-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VoUF60cgERSz6Ro6wEZaO0fIJXa0U9vhp49sP4qtcoD4s0g1Y21XjYozn0VSh6Qp 2hiVeQuq5MnibGXOySASvg== 0000950124-98-001125.txt : 19980306 0000950124-98-001125.hdr.sgml : 19980306 ACCESSION NUMBER: 0000950124-98-001125 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980305 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: FEDERAL MOGUL CORP CENTRAL INDEX KEY: 0000034879 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 380533580 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-01511 FILM NUMBER: 98558114 BUSINESS ADDRESS: STREET 1: 26555 NORTHWESTERN HGWY CITY: SOUTHFIELD STATE: MI ZIP: 48034 BUSINESS PHONE: 2483547700 10-K 1 FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER: 1-1511 ------------------------- FEDERAL-MOGUL CORPORATION (Exact name of Registrant as specified in its charter) MICHIGAN (State or other jurisdiction of incorporation or organization) 26555 NORTHWESTERN HIGHWAY SOUTHFIELD, MICHIGAN (Address of principal executive office) 38-0533580 (IRS Employer Identification No.) 48034 (Zip Code) Registrant's telephone number including area code: (248) 354-7700 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS Common Stock and Rights to Purchase Preferred Shares NAME OF EACH EXCHANGE ON WHICH REGISTERED New York Stock Exchange and Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark 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 Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $1,984,081,618 as of February 27, 1998 based on the reported last sale price as published for the New York Stock Exchange -- Composite Transactions for such date. The Registrant had 40,439,468 shares of common stock outstanding as of February 27, 1998. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive Proxy Statement for its 1998 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than April 30, 1998, are incorporated by reference in Part III (Items 10, 11, 12 and 13) of this Report. ================================================================================ 2 FORWARD-LOOKING STATEMENTS CERTAIN STATEMENTS CONTAINED OR INCORPORATED IN THIS ANNUAL REPORT ON FORM 10-K, WHICH ARE NOT STATEMENTS OF HISTORICAL FACT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (THE "ACT"). SUCH STATEMENTS ARE MADE IN GOOD FAITH BY FEDERAL-MOGUL PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE ACT. FORWARD-LOOKING STATEMENTS MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS, WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF FEDERAL-MOGUL TO DIFFER MATERIALLY FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS, UNCERTAINTIES AND OTHER FACTORS INCLUDE, WITHOUT LIMITATION, THOSE RELATING TO THE COMPLETION OF THE ACQUISITION OF T&N AND THE COMBINATION OF FEDERAL-MOGUL'S BUSINESS WITH THOSE OF T&N AND FEL-PRO AND THE ANTICIPATED SYNERGIES AND OPERATING EFFICIENCIES AND RESTRUCTURING CHARGES IN CONNECTION THEREWITH, CONDITIONS IN THE AUTOMOTIVE COMPONENTS INDUSTRY, CERTAIN GLOBAL AND REGIONAL ECONOMIC CONDITIONS AND OTHER FACTORS DETAILED HEREIN AND FROM TIME TO TIME IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. MOREOVER, FEDERAL-MOGUL'S PLANS, OBJECTIVES AND INTENTIONS ARE SUBJECT TO CHANGE BASED ON THESE AND OTHER FACTORS, SOME OF WHICH ARE BEYOND FEDERAL-MOGUL'S CONTROL. i 3 PART I ITEM 1. BUSINESS. OVERVIEW Federal-Mogul Corporation founded in 1899 and incorporated in Michigan in 1924 (referred to herein as "Federal-Mogul" or the "Company"), is a global manufacturer and distributor of a broad range of precision parts, primarily vehicular components for automobiles and light trucks, heavy duty trucks, farm and construction vehicles and industrial products. The Company manufactures engine bearings, sealing systems, fuel systems, lighting products, pistons and chassis products. The Company engineers and manufactures products for original equipment ("OE") manufacturers, principally, the world's major manufacturers of automobiles, light trucks, heavy duty trucks, farm and construction vehicles, and industrial products. Federal-Mogul also manufactures and supplies its products and related parts to the aftermarket (replacement parts). During the first quarter of 1997, the Company announced the details of a restructuring plan developed in 1996, which was intended to realign the Company's growth strategy behind its core competencies of manufacturing, engineering and distribution. Included as part of the restructuring plan was the sale of 132 international retail operations throughout the world and the consolidation of various manufacturing facilities, customer support functions and European replacement market management functions. As of December 31, 1997, the Company had completed substantially all of its planned restructuring program, including the sale of a significant majority of its international retail operations. With the restructuring behind it, the Company has pursued its growth strategy by focusing efforts and resources on complimentary acquisitions of manufacturing companies that will enhance its product base and expand its global reach. Federal-Mogul has made a commitment to expand its manufactured products to offer OE customers systems and modules. The Company also intends to expand the global reach of its manufacturing operations to follow the expansion of OE manufacturers into Latin America, Eastern Europe and the Asian markets. The Company intends to couple its expansion of OE business in new geographic markets with growth in global aftermarket sales. In October 1997, the Company announced it made a cash offer to acquire all of the outstanding common stock of T&N plc ("T&N") for 260 pence per share. The offer valued T&N's issued share capital at approximately $2.4 billion. The completion of this acquisition remains subject to applicable regulatory approvals in the United States and Europe; however, the Company expects that the closing will occur in March 1998. T&N, based in Manchester, England, manufactures and supplies high technology engineered automotive components and industrial materials including pistons, friction products, bearings, composites, camshafts and sealing products. In 1997, T&N had sales of approximately $2.9 billion and operated 200 manufacturing locations in 24 countries, employing approximately 28,000 people. On February 24, 1998, the Company acquired Fel-Pro Incorporated ("Fel-Pro"), a privately-owned manufacturer headquartered in Skokie, Illinois, for total consideration of $720 million, which included $225 million in equity and $495 million in cash. In 1997, Fel-Pro had sales of approximately $500 million. Fel-Pro employs more than 2,700 people in 16 locations organized into four business units; Gaskets, FP Diesel, FP Chemical Products, and FP Performance. Gaskets is the largest business unit with approximately $350 million in sales in 1997. The Fel-Pro acquisition and pending T&N acquisition are major steps toward Federal-Mogul's strategic goal of developing global engine and sealing systems for its OE customers. With the T&N acquisition, the Company will also acquire a friction products line of business, which it views as another platform for product expansion. The Company's integrated operations are conducted under four operating units: Powertrain Systems; Sealing Systems; General Products; and Worldwide Aftermarket. The major product categories in Powertrain Systems include engine bearings and piston products; Sealing Systems include dynamic seals and gaskets; General Products include friction products, lighting products, fuel system components, chassis products, 1 4 composites, camshafts, heat transfer products, powder metal products and protective sleeving products; and Worldwide Aftermarket includes virtually all automotive products sold in the aftermarket. Federal-Mogul maintains technology centers in Europe and North America to develop and provide advanced materials, products and manufacturing processes for all of its manufacturing units. The following table sets forth the Company's net sales by market segment and geographic region as a percentage of total net sales.
YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 1995 ---- ---- ---- Original Equipment Americas.................................................. 25% 22% 22% International............................................. 9 9 9 Aftermarket United States and Canada.................................. 39 37 39 International............................................. 27 30 27 Other(1) United States and Canada.................................. -- -- 1 International............................................. -- 2 2 --- --- --- 100% 100% 100% === === ===
- ------------------------- (1) Sales of these products -- air bearing spindles, heavy-wall bearings, and precision forged powdered metal parts -- are accounted for by the Company primarily as OE sales for financial reporting purposes. The precision forged powdered metal parts operation was sold in April 1995. In January 1997, the Company sold its heavy-wall bearing divisions in Germany and Brazil. The Company is now redirecting its efforts and resources to expand its core competencies in manufacturing and distribution by growing the manufacturing base globally while capitalizing on the aftermarket distribution network. Some of the growth in connection with the new strategy is expected to come through acquisitions which the Company will be exploring on an ongoing basis. MANUFACTURED PRODUCTS The Company manufactures the following vehicular and industrial components: Engine Bearings -- The Company manufactures engine bearings, bushings and washers, including bimetallic and trimetallic journal bearings (main, connecting rod, thrust and tilting pad), bimetallic and trimetallic bushings and washers, valve plates and labyrinth seals. These products are used in automotive and light truck, heavy duty, industrial, marine, agricultural, and power generation applications. These products are marketed under the brand names Federal-Mogul(R) and Glyco(R). Sealing Systems -- The Company manufactures a line of sealing products consisting of oil seals, high technology precision gaskets, valve stem seals, air conditioning compression seals, crank shaft seal carrier assemblies and unipistons. Sealing products are used in the automotive and light truck, heavy duty truck, agricultural, off-highway, railroad and industrial applications. These products are marketed under the brand names National(R), Mather(R), and Seal Technology Systems(R)(STS). Lighting Products -- The Company manufactures lighting and safety products consisting of clearance marker lamps, front, side and rear signal lamps, stop, tail and turn lights, emergency lighting, turn signal switches and back-up lamps. Lighting products are used in automotive, medium through heavy duty truck and trailer, off-road, industrial and emergency applications. These products are marketed under the brand name Signal-Stat(R). 2 5 Fuel System Components -- The Company manufactures a full line of fuel pumps including mechanical fuel pumps, diesel lift pumps, electric fuel pumps, electric fuel modules and hanger assemblies. These products are used in automotive and light truck, heavy duty truck, marine, agricultural and industrial applications. These products are marketed under the brand name Carter(R). Pistons -- The Company manufactures cast aluminum pistons for automotive, light duty diesel and air-cooled engines. These products are marketed under the brand name Sterling(R). Chassis Products -- The Company manufactures chassis products including clutch bearings, king pins and universal joints for automotive and light truck applications. These products are marketed under the brand name Federal-Mogul(R). ORIGINAL EQUIPMENT The Company supplies OE customers with a wide variety of precision engineered parts including engine bearings, oil seals, fuel system components, lighting products, and pistons. The Company manufactures all of the products that it sells to OE customers. Customers consist primarily of automotive, heavy duty vehicle and farm and industrial equipment manufacturers. In 1997, approximately 13% of the Company's net sales were to the three major automotive manufacturers in the United States, with General Motors Corporation accounting for approximately 6% of the Company's net sales, Ford Motor Company accounting for approximately 5% of the Company's net sales and Chrysler Corporation accounting for approximately 2% of the Company's net sales. In addition, the Company sells OE products to most of the major automotive manufacturers headquartered outside the United States. The Weisbaden facility in Germany sells OE products to Volkswagen, Daimler-Benz and BMW. The Company also sells Federal-Mogul engine bearings to Renault and Peugeot in France and to Fiat in Italy. In addition, the Company sells a small amount of OE products to certain Japanese manufacturers, including Nissan, certain Toyota operations in the United States and Komatsu in Japan. AFTERMARKET The Company supplies a wide variety of aftermarket products, including engine and transmission products (engine bearings, pistons, piston rings, valves, camshafts, valve lifters, valvetrain parts, timing components and engine kits, bushings and washers), ball and roller bearings, sealing devices (gaskets and oil seals and other high performance specialty seals), lighting and electrical components, and automotive fuel pumps, water pumps, oil pumps and related systems. The Company also sells steering and suspension parts which include such items as tie rod ends, ball joints, idler and pitman arms, center links, constant velocity parts, rack and pinion assemblies, coil springs, universal joints, engine mounts and alignment products. Federal-Mogul sells aftermarket products under its own brand names such as Federal-Mogul(R), Glyco(R), National(R), Mather(R), Carter(R), Sterling(R), Signal-Stat(R) and Seal Technology Systems(R) (STS), as well as under brand names for which it has long-term licenses such as TRW(R) and Sealed Power(R). It also packages its products under third-party private brand labels such as NAPA(R) and CARQUEST(R). The Company's aftermarket business supplies approximately 150,000 part numbers to almost 10,000 customers. Federal-Mogul's customers are located in more than 90 countries around the world. For 1997, aftermarket net sales in the United States and Canada represented 59% of total aftermarket net sales, with net sales outside of the United States and Canada representing 41% of such sales. Domestic customers include independent warehouse distributors who redistribute products to local parts suppliers called jobbers, industrial bearing distributors, distributors of heavy duty vehicular parts, engine rebuilders and retail parts stores. Internationally, the Company sells aftermarket products to jobbers, local retail parts stores and independent warehouse distributors. Aftermarket sales to jobbers and local retail parts stores comprise a larger proportion of total international aftermarket sales than of total domestic aftermarket sales. 3 6 Federal-Mogul's North American distribution centers in Jacksonville, Alabama, LaGrange, Indiana, and Maysville, Kentucky (the "Distribution Centers"), serve as the core of the Company's domestic aftermarket distribution network. Products are shipped from these Distribution Centers to service centers in the United States and Canada. For Latin American sales, products are shipped through a facility in Weston, Florida to two international regional distribution centers and 15 Latin American branches. For European sales, products are shipped through Federal-Mogul's facility in Kontich, Belgium. RESEARCH AND DEVELOPMENT The Company's expertise in engineering and research and development ensures that the latest technologies, processes and materials are considered in solving problems for customers. Federal-Mogul provides its customers with real-time engineering capabilities and design development in their home countries. Research and development activities are conducted at the Company's major research centers in Ann Arbor, Michigan; Wiesbaden; Germany; Logansport, Indiana; Malden, Missouri; Cardiff, Wales; Hoisdorf, Germany; and Minoshima, Japan. Each of the Company's operating units is engaged in various engineering and research and development efforts working side by side with customers to develop custom solutions unique to their needs. Total expenditures for research and development activities were approximately $13.1 million in 1997, $14.4 million in 1996 and $15.1 million in 1995. Expenditures for research and development have declined due to consolidation of the lighting and fuel research centers and the sale of the United States ball bearings manufacturing operations. RECENT ACQUISITIONS AND DIVESTITURES Acquisitions On February 24, 1998, the Corporation announced the completion of its acquisition of Fel-Pro Incorporated ("Fel-Pro"), a privately-owned manufacturer headquartered in Skokie, Illinois for $720 million. The transaction involved $225 million in equity and $495 million in cash. Fel-Pro is the premier gasket manufacturer for the North American aftermarket and OE heavy duty market. In 1997, Fel-Pro had sales of approximately $500 million. The Company has more than 2,700 employees in 16 locations organized into four business units: Gaskets, FP Diesel, FP Chemical Products, and FP Performance. Gasket sales for 1997 were approximately $350 million and included cylinder head and molded rubber gaskets, and marine and performance gaskets marketed under various brand names including Permatorque Blue(R), Fel-Coprene(R), Print-O-Seal(R) and PermaDry Plus(R). On October 16, 1997, the Corporation announced the terms of a recommended cash offer by Federal-Mogul of 260 pence per share for all of the outstanding common stock of T&N plc ("T&N"). The offer valued T&N's issued share capital at approximately $2.4 billion. Management believes that Federal-Mogul's acquisition of T&N will: - create a highly competitive Tier I automotive supplier worldwide; - expand its manufactured product portfolio to offer systems and modules; - enhance Federal-Mogul's position as a supplier of engine and transmission products worldwide; - reinforce Federal-Mogul's ability to provide a high quality service to both its original equipment and aftermarket customers; - extend Federal-Mogul's international reach and accelerate its worldwide aftermarket growth; and - create an organization that builds on the strength of the leadership, expertise and working practices of both companies to further improve efficiencies. The T&N transaction is subject to regulatory approval and is expected to close in March of 1998. 4 7 Divestitures and Closings On February 10, 1998, the Company announced the divestiture of its minority interest in Dichtungstechnik G. Bruss GmbH & Co. KG, a German manufacturer of seals and gaskets. As part of this transaction, the Company increased its ownership in a related U. S. partnership to 100%. In Venezuela, Federal-Mogul has sold six retail stores to local companies, closed two stores and is in negotiations with prospective buyers for the remaining seven stores. In Ecuador, Federal-Mogul is in negotiations with two parties for the sale of three retail stores. In Puerto Rico, two retail stores have been closed and other actions have been taken to improve profitability. The Company will continue through 1998 to pursue the sale of this operation while managing it for positive economic value added ("EVA"). In December 1997, the U.S. service center network was streamlined to gain greater value from Federal-Mogul's product distribution capabilities in the aftermarket. In December 1997, Federal-Mogul also completed the sale of its four retail stores and one central distribution center in Chile to Inversiones Federal, S.A., a Chilean corporation headquartered in Santiago, Chile. Federal-Mogul entered into a supply and distribution arrangement with the buyer to serve the Chilean market in the future. In November 1997, Federal-Mogul announced the closure of aftermarket distribution centers in Malaysia and Singapore. The Company also closed its distribution center in Taiwan. Federal-Mogul will continue to maintain sales offices in Singapore and Taiwan. The Company withdrew from a retail-related joint venture initiative in Russia during the fourth quarter of 1997 and expects to complete its withdrawal from another joint venture in Israel by the end of the first quarter of 1998. During 1997, the Company closed its aftermarket operations in Turkey, Australia and South Africa. SUPPLIERS Federal-Mogul sells its manufactured parts as well as parts manufactured by other manufacturers to the aftermarket. The products not manufactured by Federal-Mogul are supplied by over 600 companies. In 1997, no outside supplier of the Company provided products that accounted for more than 5% of the Company's net sales. In connection with the acquisition of the automotive aftermarket business of TRW, Inc. ("TRW") in 1992, the Company and TRW entered into a Supply Agreement for an initial term of 15 years (the "Supply Period"), pursuant to which TRW agreed to supply the Company with parts manufactured by TRW and distributed by the Company. During the first five years of the Supply Period (the "Exclusive Period"), the Company is an exclusive distributor of such TRW parts and thereafter will be a nonexclusive distributor for the remaining term of the Supply Agreement, subject to certain exceptions. Thereafter, both the Exclusive Period and the Supply Period are automatically renewable for one-year periods and are terminable upon one year's notice by either party. EMPLOYEE RELATIONS On December 31, 1997, the Company had approximately 13,300 full-time employees, of whom approximately 7,700 were employed in the United States. Approximately 54% of the Company's United States employees are represented by 4 unions. Approximately 44% of the Company's foreign employees are represented by various unions. Each of the Company's unionized manufacturing facilities has its own contract with its own expiration date, and as a result, no contract expiration date affects more than one facility. The Company believes its labor relations to be good. 5 8 ENVIRONMENTAL REGULATIONS The Company's operations, in common with those of industry generally, are subject to numerous existing and proposed laws and governmental regulations designed to protect the environment, particularly regarding plant wastes and emissions and solid waste disposal. Capital expenditures for property, plant and equipment for environment control activities did not have a material impact on the Company's financial position or results of operations in 1997 and are not expected to have a material impact on the Company's financial position or results of operations in 1998 or 1999. RAW MATERIALS The Company does not normally experience supply shortages of raw materials. Certain of the Company's relationships with its long-term suppliers are contractual. No outside supplier of the Company provided more than 5% of products purchased. BACKLOG The majority of the Company's products are not on a backlog status. They are produced from readily available materials and have a relatively short manufacturing cycle. For products supplied by outside suppliers, the Company generally purchases products from more than one source. The Company expects to be capable of handling the anticipated 1998 sales volumes. PATENTS AND LICENSES The Company is committed to protecting its technology investments and market share through an active and growing international patent portfolio. The international patent portfolio is composed of a large number of foreign (non U.S.) patents and pending patent applications which relate to a wide variety of products and processes. In the aggregate, the Company's international patent portfolio is of material importance to its business; however, the Company does not consider any international patent or group of international patents relating to a particular product or process to be of material importance when judged from the standpoint of the business as a whole. COMPETITION The global vehicular parts business is highly competitive. The Company competes with many of its customers that produce their own components as well as with independent manufacturers and distributors of component parts in the United States and abroad. In general, competition for such sales is based on price, product quality, customer service and the breadth of products offered by a given supplier. The Company has attempted to meet these competitive challenges through more efficiently integrating its manufacturing and distribution operations, expanding its product coverage within its core businesses, and expanding its worldwide distribution network. INFORMATION ABOUT INTERNATIONAL AND DOMESTIC OPERATIONS AND EXPORT SALES The Company has both manufacturing and distribution facilities for its products, principally in the United States, Europe, Latin America, Mexico and Canada. Certain of these products, primarily engine bearings and oil seals, are sold to international original equipment manufacturers and vehicular aftermarket customers. International operations are subject to certain risks inherent in carrying on business abroad, including expropriation and nationalization, currency exchange rate fluctuations and currency controls, and export and import restrictions. The likelihood of such occurrences and their potential effect on the Company vary from country to country and are unpredictable. 6 9 Original equipment and aftermarket sales by major geographical regions were:
1997 1996 1995 ---- ---- ---- (MILLIONS OF DOLLARS) Original Equipment Americas.................................................. $ 451.4 $ 449.1 $ 465.4 International............................................. 170.3 219.5 222.7 Aftermarket United States and Canada.................................. 699.1 759.8 780.8 International............................................. 485.8 604.3 530.9 -------- -------- -------- Total Sales............................................ $1,806.6 $2,032.7 $1,999.8 ======== ======== ========
Detailed results of operations and assets by geographic area for each of the years ended December 31, 1997, 1996 and 1995 appear in Note 17 of Notes to Consolidated Financial Statements contained in Item 8 of this Report. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are its elected officers, other than its assistant officers. Set forth below are the names, ages, positions and offices held, and a brief account of the business experience during the past 5 years of each executive officer. RICHARD A. SNELL (56). Chairman of the Board, Chief Executive Officer and President, Federal-Mogul Corporation. Mr. Snell has served as Chairman of the Board, Chief Executive Officer and President and a director of the Corporation since November 1996. He also serves as Chairman of the Executive and Finance Committee and as a member of the Pension Committee. Mr. Snell was previously employed by Tenneco, Inc., from November 1987 to November 1996, most recently having served as President and Chief Executive Officer of Tenneco Automotive from September 1993 until he was employed by the Corporation. KEVIN W. BAIRD (36). Vice President -- Distribution and Logistics of the Company since July 1996. Prior thereto, Mr. Baird was employed by the Company as Vice President -- Worldwide Aftermarket Operations from October 1995 to July 1996; Plant Manager of the Company's Frankfort, Indiana and Van Wert, Ohio plants from September 1993 to October 1995; and Product Line Manager for the Company's Van Wert, Ohio and Summerton, South Carolina plants from September 1990 to September 1993. He first became an executive officer in 1996. DAVID A. BOZYNSKI (43). Vice President and Treasurer since April 1996. Prior thereto, Mr. Bozynski was employed by Unisys Corporation as Vice President and Assistant Treasurer, from October 1994 to April 1996; Vice President, Finance -- Lines of Business from April 1993 to September 1993; and Vice President, Corporate Business Analysis, March 1992 to April 1993. He first became an executive officer in 1996. JAMES B. CARANO (48). Vice President and General Manager -- Latin America since 1995; Vice President and Controller, December 1992 to March 1995; International Distribution Manager -- Port Everglades, Florida, February 1990 to November 1992. He first became an executive officer in 1992. ROBERT F. EGAN (51). Vice President, Distributor Sales -- Aftermarket since October 1996; Vice President, Automotive Sales -- Aftermarket from December 1993 to October 1996; Vice President, Automotive Sales -- Worldwide Aftermarket Operation, November 1992 to December 1993; National Sales Manager, Automotive Aftermarket -- Worldwide Aftermarket Operation May 1985 to November 1992. He first became an executive officer in 1993. CHARLES B. GRANT (53). Vice President -- Corporate Development since December 1992; Vice President and Controller, May 1988 to December 1992. He first became an executive officer in 1985. ALAN C. JOHNSON (49). Executive Vice President since February 1997; Vice President and President, Operations from April 1996 to February 1997; Vice President and President, Worldwide Operations from January 1996 to April 1996; Vice President and President, Worldwide Manufacturing Operation from 7 10 February 1995 until January 1996; Vice President, Powertrain Operations -- Americas from December 1993 until February 1995; Vice President and General Manager -- Seal Operations, November 1992 to December 1993; General Manager -- Oil Seal Operations, January 1990 to November 1992. He first became an executive officer in 1993. DIANE L. KAYE (47). Vice President, General Counsel and Secretary since April 1995. Prior thereto, Divisional Counsel, Buick Motor Division and Cadillac Motor Car Division, General Motors Corporation from April 1990 to April 1995. She first became an executive officer in 1995. JEFF J. O'NEILL (41). Vice President -- Marketing since July 1997. Prior thereto Mr. O'Neill served as business director -- Quaker Snacks with The Quaker Oats Company. During his 17 years with The Quaker Oats Company he worked both in the U.S. and Canada. He first became an executive officer at Federal-Mogul in 1997. RICHARD P. RANDAZZO (54). Vice President -- Human Resources since January 1997. Prior thereto, Senior Vice President -- Human Resources of Nextel Communications, Inc. from December 1994 to December 1996, and Senior Vice President, Human Resources -- Americas Region of Asea Brown Boveri, Inc., December 1990 to December 1994. He first became an executive officer in 1997. THOMAS W. RYAN (51). Senior Vice President and Chief Financial Officer since February 1997. Prior thereto, Chief Financial Officer of Tenneco Automotive, a division of Tenneco, Inc. from January 1995 to February 1997, and Vice President, Treasurer and Controller of A. O. Smith Corporation from March 1985 to January 1995. He first became a Federal-Mogul executive officer in 1997. WILHELM A. SCHMELZER (57). Vice President and Group Executive -- Engine and Transmission Products since April 1995; Vice President and Group Executive -- E & T Products -- Europe, April 1993 to April 1995; Vice President and Group Executive -- Engine and Transmission Products Group -- Europe, January 1992 to April 1993. He first became an executive officer in 1992. MICHAEL L. SCHULTZ (50). Vice President and General Manager -- North American Aftermarket Sales and Marketing since December 1995; Vice President, Marketing -- Worldwide Aftermarket, December 1994 to December 1995; Eastern Zone Sales Manager, November 1992 to December 1994. Mr. Schultz was Vice President of Sales, North America for TRW Inc. before joining the Company in 1992. He first became an executive officer in 1995. KENNETH P. SLABY (46). Vice President and Controller since April 1996. Prior thereto, Manager -- Financial Operations for the global silicones business of General Electric Company, November 1990 to April 1996. He first became an executive officer in 1996. JAMES J. ZAMOYSKI (51). Vice President -- Strategic Planning since June 1997; Vice President and General Manager, April 1995 to June 1997; Worldwide Aftermarket Operation -- International, November 1993 to April 1996; General Manager, Worldwide Aftermarket -- Distribution and Logistics, August 1991 to November 1993. He first became an executive officer in 1980. Generally, officers of the Company are elected at the time of the Annual Meeting of Shareholders, but the Board also elects officers at various other times during the year. Each officer holds office until his or her successor is elected or appointed or until his or her resignation or removal. 8 11 ITEM 2. PROPERTIES. The Company conducts its business from its World Headquarters complex in Southfield, Michigan, which is leased pursuant to a sale/leaseback arrangement. The principal manufacturing and other materially important physical properties of the Company at December 31, 1997, are listed below. All properties are owned in fee except where otherwise noted. A. Manufacturing Facilities.
NO. OF SQ. FT. FACILITIES AT 12/31/97 ---------- ----------- NORTH AMERICAN MANUFACTURING FACILITIES Frankfort, Indiana.......................................... 1 179,350 Milan, Michigan............................................. 1 80,800 Van Wert, Ohio.............................................. 1 195,864 Blacksburg, Virginia........................................ 1 226,000 Greenville, Michigan........................................ 1 210,000 Logansport, Indiana......................................... 1 166,000 Malden, Missouri(1)......................................... 1 123,280 Mooresville, Indiana........................................ 1 65,944 St. Johns, Michigan......................................... 1 262,000 Puebla, Mexico.............................................. 1 100,571 Mexico City, Mexico......................................... 2 153,136 Juarez, Mexico(1)........................................... 1 102,885 Summerton, South Carolina................................... 1 136,000 -- --------- 14 2,001,830 -- --------- INTERNATIONAL MANUFACTURING FACILITIES Cuorgne, Italy.............................................. 1 114,900 Gonnet, Argentina........................................... 1 49,252 San Martin, Argentina....................................... 1 5,638 Orleans, France............................................. 1 130,046 Wiesbaden, Germany.......................................... 1 837,900 Cardiff, Wales.............................................. 1 151,200 San Luis, Argentina......................................... 2 6,400 -- --------- 8 1,295,336 -- --------- Total Manufacturing Facilities......................... 22 3,297,166 == =========
- ------------------------- (1) Leased by the Company and accounted for as an operating lease. The Company believes that these leases could be renewed or comparable facilities could be obtained without materially affecting operations. All owned and leased properties are well maintained and equipped for the purposes for which they are used. The Company believes that its facilities are suitable and adequate for the operations involved. B. Aftermarket Warehouses. The Company operates 82 warehouses and distribution centers of which 62 are leased. In addition, 2 warehouses are financed and leased through the issuance of industrial revenue bonds. Certain of these warehouses will be closed or consolidated in connection with the integration of T&N and Fel-Pro. C. Retail Properties. The Company leases 13 facilities in Venezuela, 6 facilities in Panama, 41 facilities in Puerto Rico and 3 facilities in Ecuador. The Company expects to dispose of or close these facilities in connection with the completion of its planned sales of its international retail operations. All owned and leased properties are well maintained and equipped for the purposes for which they are used. The Company believes that its facilities are suitable and adequate for the operations involved. 9 12 ITEM 3. LEGAL PROCEEDINGS The Company is one of a large number of defendants in a number of lawsuits brought by claimants alleging injury due to exposure to asbestos. The Company is defending all such claims vigorously and believes that it has substantial defenses to liability and adequate insurance coverage for its defense costs. While the outcome of litigation cannot be predicted with certainty, after consulting with the office of the Company's general counsel, management believes that asbestos claims pending against Federal-Mogul as of December 31, 1997 will not have a material effect on the Company's financial position. The Company is involved in various other legal actions and claims. After taking into consideration legal counsel's evaluation of such actions, management is of the opinion that their outcomes are not reasonably likely to have a material adverse effect on the Company's financial position. For information respecting lawsuits concerning environmental matters to which the Company is a party, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Environmental and Legal Matters". There were no material legal proceedings which were terminated during the fourth quarter of 1997. ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS. No matter was submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of 1997. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock is listed on the New York Stock Exchange and the Pacific Exchange under the trading symbol FMO. The approximate number of shareholders of record of the Company's common stock at February 27, 1998 was 9,207. The following table sets forth the high and low sales prices of the Company's common stock for each calendar quarter as reported on the New York Stock Exchange-Composite Tape for the last two years:
1997 1996 ---------------- ---------------- QUARTER HIGH LOW HIGH LOW ------- ---- --- ---- --- First......................................... $26.75 $21.63 $20.88 $17.38 Second........................................ 35.38 24.50 19.88 17.88 Third......................................... 39.94 32.75 22.50 16.25 Fourth........................................ 47.63 36.75 24.50 20.38
The closing price of the Company's common stock as reported on the New York Stock Exchange-Composite Tape on February 27, 1998 was $49.063. Quarterly dividends of $.12 per common share were declared during 1997 and 1996. In February 1998, the Company's Board of Directors declared a quarterly dividend of $.12 per common share. This was the 248th consecutive quarterly dividend declared by the Company. The Company's dividend policy is under consideration, and there can be no assurance that dividends at the current rate, or that any dividends, will be paid in the future. 10 13 ITEM 6. SELECTED FINANCIAL DATA The following table presents information from the Company's consolidated financial statements for the five years ended December 31, 1997. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the "Financial Statements and Supplementary Data."
