 50.0%, to $3.9
million from $7.8 million for fiscal 1997 primarily due to the amortization
related to the step-up of Carter inventory to fair market value and the other
revenue and expense factors discussed above partially offset by the non
recurrence of a $1.5 million after tax

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<PAGE> 15

extraordinary loss related to the early extinguishment of debt under our
previous bank credit agreement. Excluding the $10.7 million charge for
amortization related to the step-up of inventory to fair market value in
connection with the acquisition, net income would have been $10.3 million.

LIQUIDITY AND CAPITAL RESOURCES

We are a holding company and receive all of our operating income from our
subsidiaries. As a result, our primary source of liquidity for conducting
business activities and servicing our indebtedness has been cash flows from our
subsidiaries' operating activities.

In March 1997, we repurchased all of the preferred stock reflected on our
financial statements, totaling $25.9 million, along with accrued dividends of
$19.3 million, in exchange for $41.1 million of subordinated notes and cash of
$4.1 million. Interest on those subordinated notes was payable quarterly at
11.25% and they were to have matured on December 31, 2007. We also had $5.0
million of notes payable, which were to mature on December 31, 2007. These notes
payable paid interest quarterly at the prime rate and were subordinate to our
senior debt. The subordinated notes and the notes payable, together with the
accrued interest of approximately $0.6 million, were repaid with the proceeds of
our September 1997 offering of $140.0 million principal amount of 8 5/8% senior
subordinated notes due 2007.

In July 1997, we refinanced our credit facility. The refinanced credit
facility consists of a seven-year $100.0 million term loan, a seven-year $20.0
million revolving credit facility and a seven-year $15.0 million delayed draw
acquisition loan. In connection with this July refinancing, we recorded an
extraordinary charge before tax of $2.5 million, consisting primarily of the
write-off of unamortized financing costs.

In September 1997, we amended our refinanced credit facility to allow for
the acquisition of Carter and the issuance of $140.0 million of 8 5/8% senior
subordinated notes. The amended credit facility consists of a seven-year $110.0
million term loan and a seven-year $20.0 million revolving credit facility. As
of October 30, 1999, we have $81.4 million principal amount of term loans
outstanding under this amended credit facility. We also have available, after
$1.0 million of letters of credit, $17.0 million of the seven-year $20.0 million
revolving credit facility. The unused balance of the revolving credit facility
is subject to a .375% commitment fee. Our credit facility contains a number of
covenants that, among other things, limit our ability to incur additional
indebtedness, pay dividends, prepay subordinate indebtedness, dispose of certain
assets, create liens, make capital expenditures, make certain investments or
acquisitions and otherwise restrict corporate activities. It also requires us to
comply with certain financial ratios and tests, under which we will be required
to achieve certain financial and operating results. We were in compliance with
all financial ratios and tests at October 30, 1999. The credit facility contains
no restrictions on the ability of our subsidiaries to make distributions to us.
Interest is calculated, at our choice, using an Alternate Base Rate ("ABR") or
LIBOR, plus a supplemental percentage determined by the ratio of total debt to
EBITDA. The interest rate for fiscal year 1999 ranged from 0.25% to 1.00% plus
ABR or 1.25% to 2.00% plus LIBOR.

Proceeds from the September 1997 offering of senior subordinated notes,
together with a portion of the borrowings under our credit facility were used to
finance the acquisition of Carter, repay in full $46.1 million in notes payable
and subordinated notes, and to pay related fees and expenses. The senior
subordinated notes bear interest at a rate of 8 5/8% per year, payable on each
April 1 and October 1. Interest payments commenced on April 1, 1998. These notes
have been jointly, severally, fully and unconditionally guaranteed by all of our
wholly owned subsidiaries, with the exception of two inconsequential direct, and
two inconsequential indirect, wholly owned subsidiaries. The indenture under
which these senior subordinated notes were issued contains certain optional and
mandatory redemption features and other customary financial covenants and
restrictions.

On December 17, 1998, the Company issued $55.0 million in principal amount
of 8- 5/8% senior subordinated notes, issued at a 5% discount, due 2007, $50.0
million of which was dividended to AT Holdings. The proceeds from the offering,
along with the proceeds of the issuance by AT Holdings of 30,000 shares of its
preferred stock to Chase Venture Capital Associates, L.P. and cash on hand, were
used to repurchase 639,510 shares of stock from AT Holdings, LLC, the Company's
largest shareholder, for $79.4 million plus transaction expenses. At October 30,
1999 the accreted value of this offering was $52.4 million.

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<PAGE> 16

We entered into three interest rate swap agreements with a financial
institution which fixed the interest rate on the notional amounts of $20.0
million at 5.80% and $20.0 million at 5.715% through October 1997, and $30.0
million at 6.66% through October 2000. The amounts of the swap agreements for
fiscal years 1999, 1998 and 1997 were $30.0 million. When we refinanced our
credit facility in July 1997, we also unwound $40.0 million of the swap
agreements which were to terminate in October 1997. The remaining $30.0 million
swap was transferred to another financial institution in notional amounts of
$10.0 million which fixed the rates at 6.775%, 6.775%, and 6.805% through
October 2000. On October 1, 1998 we terminated a $10.0 million swap that had a
fixed rate of 6.775% and was to terminate on October 27, 2000. We replaced this
swap with a $10.0 million swap that has a fixed rate of 6.08% and will terminate
on October 31, 2003. On December 17, 1998 we terminated a $10.0 million swap
that had a fixed rate of 6.775% and was to terminate on October 27, 2000 and
replaced it with a $10.0 million swap that has a fixed rate of 6.10% and will
now terminate on December 31, 2003. The gains/losses were recognized as interest
expense and amounted to a $0.4 million loss in fiscal year 1999 and 1998,
respectively, and a $0.3 million loss in fiscal year 1997. We have no other
derivative financial instruments.

Cash Flows from Operating Activities. Cash provided by operating activities
for fiscal 1999 decreased $14.5 million to $15.3 million primarily as a result
of an increase in accounts receivable and inventory and a decrease in accounts
payable and accrued liabilities. Cash provided by operating activities for
fiscal 1998 increased $12.2 million to $29.8 million primarily as a result of
improved operating results which included a full year of Carter, a decrease in
accounts receivable and an increase in accounts payable and accrued and other
liabilities offset by an increase in inventory, net of the amortization of
inventory step-up to fair value. Cash provided by operating activities for
fiscal 1997 increased $1.7 million to $17.6 million primarily as a result of
improved operating results offset by an increase in receivables and a decrease
in accounts payable.

Cash Flows from Investing Activities. Net cash used in investing activities
for fiscal 1999 was $8.6 million which included the acquisition of Durodyne, net
of cash acquired, of $2.6 million and the purchase of property, plant and
equipment of $6.0 million. Net cash used in investing activities for fiscal 1998
was $5.6 million for the purchase of property, plant and equipment. Net cash
used in investing activities for fiscal year 1997 was $110.3 million which
included the acquisition of Carter for $107.6 million, and capital expenditures
of $2.7 million. Expenditures for property, plant and equipment were $6.0
million, $5.6 million, and $2.7 million for fiscal years 1999, 1998, and 1997,
respectively. These expenditures reflect a normal amount of capital investments
necessary to maintain our efficiency and manufacturing capabilities.

Cash Flows from Financing Activities. Cash used in financing activities for
fiscal 1999 was $14.4 million which was primarily due to the payment of fees
associated with the repurchase of common stock from AT Holdings' largest
shareholder and scheduled repayments, as well as voluntary payments, of
long-term debt, offset by a borrowing on the revolving credit facility. Cash
used in financing activities for fiscal 1998 was $21.9 million which was
primarily used to make scheduled repayments as well as voluntary and mandatory
pre-payments of long-term debt. Cash provided by financing for fiscal 1997 was
$88.5 million, consisting of net borrowings of $141.0 million offset by the
redemption of preferred stock and payment of accrued interest totaling $45.2
million and payment of $7.3 million in deferred financing fees related to our
credit facility and the offering of the 1997 senior subordinated notes.

Capital Expenditures. Our capital expenditures for fiscal 1999 totalled
$6.0 million, which included over 200 projects. Most of these projects related
to maintaining existing facilities and equipment and systems to support current
operating activities. For fiscal 2000, we estimate that capital expenditures
will total $5.0 million. These expenditures will support approximately 200
projects. The majority of these projects will be for continued maintenance of
facilities and equipment in support of our current operating activities. Capital
expenditures are financed with cash generated from operations. We currently have
no material commitments for capital expenditures.

We believe that cash flow from operations will provide adequate funds for
our working capital needs, planned capital expenditures and debt service
obligations. Our ability to fund our operations, make planned capital
expenditures, and to make scheduled payments on our indebtedness depends on our
future operating

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<PAGE> 17

performance and cash flow. These items are subject to prevailing conditions and
to financial, business, and other factors, some of which are beyond our control.

ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133," was issued in June 1999. This statement delays the effective
date of SFAS No. 133 until the fiscal quarters of fiscal years beginning after
June 15, 2000. We have not yet completed our evaluation of SFAS No. 133, but we
do not anticipate a material impact on our consolidated financial statements
from the adoption of this accounting standard.

RISK FACTORS

From time to time, information we provide, statements by our employees or
information included in our filings with the Securities and Exchange Commission
(including those portions of the Management's Discussion and Analysis that refer
to the future) may contain forward-looking statements that are not historical
facts. Those statements are "forward-looking" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements, and
our future performance, operating results, financial position and liquidity, are
subject to a variety of factors that could materially affect results, including:

THE AEROSPACE INDUSTRY IS A HIGHLY REGULATED, HIGHLY COMPETITIVE INDUSTRY.

The following risk factors describe the risks associated with the aerospace
industry generally:

- The aerospace industry is cyclical

Substantially all of our gross profit and operating income is derived from
sales of products to the aerospace industry. The commercial OEM segment of the
aerospace industry has historically been subject to fluctuations due to general
economic conditions. A reduction in airline travel will generally result in
reduced orders for new commercial aircraft, reduced utilization of commercial
aircraft and a corresponding decrease in our sales of new components, related
income and cash flow. The commercial airline industry was adversely affected by
a severe downturn during the three year period ended December 31, 1993. This
downturn resulted in record losses for the commercial airline industry and a
decrease in production of commercial engine and airframe assemblies, which
caused a corresponding decline in the aerospace industry from 1993 to 1995.
Accordingly, our commercial OEM business experienced a similar decline. In
addition, our aftermarket sales were negatively affected as airlines delayed
purchases of spare parts, preferring to use existing spare parts inventory. We
believe that airlines currently maintain little or no spare parts inventory,
which should cause future aftermarket sales to remain relatively stable even in
an OEM downturn. However, we cannot be assured that airlines will not increase
their spare parts inventory in the future. Any such increase in inventories,
combined with an economic downturn, could have a material adverse effect on our
business and profitability. We anticipate that the aerospace industry will enter
another downturn in its business cycle in fiscal 2000.

- The aerospace industry is subject to government regulation and oversight

The aerospace industry is highly regulated in the United States and in
other countries. We must be certified or accepted by the Federal Aviation
Administration, the U.S. Department of Defense and similar agencies in foreign
countries and by individual OEMs in order to sell and service parts and
components used in specific aircraft models. If material certifications,
authorizations or approvals were revoked or suspended, our operations would be
adversely affected. In the future, new and more demanding government regulations
may be adopted or industry oversight may be increased, which may have an adverse
effect on our profitability.

16
<PAGE> 18

- The aerospace industry is highly competitive

The aerospace industry is a highly competitive global industry which has
experienced significant consolidation in recent years. Our competitors include
several companies that have significantly greater financial resources than we
do.

- There are a limited number of customers for certain products

Due to the relatively small number of customers in the aerospace industry,
customers are often able to influence prices and other terms of sale for certain
of our products. This influence can have a material adverse effect on our
profitability, as would the loss of one or more these significant customers.

- Government Contracts are subject to reductions in defense spending

Approximately 20.0% of our sales in fiscal 1999 were related to products
used in U.S. designed military aircraft. In general, the U.S. defense budget has
been declining in recent years, which has resulted in reduced demand for new
aircraft and spare parts. In addition, foreign military sales are affected by
U.S. government regulations, regulations by the purchasing foreign government
and political uncertainties in the U.S. and abroad. There can be no assurance
that the U.S. defense budget will not continue to decline or that sales of
defense related items to foreign governments will continue at present levels. In
addition, the terms of defense contracts with the U.S. government generally
permit the government to terminate contracts, with or without cause, at any
time. Any unexpected termination of a significant government contract could have
an adverse effect on our business and profitability.

RISKS ASSOCIATED WITH OUR OPERATIONS.

- We depend on the skill and experience of our senior executives

Our success depends upon the efforts, abilities, experience and expertise
of our executive officers, including the Chairman, Chief Executive Officer,
Michael S. Lipscomb, as well as the other members of our senior management team.
The loss of services of those individuals and or other key employees could have
a material adverse effect on our company.

- Our operations depend on maintaining a skilled workforce

Our operations are highly dependent on an educated and trained workforce.
All of our hourly employees at the Cleveland facility are represented by the
United Auto Workers union. Because we maintain a relatively small inventory of
finished goods, and because the aerospace industry operates on relatively long
production lead times, any interruption of the work force due to strikes, work
stoppages, shortages of appropriately skilled production and professional
workers or other interruption could have a material adverse effect on our
business and results of operations.

- We depend on suppliers for essential materials used in our products

Our profitability is affected by the price and continuity of supply of raw
materials and component parts. Like all other aerospace fuel pump manufacturers,
we rely on one supplier for CPM-10V, a powdered metal used in the manufacture of
certain pump components. If that supply ceased to exist, our ability to operate
would be adversely affected. We could also be adversely affected by factors
affecting our suppliers, or by increased costs associated with supplied
materials or components if we are unable to make corresponding increases in the
prices of our products. We maintain a relatively small inventory of raw
materials and component parts and could be adversely affected by a reduction of
supply from vendors. Although we believe that alternative suppliers, or
alternate materials or components, could be identified, the lengthy and
expensive FAA and OEM certification process associated with aerospace products
could prevent efficient replacement of a material or supplier and could have a
material adverse effect on our business and profitability.

- We depend on our Cleveland facility

We believe that our success to date has been, and future results of
operations will be, dependent in large part upon our ability to manufacture and
deliver products promptly upon receipt of orders and to provide prompt and

17
<PAGE> 19

efficient service to our customers. As a result, any disruption of our
day-to-day operations could have a material adverse effect on our business,
customer relations and profitability. The Cleveland facility is the primary
production, research and marketing facility for Argo-Tech products and also
serves as our corporate headquarters. A fire, flood, earthquake or other
disaster or condition affecting this facility could disable these functions
which are critical to our business. Any such damage to, or other condition
interfering with the operation of, this facility would have a material adverse
effect on our business, financial position and results of operations.

- We have potential exposure to environmental liabilities

Our business operations and facilities are subject to a number of federal,
state and local laws and regulations, which govern the discharge of pollutants
and hazardous substances into the air and water as well as the handling, storage
and disposal of such materials. Under certain environmental laws, as a current
or previous owner or operator of real property, we could be held liable for the
costs of removal or remediation of hazardous substances found on the property.
Environmental laws typically impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous
substances.

Our Cleveland and Costa Mesa, California facilities are currently the
subject of environmental remediation regarding contamination resulting from the
operations of our predecessors. Those predecessors have indemnified us for
substantially all costs of remediation at each site. There can be no assurance,
however, that those parties will continue to satisfy their indemnification
obligations or that we would not be ultimately responsible as owner and/or
operator of either or both of these sites for potentially significant
remediation costs. Moreover, there can be no assurance that future changes in
environmental laws or the nature of our operations will not require us to make
significant additional expenditures to ensure future environmental compliance.

- Potential risk of product liability claims

On July 9, 1999, Argo-Tech entered into a settlement agreement and mutual
release for the purpose of settlement of a disputed claim made against Carter by
Alsthom, a French shipbuilding concern. Alsthom had filed a petition in Santa
Ana, California to enforce an international arbitration award rendered in Paris,
France, in favor of Alsthom and against an entity identified as J.C. Carter
Company. Argo-Tech's portion of the $11.3 million settlement was $0.8 million.

While we have never been a defendant in a product liability case involving
our aerospace or ground fueling products, our operations expose us to potential
liabilities for personal injury or death as a result of the failure of an
aircraft component that has been designed, manufactured or serviced by us, or
the irregularity of metal products we have processed or distributed. We believe
that our liability insurance is adequate to protect us from future product
liability claims. However, we cannot assure you that if claims were to arise,
our insurance coverage will be adequate.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

In the ordinary course of operations, Argo-Tech's major market risk
exposure is to changing interest rates. Argo-Tech's exposure to changes in
interest rates relates primarily to its long term debt obligations. At October
30, 1999, Argo-Tech has fixed rate debt totaling $195 million, including $2.75
million of accretion, at 8.625% and variable rate debt under its existing credit
facility of $83.4 million calculated at Argo-Tech's choice using an alternate
base rate (ABR) or LIBOR, plus a supplemental percentage determined by the ratio
of debt to EBITDA. The variable rate is not to exceed ABR plus 1.00% or LIBOR
plus 2.00%. In order to reduce variable interest rate exposure on borrowings
under its existing credit facility, Argo-Tech has three interest rate swap
agreements on a portion of the variable rate debt which fix the rate on the
notional amounts of $10.0 million at 6.08%, 6.10% and 6.805%, respectively.
Argo-Tech does not enter into derivative contracts for trading or speculative
purposes. A 10% fluctuation in interest rates would not materially affect
Argo-Tech's financial condition, results of operations or cash flows.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The response to this item is submitted in a separate section of this report
following the signature page.

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<PAGE> 20

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

There were no changes in, or disagreements with, accountants on accounting
and financial disclosure.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF ARGO-TECH.

Directors and Executive Officers. The following table sets forth certain
information concerning our directors and executive officers. Directors serve
until their successors are elected at each annual meeting. Officers hold office
until their successors are elected and qualified.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael S. Lipscomb................... 53 Chairman, President & CEO, Director
Paul R. Keen.......................... 50 Vice President, General Counsel &
Secretary, Director
Frances S. St. Clair.................. 44 Vice President and CFO, Director
</TABLE>

MICHAEL S. LIPSCOMB has been Chairman, President & Chief Executive Officer
since 1994. Mr. Lipscomb joined TRW's corporate staff in February 1981 and was
made Director of Operations for the Power Accessories Division in 1985. Mr.
Lipscomb was named Vice President of Operations when Argo-Tech was formed in
1986, becoming President in 1990 and Chairman in 1994. Mr. Lipscomb has also
served as a director of Argo-Tech and AT Holdings Corporation since 1990.

PAUL R. KEEN has been Vice President, General Counsel and Secretary since
1990. Mr. Keen was named Vice President and General Counsel in 1987, and became
Secretary in December 1990. Prior to 1987, he spent the majority of his career
with TRW as Senior Counsel, Securities and Finance and as primary legal counsel
to two operating groups. Mr. Keen joined the Board of Directors of Argo-Tech in
April 1999.

FRANCES S. ST. CLAIR has been Vice President and Chief Financial Officer
since 1992. Ms. St. Clair joined the Company in 1991 as Controller and was
promoted to Vice President and Controller in November 1991. Ms. St. Clair
received her C.P.A. certification in 1984. Ms. St. Clair joined the Board of
Directors of Argo-Tech in April 1999.

ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth, for the fiscal years 1999, 1998, and 1997,
certain information about the compensation paid to the Chief Executive Officer
and each of our other three most highly compensated executive officers (the
"Named Executives"). David L. Chrencik resigned his position as Vice-President,
Operations of Argo-Tech in December 1999.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION(1)(2)
--------------------------- ----------- -------- -------- ------------------
<S> <C> <C> <C> <C>
Michael S. Lipscomb...................... 1999 $339,200 $205,544 $47,623
Chairman, President and CEO 1998 $300,000 $220,080 $43,488
1997 $300,000 $168,228 $44,481
David L. Chrencik........................ 1999 $164,675 $ 86,170 $ 5,700
Vice President, Operations 1998 $153,000 $ 70,329 $ 5,434
1997 $140,856 $ 57,348 $ 4,959
Paul R. Keen............................. 1999 $189,045 $ 88,387 $ 6,235
Vice President, General Counsel 1998 $167,496 $ 76,040 $ 6,746
and Secretary 1997 $155,352 $ 66,691 $ 6,242
Frances S. St. Clair..................... 1999 $168,648 $ 86,170 $ 4,278
Vice President and CFO 1998 $153,000 $ 70,329 $ 4,115
1997 $140,856 $ 57,348 $ 3,784
</TABLE>

- ---------------

(1) Other annual compensation did not exceed the lesser of $50,000 or 10% of
salary plus bonus of any of the Named Executives in 1997, 1998 or 1999.

19
<PAGE> 21

(2) The amounts listed consist of the value of life insurance provided by us for
the benefit of the Named Executives in excess of the value of life insurance
provided by us for the benefit of all other salaried employees. For Mr.
Lipscomb, the amounts listed also include $22,000, $19,000, and $22,000 for
fiscal years 1999, 1998, and 1997, respectively, paid as directors' fees.

MANAGEMENT RETENTION AGREEMENTS

Stay Pay and Severance Agreements. We have entered into Stay Pay and
Severance Agreements with each of the Named Executives. Our Board of Directors
believes that these severance agreements benefit us by securing the continued
services of key management personnel and by enabling management to perform their
duties and responsibilities without the distracting uncertainty generally
associated with a change in control.

The severance agreements provide that, if a change in control (as defined
in the agreements) occurs and the executive remains employed by us on a
full-time basis through the effective date of the change in control, the
executive will receive a single lump sum "stay payment" equal to 25% of the sum
of the highest annual base salary and the highest bonus amount received by the
executive in the preceding five years.

The severance agreements also provide that if an executive's full-time
employment is terminated without cause (as defined in the agreements), either
before or after a change in control has occurred, or upon a voluntary
termination of employment by an executive upon the reduction of his or her base
salary by 5% or more, if the reduction is not a result of a company policy to
reduce the salaries of a substantial number of officers or employees, or if the
executive ceases to be employed in a position involving substantially the same
level of responsibility or duties as performed by the executive on the date the
severance agreement was executed (a "Qualifying Voluntary Termination"), the
executive will receive a basic severance payment. The payment will consist of a
single lump sum equal to the sum of the highest annual base salary and the
highest bonus amount received by the executive in the preceding five years.

Additional payments will be made to the executive in the event that a
change in control has occurred and the executive's employment is terminated
without cause within the six-month period following the effective date of such
change in control, or upon a Qualifying Voluntary Termination within that
period. The executive will receive additional severance payments equal to the
amount he or she would have received had employment continued, at the same
intervals and at the same rate of base salary the executive was receiving during
the month preceding termination, until the six-month anniversary of the
effective date of the change in control. These additional severance payments, if
paid, would be in addition to the basic severance payment and the stay payment
described above.

Each executive is entitled to several other benefits contained in the
severance agreements, including

- life, health, medical/hospital, dental, and vision insurance benefits for
a period of 12 months in the event that an executive's full-time employment is
terminated without cause or upon a Qualifying Voluntary Termination, either
before or after a change in control has occurred and

- gross-up payments to cover any excise tax imposed by Section 4999 of the
Internal Revenue Code upon any payment made to the executive under the severance
agreements, subject to certain limitations.

We have agreed to be solely responsible for any and all attorneys' fees and
related expenses incurred by the executive in the event that we fail to comply
with our obligations under the severance agreements.

Trust Agreement. In connection with an additional stay pay agreement with
Mr. Lipscomb, we entered into a trust agreement, which established an
irrevocable grantor trust for the benefit of Mr. Lipscomb as the beneficiary.
This agreement provides for payment of $315,600 on January 1, 2007, or earlier,
upon Mr. Lipscomb's voluntary or involuntary termination of full-time employment
with us, with or without cause (as defined in the agreement).

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<PAGE> 22

The assets to be held by the trust include the original deposit of
principal and any other contributions made by us, at our option. These trust
assets are to be disposed of by the trustee when certain conditions in Mr.
Lipscomb's stay pay agreement occur or when the trustee is directed by two
officers of Argo-Tech, other than Mr. Lipscomb, to dispose of the assets.

If the amount disbursed by the trustee is insufficient to fully fund the
$315,600 payment specified under Mr. Lipscomb's stay pay agreement, we will be
required to pay the balance. However, if the amount disbursed by the trustee
exceeds the amount to which Mr. Lipscomb or his qualifying successor is entitled
under the stay pay agreement, Mr. Lipscomb or his qualifying successor is
entitled to retain such excess. The trust assets and any income earned on those
assets remain at all times subject to the claims of our general creditors under
state and federal law.

This agreement also provides for the payment of attorneys' expenses if
enforcement of the contract becomes necessary, and contains certain restrictions
on certain types of competitive activity by Mr. Lipscomb. The benefits provided
by the trust and this stay pay agreement and the Trust Agreement are in addition
to the benefits provided under the severance agreements described above and Mr.
Lipscomb's employment contract which is described below.

Employment Agreements. We have entered into employment contracts with Mr.
Lipscomb and Mr. Keen. These contracts provide for the payment of severance
benefits upon termination of employment without cause (as defined in the
contracts). In the event of such a termination, Mr. Lipscomb will receive all
salary and bonuses for a period of twelve months from the date of termination,
in an amount equal to all salary and bonuses received during the twelve month
period immediately preceding termination. Mr. Keen will receive, in the event of
such a termination, a single lump sum payment equal to 24 months of his base
salary, in an amount calculated from the base salary in effect for the full
month immediately preceding the date of termination. Both Mr. Lipscomb and Mr.
Keen will receive life, health, medical/hospital, dental and vision insurance
benefits for a period of twelve months. Mr. Keen's contract also provides for
the payment of attorneys' expenses if enforcement of the contract becomes
necessary, and contains restrictions on certain competitive activities by Mr.
Keen. The benefits provided by these additional contracts are provided in
addition to the benefits provided under the severance agreements, and Mr.
Lipscomb's trust agreement.

COMPENSATION PURSUANT TO EMPLOYEE BENEFIT PLANS OF THE COMPANY

RETIREMENT PLAN

Salaried Pension Plan. Our Salaried Pension Plan was established effective
November 1, 1986. Prior to July 1, 1994, our regular, permanent, salaried
employees were eligible to participate in this plan. Participation in the plan
was closed to any person who was not a participant on June 30, 1994, and all
benefit accruals ceased as of the close of business on June 30, 1994. The
benefits of participants in the Salaried Pension Plan who were employees on June
30, 1994, became vested (to the extent otherwise non-vested) as of the close of
business on June 30, 1994. Employee contributions were neither required nor
permitted. All Salaried Pension Plan assets are presently invested in an annuity
contract with Aetna Life Insurance Company as the funding agent.

The monthly normal retirement benefit under the Salaried Pension Plan is
1.25% of a participant's final average monthly compensation multiplied by the
participant's years of benefit service. Compensation earned after June 30, 1994,
and service performed after June 30, 1994, are not taken into account in
determining a participant's benefit under the Salaried Pension Plan. Final
average monthly compensation means the average monthly compensation (computed
before withholdings, deductions for taxes or other purposes, and salary
reduction amounts under the Argo-Tech Employee Savings Plan) paid or payable to
the participant for the five calendar years which produce the highest such
average, determined as if the participant's employment terminated on June 30,
1994 (or, if earlier, the date the participant's employment actually terminated
or the participant ceased to be within the class of employees eligible to
participate in the Salaried Pension Plan). If a participant ceased to be within
the class of employees eligible to participate or a participant's employment
terminated (or is deemed to have terminated) prior to July 1 of a calendar year,
that calendar year is not taken into account for

21
<PAGE> 23

purposes of determining final average monthly compensation. A participant's
vested benefit cannot be less than the participant's vested benefit under the
Salaried Pension Plan, if any, as of October 31, 1989.

The Internal Revenue Code of 1986, limits the maximum annual retirement
benefit payable under the Salaried Pension Plan and the maximum amount of annual
compensation that can be taken into account in calculating benefits under the
Salaried Pension Plan.

At retirement, based on benefits accrued as of June 30, 1994, the monthly
retirement benefits payable to each of the individuals named in the Summary
Compensation Table are:

<TABLE>
<CAPTION>
MONTHLY
NAME BENEFIT
---- ---------
<S> <C>
Michael S. Lipscomb......................................... $1,799.32
David L. Chrencik........................................... $ 949.57
Paul R. Keen................................................ $1,188.83
Frances S. St. Clair........................................ $ 411.56
</TABLE>

The benefits shown above are in the form of a single life annuity
commencing as of the first day of the month after the participant attains age
65. Benefits may commence at any time after age 55 if the participant had at
least five years of service when the participant's employment terminated.
Actuarial reductions would apply for early commencement and for payment in the
form of a joint and survivor annuity.

The normal form of payment under the Salaried Pension Plan is a single life
annuity. However, participants may elect payment of retirement benefits under
several joint and survivor forms of payment, subject to the requirement that a
married participant receive benefits in the form of a joint and survivor annuity
with the spouse as contingent annuitant unless the spouse consents to the
participant's election of another form of payment, another contingent annuitant,
or both, as applicable.

SALARIED SAVINGS PLAN

Our Salaried Savings Plan has been in place since 1987. Regular, permanent,
salaried employees who have completed at least 3 months of service are eligible
to participate in the plan. All assets of the plan are held in trust.

Participants may elect to have "tax-deferred" (401(k) compensation
reduction) contributions made to the plan of up to 13% of their eligible
compensation. Participants may also elect to have after-tax contributions made
to the Plan of up to 10% of their eligible compensation. Employer matching
contributions to the plan ceased on July 1, 1994. For periods before July 1,
1994, the Salaried Savings Plan provided for employer matching contributions as
follows: Basic matching contributions of 25% of each participant's tax-deferred
contributions in excess of 3% of compensation and discretionary additional
matching contributions of a percentage (within the range of 0% and 125%
established for each fiscal year (the "plan year")) of each participant's
tax-deferred contributions not in excess of 3% of compensation. A participant's
benefit under the plan is the balance of the participant's accounts attributable
to after-tax contributions and the vested balance of the participant's accounts
attributable to employer matching contributions. Tax-deferred contributions and
after-tax contributions are always 100% vested. Participants (including former
employees) whose accounts attributable to employer matching contributions had
not been forfeited prior to November 1, 1994, became, to the extent otherwise
non-vested, 100% vested. Benefits are payable in the form of a single lump sum
payment.

The Internal Revenue Code limits the maximum annual contributions that can
be made to the Salaried Savings Plan and the maximum amount of annual
compensation that can be taken into account in calculating contributions to the
Salaried Savings Plan. Contributions for a plan year on behalf of certain highly
compensated individuals may also be limited to comply with Internal Revenue
Code's nondiscrimination requirements.

Benefits are generally payable after a participant is separated from
service. A participant who is an employee may, however, apply for an in-service
distribution of all or a portion of the participant's vested account balance
after attainment of age 59 1/2 or in the event of a hardship (as defined in the
Salaried Savings Plan). A participant

22
<PAGE> 24

may apply for an in-service distribution of after-tax contributions at any age
and for any reason. A participant who is a "party in interest" may apply for a
loan of up to 50% of the participant's vested account balance under the Salaried
Savings Plan.

EMPLOYEE STOCK OWNERSHIP PLAN

The Employee Stock Ownership Plan was established in 1994 with the
participation of Argo-Tech's salaried employees. Key Trust Company of Ohio,
N.A., serves as the plan's trustee, and holds all of its assets in trust.

On May 17, 1994, the trustee purchased 420,000 shares of common stock of AT
Holdings Corporation with the proceeds of a $16.8 million loan from us to the
Employee Stock Ownership Plan. The term of the loan, unless it is prepaid or
accelerated, ends on April 28, 2004. The interest rate for the loan is fixed for
the ten year term at 7.16% per year. The purchase price for the AT Holdings
common stock was $40 per share.

The shares of AT Holdings' common stock purchased by the Employee Stock
Ownership Plan with the proceeds of the loan are held in a suspense account and
released to eligible participants on a pro rata basis as loan principal payments
are made. Shares released from the plan for each plan year are allocated to each
eligible participant's account based on the ratio of each such participant's
eligible compensation to the total eligible compensation of all eligible
participants. Forfeitures of the accounts of non-vested participants are
reallocated among eligible participants in the same manner as shares of AT
Holding's common stock released from the suspense account.

For each of the Plan Years ended October 31, 1997, October 31, 1998 and
October 31, 1999, 42,000 shares of AT Holdings' common stock were released from
the suspense account. Based on the loan payment schedule, the number of shares
of AT Holdings' common stock released from the suspense account each future plan
year during the loan period would be:

<TABLE>
<CAPTION>
NUMBER OF
PLAN YEAR ENDING SHARES RELEASED
---------------- ---------------
<S> <C>
October 31, 2000............................................ 42,000
October 31, 2001............................................ 42,000
October 31, 2002............................................ 42,000
October 31, 2003............................................ 42,000
October 31, 2004............................................ 21,000
</TABLE>

If we make additional contributions to the Employee Stock Ownership Plan,
the plan would use the contribution to "prepay" the loan, and shares would be
released from the suspense account more rapidly than shown above. If, however,
for any reason we do not make contributions to the plan to pay the principal on
the loan as described above, the shares would not be released from the suspense
account as rapidly as shown above.

We may, for any plan year, make additional discretionary contributions for
the benefit of plan participants. These contributions may be made in cash,
shares of qualifying employer securities, or other property.

Whether the Employee Stock Ownership Plan will acquire additional shares of
AT Holdings' common stock or other qualifying employer securities in the future
depends upon future business conditions. Such purchases, if made, would be
funded through additional borrowings by the plan or additional contributions
from us. The timing, amount and manner of future contributions to the plan will
be affected by various factors, including prevailing regulatory policies, the
requirements of applicable laws and regulations, and market conditions.

Participants may elect to receive the shares of qualifying employer
securities credited to their accounts after their termination of employment, and
in specified instances, after attaining age 55 with 10 or more years of
participation in the Employee Stock Ownership Plan. Participants vest in their
plan accounts 20% per year of service, and service prior to the effective date
of the plan counts for this purpose. A participant can require us to purchase
qualifying employer securities received from the plan at the value the stock
then has, as determined for plan purposes (a "put option"). Shares of qualifying
employer securities distributed from the plan are subject to a "right of first
refusal" in favor of us or the Employee Stock Ownership Plan at the value the
stock then has, as

23
<PAGE> 25

determined for purposes of the plan. The put option and right of first refusal
will no longer apply if the qualifying employer securities become tradeable on
an established securities market.

Voting rights on and decisions whether to tender or exchange shares of
qualifying employer securities held in the Employee Stock Ownership Plan are
"passed through" to participants. Each participant is entitled to direct the
plan's trustee as to the voting of (1) shares of qualifying employer securities
credited to the participant's account; and (2) a proportionate part of the
unallocated shares of qualifying employer securities held in the suspense
account and shares of qualifying employer securities allocated to participants'
accounts as to which no direction is received by the plan's trustee. In the
event of a tender or exchange offer for qualifying employer securities held in
the plan, each participant is entitled to direct the plan's Trustee whether to
tender or exchange shares of qualifying employer securities held in the plan in
a manner similar to the voting directions described above.

Because the employers' contributions to the Employee Stock Ownership Plan
are not fixed, benefits payable under the plan cannot be estimated.

For the plan year ended October 31, 1999, the number of shares of AT
Holdings' common stock allocated under the Employee Stock Ownership Plan to the
accounts of the individuals named in the Summary Compensation Table were:

<TABLE>
<CAPTION>
SHARES ALLOCATED
------------------------------
YEAR ENDED CUMULATIVE TO
NAME OCT. 31, 1999 OCT. 31, 1999
---- ------------- -------------
<S> <C> <C>
Michael S. Lipscomb................................. 377.6507 2,230.0569
David L. Chrencik................................... 377.6507 2,190.4783
Paul R. Keen........................................ 377.6507 2,230.0569
Frances S. St. Clair................................ 377.6507 2,181.0925
</TABLE>

Generally Accepted Accounting Principles require that any third party
borrowing by the Employee Stock Ownership Plan be reflected as a liability on
our statement of financial condition. Since the plan is borrowing from us, the
obligation is not treated as an asset of ours, but will be deducted from shares
of stock held by the Employee Stock Ownership Plan. If the plan purchases newly
issued shares of AT Holdings' common stock, total stockholders' equity would
neither increase nor decrease.

The Internal Revenue Service has issued a determination letter that the
plan is qualified under Section 401(a) of the Internal Revenue Code and is an
employee stock ownership plan under Section 4975(e)(7) thereof. Contributions to
the plan and allocations to the accounts of eligible participants thereunder are
subject to applicable limitations imposed under the Internal Revenue Code. The
plan is subject to the requirements of the Employee Retirement Income Security
Act of 1974, as amended, and the regulations thereunder.

EMPLOYEE STOCK OWNERSHIP PLAN EXCESS BENEFIT PLAN

We maintain the Employee Stock Ownership Plan Excess Benefit Plan, an
unfunded plan that at all times will be deemed invested in AT Holdings common
stock. This plan is for employees participating in the Employee Stock Ownership
Plan in respect of reduction to allocations to their accounts because of
limitations under the Internal Revenue Code applicable to tax-qualified plans.
Benefits under this plan vest in the same manner as benefits under the Employee
Stock Ownership Plan and distributions from the plan will, subject to certain
restrictions, be made in whole or fractional shares of AT Holdings common stock
at the same time or times as benefits under the Employee Stock Ownership Plan
are distributable, or in the case of benefits with respect to qualifying
employer securities subject to the put option under the Employee Stock Ownership
Plan at the time the plan participant exercises (or is deemed to have exercised)
a hypothetical "put option" under the plan.

