EXHIBIT 2.2
CONTINGENT EARNOUT AGREEMENT
CONTINGENT EARNOUT AGREEMENT
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THIS CONTINGENT EARNOUT AGREEMENT ("Agreement"), dated as of November
7, 1996, by and among (A) MOTORS AND GEARS, INC., a Delaware corporation
("M&G"), MOTORS AND GEARS INDUSTRIES, INC., a Delaware corporation
("INDUSTRIES"), THE NEW IMPERIAL ELECTRIC COMPANY, a Delaware corporation
("New Imperial"), THE NEW ▇▇▇▇▇ MOTORS COMPANY, a Delaware corporation and
a direct, wholly-owned subsidiary of New Imperial ("New ▇▇▇▇▇"), and NEW
GEAR RESEARCH, INC., a Delaware corporation and a direct, wholly-owned
subsidiary of New Imperial ("New Gear"), and (B) THE IMPERIAL ELECTRIC
COMPANY, an Ohio corporation ("Old Imperial"), ▇▇▇▇▇ MOTORS COMPANY, a
Delaware corporation ("Old ▇▇▇▇▇"), and GEAR RESEARCH, INC., a Delaware
corporation ("Old Gear").
Recitals
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(a) New Imperial, Old Imperial, Old ▇▇▇▇▇ and Old Gear are parties
to a certain Agreement for Purchase and Sale of Assets dated November 7,
1996 (the "Purchase Agreement").
(b) The Companies (defined below) have agreed to enter into this
Agreement as partial payment of the "Purchase Price" (defined in the
Purchase Agreement) in order to induce Old Imperial to (i) enter into the
Purchase Agreement and to cause Old ▇▇▇▇▇ and Old Gear to do the same, and
(ii) consummate and cause Old ▇▇▇▇▇ and Old Gear to consummate the
transactions contemplated therein.
In consideration of the mutual covenants and agreements herein set
forth, and the special benefits described herein and in the Purchase
Agreement accruing to the Companies on the one hand and Old Imperial on the
other, the parties hereto agree as follows:
AGREEMENTS:
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1. Definitions
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"Closing Date" means the date of execution of this Agreement by the
parties hereto.
"Cash Flow" for purposes of this Agreement shall have the same
meaning as set forth in the Indenture except that in calculating Cash Flow
for purposes hereof (i) neither subpart (l) of said defined term in the
Indenture relating to net losses in respect of discontinued operations nor
subpart (k) of said defined term in the Indenture relating to the net loss
of any person, other than those of a Restricted Subsidiary shall apply to
said definition for purposes hereof, and (ii) in determining Consolidated
Net income (as defined in the Indenture) for purposes of calculating Cash
Flow herein, Restructuring Charges (defined in the Indenture) shall be
included in Consolidated Net Income notwithstanding subpart (E) of said
definition of Consolidated Net Income in the Indenture which excludes
Restructuring Charges and Consolidated Net Income shall be increased by an
amount equal to any fees charged in respect of the JII Services Agreement
provided said fees would otherwise reduce Consolidated Net Income. Cash
Flow under this Agreement shall be determined from audited financial
statements prepared by independent public accountants excluding any impact
of Post Closing Acquired Companies.
"Companies" means M&G, Industries, New Imperial, New ▇▇▇▇▇ and New
Gear.
"Cumulative Cash Flow" means the sum of Cash Flow of Old Imperial,
Old ▇▇▇▇▇ and Old Gear for the period commencing as of January 1, 1996
until (but excluding) the Closing Date plus the aggregate Cash Flow of New
Imperial, New ▇▇▇▇▇ and New Gear for the period commencing as of the
Closing Date through the close of business as of December 31, 2000 (the
"Expiration Date").
"Financing Agreements" means any senior or subordinated debt,
preferred stock, common or other capital stock, lease or other financing
agreements, instruments and documents, including, without limitation, any
agreements or instruments relating to any Indebtedness, binding upon M&G,
Industries, New Imperial or any of their direct or indirect subsidiaries,
or their respective properties and assets, from time to time in effect.
"Indebtedness" means any indebtedness, whether or not contingent, in
respect of borrowed money or evidenced by bonds, notes, debentures or
similar instruments or letters of credit (or reimbursement agreements in
respect thereof) or representing the deferred and unpaid balance of the
purchase price of any property (including pursuant to capital leases),
except any such balance that constitutes an accrued expense or a trade
payable, and any financial hedging obligations, if and to the extent such
indebtedness (other than a financial hedging obligation) would appear as a
liability upon a balance sheet prepared on a consolidated basis in
accordance with generally accepted accounting principles, and also
includes, to the extent not otherwise included, the guarantee of items that
would be included within this definition.
"Indenture" means the Indenture dated as of November 7, 1996 between
M&G and Fleet National Bank, as trustee regarding the 10 3/4% Series A
Senior Notes due 2006 of M&G in the aggregate principal amount of
$170,000,000.