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) CONSOLIDATED STATEMENT OF OPERATIONS DATA Net sales................................. $ 1,806.6 $ 2,032.7 $ 1,999.8 $ 1,889.5 $ 1,575.5 Costs and expenses........................ (1,703.7)(1) (2,258.0)(2) (2,000.7)(3) (1,795.5) (1,523.1)(4) Other income (expense).................... (3.4) (3.4) (2.4) (2.5) 4.0 Income tax (expense) benefit.............. (27.5) 22.4 (2.5) (31.8) (19.5) --------- --------- --------- --------- --------- Net earnings (loss) before extraordinary item.................................... 72.0 (206.3) (5.8) 59.7 36.9 Extraordinary item -- loss on early retirement of debt, net of applicable income tax benefit...................... (2.6) -- -- -- -- --------- --------- --------- --------- --------- Net earnings (loss)....................... $ 69.4 $ (206.3) $ (5.8) $ 59.7 $ 36.9 ========= ========= ========= ========= ========= COMMON SHARE SUMMARY (DILUTED) Average shares and equivalents outstanding (in thousands).......................... 41,854 34,659 34,642 41,800 33,900 Earnings (loss) per share: Before extraordinary item............... $ 1.67 $ (6.20) $ (.42) $ 1.38 $ 1.02 Extraordinary item -- loss on early retirement of debt, net of applicable income tax benefit........................... (.06) -- -- -- -- --------- --------- --------- --------- --------- Net earnings (loss) per share............. $ 1.61 $ (6.20) $ (.42) 1.38 1.02 ========= ========= ========= ========= ========= Dividends declared per share.............. $ .48 $ .48 $ .48 $ .48 $ .48 ========= ========= ========= ========= ========= CONSOLIDATED BALANCE SHEET DATA Total assets.............................. $ 1,802.1 $ 1,455.2 $ 1,701.1 $ 1,481.7 $ 1,300.2 Short-term debt(5)........................ 28.6 280.1 111.9 74.0 39.2 Long-term debt............................ 273.1 209.6 481.5 319.4 382.5 Shareholders' equity...................... 369.3 318.5 550.3 588.5 366.0 OTHER FINANCIAL INFORMATION Net cash provided from (used by) operating activities.............................. $ 215.7 $ 149.0 $ (34.7) $ 24.3 $ 43.5 Expenditures for property, plant, equipment and other long term assets.... 49.7 54.2 78.5 74.9 60.0 Depreciation and amortization expense..... 52.8 63.7 61.0 55.7 50.7
- ------------------------- (1) Includes $1.1 million for a net restructuring credit, a $2.4 million charge for an adjustment of assets held for sale to fair value and other long lived assets, a $1.6 million credit for reengineering and other related charges, and a $10.5 million net charge related to the British pound currency option. (2) Includes $57.6 million for a restructuring charge, $151.3 million for adjustment of assets held for sale to fair value and other long lived assets and $11.4 million relating to reengineering and other related charges. (3) Includes $26.9 million for restructuring charges, $51.8 million for adjustment of assets held for sale to fair value and other long lived assets and $13.9 million relating to reengineering and other related charges. (4) Includes $19.2 million for a restructuring charge. (5) Includes current maturities of long-term debt (see Note 10 to the consolidated financial statements). 11 14 MANAGEMENT'S DISCUSSION AND ANALYSIS ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Federal-Mogul Corporation (the Company) is a global manufacturer and distributor of a broad range of non-discretionary parts primarily for automobiles, light trucks, heavy trucks, farm and construction vehicles. During 1997, the Company initiated an action plan to expand its manufacturing product offerings in related product lines to provide system approaches and to grow internationally to supply its original equipment customers in new markets. Significant components of the Company's action plan include the divestiture of under-performing assets and the pursuit of synergistic acquisitions that will build on core product lines. T&N plc Transaction In October 1997, the Company announced it made a cash offer to acquire all the outstanding common stock of T&N plc (T&N) for 260 pence per share. The offer valued T&N's issued share capital at approximately $2.4 billion. On January 6, 1998, the Company's offer to acquire all of the outstanding common stock of T&N was declared unconditional as to acceptances. By the second closing date under the offer, January 2, 1998, valid acceptances of the offer had been received for approximately 95% of the entire issued share capital of T&N. T&N, based in Manchester, England, manufactures and supplies high technology engineered automotive components and industrial materials including pistons, friction products, bearings, composites, camshafts and sealing products. In 1997, T&N had sales of approximately $2.9 billion and operated 200 manufacturing locations in 24 countries, employing approximately 28,000 people. The Company will fund the T&N transaction through a bridge facility provided by a reputable financial institution. Subsequent to the planned T&N acquisition, the Company intends to put in place a permanent capital structure with an appropriate combination of equity and debt. The offer is subject to various conditions customary in the United Kingdom, including the receipt of all applicable regulatory approvals in the United States and Europe. As part of the acquisition process, certain financing, professional and other related fees approximating $28 million had been capitalized as of December 31, 1997. Management expects the T&N transaction to close in the first quarter of 1998; however, in the event the acquisition is not completed, these fees would be charged to operations and would materially impact earnings at that time. In addition, the Company may elect to accelerate payment of certain portions of the bridge facility, which would result in an extraordinary charge due to the write-off of the financing costs associated with the early retirement of debt. In addition, the Company purchased a foreign currency option to cap the effect of potential unfavorable fluctuations in the British pound/U.S. dollar exchange rate (see Foreign Currency and Commodity Contracts, described later in this section). Fel-Pro Incorporated Transaction In addition on February 24, 1998 the Company acquired Fel-Pro Incorporated (Fel-Pro), a privately-owned manufacturer headquartered in Skokie, Illinois, for total consideration of $720 million, which includes $225 million in equity and $495 million in cash. The $495 million in cash was primarily provided through available borrowings on the $350 million multicurrency revolver. The remaining consideration paid was through the issuance of promissory notes. In 1997, Fel-Pro had sales of approximately $500 million. Fel-Pro employs more than 2,700 people in 16 locations organized into four business units: Gaskets, FP Diesel, FP Chemical Products and FP Performance. Gaskets is the largest business unit with approximately $350 million in sales in 1997. 12 15 MANAGEMENT'S DISCUSSION AND ANALYSIS -- CONTINUED Management believes the planned acquisition of T&N and the acquisition of Fel-Pro will: - create a highly competitive Tier 1 automotive supplier worldwide; - expand its manufactured product portfolio to offer systems and modules; - enhance the Company's position as a supplier of engine and transmission products worldwide; - reinforce the Company's ability to provide a high quality service to both its original equipment and aftermarket customers; and - extend the Company's international reach and accelerate its worldwide aftermarket growth. Upon completion of the T&N and Fel-Pro acquisitions, the Company expects to have annual sales of approximately $5 billion. Unless otherwise indicated, the remainder of the discussion and analysis pertains only to the results of operations the Company had in place as of December 31, 1997. Restructuring Actions Update During 1997, the following actions related to the significant 1996 restructuring plan, described later in this section, were completed. The Company: - sold its aftermarket operations in Turkey, Australia, South Africa and Chile. The Company also closed international aftermarket distribution centers in Malaysia and Singapore. In total, the Company divested 72 international retail aftermarket operations and sold or restructured 25 wholesale aftermarket operations. Net sales for international aftermarket operations divested in 1997 approximated $70 million, $186 million and $193 million in 1997, 1996 and 1995, respectively; - closed its Leiters Ford, Indiana manufacturing facility and consolidated its lighting products operations in Juarez, Mexico; - consolidated certain of its North American warehouse facilities; - consolidated its customer support functions previously housed in Phoenix, Arizona into the Company's Southfield headquarters; - consolidated its European aftermarket management functions in Geneva, Switzerland into the Wiesbaden, Germany manufacturing headquarters; and - streamlined certain of its administrative and operational staff functions worldwide. Primarily due to the planned 1998 acquisitions of T&N and Fel-Pro, the Company elected not to fully implement the following actions under the 1996 restructuring plan: - Reductions to the operational and administrative staff were not made to the extent originally planned; - Reconfiguration of the North American distribution network was altered to accommodate the planned integration of T&N and Fel-Pro aftermarket operations; - Relocation of certain European manufacturing product lines to lower cost areas within Europe and related workforce reductions did not take place. Management of the Company decided not to pursue this action primarily in anticipation of the integration of future acquisitions. By the end of the first quarter of 1998, the Company expects to have successfully exited all of its retail businesses, except for Puerto Rico where the Company continues to seek a buyer. The Company expects to incur additional restructuring charges in the future to implement its corporate strategy, specifically related to the planned acquisition of T&N and the acquisition of Fel-Pro, although the 13 16 MANAGEMENT'S DISCUSSION AND ANALYSIS -- CONTINUED specific actions have not been determined and the precise amounts have not been established. While the charges relating to these restructuring actions will decrease net income in the year incurred, these restructuring actions are projected to decrease operating costs, thereby enhancing the profitability of the Company in future years. The restructuring charges expected to be incurred in 1998 are anticipated to be in excess of $100 million for T&N and in excess of $15 million for Fel-Pro. RESULTS OF OPERATIONS Net Sales Consolidated net sales decreased 11.1% in 1997, primarily due to the divestiture of certain international retail and wholesale operations, the sale of the heavy wall bearings operations in Brazil and Germany, the sale of the United States ball bearing business and continued softness in the North American aftermarket business. These decreases were partially offset by certain volume increases primarily in the original equipment business. Original equipment and aftermarket sales were:
1997 1996 1995 ---- ---- ---- (MILLIONS OF DOLLARS) ORIGINAL EQUIPMENT: Americas.................................................. $ 451.4 $ 449.1 $ 465.4 International............................................. 170.3 219.5 222.7 AFTERMARKET: United States and Canada.................................. 699.1 759.8 780.8 International............................................. 485.8 604.3 530.9 -------- -------- -------- Total sales............................................ $1,806.6 $2,032.7 $1,999.8 ======== ======== ========
Original equipment business sales in the Americas were flat in 1997 as compared to 1996. However, excluding the effect of the Company's divestitures of its electrical products business in September 1996 and its United States ball bearing operations in November 1996, net sales increased 15.7% in 1997 compared to 1996. Management attributes this increase primarily to strong 1997 sales in its sealing products division. Sales decreased in 1996 as compared to 1995 due to the sale of the Precision Forged Products Division in April 1995 and the 1996 sales of the electrical products business and the United States ball bearings manufacturing operations, offset slightly by the acquisition of Seal Technology Systems Limited in September 1995. Excluding the effect of these acquisitions and divestitures, sales increased 2.7% in 1996. International original equipment business sales decreased in 1997 as compared to 1996 due to the effects of exchange rate fluctuations and the divestiture of the heavy wall bearing operations in Germany and Brazil completed on January 2, 1997. Excluding the effects of exchange rate fluctuations and the divestiture, sales increased 11.7%. Management attributes this increase to strong customer demand for sputter bearings and Glycodur material products. In 1996, sales decreased as compared to 1995 due to the Company's decision to exit some conventional engine bearing business that did not meet appropriate profitability levels. North American aftermarket sales decreased in 1997 as compared to 1996 due to continued weak sales in engine products. Sales decreased in 1996 as compared to 1995 primarily due to the elimination of special extended payment terms. International aftermarket business sales in 1997 as compared to 1996 decreased primarily due to the effects of foreign exchange fluctuations and the 1997 divestitures of Turkey, Australia, South Africa and Chile. Excluding the effects of exchange and 1997 divestitures, sales were essentially flat. In 1996, sales increased as compared to 1995 due to the full year impact of the acquisitions of Bertolotti in June 1995 and Centropiezas in September 1995, and to a lesser extent, volume and pricing increases in Mexico, increased sales volume in Australia and new local operations in Brazil. These increases were partially offset by 14 17 MANAGEMENT'S DISCUSSION AND ANALYSIS -- CONTINUED $21 million resulting from the devaluation of the South African rand and a decrease in Venezuela due to a recession. Original equipment sales as a percentage of total sales of the Company increased to 34.4% in 1997 from 32.8% in 1996, with a corresponding decrease in aftermarket sales. This shift in 1997 reflects the Company's pursuit and implementation of its strategy to focus on manufacturing and distribution, as demonstrated by the previously discussed 1997 divestitures and planned acquisitions. Previously, as the Company was implementing its retail growth strategy, original equipment sales as a percentage of total sales of the Company decreased to 32.8% in 1996 from 34.4% in 1995, with a corresponding increase in aftermarket sales. Cost of Products Sold Cost of products sold as a percent of net sales decreased to 76.5% in 1997 compared to 81.7% for 1996. The decrease is primarily due to the 1997 divestitures of less profitable operations and productivity improvements in the North American aftermarket and the Americas original equipment business. In addition, a portion of the 1997 decrease is attributable to 1996 third and fourth quarter charges incurred of $8 million for customer incentive programs and $13 million for excess and obsolete inventory (see Changes in Accounting Estimates, described later in this section). Cost of products sold as a percent of net sales increased to 81.7% in 1996 compared to 80.2% in 1995. The increase is primarily attributable to 1996 third and fourth quarter charges incurred of $8 million for customer incentive programs and $13 million for excess and obsolete inventory (see Changes in Accounting Estimates). Selling, General and Administrative Expenses Selling, general and administration (SG&A) expenses as a percent of net sales decreased to 15.8% for 1997 compared to 16.4% for 1996. In contrast, SG&A expenses as a percent of net sales increased to 16.4% for 1996 compared to 15.0% for 1995. The 1997 decrease and 1996 increase in SG&A as a percent of net sales is primarily attributable to bad debt expense, customer incentive programs and environmental and legal matters (see Changes In Accounting Estimates of $3 million for bad debt expense, $8 million for customer incentive programs and $9 million for environmental and legal matters) incurred in the third and fourth quarters of 1996. In addition, the 1996 increase was partially due to higher SG&A costs in the international aftermarket business. Changes in Accounting Estimates In 1996, the Company made certain changes in accounting estimates totaling $51 million in the third and fourth quarters attributable to 1996 events and new information becoming available. The changes in accounting estimates included the following: Customer Incentive Programs: The increase in the provision for customer incentive programs of $18 million resulted from contractual changes implemented primarily in the third and fourth quarters of 1996 with certain customers, new sales programs, additional customer participation in these programs and current experience with these programs. Excess and Obsolete Inventory: Business volume growth remained below expectations in 1996, principally in the third and fourth quarters, causing a build up of certain inventories beyond anticipated demand. In addition, the Company's strategic initiative to focus on its manufacturing business and divest its retail and certain aftermarket businesses and the sale of the U.S. ball bearings operations in the fourth quarter adversely affected the utility of the North American aftermarket business inventory. As a result, the Company recorded an additional $13 million provision for excess and obsolete inventory. Bad Debts: The increase in the bad debt provision of $3 million was principally attributable to the deterioration of account balances of numerous low volume customers and termination of business with certain North American aftermarket customers during 1996. 15 18 MANAGEMENT'S DISCUSSION AND ANALYSIS -- CONTINUED Environmental and Legal Matters: The environmental and legal provision was increased by $9 million due to the completion of environmental studies and related analyses, new issues arising and changes in the status of other legal matters. Other: The remaining $8 million of changes in accounting estimates is comprised of $1 million for changes in the workers' compensation reserve based on worsening experience in outstanding claims in certain older policy years, $3 million for interest capitalization, $2 million to adjust estimates of inventoriable costs and $2 million for other items. Sales of Businesses During 1997, the Company received $73.6 million in net cash proceeds from the sale of its aftermarket operations in South Africa, Australia, and Chile, and its heavy wall bearing operations in Germany and Brazil. During 1996, the Company received $42.0 million in net cash proceeds from the sale of its United States ball bearings and electrical products manufacturing operations. Except for the sale of the electrical products manufacturing operations, sales of businesses in 1997 and 1996 relate to assets previously adjusted to fair value (see Adjustment of Assets Held for Sale to Fair Value and Other Long Lived Assets, described later in this section). Accordingly, no gain or loss was recognized on the date of sale related to these transactions. In addition, no gain or loss was recognized related to the sale of the electrical products manufacturing operations. During 1995, the Company sold its equity interest in Westwind Air Bearings, Limited, recognizing a pretax gain of $16.2 million and its Precision Forged Products Division for a pretax gain of $7.8 million. Restructuring Charges Primarily as a result of the amendments to the 1996 restructuring plan, described previously in this section, the Company's 1997 operating results were increased by $23.1 million for the reversal of previously recognized 1996 and 1995 restructuring charges. Offsetting this reversal is a $22.0 million charge for new 1997 restructuring programs. The net impact on 1997 operations, as a result of the restructuring activities, was a credit of $1.1 million. The 1997 charge includes $3.1 million for exiting certain European aftermarket product lines and the related employment reductions, $6.8 million for termination of certain European administrative and support personnel, $7.5 million for additional exit and severance costs related to the Puerto Rican retail operations, $2.6 million for consolidation and reconfiguration of the North American aftermarket service branch network and $2.0 million for other actions. The Company anticipates that the actions related to the 1997 restructuring plan will be complete by the end of 1998, and that most of the severance and exit costs will be paid in 1998. In the fourth quarter of 1996, the Company recognized a restructuring charge of $57.6 million for costs associated with employee severance, exit and consolidation costs for 132 international retail operations and 30 wholesale aftermarket operations, rationalization of European manufacturing operations, consolidation of lighting products, consolidation or closure of certain North American warehouse facilities, consolidation of customer support functions in the United States and streamlining of administrative and operational staff functions worldwide. The charge consists of $22.7 million for the sale of 132 international retail aftermarket and 30 wholesale aftermarket operations, $14.7 million for corporate employee severance costs, $7.7 million for the rationalization of European manufacturing operations, $5.3 million for consolidation or closure of certain North American warehouse facilities, $2.8 million for consolidation of customer support functions in the United States, $2.5 million for closure of the Leiters Ford facility and $1.9 million for other miscellaneous actions, including the consolidation of the European after market market management function into the European manufacturing headquarters. The Company's 1997 progress and actual implementation of the 1996 restructuring plan resulted in 1997 operating results being increased by $20.8 million for severance and 16 19 MANAGEMENT'S DISCUSSION AND ANALYSIS -- CONTINUED $1.4 million of exit and consolidation costs being reversed. The Company expects to pay out most of the remaining 1996 severance and exit costs in 1998. Results of operations in the second and fourth quarters of 1995 include restructuring charges of $6.1 million and $20.8 million, respectively. These charges were comprised of $20.1 million for employee severance and $6.8 million for exit costs and consolidation of certain facilities. The workforce reductions and consolidation of facilities were completed as of December 31, 1996. Operating results for 1997 were increased by $0.9 million relating to 1995 exit costs being reversed. The Company expects to pay out the remaining 1995 exit costs in 1998. Reengineering and Other Related Charges Operating results for 1997 include a credit of $1.6 million relating to 1996 reengineering and other related charges being reversed. In 1996, the Company initiated an extensive effort to strategically review its businesses and focus on its competencies manufacturing, engineering and distribution. As a result of this process, the Company recognized a charge of $11.4 million for professional fees and personnel costs related to the strategic review of the Company and changes in management and related costs. In 1995, the Company recognized a charge of $13.9 million for reengineering and other costs. These costs included $7.0 million for professional fees and personnel costs, and $6.9 million primarily for certain other non-recurring costs relating to brand consolidation at the customer level of the Company's Federal-Mogul(R), TRW(R) and Sealed Power(R) branded engine parts. Adjustment of Assets Held for Sale to Fair Value and Other Long Lived Assets The Company continually reviews all components of its businesses for possible improvement of future profitability through acquisition, divestiture, reengineering or restructuring. The Company also continually reviews and updates its impairment reserves related to the divestiture of its remaining international retail aftermarket operations and adjusts the reserve components to approximate their net fair value. In the fourth quarter of 1997, the Company recognized a charge of $2.4 million to write-down certain long lived assets to fair value. As of December 31, 1997, assets held for sale primarily include retail aftermarket operations in Puerto Rico, Ecuador, Venezuela and Panama. By the end of the first quarter of 1998, the Company expects to have successfully exited all of its retail aftermarket businesses, except for Puerto Rico where the Company continues to seek a buyer. During 1996, management designed a restructuring plan to aggressively improve the Company's cost structure, streamline operations and divest the Company of underperforming assets. As part of this plan, the Company decided to sell 132 international retail aftermarket operations, sell or restructure 30 wholesale aftermarket operations and consolidate a North American manufacturing operation. The carrying value of assets held for sale was reduced to fair value based on estimates of selling values less costs to sell. Selling values used to determine the fair value of assets held for sale were determined using market prices (i.e. valuation multiples) of comparable companies from other 1996 transactions. The resulting adjustment of $148.5 million to reduce assets held for sale to fair value was recorded in the fourth quarter of 1996. As previously described in this section, the Company made significant progress related to the implementation of the 1996 restructuring plan. Also in 1996, based upon the final sale, the Company recognized an additional writedown of $2.8 million to the net asset value of the United States ball bearings operations. In 1995, the Company decided to sell the ball bearings operations and reduced the carrying value by $17.0 million to record assets held for sale at fair value. In 1995, the Company also decided to sell its heavy wall bearing operations in Germany and Brazil. The Company estimated the fair value of the businesses held for sale based on discussions with prospective buyers, adjusted for selling costs. The Company reduced its carrying value by $17 million to record assets held for sale 17 20 MANAGEMENT'S DISCUSSION AND ANALYSIS -- CONTINUED at fair value. The heavy wall bearing operations were sold in January 1997 for net proceeds of $8.9 million, which approximated the carrying value of the assets at December 31, 1996. In addition, in 1995, the Company reduced the carrying value of certain other impaired long-lived assets by $17.8 million to record them at fair value. No further fair value adjustments were recorded for these assets in 1996 or 1997. Net sales for all assets held for sale and adjusted to fair value approximated $114 million, $335 million, and $322 million in 1997, 1996 and 1995, respectively. Net sales for the remaining retail aftermarket operations held for sale at December 31, 1997 approximated $44 million, $48 million and $22 million in 1997, 1996 and 1995, respectively. Interest Expense Interest expense decreased $10.6 million in 1997 to $32.0 million. The decrease was primarily due to a $188 million reduction of debt which resulted from improvements in working capital and the sale of the South African and Australian businesses. Although the Company decreased its debt by $104 million from 1995 to 1996, interest expense increased $5.3 million in 1996 primarily due to a higher average debt level than in 1995. Excluding the U.S. and European revolving credit facilities, which were classified as short-term debt during 1996 and as long-term debt during 1995, the weighted average interest rate for short-term debt increased to 10.9% for 1996 from 9.5% for 1995. The interest rate on the U.S. and European revolving credit facilities at December 31, 1996 and 1995 was 6.1% and 6.2%, respectively. Income Taxes At December 31, 1997, the Company had deferred tax assets, net of a $44.4 million valuation allowance, of $140.5 million and deferred tax liabilities of $75.9 million. The net deferred tax asset of $64.6 million included the tax benefits of $58.2 million related to the Company's postretirement benefit obligation at December 31, 1997. The Company expects to realize the benefits associated with this obligation over a period of 35 to 40 years. The difference between the 1997 effective income tax rate and the statutory tax rate is principally due to utilization of losses on foreign investment and an income tax benefit related to the sales of the South African and Australian businesses (refer also to Note 16 of the Consolidated Financial Statements). LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations of $215.7 million in 1997 increased significantly during 1997 primarily due to increased earnings. The Company also reduced inventory from operations by $59.9 million in 1997. Inventory reductions in the North American aftermarket business were primarily responsible for the decrease. The decrease in North America aftermarket inventory is attributable to reduced lead times while still maintaining availability of products and modifying safety stock levels. Cash flow used by investing activities of $5.5 million in 1997 include $28.1 million for the British pound currency option, described later in this section, and $2.4 million for other professional fees paid in anticipation of the T&N acquisition. In addition, cash flows used by investing activities include the receipt of $73.6 million in net proceeds from the 1997 divestitures. Capital expenditures, excluding the T&N and Fel-Pro transactions, are anticipated to be approximately $65 million in 1998, primarily for enhanced manufacturing capabilities and process improvements. Cash flow from 1997 financing activities were $298.1 million, an increase of $420.9 million from 1996. The following events were primarily responsible for the net increase for 1997: Issuance of Preferred Securities of Affiliate: In December 1997, the Company's financing trust completed a $575 million private issuance of 11,500,000 shares of 7% Trust Convertible Preferred Securities. The 18 21 MANAGEMENT'S DISCUSSION AND ANALYSIS -- CONTINUED convertible preferred securities are redeemable at the Company's option, in whole or in part, on or after December 6, 2000. All outstanding convertible securities are required to be redeemed no later than December 1, 2027. The Company intends to use the proceeds, net of $17.2 million in related fees, to finance a portion of the proposed T&N transaction. Issuance of Senior Notes: In April 1997, the Company issued a fully subscribed $125 million debt offering of ten year 8.8% senior notes. Proceeds from the offering were used to reduce the Company's short-term debt and the early extinguishment of the private placement debt. Extinguishment of Private Placement Debt: In the second quarter of 1997, the Company retired $64.7 million in private placement debt. The early retirement of this debt eliminated high coupon debt and potentially restrictive covenants giving the Company greater financial flexibility in the future. In addition, the early retirement of this debt involved a make whole payment that resulted in a $4.1 million pretax ($2.6 million after tax) extraordinary loss. Accounts Receivable Securitization: During 1997, the Company replaced an existing accounts receivable securitization program with a new program which provides up to $100 million of financing. On an ongoing basis, the Company sells certain accounts receivable to a subsidiary of the Company, which then sells such receivables, without recourse, to a master trust. Amounts sold under this arrangement were $63.2 million as of December 31, 1997, and have been excluded from the balance sheet. During 1997, cash payments totaling $31.8 million were made to the master trust related to the Company's accounts receivable securitization. These cash payments effectively increased the Company's investment in the accounts receivable securitization. Multicurrency Revolver: In June 1997, the Company entered into a new $350 million multicurrency revolving credit facility with a consortium of international banks which matures in June 2002. The multicurrency revolving credit facility replaced the existing U.S. and European revolving credit facilities. The multicurrency revolving credit facility contains restrictive covenants that, among other matters, require the Company to maintain certain financial ratios. As of December 31, 1997, there were no borrowings outstanding against the multicurrency revolving credit facility. In December 1997, the Company entered into a $3.25 billion committed bank facility with a reputable financial institution related to the proposed T&N acquisition. The facility provides for up to $2.75 billion of senior debt and up to $500 million of subordinated debt. This facility is contingent upon the acquisition of T&N, and accordingly no amounts are outstanding as of December 31, 1997. Certain fees relating to this facility have been incurred and paid as of December 31, 1997. Subsequent to the planned T&N acquisition, the Company intends to put in place a permanent capital structure with an appropriate combination of equity and debt. The Company believes that cash flow from operations will continue to be sufficient to meet its ongoing working capital requirements. ENVIRONMENTAL MATTERS The Company is a party to lawsuits filed in various jurisdictions alleging claims pursuant to the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA) or other state or federal environmental laws. In addition, the Company has been notified by the Environmental Protection Agency and various state agencies that it may be a potentially responsible party (PRP) for the cost of cleaning up certain other hazardous waste storage or disposal facilities pursuant to CERCLA and other federal and state environmental laws. PRP designation requires the funding of site investigations and subsequent remedial activities. Although these laws could impose joint and several liability upon each party at any site, the potential exposure is expected to be limited because at all sites other companies, generally including many large, solvent public companies, have been named as PRPs. In addition, the Company has identified certain present and former properties at which it may be responsible for cleaning up environmental contamination. 19 22 MANAGEMENT'S DISCUSSION AND ANALYSIS -- CONTINUED The Company is actively seeking to resolve these matters. Although difficult to quantify based on the complexity of the issues, the Company has accrued the estimated cost associated with such matters based upon current available information from site investigations and consultants. The environmental and legal reserve was approximately $11 million at December 31, 1997 and $12 million at December 31, 1996. Management believes that such accruals will be adequate to cover the Company's estimated liability for its exposure in respect of such matters. FOREIGN CURRENCY AND COMMODITY CONTRACTS In connection with the proposed T&N acquisition, the Company purchased for $28.1 million a foreign currency option with a notional amount of $2.5 billion to cap the effect of potential unfavorable fluctuations in the British pound/U.S. dollar exchange rate. The cost of the option and its change in fair value has been reflected in the results of operations in the fourth quarter of 1997. At December 31, 1997 the Company has recognized a net loss on this transaction of $10.5 million. The Company is subject to exposure to market risks from changes in foreign exchange rates and raw material price fluctuations, derivative financial instruments are utilized by the Company to reduce those risks. Except for the British pound currency option discussed above, the Company does not hold or issue derivative financial instruments for trading purposes. Other than the British pound currency option discussed above, the Company does not have foreign exchange forward or currency option contracts outstanding at December 31, 1997. In the first quarter of 1998, the Company settled the British pound currency option, resulting in a pretax loss of $17.3 million. Also in the first quarter of 1998, the Company entered into a forward contract to purchase 1.5 billion British pounds for a notional amount approximating $2.45 billion. The forward contract expires in the first quarter of 1998. OTHER MATTERS Conversion of Series D Convertible Exchangeable Preferred Stock In August 1997, the Company announced a call for the redemption of all its outstanding $3.875 Series D Convertible Exchangeable Preferred Stock. These preferred stockholders elected to convert each preferred share into 2.778 shares of common stock. The Company issued 4.4 million shares of common stock in exchange for all of the outstanding Series D convertible exchangeable preferred stock. Year 2000 Costs The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. The Company has established a team that has completed an awareness program and assessment project to address the Year 2000 issue. In addition, the Board of Directors has received status reports related to the Company's progress in addressing the Year 2000 issue. The Company has determined that it will be required to modify or replace portions of its software so that its computer systems will properly utilize dates beyond December 31, 1999. The Company has initiated remediation, and is implementing the action plan to address the Year 2000 issue. The Company presently believes that with modifications to existing software and conversions to new software, the Year 2000 issue can be mitigated. However, if such modifications and conversions are not made, or are not completed timely, the Year 2000 issue could have a material impact on the operations of the Company. The Company has initiated formal communications with a substantial majority of its significant suppliers and large customers to determine their plans to address the Year 2000 issue. While the Company expects a successful resolution of all issues, there can be no guarantee that the systems of other companies on which the Company's systems rely will be converted in a timely manner, or that a failure to convert by a supplier or customer, or a conversion that is incompatible with the Company's systems, would not have a material adverse 20 23 MANAGEMENT'S DISCUSSION AND ANALYSIS -- CONTINUED effect on the Company. The Company has determined it has no exposure to contingencies related to the Year 2000 issue for the products it has sold. The Company has contracts in place with external resources and has allocated internal resources to reprogram or replace, and test the software for Year 2000 modifications. The Company plans to complete the Year 2000 project within one year. The total cost of the Year 2000 project is estimated to be $17 million and is being funded through operating cash flows. Of the total project cost, approximately $11 million is attributable to the purchase of new software which will be capitalized. The remaining $6 million represents maintenance and repair of existing systems and will be expensed as incurred. The Company expects a substantial majority of the costs will be incurred in 1998, and any remaining costs incurred in 1999 are expected to be immaterial. As of December 31, 1997, the Company had incurred and expensed approximately $0.7 million related to the completed awareness program and assessment project and the implementation of their remediation plan. The costs of the project and the date which the Company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes and similar uncertainties. As a result of the Company's due diligence related to the proposed T&N acquisition and the Fel-Pro acquisition, the Company expects costs to address the Year 2000 issue for Fel-Pro to be immaterial, and T&N costs for repair and maintenance of existing systems are expected to approximate $8 million. Divestiture of Minority Interest In February 1998, the Company announced the divestiture of its minority interest in G. Bruss GmBH & Co. KG, a German manufacturer of seals and gaskets. As part of the divestiture agreement, the Company increased their ownership to 100% in the Summerton, South Carolina gasket business. The Company also received cash and recognized a gain as a result of these transactions. The gain recognized is not expected to be significant to 1998 first quarter operating results. Customer Reorganization On February 2, 1998, APS Holding Corporation (APS), filed for reorganization protection under Chapter 11 of the United States Bankruptcy Code. As of the date of the Chapter 11 filing, the Company's total receivables with APS approximated $10 million. APS has received a capital line of credit from a reputable financial institution and is continuing business operations. The Company continues to do business with APS on a cash in advance basis. Although difficult to quantify based upon the uncertainty of the financial condition of APS, the Company believes that net uncollectible receivables, if any, from APS will be immaterial. In addition, APS is a customer of Fel-Pro. The Company believes that the allowance established by Fel-Pro prior to the acquisition of Fel-Pro related to receivables from APS is adequate to cover any uncollectible amounts. Effect of Accounting Pronouncements In 1997, the Financial Accounting Standards Board issued Statement No. 130, Reporting Comprehensive Income. This Statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Statement 130 is effective for fiscal years beginning after December 15, 1997. Beginning in 1998, the Company will provide the information relating to comprehensive income to conform to the Statement 130 requirements. 21 24 MANAGEMENT'S DISCUSSION AND ANALYSIS -- CONTINUED Also in 1997, the Financial Accounting Standards Board issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. The statement supersedes Financial Accounting Standards Board Statement No. 14 and establishes standards for the way public business enterprises report selected information about operating segments in annual reports and interim financial reports issued to shareholders. Statement 131 is effective for fiscal years beginning after December 15, 1997. For the year ended 1998, the Company will provide financial and descriptive information about its reportable operating segments to conform to the Statement 131 requirements. Management plans to report the requirements of Statement 131 for the following operating segments: sealing systems, powertrain systems and general products. 22 25 CONSOLIDATED STATEMENTS OF OPERATIONS ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