24
<PAGE> 26

We maintain a bookkeeping account for amounts credited to the accounts of
plan participants. For the plan year ended October 31, 1999, the amounts
credited to the accounts of the individuals named in the Summary Compensation
Table were:

<TABLE>
<CAPTION>
EQUIVALENT SHARES ALLOCATED
------------------------------
YEAR ENDED CUMULATIVE TO
NAME OCT. 31, 1999 OCT. 31, 1999
---- ------------- -------------
<S> <C> <C>
Michael S. Lipscomb................................. 847.0315 3,676.7470
David L. Chrencik................................... 187.5952 474.6850
Paul R. Keen........................................ 247.2481 815.9924
Frances S. St. Clair................................ 196.5081 483.5979
</TABLE>

INCENTIVE STOCK OPTION PLANS

1991 Performance Stock Option Plan. The 1991 Performance Stock Option Plan
provides for option grants for the purchase of AT Holdings' common stock. The
exercise price of each option is $10.00 per share. All of the options available
under this plan were granted and have been amended by the Compensation Committee
of AT Holdings, upon the recommendation of our compensation committee, and with
the consent of the optionees in January 1999. These options expire on November
9, 2001. All of the options under this plan became fully vested in January 1999.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISABLE VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY
FY-END OPTIONS AT FY-END($)
SHARES --------------- --------------------
EXERCISE ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME PRICE($) EXERCISE REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- -------- ----------- ----------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
Michael S. Lipscomb........... $10.00 1,000 $114,400 8,670/ -- $631,089/ $--
40.00 0 0 6,125/ -- 262,089/ --
100.11 0 0 --/ 20,000 --/ --
Paul R. Keen.................. 10.00 1,000 114,400 1,990/ -- 144,852/ --
40.00 0 0 2,760/ -- 118,100/ --
100.11 0 0 --/ 7,000 --/ --
David L. Chrencik............. 10.00 2,990 341,279 --/ -- --/ --
40.00 0 0 2,760/ -- 118,100/ --
100.11 0 0 --/ 4,250 --/ --
Frances S. St. Clair.......... 10.00 0 0 2,990/ -- 217,642/ --
40.00 0 0 2,760/ -- 118,100/ --
100.11 0 0 --/ 7,000 --/ --
</TABLE>

1991 Management Incentive Stock Option Plan. The 1991 Management Incentive
Stock Option Plan provides for option grants for the purchase of AT Holdings'
common stock. The exercise price of each option is $10.00 per share. All of the
options available under this plan were granted and have been amended by the
Compensation Committee of AT Holdings, upon the recommendation of our
Compensation Committee, and with the consent of the optionees in January 1999.
These options expire on November 9, 2001. All of the options under this plan
became fully vested in January 1999.

1998 Equity Replacement Stock Option Plan. The 1998 Equity Replacement
Stock Option Plan was established to provide for option grants for the purchase
of AT Holdings' common stock. The exercise price of each option is $40.00 per
share. The options were granted to each person who was a participant in the 1997
Stock

25
<PAGE> 27

Appreciation Rights Plan in exchange for, and in cancellation of, all of the
rights of each such participant under the Stock Appreciation Rights Plan (See
Benefits Restructuring). These options, which were granted by the Compensation
Committee of AT Holdings upon the recommendation of our compensation committee,
expire on January 2, 2005. All of the options under this plan were fully vested
upon issuance.

1998 Incentive Plan. The 1998 Incentive Plan was established to provide
option grants for the purchase of AT Holdings' common stock, at prices that may
be more than, less than, or equal to the fair market value of the shares, as the
Board or Compensation Committee of AT Holdings may determine at the time of
grant. The options, which were granted by the Compensation Committee of AT
Holdings upon the recommendation of our compensation committee, expire on April
23, 2009. The options become exercisable in 20% increments over five successive
years. For any year in which the EBITDA of the company exceeds 105% of the
target EBITDA, an additional 13 1/3% of the optioned shares will become
exercisable, provided that no more than 100% of the optioned shares become
exercisable in the aggregate. In the event that the shares become registered or
traded on a national exchange or in the event of a change in control, all
options will become exercisable in full.

OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE STOCK PRICE APPRECIATION FOR
OPTIONS EMPLOYEES OR BASE MARKET PRICE OPTION TERMS($)
GRANTED IN FISCAL PRICE ON DATE OF EXPIRATION -------------------------------
NAME (#) YEAR ($/SH) GRANT DATE 0%($) 5%($) 10%($)
---- ---------- ----------- -------- ------------ ---------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael S.
Lipscomb............. 6,125 17.8% $ 40.00 $100.11 01/02/05 368,174 557,130 791,901
20,000 25.2% $100.11 $100.11 04/23/09 -- 1,259,200 3,191,000
Paul R. Keen......... 2,760 8.0% $ 40.00 $100.11 01/02/05 165,904 251,050 356,840
7,000 8.8% $100.11 $100.11 04/23/09 -- 440,720 1,116,850
David L. Chrencik.... 2,760 8.0% $ 40.00 $100.11 01/02/05 165,904 251,050 356,840
4,250 5.3% $100.11 $100.11 04/23/09 -- 267,580 678,088
Frances S. St.
Clair.............. 2,760 8.0% $ 40.00 $100.11 01/02/05 165,904 251,050 356,840
7,000 8.8% $100.11 $100.11 04/23/09 -- 440,720 1,116,850
</TABLE>

EXECUTIVE LIFE INSURANCE PLAN

Our executive life insurance plan permits certain officers and key
employees to obtain life insurance benefits in addition to those generally
provided to salaried employees. The level of coverage provided to such officers
and key employees consists of basic term and whole life insurance coverage equal
to 3 times the individual's salary.

BONUS PLAN

We have in effect a plan pursuant to which officers and other key
management employees may receive cash bonuses paid upon (1) the achievement of
specified cash flow goals in the preceding fiscal year and (2) individual
performance. The amounts of such bonus awards are approved by the AT Holdings
Compensation Committee.

COMPENSATION OF DIRECTORS

Beginning in 1999, Argo-Tech does not compensate its directors. In prior
fiscal years we paid each Director a quarterly fee of $2,500. Each director also
received $3,000 plus reasonable out-of-pocket expenses for each board meeting
attended. Fees paid to Mr. Lipscomb are included in the Summary Compensation
table. See "Executive Compensation."

BENEFITS RESTRUCTURING

On January 4, 1999, AT Holdings repurchased 639,510 shares of its common
stock that were held by its majority stockholder, AT Holdings, LLC. AT Holdings
also issued 30,000 shares of its preferred stock on December 17, 1998. In
connection with these transactions, we amended our Employee Stock Ownership Plan
Excess Benefit Plan and the Stock Appreciation Rights (SAR) Plan. The amendment
to the Employee Stock Ownership Plan Excess Benefit Plan allowed for the
transfer of approximately 4,500 shares of AT Holdings

26
<PAGE> 28

common stock in place of cash payments to members of management who have been
credited with Employee Stock Ownerships Plan excess benefits as of October 31,
1998. The SAR plan provided for grants of up to 34,450 SARs, 17,225 of which
were granted in fiscal years 1997 and 1998. The remaining SARs were granted in
the first quarter of fiscal 1999. Pursuant to the amendment of the SAR plan, all
SARs became fully vested and were then converted into fully vested stock options
under the 1998 Equity Replacement Stock Option Plan. In addition, all granted
options under the 1991 Performance Stock Option Plan and 1991 Management
Incentive Stock Option Plan, to the extent not vested, became fully vested upon
completion of AT Holdings' repurchase of AT Holdings, LLC's common shares.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

PRINCIPAL STOCKHOLDERS

Argo-Tech is a wholly owned subsidiary of AT Holdings, which owns the only
outstanding share of Argo-Tech's common stock, par value of $.01 per share. The
following table sets forth the ownership of AT Holdings' common stock as of
October 30, 1999 by:

- each person known to Argo-Tech to be the beneficial owner of more than 5%
of AT Holdings' common stock,

- each director of Argo-Tech and AT Holdings, and

- all of Argo-Tech and AT Holdings' directors and executive officers as a
group.

On October 30, 1999, there were 712,461 shares of AT Holdings' common stock
outstanding, exclusive of treasury shares. AT Holdings also has 30,000 shares of
its preferred stock outstanding. All of these shares are held by Chase Venture
Capital Associates, L.P. These preferred shares have no voting rights.

<TABLE>
<CAPTION>
OWNERSHIP OF AT HOLDINGS' COMMON STOCK
-----------------------------------------------------------------------------
SHARES
NUMBER OF ATTRIBUTABLE TO
NUMBER IMMEDIATELY EMPLOYEE STOCK
NAME OF BENEFICIALLY EXERCISABLE OWNERSHIP
BENEFICIAL OWNER OWNED OPTIONS PLAN ACCOUNT TOTAL PERCENT OF CLASS
---------------- ------------ ----------- --------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
KeyTrust Company of Ohio, N.A.(1) 408,987 0 0 408,987 57.4
127 Public Square
Cleveland, OH 44114
Sunhorizon International, Inc. ... 129,402 0 0 129,402 18.2
13221 Ranchwood Road
Tustin, CA 92680
YC International, Inc. ........... 39,000 0 0 39,000(2) 5.5
725 South Figueroa Street
Suite 3870
Los Angeles, CA 90117
Yamada, Masashi................... 36,000 0 0 36,000 5.1
1390 Highway 50 East
Suite 4
Carson City, NV 89701
AT Holdings, LLC.................. 22,050 39,000(2) 0 61,050 8.6
1390 Highway 50 East
Suite 4
Carson City, NV 89701
Chase Venture Capital Associates,
L.P. ........................... 0 46,025 0 46,025 6.1
380 Madison Ave.
New York, NY 10017
de Chastenet, Remi*............... 0 500 0 500 **
Dougherty, Thomas*................ 1,654 0 0 1,654 **
Keen, Paul+....................... 12,843 4,750 2,230 19,823 2.8
Lipscomb, Michael*+............... 24,347 14,795 2,230 41,372 5.7
Nagata, Robert*................... 0 500 0 500 **
</TABLE>

27
<PAGE> 29

- ---------------

* Director of AT Holdings Corporation

** Less than 1%

+ Director of Argo-Tech

(1) KeyTrust is the Employee Stock Ownership Plan trustee and holds shares of AT
Holdings' common stock in trust for the benefit of the plan. Under normal
circumstances, the trustee votes all of the shares held by the plan in
proportion to the actual voting directions of the plan participants. Under
certain limited circumstances, the plan trustee may, in the exercise of its
fiduciary duty, vote the shares held by the plan as a block. The share
ownership numbers for officers do not include shares held through the plan,
other than those shares directly attributed to the officer's account.

(2) AT Holdings, LLC has the option to purchase all of YC International's shares
of AT Holdings' common stock. AT Holdings, LLC disclaims all beneficial
ownership of those shares.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

UPSILON INTERNATIONAL CORPORATION DISTRIBUTION AGREEMENT

Upsilon International, a company owned by YC International Inc., which is
under the control of Mr. Yamada, Holdings' majority stockholder through his
control of YC International and AT Holdings, LLC, was appointed as the exclusive
distributor of Argo-Tech products in 1990 with respect to the Japanese market
and in 1994 for the entire international market under a long-term distribution
agreement. We believe that this distribution agreement was entered into on terms
and conditions customary for the industry in all respects with the exception of
the basic contract term of 50 years and termination provisions which are more
favorable to Upsilon International than industry norm. The distribution
agreement provides for a 15% discount from Argo-Tech catalog prices on all
purchases of Argo-Tech products by Upsilon International. For fiscal 1999, sales
by Upsilon International accounted for approximately 17% of our net revenues.

OFFICER LOANS

Four of the Named Executives have entered into presently outstanding loan
agreements with AT Holdings. The largest amount of indebtedness outstanding
since the beginning of fiscal 1999 for each such Named Executive was: $282,430
(Mr. Lipscomb), $249,243 (Mr. Keen), $90,259 (Mr. Chrencik) and $65,522 (Ms. St.
Clair). Each loan is due October 28, 2000 and accrues interest at 6.75%
annually. These loans, secured by a pledge of AT Holdings' common stock, were
extended for the purchase of AT Holdings' common stock, or for the personal use
of the Named Executive. Each of the Named Executives having an outstanding loan
has entered into a pledge agreement and promissory note with AT Holdings in
connection with such loans. We believe that the terms of these loans are no less
favorable to AT Holdings than would have been available pursuant to arms' length
negotiations with unaffiliated parties.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)(1) FINANCIAL STATEMENTS

The following consolidated financial statements of the Company are included
in a separate section of this report following the signature page:

Consolidated Balance Sheets -- October 31, 1998 and October 30, 1999

Consolidated Statements of Net Income and Comprehensive Income -- Years
ended October 25, 1997, October 31, 1998 and October 30, 1999

28
<PAGE> 30

Consolidated Statements of Cash Flows -- Years ended October 25, 1997,
October 31, 1998 and October 30, 1999

Consolidated Statements of Shareholder's Equity /(Deficiency) -- Years
ended October 25, 1997, October 31, 1998 and October 30, 1999

Notes to Consolidated Financial Statements -- October 30, 1999

Report of Independent Auditors

(a)(2) FINANCIAL STATEMENT SCHEDULES

No schedule or schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are required,
or such schedules are not applicable, and therefore, have been omitted.

(a)(3) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333- 38223).
3.2 By-Laws of the Company (incorporated herein by reference to
Exhibit 3.2 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
4.1 Indenture dated September 26, 1997, between the Company, the
Subsidiary Guarantors signatory thereto and Harris Trust and
Savings Bank, as Trustee, relating to the 8 5/8% Senior
Subordinated Notes due 2007 (the form of which is included
in such Indenture) (incorporated herein by reference to
Exhibit 4.1 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
4.2 Form of Global Exchange Note (included in Exhibit 4.1)
(incorporated herein by reference to Exhibit 4.2 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333- 38223).
4.3 Exchange and Registration Rights Agreement dated September
26, 1997, between the Company, the Subsidiary Guarantors and
Chase Securities Inc. (incorporated herein by reference to
Exhibit 4.3 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
10.1* Form of Stay Pay and Severance Agreement dated June 6, 1996,
by and among the Company and certain Executive Officers of
the Company (Michael S. Lipscomb, Yoichi Fujiki, Frances S.
St. Clair, Paul R. Keen and David Chrencik) (incorporated
herein by reference to Exhibit 10.1 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.2* Employment Agreement dated February 13, 1989 between the
Company and Paul R. Keen (incorporated herein by reference
to Exhibit 10.2 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.3* Employment Agreement dated October 15, 1986 between the
Company and Michael S. Lipscomb (incorporated herein by
reference to Exhibit 10.3 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.4* Argo-Tech Corporation Trust Agreement dated October 28, 1994
between the Company and Society National Bank, as Trustee,
relating to the Employment Agreement dated October 15, 1986
between the Company and Michael S. Lipscomb (incorporated
herein by reference to Exhibit 10.4 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.5* Argo-Tech Corporation Salaried Pension Plan, dated November
1, 1995 (incorporated herein by reference to Exhibit 10.5 of
the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.6* First Amendment to Argo-Tech Corporation Salaried Pension
Plan (incorporated herein by reference to Exhibit 10.6 of
the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.7* Argo-Tech Corporation Employee Stock Ownership Plan and
Trust Agreement, dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.7 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
</TABLE>

29
<PAGE> 31

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.8* First Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated October 26, 1994
(incorporated herein by reference to Exhibit 10.8 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.9* Second Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated May 9, 1996
(incorporated herein by reference to Exhibit 10.9 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.10* Third Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated July 18, 1997
(incorporated herein by reference to Exhibit 10.10 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.11* Argo-Tech Corporation Employee Stock Ownership Plan Excess
Benefit Plan, dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.11 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.12** AT Holdings Corporation Stockholders Agreement, dated as of
December 17, 1998.
10.13** AT Holdings Corporation 1998 Supplemental Stockholders
Agreement, dated as of December 17, 1998.
10.14 Amendment, Termination and Release under Vestar/AT Holdings
Corporation Stockholders' Agreement, dated May 17, 1994
(incorporated herein by reference to Exhibit 10.17 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.15 Consulting Agreement between the Company and Vestar Capital
Partners dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.18 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.16* Form of Management Incentive Compensation Plan for key
employees of the Company (incorporated herein by reference
to Exhibit 10.19 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.17* 1991 Management Incentive Stock Option Plan, as amended,
dated May 16, 1994 (incorporated herein by reference to
Exhibit 10.20 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.18* Form of Stock Option Agreement in connection with the
Management Incentive Stock Option Plan, as amended, between
the Company and all members of the Company's Executive Staff
(incorporated herein by reference to Exhibit 10.21 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.19* 1991 Performance Stock Option Plan, as amended, dated May
16, 1997 (incorporated herein by reference to Exhibit 10.22
of the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.20* Form of Stock Option Agreement in connection with the 1991
Performance Stock Option Plan, as amended, between the
Company and certain key employees (incorporated herein by
reference to Exhibit 10.23 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.21 Credit Facility, dated July 18, 1997, as amended and
restated as of September 26, 1997, between the Company and
Chase Manhattan Bank (incorporated herein by reference to
Exhibit 10.24 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.22 Distributorship Agreement, dated December 24, 1990, between
the Company, Yamada Corporation and Vestar Capital Partners,
Inc. (incorporated herein by reference to Exhibit 10.25 of
the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.23 Japan Distributorship Agreement, dated December 24, 1990,
between the Company, Aerotech World Trade Corporation,
Yamada Corporation, Yamada International Corporation and
Vestar Capital Partners, Inc. (incorporated herein by
reference to Exhibit 10.26 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.24 Stock Purchase Agreement, dated August 1, 1997, between the
Company, J.C. Carter Company, Inc., Robert L. Veloz,
Individually and as Trustee, Marlene J. Veloz, Individually
and as Trustee, Edith T. Derbyshire, Individually and as
Trustee, Harry S. Derbyshire, Individually and as Trustee,
Michael Veloz, Katherine Canfield and Maureen Partch, as
Trustee (incorporated herein by reference to Exhibit 10.27
of the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.25* Prism Prototype Retirement Plan & Trust & 401(k) Profit
Sharing Plan Adoption Agreement, dated November 1, 1994
(incorporated herein by reference to Exhibit 10.28 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333- 38223).
</TABLE>

30
<PAGE> 32

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.26* Prism Prototype Retirement Plan and Trust (incorporated
herein by reference to Exhibit 10.29 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.27 Agreement of Purchase and Sale between Agnem Holdings, Inc.
and TRW Inc. dated as of August 5, 1986 (incorporated herein
by reference to Exhibit 10.30 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.28* 1997 Stock Appreciation Rights Plan.
10.29** AT Holdings Corporation 1998 Incentive Plan.
12** Statement regarding computation of ratios.
21 List of Subsidiaries (incorporated herein by reference to
Exhibit 21 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
27** Financial Data Schedule.
</TABLE>

- ---------------

* Reflects management contract or other compensatory arrangement required to be
filed as an exhibit pursuant to Item 14(c) of this Report.

** Filed herewith

(b) We did not file any reports on Form 8-K during the fourth quarter of 1999.

(d) No financial statement schedules are required to be filed herein, therefore,
none are listed under Item 14(a)(2).

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT

No annual report or proxy statement covering our last fiscal year has been
or will be circulated to security holders.

31
<PAGE> 33

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 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.