"Post Closing Acquired Company" means any business, the assets or
capital stock of which are acquired after the Closing Date by New Imperial,
New ▇▇▇▇▇ or New Gear.
"Payment Amount" means an amount equal to one-half of Cumulative Cash
Flow in excess of $50,000,000.
"Payment Date" means the date following the Expiration Date upon
which the calculation of the Payment Amount is finally determined in
accordance with the provisions hereof; provided, however, that in all
events the Payment Date shall occur prior to December 31, 2001.
"Stop Payment Event" means the occurrence and existence as of the
applicable date of any violation or breach of any Financing Agreement after
the Closing Date if the violation or breach prohibits payment of the
Payment Amount.
2. Calculation of Payment Amount. Following the Expiration Date the
parties shall calculate the Payment Amount based upon audited Financial
Statements which shall be reviewed by independent public accountants. Any
disputes regarding the calculation of Cumulative Cash Flow or the Payment
Amount and the preparation of audited financial statements in connection
with said calculations shall be resolved in accordance with Sections 14 and
15 hereof. The parties acknowledge and agree that the Payment Amount is
based on a cumulative test of Cash Flow over a five-year period ending on
the Expiration Date. Accordingly, no determination of amounts due Old
Imperial hereunder can be made until after the Expiration Date and,
therefore, the Companies shall have no payment obligations hereunder until
the Payment Date.
3. Payment. If there is no Stop Payment Event as of the Payment
Date, the Companies hereby jointly and severally agree to pay Old Imperial
the Payment Amount on the Payment Date. If a Stop Payment Event exists on
the Payment Date, the Companies jointly and severally agree to pay Old
Imperial the Payment Amount immediately upon termination or elimination of
the Stop Payment Event.
4. Not A Stock Equivalent. The Companies and Old Imperial agree and
acknowledge that this Agreement does not confer upon Old Imperial any
rights or interests as a stockholder of any of the Companies and that no
fiduciary duties are owed by the Companies or their respective directors,
officers and stockholders in respect of this Agreement. Old Imperial
further agrees and acknowledges that the Companies are not, and shall not
be, restricted or limited in any manner from engaging in transactions that
may have dilutive effects, entering into or modifying any Financing
Agreements that restrict or limit payments hereunder, incurring
Indebtedness, engaging in transactions involving the stock or assets of the
Companies, acquiring business interests, completing capital expenditures,
declaring dividends, allocating amounts, determining rates or otherwise
making determinations in respect of Indebtedness or Cash Flow, making other
adjustments pursuant to this Agreement, or otherwise taking actions that
may affect the Payment Amount. The determination of Post Closing Acquired
Companies and the amounts thereof and income derived therefrom and expenses
related thereto, shall be determined by the appropriate Board of Directors
of the Companies. Nothing in this Agreement shall be construed to create a
right for the benefit of Old Imperial to participate in or receive the
benefit of any related or unrelated business opportunities evaluated or
pursued by any of the Companies other than as provided specifically herein.
5. Successors and Assigns. This Agreement shall be binding on Old
Imperial and the Companies and their respective successors and assigns.
6. Counterparts. This Agreement may be executed in two or more
counterparts, any one of which shall be deemed an original without
reference to the others.
7. Amendments. This Agreement may not be amended or modified, and
no waivers hereunder may be granted, except with the approval of each of
the parties hereto.
8. Notice. Any notice ("Notice"), request, demand or other
communication required or permitted to be given under this Agreement shall
be given in writing and if delivered personally, or sent by certified or
registered mail, return receipt requested, as follows (or to such other
addressee or address as shall be set forth in a notice given in the same
manner):
a. If to the Companies to:
Motors and Gears, Inc.
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
ArborLake Centre, Suite 550
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
in each case with a copy to:
▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other person or address as the Companies shall furnish to Old
Imperial in writing.
b. If to Old Imperial to:
The Imperial Electric Company
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇
ArborLake Centre, Suite 550
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
G. ▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
▇▇▇▇▇ ▇▇▇▇ LLP
One Kansas City Place
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Any such notices shall be deemed to be given on the date personally
delivered or such return receipt is issued.
9. Old Imperial's Representations. Old Imperial hereby warrants and
represents to the Companies that Old Imperial has carefully reviewed and
considered the provisions of this Agreement, and in connection therewith,
has consulted with such advisors as it considers appropriate, and that Old
Imperial is not subject to any covenants, agreements or restrictions,
including without limitation any covenants, agreements or restrictions
which would be breached or violated by Old Imperial's execution of this
Agreement.
10. Obligations of the Companies. Old Imperial agrees and
acknowledges that this Agreement and the obligations of the Companies
hereunder are solely obligations and liabilities of the Companies. None of
the Companies' directors, officers, employees, stockholders and affiliates
or any other persons shall be obligated or liable in respect of this
Agreement, and Old Imperial hereby releases them from any such obligation
or liability.