YEAR ENDED DECEMBER 31 -------------------------------- 1997 1996 1995 ---- ---- ---- (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNT) Net sales................................................... $1,806.6 $2,032.7 $1,999.8 Cost of products sold....................................... 1,381.8 1,660.5 1,602.2 -------- -------- -------- Gross margin................................................ 424.8 372.2 397.6 Selling, general and administrative expenses................ (286.2) (333.8) (299.3) Gain on sales of businesses................................. -- -- 24.0 Restructuring (charges) credits............................. 1.1 (57.6) (26.9) Reengineering and other related (charges) credits........... 1.6 (11.4) (13.9) Adjustment of assets held for sale to fair value and other long lived assets......................................... (2.4) (151.3) (51.8) Interest expense............................................ (32.0) (42.6) (37.3) Interest income............................................. 7.1 2.9 9.6 International currency exchange losses...................... (0.6) (3.7) (2.9) British pound currency option cost, net..................... (10.5) -- -- Other expense, net.......................................... (3.4) (3.4) (2.4) -------- -------- -------- Earnings (loss) before income taxes and extraordinary item.............................................. 99.5 (228.7) (3.3) Income tax expense (benefit)................................ 27.5 (22.4) 2.5 -------- -------- -------- Net Earnings (Loss) before Extraordinary Item........ 72.0 (206.3) (5.8) ======== ======== ======== Extraordinary item -- loss on early retirement of debt, net of applicable income tax benefit.......................... (2.6) -- -- -------- -------- -------- Net Earnings (Loss).................................. 69.4 (206.3) (5.8) Preferred dividends......................................... 5.5 8.7 8.9 -------- -------- -------- Net Earnings (Loss) Available to Common Shareholders...................................... $ 63.9 $ (215.0) $ (14.7) ======== ======== ======== EARNINGS (LOSS) PER COMMON SHARE: Income (loss) before extraordinary item................... $ 1.81 $ (6.20) $ (.42) Extraordinary item........................................ (.07) -- -- -------- -------- -------- Net Earnings (Loss) Per Common Share................. $ 1.74 $ (6.20) $ (.42) ======== ======== ======== EARNINGS (LOSS) PER COMMON SHARE ASSUMING DILUTION: Income (loss) before extraordinary item................... $ 1.67 $ (6.20) $ (.42) Extraordinary item........................................ (.06) -- -- -------- -------- -------- Net Earnings (Loss) Per Common Share Assuming Dilution.......................................... $ 1.61 $ (6.20) $ (.42) ======== ======== ========
See accompanying Notes to Consolidated Financial Statements. 23 26 CONSOLIDATED BALANCE SHEETS
DECEMBER 31 ---------------------- 1997 1996 ---- ---- (MILLIONS OF DOLLARS) ASSETS Cash and equivalents........................................ $ 541.4 $ 33.1 Accounts receivable......................................... 158.9 204.3 Investment in accounts receivable securitization............ 48.7 27.0 Inventories................................................. 277.0 417.0 Prepaid expenses and income tax benefits.................... 113.2 81.5 -------- -------- Total current assets................................... 1,139.2 762.9 Property, plant and equipment............................... 313.9 350.3 Goodwill.................................................... 143.8 154.0 Other intangible assets..................................... 48.4 63.1 Business investments and other assets....................... 156.8 124.9 -------- -------- Total Assets........................................... $1,802.1 $1,455.2 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt............................................. $ 28.6 $ 280.1 Accounts payable............................................ 102.3 142.7 Accrued compensation........................................ 36.8 37.6 Accrued customer incentives................................. 22.4 20.3 Restructuring reserves...................................... 31.5 55.2 Other accrued liabilities................................... 108.0 127.9 -------- -------- Total current liabilities.............................. 329.6 663.8 Long-term debt.............................................. 273.1 209.6 Postemployment benefits..................................... 190.9 207.1 Other accrued liabilities................................... 64.2 56.2 -------- -------- Total liabilities...................................... 857.8 1,136.7 Minority interest -- preferred securities of affiliate...... 575.0 -- SHAREHOLDERS' EQUITY Series D preferred stock.................................... -- 76.6 Series C ESOP preferred stock............................... 49.0 53.1 Common stock................................................ 201.0 175.7 Additional paid-in capital.................................. 332.6 283.5 Accumulated deficit......................................... (123.6) (193.0) Unearned ESOP compensation.................................. (21.8) (28.4) Currency translation and other.............................. (67.9) (49.0) -------- -------- Total Shareholders' Equity............................. 369.3 318.5 -------- -------- Total Liabilities and Shareholders' Equity............. $1,802.1 $1,455.2 ======== ========
See accompanying Notes to Consolidated Financial Statements. 24 27 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 ----------------------------- 1997 1996 1995 ---- ---- ---- (MILLIONS OF DOLLARS) CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES Net earnings (loss)....................................... $ 69.4 $(206.3) $ (5.8) Adjustments to reconcile net earnings (loss) to net cash provided from (used by) operating activities: Depreciation and amortization.......................... 52.8 63.7 61.0 Gain on sales of businesses............................ -- -- (24.0) Restructuring charges (credits)........................ (1.1) 57.6 26.9 Reengineering and other related charges (credits)...... (1.6) 11.4 13.9 Adjustment of assets held for sale to fair value and other long lived assets.............................. 2.4 151.3 51.8 Vesting of restricted stock............................ 9.0 0.4 0.1 Loss on early retirement of debt....................... 4.1 -- -- British pound currency option cost, net................ 10.5 -- -- Deferred income taxes.................................. 13.0 (27.8) (16.2) Postemployment benefits................................ (7.7) (2.0) 1.8 Decrease (increase) in accounts receivable............. 7.6 46.5 (5.0) Decrease (increase) in inventories..................... 59.9 54.5 (103.9) Increase (decrease) in accounts payable................ (19.5) (25.5) 7.2 Payments against restructuring and reengineering reserves............................................. (26.2) (17.6) (19.4) Increase (decrease) in current liabilities and other 43.1 42.8 (23.1) ------- ------- ------- Net Cash Provided From (Used By) Operating Activities........................................... $ 215.7 $ 149.0 $ (34.7) ======= ======= ======= CASH PROVIDED FROM (USED BY) INVESTING ACTIVITIES Expenditures for property, plant and equipment and other long-term assets....................................... $ (49.7) $ (54.2) $ (78.5) Acquisitions of businesses................................ -- (.3) (72.1) Payments for rationalization of acquired businesses....... -- -- (7.3) Proceeds from sales of business investments............... 73.6 42.0 48.5 Fees paid in anticipation of business acquisition......... (30.5) -- -- Other..................................................... 1.1 -- -- ------- ------- ------- Net Cash Used By Investing Activities.................. $ (5.5) $ (12.5) $(109.4) ======= ======= ======= CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES Issuance of common stock.................................. $ 14.2 $ .6 $ .2 Repurchase of common stock................................ -- -- (9.0) Proceeds from issuance of long-term debt.................. 179.6 -- 166.2 Principal payments on long-term debt...................... (127.4) (29.4) (24.9) Increase (decrease) in short-term debt.................... (235.8) (61.4) 33.7 Fees for early retirement of debt......................... (4.1) -- -- Fees paid for debt issuance............................... (25.6) -- -- Investment in accounts receivable securitization.......... (31.8) -- -- Issuance of preferred securities of affiliate............. 575.0 -- -- Fees paid for issuance of preferred securities of affiliate.............................................. (17.2) -- -- Dividends................................................. (24.8) (26.9) (27.3) Other..................................................... (4.0) (5.7) (.4) ------- ------- ------- Net Cash Provided From (Used By) Financing Activities........................................... 298.1 (122.8) 138.5 ------- ------- ------- Increase (Decrease) In Cash And Equivalents............ 508.3 13.7 (5.6) Cash and equivalents at beginning of year................... 33.1 19.4 25.0 ------- ------- ------- Cash and Equivalents at End of Year.................... $ 541.4 $ 33.1 $ 19.4 ======= ======= =======
See accompanying Notes to Consolidated Financial Statements 25 28 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SERIES C RETAINED SERIES C ESOP ADDITIONAL EARNINGS UNEARNED CURRENCY PREFERRED PREFERRED COMMON PAID-IN (ACCUMULATED ESOP TRANSLATION STOCK STOCK STOCK CAPITAL DEFICIT) COMPENSATION AND OTHER TOTAL --------- --------- ------ ---------- ------------ ------------ ----------- ----- (MILLIONS OF DOLLARS) BALANCE AT DECEMBER 31, 1994....................... $76.6 $59.1 $174.9 $277.8 $ 73.3 $(39.8) $(33.4) $ 588.5 Net loss..................... (5.8) (5.8) Net issuance of restricted stock...................... 2.2 6.5 (7.7) 1.0 Exercise of stock options.... .2 .2 Repurchase of common stock... (1.9) (5.3) (7.2) Retirement of Series C ESOP preferred stock............ (2.3) (2.3) Amortization of unearned ESOP compensation............... 5.5 5.5 Dividends.................... (27.3) (27.3) Preferred dividend tax benefits................... 1.6 1.6 Currency translation......... (1.5) (1.5) Pension adjustment........... (2.4) (2.4) ----- ----- ------ ------ ------- ------ ------ ------- BALANCE AT DECEMBER 31, 1995....................... $76.6 $56.8 $175.2 $280.8 $ 40.2 $(34.3) $(45.0) $ 550.3 ===== ===== ====== ====== ======= ====== ====== ======= Net loss..................... (206.3) (206.3) Net issuance of restricted stock...................... .3 .9 (1.2) -- Exercise of stock options.... .2 .4 .6 Retirement of Series C ESOP preferred stock............ (3.7) (3.7) Amortization of unearned ESOP compensation............... 5.9 5.9 Dividends.................... (26.9) (26.9) Preferred dividend tax benefits................... 1.4 1.4 Currency translation effect on assets held for sale.... 20.1 Currency translation......... (24.4) Pension adjustment........... 1.5 1.5 ----- ----- ------ ------ ------- ------ ------ ------- BALANCE AT DECEMBER 31, 1996....................... $76.6 $53.1 $175.7 $283.5 $(193.0) $(28.4) $(49.0) $ 318.5 ===== ===== ====== ====== ======= ====== ====== ======= Net earnings................. 69.4 69.4 Conversion of Series D preferred stock............ (76.6) 22.3 54.3 -- Net repurchase of restricted stock...................... (.4) (1.1) 1.5 -- Vesting of restricted stock...................... 5.0 5.2 10.2 Exercise of stock options.... 3.4 10.8 14.2 Retirement of Series C ESOP preferred stock............ (4.1) (4.1) Amortization of unearned ESOP compensation............... 6.6 6.6 Dividends.................... (24.8) (24.8) Preferred dividend tax benefits................... 4.9 4.9 Currency translation......... (27.4) (27.4) Pension adjustment........... 1.8 1.8 ----- ----- ------ ------ ------- ------ ------ ------- BALANCE AT DECEMBER 31, 1997....................... $ -- $49.0 $201.0 $332.6 $(123.6) $(21.8) $(67.9) $ 369.3 ===== ===== ====== ====== ======= ====== ====== =======
See accompanying Notes to Consolidated Financial Statements. 26 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES ORGANIZATION -- Federal-Mogul Corporation (the Company) is a global manufacturer and distributor of a broad range of non-discretionary parts primarily for automobiles, light trucks, heavy trucks, farm and construction vehicles. The Company was founded in 1899. PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. CASH AND EQUIVALENTS -- The Company considers all highly liquid investments with maturities of 90 days or less from the date of purchase to be cash equivalents. INVENTORIES -- Inventories are stated at the lower of cost or market. Cost determined by the last-in, first-out (LIFO) method was used for 55% and 48% of the inventory at December 31, 1997 and 1996, respectively. The remaining inventories are costed using the first-in, first-out (FIFO) method. If inventories had been valued at current cost, amounts reported at December 31 would have been increased by $44.5 million in 1997 and $49.4 million in 1996. Inventory quantity reductions resulting in liquidations of certain LIFO inventory layers increased net earnings by $3.2 million and $3.1 million ($.08 and $.09 per diluted share) in 1997 and 1996, respectively. There was no effect on operations for 1995. At December 31, inventories consisted of the following:
1997 1996 ---- ---- (MILLIONS OF DOLLARS) Finished products........................................... $254.6 $417.0 Work-in-process............................................. 21.8 28.0 Raw materials............................................... 15.7 20.0 ------ ------ 292.1 465.0 Reserve for inventory valuation............................. (15.1) (48.0) ------ ------ $277.0 $417.0 ====== ======
The $32.9 million decrease in the reserve for inventory valuation resulted primarily from the Company's initiative to dispose of fully reserved slow moving and obsolete inventory, and the sales of certain international retail and wholesale businesses. GOODWILL AND OTHER INTANGIBLE ASSETS -- Intangible assets, which result principally from acquisitions, consist of goodwill, trademarks, non-compete agreements, patents and other intangibles. Intangible assets are periodically reviewed for impairment based on an assessment of future cash flows, or fair value for assets held for sale, to ensure that they are appropriately valued. Intangible assets are amortized on a straight-line basis over their estimated useful lives, generally ranging from three to fifteen years for other intangible assets and generally forty years for goodwill. Goodwill and other intangible assets reflected in the consolidated balance sheets are net of accumulated amortization of $20.0 million and $18.7 million for goodwill and $28.9 million and $22.1 million for other intangible assets at December 31, 1997 and 1996, respectively. Impairment charges recorded in 1997, 1996 and 1995 related primarily to assets held for sale. Management believes that the remaining intangible assets, which relate only to the core manufacturing and distribution businesses, are not impaired, and their remaining amortization periods are appropriate. REVENUE RECOGNITION -- The Company recognizes revenue and returns from product sales and the related customer incentive and warranty expense when goods are shipped to the customer. 27 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED RESEARCH AND DEVELOPMENT AND ADVERTISING COSTS -- The Company expenses research and development costs as incurred. Research and development expense was $13.1 million, $14.4 million and $15.1 million for 1997, 1996 and 1995, respectively. Costs associated with advertising and promotion are expensed as incurred. Advertising and promotion expense was $31.8 million, $34.0 million and $19.1 million for 1997, 1996 and 1995, respectively. CURRENCY TRANSLATION -- Exchange adjustments related to international currency transactions and translation adjustments for subsidiaries whose functional currency is the United States dollar (principally those located in highly inflationary economies) are reflected in the consolidated statements of operations. Translation adjustments of international subsidiaries for which the local currency is the functional currency are reflected in the consolidated financial statements as a separate component of shareholders' equity. EARNINGS PER SHARE -- In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share. Statement 128 replaced the calculation of primary and fully-diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the Statement 128 requirements (refer to Note 13). EFFECT OF ACCOUNTING PRONOUNCEMENT -- In 1997, the Financial Accounting Standards Board issued Statement No. 130, Reporting Comprehensive Income. This Statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Statement 130 is effective for fiscal years beginning after December 15, 1997. Beginning in 1998, the Company will provide the information relating to comprehensive income to conform to the requirements. ENVIRONMENTAL LIABILITIES -- The Company recognizes estimated environmental liabilities when a loss is probable. Such liabilities are generally not subject to insurance coverage. Each environmental obligation is estimated by engineering and legal specialists within the Company based on current law and existing technologies. Such estimates are based primarily upon the estimated cost of investigation and remediation required and the likelihood that other potentially responsible parties will be able to fulfill their commitments at the sites where the Company may be jointly and severally liable with such parties (refer to Note 18). The Company regularly evaluates and revises its estimates for environmental obligations based on expenditures against established reserves and the availability of additional information. 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. RECLASSIFICATIONS -- Certain items in the prior year financial statements have been reclassified to conform with the presentation used in 1997. 28 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 2. RESTRUCTURING CHARGES The following is a summary of restructuring charges and related activity for 1995, 1996 and 1997 (in millions of dollars):
1995 RESTRUCTURING 1996 RESTRUCTURING 1997 RESTRUCTURING PROVISION PROVISION PROVISION ------------------- ------------------- -------------------- SEVERANCE EXIT SEVERANCE EXIT SEVERANCE EXIT TOTAL --------- ---- --------- ---- --------- ---- ----- 1995 restructuring charge.......... $ 20.1 $ 6.8 $ -- $ -- $ -- $ -- $ 26.9 Payments against restructuring reserves......................... (16.2) -- -- -- -- -- (16.2) ------ ----- ------ ----- ----- ---- ------ Balance of restructuring reserves at December 31, 1995............. 3.9 6.8 -- -- -- -- 10.7 1996 restructuring charge.......... -- -- 42.8 14.8 -- -- 57.6 Payments against restructuring reserves......................... (3.9) (3.4) (4.8) (1.0) -- -- (13.1) ------ ----- ------ ----- ----- ---- ------ Balance of restructuring reserves at December 31, 1996............. -- 3.4 38.0 13.8 -- -- 55.2 1997 restructuring charge.......... -- -- -- -- 16.7 5.3 22.0 Adjustment to restructuring reserves......................... -- (.9) (20.8) (1.4) -- -- (23.1) ------ ----- ------ ----- ----- ---- ------ 1997 restructuring charges (net)... -- (.9) (20.8) (1.4) 16.7 5.3 (1.1) Payments against restructuring reserves......................... -- (1.7) (14.0) (3.7) (.1) -- (19.5) ------ ----- ------ ----- ----- ---- ------ Balance of restructuring reserves at December 31, 1997............. $ -- $ 0.8 $ 3.2 $ 8.7 $16.6 $5.3 $ 34.6 ====== ===== ====== ===== ===== ==== ======
1997 The Company's total restructuring reserves at December 31, 1997 of $34.6 million include $3.1 million of severance which will be paid over the next two years and has been classified as noncurrent other accrued liabilities in the balance sheet. Results of operations in the fourth quarter of 1997 include a $22.0 million charge for 1997 severance and exit costs. The restructuring actions are designed to improve the Company's cost structure, streamline operations and divest the Company of underperforming assets. The majority of the 1997 charge is expected to be paid out during 1998. Employee severance costs for 1997 result from the planned termination of approximately 500 employees, in various business operations of the Company. The severance costs were based on the minimum levels that will be paid to the affected employees pursuant to the Company's workforce reduction policies and certain foreign governmental regulations. Exit costs for 1997 principally include lease termination costs for certain North American distribution service branches and retail aftermarket operations in Puerto Rico, and the consolidation of certain European distribution, and North American and European manufacturing operations. 1996 Primarily due to the T&N and Fel-Pro transactions (refer to Note 20), the Company elected not to fully implement the following actions under the 1996 restructuring plan: - Reductions to the operational and administrative staff were not made to the extent that was originally planned. 29 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED - Reconfiguration of the North American distribution network was altered to accommodate the planned integration of T&N and Fel-Pro aftermarket operations; - Relocation of certain European manufacturing product lines to lower cost areas within Europe and related workforce reductions did not take place. Management of the Company decided not to pursue this action primarily in anticipation of the integration of future acquisitions. Primarily as a result of actions not fully implemented under the 1996 restructuring plan, the Company's 1997 operating results were increased by $23.1 million for the reversal of previously recognized 1996 and 1995 restructuring charges. Results of operations in the fourth quarter of 1996 include a restructuring charge of $57.6 million for severance and exit costs for certain facilities. As of December 31, 1997, employee severance costs related to the 1996 charge have resulted in the termination of approximately 600 employees, primarily in the international retail aftermarket and wholesale aftermarket operations, the North American distribution business and a closed manufacturing operation. The Company expects to pay out most of the remaining 1996 severance charge in 1998. Exit costs for 1996 principally include lease termination costs of international retail aftermarket stores and certain international wholesale aftermarket operations, the consolidation of certain North American distribution facilities and the closing of a North American manufacturing operation. The Company expects to pay out most of the remaining 1996 exit costs in 1998. 1995 Results of operations in the second and fourth quarters of 1995 include restructuring charges of $6.1 million and $20.8 million, respectively, for employee severance and exit costs for certain facilities. Employee severance costs for 1995 resulted from the termination of approximately 750 employees, primarily in Argentina, the United States and Europe. Exit costs for 1995 include efforts to consolidate and restructure selected operations primarily in the United States including costs for certain aftermarket and related facilities consolidated after the acquisition of SPX Corporation's Sealed Power Replacement aftermarket business. Operating results for 1997 were increased by $0.9 million relating to 1995 exit costs being reversed. 3. ADJUSTMENT OF ASSETS HELD FOR SALE TO FAIR VALUE AND OTHER LONG LIVED ASSETS The Company continually reviews all components of its businesses for possible improvement of future profitability through acquisition, divestiture, reengineering or restructuring. The Company also continually reviews and updates its impairment reserves related to the divestiture of its remaining international retail/wholesale aftermarket operations and other long lived assets and adjusts the reserve components to approximate their net fair value. In the fourth quarter of 1997, the Company recognized a charge of $2.4 million to write-down certain long lived assets to fair value. As of December 31, 1997, assets held for sale primarily include retail aftermarket operations in Puerto Rico, Ecuador, Venezuela and Panama. The Company expects to complete the actions related to those assets to be disposed of in 1998. During 1996, management designed and implemented a restructuring plan to aggressively improve the Company's cost structure, streamline operations and divest the Company of underperforming assets. As part of this plan, the Company decided to sell 132 international retail aftermarket operations, sell or restructure 30 wholesale aftermarket operations and consolidate a North American manufacturing operation. The carrying value of the assets held for sale was reduced to fair value based on estimates of selling values less costs to sell. Selling values used to determine the fair value of assets held for sale were determined using 30 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED market prices (i.e. valuation multiples) of comparable companies from other 1996 transactions. The resulting adjustment of $148.5 million to reduce assets held for sale to fair value was recorded in the fourth quarter of 1996. During 1997, the Company completed the following actions related to the 1996 restructuring plan; 1) divested 72 international retail aftermarket operations, 2) sold or restructured 25 wholesale aftermarket operations, and 3) consolidated a North American manufacturing operation (refer to Note 7). In 1996, the Company also recorded an additional writedown of $2.8 million to the net asset value of the United States ball bearings manufacturing operations. In 1995, the Company decided to sell the ball bearings operations and reduced the carrying value by $17.0 million to record assets held for sale at fair value. In 1995, the Company decided to sell its heavy wall bearing operations in Germany and Brazil and certain other non-strategic assets. The Company estimated the fair value of the businesses held for sale based on discussions with prospective buyers, adjusted for selling costs. The Company reduced its carrying value by $17.0 million to record assets held for sale at fair value. In addition, in 1995, the Company reduced the carrying value of certain other impaired long-lived assets by $17.8 million to record them at fair value. No further significant fair value adjustments were recorded for these assets in 1996 or 1997. The carrying value of net assets held for sale as of December 31, 1997 and 1996 are as follows:
1997 1996 ---- ---- (MILLIONS OF DOLLARS) Accounts receivable......................................... $ 5 $ 38 Inventory................................................... 27 88 Noncurrent assets........................................... 3 11 Accounts payable............................................ (4) (29) Other net current liabilities............................... (2) (1) --- ---- Total....................................................... $29 $107 === ====
Net sales for all assets held for sale and adjusted to fair value approximated $114 million, $335 million and $322 million in 1997, 1996 and 1995, respectively. Net sales for the remaining retail aftermarket operations held for sale at December 31, 1997 approximated $44 million, $48 million and $22 million in 1997, 1996 and 1995, respectively. 4. REENGINEERING AND OTHER RELATED CHARGES Operating results for 1997 include a credit of $1.6 million relating to the reversal of certain 1996 reengineering and other related charges. In 1996, the Company initiated an extensive effort to strategically review its businesses and focus on its competencies of manufacturing, engineering and distribution. As a result of this process, the Company incurred $11.4 million for professional fees and personnel costs related to the strategic review of the Company and changes in management and related costs. In 1995, the Company recognized $13.9 million for reengineering and other costs. These costs included $7.0 million in professional fees and personnel costs to reengineer the business on a Company-wide basis and $6.9 million primarily for certain other non-recurring costs relating to brand consolidation at the customer level of the Company's Federal-Mogul(R), TRW(R) and Sealed Power(R) branded engine parts. 5. CHANGES IN ACCOUNTING ESTIMATES During the third and fourth quarters of 1996, the Company made certain changes in accounting estimates totaling $51 million ($34 million after tax, $.98 per share) attributable to 1996 events and new information 31 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED becoming available. The changes in accounting estimates included increasing the provision for customer incentive programs and related sales initiatives by $18 million, increasing the provision for excess and obsolete inventory by $13 million, increasing the provision for bad debts by $3 million, increasing the provision for environmental and legal matters by $9 million and increasing various other provisions by approximately $8 million. 6. ACQUISITIONS OF BUSINESSES The Company accounted for the following acquisitions as purchases, and accordingly, the purchase prices have been allocated to the acquired assets and assumed liabilities based on their estimated fair values as of the acquisition date. The consolidated statements of operations include the operating results of the acquired businesses from the acquisition dates. In September 1995, the Company completed its acquisition of the Centropiezas group, a chain of retail stores in Puerto Rico. Also in September 1995, the Company purchased United Kingdom-based Seal Technology Systems Ltd., a leading designer and manufacturer of a specialized range of seals and gaskets for the automotive sector and other industrial markets. In June 1995, the Company acquired Bertolotti Pietro e Figli, S.r.1. (Bertolotti), a distributor of premium brand European auto and truck parts throughout Italy. 7. SALES OF BUSINESSES Results of operations have been included through the applicable date of sale for the following transactions: During 1997, the Company received $73.6 million in net cash proceeds for sales of their aftermarket operations in South Africa, Australia, and Chile and their heavy wall bearing operations in Germany and Brazil. During 1996, the Company received $42 million in net cash proceeds for sales of their United States ball bearings and electrical products manufacturing operations. Except for the sale of the electrical products manufacturing operations, sales of businesses in 1997 and 1996 relate to assets previously adjusted to fair value (refer to Note 3). Accordingly, no gain or loss was recognized on the date of sale related to these transactions. In addition, no gain or loss was recognized related to the sale of the electrical products manufacturing operations. In December 1995, the Company sold its equity interest in Westwind Air Bearings, Ltd. in the United Kingdom and its affiliated operations in the United States and Japan for $20.5 million. The Company recognized a pretax gain on the sale of $16.2 million. In April 1995, the Company completed the sale of the operations and substantially all of the assets of its Precision Forged Products Division to Borg-Warner Automotive, Inc. The Company received $28.0 million in cash and retained customer receivables while Borg-Warner assumed certain liabilities. The Company recognized a pretax gain on the sale of $7.8 million. 8. FINANCIAL INSTRUMENTS Foreign Exchange Risk and Commodity Price Management In connection with the proposed T&N plc acquisition (refer to Note 20) the Company purchased a British pound currency option for $28.1 million with a notional amount of $2.5 billion to cap the effect of potential unfavorable fluctuations in the British pound/U.S. dollar exchange rate. The cost of the option and its change in fair value has been reflected in the results of operations in the fourth quarter of 1997. At 32 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED December 31, 1997, the Company recognized a net loss on this transaction of $10.5 million. The option was settled in the first quarter of 1998 resulting in a loss of $17.3 million (refer to Note 20). The Company is subject to exposure to market risks from changes in foreign exchange rates and raw material price fluctuations. Derivative financial instruments are utilized by the Company to reduce those risks. Except for the British pound currency option discussed above, the Company does not hold or issue derivative financial instruments for trading purposes. Other than the British pound currency option discussed above, the Company does not have foreign exchange forward or currency option contracts outstanding at December 31, 1997. As of December 31, 1996, the Company had foreign exchange forward contracts principally for Japanese yen and South African rand totaling a notional amount of $6.6 million. At December 31, 1996, there was no deferred gain or loss related to foreign exchange forward contracts. The Company has entered into copper contracts to hedge against the risk of price increases. These contracts are expected to offset the effects of price changes on the firm purchase commitments for copper and expire in 1998. Under the agreements, the Company is committed to purchase 7.3 million pounds of copper. The net unrealized loss on these firm purchase commitments at December 31, 1997 is $0.7 million. Deferred gains and losses are included in other assets and liabilities and recognized in operations when the future purchase or sale occurs, or at the point in time when the purchase or sale is no longer expected to occur. Accounts Receivable Securitization During 1997, the Company replaced an existing accounts receivable securitization program with a new program which provides up to $100 million of financing. On an ongoing basis, the Company sells certain accounts receivable to Federal-Mogul Funding Corporation (FMFC), a wholly-owned subsidiary of the Company, which then sells such receivables, without recourse, to a master trust. Amounts sold under these arrangements were $63.2 million and $95 million at December 31, 1997 and 1996 respectively, and have been excluded from the balance sheets. The Company's retained interest in the accounts receivable sold to FMFC is included in the balance sheet caption Investment in Accounts Receivable Securitization. Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable and cash investments. The Company's customer base includes virtually every significant global automotive manufacturer and a large number of distributors and installers of automotive aftermarket parts. The Company's credit evaluation process, reasonably short collection terms and the geographical dispersion of sales transactions help to mitigate any concentration of credit risk. The Company requires placement of investments in financial institutions evaluated as highly creditworthy. The Company does not generally require collateral for its trade accounts receivable or those assets included in the investment in accounts receivable securitization. The allowance for doubtful accounts of $18.7 million and $16.3 million at December 31, 1997 and 1996 is based upon the expected collectibility of trade accounts receivable. Fair Value of Financial Instruments The carrying amounts of certain financial instruments such as cash and equivalents, accounts receivable, accounts payable, British pound currency option, and short-term debt approximate their fair values. The carrying amounts and estimated fair values of the Company's long term debt were $273.1 million and $286.1 million at December 31, 1997. The fair value of the long-term debt is estimated using discounted cash flow analysis and the Company's current incremental borrowing rates for similar types of arrangements. 33 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 9. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and include expenditures which materially extend the useful lives of existing buildings, machinery and equipment. Depreciation is computed principally by the straight-line method for financial reporting purposes and by accelerated methods for income tax purposes. Depreciation expense for the years ended December 31, 1997, 1996 and 1995, was $42.6 million, $49.8 million and $48.3 million, respectively. At December 31, property, plant and equipment consisted of the following:
ESTIMATED USEFUL LIFE 1997 1996 ----------- ---- ---- (MILLIONS OF DOLLARS) Land............................................. -- $ 29.1 $ 32.1 Buildings and building improvements.............. 40 yrs. 124.0 144.1 Machinery and equipment.......................... 3-12 yrs. 363.4 378.8 ------- ------- 516.5 555.0 Accumulated depreciation......................... (202.6) (204.7) ------- ------- $ 313.9 $ 350.3 ======= =======