ARGO-TECH CORPORATION

By: /s/ FRANCES S. ST. CLAIR
--------------------------------------
Frances S. St. Clair
Vice President and Chief Financial
Officer
Date: January 27, 2000

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL S. LIPSCOMB Chairman, President and Chief January 27, 2000
- ------------------------------------ Executive Officer and Director
Michael S. Lipscomb (Principal Executive Officer)

/s/ FRANCES S. ST. CLAIR Vice President and Chief Financial January 27, 2000
- ------------------------------------ Officer and Director (Principal
Frances S. St. Clair Financial Officer)

/s/ PAUL R. KEEN Vice President, General Counsel, January 27, 2000
- ------------------------------------ Secretary and Director
Paul R. Keen

/s/ PAUL A. SKLAD Controller (Principal Accounting January 27, 2000
- ------------------------------------ Officer)
Paul A. Sklad
</TABLE>

32
<PAGE> 34

ARGO-TECH CORPORATION AND SUBSIDIARIES

ANNUAL REPORT ON FORM 10-K:
FISCAL YEAR ENDED OCTOBER 30, 1999

ITEM 8 AND ITEM 14(a)(1)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<PAGE> 35

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)

INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT................................ F-1
CONSOLIDATED BALANCE SHEETS AT OCTOBER 30, 1999 AND OCTOBER
31, 1998.................................................... F-2
CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE
INCOME FOR THE FISCAL YEARS ENDED OCTOBER 30, 1999,
OCTOBER 31, 1998 AND OCTOBER 25, 1997..................... F-3
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY/(DEFICIENCY)
FOR THE FISCAL YEARS ENDED OCTOBER 30, 1999, OCTOBER 31,
1998 AND OCTOBER 25, 1997................................. F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS
ENDED OCTOBER 30, 1999, OCTOBER 31, 1998 AND OCTOBER 25,
1997...................................................... F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL
YEARS ENDED OCTOBER 30, 1999, OCTOBER 31, 1998 AND OCTOBER
25, 1997.................................................. F-6-F-18
</TABLE>
<PAGE> 36

INDEPENDENT AUDITORS' REPORT

To the Shareholder and Board of Directors
of Argo-Tech Corporation and Subsidiaries
(A Wholly-Owned Subsidiary of AT Holdings Corporation)

We have audited the accompanying consolidated balance sheets of Argo-Tech
Corporation and Subsidiaries (A Wholly-Owned Subsidiary of AT Holdings
Corporation) (the "Company") as of October 30, 1999 and October 31, 1998 and the
related consolidated statements of net income and comprehensive income,
shareholder's equity/(deficiency), and cash flows for each of the three years in
the period ended October 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of October 30, 1999
and October 31, 1998, and the results of their operations and their cash flows
for each of the three years in the period ended October 30, 1999 in conformity
with generally accepted accounting principles.

/s/ Deloitte & Touche LLP

December 17, 1999

F-1
<PAGE> 37

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)

CONSOLIDATED BALANCE SHEETS
OCTOBER 30, 1999 AND OCTOBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,873 $ 11,578
Receivables, net.......................................... 30,169 23,866
Inventories............................................... 34,043 29,528
Deferred income taxes and prepaid expenses................ 5,322 5,353
-------- --------
Total current assets.............................. 73,407 70,325
-------- --------
PROPERTY AND EQUIPMENT, net of accumulated depreciation..... 35,653 35,982
GOODWILL, net of accumulated amortization................... 115,942 117,761
INTANGIBLE ASSETS, net of accumulated amortization.......... 52,202 56,223
OTHER ASSETS................................................ 17,541 7,904
-------- --------
Total Assets...................................... $294,745 $288,195
======== ========
LIABILITIES
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 12,454 $ 5,946
Accounts payable.......................................... 6,647 7,671
Accrued liabilities....................................... 18,928 19,791
-------- --------
Total current liabilities......................... 38,029 33,408
-------- --------
LONG-TERM DEBT, net of current maturities................... 264,533 221,440
OTHER NONCURRENT LIABILITIES................................ 27,926 30,685
-------- --------
Total Liabilities................................. 330,488 285,533
-------- --------
REDEEMABLE COMMON STOCK..................................... -- 6,713
REDEEMABLE ESOP STOCK....................................... 50,772 41,475
Unearned ESOP stock....................................... (7,560) (9,240)
-------- --------
43,212 32,235
SHAREHOLDER'S EQUITY/(DEFICIENCY):
Common Stock, $.01 par value, authorized 3,000 shares; 1
share issued and outstanding........................... -- --
Paid-in capital........................................... -- --
Accumulated deficit....................................... (78,955) (36,286)
-------- --------
Total shareholder's equity/(deficiency)........... (78,955) (36,286)
-------- --------
Total Liabilities and Shareholder's Equity/(Deficiency)..... $294,745 $288,195
======== ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-2
<PAGE> 38

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)

CONSOLIDATED STATEMENTS OF NET INCOME AND COMPREHENSIVE INCOME
FOR THE FISCAL YEARS ENDED OCTOBER 30, 1999, OCTOBER 31, 1998
AND OCTOBER 25, 1997
(IN THOUSANDS)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net revenues............................................... $176,540 $174,143 $117,086
Cost of revenues........................................... 96,782 107,203 70,954
-------- -------- --------
Gross profit.......................................... 79,758 66,940 46,132
-------- -------- --------
Selling, general and administrative........................ 29,153 24,521 10,948
Research and development................................... 9,281 6,880 5,682
Amortization of intangible assets.......................... 7,478 7,480 2,852
-------- -------- --------
Operating expenses.................................... 45,912 38,881 19,482
-------- -------- --------
Income from operations..................................... 33,846 28,059 26,650
Interest expense........................................... 25,003 21,030 12,827
Other, net................................................. (516) (268) (404)
-------- -------- --------
Income before income taxes and extraordinary loss.......... 9,359 7,297 14,227
Income tax provision....................................... 4,021 3,400 4,841
-------- -------- --------
Income before extraordinary loss........................... 5,338 3,897 9,386
Extraordinary loss, net of income tax benefit of $1,019.... -- -- 1,529
-------- -------- --------
Net income................................................. 5,338 3,897 7,857
-------- -------- --------
Other comprehensive income/(loss), net of tax:
Foreign currency translation adjustment, net of income
tax of $(53).......................................... 79 -- --
Minimum pension liability adjustment, net of income tax
of ($670), $353 and $317.............................. 1,004 (529) (475)
-------- -------- --------
Other comprehensive income/(loss)........................ 1,083 (529) (475)
-------- -------- --------
Comprehensive income....................................... $ 6,421 $ 3,368 $ 7,382
======== ======== ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-3
<PAGE> 39

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY/(DEFICIENCY)
FOR THE FISCAL YEARS ENDED OCTOBER 30, 1999, OCTOBER 31, 1998
AND OCTOBER 25, 1997
(IN THOUSANDS)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 26, 1996........................ $-- $-- $(28,219) $(28,219)
Net income....................................... 7,857 7,857
Dividends accrued on preferred stock............. (1,527) (1,527)
Accretion of redeemable common stock............. (746) (746)
Accretion of ESOP stock.......................... (4,012) (4,012)
Additional minimum pension liability............. (792) (792)
Other, net....................................... (502) (502)
--- --- -------- --------
BALANCE, OCTOBER 25, 1997........................ -- -- (27,941) (27,941)
Net income....................................... 3,897 3,897
Accretion of redeemable common stock............. (1,900) (1,900)
Accretion of redeemable ESOP stock............... (9,418) (9,418)
Additional minimum pension liability............. (882) (882)
Other, net....................................... (42) (42)
--- --- -------- --------
BALANCE, OCTOBER 31, 1998........................ -- -- (36,286) (36,286)
Net income....................................... 5,338 5,338
Elimination of redemption feature of common
stock.......................................... 6,713 6,713
Accretion of redeemable ESOP stock............... (6,655) (6,655)
Dividend......................................... (53,568) (53,568)
Reduction of minimum pension liability........... 1,674 1,674
Activity related to stock appreciation rights and
stock options.................................. 3,914 3,914
Other, net....................................... (85) (85)
--- --- -------- --------
BALANCE, OCTOBER 30, 1999........................ $-- $-- $(78,955) $(78,955)
=== === ======== ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-4
<PAGE> 40

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED OCTOBER 30, 1999, OCTOBER 31, 1998 AND OCTOBER 25,
1997
(IN THOUSANDS)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 5,338 $ 3,897 $ 7,857
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................ 6,561 6,809 4,665
Amortization of intangible assets and deferred
financing costs.................................. 9,412 8,470 3,747
Accretion of bond discount.......................... 186
Compensation expense recognized in connection with
employee stock ownership plan.................... 4,322 3,911 2,920
Compensation expense recognized in connection with
stock appreciation rights and stock options...... 2,983
Amortization of inventory step-up................... 77 10,681 1,496
Deferred income taxes............................... (2,535) (6,074) (413)
Extraordinary loss on early extinguishment of
debt............................................. 1,529
Changes in operating assets and liabilities:
Receivables...................................... (6,079) 517 (4,001)
Inventories...................................... (3,682) (1,855) 517
Prepaid expenses................................. (202) 78 115
Accounts payable................................. (1,216) 1,302 (1,073)
Accrued and other liabilities.................... (519) 1,666 (377)
Other, net.......................................... 652 369 615
-------- -------- ---------
Net cash provided by operating activities................ 15,298 29,771 17,597
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of J.C. Carter............................... (107,562)
Acquisition of Durodyne, net of cash acquired............ (2,587)
Capital expenditures..................................... (6,050) (5,610) (2,690)
-------- -------- ---------
Net cash used in investing activities.................... (8,637) (5,610) (110,252)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional borrowing of long-term debt................... 3,200 156,100
Repayment of long-term debt.............................. (7,147) (21,476) (155,090)
Note payable on acquisition of Durodyne.................. 1,112
Redemption of redeemable preferred stock................. (25,908)
Payment of redeemable preferred dividends................ (19,298)
Sale of senior subordinated notes........................ 52,250 140,000
Dividend................................................. (53,568)
Payment of financing related fees........................ (10,213) (468) (7,344)
-------- -------- ---------
Net cash provided by (used in) financing activities...... (14,366) (21,944) 88,460
-------- -------- ---------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) for the period................... (7,705) 2,217 (4,195)
Balance, Beginning of period............................. 11,578 9,361 13,556
-------- -------- ---------
Balance, End of period................................... $ 3,873 $ 11,578 $ 9,361
======== ======== =========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-5
<PAGE> 41

ARGO-TECH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF AT HOLDINGS CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED OCTOBER 30, 1999, OCTOBER 31, 1998 AND OCTOBER 25,
1997
- --------------------------------------------------------------------------------

1. BASIS OF PRESENTATION

Argo-Tech Corporation and Subsidiaries' (the "Company") (A Wholly-Owned
Subsidiary of AT Holdings Corporation) principal operations include the design,
manufacture and distribution of aviation products, primarily aircraft fuel
pumps, throughout the world. In addition, the Company leases a portion of its
manufacturing facility to other parties. The Company's fiscal year ends on the
last Saturday in October. The fiscal year ended October 30, 1999 consisted of 52
weeks, the fiscal year ended October 31, 1998 consisted of 53 weeks and the
fiscal year ended October 25, 1997 consisted of 52 weeks. The Company is
obligated to fulfill certain obligations of AT Holdings Corporation. As a
result, those obligations have been reflected in the Company's financial
statements. Certain reclassifications have been made in the prior years'
financial statements to conform to the current year presentation.

The Company is a parent, holding company with 3 wholly-owned operating
guarantor subsidiaries, Argo-Tech Corporation (HBP), Argo-Tech Corporation (OEM)
and Argo-Tech Corporation (Aftermarket). On September 26, 1997, the Company
acquired a fourth wholly-owned operating guarantor subsidiary, J.C. Carter
Company, Inc. ("Carter"). The Company has no outside assets, liabilities or
operations apart from its wholly-owned subsidiaries. The Senior Subordinated
Notes (Note 11) are fully, unconditionally, jointly and severally guaranteed by
the guarantor subsidiaries, and therefore, separate financial statements of the
guarantor subsidiaries will not be presented. The Company also has two
wholly-owned, non-guarantor subsidiaries that have inconsequential assets,
liabilities and equity, and their only operations are the result of intercompany
activity which is immediately dividended back to the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of the Company. All material intercompany accounts and
transactions between these entities have been eliminated.

CASH EQUIVALENTS -- Cash equivalents represent short-term investments with
an original maturity of three months or less.

RECEIVABLES -- The Company does not generally require collateral or other
security to guarantee trade receivables.

INVENTORIES -- Inventories are stated at standard cost which approximates
the costs which would be determined using the first-in, first-out (FIFO) method.
The recorded value of inventories is not in excess of market value.

PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost and are
depreciated using the straight-line or an accelerated method over their
estimated useful lives as follows:

<TABLE>
<S> <C>
Buildings and improvements.................................. 7 to 30 years
Equipment................................................... 3 to 10 years
</TABLE>

GOODWILL -- Goodwill is amortized on a straight-line basis over forty
years. Accumulated amortization at October 30, 1999 and October 31, 1998 was
$24,353,000 and $20,902,000, respectively. The Company assesses the
recoverability of goodwill by determining whether the amortization over the
remaining life can be recovered through projected undiscounted future
operations.

F-6
<PAGE> 42

INTANGIBLE ASSETS -- In conjunction with the acquisition of J.C. Carter in
1997, the Company recognized identified intangible assets which are amortized on
a straight line basis over their estimated economic lives as follows:

<TABLE>
<S> <C>
Workforce................................................... 8 Years
Contracts................................................... 10 Years
Spare Parts Annuity......................................... 10-28 Years
Patents..................................................... 14-17 Years
</TABLE>

DEFERRED FINANCING COSTS -- The costs of obtaining financing are amortized
over the terms of the financing. The amortized cost is included in interest
expense in the consolidated statements of net income. Accumulated amortization
at October 30, 1999 and October 31, 1998 was $3,064,000, and $1,129,000
respectively.

REDEEMABLE STOCK -- Redeemable ESOP Stock and all shares of Redeemable
Common Stock have been excluded from Shareholder's Equity/(Deficiency) due to
the ability of the holders of AT Holdings common stock to "put", subject to
certain restrictions, the shares to the Company and the accretion of the
Redeemable ESOP and Common Stock has been charged to Accumulated Deficit. In
connection with the recapitalization, management's right to require Argo-Tech to
repurchase shares of redeemable common stock was eliminated. There were 67,059
of these shares outstanding at October 31, 1998.

FOREIGN CURRENCY TRANSLATION -- Assets and liabilities of the Company's
foreign subsidiaries are translated into U.S. dollars at the current rate of
exchange, while revenues and expenses are translated at the average exchange
rate during the year. Adjustments from translating foreign subsidiaries'
financial statements are excluded from the consolidated statements of net income
and are reported as a component of shareholder's equity/(deficiency).

REVENUES AND COST RECOGNITION -- Revenues are generally recognized when
goods are shipped or services provided.

The Company's product development activities are conducted principally
under cost-sharing arrangements that are funded by the Company. The need for and
timing of expenditures under these arrangements is generally determined by the
Company. The estimated unreimbursable costs under the activities are expensed as
incurred.

Costs and estimated earnings in excess of billings on uncompleted contracts
represents costs incurred plus estimated profit, less amounts billed to
customers. Incurred costs include production costs and related overhead. General
and administrative expenses and research and development expenses are considered
period costs and, accordingly, are charged to operations on a current basis.
Certain customers have title to, or security interest in, certain inventories by
reason of progress payments.

EXTRAORDINARY LOSS -- In connection with the early extinguishment of debt
under the Company's previous bank credit agreement, the Company recognized an
extraordinary loss in fiscal 1997 of $1.5 million, net of income tax benefit of
$1.0 million, resulting from the write-off of unamortized debt issuance costs.

INCOME TAXES -- Income taxes are accounted for under the asset and
liability approach, which can result in recording tax provisions or benefits in
periods different than the periods in which such taxes are paid or benefits
realized. Expected tax benefits from temporary differences that will result in
deductible amounts in future years and from carryforwards, if it is more likely
than not that such tax benefits will be realized, are recognized currently.

USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

F-7
<PAGE> 43

3. RECAPITALIZATION

On December 17, 1998, AT Holdings entered into an agreement to repurchase
639,510 shares of stock from AT Holdings, LLC, the company's largest shareholder
for $79.4 million plus transaction expenses. The transaction, which was
consummated on January 4, 1999, was funded by the proceeds of Argo-Tech's
issuance of $55.0 million in principal amount of 8 5/8% Senior Subordinated
Notes, issued at a 5% discount, due 2007 in a private offering on December 17,
1998, $50.0 million of which was dividended to AT Holdings; the proceeds of the
issuance by AT Holdings of 30,000 shares of its preferred stock to Chase Venture
Capital Associates, L.P.; and cash. On May 27, 1999, the $55.0 million in
principal amount of 8 5/8% Senior Subordinated Notes were exchanged for similar
notes registered under the Securities Act of 1933. As a result of this
recapitalization, Argo-Tech's Employee Stock Ownership Plan became AT Holdings'
majority stockholder. In addition, AT Holdings amended its Certificate of
Incorporation to provide for the issuance of the preferred stock and Argo-Tech
amended its existing credit agreement and indenture to permit the issuance of
the Notes, payment of the dividend and amendment of the Supplemental Employee
Retirement Plan and the 1997 Stock Appreciation Rights Plan. The Stock
Appreciation Rights Plan provided for grants of up to 34,450 stock appreciation
rights, 17,225 of which were granted in fiscal years 1997 and 1998. The
remaining 17,225 stock appreciation rights were granted in November, 1998. In
connection with the stock repurchase, all stock appreciation rights became fully
vested in accordance with their terms and were converted into fully vested stock
options. In addition, all granted options under the 1991 Performance Stock
Option Plan and 1991 Management Incentive Stock Option Plan, to the extent not
vested, became fully vested in accordance with their terms on January 4, 1999.
The vesting of the stock appreciation rights and stock options resulted in a
charge to pre-tax earnings of $2.8 million. In connection with the
recapitalization, management's right to require Argo-Tech to repurchase shares
of redeemable common stock was eliminated.

4. ACQUISITION OF DURODYNE, INC.

On August 19, 1999, Argo-Tech purchased all the outstanding stock of
Durodyne, Inc., a manufacturer of specialty industrial hose for aerospace,
chemical transfer and marine applications for $3.4 million, including
acquisition costs. The acquisition was funded with $2.3 million of cash and a
note payable for $1.1 million. Durodyne is a subsidiary of J.C. Carter Company,
Inc. The acquisition was accounted for using the purchase method of accounting,
and accordingly, an allocation of the purchase price has been made using
estimated fair market values of the assets acquired and liabilities assumed as
of the acquisition date and the results of its operations have been included
since the date of acquisition. The purchase price of $3.4 million exceeded the
net assets of Durodyne at the date of acquisition by $1.6 million. This amount
was considered goodwill that is being amortized on a straight-line basis over 40
years.

5. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION

The major components of the following balance sheet captions were (in
thousands):

<TABLE>
<CAPTION>
OCTOBER 30, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Intangible assets:
Workforce............................................ $ 4,900 $ 4,900
Contracts.......................................... 17,100 17,100
Spare parts annuity................................ 38,200 38,200
Patents............................................ 380 380
------- -------
Total...................................... 60,580 60,580
Accumulated amortization........................... (8,378) (4,357)
------- -------
Total -- net............................... $52,202 $56,223
======= =======
</TABLE>

F-8
<PAGE> 44

<TABLE>
<CAPTION>
OCTOBER 30, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Accrued liabilities:
Salaries and accrued compensation.................. $ 6,693 $ 9,179
Accrued interest................................... 1,432 1,046
Accrued warranty................................... 2,586 2,631
Accrued income taxes............................... 2,359 1,550
Other.............................................. 5,858 5,385
------- -------
Total...................................... $18,928 $19,791
======= =======
Other noncurrent liabilities:
Deferred income taxes.............................. $18,569 $20,955
Other.............................................. 9,357 9,730
------- -------
Total...................................... $27,926 $30,685
======= =======
</TABLE>

6. RECEIVABLES

Receivables consist of the following (in thousands):

<TABLE>
<CAPTION>
OCTOBER 30, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Amounts billed -- net of allowance for uncollectible
amounts of $240 and $260........................... $ 29,529 $ 22,773
Amounts unbilled (principally commercial customers):
Net reimbursable costs incurred on uncompleted
contracts....................................... 15,631 14,367
Billings to date................................... (14,991) (13,274)
-------- --------
Total unbilled -- net...................... 640 1,093
-------- --------
Net receivables...................................... $ 30,169 $ 23,866
======== ========
</TABLE>

7. INVENTORIES

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
OCTOBER 30, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Finished goods....................................... $ 2,151 $ 2,289
Work-in-process and purchased parts.................. 20,404 18,668
Raw materials and supplies........................... 14,252 12,037
------- -------
Total...................................... 36,807 32,994
Reserve for excess and obsolete inventory............ (2,764) (3,466)
------- -------
Inventories -- net................................... $34,043 $29,528
======= =======
</TABLE>

Inventory is recorded net of progress payments received of approximately
$1.4 million at October 31, 1998. There were no progress payments in the fiscal
year ended October 30, 1999.