11. Entire Agreement. This Agreement reflects the entire agreement
among the parties relating to the subject matter of this Agreement, and
supersedes and terminates all prior agreements, obligations, commitments or
understandings relating to such subject matter.
12. Severability. If for any reason, any provision hereof shall be
determined to be invalid or unenforceable, the validity and effect of the
other provisions hereof shall not be affected thereby. 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 is held to be invalid, illegal or unenforceable in any
respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other
provision or any other jurisdiction, but this Agreement shall be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein. If any court
determines that any provision hereof is unenforceable because of the power
to reduce the scope or duration of such provision, as the case may be and,
in its reduced form, such provision shall then be enforceable.
13. Waiver of Breach; Enforcement. The waiver by the Companies or
Old Imperial of a breach of any provision of this Agreement by the other
party shall not operate or be construed as a waiver of any other breach of
such other party. Each of the parties (and third party beneficiaries) to
this Agreement shall be entitled to enforce its rights under this breach of
any provision of this Agreement and to exercise all other rights existing
in its favor.
14. Litigation. THIS AGREEMENT SHALL BE GOVERNED BY CONSTRUED,
APPLIED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
ILLINOIS, UNITED STATES OF AMERICA, AND NO DOCTRINE OF CHOICE OF LAW SHALL
BE USED TO APPLY ANY LAW OTHER THAN THAT OF ILLINOIS, AND NO DEFENSE,
COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR ALLOWED BY THE LAWS OF ANY OTHER
STATE OR JURISDICTION, OR ARISING OUT OF THE ENACTMENT, MODIFICATION OR
REPEAL OF ANY LAW, REGULATION, ORDINANCE OR DECREE OF ANY FOREIGN
JURISDICTION, BE INTERPOSED IN ANY ACTION HEREON. SUBJECT TO SECTION 15,
THE PARTIES AGREE THAT ANY ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT
OF THIS AGREEMENT MAY BE COMMENCED IN THE STATE COURTS, OR IN THE UNITED
STATES DISTRICT COURTS IN CHICAGO, ILLINOIS. THE PARTIES CONSENT TO SUCH
JURISDICTION, AGREE THAT VENUE WILL BE PROPER IN SUCH COURTS AND WAIVE ANY
OBJECTIONS BASED UPON FORUM NON CONVENIENS. THE CHOICE OF FORUM SET FORTH
IN THIS SECTION 14 SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY
ACTION UNDER THIS AGREEMENT IN ANY OTHER JURISDICTION.
15. Arbitration. THE COMPANIES AND OLD IMPERIAL HEREBY WAIVE AND
SHALL NOT SEEK JURY TRIAL IN ANY LAWSUIT, PROCEEDING, CLAIM, COUNTERCLAIM,
DEFENSE OR OTHER LITIGATION OR DISPUTE UNDER OR IN RESPECT OF THIS
AGREEMENT. THE PARTIES AGREE THAT ANY SUCH DISPUTE BETWEEN OR AMONG THE
PARTIES TO THIS AGREEMENT RELATING TO OR IN RESPECT OF THIS AGREEMENT, ITS
NEGOTIATION, EXECUTION, PERFORMANCE, SUBJECT MATTER, OR ANY COURSE OF
CONDUCT OR DEALING OR ACTIONS UNDER OR IN RESPECT OF THIS AGREEMENT, SHALL
BE SUBMITTED TO, AND RESOLVED EXCLUSIVELY PURSUANT TO ARBITRATION IN
ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION. SUCH ARBITRATION SHALL TAKE PLACE IN CHICAGO,
ILLINOIS, UNITED STATES OF AMERICA, AND SHALL BE SUBJECT TO THE SUBSTANTIVE
LAW OF THE STATE OF ILLINOIS. DECISIONS PURSUANT TO SUCH ARBITRATION SHALL
BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES. UPON THE CONCLUSION OF
ARBITRATION, SELLER, OR THE COMPANIES MAY APPLY TO ANY COURT OF THE TYPE
DESCRIBED IN SECTION 14 TO ENFORCE THE DECISION PURSUANT TO SUCH
ARBITRATION.
IN WITNESS WHEREOF, the parties hereto have caused this Contingent
Earnout Agreement to be duly executed as of the day and year first above
written.
OLD IMPERIAL
THE IMPERIAL ELECTRIC COMPANY:
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Its: Vice President
THE COMPANIES
MOTORS AND GEARS, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Its: Vice President
MOTORS AND GEARS INDUSTRIES, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Its: Vice President
THE NEW IMPERIAL ELECTRIC COMPANY
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Its: Vice President
THE NEW ▇▇▇▇▇ MOTORS COMPANY
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Its: Vice President
NEW GEAR RESEARCH, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Its: Vice President
▇▇▇▇▇ MOTORS COMPANY
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Its: Vice President
GEAR RESEARCH, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Its: Vice President