The Company leases various facilities and equipment under both capital and operating leases. Net assets subject to capital leases were not significant at December 31, 1997 and 1996. The balance of the deferred gain resulting from the 1988 sale and leaseback of a portion of the corporate headquarters complex was $7.1 million at December 31, 1997. The deferred gain is being amortized over the term of the lease as a reduction of rent expense. Future minimum payments under noncancelable operating leases with initial or remaining terms of more than 1 year are, in millions: 1998 -- $20.3; 1999 -- $16.8; 2000 -- $13.8; 2001 -- $11.8; 2002 -- $10.6 and thereafter $42.0. Future minimum lease payments have been reduced by approximately $26.2 million for amounts to be received under sublease agreements. Total rental expense under operating leases was $29.1 million in 1997, $33.8 million in 1996 and $34.0 million in 1995, exclusive of property taxes, insurance and other occupancy costs generally payable by the Company. 10. DEBT In December 1997, the Company entered into a $3.25 billion committed bank facility with a reputable financial institution related to the proposed T&N plc acquisition (refer to Note 20). The facility provides for up to $2.75 billion of senior debt and up to $500 million of subordinated debt. This facility is contingent upon the acquisition of T&N plc. Accordingly no amounts are outstanding as of December 31, 1997. In June 1997, the Company entered into a new $350 million multicurrency revolving credit facility with a consortium of international banks which matures in June 2002. The multicurrency revolving credit facility replaced the existing U.S. and European revolving credit facilities. The multicurrency revolving credit facility contains restrictive covenants that, among other matters, require the Company to maintain certain financial ratios. As of December 31, 1997, there were no borrowings outstanding against the multicurrency revolving credit facility. As of December 31, 1996, the Company had $185 million borrowed against the U.S. revolver and $9 million borrowed against the European revolver, both of which were included in short-term debt. Short-term debt also includes international subsidiaries local credit arrangements that have terms in accordance with local customary practice. The weighted average interest rate for the Company's short-term debt was 9.9% and 7.9% as of December 31, 1997 and 1996, respectively. 34 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Long-term debt at December 31 consists of the following:
1997 1996 ---- ---- (MILLIONS OF DOLLARS) Medium-term notes........................................... $125.0 $125.0 Senior notes................................................ 124.6 -- Private placement debt...................................... -- 64.7 ESOP obligation............................................. 21.9 28.0 Other....................................................... 11.8 17.8 ------ ------ 283.3 235.5 Less current maturities included in short-term debt......... 10.2 25.9 ------ ------ $273.1 $209.6 ====== ======
In April 1997, the Company issued $125.0 million of ten-year 8.8% senior notes. During the second quarter of 1997, the Company retired $64.7 million in private placement debt. The early retirement of the debt required a make-whole payment of $4.1 million, which was recognized as an extraordinary item of $2.6 million, net of the related tax benefit. In August 1994, the Company initiated a medium-term note program for up to $200 million. Notes were issued in maturities ranging from five to ten years. The average interest rate was approximately 8.4%. The ESOP obligation represents the unpaid principal balance on an 11 year loan entered into by the Company's ESOP in 1989. Proceeds of the loan were used by the ESOP to purchase the Company's Series C ESOP preferred stock. Payment of principal and interest on the notes is unconditionally guaranteed by the Company, and therefore, the unpaid principal balance of the borrowing is classified as long-term debt. Company contributions and dividends on the preferred shares held by the ESOP are used to meet semi-annual principal and interest obligations. The original ESOP obligation bore an annual interest rate of 11.5%. The obligation was refinanced on June 30, 1995 at a fixed interest rate of 7.2%. The ESOP obligation matures in December 2000. Aggregate maturities of long-term debt for each of the years following 1998 are, in millions: 1999 -- $29.2; 2000 -- $31.8; 2001 -- $45.0; 2002 -- $6.0 and thereafter $161.1. Interest paid in 1997, 1996 and 1995 was $30.7 million, $43.5 million and $37.1 million, respectively. 11. CAPITAL STOCK AND PREFERRED SHARE PURCHASE RIGHTS The Company's articles of incorporation authorize the issuance of 60,000,000 shares of common stock, of which 40,196,603 shares, 35,130,359 shares and 35,044,859 shares were outstanding at December 31, 1997, 1996 and 1995, respectively. In August 1997, the Company announced a call for the redemption of all its outstanding $3.875 Series D Convertible Exchangeable Preferred Stock. These preferred stockholders elected to convert each preferred share into 2.778 shares of common stock. The Company issued 4.4 million shares of common stock in exchange for all of the outstanding Series convertible exchangeable preferred stock. The Company's ESOP covers substantially all domestic salaried employees and allocates Series ESOP Convertible Preferred Stock to eligible employees based on their contributions to the Salaried Employees' Investment Program and their eligible compensation. There were 773,351, 835,898 and 892,620 shares of Series C ESOP preferred stock outstanding at December 31, 1997, 1996 and 1995, respectively. The Series C ESOP preferred shares are nonvoting and pay dividends at a rate of 7.5%. The Company repurchased and retired 62,547 Series C ESOP preferred shares valued at $4.0 million during 1997 and 56,722 Series C ESOP 35 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED preferred shares valued at $3.6 million during 1996, all of which were forfeited by participants upon early withdrawal from the plan. The Series C ESOP preferred stock is convertible into shares of the Company's common stock at a rate of two shares of common stock for each share of preferred stock. The Series C ESOP preferred stock may be issued only to a trustee acting on behalf of an employee stock ownership plan or other employee benefit plan of the Company. These shares are automatically converted into shares of common stock in the event of any transfer to any person other than the plan trustee. The Series C ESOP preferred stock is redeemable, in whole or in part, at the option of the Company. The charge to operations for the cost of the ESOP was $5.2 million in 1997, $4.2 million in 1996 and $4.4 million in 1995. The Company made cash contributions to the plan of $8.1 million in 1997 and 1996, and $8.5 million in 1995, including preferred stock dividends of $3.8 million in 1997, $4.1 million in 1996 and $4.3 million in 1995. ESOP shares are released as principal and interest on the debt is paid. The ESOP Trust uses the preferred dividends not allocated to employees to make principal and interest payments on the debt. Compensation expense is measured based on the fair value of shares committed to be released to employees. Dividends on ESOP shares are treated as a reduction of retained earnings in the period declared. The number of allocated shares and suspense shares held by the ESOP were 532,817 and 240,534 at December 31, 1997, and 504,435 and 331,463 at December 31, 1996, respectively. There were no committed-to-be-released shares at December 31, 1997 and December 31, 1996. Any repurchase of the ESOP shares is strictly at the option of the Company. In 1988, the Company's Board of Directors authorized the distribution of one Preferred Share Purchase Right (Right) for each outstanding share of common stock of the Company. Each Right entitles shareholders to buy one-half of one-hundredth of a share of a new Series of preferred stock at a price of $70. As distributed, the Rights trade together with the common stock of the Company. They may be exercised or traded separately only after the earlier to occur of: (i) ten days following a public announcement that a person or group of persons has obtained the right to acquire 10% or more of the outstanding common stock of the Company (20% in the case of certain institutional investors), or (ii) ten business days (or such later date as may be determined by action of the Board of Directors) following the commencement or announcement of an intent to make a tender offer or exchange offer which would result in beneficial ownership by a person or group of persons of 10% or more of the Company's outstanding common stock. Additionally, if the Company is acquired in a merger or other business combination, each Right will entitle its holder to purchase, at the Right's exercise price, shares of the acquiring Company's common stock (or stock of the Company if it is the surviving corporation) having a market value of twice the Right's exercise price. The Rights may be redeemed at the option of the Board of Directors for $.005 per Right at any time before a person or group of persons acquires 10% or more of the Company's common stock. The Board may amend the Rights at any time without shareholder approval. The Rights will expire by their terms on November 14, 1998. 12. MINORITY INTEREST -- PREFERRED SECURITIES OF AFFILIATE In December 1997, the Company's wholly-owned financing trust ("Affiliated") completed a $575 million private issue of 11.5 million shares of 7.0% Trust Convertible Preferred Securities ("TCP Securities") with a liquidation value of $50 per convertible security. The net proceeds from the TCP Securities were used to purchase an equal amount of 7.0% Convertible Junior Subordinate Debentures ("Debentures") of the Company. The TCP Securities represent an undivided interest in the Affiliate's assets, with a liquidation preference of $50 per security. Distribution on the TCP Securities are cumulative and will be paid quarterly in arrears at an annual rate of 7.0%, and are included in the consolidated statement of operations as a component of Other Expense, Net. 36 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The Company has the option to defer payment of the distributions for an extension period of up to 20 consecutive quarters if the Company is in compliance with the terms of the TCP Securities. The shares of the TCP Securities are convertible, at the option of the holder, into the Company's common stock at an equivalent conversion price of approximately $51.50 per share, subject to adjustment in certain events. The TCP Securities and the Debentures will be redeemable, at the option of the Company, on or after December 6, 2000 at a Redemption Price, expressed as a percentage of principal which is added to accrued and unpaid interest. The Redemption Price range is from 104.2% on December 6, 2000 to 100.0% after December 1, 2007. All outstanding TCP Securities and Debentures are required to be redeemed by December 1, 2027. 37 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 13. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in millions, except per share data):
1997 1996 1995 ---- ---- ---- Numerator: Net earnings (loss) after extraordinary item.............. $69.4 $(206.3) $ (5.8) Extraordinary item -- loss on early retirement of debt net of applicable tax benefit.............................. (2.6) -- -- ----- ------- ------ Net earnings (loss) before extraordinary item............. 72.0 (206.3) (5.8) Series C preferred dividend requirement................... (2.4) (2.5) (2.7) Series D preferred dividend requirement................... (3.1) (6.2) (6.2) ----- ------- ------ Numerator for basic earnings per share -- income (loss) available to common shareholders before extraordinary item................................................... $66.5 $(215.0) $(14.7) Effect of dilutive securities: Series C preferred dividend requirement................ 2.4 -- -- Series D preferred dividend requirement................ 3.1 -- -- Additional required ESOP contribution.................. (1.9) -- -- ----- ------- ------ Numerator for diluted earnings per share -- income (loss) available to common shareholders after assumed conversions, before extraordinary item................. $70.1 $(215.0) $(14.7) ----- ------- ------ Numerator for basic earnings per share -- income (loss) available to common shareholders after extraordinary item...................................................... $63.9 $(215.0) $(14.7) Numerator for diluted earnings per share -- income (loss) available to common shareholders after extraordinary item...................................................... $67.5 $(215.0) $(14.7) Denominator: Denominator for basic earnings per share -- weighted average shares......................................... 36.6 34.7 34.6 Effect of dilutive securities: Dilutive stock options outstanding..................... 0.4 -- -- Nonvested stock........................................ 0.3 -- -- Conversion of Series C preferred stock................. 1.6 -- -- Conversion of Series D preferred stock................. 3.0 -- -- ----- ------- ------ Dilutive potential common shares.......................... 5.3 -- -- Denominator for dilutive earnings per share -- adjusted weighted average shares and assumed conversions....... 41.9 34.7 34.6 ===== ======= ====== Basic earnings (loss) per share before extraordinary item... $1.81 $ (6.20) $(0.42) ===== ======= ====== Basic earnings (loss) per share after extraordinary item.... $1.74 $ (6.20) $(0.42) ===== ======= ====== Diluted earnings (loss) per share before extraordinary item...................................................... $1.67 $ (6.20) $(0.42) ===== ======= ====== Diluted earnings (loss) per share after extraordinary item...................................................... $1.61 $ (6.20) $(0.42) ===== ======= ======
For additional disclosures regarding the Series C and Series D preferred stock, the employee stock options and nonvested stock shares, refer to Notes 11 and 14. Convertible preferred securities (refer to Note 12) redeemable for 11.5 million shares of common stock were outstanding for a portion of 1997 but were not included in the computation of diluted earnings per share because the effect would be antidilutive. 38 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 14. INCENTIVE STOCK PLANS The Company's shareholders adopted stock option plans in 1976 and 1984 and performance incentive stock plans in 1989 and 1997. These plans provide generally for awarding restricted shares or granting options to purchase shares of the Company's common stock. Restricted shares entitle employees to all the rights of common stock shareholders, subject to certain transfer restrictions and to forfeiture in the event that the conditions for their vesting are not met. Options entitle employees to purchase shares at an exercise price not less than 100% of the fair market value on the grant date and expire after a five or ten year period as determined by the Board of Directors. Under the plans, awards vest from 6 months to 5 years after their date of grant, as determined by the Board of Directors at the time of grant. At December 31, 1997, there were 934,245 shares available for future grants under the plans. In October 1997, the Company met certain share price performance criteria under the 1989 Long-Term Incentive Plan which resulted in the recognition of $5.4 million in compensation expense relating to the vesting of restricted stock awards. The total compensation cost that has been charged to operations for vesting of restricted stock awards was $9.0 million, $0.4 million and $0.1 million in 1997, 1996 and 1995, respectively. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock awards. Accordingly, no compensation cost has been recognized for its stock option grants, as the exercise price of the Company's employee stock options equals the underlying stock price on the date of grant. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method of Financial Accounting Standards Board Statement No. 123 "Accounting for Stock Based Compensation," the Company's net earnings (loss), in millions, and earnings (loss) per share would have been adjusted to the pro forma amounts indicated below:
1997 1996 1995 ---- ---- ---- Net earnings (loss) as reported............................. $69.4 $(206.3) $(5.8) Pro forma................................................... $70.7 $(207.1) $(6.0) Basic earnings (loss) per share as reported................. $1.74 $ (6.20) $(.42) Pro forma................................................... $1.78 $ (6.22) $(.43) Diluted earnings (loss) per share as reported............... $1.61 $ (6.20) $(.42) Pro forma................................................... $1.64 $ (6.22) $(.43)
Pro forma information regarding net income and earnings per share is required by Statement 123 as if the Company had accounted for its employee stock options under the fair value method. The fair value for options is estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1997, 1996 and 1995, respectively: risk-free interest rates of 6.5%; dividend yields of 1.5%, 2.3% and 2.4%; volatility factors of the expected market price of the Company's common stock of 27.2%, 11.2% and 8.1% and a weighted average expected life of the option of five years. The fair value of nonvested stock awards is equal to the market price of the stock on the date of the grant. Since the above pro forma disclosures of results are only required to consider grants awarded in 1995 and thereafter, the pro forma effects during this initial phase-in period may not be representative of the effects on the reported results for future years. The weighted average fair value and the total number (in millions) of options granted was $9.99, $3.34 and $3.09, and 0.9, 0.3 and 0.1 for 1997, 1996 and 1995, respectively. The weighted average fair value and total number of nonvested stock awards granted was $24.47, $18.90 and $18.38 and 0.1, 0.2 and 0.4 for 1997, 1996 and 1995, respectively. All options and stock awards that are not vested at December 31, 1997, vest solely on employees' rendering additional service. 39 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The following table summarizes the activity relating to the Company's incentive stock plans:
NUMBER OF SHARES WEIGHTED-AVERAGE (IN MILLIONS) PRICE ---------------- ---------------- Outstanding at January 1, 1995.............................. 2.4 $22.98 Options/stock granted..................................... .5 18.72 Options/stock lapsed or canceled.......................... (.3) 23.69 ---- ------ Outstanding at December 31, 1995............................ 2.6 22.02 Options/stock granted..................................... .5 22.08 Options exercised......................................... -- -- Options/stock lapsed or canceled.......................... (.6) 22.32 ---- ------ Outstanding at December 31, 1996............................ 2.5 22.03 Options/stock granted..................................... 1.0 31.74 Options exercised/stock vested............................ (1.0) 21.94 Options/stock lapsed or canceled.......................... (0.3) 22.29 ---- ------ Outstanding at December 31, 1997............................ 2.2 $26.46 ==== ====== Options exercisable at December 31, 1997.................. 0.9 $23.07 ==== ====== Options exercisable at December 31, 1996.................. 1.3 $22.50 ==== ====== Options exercisable at December 31, 1995.................. 1.5 $21.50 ==== ======
The following is a summary of the range of exercise prices for stock options that are outstanding and the amount of nonvested stock awards at December 31, 1997:
WEIGHTED AVERAGE OUTSTANDING ----------------------- RANGE AWARDS PRICE REMAINING LIFE ----- ----------- ----- -------------- Options: $15.69 to $23.50.............................. 0.8 $21.63 4 years $23.50 to $41.28.............................. 1.2 $31.26 5 years Nonvested stock............................... 0.2 -- -- --- Total......................................... 2.2 ===
15. POSTEMPLOYMENT BENEFITS The Company maintains several defined benefit pension plans which cover substantially all domestic employees and certain employees in other countries. Benefits for domestic salaried employees are based on compensation, age and years of service, while hourly employees' benefits are primarily based on negotiated rates and years of service. International plans maintained by the Company provide benefits based on years of service and compensation. The Company's funding policy is consistent with funding requirements of federal and international laws and regulations. Plan assets consist primarily of listed equity securities and fixed income instruments. Net periodic pension cost for the Company's defined benefit plans in 1997, 1996 and 1995 consists of the following: 40 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED UNITED STATES PLANS
1997 1996 1995 ---- ---- ---- (MILLIONS OF DOLLARS) (INCOME)/EXPENSE Service cost -- benefits earned during the period..... $ 7.8 $ 9.0 $ 7.3 Interest cost on projected benefit obligation......... 14.0 15.0 15.0 Actual return on plan assets.......................... (61.8) (30.8) (51.6) Net amortization and deferral......................... 33.4 3.3 28.6 Curtailment loss...................................... -- 3.7 .5 ------ ------ ------ Net periodic pension (income) cost.................... $ (6.6) $ .2 $ (.2) ====== ====== ======
INTERNATIONAL PLANS
1997 1996 1995 ---- ---- ---- (MILLIONS OF DOLLARS) (INCOME)/EXPENSE Service cost -- benefits earned during the period........... $ .3 $ .4 $ .4 Interest cost on projected benefit obligation............... 1.9 2.5 2.7 ---- ---- ---- Net periodic pension cost................................... $2.2 $2.9 $3.1 ==== ==== ====
41 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The following table sets forth the funded status for the Company's defined benefit plans at December 31: UNITED STATES PLANS
PLANS WITH ASSETS PLANS WITH IN EXCESS OF ACCUMULATED ACCUMULATED BENEFITS IN EXCESS BENEFITS OF ASSETS ------------------ ------------------- 1997 1996 1997 1996 ---- ---- ---- ---- (MILLIONS OF DOLLARS) Actuarial present value of benefit obligations: Vested benefit obligation................................ $129.9 $ 96.2 $45.8 $ 88.8 ====== ====== ===== ====== Accumulated benefit obligation........................... 139.1 102.1 55.5 106.4 ====== ====== ===== ====== Projected benefit obligation............................. 140.8 104.0 56.4 107.1 ------ ------ ----- ------ Plan assets at fair value................................ 243.8 177.8 49.9 84.8 ------ ------ ----- ------ Plan assets in excess of (less than) projected benefit obligation............................................. 103.0 73.8 (6.5) (22.3) Unrecognized net (asset) liability at transition......... (2.7) (5.8) .7 .5 Unrecognized prior service cost.......................... 3.7 .5 6.0 10.0 Unrecognized net (gain) loss............................. (54.7) (23.2) (5.6) 3.2 ------ ------ ----- ------ Accrued pension asset (liability) included in the consolidated balance sheets............................ $ 49.3 $ 45.3 $(5.4) $ (8.6) ====== ====== ===== ======
INTERNATIONAL PLANS
ACCUMULATED BENEFITS EXCEED ASSETS --------------------- 1997 1996 ---- ---- (MILLIONS OF DOLLARS) Actuarial present value of benefit obligations: Vested benefit obligation................................. $ 25.3 $ 32.9 ------ ------ Accumulated benefit obligation............................ 26.6 34.5 ------ ------ Projected benefit obligation.............................. 26.6 34.5 ------ ------ Plan assets less than projected benefit obligation.......... (26.6) (34.5) Unrecognized net loss....................................... 2.8 4.0 ------ ------ Accrued pension liability included in the consolidated balance sheet............................................. $(23.8) $(30.5) ====== ======
The assumptions used in computing the above information are as follows:
1997 1996 1995 ---- ---- ---- Discount rates.............................................. 7 1/2% 7 1/2% 7 1/2% Rates of increase in compensation levels.................... 4 1/2% 4 1/2% 4 1/2% Expected long-term rates of return on assets................ 10 % 10 % 10 %
The Company's minimum liability adjustment was $1.3 million and $13.4 million for United States plans at December 31, 1997 and 1996, respectively, and $2.7 million and $3.5 million for international plans at December 31, 1997 and 1996, respectively. The Company also provides health care and life insurance benefits for certain domestic retirees covered under company-sponsored benefit plans. Participants in these plans may become eligible for these benefits if they reach normal retirement age while working for the Company. The Company's policy is to fund benefit costs as they are provided, with retirees paying a portion of the costs. 42 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED The components of net periodic postretirement benefit costs are as follows as of December 31:
1997 1996 1995 ---- ---- ---- (MILLIONS OF DOLLARS) Service cost............................................. $ 2.5 $ 2.8 $ 2.3 Interest cost............................................ 10.5 10.8 10.4 Curtailment gain......................................... -- (7.5) (1.0) Amortized gains.......................................... (.5) (.5) (1.1) ----- ----- ----- Net periodic postretirement benefits cost................ $12.5 $ 5.6 $10.6 ===== ===== =====
The following schedule reconciles the funded status of the Company's postretirement benefit plans to the amounts recorded in the Company's balance sheets as of December 31:
1997 1996 ---- ---- (MILLIONS OF DOLLARS) Accumulated postretirement benefit obligation (APBO): Retirees.................................................... $107.6 $103.9 Active plan participants.................................... 42.8 46.9 ------ ------ 150.4 150.8 Unrecognized net gain (loss)................................ 3.8 (1.4) Unrecognized prior service cost............................. 3.5 4.1 ------ ------ Accrued postretirement benefits liability................... $157.7 $153.5 ====== ======
The discount rate used in determining the APBO was 7.5% at December 31, 1997 and 1996. At December 31, 1997, the assumed annual health care cost trend used in measuring the APBO approximated 7.5% in 1997 declining to 7.1% in 1998 and to an ultimate rate of 5.5% estimated to be achieved in 2009. At December 31, 1996, the assumed annual health care cost trend used in measuring the APBO approximated 7.5% in 1996, declining to 7.1% in 1997 and to an ultimate annual rate of 5.5% estimated to be achieved in 2008. Increasing the assumed cost trend rate by 1% each year would have increased the APBO by approximately 8.3% and 8.4% at December 31, 1997 and 1996, respectively. Aggregate service and interest costs would have increased by approximately 9.4% for 1997 and 1996, and 12.9% for 1995. In 1991, the Company established a retiree health benefits account (as defined in Section 401(h) of the Internal Revenue Code) within its domestic salaried employees' pension plan. Annually, the Company may elect to transfer excess pension plan assets (subject to defined limitations) to the 401(h) account for purposes of funding current salaried retiree health care costs. The Company transferred excess pension plan assets of $4.4 million in 1997, $4.2 million in 1996 and $4.2 million in 1995 to the 401(h) account to fund salaried retiree health care benefits. The Company sponsors two defined contribution retirement saving plans covering substantially all domestic employees. Matching Company contributions for the Salaried Employees' Investment Program are provided through the ESOP (refer to Note 11). In addition, the Company provided matching contributions to eligible employees based upon their contributions to the Employee Investment Program of approximately $1.5 million, $1.6 million, and $1.2 million for 1997, 1996, and 1995, respectively. 43 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 16. INCOME TAXES Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The components of earnings (loss) before income taxes and extraordinary item consisted of the following:
1997 1996 1995 ---- ---- ---- (MILLIONS OF DOLLARS) Domestic.................................................... $50.1 $ (88.3) $ 7.9 International............................................... 49.4 (140.4) (11.2) ----- ------- ------ $99.5 $(228.7) $ (3.3) ===== ======= ======
Significant components of the provision for income taxes (tax benefit) are as follows:
1997 1996 1995 ---- ---- ---- (MILLIONS OF DOLLARS) Current: Federal................................................... $ 9.6 $ (4.0) $ 12.7 State and local........................................... 0.2 2.3 1.2 International............................................. 6.6 6.3 9.3 ----- ------ ------ Total current........................................ 16.4 4.6 23.2 Deferred: Federal................................................... 6.1 (25.2) (9.0) State and local........................................... 0.7 (1.8) (.9) International............................................. 4.3 -- (10.8) ----- ------ ------ Total deferred....................................... 11.1 (27.0) (20.7) ----- ------ ------ $27.5 $(22.4) $ 2.5 ===== ====== ======
The reconciliation of income taxes (tax benefits) computed at the United States federal statutory tax rate to income tax expense (benefit) is:
1997 1996 1995 ---- ---- ---- (MILLIONS OF DOLLARS) Income taxes (tax benefits) at United States statutory rate...................................................... $34.9 $(80.1) $(1.1) Tax effect from: Tax credits, state income taxes and other................. 2.1 1.8 (2.3) Tax benefit related to the sale of South African and Australian businesses.................................. (6.8) -- -- Losses on international operations without tax benefits and foreign tax rate differences....................... (2.7) 55.9 5.9 ----- ------ ----- $27.5 $(22.4) $ 2.5 ===== ====== =====
The following table summarizes the Company's total provision for income taxes/(tax benefits):
1997 1996 1995 ---- ---- ---- (MILLIONS OF DOLLARS) Income tax expense (benefit)................................ $27.5 $(22.4) $ 2.5 Allocated to equity: Currency translation...................................... (3.6) (4.9) 5.3 Preferred dividends....................................... (1.3) (1.5) (1.6) Investment securities..................................... (0.6) .8 -- Other..................................................... 1.2 .7 .8 ----- ------ ----- $23.2 $(27.3) $ 7.0 ===== ====== =====
44 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Significant components of the Company's deferred tax assets and liabilities as of December 31 are as follows:
1997 1996 ---- ---- (MILLIONS OF DOLLARS) Deferred tax assets: Postretirement benefits..................................... $ 58.2 $ 57.2 Net operating loss carryforwards of international subsidiaries.............................................. 45.0 68.1 Loss on foreign investment.................................. 23.2 49.0 Restructuring costs......................................... -- 8.3 Inventory basis............................................. 10.3 12.0 Allowance for doubtful accounts............................. 11.3 7.0 Other temporary differences................................. 36.9 27.6 ------ ------ Total deferred tax assets.............................. 184.9 229.2 Valuation allowance for deferred tax assets................. (44.4) (89.4) ------ ------ Net deferred tax assets................................ 140.5 139.8 ------ ------ Deferred tax liabilities: Fixed asset basis differences............................. (50.5) (55.0) Pension................................................... (17.3) (12.4) Restructuring costs....................................... (8.1) -- ------ ------ Total deferred tax liabilities......................... (75.9) (67.4) ------ ------ $ 64.6 $ 72.4 ====== ======
Deferred tax assets and liabilities are recorded in the consolidated balance sheets as follows:
1997 1996 ---- ---- (MILLIONS OF DOLLARS) ASSETS: Prepaid expenses and income tax benefits.................... $46.6 $54.6 Business investments and other assets....................... 26.7 21.9 LIABILITIES: Other current accrued liabilities........................... (4.2) (3.6) Other long-term accrued liabilities......................... (4.5) (.5) ----- ----- $64.6 $72.4 ===== =====
Income taxes paid in 1997, 1996 and 1995 were $2.6 million, $6.7 million and $19.4 million, respectively. Undistributed earnings of the Company's international subsidiaries amounted to approximately $39 million at December 31, 1997. No taxes have been provided on approximately $30 million of these earnings, which are considered by the Company to be permanently reinvested. 45 48 CONSOLIDATED BALANCE SHEETS Upon distribution of these earnings, the Company would be subject to United States income taxes and foreign withholding taxes. Determining the unrecognized deferred tax liability on the distribution of these earnings is not practicable as such liability, if any, is dependent on circumstances existing when remittance occurs. The Company has a $67 million German net operating loss carryforward at December 31, 1997 that has no expiration date. The Company has $50 million of additional foreign operating losses with various expiration dates through 2003. 17. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA The Company is a global manufacturer and distributor of a broad range of non-discretionary parts, primarily vehicular components for automobiles, light trucks, heavy duty trucks, farm and construction vehicles. The Company sells parts to original equipment manufacturers, principally the major automotive manufacturers in the United States and Europe. Through its worldwide distribution network, the Company also sells replacement parts in the vehicular replacement market. All of these activities constitute a single business segment. Canadian operations are aggregated with the U.S. operations as they are not significant under the materiality thresholds of Financial Accounting Standards Board Statement No. 14. Financial information, summarized by geographic area, is as follows:
1997 1996 1995 ---- ---- ---- (MILLIONS OF DOLLARS) Net sales: United States and Canada.................................. $1,132.2 $1,224.7 $1,280.6 Europe.................................................... 372.3 436.0 382.8 Other international....................................... 302.1 372.0 336.4 -------- -------- -------- $1,806.6 $2,032.7 $1,999.8 ======== ======== ======== Operating earnings (loss): United States and Canada.................................. $ 114.3 $ (53.2) $ 57.5 Europe.................................................... 20.6 11.8 (13.2) Other international....................................... 31.9 (112.8) 13.2 -------- -------- -------- 166.8 (154.2) 57.5 Corporate expenses and other................................ (27.9) (27.7) (27.8) -------- -------- -------- $ 138.9 $ (181.9) $ 29.7 ======== ======== ======== Identifiable assets: United States and Canada.................................. $1,240.4 $ 775.5 $ 893.5 Europe.................................................... 467.0 451.0 493.9 Other international....................................... 94.7 228.7 322.7 -------- -------- -------- $1,802.1 $1,455.2 $1,710.1 ======== ======== ========
Transfers between geographic areas are not significant, and when made, are recorded at prices comparable to normal unaffiliated customer sales. The information presented above was prepared in accordance with Statement 14. In 1997, the Financial Accounting Standards Board issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. The statement supersedes Statement 14 and establishes standards for the way public business enterprises report selected information about operating segments in annual reports and interim financial reports issued to shareholders. Statement 131 is effective for fiscal years beginning after December 15, 1997. For the year ended 1998, the Company will provide financial and descriptive information about its reportable operating segments to conform to the requirements. 46 49 CONSOLIDATED BALANCE SHEETS -- CONTINUED 18. LITIGATION AND ENVIRONMENTAL MATTERS The Company is one of a large number of defendants in a number of lawsuits brought by claimants alleging injury due to exposure to asbestos. The Company is defending all such claims vigorously and believes it has substantial defenses to liability and adequate insurance coverage for its defense costs. The Company is also involved in various other legal actions and claims. While the outcome of litigation cannot be predicted with certainty, after consulting with counsel for the Company, management believes that these matters will not have a material effect on the Company's consolidated financial statements. The Company is a party to lawsuits filed in various jurisdictions alleging claims pursuant to the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA) or other state or federal environmental laws. In addition, the Company has been notified by the Environmental Protection Agency and various state agencies that it may be a potentially responsible party (PRP) for the cost of cleaning up certain other hazardous waste storage or disposal facilities pursuant to CERCLA and other federal and state environmental laws. PRP designation requires the funding of site investigations and subsequent remedial activities. Although these laws could impose joint and several liability upon each party at any site, the potential exposure is expected to be limited because at all sites other companies, generally including many large, solvent public companies, have been named as PRPs. In addition, the Company has identified certain present and former properties at which it may be responsible for cleaning up environmental contamination. The Company is actively seeking to resolve these matters. Although difficult to quantify based on the complexity of the issues, the Company has accrued the estimated cost associated with such matters based upon current available information from site investigations and consultants. The environmental and legal reserve was approximately $11 million at December 31, 1997 and $12 million at December 31, 1996 and is included in other long-term accrued liabilities. Management believes these accruals, which have not been reduced by any anticipated insurance proceeds, will be adequate to cover the Company's estimated liability for these exposures. 47 50 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING 19. QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND(1) THIRD FOURTH(2) YEAR ----- --------- ----- --------- ---- (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) Year ended December 31, 1997: Net sales...................................... $485.6 $481.8 $424.2 $415.0 $1,806.6 Gross margin................................... 112.1 115.3 102.8 94.6 424.8 Net earnings before extraordinary item......... 13.9 28.5 17.4 12.2 72.0 Extraordinary item - loss on early retirement of debt, net of tax benefit.................. -- (2.6) -- -- (2.6) Net earnings................................... 13.9 25.9 17.4 12.2 69.4 Diluted earnings per share(5).................. .32 .61 .40 .28 1.61
FIRST SECOND THIRD(3) FOURTH(4) YEAR ----- ------ -------- --------- ---- (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) Year ended December 31, 1996: Net sales...................................... $522.9 $536.6 $492.4 $480.8 $2,032.7 Gross margin................................... 113.2 117.5 83.2 58.3 372.2 Net earnings (loss)............................ 11.2 15.9 (12.6) (220.8) (206.3) Diluted earnings (loss) per share(5)........... .25 .36 (.43) (6.43) (6.20)
- ------------------------- (1) Includes an income tax benefit of $6.8 million related to the sales of the South African and Australian businesses. (2) Includes $1.1 million for a net restructuring credit, a $2.4 million charge for an adjustment of assets held for sale to fair value, a $1.6 million credit for reengineering and other related charges, and a $10.5 million net charge related to the British pound currency option. (3) Net loss includes a pretax charge of $38.5 million primarily relating to changes in estimates, adjustment of assets held for sale to fair value and other related charges. (4) Net loss includes a pretax charge for restructuring of $57.6 million, adjustment of assets held for sale to fair value of $144.9 million and $61.7 million primarily relating to changes in estimates, and other related charges. (5) The 1996 and first three quarters of 1997 earnings per share amounts have been restated to comply with Statement 128, Earnings Per Share.