The Carter inventory amounts at September 26, 1997 were increased by $12.2
million to record inventories at their fair value as of the date of acquisition
in accordance with Accounting Principles Board Opinion No. 16 -- "Business
Combinations." Based on Carter's inventory turnover rate, $10.7 and $1.5 million
of this amount is included in cost of revenues for the fiscal years ended
October 31, 1998 and October 25, 1997, respectively.

Related to the Durodyne acquisition, the inventory amounts at August 19,
1999 were increased by $0.2 million to record inventories at their fair value as
of the date of acquisition in accordance with Accounting

F-9
<PAGE> 45

Principles Board Opinion No. 16 -- "Business Combinations." Based on Durodyne's
inventory turnover rate, $0.1 million of this amount is included in cost of
revenues for the fiscal year ended October 30, 1999.

8. PROPERTY AND EQUIPMENT

OWNED PROPERTY -- Property and equipment owned by the Company consists of
the following (in thousands):

<TABLE>
<CAPTION>
OCTOBER 30, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Land and land improvements........................... $ 7,654 $ 7,628
Buildings and building equipment..................... 32,959 32,168
Machinery and equipment.............................. 40,073 32,724
Office and automotive equipment...................... 6,318 6,063
Construction-in-progress............................. 2,183 3,685
-------- --------
Total...................................... 89,187 82,268
Accumulated depreciation............................. (53,534) (46,286)
-------- --------
Total -- net............................... $ 35,653 $ 35,982
======== ========
</TABLE>

PROPERTY LEASED TO OTHERS -- The Company leases certain portions of its
facility in Euclid, Ohio. The leases have been accounted for as operating leases
whereby revenue is recognized as earned over the lease terms. The cost of
property leased to others is included in property and equipment and is being
depreciated over its estimated useful life. It is not practical to determine the
cost of the property that is being leased to others or the related amount of
accumulated depreciation. In addition, the Company has separate service
contracts with its tenants under which the Company provides maintenance,
telecommunications and various other services. A large portion of the Company's
cost related to the receipts based on usage is variable in nature.

Total rental revenue under the property leases and service contracts was as
follows for the fiscal years ended 1999, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Minimum contractual amounts under property
leases......................................... $4,205 $4,010 $3,960
Service contracts revenue based on usage......... 832 759 949
------ ------ ------
Total.................................. $5,037 $4,769 $4,909
====== ====== ======
</TABLE>

Future minimum rentals under the noncancelable property leases and service
contracts at October 31, 1999 are (in thousands): $3,716 in 2000, $3,251 in
2001, $2,092 in 2002, $2,088 in 2003, and $1,106 in 2004.

9. EMPLOYEE BENEFIT PLANS

EMPLOYEE STOCK OWNERSHIP PLAN -- The Company has an Employee Stock
Ownership Plan (ESOP) to provide retirement benefits to qualifying, salaried
employees. The ESOP grants to participants in the plan certain ownership rights
in, but not possession of, the common stock of the Company held by the Trustee
of the Plan. Shares of common stock are allocated annually to participants in
the ESOP pursuant to a prescribed formula. The value of the shares committed to
be released by the Trustee under the Plan's provisions for allocation to
participants was recognized as an expense of $4,322,000, $3,911,000 and
$2,920,000 for the fiscal years ended 1999, 1998 and 1997, respectively. The
cost of the shares acquired for the ESOP that are not committed to be released
to participants is shown as a contra-account, "Unearned ESOP shares".

F-10
<PAGE> 46

Summary information regarding ESOP activity consists of the following:

<TABLE>
<CAPTION>
OCTOBER 30, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Allocated shares.......................................... 189,000 147,000
Shares released for allocation............................ 42,000 42,000
Unearned ESOP shares...................................... 189,000 231,000
----------- -----------
Total ESOP shares......................................... 420,000 420,000
Repurchased shares received as distributions.............. (11,013) (5,708)
----------- -----------
Total available ESOP shares............................... 408,987 414,292
=========== ===========
Fair market value of unearned ESOP shares................. $15,647,310 $23,125,410
=========== ===========
</TABLE>

All of the shares acquired for the ESOP (both allocated and unearned
shares) are owned and held in trust by the ESOP.

The Company's stock is not listed or traded on an active stock market and
market prices are, therefore, not available. Annually, an independent financial
consulting firm determines the fair market value based upon the Company's
performance and financial condition.

The Company provides an "internal market" for shareholders through its
purchase of their common shares. Participants in the Company's ESOP have the
right to require the Company, within a specified period, to repurchase shares
received as distributions under the ESOP at their fair market value.

PENSION AND SAVINGS PLANS -- The Company has two noncontributory defined
benefit pension plans for qualifying hourly and salary employees. A plan
covering salaried employees provides pension benefits that are based on the
employees' compensation and years of service. The future accrual of benefits was
terminated in connection with the formation of the ESOP. A plan covering hourly
employees provides benefits of stated amounts for each year of service. The
Company's funding policy is to contribute actuarially determined amounts
allowable under Internal Revenue Service regulations. The Company also sponsors
three employee savings plans which cover substantially all of the Company's
employees. The plan covering Carter employees provides for a match of
participating employees' contributions. The Company's contribution, recognized
as expense was approximately $499,000 and $481,000 in fiscal years 1999 and
1998, respectively.

A summary of the components of net periodic pension cost for the pension
plans for the fiscal years ended 1999, 1998 and 1997 is as follows (in
thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the period...... $ 257 $ 219 $ 201
Interest cost on projected benefit obligation.......... 1,101 1,042 971
Expected return on plan assets......................... (1,582) (1,200) (2,524)
Net amortization and deferral.......................... (25) (82) 1,429
------- ------- -------
Net periodic pension cost (benefit).................... $ (249) $ (21) $ 77
======= ======= =======
</TABLE>

F-11
<PAGE> 47

The following table sets forth the change in projected benefit obligation
(in thousands):

<TABLE>
<CAPTION>
OCTOBER 30, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Benefit obligation at beginning of year..................... $ 15,861 $ 13,891
Service cost................................................ 257 219
Interest cost............................................... 1,101 1,042
Benefits paid............................................... (769) (727)
Actuarial (gain) loss....................................... 289 418
Change in discount rate..................................... (2,010) 1,018
-------- --------
Benefit obligation at end of year........................... $ 14,729 $ 15,861
======== ========
</TABLE>

The following table sets forth the change in plan assets (in thousands):

<TABLE>
<S> <C> <C>
Fair value of plan assets at beginning of year.............. $ 17,129 $ 13,606
Actual return on plan assets................................ 1,558 1,867
Employer contributions...................................... 1,113 2,383
Benefits paid............................................... (769) (727)
-------- --------
Fair value of plan assets at end of year.................... $ 19,031 $ 17,129
======== ========
</TABLE>

The following table sets forth the funded status of the plans (in
thousands):

<TABLE>
<CAPTION>
OCTOBER 30, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Funded status............................................... $ 4,302 $ 1,268
Unrecognized net (gain) loss................................ (3,139) (1,513)
Unrecognized prior service cost............................. 314 360
------- -------
Prepaid (accrued) benefit cost.............................. $ 1,477 $ 115
======= =======
</TABLE>

Amounts recognized in the statement of financial position consist of (in
thousands):

<TABLE>
<S> <C> <C>
Prepaid benefit cost........................................ $ 1,514 $ 711
Accrued benefit liability................................... (37) (2,630)
Intangible asset............................................ -- 360
Accumulated other comprehensive income...................... -- 1,674
------- -------
Net amount recognized....................................... $ 1,477 $ 115
======= =======
</TABLE>

The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets at October 31, 1998 were $7,208, $7,208 and $5,886,
respectively.

The assumptions used to determine net periodic pension cost as well as the
funded status are:

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 8.0% 7.0% 7.5%
Expected Long-term rate of return on plan assets............ 9.0% 9.0% 9.0%
</TABLE>

OTHER POSTRETIREMENT BENEFITS -- The Company provides certain
postretirement health care benefits to qualifying hourly retirees and their
dependents.

F-12
<PAGE> 48

The net postretirement benefit cost for the fiscal years ended 1999, 1998
and 1997 includes the following components (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $201 $177 $149
Interest cost on accumulated postretirement benefit
obligation................................................ 693 674 592
Net amortization and deferral............................... 92 91 33
---- ---- ----
Net postretirement benefit cost............................. $986 $942 $774
==== ==== ====
</TABLE>

The following table sets forth the change in projected benefit obligation
(in thousands):

<TABLE>
<CAPTION>
OCTOBER 30, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Benefit obligation at beginning of year..................... $10,693 $ 8,734
Service cost................................................ 201 177
Interest cost............................................... 693 674
Benefits paid............................................... (101) (73)
Actuarial (gain) loss....................................... (640) 399
Change in discount rate..................................... (1,472) 782
------- -------
Benefit obligation at end of year........................... $ 9,374 $10,693
======= =======
</TABLE>

The following table sets forth the funded status of the plans (in
thousands):

<TABLE>
<CAPTION>
OCTOBER 30, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Funded status............................................... $(9,374) $(10,693)
Unrecognized net (gain) loss................................ 709 2,913
Unrecognized prior service cost............................. -- --
------- --------
Prepaid (accrued) benefit cost.............................. $(8,665) $ (7,780)
======= ========
</TABLE>

Benefit costs were generally estimated assuming retiree health care costs
would initially increase at an 11% annual rate, decreasing gradually to a 5%
annual growth rate after 12 years and remain at a 5% annual growth rate
thereafter. A 1% increase in this annual trend rate would have increased the
accumulated postretirement benefit obligation at October 30, 1999 by $1,250,000
with a corresponding effect on the 1999 postretirement benefit expense of
$122,000. The discount rate used to estimate the accumulated postretirement
benefit obligation was 8.0% and 7.0% for fiscal years 1999 and 1998.

10. INCOME TAXES

The income tax provision consists of the following for the fiscal years
ended 1999, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Current tax provision:
Federal............................................... $ 5,967 $ 8,931 $4,118
State and local....................................... 589 543 117
------- ------- ------
Total......................................... 6,556 9,474 4,235
Deferred tax provision (benefit)........................ (2,535) (6,074) (413)
------- ------- ------
Income tax provision.................................... $ 4,021 $ 3,400 $3,822
======= ======= ======
</TABLE>

F-13
<PAGE> 49

The difference between the recorded income tax provision and the amounts
computed using the statutory U.S. Federal income tax rate are as follows (in
thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Income tax provision at statutory rate................... $3,275 $2,554 $3,988
State tax provision -- net of federal benefits........... 383 353 100
Other -- net............................................. 363 493 (266)
------ ------ ------
Income tax provision..................................... $4,021 $3,400 $3,822
====== ====== ======
</TABLE>

During the fiscal years ended 1999, 1998 and 1997 the Company paid (net of
refunds received) approximately $5.8, $8.3 and $4.6 million in income taxes,
respectively.

The components of the Company's net deferred tax asset (liability) are as
follows (in thousands):

<TABLE>
<CAPTION>
OCTOBER 30, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Current:
Deductible temporary differences............................ $ 5,206 $ 4,837
Inventories............................................... (289) (69)
-------- --------
Total............................................. $ 4,917 $ 4,768
======== ========
Long-term:
Salary/Hourly retiree medical............................. $ 3,111 $ 2,867
Deductible temporary differences.......................... 289 729
Property and equipment.................................... (490) (1,373)
Intangible assets......................................... (21,479) (23,178)
-------- --------
Total............................................. $(18,569) $(20,955)
======== ========
</TABLE>

The temporary difference described above principally represent differences
between the tax bases of assets (principally inventory, property and equipment,
and intangible assets) or liabilities (principally related to employee benefits
and loss reserves) and their reported amounts in the consolidated financial
statements that will result in taxable or deductible amounts in future years
when the reported amounts of the assets or liabilities are recovered or settled,
respectively.

11. DEBT

SUMMARY -- The Company's long-term debt consists of the following (in
thousands):

<TABLE>
<CAPTION>
OCTOBER 30, OCTOBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Term Loans............................................ $ 81,397 $ 87,212
Revolving Credit Facility............................. 2,000
Senior Subordinated Notes............................. 192,436 140,000
Other................................................. 1,154 174
-------- --------
Total borrowings............................ 276,987 227,386
Current maturities.................................... (12,454) (5,946)
-------- --------
Long-term portion..................................... $264,533 $221,440
======== ========
</TABLE>

CREDIT FACILITY AND TERM LOANS -- During 1997, the Company amended its
Credit Facility to allow for, among other things, the acquisition of Carter and
the issuance of the Senior Subordinated Notes. Under the Amended Credit
Facility, the Company had available $110.0 million principal amount of Term
Loans, and has a seven-year $20.0 million Revolving Credit Facility. The unused
balance of the Revolving Credit Facility ($17.0 million at October 30, 1999
after reduction of $1.0 million for letters of credit) is subject to a .375%
commitment

F-14
<PAGE> 50

fee. The credit facility is collateralized by substantially all of the tangible
assets of the Company (including the capital stock of Argo-Tech) as well as the
unearned shares of the Company's common stock held by the ESOP. The Amended
Credit Facility contains a number of covenants that, among other things, limit
the Company's ability to incur additional indebtedness, pay dividends, prepay
subordinated indebtedness, dispose of certain assets, create liens, make capital
expenditures, make certain investments or acquisitions and otherwise restrict
corporate activities. The Amended Credit Facility also requires the Company to
comply with certain financial ratios and tests, under which the Company will be
required to achieve certain financial and operating results. The Company was in
compliance with the covenants at October 30, 1999. Interest was calculated, at
the Company's choice, using an alternate base rate (ABR) or LIBOR, plus a
supplemental percentage determined by the ratio of debt to EBITDA. The interest
rate for fiscal year 1999 ranged from 0.25% to 1.00% plus ABR or 1.25% to 2.00%
plus LIBOR.

The Company entered into three interest rate swap agreements with a
financial institution in notional amounts of $10.0 million which fixed the rates
at 6.775%, 6.775% and 6.805% through October 2000. On October 1, 1998 the
Company terminated a $10.0 million swap that had a fixed rate of 6.775% and was
to terminate on October 27, 2000 and replaced it with a $10.0 million swap that
has a fixed rate of 6.08% and will now terminate on October 31, 2003. On
December 17, 1998 the Company terminated a $10.0 million swap that had a fixed
rate of 6.775% and was to terminate on October 27, 2000 and replaced it with a
$10.0 million swap that has a fixed rate of 6.10% and will now terminate on
December 31, 2003. The gains/losses on the swap agreements were recognized as
interest expense and amounted to a $0.4 million loss in fiscal year 1999 and
1998, respectively, and a $0.3 million loss in fiscal year 1997. The Company has
no other derivative financial instruments.

SENIOR SUBORDINATED NOTES -- On September 26, 1997 the Company issued
$140.0 million 8 5/8% Senior Subordinated Notes due 2007 (the "Notes"). Proceeds
from the offering, together with a portion of the borrowings under the Amended
Credit Facility, were used (i) to finance the acquisition of Carter; (ii) to
repay in full $46.1 million in existing notes and; (iii) to pay fees and
expenses incurred in connection with the acquisition.

On December 17, 1998, the Company issued $55.0 million in principal amount
of 8 5/8% Senior Subordinated Notes, issued at a 5% discount, due 2007, $50.0
million of which was dividended to AT Holdings. The proceeds from the offering
along with the proceeds of the issuance by AT Holdings of 30,000 shares of its
preferred stock to Chase Venture Capital Associates, L.P. and cash were used to
repurchase 639,510 shares of stock from AT Holdings, LLC, the largest
shareholder of AT Holdings, for $79.4 million plus transaction expenses. At
October 30, 1999 the accreted value of this offering was $52.4 million

Interest on the Notes will be payable semiannually on April 1 and October 1
of each year, commencing on April 1, 1998. The Notes will mature on October 1,
2007. Except as described below, the Company may not redeem the Notes prior to
October 1, 2002. On or after such date, the Company may redeem the Notes, in
whole or in part, at the redemption prices at the time, together with accrued
and unpaid interest, if any, to the date of redemption. In addition, at any time
on or prior to October 1, 2000, the Company may, subject to certain
requirements, redeem up to 33 1/3% of the original aggregate principal amount of
the Notes with net cash proceeds of one or more public equity offerings by the
Company, at a redemption price equal to 108.625% of the principal amount to be
redeemed, together with accrued and unpaid interest, if any, to the date of
redemption, provided that at least 66 2/3% of the original aggregate principal
amount of the Notes remains outstanding immediately after each such redemption.

The Notes are unsecured and are subordinated in right of payment to all
existing and future Senior Indebtedness of the Company and are subject to
certain limitations and restrictions which the Company has not exceeded at
October 30, 1999.

F-15
<PAGE> 51

ANNUAL MATURITIES AND INTEREST PAYMENTS -- The maturities of the Company's
long-term debt during each of the next five fiscal years are as follows (in
thousands):

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- --------
<S> <C>
2000........................................................ $ 12,454
2001........................................................ 11,631
2002........................................................ 18,612
2003........................................................ 20,932
2004........................................................ 20,918
Thereafter.................................................. 192,440
--------
Total............................................. $276,987
========
</TABLE>

The total interest paid during the fiscal years ended 1999, 1998 and 1997
was $22.4 million, $20.1 million and $12.5 million, respectively.

12. SEGMENT INFORMATION

The Company operates in two business segments: Argo-Tech and J.C. Carter.
Argo-Tech includes the design, manufacture and distribution of aviation
products, primarily aircraft fuel pumps, throughout the world. J.C. Carter is a
wholly-owned subsidiary of Argo-Tech Corporation who designs, manufactures and
distributes fuel flow related products found on a plane's airframe, aerial
refueling systems, ground fueling system valves and related components and
industrial marine cryogenic pumps for transferring liquefied natural gas.

The company evaluates the performance of its segments based primarily on
operating profit before amortization of goodwill, deferred financing fees and
other identified intangibles, interest expense, interest income, other
miscellaneous fees and income taxes.

