Parent Subordinated Intercompany Note

EXHIBIT 10.11


PARENT SUBORDINATED INTERCOMPANY NOTE
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New York, New York
November 7, 1996


FOR VALUE RECEIVED, MOTORS AND GEARS INDUSTRIES, INC., a Delaware
corporation (the "Payor"), hereby promises to pay to the order of MOTORS AND
GEARS, INC. (the "Payee"), in lawful money of the United States of America in
immediately available funds, at such location in the United States of America
as the Payee shall from time to time designate, the unpaid principal sum of
ONE HUNDRED SEVENTY MILLION DOLLARS, which amount shall be payable on
November 15, 2006. Unless otherwise defined herein, all capitalized terms
used herein or in Annex A attached hereto and defined in the Credit Agreement
referred to below shall have the meaning assigned to such term in the Credit
Agreement.


The Payor promises also to pay interest on the unpaid principal
amount hereof in like money at said office from the date hereof until paid at
a rate of 10-3/4% per annum, such interest to be paid semi-annually on each
May 15 and November 15 of each year, commencing May 15, 1997, and at maturity
hereof. In addition, the Payor promises to pay as additional interest in
like money at said office on each Damages Payment Date (as defined in the
Senior Unsecured Note Indenture) an amount equal to all accrued Liquidated
Damages (as defined in the Senior Unsecured Note Indenture) required to be
paid on such date pursuant to the terms of the Senior Unsecured Note
Documents.


This Note is subject to voluntary prepayment, in whole or in part,
at the option of the Payor, without premium or penalty, except that any
voluntary prepayment of this Note to be used by Payee to repay the
outstanding principal of its Senior Unsecured Notes shall be accompanied by
the amount of premium to be used by Payee in connection with such repayment
of principal of outstanding Senior Unsecured Notes. This Note is not subject
to mandatory repayment or acceleration.


This Note is the Parent Subordinated Intercompany Note referred to
in the Credit Agreement, dated as of November 7, 1996, among the Payor, the
lenders from time to time party thereto and Bankers Trust Company, as Agent
(as amended, modified or supplemented from time to time, the "Credit
Agreement") and shall be subject to the provisions thereof.


Notwithstanding anything to the contrary contained in this Note,
the Payee understands and agrees that the Payor shall not be required to
make, and shall not make, any payment of principal or interest on this Note
to the extent that such payment is prohibited by the terms of any Senior
Indebtedness (as defined in Section 1.07 of Annex A attached hereto),
including, but not limited to, Sections 9.03 and 9.10 of the Credit
Agreement.


This Note, and the Payor's obligations hereunder, shall be
subordinate and junior to all indebtedness of the Payor constituting Senior
Indebtedness on the terms and conditions set forth in Annex A attached
hereto, which Annex A is herein incorporated by reference and made a part
hereof as if set forth herein in its entirety.


The Payee is hereby authorized (but shall not be required) to
record repayments or prepayments made in respect of this Note, in its books
and records, such books and records constituting prima facie evidence of the
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accuracy of the information contained therein.


All payments under this Note shall be made without offset,
counterclaim or deduction of any kind. Neither this Note nor any right to
receive payments hereunder may be assigned by the Payee.


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THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAW OF THE STATE OF NEW YORK.


MOTORS AND GEARS INDUSTRIES, INC.


By: /s/ Jonathan F. Boucher
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Title: Vice President


ANNEX A
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Section 1.01. Subordination of Liabilities. Motors and Gears
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Industries, Inc. (the "Payor"), for itself, its successors and assigns,
covenants and agrees, and each holder of the promissory note to which this
Annex A is attached (the "Note") by its acceptance thereof likewise covenants
and agrees, that the payment of the principal of, interest on, and all other
amounts owing in respect of, the Note (the "Subordinated Indebtedness") is
hereby expressly subordinated, to the extent and in the manner hereinafter
set forth, to the prior payment in full in cash of all Senior Indebtedness
(as defined in Section 1.07 of this Annex A). The provisions of this Annex A
shall constitute a continuing offer to all persons who, in reliance upon such
provisions, become holders of, or continue to hold, Senior Indebtedness, and
such provisions are made for the benefit of the holders of Senior
Indebtedness, and such holders are hereby made obligees hereunder the same as
if their names were written herein as such, and they and/or each of them may
proceed to enforce such provisions.


Section 1.02. Payor Not to Make Payments with Respect to
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Subordinated Indebtedness in Certain Circumstances. (a) Upon the maturity
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of any Senior Indebtedness (including interest thereon or fees or any other
amounts owing in respect thereof), whether at stated maturity, by
acceleration or otherwise, all Obligations (as defined in Section 1.07 of
this Annex A) owing in respect thereof, in each case to the extent due and
owing, shall first be paid in full in cash, before any payment, whether in
cash, property, securities or otherwise, is made on account of the
Subordinated Indebtedness.


(b) Until all Senior Indebtedness has been paid in full in cash and
all commitments in respect of such Senior Indebtedness have been terminated,
the sum of all payments in respect of the Note (including principal and
interest) shall not exceed at any time that amount permitted by the terms of
the respective issue of S ...