1997 1996 ---------------- ---------------- QUARTER HIGH LOW HIGH LOW ------- ---- --- ---- --- First....................................................... $26.75 $21.63 $20.88 $17.38 Second...................................................... 35.38 24.50 19.88 17.88 Third....................................................... 39.94 32.75 22.50 16.25 Fourth...................................................... 47.63 36.75 24.50 20.38
Quarterly dividends of $.12 per common share were declared for 1997 and 1996. In February 1998, the Company's Board of Directors declared a quarterly dividend of $.12 per common share. This was the 248th consecutive quarterly dividend declared by the Company. 20. SUBSEQUENT EVENTS T&N PLC Transaction On October 16, 1997, the Company announced it made a cash offer to acquire all the outstanding common stock of T&N plc (T&N) for 260 pence per share. The offer valued T&N's issued share capital at approximately $2.4 billion. T&N, headquartered in Manchester, England, had 1997 net sales of approximately $2.9 billion. On January 6, 1998, the Company's offer to acquire all of the outstanding common stock of T&N 48 51 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING -- CONTINUED was declared unconditional as to acceptances. By the second closing date under the offer, January 2, 1998, valid acceptances of the offer had been received for approximately 95% of the entire issued share capital of T&N. The Company will finance the acquisition through a committed bank facility from a reputable financial institution. The Company's intention is to put in place a permanent capital structure with an appropriate combination of equity and debt financing. The offer is subject to various conditions customary in the United Kingdom and the receipt of all applicable regulatory approvals in the United States and Europe. As part of the acquisition process, certain financing, professional and other related fees have been incurred in 1997. These fees have been capitalized as incurred and will be accounted for as direct acquisition or financing costs once the transaction closes. Management fully expects the acquisition to close in the first quarter of 1998, however, in the event the acquisition is not completed, these fees would be charged to operations and would materially impact earnings at that time. As of December 31, 1997, the Company had capitalized $28 million of these fees. In addition, the Company may elect to accelerate payment of certain portions of the bank facility which would result in an extraordinary charge due to the write-off of the financing cost associated with the early retirement of debt. The British pound currency option (refer to Note 8) was settled by the Company in the first quarter of 1998 resulting in a $17.3 million pretax loss. Also in the first quarter of 1998, the Company entered into a forward contract to purchase 1.5 billion British pounds for a notional amount of approximately $2.45 billion. The forward contract expires in the first quarter of 1998. Fel-Pro Incorporated Transaction On February 24, 1998, the Company acquired Fel-Pro Incorporated, a privately owned manufacturer, headquartered in Skokie, Illinois, with net sales of approximately $500 million for total consideration of $720 million which includes $225 million in equity and $495 million in cash. The $495 million in cash was primarily provided through available borrowings on the $350 million multicurrency revolver. The remaining consideration paid was through the issuance of promissory notes. Divestiture of Minority Interest In February 1998, the Company announced the divestiture of its minority interest in G. Bruss GmbH & Co. KG, a German manufacturer of seals and gaskets. As part of the divestiture agreement the Company increased their ownership to 100% in the Summerton, South Carolina gasket business. The Company also received cash and recognized a gain as a result of these transactions. The gain recognized is not expected to be significant to 1998 first quarter results. 49 52 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING -- CONTINUED TO OUR SHAREHOLDERS: The management of Federal-Mogul has the responsibility for preparing the accompanying financial statements and for their integrity and objectivity. The financial statements were prepared in accordance with generally accepted accounting principles and include amounts based on the best estimates and judgments of management. Management also prepared the other financial information in this report and is responsible for its accuracy and consistency with the financial statements. Federal-Mogul has retained independent auditors, ratified by election by the shareholders, to audit the financial statements. Federal-Mogul maintains internal accounting control systems which are adequate to provide reasonable assurance that assets are safeguarded from loss or unauthorized use and which produce records adequate for preparation of financial information. The system, controls and compliance are reviewed by a program of internal audits. There are limits inherent in all systems of internal accounting control based on the recognition that the cost of such a system not exceed the benefits derived. We believe Federal-Mogul's system provides this appropriate balance. The Audit Committee of the Board of Directors, comprised of four outside directors, performs an oversight role related to financial reporting. The Committee periodically meets jointly and separately with the independent auditors, internal auditors and management to review their activities and reports, and to take any action appropriate to their findings. At all times the independent auditors have the opportunity to meet with the Audit Committee, without management representatives present, to discuss matters related to their audit. Dick Snell Chairman and Chief Executive Officer Tom Ryan Senior Vice President and Chief Financial Officer 50 53 REPORT OF INDEPENDENT AUDITORS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS, FEDERAL-MOGUL CORPORATION: We have audited the accompanying consolidated balance sheets of Federal-Mogul Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. Our audit also included the financial statement schedule listed in Item 14(a). 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, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Federal-Mogul Corporation and subsidiaries at December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Detroit, Michigan January 30, 1998 except for Note 20, as to which the date is February 24, 1998 51 54 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this item will appear (a) under the caption "Nominees for Election as Directors" in the Company's definitive Proxy Statement to be dated not later than April 30, 1998 relating to its 1998 Annual Meeting of Shareholders (the "1998 Proxy Statement") (except for the information appearing under the caption "Compensation of Directors"), which information is incorporated herein by reference; (b) under the caption "Information on Securities -- Compliance with Section 16(a) of the Exchange Act" in the 1998 Proxy Statement, which information is incorporated herein by reference; and (c) under the caption "Executive Officers of the Company" at the end of Part I of this Annual Report. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item will appear under the caption "Information on Executive Compensation" in the 1998 Proxy Statement (excluding the information appearing under the captions "Certain Related Transactions" and "Compensation Committee Report on Executive Compensation") and under the caption "Compensation of Directors" in the 1998 Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item will appear under the caption "Information on Securities -- Stock Ownership of Management" and "Other Beneficial Owners" in the 1998 Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item will appear under the caption "Certain Related Transactions" in the 1998 Proxy Statement and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: 1. Financial Statements: Financial statements filed as part of this Annual Report on Form 10-K are listed under Part II, Item 8 hereof. 2. Financial Statement Schedules: Schedule II -- Valuation and Qualifying Accounts FINANCIAL STATEMENTS AND SCHEDULES OMITTED: Schedules other than those listed above are omitted because they are not required under instructions contained in Regulation S-X or because the information called for is shown in the financial statements and notes thereto. Individual financial statements of subsidiaries of the Company have been omitted as the Company is primarily an operating Company and all subsidiaries included in the consolidated financial statements filed, in the aggregate, do not have minority equity interests and/or indebtedness to any person other than the Company or its consolidated subsidiaries in amounts which together exceed 5% of the total assets of the Company as shown by the most recent year-end Consolidated Balance Sheet. 52 55 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- ------------ ---------------------------- ----------- ---------- ADDITIONS ---------------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER ACCOUNTS- DEDUCTIONS- END OF DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD ----------- ---------- ---------- --------------- ----------- ---------- (IN MILLIONS) Year Ended December 31, 1997: Valuation allowance for trade receivable......................... $16.3 $ 3.5 $ -- $ 1.1(1) $18.7 Valuation allowance for note receivable......................... 0.5 -- -- -- 0.5 Reserve for inventory valuation....... 48.0 1.5 -- 34.4(5) 15.1 Valuation allowance for deferred tax assets............................. 89.4 -- -- 45.0(6) 44.4 Year Ended December 31, 1996: Valuation allowance for trade receivable......................... 18.7 10.9 -- 13.3(1) 16.3 Valuation allowance for note receivable......................... 0.5 -- -- -- 0.5 Reserve for inventory valuation....... 25.2 22.8 -- -- 48.0 Valuation allowance for deferred tax assets............................. 23.7 65.7 -- -- 89.4 Year Ended December 31, 1995: Valuation allowance for trade receivable......................... 17.1 6.7 0.4(2) 5.5(1) 18.7 Valuation allowance for note receivable......................... 0.7 -- -- 0.2(3) 0.5 Reserve for inventory valuation....... 25.7 0.7 5.3(2) 6.5(4) 25.2 Valuation allowance for deferred tax assets............................. 20.9 2.8 -- -- 23.7
- ------------------------- (1) Uncollectible accounts charged off net of recoveries. (2) Increase to reserve due to acquisition of automotive aftermarket businesses. (3) Decrease to reserve due to change in market value of note. (4) Reduction in inventory reserves for inventory disposed of during the year. (5) Decrease due to the disposal of certain foreign subsidiaries and the disposal of slow moving and obsolete inventory that was fully reserved. (6) Disposition of certain international retail operations plus utilization of foreign net operating loss carryforwards. 53 56 EXHIBITS *2.1 Recommended Cash Offer for T&N plc, dated as of November 13, 1997. *2.2 Equity Purchase Agreement between the Company and The Sellers with respect to the acquisition of Fel-Pro Incorporated, dated as of January 9, 1998. 3.1 The Company's Second Restated Articles of Incorporation, as amended. (Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1992.) *3.2 The Company's Bylaws, as amended. 4.1 Rights Agreement (the "Rights Agreement") between the Company and National Bank of Detroit, as Rights Agent, with The Bank of New York as successor Rights Agent. (Incorporated by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A, dated November 7, 1988.) 4.2 Amendment, dated July 25, 1990, to the Rights Agreement. (Incorporated by reference to Exhibit 4.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990.) 4.3 Amendment, dated January 1, 1993, to the Rights Agreement. (Incorporated by reference to Exhibit 10.30 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993.) 4.4 Amendment, dated September 23, 1992, to the Rights Agreement. (Incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 (the "1992 10-K").) 4.5 Reference is made to Exhibits 10.11, 10.12 and 10.13 hereto, which contain provisions defining the rights of holders of certain long-term debt securities of the Company. Other instruments defining the rights of holders of the long-term debt securities of the Company and any of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed, have not been filed because in each case the total amount of long-term debt permitted thereunder does not exceed 10% of the Company's consolidated assets and the Company hereby agrees to furnish such instruments to the Securities and Exchange Commission upon its request. *4.6 Purchase Agreement for 10,000,000 Trust Convertible Preferred Securities of Federal-Mogul Financing Trust, dated as of November 24, 1997. *4.7 Registration Rights Agreement, dated as of December 1, 1997 by and among the Company, Federal-Mogul Financing Trust and Morgan Stanley & Co. Inc. as Initial Purchaser. *4.8 Indenture between the Company and The Bank of New York, dated as of December 1, 1997 with respect to the Subordinated Debentures. *4.9 First Supplemental Indenture between the Company and The Bank of New York, dated as of December 1, 1997 with respect to the Subordinated Debentures. *4.10 Registration Agreement, dated as of January 9, 1998 by and among the Company and the Investors identified on Schedule 1 thereto relating to the Series E Mandatory Exchangeable Preferred Stock. *4.11 Certificate of Designations of Series E Mandatory Exchangeable Preferred Stock. 10.1 The Company's 1976 Stock Option Plan, as last amended. (Incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for year ended December 31, 1994 (the "1994 10-K").) 10.2 The Company's 1984 Stock Option Plan, as last amended. (Incorporated by reference to Exhibit 10.2 to the Company's 1994 10-K.)
54 57 10.3 The Company's 1977 Supplemental Compensation Plan, as amended and restated. (Incorporated by reference to Exhibit 10.27 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.) 10.4 The Company's Supplemental Compensation Retirement Trust Agreement. (Incorporated by reference to Exhibit 10.4 to the Company's 1994 10-K.) 10.5 Form of Executive Severance Agreement between the Company and certain executive officers (Incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (the "1996 10-K).) 10.6 Amended and Restated Deferred Compensation Plan for Corporate Directors. (Incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1990 (the "1990 10-K").) 10.7 Supplemental Executive Retirement Plan, as amended. (Incorporated by reference to Exhibit 10.10 to the Company's 1992 10-K.) 10.8 Description of Umbrella Excess Liability Insurance for the Senior Management Team. (Incorporated by reference to Exhibit 10.11 to the Company's 1990 10-K.) 10.9 Federal-Mogul Corporation 1989 Performance Incentive Stock Plan, as amended. (Incorporated by reference to Exhibit 10.14 to the Company's 1994 10-K.) 10.10 Supply Agreement, dated as of October 20, 1992, between the Company, TRW Inc. and the TRW Subsidiaries (as defined therein). (Incorporated by reference to Exhibit 10.15 to the Company's 1992 10-K.) 10.11 Note Agreement, dated December 1, 1990, between the Company and various financial institutions listed therein (the "Note Agreement"). (Incorporated by reference to Exhibit 10.17 to the Company's Annual Report Form 10-K for year ended December 31, 1991.) 10.12 First Amendment dated as of December 11, 1992, to the Note Agreement. (Incorporated by reference to Exhibit 10.27 to the Company's 1992 10-K.) 10.13 Second Amendment, dated s of July 14, 1995, to the Note Agreement. (Incorporated by reference to Exhibit 10.29 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.) 10.14 Pooling and Servicing Agreement, dated as of June 1, 1992 (the "Pooling and Servicing Agreement"), among Federal-Mogul Funding Corporation ("FMFC"), as Seller, the Company, as Servicer, and The Chase Manhattan Bank (formerly named Chemical Bank), as Trustee. (Incorporated by reference to Exhibit 10.21 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993.) 10.15 Series 1992-1 Supplement, dated as of June 1, 1992, to the Pooling and Servicing Agreement. (Incorporated by reference to Exhibit 10.22 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992.) 10.16 Series 1993-1 Supplement, dated as of March 1, 1993, to the Pooling and Servicing Agreement. (Incorporated by reference to Exhibit 10.29 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993.) 10.17 Receivables Purchase Agreement, dated as of June 1, 1992, between the Company and FMFC. (Incorporated by reference to Exhibit 10.23 to the Company's 1992 10-K.) 10.18 Federal-Mogul Corporation Executive Loan Program. (Incorporated by reference to Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.) 10.19 Federal-Mogul Corporation Non-Employee Director Stock Plan. (Incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8 (Registration No. 33-54301).)
55 58 10.20 Revolving Credit and Competitive Advance Facility Agreement dated as of June 30, 1994, among the Company, the Lenders (as defined therein), Chemical Bank, as Administrative Agent and as CAF Advance Agent, and the Co-Agents (as defined therein) (the "Revolving Credit Agreement"). (Incorporated by reference to Exhibit 4.11 to the Company's Pre-Effective Amendment No. 1 to Registration Statement on Form S-3 (Registration No. 33-54717).) 10.21 First Amendment, dated as of December 18, 1995, to the Revolving Credit Agreement. (Incorporated by reference to Exhibit 10.28 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996.) 10.22 Second Amendment, dated as of October 21, 1996, to the Revolving Credit Agreement. (Incorporated by reference to Exhibit 10.29 to the Company's Quarterly Report on Form 10-Q for quarter ended September 30, 1996.) 10.23 Employment Agreement, dated as of December 1, 1996, between the Company and R. A. Snell. (Incorporated by reference to Exhibit 10.23 to the Company's 1996 10-K.) 10.24 Severance Agreement, dated as of December 27, 1996, between the Company and D. J. Gormley (Incorporated by reference to Exhibit 10.24 to the Company's 1996 10-K.) 10.25 Severance Agreement, dated as of December 1, 1996, between the Company and W. G. Smith (Incorporated by reference to Exhibit 10.25 to the Company's 1996 10-K.) 10.26 Federal-Mogul Corporation 1997 Long-Term Incentive Plan, as adopted by the Shareholders of the Company on April 23, 1997 (Incorporated by reference to Exhibit 10.01 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.) 10.27 Executive Severance Agreement, dated as of February 21, 1997, between the Company and Thomas W. VanHimbergern (Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.) 10.28 Third Amendment, dated as of January 13, 1997, to Revolving Credit and Competitive Advance Facility Agreement, dated as of June 30, 1994, among the Company, various banks, and The Chase Manhattan Bank (formerly Chemical Bank), as Administrative Agent. (Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.) 10.29 Form of Amended and Restated Pooling and Servicing Agreement ("Pooling and Servicing Agreement") among Federal-Mogul Funding Corporation ("FMFC"), as Seller, the Company, as Servicer, and The Chase Manhattan Bank, as Trustee (Incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for quarter ended March 31, 1997.) 10.30 Form of Series 1997-1 Supplement to the Pooling and Servicing Agreement (Incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.) 10.31 Form of Amended and Restated Receivables Purchase Agreement between the Company and FMFC. (Incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.) 10.32 Form of Certificate Purchase Agreement among FMFC as Seller, Falcon Asset Securitization Corporation, as Purchaser, The Liquidity Providers Named Therein, as Liquidity Providers, and The First National Bank of Chicago, as Program Agent. (Incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.) 10.33 $350,000,000 Revolving Credit, Competitive Advance and Multicurrency Facility dated as of June 16, 1997. (Incorporated by reference to Exhibit 10 to Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997). *10.34 Amended and Restated Declaration of Trust of Federal-Mogul Financing Trust, dated as of December 1, 1997.
56 59 *10.35 Common Securities Guarantee Agreement, dated as of December 1, 1997 among the Company and Federal-Mogul Financing Trust. *10.36 Second Amended and Restated Credit Agreement, dated as of December 18, 1997 in the amount of $2,750,000,000 among the Company, The Foreign Subsidiary Borrowers, the Lenders and The Chase Manhattan Bank. *10.37 Amended and Restated Senior Subordinated Credit Agreement, dated as of December 18, 1997 in the amount of $500,000,000 among the Company, the Lenders and The Chase Manhattan Bank. *10.38 First Amendment, dated as of January 20, 1998 to the Second Amended and Restated Credit Agreement, dated as of December 18, 1997. 11 Statement Re Computation of Per Share Earnings. (Incorporated by reference to Amendment 1 to the Company's 1996 10-K/A, dated August 18, 1997.) *21 Subsidiaries of the Registrant. *23.1 Consent of Ernst & Young LLP. 23.2 Consent of Nancy S. Shilts, Esq. (Incorporated by reference to Exhibit 23.2 to the Company's 10-K/A, dated August 18, 1997.) *24 Powers of Attorney. *27 Financial Data Schedule.
- ------------------------- * Filed Herewith The Company will furnish upon request any exhibit described above upon payment of the Company's reasonable expenses for furnishing such exhibit. (b) Reports on Form 8-K: On October 16, 1997, the Company filed a Current Report on Form 8-K to announce its recommended cash offer for T&N plc. On December 8, 1997, the Company filed a Current Report on Form 8-K to report its sale of 10,000,000 Trust Convertible Preferred Securities. On January 12, 1998, the Company filed a Current Report on Form 8-K to report its agreement to purchase Fel-Pro Incorporated. 57 60 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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. FEDERAL-MOGUL CORPORATION By: /s/ THOMAS W. RYAN ------------------------------------ Thomas W. Ryan Senior Vice President and Chief Financial Officer Dated: March 2, 1998 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 THEIR CAPACITIES.
SIGNATURE TITLE --------- ----- /s/ RICHARD A. SNELL Chairman of the Board, Chief Executive Officer and - ------------------------------------------ President Richard A. Snell /s/ THOMAS W. RYAN Senior Vice President and Chief Financial Officer - ------------------------------------------ (Principal Financial Officer) Thomas W. Ryan /s/ KENNETH P. SLABY Vice President and Controller (Principal Accounting - ------------------------------------------ Officer) Kenneth P. Slaby * Director - ------------------------------------------ Roderick M. Hills * Director - ------------------------------------------ John J. Fannon * Director - ------------------------------------------ Antonio Madero * Director - ------------------------------------------ Robert S. Miller, Jr. * Director - ------------------------------------------ John C. Pope * Director - ------------------------------------------ Dr. H. Michael Sekyra *By: /s/ DIANE L. KAYE ------------------------------------ Diane L. Kaye Attorney-in-Fact
58 EX-2.1 2 EX-2.1 1 EXHIBIT 2.1 [FEDERAL MOGUL LOGO] - -------------------------------------------------------------------------------- RECOMMENDED CASH OFFER FOR T&N PLC - -------------------------------------------------------------------------------- [T&N LOGO] 2 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE IN ANY DOUBT ABOUT THE ACTION YOU SHOULD TAKE, YOU ARE RECOMMENDED TO SEEK YOUR OWN FINANCIAL ADVICE FROM YOUR STOCKBROKER, BANK MANAGER, SOLICITOR, ACCOUNTANT OR OTHER PROFESSIONAL ADVISER AUTHORISED UNDER THE FINANCIAL SERVICES ACT 1986. If you have sold or otherwise transferred all of your T&N Ordinary Shares, you should send this document, together with the accompanying Form of Acceptance and reply-paid envelope, at once to the purchaser or transferee, or to the stockbroker, bank or other agent through or to whom the sale or transfer was effected, for transmission to the purchaser or transferee. HOWEVER, SUCH DOCUMENTS SHOULD NOT BE FORWARDED OR TRANSMITTED IN OR INTO CANADA. The Offer referred to in this document is not being made, directly or indirectly, in or into Canada and neither this document nor the accompanying Form of Acceptance is being mailed or otherwise distributed or sent in or into Canada. Any person (including nominees, trustees and custodians) who would, or otherwise intends to, forward this document or the Form of Acceptance to any jurisdiction outside the United Kingdom should read the further details in this regard which are set out in paragraph 6 of Part B and paragraph (b) of Part C of Appendix I to this document before taking any action. This document should be read in conjunction with the accompanying Form of Acceptance. - -------------------------------------------------------------------------------- RECOMMENDED CASH OFFER BY MORGAN STANLEY & CO. LIMITED ON BEHALF OF FEDERAL-MOGUL GLOBAL GROWTH LIMITED A WHOLLY-OWNED INDIRECT SUBSIDIARY OF FEDERAL-MOGUL CORPORATION TO ACQUIRE THE WHOLE OF THE ISSUED ORDINARY SHARE CAPITAL OF T&N PLC - -------------------------------------------------------------------------------- A letter of recommendation from Sir Colin Hope, the Chairman of T&N, appears on pages 5 to 7. ACCEPTANCES SHOULD BE DESPATCHED AS SOON AS POSSIBLE, BUT IN ANY EVENT SO AS TO BE RECEIVED BY THE RECEIVING AGENT NO LATER THAN 3:00 P.M. (LONDON TIME) ON 12 DECEMBER 1997. THE PROCEDURE FOR ACCEPTANCE IS SET OUT ON PAGES 14 TO 18 OF THIS DOCUMENT AND IN THE ACCOMPANYING FORM OF ACCEPTANCE. Morgan Stanley, which is regulated by The Securities and Futures Authority Limited, is acting for Federal-Mogul and the Offeror and no one else in connection with the Offer and will not be responsible to anyone other than Federal-Mogul and the Offeror for providing the protections afforded to customers of Morgan Stanley or for providing advice in relation to the Offer. Rothschilds, which is regulated by The Securities and Futures Authority Limited, is acting for T&N and no one else in connection with the Offer and will not be responsible to anyone other than T&N for providing the protections afforded to customers of Rothschilds or for providing advice in relation to the Offer. 3 CONTENTS DEFINITIONS 3 LETTER FROM THE CHAIRMAN OF T&N 5 LETTER FROM MORGAN STANLEY 8 APPENDIX I TERMS AND CONDITIONS OF THE OFFER 20 Part A: Conditions of the Offer 20 Part B: Further terms of the Offer 25 Part C: Form of Acceptance 31 APPENDIX II FINANCIAL INFORMATION ON FEDERAL-MOGUL 34 APPENDIX III FINANCIAL INFORMATION ON T&N 60 APPENDIX IV ADDITIONAL INFORMATION 91 2 4 DEFINITIONS The following definitions apply throughout this document, unless the context requires otherwise:
"Canada" Canada, its provinces and territories and all areas subject to its jurisdiction or any political subdivision thereof "certificated" or in "certificated a share or other security which is not in uncertificated form" form "City Code" the City Code on Takeovers and Mergers "CREST" the relevant system (as defined in the Regulations) in respect of which CRESTCo is the Operator (as defined in the Regulations) "CRESTCo" CRESTCo Limited "CREST member" a person who has been admitted by CRESTCo as a system-member (as defined in the Regulations) "CREST participant" a person who is, in relation to CREST, a system-participant (as defined in the Regulations) "CREST sponsor" a CREST participant admitted to CREST as a CREST sponsor "CREST sponsored member" a CREST member admitted to CREST as a sponsored member "Economic Value Added" a measure that takes a company's after-tax operating profit and compares it with its cost of capital, which includes its cost of debt and cost of equity; positive economic value added represents the amount by which after-tax operating profit exceeds the cost of capital "Escrow Agent" The Royal Bank of Scotland plc in its capacity as a CREST participant under ID 3RA32 "Federal-Mogul" Federal-Mogul Corporation "Federal-Mogul Group" Federal-Mogul and its subsidiary undertakings "Form of Acceptance" or "Form" the form of acceptance and authority accompanying this document "GAAP" Generally Accepted Accounting Principles "London Stock Exchange" London Stock Exchange Limited "member account ID" the identification code or number attached to any member account in CREST "Morgan Stanley" Morgan Stanley & Co. Limited "Offer" the recommended offer made by Morgan Stanley, on behalf of the Offeror, to acquire all the T&N Ordinary Shares on the terms and subject to the conditions set out in this document including, where the context so requires, any subsequent revision, variation, extension or renewal of such offer "Offeror" Federal-Mogul Global Growth Limited, a wholly-owned indirect subsidiary of Federal-Mogul "Official List" the Daily Official List of the London Stock Exchange "Panel" the Panel on Takeovers and Mergers "participant ID" the identification code or membership number used in CREST to identify a particular CREST member or other CREST participant "Receiving Agent" The Royal Bank of Scotland plc, Registrars Department, New Issues Section, which has been engaged by Federal-Mogul to receive Forms of Acceptance from T&N Shareholders "Regulations" the Uncertificated Securities Regulations 1995 (SI 1995 No. 95/3272)
3 5
"Rothschilds" N M Rothschild & Sons Limited "Securities Act" United States Securities Act of 1933 (as amended) "T&N" T&N plc "T&N Dividend" the third interim dividend which the directors of T&N have declared in respect of the year ending 31 December 1997 "T&N Group" T&N and its subsidiary undertakings "T&N Ordinary Shares" (1) the existing unconditionally allotted or issued and fully paid ordinary shares of 40 pence each in T&N, (2) any further such shares which may be issued or unconditionally allotted while the Offer remains open for acceptance or, subject to the provisions of the City Code, such earlier date as Federal-Mogul may decide and (3) shares issued or unconditionally allotted pursuant to the exercise of any options under the T&N Share Option Schemes "T&N Ordinary Share Capital" the T&N Ordinary Shares in issue on 13 November 1997 and assuming the exercise of all outstanding options under the T&N Share Option Schemes and the issue on 14 November 1997 of 9,711,876 T&N Ordinary Shares pursuant to the scrip alternative to the second interim dividend "T&N Shareholders" holders of T&N Ordinary Shares "T&N Share Option Schemes" the T&N UK Share Option Scheme, the T&N Overseas Share Option Scheme, the T&N 1995 Executive Share Option Scheme and the T&N UK Savings-Related Share Option Scheme "TFE instruction" a Transfer from Escrow instruction (as defined by the CREST manual issued by CRESTCo) "TTE instruction" a Transfer to Escrow instruction (as defined by the CREST manual issued by CRESTCo) "UK" or "United Kingdom" the United Kingdom of Great Britain and Northern Ireland "uncertificated" or in a share or other security which is for the time being "uncertificated form" recorded on the relevant register of the share or security concerned as being held in uncertificated form in CREST, and title to which, by virtue of the Regulations, may be transferred by means of CREST "United States" or "US" the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia "Wider Federal-Mogul Group" Federal-Mogul and the subsidiaries and subsidiary undertakings of Federal-Mogul and associated undertakings (including any joint venture, partnership, firm or company in which any member of the Federal-Mogul Group is interested or any undertaking in which Federal-Mogul and such undertakings (aggregating their interests) have a material interest) "Wider T&N Group" T&N and the subsidiaries and subsidiary undertakings of T&N and associated undertakings (including any joint venture, partnership, firm or company in which any member of the T&N Group is interested or any undertaking in which T&N and such undertakings (aggregating their interests) have a material interest).