The following table presents revenues and other financial information by
business segment (in thousands):

<TABLE>
<CAPTION>
ARGO-TECH J.C. CARTER CORPORATE CONSOLIDATED
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
1999
Customer revenues............................. $121,417 $55,123 $ -- $176,540
Intersegment revenues......................... 80 -- -- 80
Eliminations.................................. (80)
Operating profit (loss)....................... 36,037 8,332 (3,045) 41,324
Amortization of goodwill and intangible
assets...................................... 7,478
--------
Income from operations........................ 33,846
Interest expense.............................. 25,003
Interest income and other..................... (516)
--------
Income before tax............................. $ 9,359
========
Capital expenditures.......................... 5,000 1,050 6,050
Depreciation.................................. 4,065 2,232 264 6,561
Amortization of inventory step-up............. 77 77
Compensation expense recognized in connection
with employee stock ownership plan.......... 4,322 4,322
Compensation expense recognized in connection
with stock appreciation rights and stock
options..................................... 2,983 2,983
</TABLE>

F-16
<PAGE> 52

<TABLE>
<CAPTION>
ARGO-TECH J.C. CARTER CORPORATE CONSOLIDATED
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
1998
Customer revenues............................. $124,830 $49,313 $ -- $174,143
Intersegment revenues......................... 97 6 -- 103
Eliminations.................................. (103)
Operating profit (loss)....................... 36,473 463 (1,397) 35,539
Amortization of goodwill and intangible
assets...................................... 7,480
--------
Income from operations........................ 28,059
Interest expense.............................. 21,030
Interest income and other..................... (268)
--------
Income before tax............................. $ 7,297
========
Capital expenditures.......................... 4,854 756 5,610
Depreciation.................................. 3,865 2,663 281 6,809
Amortization of inventory step-up............. 10,681 10,681
Compensation expense recognized in connection
with employee stock ownership plan.......... 3,911 3,911

1997
Customer revenues............................. $113,310 $ 3,776 $ -- $117,086
Intersegment revenues......................... -- -- -- --
Eliminations..................................
Operating profit (loss)....................... 30,550 (625) (423) 29,502
Amortization of goodwill and intangible
assets...................................... 2,852
--------
Income from operations........................ 26,650
Interest expense.............................. 12,827
Interest income and other..................... (404)
--------
Income before tax............................. $ 14,227
========
Capital expenditures.......................... 2,690 -- 2,690
Depreciation.................................. 4,163 205 297 4,665
Amortization of inventory step-up............. 1,496 1,496
Compensation expense recognized in connection
with employee stock ownership plan.......... 2,920 2,920
</TABLE>

13. MAJOR CUSTOMERS AND EXPORT SALES

During the fiscal years ended 1999, 1998 and 1997, the Company had revenues
in excess of 10% from the following customers (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Customer A (Related Party).................... $29,751 $29,870 $25,896
Customer B.................................... -- -- 14,562
Customer C.................................... -- -- 12,740
</TABLE>

During the fiscal years ended 1999, 1998 and 1997, export sales to foreign
customers were comprised of the following (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Europe........................................ $30,501 $29,812 $18,786
All others (individually less than 10%)....... 50,159 52,402 40,707
------- ------- -------
Total............................... $80,660 $82,214 $59,493
======= ======= =======
</TABLE>

F-17
<PAGE> 53

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company has various financial instruments, including cash and
short-term investments, interest rate swaps and long-term debt. The Company has
determined the estimated fair value of these financial instruments by soliciting
available market information and utilizing appropriate valuation methodologies
which require judgment. The Company believes that the carrying values of the
short term investments and long term debt approximates their fair value. The
fair value of interest rate swaps (used for hedging purposes) is the estimated
amount that the company would pay to terminate the swap agreements at October
30, 1999, taking into account current interest rates and the current
creditworthiness of the company and the respective financial institution. The
amount the company would pay to settle the three interest rate swap agreements
at October 30, 1999 would be approximately $0.2 million dollars. The company's
balance sheet does not reflect these amounts.

15. CONTINGENCIES

ENVIRONMENTAL MATTERS -- The soil and groundwater at the Company's Euclid,
Ohio facility and the Costa Mesa, California facility contain elevated levels of
certain contaminants which are currently in the process of being removed and/or
remediated. Because the Company has certain indemnification rights from former
owners of the facilities for liabilities arising from these or other
environmental matters, in the opinion of the Company's management, the ultimate
outcome is not expected to materially affect the Company's financial condition,
results of operations or liquidity.

OTHER MATTERS -- The Company is subject to various legal actions and other
contingencies. In the opinion of the Company's management, after reviewing the
information which is currently available with respect to such matters and
consulting with the Company's legal counsel, any liability which may ultimately
be incurred with respect to these additional matters is not expected to
materially affect the Company's financial condition, results of operations or
liquidity.

16. NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral
of the Effective Date of FASB Statement No. 133," was issued in June 1999. This
statement delays the effective date of SFAS No. 133 until the fiscal quarters of
fiscal years beginning after June 15, 2000. The Company has not completed its
evaluation of SFAS No. 133, but does not anticipate a material impact on the
consolidated financial statements from the adoption of this accounting standard.

* * * * * *

F-18
<PAGE> 54

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3.1 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
3.2 By-Laws of the Company (incorporated herein by reference to
Exhibit 3.2 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
4.1 Indenture dated September 26, 1997, between the Company, the
Subsidiary Guarantors signatory thereto and Harris Trust and
Savings Bank, as Trustee, relating to the 8 5/8% Senior
Subordinated Notes due 2007 (the form of which is included
in such Indenture) (incorporated herein by reference to
Exhibit 4.1 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
4.2 Form of Global Exchange Note (included in Exhibit 4.1)
(incorporated herein by reference to Exhibit 4.2 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
4.3 Exchange and Registration Rights Agreement dated September
26, 1997, between the Company, the Subsidiary Guarantors and
Chase Securities Inc. (incorporated herein by reference to
Exhibit 4.3 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
*10.1 Form of Stay Pay and Severance Agreement dated June 6, 1996,
by and among the Company and certain Executive Officers of
the Company (Michael S. Lipscomb, Yoichi Fujiki, Frances S.
St. Clair, Paul R. Keen and David Chrencik) (incorporated
herein by reference to Exhibit 10.1 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
*10.2 Employment Agreement dated February 13, 1989 between the
Company and Paul R. Keen (incorporated herein by reference
to Exhibit 10.2 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
*10.3 Employment Agreement dated October 15, 1986 between the
Company and Michael S. Lipscomb (incorporated herein by
reference to Exhibit 10.3 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
*10.4 Argo-Tech Corporation Trust Agreement dated October 28, 1994
between the Company and Society National Bank, as Trustee,
relating to the Employment Agreement dated October 15, 1986
between the Company and Michael S. Lipscomb (incorporated
herein by reference to Exhibit 10.4 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
*10.5 Argo-Tech Corporation Salaried Pension Plan, dated November
1, 1995 (incorporated herein by reference to Exhibit 10.5 of
the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
*10.6 First Amendment to Argo-Tech Corporation Salaried Pension
Plan (incorporated herein by reference to Exhibit 10.6 of
the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
*10.7 Argo-Tech Corporation Employee Stock Ownership Plan and
Trust Agreement, dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.7 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
*10.8 First Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated October 26, 1994
(incorporated herein by reference to Exhibit 10.8 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
</TABLE>

X-1
<PAGE> 55
EXHIBIT INDEX -- CONTINUED

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
*10.9 Second Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated May 9, 1996
(incorporated herein by reference to Exhibit 10.9 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
*10.10 Third Amendment to the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement, dated July 18, 1997
(incorporated herein by reference to Exhibit 10.10 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
*10.11 Argo-Tech Corporation Employee Stock Ownership Plan Excess
Benefit Plan, dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.11 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
**10.12 AT Holdings Corporation Stockholders Agreement, dated as of
December 17, 1998.
**10.13 AT Holdings Corporation Supplemental Stockholders Agreement,
dated as of December 17, 1998.
10.14 Amendment, Termination and Release under Vestar/AT Holdings
Corporation Stockholders' Agreement, dated May 17, 1994
(incorporated herein by reference to Exhibit 10.17 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
10.15 Consulting Agreement between the Company and Vestar Capital
Partners dated May 17, 1994 (incorporated herein by
reference to Exhibit 10.18 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
*10.16 Form of Management Incentive Compensation Plan for key
employees of the Company (incorporated herein by reference
to Exhibit 10.19 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
*10.17 1991 Management Incentive Stock Option Plan, as amended,
dated May 16, 1994 (incorporated herein by reference to
Exhibit 10.20 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
*10.18 Form of Stock Option Agreement in connection with the
Management Incentive Stock Option Plan, as amended, between
the Company and all members of the Company's Executive Staff
(incorporated herein by reference to Exhibit 10.21 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
*10.19 1991 Performance Stock Option Plan, as amended, dated May
16, 1997 (incorporated herein by reference to Exhibit 10.22
of the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
*10.20 Form of Stock Option Agreement in connection with the 1991
Performance Stock Option Plan, as amended, between the
Company and certain key employees (incorporated herein by
reference to Exhibit 10.23 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
10.21 Credit Facility, dated July 18, 1997, as amended and
restated on September 26, 1997, between the Company and
Chase Manhattan Bank (incorporated herein by reference to
Exhibit 10.24 of the Company's Registration Statement on
form S-1, filed October 17, 1997, SEC File No. 333-38223).
10.22 Distributorship Agreement, dated December 24, 1990, between
the Company, Yamada Corporation and Vestar Capital Partners,
Inc. (incorporated herein by reference to Exhibit 10.25 of
the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
10.23 Japan Distributorship Agreement, dated December 24, 1990,
between the Company, Aerotech World Trade Corporation,
Yamada Corporation, Yamada International Corporation and
Vestar Capital Partners, Inc. (incorporated herein by
reference to Exhibit 10.26 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
</TABLE>

X-2
<PAGE> 56
EXHIBIT INDEX -- CONTINUED

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.24 Stock Purchase Agreement, dated August 1, 1997, between the
Company, J.C. Carter Company, Inc., Robert L. Veloz,
Individually and as Trustee, Marlene J. Veloz, Individually
and as Trustee, Edith T. Derbyshire, Individually and as
Trustee, Harry S. Derbyshire, Individually and as Trustee,
Michael Veloz, Katherine Canfield and Maureen Partch, as
Trustee (incorporated herein by reference to Exhibit 10.27
of the Company's Registration Statement on form S-1, filed
October 17, 1997, SEC File No. 333-38223).
*10.25 Prism Prototype Retirement Plan & Trust & 401(k) Profit
Sharing Plan Adoption Agreement, dated November 1, 1994
(incorporated herein by reference to Exhibit 10.28 of the
Company's Registration Statement on form S-1, filed October
17, 1997, SEC File No. 333-38223).
*10.26 Prism Prototype Retirement Plan and Trust (incorporated
herein by reference to Exhibit 10.29 of the Company's
Registration Statement on form S-1, filed October 17, 1997,
SEC File No. 333-38223).
10.27 Agreement of Purchase and Sale between Agnem Holdings, Inc.
and TRW Inc. dated as of August 5, 1986 (incorporated herein
by reference to Exhibit 10.30 of the Company's Registration
Statement on form S-1, filed October 17, 1997, SEC File No.
333-38223).
*10.28 1997 Stock Appreciation Rights Plan.
**10.29 AT Holdings Corporation 1998 Incentive Plan.
**12 Statement regarding computation of ratios.
21 List of Subsidiaries (incorporated herein by reference to
Exhibit 21 of the Company's Registration Statement on form
S-1, filed October 17, 1997, SEC File No. 333-38223).
**27 Financial Data Schedule
</TABLE>

- ---------------

* Reflects management contract or other compensatory arrangement required to be
filed as an exhibit pursuant to Item 14(c) of this Report.

** Filed herewith.

X-3

<PAGE> 1

Exhibit 10.12
-------------

AT HOLDINGS CORPORATION

-------------------------

STOCKHOLDERS AGREEMENT

-------------------------

Dated as of
December 17, 1998

<PAGE> 2

STOCKHOLDERS' AGREEMENT

STOCKHOLDERS' AGREEMENT made as of this 17th day of December, 1998, by
and among AT Holdings Corporation, a Delaware corporation (the "Company"), AT
Holdings, LLC, a Nevada limited liability company ("ATLLC"), YC International
Inc., a California corporation ("YCI"), Sunhorizon International, Inc., a
California corporation ("Sunhorizon", and together with ATLLC and YCI, the
"Yamada Investors"), Chase Venture Capital Associates, L.P., a California
limited partnership (together with its permitted transferees the "Equity
Investors"), and David L. Chrencik, Yoichi Fujiki, Paul R. Keen, Michael S.
Lipscomb and Frances S. St. Clair individually and as representatives of all of
the management and director stockholders of the Company who enter into
Acknowledgment and Agreements substantially in the form of ANNEX A to this
Agreement (the "Management Investors"). The Yamada Investors, the Management
Investors and the Equity Investor are sometimes referred to herein collectively
as the "Investors".

WHEREAS, the Company has entered into a Stock Purchase Agreement dated
as of December 17, 1998, with ATLLC, whereby the Company has agreed to purchase
639,510 shares of the Company's Common Stock, $.001 par value per share (the
"Common Stock") for an aggregate purchase price of approximately $79,590,000
(the "Stock Repurchase");

WHEREAS, the Company plans to finance the Stock Repurchase partially
from the proceeds of the issuance to the Equity Investor pursuant to the
Preferred Stock and Warrant Purchase Agreement dated as of December 17, 1998,
with the Company (the "Preferred Stock Agreement") of a total of 30,000 shares
of Cumulative Exchangeable Redeemable Preferred Stock, par value $1,000 per
share (the "Preferred Stock") and warrants to acquire 46,025 shares of Common
Stock, including additional warrants issued upon the occurrence of certain
Events of Non-Compliance (as defined in the Preferred Stock Agreement) (the
"Warrants"), for an aggregate purchase price of $30,000,000;

WHEREAS, it is a condition to the obligations of the Equity Investor to
purchase the Preferred Stock and Warrants pursuant to the Preferred Stock
Agreement that the Investors shall enter into this Stockholders' Agreement;

WHEREAS, the Company has entered into a Supplemental Stockholders
Agreement of even date herewith with Argo-Tech Corporation and Key Trust Company
of Ohio, N.A., in its capacity as Trustee under the Argo-Tech Corporation
Employee Stock Ownership Plan and Trust (the "Supplemental Stockholders
Agreement"); and

WHEREAS, the Investors desire to enter into this Stockholders'
Agreement for the purpose of regulating certain aspects of the Investors'
relationships with regard to the Company;

NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:

<PAGE> 3

SECTION 1. BOARD OF DIRECTORS; GOVERNANCE.
-------------------------------

1.1 NUMBER OF DIRECTORS; ELECTION OF NOMINEES. During the term of this
Agreement, each Investor shall take any and all action to elect, and shall use
their best efforts to cause the elected Board of Directors to recommend the
election to the Board of Directors of the Company (the "Board of Directors"),
the following seven (7) individuals:

(a) two (2) individuals designated in writing by the
Yamada Investors, not more than one of whom may be an
employee of the Company or any of its subsidiaries
(the "Yamada Directors"); and

(b) five (5) individuals designated in writing by the
Management Investor representatives, not more than
two of whom may be employees of the Company or any of
its subsidiaries (the "Management Directors").

1.2 INITIAL DIRECTORS. The initial Board of Directors will consist of:

Name Category
---- --------

1. Mr. Remi de Chastenet Yamada Director
2. Mr. Robert Nagata Yamada Director
3. Mr. Thomas Dougherty Management Director
4. Mr. Yoichi Fujiki Management Director
5. Mr. Michael Lipscomb Management Director
6. Mr. Karl Storrie Management Director
7. Vacancy Management Director

1.3 VACANCIES. If any vacancy on the Board of Directors occurs during
the term of this Agreement (including the vacancy identified in Section 1.2),
the Investors shall use their best efforts to cause the Directors remaining in
office to recommend and elect to fill such vacancy with a replacement director
in accordance with the provisions of Section 1.1 hereof.

1.4 INCREASES IN THE NUMBER OF DIRECTORS. Subject to the Company's
governing charter documents, the number of members of the Board of Directors may
be increased from seven (7) persons from time to time at the discretion of the
Board of Directors; PROVIDED, HOWEVER, that such increases shall require the
approval of Directors then in office who number one less than the total
Directors then in office. In the event that the size of the Board of Directors
is increased, the additional members shall be persons who are not employees of
the Company, selected by the Management Investor representatives in a manner
consistent with the provisions of Section 1 hereof.

1.5 NON-VOTING OBSERVER. The Equity Investor shall have the right to
select one non-voting observer to the Board of Directors, who shall have the
right to attend all Board of Directors and committee meetings.

<PAGE> 4

1.6 VOTE REQUIRED FOR EXTRAORDINARY TRANSACTIONS.

(a) The approval of more than 66% of the members of the Board of
Directors shall be required before the Company enters into any Extraordinary
Transaction (as hereinafter defined).

(b) "Extraordinary Transactions" shall mean the following:

(i) the merger or consolidation of the Company with or into
another entity, where (x) the Company is not the survivor or (y) the capital
stock of the Company is converted or exchanged into other securities or cash or
(z) the holders of the Common Stock, immediately prior to such merger or
consolidation do not own at least a majority of the voting power of the Company
immediately following such merger or consolidation;

(ii) a sale by the Company of all or substantially all of its
assets, other than to one or more wholly-owned subsidiaries of the Company;

(iii) any amendment to the Company's Certificate of
Incorporation or Bylaws; or

(iv) the adoption by the Company of a plan of liquidation.

SECTION 2. TRANSFER RESTRICTIONS
---------------------

2.1 GENERAL RESTRICTION.

(a) Each Investor agrees that neither such Investor nor any of such
Investor's permitted transferees as contemplated below will directly or
indirectly offer, transfer, donate, sell, assign, pledge, hypothecate or
otherwise dispose of (any such action a "Transfer") all or any portion of the
shares of Common Stock of the Company now owned or hereafter acquired by such
Investor or them, except (i) to permitted transferees as permitted by Section
2.1(b) or (ii) in bona fide sales to third parties for value following
compliance with Section 2 (it being understood that so long as the Equity
Investor owns less than 10% of the outstanding shares of Common Stock, bona fide
sales by the Equity Investor to third parties for value shall be permitted under
this Section 2).

(b) "Permitted Transfers" by an Investor shall be limited to (i)
Transfers by any Investor to its Affiliates (as defined below), (ii) Transfers
upon an Investor's death to the Investor's heirs, executors or administrators or
to a trust under the Investor's will or to the Investor's guardian or
conservator, (iii) Transfers between Management Investors or Affiliates of
Management Investors, (iv) Transfers between Yamada Investors or Affiliates of
Yamada Investors, (v) Transfers to Management Investors, (vi) Transfers to the
Company, any Affiliate of the Company or any employee benefit plan maintained by
the Company or any of its Affiliates and (vii) any Transfer by a Management
Investor which has been approved by the Management Investor representatives.
Anything to the contrary in this Agreement notwithstanding, Transfers under this
Section 2.1(b) shall not be subject to Section 2.2 or 2.3 and transferees
permitted by

<PAGE> 5

this Section 2.1(b) shall take any shares so Transferred subject to all
obligations under this Agreement as if such shares were still held by the
Investor whether or not they so expressly agree.

(c) For purposes of this Agreement, "Affiliate" shall mean, (i)
with respect to an individual: a parent, descendent or spouse of such
individual; (ii) with respect to an individual: any trust for the primary
benefit of the individual or any person described in clause (i); (iii) with
respect to a trust: the beneficiaries of the trust or another trust established
for the primary benefit of such beneficiaries; and (iv) with respect to any
person (other than a natural person): any other person, directly or indirectly,
controlling or controlled by under direct or indirect common control with such
specified person. For purposes of this definition, "control" when used with
respect to any person means the power to direct the management and policies of
such person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.

2.2 RIGHT OF FIRST REFUSAL. If at any time on or after the date hereof
an Investor, or group of Investors, owning a combined total of ten percent (10%)
or more of the outstanding shares of Common Stock (including for all purposes of
this Section 2.2, any permitted transferee of such Investor's shares pursuant to
Section 2.1(b)) receives a bona fide offer to purchase shares representing ten
percent (10%) or more of the outstanding shares of Common Stock (the "Offer")
from an unaffiliated third party (the "Offeror") that the Investor, or group of
Investors, wishes to accept, such Investor, or group of Investors, may Transfer
such shares pursuant to and in accordance with the following provisions of this
Section 2.2:

(a) Such Investor, or group of Investors (the "Selling Investor")
shall cause the Offer to be reduced to writing and shall notify the Company and
the other Investors in writing of such Selling Investor's desire to accept the
Offer and otherwise comply with the provisions of this Section 2. The Selling
Investor's notice shall constitute an irrevocable offer to sell such Common
Stock to the Company and the other Investors at a purchase price equal to the
price contained in, and on the same terms and conditions of, the Offer. The
notice shall be accompanied by a true copy of the Offer (which shall identify
the Offeror).

(b) The Company shall have the right to offer to purchase all, but
not less than all, of the shares covered by the Offer. To exercise such right,
the Company shall, within ten (10) days of receipt of such written notice (the
"Company Notice Period"), communicate in writing such election to the Selling
Investor (with copies to the other Investors). Such written election to purchase
shall constitute a valid, legally binding and enforceable agreement for the sale
and purchase of all of the shares covered by the Offer.

(c) In the event that the Company does not exercise its rights
pursuant to Section 2.2(b), the Selling Investor shall notify the other
Investors in writing of such fact (the "Investor Notice"). At any time within
twenty (20) days after receipt by the other Investors of the Investor Notice
(the "Notice Period"), one or more of the other Investors, individually or in
aggregate may, subject to the terms hereof, choose to accept the Offer with
respect to all, but not less than all, of the shares covered thereby and not
purchased by the Company by giving written notice to the Selling Investor to
such effect; provided that if two or more of the other Investors choose, in the
aggregate, to accept such Offer with respect to an aggregate number of shares

<PAGE> 6

which exceeds the number of shares subject to such Offer and available for
purchase, the number of shares for which the Offer may be accepted by each such
Investor shall, in each case, be reduced by the smallest number of shares as
shall be necessary to reduce the aggregate number of shares for which the Offer
may be accepted by the electing Investors as contemplated herein to the number
of shares for which the Offer was made and which are available for purchase by
them; provided further, that the number of shares for which any Investor may
accept such Offer as contemplated herein shall in no event be reduced to less
than the number of shares which bears the same proportion to the total number of
shares which are available for purchase as the number of shares of Common Stock
then held by such Investor bears to the total number of shares of Common Stock
then held by all Investors accepting such Offer.

(d) If shares covered by any Offer are purchased pursuant to
Section 2.2(b) or 2.2(c), such purchase shall be (i) at the same price and on
the same terms and conditions as the Offer if the Offer is for cash and/or notes
or (ii) if the Offer includes any consideration other than cash and notes, then
at the equivalent all cash price for such other consideration. The closing of
the purchase of the shares subject to an Offer pursuant to this Section 2.2
shall take place within fifteen (15) days after the expiration of the Notice
Period, or upon satisfaction of any governmental approval requirements, if
later, by delivery by the respective purchasers of the purchase price for shares
being purchased as provided above to the Selling Investor against delivery of
the certificates representing the shares so purchased, appropriately endorsed
for Transfer by such Selling Investor.

2.3 TAG-ALONG RIGHTS.

(a) INVESTORS TAG-ALONG OPTION. In the event any Investor or group
of Investors (including for all purposes of this Section 2.3, any permitted
transferees of an Investor as contemplated by Section 2.1(b)) proposes to sell
ten percent (10%) or more of the outstanding shares of Common Stock or receives
an Offer for ten percent (10%) or more of the outstanding shares of Common Stock
and any of such shares are not purchased pursuant to Section 2.2, such Investor,
or group of Investors, may Transfer the shares subject thereto only following
compliance with this Section 2.3.

(i) In such event, immediately following the last day of the
applicable Notice Period, the Selling Investor shall give an additional notice
of the proposed sale to the other Investors, once again enclosing a copy of the
Offer, if applicable, which shall identify the Offeror and the number of shares
proposed to be sold (the "Co-Sale Notice").

(ii) Upon the election by an Investor, such Investor shall have
the right, exercisable upon written notice to the Selling Investor and any such
permitted transferee within twenty (20) days after delivery to it of the Co-Sale
Notice (the "Co-Sale Notice Period"), to participate in the sale on the terms
and conditions stated in the Co-Sale Notice, except that any Investor who holds
Warrants shall be permitted to sell to the relevant purchaser shares of Common
Stock acquired upon exercise thereof or, at its election, an option to acquire
such Common Stock when it receives the same upon such exercise at the election
of such Investor or as otherwise provided in the Company's Certificate of
Incorporation with the same effect as if Common Stock were being conveyed. Each
of the Investors shall have the right to sell all or any portion of its shares
of Common Stock on the terms and conditions in the Co-Sale Notice (subject to
the foregoing), with the number of shares of Common Stock to be apportioned on a

<PAGE> 7

pro rata basis among the relevant Investors based on the number of shares of
Common Stock requested to be sold by each such Investor. To the extent one or
more Investors elect not to sell the full amount of shares which they are
entitled to sell pursuant to this Section 2.3(a), the other participating
Investors' rights to sell shares shall be increased proportionately to their
relative holdings of Common Stock, such that the Investors shall have the right
to sell the full number of shares allocable to them in any transaction subject
to this Section 2.3(a) even if some Investors elect not to participate.

(iii) Within five (5) days after the expiration of the Co-Sale
Notice Period, the relevant Investor shall notify each participating Investor of
the number of shares held by such Investor that will be included in the sale and
the date on which the sale will be consummated, which shall be no later than the
later of (i) 30 days after the delivery of the Co-Sale Notice and (ii) the
satisfaction of all governmental approval requirements, if any.

(iv) Each of the Investors may effect its participation in any
sale hereunder by delivery to the purchaser, or to the relevant Investor for
transfer to the purchaser, of one or more instruments, certificates and/or
option agreements, properly endorsed for transfer, representing the shares it
elects to sell therein, provided that no Investor shall be required to make any
representations or warranties or to provide any indemnities in connection
therewith other than with respect to title to the stock being conveyed. At the
time of consummation of the sale, the purchaser shall remit directly to each
Investor that portion of the sale proceeds to which each Investor is entitled by
reason of its participation therein. No shares may be purchased by a purchaser
from the relevant Investor or any of such Investor's permitted transferees
unless the purchaser simultaneously purchases from the Investors all of the
shares that they have elected to sell pursuant to this Section 2.3(a).

(b) Any shares held by an Investor or any of its permitted
transferees that the Investor or transferee desires to sell following compliance
with Section 2.3(a) may be sold to the purchaser only during the 90-day period
after the expiration of the Co-Sale Notice Period and only on terms no more
favorable to the Investor or transferee than those contained in the relevant
notice. Promptly after such sale, such Investor shall notify the parties hereto
of the consummation thereof and shall furnish such evidence of the completion
and time of completion of such sale and of the terms thereof as may reasonably
be requested by the other parties hereto. So long as the purchaser is neither a
party nor an affiliate or relative of a party to this Agreement, such purchaser
shall take the shares so Transferred free and clear of any further restrictions
of this Section 2. If, at the end of such 90-day period, such Investor or any of
such transferees have not completed the sale of such shares as aforesaid, all
the restrictions on Transfer contained in this Section 2 shall again be in
effect with respect to such shares.

SECTION 3. REGISTRATION RIGHTS
-------------------

The Registration Rights Agreement to be entered into by and among the
parties to this Agreement is attached as ANNEX B hereto.

SECTION 4. MANAGEMENT INVESTOR REPRESENTATIVES
-----------------------------------

4.1 INITIAL REPRESENTATIVES OF THE MANAGEMENT INVESTORS. Initially,
there will be five (5) representatives of the Management Investors. The
Management Investors, by their

<PAGE> 8

execution of the Acknowledgment and Agreement attached to this Agreement,
appoint the following persons to be their initial representatives:

Name
----

1. Mr. David L. Chrencik
2. Mr. Yoichi Fujiki
3. Mr. Paul R. Keen
4. Mr. Michael S. Lipscomb
5. Ms. Frances S. St. Clair

4.2 SUCCESSION. In the event of any vacancies among the Management
Investor representatives, the vacancy shall be filled by the person selected by
the remaining representatives of the Management Investors holding a majority of
the Common Stock owned by such representatives. The representatives of the
Management Investors shall have the authority to add members to the
representatives or remove members from the representatives of the Management
Investors. In the absence of any representatives, new representatives may be
appointed by vote of the Management Investors.

4.3 VOTING. Except as set forth in the first sentence of Section 4.2,
all decisions to be made by the representatives of the Management Investors
shall be by majority vote of the uninterested representatives of the Management
Investors. A written consent of a majority of the uninterested representatives
of the Management Investors shall be sufficient to bind all of the
representatives of the Management Investors.

SECTION 5. REPURCHASE OF COMMON SHARES FROM MANAGEMENT INVESTORS
-----------------------------------------------------

5.1 REPURCHASE OF COMMON SHARES. Upon the termination of a Management
Investor's employment (or directorship, as the case may be) with the Company,
such Management Investor (or the Investor's heirs, spouse or former spouse or
other legal representative, to the extent then otherwise empowered to act on
behalf of such Investor) may elect to sell, and the Company shall purchase from
such Management Investor (or the Investor's heirs, spouse or former spouse or
other legal representative) may sell all, but not less than all, of the shares
of Common Stock owned by such Management Investor within six (6) months of such
termination upon the written request of such Management Investor and upon the
terms set forth in Section 5.2. The Company may assign and delegate its right or
obligation to purchase Common Stock under this Section 5 to one or more of the
Management Investors, as directed by the Management Investor representatives.

5.2 PRICE AND TERMS OF REPURCHASE.

(a) The price at which the Company shall purchase Common Stock under
Section 5.1 from a Management Investor (or the Investor's heirs, spouse or
former spouse or other legal representative) (the "Redeeming Investor") is equal
to the greater of (i) the most recent Argo-Tech Employee Stock Ownership Plan
valuation, or (ii) the sale price of the Common Stock in

<PAGE> 9

any transaction within the last year in which ten percent (10%) or more of the
Common Stock was sold (the "Purchase Price").

(b) The Company shall deliver written notice to the Redeeming Investor
specifying the date of the closing for the purchase of the Redeeming Investor's
Common Stock and the terms of payment of the purchase price of such Common
Stock. Any purchase and sale under this Section 5 shall be consummated not more
than ninety (90) days (or such other date as is mutually agreeable to the
Company and the Redeeming Investors) after the occurrence of the event
triggering the repurchase obligation.

(d) The Redeeming Investor shall execute and deliver to the Company at
the closing the same instruments and documents as are required by the Company.

5.3 GENERAL LIMITATIONS. Notwithstanding any other provision in this
Agreement, the obligation of the Company to purchase Common Stock hereunder and
to pay the Purchase Price is subject to any restrictions and limitations imposed
on the Company or any of its Affiliates by (i) applicable law, including,
without limitation, the existence of funds legally available under the General
Corporation Law of the State of Delaware to effect such purchase; (ii) any
agreement to which the Company or any Affiliate thereof may become a party at or
after the date hereof that gives rise to actual or contingent indebtedness,
whether as principal or as guarantor for an Affiliate; and (iii) any default on
funded debt or the preferred stock or exchange notes that exists and is
continuing or any event which, with the lapse of time or the giving of notice,
or both, would constitute an Event of Default as such term may be defined in any
agreement to which the Company or its Affiliates may be party related to funded
debt (collectively, all of the foregoing events described in clause (iii) of
this Section 5.3 are hereinafter referred to as a "Default").

5.4 COMPANY'S NOTE. With respect to any shares of Common Stock the
purchase of which would result in the occurrence of a Default or the breach of
any limitation on the payment of the Purchase Price, the Company shall give the
Redeeming Investor (or his successor or representative, as the case may be),
prompt written notice of the occurrence or existence of such a Default or
breach, setting forth in reasonable detail the specifics thereof and indicating
the number of shares of Common Stock, if any, that the Company is permitted to
purchase in cash without such purchase resulting in such a Default or breach of
such provisions, and the Company shall purchase such number of shares in cash.
With respect to any remaining shares of Common Stock that the Company is unable
to purchase in cash, the Company shall, subject to any limitation as provided in
Section 5.3, pay for such Common Stock with a subordinated promissory note (the
"Company's Note" or, if there be more than one, the "Company's Notes"), which
Company's Note shall bear interest at the prime rate of interest in dollars
(U.S.) in effect at that time by Chase Manhattan Bank and which interest shall
not be payable in cash at the time (unless the Company determines in its sole
discretion to pay such interest in cash currently), but such interest shall
accrue during such period of suspension of payment by the Company to the extent
permitted by applicable law and by any such agreements giving rise to actual or
contingent indebtedness to which the Company or any of its Affiliates is a
party, and such interest shall be payable in full at maturity of such Company's
Note if then permitted to be so paid and if not then permitted to be so paid,
then at the earliest time such interest may be paid. The Company shall promptly
notify the Redeeming Investor in writing as soon as the Company

<PAGE> 10

is no longer prevented from making a cash payment to satisfy the Company's Note
issued for any shares purchased from the Redeeming Investor. The Company shall
make such cash payment to the Redeeming Investor within five (5) days of
providing such notice and to the full extent possible without exceeding the
limits established by Section 5.3. Such resumed payment shall be applied first
to accrued and unpaid interest on the principal amount of such Company's Note.
In the event that full payment under such Company's Note cannot be made without
exceeding such limitations, payments will be made PRO RATA with all other
outstanding obligations to former Stockholders, if any, for payment of the
Purchase Price for Common Stock purchased hereunder.

SECTION 6. GENERAL
-------

6.1 TERMINATION OF PRIOR STOCKHOLDERS AGREEMENT; WAIVER OF RIGHTS. The
execution and delivery of this Agreement by any Investor will (i) terminate the
AT Holdings Corporation 1994 Stockholders Agreement dated May 17, 1994, as
amended, and any other existing stockholders agreements to which such Investor
is a party with respect to the ownership of equity securities of the Company and
(ii) be deemed a waiver of all rights of such Investor under such agreements.

6.2 AMENDMENTS, WAIVERS AND CONSENTS. For the purposes of this
Agreement and all agreements executed pursuant hereto, no course of dealing
between or among any of the parties hereto and no delay on the part of any party
hereto in exercising any rights hereunder or thereunder shall operate as a
waiver of the rights hereof and thereof. No provision hereof may be waived
otherwise than by a written instrument that makes reference to this Agreement
and is signed by the party or parties so waiving such covenant or other
provision. No amendment to this Agreement may be made without the written
consent of (a) the Company, (b) Management Investors holding at least 50.1% of
the shares of Common Stock then owned by the Management Investors, (c) Equity
Investors holding at least 50.1% of the Common Stock or Warrants then held by
the Equity Investors, and (d) Yamada Investors holding at least 50.1% of the
Common Stock then held by the Yamada Investors; provided, however, that no
written consent will be required from any group of Investors then holding less
than 5% (2.5% in the case of the Equity Investors) of the Common Stock and
Warrants, taken together.

Notwithstanding the foregoing, this Agreement shall be amended from
time to time to add or delete Management Investors. A new Management Investor
will be added through the execution of an Acknowledgment in the form of ANNEX A,
as such form is amended to represent the current Management Investor
representatives at such time.

6.3. TERM. The term of this Agreement shall commence as of the date
hereof and shall terminate upon the first to occur of the following events:

(a) An initial public offering by the Company
resulting in at least $30,000,000 of gross
proceeds to the Company, without the
deduction of fees, discounts and expenses;
or

(b) the Investors, in the aggregate,
beneficially own less than thirty percent
(30%) (by voting power or by value) of the
then outstanding Common Stock.

<PAGE> 11

6.4 LEGEND ON SECURITIES. The Company and the Investors acknowledge and
agree that the following legends shall be typed on each certificate evidencing
any of the securities issued hereunder held at any time by an Investor or
Investor:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, AND ACCORDINGLY, SUCH SECURITIES MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE
DISPOSED OF EXCEPT IN COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION
PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE
EXEMPTIONS THEREFROM.

THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A
STOCKHOLDERS' AGREEMENT DATED AS OF DECEMBER 17, 1998, INCLUDING THEREIN CERTAIN
RESTRICTIONS ON TRANSFER. A COMPLETE AND CORRECT COPY OF THE AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE
FURNISHED TO THE INVESTOR UPON WRITTEN REQUEST AND WITHOUT CHARGE WITHIN FIVE
(5) DAYS AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR ADDRESSED TO THE COMPANY.

6.5 GOVERNING LAW. This Agreement shall be deemed to be a contract made
under, and shall be construed in accordance with, the laws of the State of
Delaware, without giving effect to conflict of laws principles thereof.

6.6 SECTION HEADINGS AND GENDER. The descriptive headings in this
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
The use in this Agreement of the masculine pronoun in reference to a party
hereto shall be deemed to include the feminine or neuter, and vice versa, as the
context may require.

6.7 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but one
and the same document.

6.8 NOTICES AND DEMANDS. Any notice or demand which is required or
provided to be given under this Agreement or the Certificate of Incorporation
shall be deemed to have been sufficiently given and received for all purposes
when delivered by hand, telecopy, telex or other method of facsimile, or five
days after being sent by certified or registered mail, postage and charges
prepaid, return receipt requested, or two days after being sent by overnight
delivery providing receipt of delivery, to the following addresses:

<PAGE> 12

if to the Company:

AT Holdings Corporation
23555 Euclid Avenue
Cleveland, OH 44117-1795
Attention: Corporate Secretary
Facsimile: (216) 692-6331

with a copy to:

Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: David P. Porter
Facsimile: (216) 579-0212

if to a Management Investor:

to the address for such person
indicated on the Company's
payroll and benefits records

with a copy to:

the Company's Corporate
Secretary at the address
indicated above

if to a Yamada Investor:

AT Holdings, LLC
1894 Highway 50
Suite 4-153
Carson City, Nevada 89701
Attention: J. Koike

with a copy to:

Musick, Peeler & Garrett
624 South Grand Avenue
Suite 2100
Los Angeles, California 90017
Attention: Thomas T. Kawakami

<PAGE> 13

if to an Equity Investor:

Chase Venture Capital Associates, L.P.
c/o Chase Capital Partners
380 Madison Avenue
12th Floor
New York, New York 10017
Attention: Richard D. Waters, Jr.
Facsimile: (212) 622-3950

with a copy to:

Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Attention: Gregory M. Shaw
Facsimile: (212) 474-3700

6.9 REMEDIES; SEVERABILITY. It is specifically understood and agreed
that any breach of the provisions of this Agreement by any person subject hereto
will result in irreparable injury to the other parties hereto, that the remedy
at law alone will be an inadequate remedy for such breach, and that, in addition
to any other remedies which they may have, such other parties may enforce their
respective rights by actions for specific performance (to the extent permitted
by law). The Company may refuse to recognize any unauthorized transferee as one
of its Investors for any purpose, including, without limitation, for purposes of
dividend and voting rights, until the relevant party or parties have complied
with all applicable provisions of this Agreement. Whenever possible, each
provision of this Agreement shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be deemed prohibited or invalid under such applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.

6.10 INTEGRATION. The terms and provisions of this Agreement and its
Exhibits and the Supplemental Stockholders Agreement constitute the entire
agreement between the parties and there are no collateral agreements or
representations or warranties other than as expressly set forth or referred to
in this Agreement and the Supplemental Stockholders Agreement. This Agreement
(including its Exhibits) and the Supplemental Stockholders Agreement supersede
any other agreement, whether written or oral, that may have been made or entered
into by any party hereto or any of their respective Affiliates (or by any
director, officer or representative hereof) relating to the matters contemplated
hereby. The parties acknowledge that they will be bound by the terms and
conditions of the Supplemental Stockholders Agreement.