For the purposes of this document, "subsidiary" and "subsidiary undertaking" have the respective meanings given by the Companies Act 1985. Terms defined in the CREST manual shall, unless the context otherwise requires, bear the same meanings where used herein. 4 6 [T&N PLC Logo] Registered No.163992 (England & Wales) Registered Office: Manchester International Office Centre Styal Road Manchester M22 5TN 13 November 1997 To T&N Shareholders and, for information only, to participants in the T&N Share Option Schemes Dear Shareholder, RECOMMENDED CASH OFFER On 26 September 1997 the board of T&N announced that it had received an approach from Federal-Mogul. Following a series of discussions between T&N and Federal-Mogul, it was announced on 16 October 1997 that the boards of T&N and Federal-Mogul had reached agreement on the terms of a recommended cash offer for T&N. I am now writing to you to explain why your directors consider the terms of the Offer to be fair and reasonable and are unanimously recommending you to accept the Offer, as they have undertaken to do in respect of their own beneficial shareholdings, together with the T&N Ordinary Shares to be issued pursuant to the second interim dividend. The formal Offer is set out in the letter from Morgan Stanley on pages 8 to 19 of this document. THE RECOMMENDED CASH OFFER The Offer is 260 pence in cash for each T&N Ordinary Share and values the T&N Share Capital at approximately Pound 1.5 billion. The Offer is subject to a number of conditions, including regulatory consents and confirmations being obtained, both in the US and in a number of European countries. As explained in the letter from Morgan Stanley, the parties are confident that, in the absence of unforeseen regulatory requirements, the Offer will not lapse for lack of regulatory consents or confirmations. T&N Shareholders on the register on 12 December 1997 will also be entitled to receive the T&N Dividend of 3 pence (net) per T&N Ordinary Share, declared on 6 November 1997, details of which are set out below. BACKGROUND TO AND REASONS FOR RECOMMENDING THE OFFER Over the years, T&N has developed to become one of the world's leading suppliers of high technology automotive components, engineered products and industrial materials, with annual turnover of almost Pound 2 billion and over 28,000 employees worldwide. With the increasing international dimension of our business and trends towards consolidation to meet the demands of customers, your company has considered how to grow to meet the challenges presented. In this context, the combination of Federal-Mogul and T&N has considerable industrial and market logic. In particular, the combined industry expertise of the 5 7 two companies creates an opportunity which will provide ongoing benefits in terms of high quality service to both original equipment and aftermarket customers. Against this background, your board is particularly conscious of the need to deliver shareholder value. Despite securing a Pound 500 million layer of insurance cover in respect of potential asbestos liability claims in 1996, your company has continued to underperform in the stock market. Bearing this stock market performance in mind, your board unanimously believes that the Offer is at a level which can be recommended to shareholders. In particular, your board is recommending the Offer on the basis that: - the Offer represents premia of 65.1 per cent and 73.6 per cent to T&N's average share price in the one month and three months, respectively, prior to 25 September 1997, the last dealing day prior to the announcement that T&N had received an approach from Federal-Mogul, - the Offer represents a premium of 42.9 per cent to T&N's share price at the close of business on 25 September 1997, - the Offer represents an exit price earnings multiple of 17.6 times, based on the published earnings per T&N ordinary share (before asbestos-related costs) of 14.8 pence for the financial year ended 31 December 1996. Your attention is drawn to the tables set out in paragraph 6 of the letter from Morgan Stanley showing the financial effects of acceptance of the Offer. BOARD, MANAGEMENT AND EMPLOYEES Federal-Mogul has stated that it attaches great importance to the skills and experience of the existing management and employees and that it believes that as a result of the acquisition there will be greater opportunities within the Federal-Mogul Group. Federal-Mogul has also given assurances to the board of T&N that the existing rights of employees, including pension rights, will be fully safeguarded. Details regarding the arrangements entered into with the executive directors of T&N in the event that their contracts of employment are terminated following the Offer becoming unconditional in all respects are set out in paragraph 6 of Appendix IV to this document. I have agreed to become an international adviser to Federal-Mogul for up to two years from the completion of the acquisition. In addition, two non-executive directors of T&N, Paul Lewis and Sir Geoffrey Whalen, have been invited to join the board of Federal-Mogul. I should like to take this opportunity to thank all of our staff for their contribution to T&N's success over the years. IRREVOCABLE UNDERTAKINGS The directors of T&N have given irrevocable undertakings to accept the Offer in respect of their own beneficial shareholdings, together with the T&N Ordinary Shares to be issued pursuant to the second interim dividend, amounting to 201,232 T&N Ordinary Shares, representing approximately 0.03 per cent. of the T&N Ordinary Share Capital. The irrevocable undertakings cease to be binding only in the event that the Offer lapses or is withdrawn. THE T&N DIVIDEND On 6 November 1997, the directors of T&N declared a third interim dividend of 3 pence (net) per T&N Ordinary Share in respect of the year ending 31 December 1997. The T&N Dividend will be paid (whether or not the Offer becomes unconditional in all respects) on 30 January 1998 to T&N Shareholders on the register at the close of business on 12 December 1997 and may be 6 8 retained by all such T&N Shareholders. The ex-entitlement date for the T&N Dividend will be 8 December 1997. There will be no scrip alternative. T&N SHARE OPTION SCHEMES The Offer extends to any T&N Ordinary Shares which are unconditionally allotted or issued before the date on which the Offer closes, whether as a result of the exercise of options under the T&N Share Option Schemes or otherwise. Once the Offer becomes or is declared wholly unconditional in all respects, appropriate proposals will be made to the holders of options under the T&N Share Option Schemes which remain unexercised. The attention of participants in the T&N UK Share Option Scheme and the T&N 1995 Executive Share Option Scheme is drawn to the letter addressed to holders of options under such schemes and the attention of participants in the T&N UK Savings-Related Share Option Scheme is drawn to the letter addressed to holders of options under this scheme. ACTION TO BE TAKEN TO ACCEPT THE OFFER The detailed procedure for acceptance is set out in paragraph 10 of the letter from Morgan Stanley and in the Form of Acceptance. TO ACCEPT THE OFFER YOU SHOULD RETURN YOUR COMPLETED FORM OF ACCEPTANCE, WHETHER OR NOT YOUR T&N ORDINARY SHARES ARE IN CREST, IN ACCORDANCE WITH THESE INSTRUCTIONS AS SOON AS POSSIBLE TO THE RECEIVING AGENT AND, IN ANY EVENT, SO AS TO BE RECEIVED NO LATER THAN 3:00 P.M. (LONDON TIME) ON 12 DECEMBER 1997. A REPLY-PAID ENVELOPE, FOR USE IN THE UK ONLY, IS ENCLOSED FOR YOUR CONVENIENCE. IF YOU REQUIRE FURTHER ASSISTANCE ON HOW TO COMPLETE THE FORM OF ACCEPTANCE, PLEASE CALL THE ROYAL BANK OF SCOTLAND, REGISTRARS DEPARTMENT, THE RECEIVING AGENT TO THE OFFER, ON 0117 937 0672. PLEASE NOTE THAT THE RECEIVING AGENT WILL BE UNABLE TO ADVISE YOU WHETHER OR NOT TO ACCEPT THE OFFER. RECOMMENDATION THE BOARD OF T&N, WHICH HAS BEEN SO ADVISED BY ROTHSCHILDS, CONSIDERS THE TERMS OF THE OFFER TO BE FAIR AND REASONABLE. IN PROVIDING ADVICE TO THE BOARD OF T&N, ROTHSCHILDS HAS TAKEN INTO ACCOUNT THE COMMERCIAL ASSESSMENTS OF THE DIRECTORS OF T&N. ACCORDINGLY, THE DIRECTORS OF T&N UNANIMOUSLY RECOMMEND T&N SHAREHOLDERS TO ACCEPT THE OFFER, AS THEY HAVE UNDERTAKEN TO DO IN RESPECT OF THEIR OWN BENEFICIAL SHAREHOLDINGS, TOGETHER WITH THE T&N ORDINARY SHARES TO BE ISSUED PURSUANT TO THE SECOND INTERIM DIVIDEND, AMOUNTING IN AGGREGATE TO 201,232 T&N ORDINARY SHARES. YOURS FAITHFULLY Colin L.N. Hope SIR COLIN HOPE CHAIRMAN 7 9 MORGAN STANLEY MORGAN STANLEY & CO. LIMITED REGISTERED OFFICE: 25 CABOT SQUARE CANARY WHARF LONDON E14 4QA REGISTERED IN ENGLAND, NO. 2164628 REGULATED BY THE SECURITIES AND FUTURES AUTHORITY LIMITED 13 November 1997 To T&N Shareholders and, for information only, to participants in the T&N Share Option Schemes Dear Shareholder, RECOMMENDED CASH OFFER FOR T&N ON BEHALF OF FEDERAL-MOGUL GLOBAL GROWTH LIMITED 1. INTRODUCTION On 16 October 1997 the boards of T&N and Federal-Mogul announced a recommended cash offer to be made by Morgan Stanley on behalf of Federal-Mogul Global Growth Limited, a wholly-owned indirect subsidiary of Federal-Mogul, to acquire the whole of the issued ordinary share capital of T&N. This letter constitutes the formal Offer for your T&N Ordinary Shares and should be read in conjunction with the Form of Acceptance. The Offer values each T&N Ordinary Share at 260 pence and the T&N Ordinary Share Capital at approximately Pound 1.5 billion. YOUR ATTENTION IS DRAWN TO THE LETTER FROM SIR COLIN HOPE, CHAIRMAN OF T&N, ON PAGES 5 TO 7 OF THIS DOCUMENT, WHICH SETS OUT THE REASONS WHY THE T&N BOARD OF DIRECTORS, WHO HAVE BEEN SO ADVISED BY ROTHSCHILDS, CONSIDER THE TERMS OF THE OFFER TO BE FAIR AND REASONABLE. THEY ARE UNANIMOUSLY RECOMMENDING YOU TO ACCEPT THE OFFER, AS THEY HAVE UNDERTAKEN TO DO IN RESPECT OF THEIR OWN BENEFICIAL SHAREHOLDINGS, TOGETHER WITH THE T&N ORDINARY SHARES TO BE ISSUED PURSUANT TO THE SECOND INTERIM DIVIDEND. Irrevocable undertakings to accept the Offer have been received by Federal-Mogul from the directors of T&N in respect of an aggregate of 201,232 T&N Ordinary Shares (representing approximately 0.03 per cent. in aggregate, of the T&N Ordinary Share Capital). These irrevocable undertakings cease to be binding only in the event that the Offer lapses or is withdrawn. 2. THE OFFER On behalf of the Offeror, Morgan Stanley hereby offers to acquire, on the terms and subject to the conditions set out or referred to in this document and in the Form of Acceptance, all of the T&N Ordinary Shares on the following basis: FOR EACH T&N ORDINARY SHARE 260 PENCE IN CASH The Offer represents a premium of 42.9 per cent. to T&N's share price at the close of business on 25 September 1997, the last dealing day prior to the announcement that T&N had received an 8 10 approach from Federal-Mogul. The Offer represents premia of 65.1 per cent. and 73.6 per cent. to T&N's average share price in the one month and three months, respectively, prior to 25 September 1997. TO ACCEPT THE OFFER YOU SHOULD COMPLETE AND RETURN THE FORM OF ACCEPTANCE, WHETHER OR NOT YOUR T&N ORDINARY SHARES ARE IN CREST, AS SOON AS POSSIBLE TO THE RECEIVING AGENT AND, IN ANY EVENT, SO AS TO BE RECEIVED NO LATER THAN 3:00 P.M. (LONDON TIME) ON 12 DECEMBER 1997. THE PROCEDURE FOR ACCEPTANCE IS SET OUT IN SECTION 10 OF THIS LETTER AND IN THE FORM OF ACCEPTANCE. T&N Ordinary Shares will be acquired by the Offeror fully paid and free from all liens, equities, charges, encumbrances and other interests of any nature whatsoever and together with all rights now or hereafter attaching thereto, including the right to receive and retain all dividends and other distributions declared, made or paid after 16 October 1997, other than the right to receive and retain the second interim dividend of 3.2 pence (net) per T&N Ordinary Share payable on 14 November 1997, or the scrip alternative to such dividend, and the T&N Dividend of 3 pence (net) per T&N Ordinary Share. The Offer will extend to any T&N Ordinary Shares which are unconditionally allotted or issued before the date on which the Offer closes (or such earlier date, not being earlier than the date on which the Offer becomes unconditional as to acceptances or, if later, 12 December 1997, as Federal-Mogul may, subject to the City Code, decide) as a result of the exercise of options under the T&N Share Option Schemes or otherwise. Your attention is drawn to the conditions and further terms of the Offer set out in Appendix I to this document. 3. INFORMATION RELATING TO FEDERAL-MOGUL Federal-Mogul manufactures and distributes worldwide a broad range of precision parts, primarily vehicular components for automobiles and light trucks, heavy duty trucks, farm and construction vehicles and industrial products. The company manufactures sealing systems, fuel systems, engine bearings, lighting products, pistons and chassis products. The company engineers and manufactures products for original equipment manufacturers, principally the major automotive manufacturers in the United States and Europe, and also provides these and related products to aftermarket customers. Federal-Mogul has a worldwide network of distribution points to service its aftermarket customers. The group has 90 manufacturing locations in 16 countries and employs approximately 15,700 people worldwide. For the twelve months to 30 June 1997, Federal-Mogul's results under US GAAP comprised consolidated net income before exceptional items of US$52.6 million (Pound 32.9 million) on net revenues of US$1,939 million (Pound 1,212 million). As at 30 June 1997, Federal-Mogul had net assets of US$335 million (Pound 209 million) and net borrowings of US$327 million (Pound 204 million). Federal-Mogul's common stock is traded on the New York Stock Exchange, with a current equity market capitalisation of US$1,781 million (Pound 1,113 million). Further financial information relating to Federal-Mogul, including financial information for the nine months ended 30 September 1997, is set out in Appendix II to this document. The Offeror is a UK company, wholly-owned indirectly by Federal-Mogul, which has been incorporated to make the Offer on behalf of Federal-Mogul. Further information relating to the Offeror is set out in paragraph 2(d) of Appendix IV to this document. 4. INFORMATION RELATING TO T&N T&N is a major supplier of high technology automotive components, engineered products and industrial materials, with about 80 per cent. of its sales relating to the world automotive industry. The group is strategically focused on the transportation, marine and power generation markets. 9 11 T&N is structured into six global product groups: Piston Products, Bearings, Friction Products, Composites and Camshafts (incorporating Powder Metal Products), Sealing Products and Engine Parts Aftermarket. T&N is also a leading regional producer of Heat Transfer Products in South Africa for domestic and export markets. T&N operates in around 200 locations in 24 countries, employs over 28,000 people worldwide and serves customers in more than 150 countries. It also has technical centres in the UK and Germany and a North American facility which opened in 1997. For the twelve months to 30 June 1997, T&N's results under UK GAAP comprised consolidated net income before exceptional items of Pound 94.7 million (US$151.5 million) on net revenues of Pound 1,837 million (US$2,939 million). As at 30 June 1997, T&N had net assets of Pound 142 million (US$228 million) and net borrowings of Pound 256 million (US$410 million). Further financial information relating to T&N is set out in Appendix III to this document. 5. BACKGROUND TO AND STRATEGIC RATIONALE FOR THE OFFER In his address to shareholders, customers and employees in Federal-Mogul's 1996 annual report, Chairman and Chief Executive Officer, Dick Snell, stated that the company was moving forward in a new direction, focusing on profitable growth with an emphasis on enhancing systems and modules capabilities and expanding internationally in both the original equipment manufacturers and aftermarket segments. This objective was to be achieved through a combination of organic growth and an aggressive acquisition strategy. The acquisition of T&N represents a significant step in meeting the second part of this objective. Although no agreements have been entered into with respect to material acquisitions other than the Offer, Federal-Mogul is currently exploring acquisitions of several companies that could result in substantial transactions for Federal-Mogul. The acquisition of T&N will create a highly competitive Tier I automotive systems supplier worldwide. The combined companies would have had combined revenues for 1996 of US$5,160 million, over 43,700 employees, extensive operations in North America, Europe and the rest of the world and a broad customer base. Federal-Mogul's management believes that, as a result of combining complementary products on a worldwide basis, Federal-Mogul will have the scale, reach, financial strength and technological capabilities to achieve strong growth and to participate in the consolidation of the automotive sector worldwide. Given the expected synergies and increased market opportunities created through this combination, Federal-Mogul's management believes the acquisition will be beneficial to shareholders, customers and employees. - - PRODUCTS The combined product range will position Federal-Mogul as a strong worldwide supplier of engine and transmission parts with highly competitive market positions in sealing products, engine bearings, piston rings and pistons. Federal-Mogul believes that the acquisition will: - - enhance systems capability through the ability to offer customers engine and transmission parts; - - provide Federal-Mogul with full piston systems capabilities; - - enhance Federal-Mogul's sealing systems capabilities by complementing its oil seals business with T&N's strong European position in gaskets; and 10 12 - - allow Federal-Mogul to gain entry into valvetrain systems through T&N's camshaft and powdered metal business. Based on combined historical 1996 revenues, Federal-Mogul's revenues for engine systems and for sealing systems would have been US$2,950 million and US$720 million respectively (representing increases of 243% and 140% respectively, over Federal-Mogul's standalone figures for that year). On the same basis, Federal-Mogul's friction products would have had revenues of US$525 million. - - GEOGRAPHIC PROFILE Federal-Mogul's reach will be enhanced by the complementary geographic profile of T&N. Prior to the acquisition, 60% of Federal-Mogul's revenues were generated in North America, 22% in Europe and 18% in the rest of the world. The geographic profile of the two companies combined, based on historical 1996 revenues, would have been 42% North America, 44% Europe and 14% rest of the world. In addition, Federal-Mogul will gain access to many new markets. - - CUSTOMERS The acquisition will enable Federal-Mogul to bring systems solutions to original equipment manufacturers for a broad range of hard engine products and to meet their increasing demands for continuous product and cost improvement. The acquisition strengthens Federal-Mogul's position as an aftermarket supplier by combining Federal-Mogul's leading position in the North American engine parts aftermarket with T&N's attractive position in this sector, where it is present in Europe, North America, Mexico, South America, South Africa and South East Asia. - - RESEARCH AND DEVELOPMENT The acquisition will enhance Federal-Mogul's material development and research and development capabilities and will position the company as a significant force in patented technology products and processes - - FINANCIAL BENEFITS Federal-Mogul expects significant synergies and operating efficiencies to be achieved from the integration of the two businesses. Major synergies are expected to arise from consolidating the aftermarket operations in North America and Europe and from improved efficiencies in working practices. Other synergies are expected in the areas of purchasing, production, research and development, working capital efficiencies and in the form of reduced capital expenditures. Based on the information currently available to it, Federal-Mogul is anticipating annual pre-tax synergies to reach in excess of US$100 million starting from the second full year following the acquisition. Achieving these benefits will require a once-off restructuring charge in the first year following the acquisition of an amount approximately equal to the annual level of synergy benefits achieved in the second year. This charge will be of an amount at least equal to any synergy benefits achieved in the first year following the acquisition. Federal-Mogul expects that the acquisition will be modestly accretive to earnings per share in 1998 and more accretive to earnings per share in 1999. This statement should not be interpreted to mean that the future earnings per share of Federal-Mogul will necessarily be greater than the earnings per share of Federal-Mogul for the financial year ended 31 December 1996. Federal-Mogul also expects that the acquisition will provide positive Economic Value Added and have a positive cash flow impact. 11 13 Federal-Mogul intends to maintain T&N's Pound 500 million insurance policy in respect of asbestos. In addition, Federal-Mogul will book an incremental Pound 367 million asbestos provision. No charge to future earnings is anticipated for asbestos. - - COMPETITION REGULATION The Offer is subject to regulatory consents and confirmations being obtained, both in the US and in a number of European countries. Federal-Mogul and T&N are committed to working together to obtain the regulatory approvals within the normal City Code timetable. Federal-Mogul has agreed with T&N that divestitures of at least some thin wall bearings assets may be required. Federal-Mogul is confident that any such divestitures will not materially affect the underlying strategic rationale for the acquisition. The parties hope that it will not be necessary to extend the normal City Code timetable, but Federal-Mogul has agreed to apply for extensions from the Panel if necessary. The parties are confident that, in the absence of unforeseen regulatory requirements, the Offer will not lapse for lack of regulatory consents or confirmations. Federal-Mogul and T&N agree that the acquisition should assist the combined entity to compete in the intensely competitive automotive components industry. In order to re-inforce Federal-Mogul's commitment in relation to the obtaining of relevant regulatory approvals, Federal-Mogul has agreed, in the event that the Offer were to lapse as a result solely of Federal-Mogul invoking any of conditions (b) to (d) inclusive as set out in Part A of Appendix I to this document, at the option of T&N to either subscribe Pound 50 million for ordinary shares in T&N worth Pound 40 million or to pay Pound 10 million in cash to T&N. - - FINANCING The cash required by Federal-Mogul to satisfy the consideration payable to T&N shareholders under the Offer will be provided from a bank facility, including long term components and bridge components, under two credit agreements between Federal-Mogul, The Chase Manhattan Bank and Chase Securities, Inc. It is Federal-Mogul's intention to put in place a permanent capital structure that reflects its financial goals. To this end, Federal-Mogul intends in due course to refinance the funds provided from the bridge components of this facility with an appropriate combination of equity and debt financing. Federal-Mogul is commencing a placement of a convertible preferred security, to be issued through a financing trust in the United States to "qualified institutional buyers" (as defined in Rule 144A under the Securities Act) and to certain non-US persons in compliance with Regulation S under the Securities Act. It is anticipated that the proceeds of such placement, if such placement is completed, will be used to reduce the amount of the senior bank debt utilised to finance the Offer. The financing of the Offer is in no way contingent on the completion of such placement. 12 14 6. FINANCIAL EFFECTS OF ACCEPTANCE The following tables set out, for illustrative purposes only and on the bases and assumptions set out below, the financial effects of acceptance on capital value and gross income for a holder of one T&N Ordinary Share accepting the Offer if the Offer becomes or is declared unconditional in all respects:
A. INCREASE IN CAPITAL VALUE NOTES PENCE Cash consideration 260 Market value of one T&N Ordinary Share (i) 182 -------- Increase in capital value 78 -------- This represents an increase of 42.9% B. INCREASE IN GROSS INCOME Gross income from cash consideration (ii) 17.4 Gross dividend income from one T&N Ordinary Share (iii) 7.5 -------- Increase in gross income 9.9 -------- This represents an increase of 132%
Notes: (i) Based on the closing middle-market quotation of 182 pence per T&N Ordinary Share, as derived from the London Stock Exchange Daily Official List, on 25 September 1997, the last dealing day prior to the announcement that T&N had received an approach from Federal-Mogul.10 (ii) The gross income from the cash consideration has been calculated on the assumption that the cash is reinvested to yield 6.58 per cent. per annum, being the gross yield shown by the FTSE Actuaries average gross redemption yield for medium coupon British Government securities of maturities of five to fifteen years on 10 November 1997 as published in the Financial Times on 11 November 1997, the latest practicable date prior to the posting of this document. (iii) The gross dividend income from T&N Ordinary Shares is based on aggregate dividends of 6.0 pence (net) per T&N Ordinary Share being the total of the 3.0 pence (net) interim dividend for the six months ended 30 June 1996 and the 3.0 pence (net) special first interim dividend, in lieu of the final dividend for the financial year ended 31 December 1996, paid on 11 July 1997, together with an associated tax credit of 20/80ths of the amount paid. As a result of provisions contained in the Finance (No. 2) Act 1997, pension funds cannot claim repayment of tax credits on dividends paid on or after 2 July 1997. (iv) In assessing the financial effects of acceptance, no account has been taken of the T&N Dividend and save as disclosed in note (iii) above, no account has been taken of any liability to taxation. 7. BOARD, MANAGEMENT AND EMPLOYEES Federal-Mogul attaches great importance to the skills and experience of the existing management and employees of T&N and believes that as a result of the acquisition there will be greater opportunities within the Federal-Mogul Group. Federal-Mogul has given assurances to the directors of T&N that the existing rights of employees of T&N, including pension rights, will be fully safeguarded. If the Offer becomes wholly unconditional Sir Colin Hope and Ian Much will resign as directors and employees of T&N. Sir Colin will become an international adviser to Federal-Mogul for up to two years. In addition, two non-executive directors of T&N, Paul Lewis and Sir Geoffrey Whalen, have been invited to join the board of Federal-Mogul. Arrangements are also in place in relation to David Harding, Allan Welsh and Alister McWilliam, details of which are set out in Appendix IV to this document. 13 15 8. T&N SHARE OPTION SCHEMES The Offeror will make appropriate proposals to holders of options under the T&N Share Option Schemes, to the extent that options are not exercised, once the Offer becomes or is declared unconditional in all respects. The attention of participants in the T&N UK Share Option Scheme and the T&N 1995 Executive Share Option Scheme is drawn to the letter addressed to holders of options under such schemes and the attention of participants in the T&N UK Savings-Related Share Option Scheme is drawn to the letter addressed to holders of options under this scheme. 9. UNITED KINGDOM TAXATION The following paragraphs, which are intended as a general guide only, are based on current legislation and Inland Revenue practice. They summarise certain limited aspects of the UK taxation treatment of the acceptance of the Offer, and they relate only to the position of T&N Shareholders who hold their T&N Ordinary Shares beneficially as an investment and who are resident in the UK for taxation purposes. If you are in any doubt as to your taxation position or if you are subject to taxation in any jurisdiction other than the UK, you should consult an appropriate professional adviser immediately. (A) UK TAXATION ON CHARGEABLE GAINS Acceptance of the Offer by a T&N Shareholder will constitute a disposal, or part disposal, of his/her T&N Ordinary Shares for the purposes of UK taxation on chargeable gains which may, depending on the shareholder's individual circumstances (including the availability of exemptions and allowable losses), give rise to a liability to UK taxation on chargeable gains. (B) OTHER DIRECT TAX MATTERS Special tax provisions may apply to T&N Shareholders who have acquired or acquire their T&N Shares by exercising options under the T&N Share Option Schemes including provisions imposing a charge to income tax when such an option is exercised. (C) STAMP DUTY AND STAMP DUTY RESERVE TAX ("SDRT") No stamp duty or SDRT will be payable by T&N Shareholders as a result of accepting the Offer. 10. PROCEDURE FOR ACCEPTANCE This section should be read in conjunction with the notes on the Form of Acceptance. (A) COMPLETION OF FORM OF ACCEPTANCE If you hold T&N Ordinary Shares in both certificated and uncertificated form you should complete a separate Form of Acceptance for each holding. In addition, you should complete a separate Form of Acceptance for T&N Ordinary Shares held in uncertificated form, but under different member account IDs, and for T&N Ordinary Shares held in certificated form but under different designations. ADDITIONAL FORMS OF ACCEPTANCE ARE AVAILABLE FROM THE RECEIVING AGENT (TELEPHONE NUMBER 0117 937 0672). (i) To Accept The Offer To accept the Offer in respect of all your T&N Ordinary Shares, you must complete Boxes 1 and 3 and, if your T&N Ordinary Shares are in CREST, Box 4. In all cases you must sign Box 2 of the enclosed Form of Acceptance in the presence of a witness, who should also sign in accordance with the instructions printed thereon. 14 16 (ii) To accept the offer in respect of less than all your T&N Ordinary Shares To accept the Offer in respect of less than all your T&N Ordinary Shares, you must insert in Box 1 on the enclosed Form of Acceptance such lesser number of T&N Ordinary Shares in respect of which you wish to accept the Offer in accordance with the instructions printed thereon. You should then follow the procedure set out in (i) above in respect of such lesser number of T&N Ordinary Shares. If you do not insert a number, or you insert a number greater than your entire holding of T&N Ordinary Shares in Box 1, your acceptance will be deemed to be in respect of all of the T&N Ordinary Shares held by you. IF YOU HAVE ANY QUESTIONS AS TO HOW TO COMPLETE THE FORM OF ACCEPTANCE, PLEASE TELEPHONE THE RECEIVING AGENT ON TELEPHONE NUMBER 0117 937 0672. PLEASE NOTE THAT THE RECEIVING AGENT WILL BE UNABLE TO ADVISE YOU WHETHER OR NOT TO ACCEPT THE OFFER. (B) RETURN OF FORM OF ACCEPTANCE To accept the Offer, the completed Form of Acceptance should be returned whether or not your T&N Ordinary Shares are in CREST. THE COMPLETED FORM OF ACCEPTANCE SHOULD BE RETURNED BY POST, OR BY HAND, TO THE RECEIVING AGENT, THE ROYAL BANK OF SCOTLAND PLC, REGISTRARS DEPARTMENT, NEW ISSUES SECTION, PO BOX 859, CONSORT HOUSE, EAST STREET, BEDMINSTER, BRISTOL BS99 1XZ OR, BY HAND ONLY DURING NORMAL BUSINESS HOURS, TO THE ROYAL BANK OF SCOTLAND PLC, REGISTRARS DEPARTMENT, NEW ISSUES SECTION, PO BOX 633, 5-10 GREAT TOWER STREET, LONDON EC3R 5ER TOGETHER (SUBJECT TO PARAGRAPH (D) BELOW) WITH THE RELEVANT SHARE CERTIFICATE(S) AND/OR OTHER DOCUMENT(S) OF TITLE AS SOON AS POSSIBLE, BUT IN ANY EVENT SO AS TO BE RECEIVED NOT LATER THAN 3:00 P.M. (LONDON TIME) ON 12 DECEMBER 1997. A reply-paid envelope for use in the UK only is enclosed for your convenience. No acknowledgement of receipt of documents will be given by or on behalf of the Offeror. All documents sent by, to or from T&N Shareholders or their appointed agents will be sent at their own risk. The instructions printed on the Form of Acceptance shall be deemed to form part of the terms of the Offer. (C) DOCUMENTS OF TITLE If your T&N Ordinary Shares are in certificated form, a completed and signed Form of Acceptance should be accompanied by the relevant share certificate(s) and/or other documents(s) of title. If for any reason the relevant share certificate(s) and/or other document(s) of title is/are not readily available or is/are lost, you should nevertheless complete, sign and lodge the Form of Acceptance as stated above so as to be received by the Receiving Agent not later than 3:00 p.m. (London time) on 12 December 1997. You should send with the Form of Acceptance any share certificate(s) and/or other document(s) of title which you may have available and a letter stating that the remaining documents will follow as soon as possible or that you have lost one or more of your share certificate(s) and/or other document(s) of title. You should then arrange for the relevant share certificate(s) and/or other document(s) of title to be forwarded as soon as possible thereafter. No acknowledgement of receipt of documents will be given. If you have lost your share certificate(s) and/or other document(s) of title, you should write as soon as possible to T&N's Registrars, Lloyds Bank Registrars, Registrars Department, 54 Pershore Road South, Kings Norton, Birmingham B30 3EP, for a letter of indemnity for the lost share certificate(s) and/or other document(s) of title which, when completed in accordance with the instructions given, should be returned by post to the Receiving Agent as above. 