6.11 FEES AND EXPENSES. The Company shall reimburse the Investors for
the reasonable out-of-pocket expenses incurred by the Investors in connection
with the transactions contemplated by this Agreement.

6.12 BEST EFFORTS. Investors shall use their best efforts to carry-out
the intent of this Agreement, including voting shares of Common Stock (i) for
any proposal that furthers the

<PAGE> 14

purpose of this Agreement and (ii) against any proposal that is contrary to the
purpose of this Agreement. Notwithstanding anything in this Agreement to the
contrary, this Agreement will not be binding and shall have no effect on any
shares of Common Stock beneficially owned by an Investor through the Argo-Tech
Employee Stock Ownership Plan.

6.13 ASSIGNMENT. The Company may assign and delegate all of its rights
and obligations under this Agreement to any Affiliate of the Company.

6.14 REGULATORY MATTERS.

(a) COOPERATION OF OTHER STOCKHOLDERS. Each Investor agrees to
cooperate with the Company in all reasonable respects in complying with the
terms and provisions of the letter agreement between the Company and Chase
Venture Capital Associates, L.P., a copy of which is attached hereto as ANNEX C,
regarding small business matters (the "SBA Sideletter"), including without
limitation, voting to approve amending the Company's Certificate of
Incorporation, the Company's By-laws or this Agreement in a manner reasonably
acceptable to the Investors and Chase Venture Capital Associates, L.P. or any
Regulated Holder (as defined in the SBA Sideletter) entitled to make such
request pursuant to the SBA Sideletter in order to remedy a Regulatory Problem
(as defined in the SBA Sideletter). Anything contained in this Section 6.14 to
the contrary notwithstanding, no Investor shall be required under this Section
6.14 to take any action that would adversely affect in any material respect such
Investor's rights under this Agreement or as a stockholder of the Company.

(b) COVENANT NOT TO AMEND. The Company and each Investor agree
not to amend or waive the voting or other provisions of the Company's
Certificate of Incorporation, the Company's By-laws or this Agreement if such
amendment or waiver would cause any Regulated Holder to have a Regulatory
Problem (as defined in the SBA Sideletter). Chase Venture Capital Associates,
L.P. agrees to notify the Company as to whether or not it would have a
Regulatory Problem promptly after Chase Venture Capital Associates, L.P. has
notice of such amendment or waiver.

<PAGE> 15

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.

AT HOLDINGS CORPORATION

By:_______________________________
Its:

AT HOLDINGS, LLC

By:_______________________________
Its:

YC INTERNATIONAL INC.

By:_______________________________
Its:

SUNHORIZON INTERNATIONAL, INC.

By:_______________________________
Its:

<PAGE> 16

__________________________________________
DAVID L. CHRENCIK, individually and as
a representative of the Management
Investors

__________________________________________
YOICHI FUJIKI, individually and as a
representative of the Management Investors

__________________________________________
PAUL R. KEEN, individually and as a
representative of the Management Investors

__________________________________________
MICHAEL S. LIPSCOMB, individually and
as a representative of the Management
Investors

__________________________________________
FRANCES S. ST. CLAIR, individually and
as a representative of the Management
Investors

CHASE VENTURE CAPITAL
ASSOCIATES, L.P.

by: Chase Capital Partners,
its general partner,

By:______________________________________
Name:
Title:

<PAGE> 17

Annex A to
Stockholders Agreement
----------------------

ACKNOWLEDGMENT AND AGREEMENT

The undersigned is a stockholder of AT Holdings Corporation
(the "Corporation") who hereby:

1. acknowledges status as a "Management Investor" for purposes of
the Stockholders Agreement dated as of December , 1998 among
the Corporation, AT Holdings, LLC, YC International Inc.,
Sunhorizon International, Inc. and the representatives of the
Management Investors named therein (the "Stockholders
Agreement");

2. appoints the following persons to serve as the initial
representatives of the Management Investors:

1. Mr. David L. Chrencik
2. Mr. Yoichi Fujiki
3. Mr. Paul R. Keen
4. Mr. Michael S. Lipscomb
5. Ms. Frances S. St. Clair;

3. agrees to be bound by, and joins as a party to, the
Stockholders Agreement, in the form approved by the initial
representatives of the Management Investors, as it may be
amended from time to time in accordance with its terms;

4. agrees to vote for the election of Directors in accordance
with Section 1.1 of the Stockholders Agreement;

5. agrees to be bound by, and joins as a party to, the
Registration Rights Agreement referred to in Section 3 of the
Stockholders Agreement, in the form approved by the initial
representatives of the Management Investors, as it may be
amended from time to time in accordance with its terms; and

6. acknowledges the termination of the Stockholders Agreement,
dated May 17, 1994, as amended, among the Corporation and the
other parties thereto and waives all rights under such
agreement.

Executed as of the____day of December, 1998.

________________________ _______________________________
Signature Print Name

<PAGE> 18

ANNEX B TO
STOCKHOLDERS AGREEMENT

<PAGE> 19

ANNEX C TO
STOCKHOLDERS AGREEMENT

<PAGE> 1

Exhibit 10.13
-------------

AT HOLDINGS CORPORATION
1998 SUPPLEMENTAL STOCKHOLDERS AGREEMENT

THIS SUPPLEMENTAL STOCKHOLDERS AGREEMENT (this "Agreement"),
dated as of December 17, 1998, is made by and among AT Holdings Corporation, a
Delaware corporation (the "Corporation"), Argo-Tech Corporation, a Delaware
corporation ("Argo-Tech") and Key Trust Company of Ohio, N.A., in its capacity
as Trustee (the "Trustee") under the Argo-Tech Corporation Employee Stock
Ownership Plan and Trust Agreement (the "Argo-Tech ESOP").

RECITALS
--------

WHEREAS, the parties hereto believe that it is in the best
interest of the Corporation, Argo-Tech, and the Corporation's stockholders for
the Trustee to join in certain provisions of the Stockholders' Agreement, dated
the date hereof (the "Stockholders Agreement"), to which certain other
stockholders of the Corporation are parties such that the Trustee will receive
certain benefits of such Stockholders Agreement as described herein;

NOW, THEREFORE, in consideration of the premises and the terms
herein contained, the parties hereto hereby agree as follows:

AGREEMENT
---------

SECTION 1

DEFINITIONS
-----------

1.1 CERTAIN DEFINITIONS. Unless otherwise defined herein, all
capitalized terms used herein have the meanings given to them in the
Stockholders Agreement.

SECTION 2

TERMINATION OF
1994 SUPPLEMENTAL STOCKHOLDERS AGREEMENT
----------------------------------------

2.1 TERMINATION. The parties hereto hereby waive all rights
granted under the 1994 Supplemental Stockholders Agreement, as amended and
supplemented to the date hereof, between the Corporation, Argo-Tech and the
Trustee (the "1994 Agreement") and agree that this Agreement supersedes and
replaces such 1994 Agreement in all respects.

<PAGE> 2

SECTION 3

AMENDMENT OF STOCKHOLDERS AGREEMENT
-----------------------------------

3.1 The Corporation agrees that it will not agree or consent
to any amendment, supplement, modification, alteration, waiver of rights under,
or termination of the Stockholders Agreement, other than by the addition or
deletion of members of the Management Investor group from time to time, without
the written consent of the Trustee, which consent will not be unreasonably
denied or withheld. If the Trustee has not acted upon the Corporation's written
request for such consent and so advised the Corporation within ten (10) business
days of its actual receipt of such a request, the consent of the Trustee shall
not be required as to the individual action as to which consent was requested.

SECTION 4

RIGHTS GRANTED
--------------

4.1 RIGHT OF FIRST REFUSAL. The Trustee is entitled to all
rights of, and is subject to all conditions imposed on, an Investor or group of
Investors owning a combined total of ten percent (10%) or more Common Stock
regarding Rights of First Refusal as specifically described in Section 2.2 of
the Stockholders Agreement.

4.2 TAG-ALONG RIGHTS. The Trustee is entitled to all rights
of, and is subject to all conditions imposed on, an Investor or group of
Investors owning a combined total of ten percent (10%) or more of the Common
Stock regarding Tag-Along Rights as specifically described in Section 2.3 of the
Stockholders Agreement.

4.3 REGISTRATION RIGHTS. As of the date hereof, the Company
and the Trustee will have entered into the Registration Rights Agreement, by and
among the Trustee and all parties to the Stockholders Agreement in the form
attached as ANNEX 2 to the Stockholders Agreement.

SECTION 5

MISCELLANEOUS
-------------

5.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.

5.2 COUNTERPARTS. This Agreement may be executed
simultaneously in any number of counterparts, each of which when so executed and
delivered shall be taken to be an original; but such counterparts shall together
constitute one and the same document.

<PAGE> 3

5.3 NOTICES AND DEMANDS. Any notice or demand which is
required or provided to be given under this Agreement shall be deemed to have
been sufficiently given and received for all purposes when delivered by hand,
telecopy, telex or other method of facsimile, or five days after being sent by
certified or registered mail, postage and charges prepaid, return receipt
requested, or two days after being sent by overnight delivery providing receipt
of delivery, to the following addresses:

if to the Corporation:

c/o Argo-Tech Corporation
23555 Euclid Avenue
Cleveland, Ohio 44117-1795
Attn: Michael S. Lipscomb
Phone: 216/692-6000
Fax: 216/692-6331

with a copy to:

Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attn: David P. Porter
Phone: 216/586-7215
Fax: 216/579-0212

if to the Trustee:

Key Trust Company of Ohio, N.A.
127 Public Square
Cleveland, Ohio 44114
Attn: Richard Lutts
Phone: 216/689-7531
Fax: 216/689-7548

with a copy to:

Calfee, Halter & Griswold LLP
800 Superior Avenue
Cleveland, Ohio 44114
Attn: Thomas A. Jorgensen
Phone: 216/622-8443
Fax: 216/241-0816

<PAGE> 4

5.4 TERM. The term of this Agreement shall commence as of the
date hereof and shall terminate upon the first to occur of the following events:

(a) An initial public offering by the Corporation
resulting in at least $30,000,000 of gross proceeds,
without the deduction of fees, discounts and
expenses; or

(b) the Investors, in the aggregate, own less than
thirty percent (30%) (by voting power or by value of
the then outstanding Common Stock.)

5.5 FEES AND EXPENSES. The Corporation shall reimburse the
Trustee for the reasonable out-of-pocket expenses incurred by the Trustee in
connection with the transactions contemplated by this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.

AT HOLDINGS CORPORATION

By:_________________________________
Name:
Title:

ARGO-TECH CORPORATION

By:_________________________________
Name:
Title:

KEYTRUST COMPANY OF OHIO, N.A., in
its Capacity as Trustee under the
Argo-Tech Corporation Employee
Stock Ownership Plan and Trust
Agreement

By:_________________________________
Name:
Title:

<PAGE> 1
Exhibit 10.29

AT HOLDINGS CORPORATION

1998 INCENTIVE PLAN

<PAGE> 2

AT HOLDINGS CORPORATION

1998 Incentive Plan
-------------------

1. AT Holdings Corporation, a Delaware corporation (the
"Company"), and Argo-Tech Corporation, a Delaware corporation ("Argo-Tech
Corporation"), hereby establish the AT Holdings Corporation 1998 Incentive Plan
(the "Plan"). The total number of shares that may be issued and sold under
options granted pursuant to the Plan will not exceed 100,000 shares of the
Common Stock of the Company, par value $.001 per share ("Common Stock"), except
to the extent of adjustments authorized by Paragraph 5 of the Plan. Such shares
of Common Stock may be treasury shares, shares of original issue, shares held by
Argo-Tech Corporation or a combination of the foregoing. If an option is
canceled without exercise, the Company may award additional options for the
number of shares of Common Stock reflected by the canceled option.

2. The Board of Directors of the Company (the "Board") or the
Compensation Committee thereof (the "Compensation Committee") may, from time to
time and upon such terms and conditions as it may determine, authorize the grant
to officers (including officers who are members of the Board of Directors) and
to other key employees of the Company or any of its Subsidiaries of options to
buy from the Company shares of Common Stock and may fix the number of shares to
be covered by each such option; provided, however, that the maximum number of
shares with respect to which options may be granted to the same individual under
the Plan may not exceed, in the aggregate, 50,000 shares, except to the extent
of adjustments authorized by Paragraph 5 of the Plan. Successive options may be
granted to the same individual whether or not the option or options first
granted to such individual remain unexercised.

<PAGE> 3

3. Options granted under the Plan may be (a) options that are
intended to qualify under particular provisions of the Internal Revenue Code of
1986, as amended (the "Code"), (b) options that are not intended so to qualify
under the Code, or (c) combinations of the foregoing. No option shall run for
more than ten years from the date granted. No option may be transferable by the
optionee otherwise than by will or the laws of descent and distribution. Options
exercised during the optionee's lifetime will be exercisable only by the
optionee or the optionee's guardian or legal representative.

4. The exercise prices for options may be more than, less
than, or equal to the fair market value of the shares covered by the option, as
the Board or the Compensation Committee may determine at the time of grant. The
exercise price for any shares is payable (a) in cash or by check, (b) if
authorized by the Board or the Compensation Committee at the time of exercise by
delivery to the Company of a promissory note or notes of the optionee payable
over not more than five years and with such other terms as the Board or the
Compensation Committee may determine from time to time, (c) by the actual or
constructive transfer to the Company of Mature Shares, or (d) by a combination
of such methods of payment.

5. The Board or the Compensation Committee may make or provide
for such adjustments in the option price and in the number or kind of shares of
the Company's Common Stock or other securities covered by outstanding options as
such Board or Committee may determine is equitably required to prevent dilution
or enlargement of the rights of optionees that would otherwise result from (i)
any increase or decrease in the number or change in the kind of shares of
capital stock of the Company by reason of a stock dividend, stock split, reverse
stock split, recapitalization, spin-off or other such increase or decrease or
change effected without the receipt of consideration by the Company, or (ii) any
consolidation or merger or other

-2-

<PAGE> 4

reorganization, or (iii) any distribution of rights or warrants to purchase
stock to all holders of the Company's common stock, or (iv) any other corporate
transaction or event having an effect similar to any of the foregoing. Moreover,
in the event of any such transaction or event, the Board or the Compensation
Committee, in its discretion, may provide in substitution for any or all
outstanding awards under the Plan such alternative consideration as it, in good
faith, may determine to be equitable in the circumstances and may require in
connection therewith the surrender of all awards so replaced. The Board or the
Compensation Committee may also make or provide for such adjustments in the
number or kind of shares of the Company's Common Stock or other securities that
may be sold under the Plan as such Board or Committee may determine is
appropriate to reflect any transaction or event described in the preceding
sentence.

6. An option granted under the Plan will, upon the occurrence
of a Sale Transaction, become exercisable in full as to any then unvested shares
immediately prior to the consummation of such Sale Transaction.

7. The form of any Stock Option Agreement will be prescribed
by the Board or the Compensation Committee, and the terms of any Stock Option
Agreement evidencing an outstanding option may, with the concurrence of the
affected optionee, be amended or modified by the Board or the Compensation
Committee, provided that the terms and conditions of each such Stock Option
Agreement and amendment are not inconsistent with the Plan.

8. The Board or the Compensation Committee may, with the
concurrence of the affected optionee, cancel any option granted under the Plan.
In the event of any such cancellation, the Board or the Compensation Committee
may authorize the granting of new options (which may or may not cover the same
number of shares of Common Stock which had been the subject of any prior option)
in such manner, at such option price and subject to the same

-3-

<PAGE> 5

terms, conditions and discretions as, under the Plan, would have been applicable
had the canceled options not been granted.

9. The Plan may be amended from time to time by the Board or
the Compensation Committee but without further approval by the shareholders of
the Company no such amendment may increase the aggregate number of shares of
Common Stock that may be issued and sold under the Plan (except that adjustments
authorized by Paragraph 5 shall not be limited by this provision) or change the
designation in Paragraph 2 of the class of employees eligible to receive options
or, to the extent Rule 16b-3 under the Securities Exchange Act of 1934 (or any
successor rule to the same effect) is then applicable to the Plan, cause such
Rule to no longer be applicable to the Plan.

10. As used herein, the following capitalized terms have
meanings as set forth below.

"Mature Shares" means (a) nonforfeitable, unrestricted shares
of Common Stock that have been owned by the optionee for more than six (6)
months prior to the date of exercise or (b) such other Company securities as the
Company's chief accounting officer, upon consultation with the Company's
independent accountants, determines the acceptance of which by the Company will
not adversely affect the Company's tax or accounting position.

"Person" means any corporation, partnership, association,
firm, entity or individual(s).

"Sale Transaction" means (a) the sale, transfer or other
disposition of all or substantially all of the assets of the Company, except a
sale, transfer or disposition (i) to a Subsidiary of the Company or (ii) that
results in the holders of the then-outstanding securities of the Company
generally eligible to vote in the election of directors of the Company
possessing, in

-4-

<PAGE> 6

the aggregate, a majority ownership interest in the Person acquiring such
assets, (b) any transaction resulting in a majority of the then-outstanding
securities of the Company generally eligible to vote in the election of
directors of the Company being held or owned beneficially by one Person or an
affiliated group of Persons, (c) a merger or consolidation of the Company with
another Person, except a merger or consolidation of the Company (i) with a
Subsidiary of the Company (in which event such Subsidiary, if the surviving
corporation, will be deemed thereafter to be the Company for purposes of this
definition) or (ii) that results in the holders of the then-outstanding
securities of the Company generally eligible to vote in the election of
directors of the Company possessing, in the aggregate, a majority ownership
interest in the surviving Person, or (d) the voluntary liquidation or
dissolution of the Company.

"Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of the
corporations (or a group of corporations that themselves are Subsidiaries) other
than the last corporation in the unbroken chain owns stock possessing fifty
percent or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.

11. No option may be granted under the Plan after December 31,
2007.

-5-

<PAGE> 1

Exhibit 12
----------

ARGO-TECH CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

Fiscal Year Ended

October 28, October 26, October 25, October 31, October 30,
1995 1996 1997 1998 1999
-----------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Historical:
Income from operations $ 15,059 $ 19,278 $ 26,650 $ 28,059 $ 33,846
Other, net (588) (112) (404) (268) (516)
-------- -------- -------- -------- --------
Earnings as Adjusted $ 15,647 $ 19,390 $ 27,054 $ 28,327 $ 34,362
======== ======== ======== ======== ========
Fixed charges:
Interest expense $ 11,924 $ 10,138 $ 12,827 $ 21,030 $ 25,003
======== ======== ======== ======== ========
Ratio of Earnings to Fixed 1.3x 1.9x 2.1x 1.3x 1.4x
Charges

</TABLE>

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-30-1999
<CASH> 3,873
<SECURITIES> 0
<RECEIVABLES> 30,409
<ALLOWANCES> 240
<INVENTORY> 34,043
<CURRENT-ASSETS> 73,407
<PP&E> 89,187
<DEPRECIATION> 53,534
<TOTAL-ASSETS> 294,745
<CURRENT-LIABILITIES> 38,029
<BONDS> 276,987
0
0
<COMMON> 0
<OTHER-SE> (78,955)
<TOTAL-LIABILITY-AND-EQUITY> 294,745
<SALES> 170,731
<TOTAL-REVENUES> 176,540
<CGS> 131,219
<TOTAL-COSTS> 135,216
<OTHER-EXPENSES> (516)
<LOSS-PROVISION> (240)
<INTEREST-EXPENSE> 25,003
<INCOME-PRETAX> 9,359
<INCOME-TAX> 4,021
<INCOME-CONTINUING> 5,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,338
<EPS-BASIC> 0
<EPS-DILUTED> 0

</TABLE>