15 17 (D) ADDITIONAL PROCEDURES FOR T&N ORDINARY SHARES IN UNCERTIFICATED FORM (THAT IS, IN CREST) If your T&N Ordinary Shares are in uncertificated form, you should insert in Box 4 of the enclosed Form of Acceptance the participant ID and member account ID under which such shares are held by you in CREST and otherwise complete and return the Form of Acceptance as described above. In addition, you should take (or procure to be taken) the action set out below to transfer the T&N Ordinary Shares in respect of which you wish to accept the Offer to an escrow balance (that is, a TTE instruction) specifying the Receiving Agent (in its capacity as a CREST participant under its participant ID referred to below) as the Escrow Agent, as soon as possible and in any event so that the transfer to escrow settles not later than 3:00 p.m. (London time) on 12 December 1997. If you are a CREST sponsored member, you should refer to your CREST sponsor before taking any action. Your CREST sponsor will be able to confirm details of your participant ID and the member account ID under which your T&N Ordinary Shares are held. In addition, only your CREST sponsor will be able to send the TTE instruction to CRESTCo in relation to your T&N Ordinary Shares. You should send (or, if you are a CREST sponsored member, procure that your CREST sponsor sends) a TTE instruction to CRESTCo which must be properly authenticated in accordance with CRESTCo's specifications and which must contain, in addition to the other information that is required for a TTE instruction to settle in CREST, the following details: (i) Number of T&N Ordinary Shares to be transferred to an escrow balance; (ii) Your member account ID. This must be the same member account ID as the member account ID that is inserted in Box 4 of the Form of Acceptance; (iii) Your participant ID. This must be the same participant ID as the participant ID that is inserted in Box 4 of the Form of Acceptance; (iv) Participant ID of the Escrow Agent (that is, the Receiving Agent, in its capacity as a CREST Receiving Agent). This is 3RA32; (v) Member account ID of the Escrow Agent. This is FEDERAL; (vi) Form of Acceptance reference number. This is the reference number that appears on page 3 of the Form of Acceptance. This reference number should be inserted in the first eight characters of the shared note field on the TTE instruction. Such insertion will enable the Receiving Agent to match the transfer to escrow to your Form of Acceptance. You should keep a separate record of this reference number for future reference; (vii) Intended settlement date. This should be as soon as possible and in any event no later than 3:00 p.m. (London time) on 12 December 1997; and (viii) Corporate action number. This is corporate action number 3. After settlement of the TTE instruction, you will not be able to access the T&N Ordinary Shares concerned in CREST for any transaction or charging purposes. If the Offer becomes or is declared unconditional in all respects, the Escrow Agent will transfer the T&N Ordinary Shares concerned to itself in accordance with paragraph (h) of Part C of Appendix I of this document. You are recommended to refer to the CREST manual published by CRESTCo for further information on the CREST procedures outlined above. For ease of processing, you are requested, wherever possible, to ensure that a Form of Acceptance relates to only one transfer to escrow. 16 18 If no Form of Acceptance reference number, or an incorrect Form of Acceptance reference number, is included on the TTE instruction, the Offeror may treat any amount of T&N Ordinary Shares transferred to an escrow balance in favour of the Escrow Agent specified above from the participant ID and member account ID identified in the TTE instruction as relating to any Form(s) of Acceptance which relate(s) to the same participant ID and member account ID (up to the amount of T&N Ordinary Shares inserted or deemed to be inserted in Box 1 on the Form(s) of Acceptance concerned). YOU SHOULD NOTE THAT CRESTCO DOES NOT MAKE AVAILABLE SPECIAL PROCEDURES IN CREST FOR ANY PARTICULAR CORPORATE ACTION. NORMAL SYSTEM TIMINGS AND LIMITATIONS WILL THEREFORE APPLY IN CONNECTION WITH A TTE INSTRUCTION AND ITS SETTLEMENT. YOU SHOULD THEREFORE ENSURE THAT ALL NECESSARY ACTION IS TAKEN BY YOU (OR BY YOUR CREST SPONSOR) TO ENABLE A TTE INSTRUCTION RELATING TO YOUR T&N ORDINARY SHARES TO SETTLE PRIOR TO 3:00 P.M. (LONDON TIME) ON 12 DECEMBER 1997. IN THIS CONNECTION, YOU ARE REFERRED IN PARTICULAR TO THOSE SECTIONS OF THE CREST MANUAL CONCERNING PRACTICAL LIMITATIONS OF THE CREST SYSTEM AND TIMINGS. The Offeror will make an appropriate announcement if any of the details contained in this paragraph 10(d) alter for any reason. (E) DEPOSITS OF T&N ORDINARY SHARES INTO, AND WITHDRAWALS OF T&N ORDINARY SHARES FROM, CREST Normal CREST procedures (including timings) apply in relation to any T&N Ordinary Shares that are, or are to be, converted from uncertificated to certificated form, or from certificated to uncertificated form, during the course of the Offer (whether any such conversion arises as a result of a transfer of T&N Ordinary Shares or otherwise). Holders of T&N Ordinary Shares who are proposing so to convert any such shares are recommended to ensure that the conversion procedures are implemented in sufficient time to enable the person holding or acquiring the T&N Ordinary Shares as a result of the conversion to take all necessary steps in connection with an acceptance of the Offer (in particular, as regards delivery of share certificate(s) or other documents of title or transfers to an escrow balance as described above) prior to 3:00 p.m. (London time) on 12 December 1997. (F) VALIDITY OF ACCEPTANCES Without prejudice to Parts B and C of Appendix I to this document, the Offeror reserves the right, subject to the City Code, to treat as valid in whole or in part any acceptance of the Offer which is not entirely in order or which is not accompanied by the relevant TTE instruction or (as applicable) the relevant share certificate(s) and/or other document(s) of title. In that event, no payment of cash under such acceptances will be made until after the relevant transfer to escrow has settled or (as applicable) the relevant share certificate(s) and/or other document(s) of title or indemnities satisfactory to the Offeror have been received. (G) OVERSEAS T&N SHAREHOLDERS The attention of T&N Shareholders who are residents or citizens of jurisdictions outside the United Kingdom and any person (including, without limitation, any nominee, custodian or trustee) who may have an obligation to forward this document outside the United Kingdom is drawn to paragraph 6 of Part B and paragraph (b) of Part C of Appendix I to this document and to the relevant provisions of the Form of Acceptance. The Offer is not being made, directly or indirectly, in or into or by use of the mails of, or by any means or instrumentality of interstate or foreign commerce of, or any facilities of a securities exchange of Canada (including, but not limited to, post, facsimile transmission, telex or telephone). Accordingly, any purported acceptance of the Offer by T&N 17 19 Shareholders who are unable to give the warranty set out in paragraph (b) of Part C of Appendix I to this document, is liable to be disregarded. IF YOU ARE IN ANY DOUBT AS TO THE PROCEDURE FOR ACCEPTANCE, PLEASE CONTACT THE RECEIVING AGENT BY TELEPHONE ON 0117 937 0672 OR AT THE ADDRESS IN PARAGRAPH (B) ABOVE. YOU ARE REMINDED THAT, IF YOU ARE A CREST SPONSORED MEMBER, YOU SHOULD CONTACT YOUR CREST SPONSOR BEFORE TAKING ANY ACTION. 11. SETTLEMENT Subject to the Offer becoming or being declared unconditional in all respects (except as provided in paragraph 6 of Part B of Appendix I in the case of certain overseas T&N Shareholders), settlement of the consideration to which any T&N Shareholder is entitled under the Offer will be effected (i) in the case of acceptances received, complete in all respects, by the date on which the Offer becomes or is declared unconditional in all respects, within 14 days of such date, or (ii) in the case of acceptances of the Offer received, complete in all respects, after the date on which the Offer becomes or is declared unconditional in all respects but while it remains open for acceptance, within 14 days of such receipt, in the following manner: (A) T&N ORDINARY SHARES IN UNCERTIFICATED FORM (THAT IS, IN CREST) Where an acceptance relates to T&N Ordinary Shares in uncertificated form, settlement of any cash consideration to which the accepting T&N Shareholder is entitled will be despatched by means of CREST by the Offeror procuring the creation of an assured payment obligation in favour of the accepting T&N Shareholder's payment bank in respect of the cash consideration due, in accordance with the CREST assured payment arrangements. The Offeror reserves the right to settle all or any part of the consideration referred to in this paragraph (a), for all or any accepting T&N Shareholder(s), in the manner referred to in paragraph (b) below if, for any reason, it wishes to do so. (B) T&N ORDINARY SHARES IN CERTIFICATED FORM Where an acceptance relates to T&N Ordinary Shares in certificated form, settlement of any cash consideration to which the accepting T&N Shareholder is entitled will be despatched by first class post (or by such other method as the Panel may approve). All such cash payments will be made in pounds sterling by cheque, drawn on a branch of a UK clearing bank. (C) GENERAL If the Offer does not become or is not declared unconditional in all respects (i) share certificate(s) and/or other document(s) of title will be returned by post (or by such other method as may be approved by the Panel), within 14 days of the Offer lapsing, to the person or agent whose name and address (outside Canada) is set out in Box 6 of the Form of Acceptance or, if none is set out, to the first named holder at his/her registered address (outside Canada) and (ii) the Escrow Agent will, immediately after the lapsing of the Offer (or within such longer period, not exceeding 14 days after the Offer lapsing, as the Panel may permit), give TFE instructions to CRESTCo to transfer all T&N Ordinary Shares held in escrow balances and in relation to which it is the Escrow Agent for the purposes of the Offer to the original available balances of the T&N Shareholders concerned. All documents and remittances sent by, to or from T&N Shareholders or their appointed agents will be sent at their own risk. 18 20 12. FURTHER INFORMATION Your attention is drawn to the further information contained in the Appendices to this document. Yours sincerely for and on behalf of Morgan Stanley & Co. Limited SIMON ROBEY Managing Director 19 21 APPENDIX I TERMS AND CONDITIONS OF THE OFFER PART A--CONDITIONS OF THE OFFER The Offer is subject to the following conditions: (a) valid acceptances being received (and not, where permitted, withdrawn) by not later than 3.00 p.m. (London time) on 12 December 1997 (or such later time(s) and/or date(s) as the Offeror may, subject to the rules of the City Code, decide) in respect of not less than 90 per cent (or such lower percentage as the Offeror may decide) in nominal value of the T&N Ordinary Shares to which the Offer relates, provided that this condition will not be satisfied unless the Offeror and/or its wholly-owned subsidiaries shall have acquired or agreed to acquire (whether pursuant to the Offer or otherwise) T&N Ordinary Shares carrying in aggregate more than 50 per cent of the voting rights then normally exercisable at a general meeting of T&N, including for this purpose (to the extent, if any, required by the Panel) any such voting rights attaching to any T&N Ordinary Shares that are unconditionally allotted or issued before the Offer becomes or is declared unconditional as to acceptances, whether pursuant to the exercise of any outstanding subscription or conversion rights or otherwise and, for this purpose, (i) the expression "T&N Ordinary Shares to which the Offer relates" shall be construed in accordance with sections 428 to 430F of the Companies Act 1985, and (ii) T&N Ordinary Shares which have been unconditionally allotted shall be deemed to carry the voting rights which they will carry upon issue; provided that, unless the Offeror otherwise determines, this condition (a) can only be treated as satisfied at a time when all of the other conditions in paragraphs (b)-(i) inclusive are either satisfied or waived; (b) no government or governmental, quasi-governmental, supranational, statutory, regulatory or investigative body, authority (including any national anti-trust or merger control authorities), court, trade agency, association, institution or professional or environmental body or any other person or body whatsoever in any relevant jurisdiction (each a "Third Party") having decided to take, institute, implement or threaten any action, proceeding, suit, investigation, enquiry or reference or made, proposed or enacted any statute, regulation, decision or order or required any action to be taken or information to be provided or otherwise having done anything and there not continuing to be outstanding any statute, regulation or order thereof which would or might reasonably be expected to: (i) make the Offer or its implementation, or the proposed acquisition by the Offeror or any member of the Wider Federal-Mogul Group of any shares or other securities in, or control of, T&N, void, illegal or unenforceable, or otherwise directly or indirectly restrain, prohibit, restrict or delay the same or impose additional conditions or obligations with respect thereto, or otherwise impede, challenge or interfere therewith, or require amendment to the terms of the Offer or the proposed acquisition of any T&N Ordinary Shares or the acquisition of control of T&N by the Offeror, in each case in a manner which is material in the context of the Offer; (ii) require, prevent or delay the divestiture by any member of the Wider Federal-Mogul Group of any of its shares or other securities in T&N; (iii) require, prevent or delay the divestiture or alter the terms envisaged for any proposed divestiture by any member of the Wider Federal-Mogul Group or by T&N or any member of the Wider T&N Group, in any such case of all or any portion of their respective businesses, assets or property (which, in each case, would be material in the context of the Wider Federal-Mogul Group or the Wider T&N Group, as appropriate, taken as a whole) or impose any limitation on the ability of any of them to conduct their respective businesses (or any of them) or own their respective assets or properties or any part thereof (which, in each case, would be material in the context of the Wider Federal-Mogul Group or the Wider T&N Group, as appropriate, taken as a whole); (iv) impose any limitation on, or result in a delay in, the ability of any member of the Wider Federal-Mogul Group to acquire, or to hold or to exercise effectively, directly or indirectly, all or any rights of ownership of shares or other securities (or the equivalent) in, or to exercise management or control over, T&N or any member of the Wider T&N Group or any member of the Wider Federal-Mogul Group (which, in any such case, would be material in the context of the Wider Federal-Mogul Group or the Wider T&N Group, as the case may be, taken as a whole); (v) any member of the Wider Federal-Mogul Group or the Wider T&N Group to acquire, or to offer to acquire, any shares or other securities (or the equivalent) in any member of the Wider Federal-Mogul Group or the Wider T&N Group owned by any third party where such acquisition would be material in the context of the Wider Federal-Mogul Group or the Wider T&N Group, as the case may be, taken as a whole; 20 22 (vi) impose any limitation on the ability of any member of the Wider Federal-Mogul Group or the Wider T&N Group to integrate its business, or any part of it, with the businesses of any other member of the Wider Federal-Mogul Group or the Wider T&N Group (in each case, as is material in the context of the Wider Federal-Mogul Group or the Wider T&N Group, as the case may be, taken as a whole); (vii) result in any member of the Wider T&N Group or the Wider Federal-Mogul Group ceasing to be able to carry on business under any name under which it presently does so (the consequences of which would be material in the context of the Wider Federal-Mogul Group or the Wider T&N Group, as the case may be, taken as a whole); or (viii) otherwise adversely affect the business or profits or prospects of any member of the Wider T&N Group or any member of the Wider Federal-Mogul Group (in a manner which would be material in the context of the Wider T&N Group or the Wider Federal-Mogul Group, as the case may be, taken as a whole); and all applicable waiting and other time periods during which any Third Party could take, institute, implement or threaten any such action, proceeding, suit, investigation, enquiry or reference under the laws of any jurisdiction, having expired, lapsed or been terminated; (c) without limitation of paragraph (b) above: (i) the Office of Fair Trading having indicated, in terms satisfactory to the Offeror, that it is not the intention of the Secretary of State for Trade and Industry to refer the proposed acquisition of T&N by the Offeror, or any matters arising therefrom, to the Monopolies and Mergers Commission; (ii) all filings having been made and all or any appropriate waiting periods (including any extensions thereof) under the United States Hart-Scott-Rodino Antitrust Improvements Act 1976 and the regulations thereunder having expired, lapsed or been terminated as appropriate in each case in respect of the Offer and the proposed acquisition of any T&N Ordinary Shares, or control of T&N by the Offeror or any member of the Wider Federal-Mogul Group; (d) all necessary filings having been made and all appropriate waiting and other time periods under any applicable legislation and regulations in any jurisdiction having expired, lapsed or been terminated and all statutory or regulatory obligations in any jurisdiction having been complied with in each case in connection with the Offer or the acquisition by any member of the Wider Federal-Mogul Group of any shares or other securities in, or control of, T&N or any member of the Wider T&N Group and all authorisations, orders, recognitions, grants, determinations, certificates, consents, clearances, confirmations, licences, permissions and approvals ("Authorisations") reasonably considered necessary or appropriate by the Offeror (or any member of the Wider Federal-Mogul Group) for or in respect of the Offer or the proposed acquisition of any shares or other securities in, or control of, T&N or any member of the Wider T&N Group by any member of the Wider Federal-Mogul Group or the carrying on by any member of the Wider T&N Group of its business having been obtained, in terms and in a form reasonably satisfactory to the Offeror, from all appropriate Third Parties or from any persons or bodies with whom any member of the Wider T&N Group has entered into contractual arrangements, in each case where the absence of such Authorisation would have a material adverse effect on the Wider T&N Group taken as a whole and all such Authorisations remaining in full force and effect and there being no notice or intimation of an intention to revoke or not to renew the same; (e) except as fairly disclosed to the Offeror by or on behalf of T&N prior to 16 October 1997, there being no provision of any arrangement, agreement, licence, permit, franchise or other instrument to which any member of the Wider T&N Group is a party or by or to which any such member or any of its respective assets may be bound or be subject and which, in consequence of the Offer or proposed acquisition by any member of the Wider Federal-Mogul Group of some or all of the share capital of T&N or other securities in T&N or because of a change in the control or management of T&N or any member of the Wider T&N Group or otherwise, could or might reasonably be expected to result in, to an extent which would be material in the context of the Wider T&N Group taken as a whole: (i) any monies borrowed by or any other indebtedness or liabilities, actual or contingent, of any member of the Wider T&N Group being or becoming payable or capable of being declared repayable immediately or prior to their or its stated maturity, or the ability of any such member to borrow monies or incur any indebtedness being withdrawn or inhibited; (ii) the creation or enforcement of any mortgage, charge or other security interest over the whole or any part of the business, property or assets of any member of the Wider T&N Group or any such mortgage, charge or other security interest becoming enforceable or being enforced; (iii) any such arrangement, agreement, licence, permit, franchise or instrument, or the rights, liabilities, obligations or interests of any member of the Wider T&N Group thereunder, being, or becoming capable of 21 23 being, terminated or adversely modified or affected or any action being taken or any obligation or liability arising thereunder; (iv) any asset or interest of any member of the Wider T&N Group being or falling to be disposed of or charged or any right arising under which any such asset or interest could be required to be disposed of or charged; (v) any member of the Wider T&N Group ceasing to be able to carry on business under any name under which it presently does so; (vi) the creation of material liabilities actual or contingent by any such member; (vii) any interest or business of any member of the Wider T&N Group in or with any other person, firm or body (or any arrangement or arrangements relating to any such interest or business) being terminated, adversely modified or affected; or (viii) the respective value, financial or trading position of any member of the Wider T&N Group being prejudiced or adversely affected; (f) since 31 December 1996 and except as disclosed in the T&N's annual report and accounts for the year then ended or as otherwise publicly announced by delivery of an announcement to the Company Announcements Office of the London Stock Exchange or as would be disclosed by a search at the Companies' Registry for England and Wales against T&N made on 14 October 1997 or as fairly disclosed to the Offeror prior to 16 October 1997, or as disclosed in the Interim Statement of T&N for the six month period ended on 30 June 1997, no member of the Wider T&N Group having: (i) (save as between T&N and wholly-owned subsidiaries of T&N) issued or agreed to or authorised or proposed the issue of additional shares of any class, or securities convertible into, or rights, warrants or options to subscribe for or acquire, any such shares or convertible securities except for any options granted as disclosed to the Offeror prior to 16 October 1997 and any shares issued upon the exercise of any options granted under any of the T&N Shares Option Schemes or pursuant to elections for scrip dividends in relation to the second interim dividend declared on 28 August 1997; (ii) recommended, declared, paid or made or proposed to recommend, declare or pay any bonus, dividend or other distribution (save as between a wholly-owned subsidiary of T&N and T&N or another wholly-owned subsidiary of T&N) other than the T&N Dividend; (iii) made or authorised or proposed or announced any change in its loan capital; (iv) merged with or demerged or acquired any body corporate or acquired or disposed of or transferred, mortgaged or charged or created any security interest over any assets or (save in the ordinary course of business) any right, title or interest in any assets (including shares and trade investments) or authorised, proposed or announced its intention so to do (in each case with a material adverse effect on the Wider T&N Group taken as a whole); (v) issued, authorised or proposed the issue of any debentures or (save in the ordinary course of business) incurred any indebtedness or contingent liability which is material in the context of the Wider T&N Group taken as a whole; (vi) purchased, redeemed or repaid or announced any proposal to purchase, redeem or repay any of its own shares or other securities or reduced or made any other change to any part of its share capital; (vii) entered into or varied, or authorised, proposed or announced its intention to enter into or vary any contract, transaction, arrangement or commitment (whether in respect of capital expenditure or otherwise) which is of a long term, onerous, or unusual nature or magnitude or which would be restrictive on the business of any member of the Wider T&N Group or the Wider Federal-Mogul Group, or which involves or would involve an obligation of such a nature or magnitude or which could be so restrictive or which is other than in the ordinary course of business in each case which is material in the context of the Wider T&N Group or the Wider Federal-Mogul Group, as the case may be, taken as a whole; (viii) implemented or effected, or authorised, proposed or announced its intention to implement, effect, authorise or propose any reconstruction, amalgamation, scheme, commitment or other transaction or arrangement otherwise than in the ordinary course of business which is material in the context of the Wider T&N Group taken as a whole; (ix) entered into or changed or made any offer (which remains open for acceptance) to enter into or change the terms of any contract with any of the directors or senior executives of any member of the Wider T&N Group; (x) taken any corporate action or had any legal proceedings instituted or threatened against it for its winding-up (voluntarily or otherwise), dissolution or reorganisation or for the appointment of a receiver, administrator, 22 24 administrative receiver, trustee or similar officer of all or any of its assets and revenues or any analogous proceedings in any jurisdiction or appointed any analogous person in any jurisdiction (in each case with a material adverse effect on the Wider T&N Group taken as a whole); (xi) been unable or admitted in writing that it is unable to pay its debts or having stopped or suspended (or threatened to stop or suspend) payment of its debts generally or ceased or threatened to cease carrying on all or a substantial part of its business (in each case with a material adverse effect on the Wider T&N Group taken as a whole); (xii) waived or compromised any claim which is material in the context of the Wider T&N Group, taken as a whole; (xiii) made any alteration to its memorandum or articles of association, or any other incorporation document; or (xiv) entered into any agreement, commitment or arrangement or passed any resolution or announced any intention with respect to any of the transactions, matters or events referred to in this condition; (g) since 31 December 1996 and except as disclosed in the T&N annual report and accounts for the year then ended, or as otherwise publicly announced by delivery of an announcement to the Company Announcements Office of the London Stock Exchange or as fairly disclosed to the Offeror prior to 16 October 1997, or as disclosed in the Interim Statement of T&N for the six month period ended on 30 June 1997: (i) there having been no material adverse change or deterioration in the business, assets, financial or trading position or profits, assets or prospects of the Wider T&N Group taken as a whole; (ii) no litigation, arbitration proceedings, prosecution or other legal proceedings to which any member of the Wider T&N Group is or may become a party (whether as plaintiff or defendant or otherwise) or an investigation (save as a result of the Offer) by any Third Party having been threatened, announced or instituted by or remaining outstanding, against or in respect of any member of the Wider T&N Group which is material in the context of the Wider T&N Group taken as a whole; (iii) no contingent or other liability having arisen which would or could reasonably be expected to materially and adversely affect the Wider T&N Group taken as a whole; and (iv) there having been no enquiry or investigation (save as a result of the Offer) by, or complaint or, reference to, any third party of a material nature to T&N in respect of any member of the Wider T&N Group and no such enquiry, investigation, complaint or reference having been threatened or instituted; (h) the Offeror not having discovered: (i) that any financial or business or other information disclosed at any time by or on behalf of any member of the Wider T&N Group, whether publicly, to any member of the Wider Federal-Mogul Group or otherwise, is misleading, contains a misrepresentation of fact or omits to state a fact necessary to make the information contained therein not misleading in any case which has not subsequently been corrected by such disclosure and, in any event, which is material in the context of the Wider T&N Group; (ii) that any member of the Wider T&N Group or partnership, company or other entity in which any member of the Wider T&N Group has an interest and which is not a subsidiary undertaking of T&N is subject to any liability, contingent or otherwise, which is not disclosed in T&N's annual report and accounts for the financial year ended 31 December 1996 and which is material in the context of the Wider T&N Group taken as a whole; or (iii) any information which materially affects (in the context of the Wider T&N Group as a whole) the import of any information disclosed prior to 16 October 1997 by any member of the Wider T&N Group to the Offeror; (i) the Offeror not having discovered: (i) that save as fairly disclosed to the Offeror prior to 16 October 1997 any past or present member of the Wider T&N Group has not complied with all applicable legislation or regulations of any jurisdiction with regard to the disposal, discharge, spillage, leak or emission of any waste or hazardous substance or any substance likely to impair the environment or harm human health, or otherwise relating to environmental matters, or that there has otherwise been any such disposal, discharge, spillage, leak or emission (whether or not the same constituted a non-compliance by any person with any such legislation or regulations and wherever the same may have taken place) which, in any such case, would be likely to give rise to any liability (whether actual or contingent) on the part of any member of the Wider T&N Group which would be material in the context of the Wider T&N Group taken as a whole; (ii) that save as fairly disclosed to the Offeror prior to 16 October 1997 there is, or is likely to be, any material liability (in the context of the Wider T&N Group taken as a whole), whether actual or contingent, to make 23 25 good, repair, reinstate or clean up any property now or previously owned, occupied or made use of by any past or present member of the Wider T&N Group or any controlled waters under any environmental legislation, regulation, notice, circular or order of any relevant authority or third party or otherwise; or (iii) save as fairly disclosed to the Offeror prior to 16 October 1997 that circumstances exist whereby a person or class of persons would be likely to have any material (in the context of the Wider T&N Group taken as a whole) claim or claims in respect of any product or process of manufacture or materials used therein now or previously manufactured, sold or carried out by any past or present member of the Wider T&N Group. For the purpose of these conditions: (a) "subsidiary undertaking", "associated undertaking" and "undertaking" have the meanings given by the Companies Act 1985 (but for this purpose ignoring paragraph 20(1)(b) of Schedule 4A of the Companies Act 1985) and (b) "substantial interest" means a direct or indirect interest in 20 per cent or more of the voting equity capital of an undertaking. Subject to the requirements of the Panel, the Offeror reserves the right to waive all or any of the above conditions, in whole or in part, except condition (a). Conditions (b) to (i) (inclusive) must be fulfilled or waived by midnight on the 21st day after the later of 12 December 1997 and the date on which condition (a) is fulfilled (or in each case such later date as the Panel may agree), failing which the Offer will lapse. The Offeror shall be under no obligation to waive (if so capable of waiver) or treat as fulfilled any of conditions (b) to (i) (inclusive) by a date earlier than the latest date specified above for the fulfilment thereof notwithstanding that the other conditions of the Offer may at such earlier date have been waived or fulfilled and that there are at such earlier date no circumstances indicating that any of such conditions may not be capable of fulfilment. If the Offeror is required by the Panel to make an offer for T&N Ordinary Shares under the provisions of Rule 9 of the City Code, the Offeror may make such alterations to the conditions of the Offer, including to condition (a) above, as are necessary to comply with the provisions of that Rule. The Offer will lapse if the acquisition of T&N is referred to the Monopolies and Mergers Commission before 3.00 p.m. on the later of 12 December 1997 and the date when the Offer becomes or is declared unconditional as to acceptances. If the Offer lapses, the Offer will cease to be capable of further acceptance and persons accepting the Offer and the Offeror shall thereupon cease to be bound by acceptances delivered on or before the date on which the Offer so lapses. 24 26 PART B--FURTHER TERMS OF THE OFFER The following further terms apply, unless the context otherwise requires, to the Offer. Except where the context requires otherwise, references in Parts B and C of this Appendix I and in the Form of Acceptance to: (a) the "acceptance condition" means the condition as to acceptances of the Offer set out in paragraph (a) of Part A of this Appendix I and references to the Offer becoming unconditional as to acceptances will be construed accordingly; (b) "acceptances of the Offer" shall include deemed acceptances of the Offer; (c) "Offer period" means, in relation to the Offer, the period commencing on 26 September 1997 until whichever of the following dates shall be the later: (i) 12 December 1997, (ii) the date on which the Offer lapses, and (iii) the date on which the Offer becomes unconditional; (d) the "Offer" will include any revision, variation, renewal or extension of the Offer; and (e) the "Offer becoming unconditional" shall (unless the context expressly requires otherwise) (i) where made in this document (other than in this Part B of Appendix I) or in the Form of Acceptance, mean the Offer becoming or being declared unconditional in all respects, and (ii) where made in this Part B of Appendix I, mean the Offer becoming or being declared unconditional as to acceptances, whether or not any other condition of the Offer remains to be fulfilled. 1. ACCEPTANCE PERIOD (a) The Offer will initially be open for acceptance until 3.00 p.m. on 12 December 1997. (b) Although no revision is envisaged, if the Offer is revised, it will remain open for acceptance for a period of at least 14 days (or such lesser period as may be permitted by the Panel) from the date on which written notification of the revision is posted to T&N Shareholders. Except with the consent of the Panel, no revision of the Offer may be made or posted after 29 December 1997 or, if later, the day falling 14 days prior to the last date on which the Offer is able to become unconditional. (c) The Offer, whether revised or not, shall not (without the consent of the Panel) be capable of becoming unconditional after midnight on 12 January 1998 (or any earlier time and/or date beyond which the Offeror has stated that the Offer will not be extended and in respect of which it has not withdrawn that statement) nor of being kept open for acceptance after that time and date unless the Offer has previously become unconditional. However, the Offeror reserves the right, with the permission of the Panel, to extend the time for the Offer to become unconditional to a later time and/or date. The Offeror may not, save with the permission of the Panel, for the purpose of determining whether the acceptance condition has been fulfilled, take into account acceptances of the Offer received or purchases of T&N Ordinary Shares made after 1.00 p.m. (London time) on 12 January 1998 (or any earlier time and/or date beyond which the Offeror has stated that the Offer will not be extended and in respect of which it has not withdrawn that statement) or any such later time and/or date to which the Offeror has stated (with the permission of the Panel) that the Offer will be extended, as the case may be. (d) If the Offer becomes unconditional, the Offer will remain open for acceptance for not less than 14 days from the date on which it would otherwise have expired. If the Offer has become unconditional and it is stated that the Offer will remain open until further notice, then not less than 14 days' notice will be given prior to the closing of the Offer to those T&N Shareholders who have not accepted the Offer. (e) If a competitive situation arises after a "no extension" and/or "no increase" statement (as determined by the Panel) has been made by or on behalf of the Offeror in relation to the Offer, the Offeror may, if it has specifically reserved the right to do so at the same time such statement is made (or otherwise with the consent of the Panel), withdraw such statement and be free to extend and/or increase the Offer if it complies with the requirements of the City Code and in particular that it: (i) announces such withdrawal within four business days after the announcement of the competing offer and gives notice to the T&N Shareholders to that effect in writing or (in the case of T&N Shareholders with registered addresses outside the United Kingdom or whom the Offeror knows to be nominees, trustees or custodians holding T&N Ordinary Shares for such persons) by announcement in the United Kingdom at the earliest practicable opportunity; and (ii) gives any T&N Shareholders who accepted the Offer after the date of such statement a right of withdrawal as described in paragraph 3(c) below. 25 27 (f) The Offeror may choose not to be bound by the terms of a "no extension" or "no increase" statement if it would otherwise prevent the posting of an increased or improved Offer (i) if it has reserved the right to do so and the increased or improved Offer is recommended for acceptance by the board of T&N, or (ii) with the consent of the Panel. 2. ANNOUNCEMENTS (a) Without prejudice to paragraph 3(a) of this Part B, by 8.30 a.m. (London time) on the business day (the "relevant day") next following the day on which the Offer is due to expire or becomes unconditional or is revised or extended (or such later time and/or date as the Panel may agree), the Offeror will make an appropriate announcement and simultaneously inform the London Stock Exchange of the state of the Offer. Such announcement will (unless otherwise permitted by the Panel) also state the total number of T&N Ordinary Shares and rights over such shares (as nearly as practicable): (i) for which acceptances of the Offer have been received; (ii) acquired or agreed to be acquired during the Offer period by or on behalf of the Offeror and any persons acting in concert with the Offeror; (iii) held prior to the Offer period by or on behalf of the Offeror and any persons acting in concert with the Offeror; and (iv) for which acceptances of the Offer have been received from persons acting in concert with the Offeror; and the announcement will specify the percentages of T&N Ordinary Shares represented by each of these figures. In computing the number of T&N Ordinary Shares represented by acceptances and purchases for the above purposes, only those acceptances and purchases permitted to be counted towards fulfilling the acceptance condition in accordance with paragraphs 5(d) and 5(e) below shall be included in the totals (except as otherwise agreed by the Panel). (b) Any decision to extend the time and/or date by which the acceptance condition has to be fulfilled may be made by the Offeror at any time up to, and will be announced not later than, 8.30 a.m. (London time) on the relevant day (or such later time and/or date as the Panel may agree) and the announcement will state the next expiry date (unless the Offer is then unconditional in which case the announcement may state that the Offer will remain open until further notice). (c) In this Appendix I, references to the making of an announcement or the giving of notice in each case by or on behalf of the Offeror include the release of an announcement by the Offeror, public relations consultants of the Offeror or by Morgan Stanley to the press and the delivery by hand or telephone, facsimile or telex transmission or other electronic transmission of an announcement to the London Stock Exchange. An announcement made otherwise than to the London Stock Exchange will be notified simultaneously to the London Stock Exchange. 3. RIGHTS OF WITHDRAWAL (a) If the Offeror, having announced the Offer to be unconditional, fails to comply by 3.30 p.m. (London time) on the relevant day (or such later time and/or date as the Panel may agree) with any of the other requirements specified in paragraph 2(a) of this Part B, an accepting T&N Shareholder may immediately thereafter withdraw his acceptance of the Offer by written notice, received either by post, or by hand, to the Receiving Agent, The Royal Bank of Scotland plc, Registrars Department, New Issues Section, PO Box 859, Consort House, East Street, Bedminster, Bristol BS99 1XZ or, by hand only during normal business hours, to The Royal Bank of Scotland plc, Registrars Department, New Issues Section, PO Box 633, 5-10 Great Tower Street, London EC3R 5ER. Subject to paragraph 1(c) of this Part B, this right of withdrawal may be terminated not less than eight days after the relevant day by the Offeror confirming that the Offer is still unconditional and complying with the other requirements specified in paragraph 2(a) of this Part B. If any such confirmation is given, the first period of 14 days referred to in paragraph 1(d) of this Part B will run from the date of such confirmation and compliance. (b) If by 3.00 p.m. (London time) on 2 January 1998 (or such later time and/or date as the Panel may agree) the Offer has not become unconditional, an accepting T&N Shareholder may thereafter withdraw his acceptance of the Offer by written notice, received either by post or by hand to the Receiving Agent at any time before the earlier of (i) the time when the Offer becomes unconditional and (ii) the final time for lodgement of acceptances of the Offer which can be taken into account in accordance with paragraph 1(c) of this Part B. (c) If a "no increase" and/or a "no extension" statement has been withdrawn in accordance with paragraph 1(e) of this Part B, any T&N Shareholder who accepts the Offer after the date of such statement may withdraw that acceptance thereafter in the manner referred to in paragraph 3(a) of this Part B not later than the eighth day after the date on which written notice of such withdrawal is posted to the relevant T&N Shareholder. 26 28 (d) Except as provided by this paragraph 3 and paragraph 4(c) below, acceptances of the Offer and elections shall be irrevocable. (e) In this paragraph 3, "written notice" (including any letter of appointment, direction or authority) means notice in writing bearing the original signature(s) of the relevant accepting T&N Shareholder(s) or his or their agent(s) duly appointed in writing (evidence of whose appointment, in a form reasonably satisfactory to the Offeror, is produced with the notice). Telex or facsimile transmission or copies will not be sufficient. No notice which is postmarked in or otherwise appears to the Offeror or its agents to have been sent from Canada will be treated as valid. 4. REVISIONS OF THE OFFER (a) Although no revision of the Offer is envisaged, if the Offer (in its original or any previously revised form(s)) is revised (either in its terms or conditions or in the value or form of the consideration offered or otherwise), which the Offeror reserves the right to do, and any such revision represents, on the date on which such revision is announced (on such basis as Morgan Stanley may consider appropriate) an improvement (or no diminution) in the value of the consideration previously offered, the benefit of the revised Offer, will, subject as provided in this paragraph 4 and in paragraph 6 of this Part B, be made available to any T&N Shareholder who has accepted the Offer in its original or any previously revised form(s) and not validly withdrawn such acceptance (each a "Previous Acceptor"). The acceptance by or on behalf of a Previous Acceptor of the Offer in its original or any previously revised form(s) shall, subject as provided in this paragraph 4 and in paragraph 6 of this Part B, be deemed to be an acceptance of the Offer as so revised and shall also constitute the appointment of the Offeror or any director of the Offeror or any director of Morgan Stanley as his/her attorney and/or agent with authority to accept such revised Offer on behalf of such Previous Acceptor and, if such revised Offer includes alternative forms of consideration, to make on his behalf elections for and/or accept such alternative forms of consideration on his behalf as such attorney and/or agent in his/her absolute discretion thinks fit and to execute on behalf of and in the name of such Previous Acceptor all such further documents (if any) as may be required to give full effect to such acceptances and/or elections. In making any such acceptance or any such election, such attorney and/or agent shall take into account the nature of any previous election made by the Previous Acceptor and such other factors or matters as he/she may reasonably consider relevant. (b) The deemed acceptances referred to in this paragraph 4 shall not apply and the powers of attorney and authorities conferred by paragraph 4(a) above shall not be exercised by any director of the Offeror or any director of Morgan Stanley if, as a result thereof, the Previous Acceptor would (on such basis as Morgan Stanley may consider appropriate) thereby receive less in aggregate in consideration than he/she would have received in aggregate in consideration as a result of his/her acceptance of the Offer in the form in which it was originally accepted and/or elected by him/her or on his/her behalf or in any previously revised form(s) (unless such Previous Acceptor has previously agreed in writing to receive less in aggregate consideration). The deemed acceptances referred to in this paragraph 4 shall not apply and the exercise of the powers of attorney and authorities conferred by this paragraph 4 shall be ineffective to the extent that a Previous Acceptor shall lodge with the Receiving Agent, within fourteen days of the posting of the document pursuant to which the revision of the Offer consideration referred to in paragraph 4(a) is made available to T&N Shareholders, a Form of Acceptance or some other form issued by or on behalf of the Offeror in which he/she validly elects to receive the consideration receivable by him/ her under such revised Offer in some other manner than that set out in his original acceptance. (c) Subject to paragraph 4(b) above, the powers of attorney and authorities referred to in this paragraph 4 and any acceptance of a revised Offer and/or any election pursuant thereto shall be irrevocable unless and until the Previous Acceptor becomes entitled to withdraw his acceptance under paragraph 3 of this Part B and duly does so. (d) The Offeror reserves the right to treat an executed Form of Acceptance relating to the Offer (in its original or any revised form(s)) which is received (or dated) on or after the announcement or issue of the Offer in any revised form as a valid acceptance of the revised Offer and/or election in respect of the revised Offer and such acceptance shall constitute an authority in the terms of paragraph 4(a) of this Part B mutatis mutandis on behalf of the relevant T&N Shareholder. 5. GENERAL (a) Save with the consent of the Panel, the Offer will lapse unless all conditions relating to the Offer have been fulfilled or (if capable of waiver) waived or, where appropriate, have been determined by the Offeror in its reasonable opinion to be or remain satisfied by midnight on 2 January 1998 or by midnight on the date which is 21 days after the date on which the Offer becomes unconditional, whichever is the later, or such later date as the Offeror may, with the consent of the Panel, decide. If the Offer lapses for any reason, the Offer will cease to be capable of further acceptance and T&N Shareholders and the Offeror will cease to be bound by prior acceptances. The Offeror shall be under no obligation to waive or treat as satisfied any of the conditions (b) to 27 29 (i) (inclusive) of Part A of this Appendix I by a date earlier than the latest date specified above for the satisfaction thereof notwithstanding that the other conditions of the Offer may at such earlier date have been waived or fulfilled and that there are at such earlier date no circumstances indicating that any of such conditions may be capable of fulfilment. (b) Except with the consent of the Panel, settlement of the consideration to which any T&N Shareholder is entitled under the Offer will be implemented in full in accordance with the terms of the Offer without regard to any lien, right of set off, counterclaim or other analogous right to which the Offeror may otherwise be, or claim to be, entitled as against such T&N Shareholder and will (subject to paragraph 6 below) be effected not later than 14 days after the later of (i) the date on which the Offer is declared unconditional in all respects, and (ii) the date of receipt of a valid and complete Form of Acceptance from such T&N Shareholder. Any cash consideration will be settled by way of cheques drawn on a UK clearing bank. No consideration will be sent to an address in Canada. (c) The instructions, terms, authorities and provisions contained in or deemed to be incorporated in the Form of Acceptance constitute part of the terms of the Offer. Words and expressions defined in this document shall have the same meaning when used in the Form of Acceptance unless the context otherwise requires. The provisions of this Appendix I shall be deemed to be incorporated in the Form of Acceptance. (d) Without prejudice to the right reserved by the Offeror to treat a Form of Acceptance as valid even though not entirely in order or not accompanied by the relevant share certificate(s) and/or other document(s) of title or not accompanied by the relevant transfer to escrow, except as otherwise agreed by the Panel, an acceptance of the Offer will only be counted towards fulfilling the acceptance condition if the requirements of Note 4 and, if applicable, Note 6 to Rule 10 of the Code are satisfied in respect of such acceptance. (e) Except as otherwise agreed with the Panel, a purchase of T&N Ordinary Shares by the Offeror or its nominee(s) (or, if the Offeror is required by the Panel to make an offer for T&N Ordinary Shares under Rule 9 of the Code, a person acting in concert with the Offeror or its nominee(s)), if any, will only be counted towards fulfilling the acceptance condition if the requirements of Note 5 and, if applicable, Note 6 to Rule 10 of the Code are satisfied in respect of such purchase. (f) Except with the consent of the Panel, the Offer will not become unconditional until the Receiving Agent has issued a certificate to the Offeror (or its agent) stating the number of T&N Ordinary Shares in respect of which acceptances have been received which comply with Note 4 to Rule 10 of the City Code and the number of T&N Ordinary Shares otherwise acquired, whether before or during the Offer period, which comply with Note 5 to Rule 10 of the City Code and, in each case, if appropriate, Note 6 to Rule 10 of the City Code. Copies of such certificate will be sent to the Panel and to the financial advisers of T&N as soon as possible after it is issued. (g) The Offeror and Morgan Stanley reserve the right to treat Forms of Acceptance as valid if not entirely in order or not accompanied by the relevant share certificate(s) and/or other relevant document(s) of title or not accompanied by the relevant transfer to escrow, or if received, by or on behalf of either of them, at any place or places or in any manner determined by them otherwise than as specified in this document or in the Form of Acceptance. (h) All references in this document and the Form of Acceptance to 12 December 1997 (other than those in the definition of "Offer period" and paragraph 1(a) of this Part B) shall (except where the context otherwise requires) be deemed, if the expiry date of the Offer is extended, to refer to the expiry date of the Offer as so extended. (i) Any omission or failure to despatch this document, the Form of Acceptance, any other document relating to the Offer and/or any notice required to be despatched under the terms of the Offer to, or any failure to receive the same by, any person to whom the Offer is made, or should be made, shall not invalidate the Offer in any way. Subject to paragraph 6 below, the Offer extends to any such persons to whom this document, the Form of Acceptance, and/or any other such document or notice may not have been despatched or who may not receive such documents and such persons may collect copies of those documents during normal business hours from the Receiving Agent at either of the addresses set out in paragraph 3(a) above. (j) All powers of attorney, appointments of agents and authorities on the terms conferred by or referred to in this Appendix I or in the Form of Acceptance are given by way of security for the performance of the obligations of the T&N Shareholder concerned and are irrevocable (in respect of powers of attorney, in accordance with section 4 of the Powers of Attorney Act 1971) except in the circumstances where the donor of such power of attorney, appointment or authority is entitled to withdraw his acceptance in accordance with paragraph 3 of this Part B and duly does so. (k) All communications, notices, certificates, documents of title and remittances to be delivered by or sent to or from T&N Shareholders (or their designated agents) will be delivered by or sent to or from them (or their designated agents) at their risk. No acknowledgement of receipt of any Form of Acceptance, share certificate(s) and/or other document(s) of title will be given by or on behalf of the Offeror. 28 30 (l) The Offer and the Form of Acceptance and all acceptances thereof, elections in respect thereunder and this document shall be governed by and construed in accordance with English law. Execution by or on behalf of a T&N Shareholder of a Form of Acceptance will constitute his submission, in relation to all matters arising out of or in connection with the Offer, to the jurisdiction of the courts of England and his agreement that nothing shall limit the right of the Offeror or Morgan Stanley to bring any action, suit or proceeding arising out of or in connection with the Offer and the Form of Acceptance in any other manner permitted by law or in any court of competent jurisdiction. (m) If sufficient acceptances are received, the Offeror intends to apply the provisions of sections 428 to 430F (inclusive) of the Companies Act 1985 to acquire compulsorily any outstanding T&N Ordinary Shares to which the Offer relates (as defined in the acceptance condition) and to procure the making by T&N of an application in due course for cancellation of T&N's listing on the London Stock Exchange. (n) In relation to any acceptance of the Offer in respect of a holding of T&N Shares which are in uncertificated form, the Offeror reserves the right to make such alterations, additions or modifications as may be necessary or desirable to give effect to any purported acceptance of the Offer, whether in order to comply with the facilities or requirements of CREST or otherwise, provided such alterations, additions or modifications are consistent with the requirements of the City Code or are otherwise made with the consent of the Panel. (o) If the Offer does not become unconditional in all respects, the Form of Acceptance, share certificates and/or other documents of title will be returned by post (or such other methods as may be approved by the Panel) within 14 days of the Offer lapsing, at the risk of the person entitled thereto, to the person or agent whose name and address is set out in the Form of Acceptance, or, if no address is set out, the first named holder at his/her registered address (in all cases outside Canada). The Receiving Agent will, immediately after the lapsing of the Offer (or within such longer period as the Panel may permit, not exceeding 14 days of the lapsing of the Offer), give instructions to CRESTCo to transfer all T&N Ordinary Shares held in escrow balances, and in relation to which it is the escrow agent for the purposes of the Offer, to the original available balances of the T&N Shareholders concerned. (p) The Offer is made on 13 November 1997 and is capable of acceptance from and after that time. (q) For the purpose of determining whether the acceptance condition has been fulfilled at any particular time, Federal-Mogul shall not be bound (unless otherwise required by the Panel) to take into account any T&N Ordinary Shares which have been unconditionally issued or allotted before such determination falls to be made unless T&N has notified Federal-Mogul in writing of the relevant details of such allotment or issue prior thereto. Telex or facsimile transmission or copies will not be sufficient for this purpose. (r) All references in this Appendix I to any statute or statutory provision shall include a statute or statutory provision which amends, consolidates or replaces the same (whether before or after the date hereof). 6. OVERSEAS T&N SHAREHOLDERS (a) The making of the Offer in, or to T&N Shareholders who are, or are custodians, nominees or trustees for, citizens, residents or nationals of, jurisdictions outside the UK may be prohibited or affected by the laws of the relevant overseas jurisdiction. Such T&N Shareholders should inform themselves about and observe any applicable legal requirements. It is the responsibility of any such T&N Shareholder wishing to accept the Offer to satisfy himself/herself as to the full observance of the laws of the relevant jurisdiction in connection therewith, including the obtaining of any governmental, exchange control or other consents which may be required or the compliance with other formalities needing to be observed and the payment of any issue, transfer or other taxes or duties in such jurisdiction. Any such T&N Shareholder will also be responsible for payment of any such issue, transfer or other taxes or duties or other requisite payments due in such jurisdiction by whomsoever payable and the Offeror and any person acting on their behalf shall be entitled to be fully indemnified and held harmless by such T&N Shareholder for any such issue, transfer or other taxes or duties as Federal-Mogul or such person may be required to pay. (b) In particular, the Offer is not being made, directly or indirectly, in or into Canada, or by use of the mails of Canada or by any means or instrumentality of interstate or foreign commerce of, or of any facilities of a securities exchange of Canada (including, without limitation, facsimile transmission, telex and telephone). Accordingly, copies of this document and the Form of Acceptance and any related offering documents are not being, and must not be, mailed or otherwise distributed or sent in, into or from Canada. Persons receiving such documents (including, without limitation, custodians, nominees and trustees) must not distribute, send or mail them in, into or from Canada including to T&N Shareholders, or use Canadian mails or any such means, instrumentality or facility for any purpose, directly or indirectly, in connection with the Offer, and so doing may invalidate any related purported acceptance of the Offer. Persons wishing to accept the Offer must not use Canadian mails or any such means, instrumentality or facility for any purpose directly or indirectly related to 29 31 acceptance of the Offer. Envelopes containing Forms of Acceptance should not be postmarked in Canada or otherwise despatched from Canada and all acceptors must provide addresses outside Canada for the receipt of consideration to which they are entitled under the Offer or for the return of Forms of Acceptance, share certificate(s) and/or other document(s) of title. (c) A T&N Shareholder will be deemed NOT to have validly accepted the Offer if (i) he/she cannot give the representation and warranty set out in paragraph (b) of Part C of this Appendix I; (ii) having completed Box 3 of the Form of Acceptance with an address in Canada or having a registered address in Canada he/she does not insert in Box 6 of the Form of Acceptance the name and address of a person or agent outside Canada to whom he/she wishes the consideration to which he/she is entitled under the Offer to be sent; (iii) he/she inserts in Box 6 of the Form of Acceptance the name and address of a person or agent in Canada to whom he/she wishes the consideration to which he/she is entitled under the Offer to be sent; or (iv) the Form of Acceptance received from him/her is in an envelope postmarked in, or which otherwise appears to the Offeror or its agents to have been sent from, Canada. The Offeror reserves the right in its sole discretion, to investigate, in relation to any acceptance, whether the representation and warranty set out in paragraph (b) of Part C of this Appendix I could have truthfully been given by the relevant T&N Shareholder and, if such investigation is made and, as a result, the Offeror cannot satisfy itself that such representation and warranty was true and correct, such acceptance shall not be valid. (d) Neither the Offeror nor Morgan Stanley nor any agent nor director of the Offeror or Morgan Stanley nor any person acting on behalf of any of them shall have any liability to any person for any loss or alleged loss arising from any decision as to the treatment of acceptances of the Offer on any of the bases set out above or otherwise in connection therewith. (e) If, in connection with the making of the Offer, notwithstanding the restrictions described above, any person (including, without limitation, custodians, nominees and trustees), whether pursuant to a contractual or legal obligation or otherwise, forwards this document, the Form of Acceptance or any related offering documents in, into or from Canada or uses the mails of or any means or instrumentality (including, without limitation, facsimile transmission, telex and telephone) of interstate or foreign commerce of, or any facility of a securities exchange of Canada in connection with such forwarding, such person should (i) inform the recipient of such fact; (ii) explain to the recipient that such action will invalidate any purported acceptance by the recipient; and (iii) draw the attention of the recipient to this paragraph 6. (f) The Offeror and Morgan Stanley reserve the right to notify any matter including the making of the Offer, to all or any T&N Shareholders: (i) with a registered address outside the United Kingdom; or (ii) whom the Offeror knows to be a custodian, trustee or nominee holding T&N Shares for person who are citizens, residents or nationals of jurisdiction outside the United Kingdom, by announcement or by paid advertisement in a daily national newspaper published and circulated in the United Kingdom (in which event such notice shall be deemed to have been sufficiently given, notwithstanding any failure by any such T&N Shareholder to receive or see such notice) and all references in this document to notice or the provision of information in writing or on behalf of the Offeror shall be construed accordingly. (g) The provisions of this paragraph 6 and/or other terms of the Offer relating to overseas T&N Shareholders may be waived, varied or modified as regards specific T&N Shareholders or on a general basis by the Offeror in its absolute discretion. References in this paragraph 6 to a T&N Shareholder shall include references to the person or persons executing a Form of Acceptance and, in the event of more than one person executing a Form Acceptance, the provisions of this paragraph 6 shall apply to them jointly and severally. (h) The provisions of this paragraph 6 supersede any terms of the Offer inconsistent therewith. 30 32 PART C--FORM OF ACCEPTANCE Each T&N Shareholder by whom, or on whose behalf, a Form of Acceptance is executed and delivered to the Receiving Agent, the Offeror or its agent irrevocably undertakes, represents, warrants and agrees to and with the Offeror, Morgan Stanley and the Receiving Agent (so as to bind him/her, his/her personal representatives, his/her heirs, successors and assigns) to the following effect: (a) that the execution of the Form of Acceptance shall constitute: (i) an acceptance of the Offer in respect of the number of T&N Ordinary Shares inserted or deemed to be inserted in Box 1 of the Form of Acceptance; and (ii) an undertaking to execute any further documents, take any further action and give any further assurances which may be required to enable the Offeror to obtain the full benefit of the terms of this Part C and/or to perfect any of the authorities expressed to be given hereunder, in each case on and subject to the terms and conditions set out or referred to in this document and the Form of Acceptance and that, subject only to the person accepting the Offer not having validly withdrawn his acceptance, each such acceptance shall be irrevocable; (b) that: (i) unless "YES" is inserted in Box 5 of the Form of Acceptance: (1) such T&N Shareholder has not received or sent copies of this document, the Form of Acceptance or any related offering documents in, into or from Canada; (2) such T&N Shareholder has not otherwise utilised in connection with the Offer or the execution or delivery of the Form of Acceptance, directly or indirectly, the mails of, or any means or instrumentality (including, without limitation, the post, facsimile transmission, telex and telephone) of interstate or foreign commerce, or any facilities of a securities exchange, of Canada; (3) such T&N Shareholder was outside Canada when the Form of Acceptance was delivered and at the time of accepting the Offer; (4) such T&N Shareholder is not a resident of Canada nor a holder whose registered address is in Canada and does not hold T&N Ordinary Shares on behalf of any such person; (5) such T&N Shareholder is not an agent or fiduciary acting on a non-discretionary basis for a principal, unless such agent or fiduciary is an authorised employee of such principal or such principal has given any instructions with respect to the Offer from outside Canada; and (6) the Form of Acceptance has not been mailed or otherwise sent in, into or from Canada; and (ii) if such accepting T&N Shareholder is not resident in the United Kingdom he/she has observed the laws of all relevant territories, obtained any requisite governmental or other consents, complied with all requisite formalities and paid any issue, transfer or other taxes due from him/her, in connection with such acceptance, in any territory and that he/she has not taken or omitted to take any action which will or may result in the Offeror, Morgan Stanley or any other person acting in breach of the legal or regulatory requirements of any territory in connection with the Offer or his/her acceptance thereof; (c) that the execution of the Form of Acceptance and such delivery will constitute, subject to the person accepting the Offer not having validly withdrawn his acceptance in accordance with paragraph 3 of Part B of this Appendix, the irrevocable separate appointment of any director of the Offeror or Morgan Stanley as such T&N Shareholder's attorney and/or agent within the terms of paragraph 4 of Part B above and this Part C and with the authority to complete and execute any further documents and give any further assurances which may be required in connection with any of the foregoing and an irrevocable undertaking with such attorney and/or agent to execute any such further documents and/or give any such further assurances as maybe required; (d) that the execution of the Form of Acceptance and such delivery constitutes, subject to the Offer becoming unconditional in all respects in accordance with its terms and to the person accepting the Offer not having validly withdrawn his acceptance in accordance with paragraph 3 of Part B of this Appendix, the irrevocable separate appointment of any director of the Offeror or Morgan Stanley as such T&N Shareholder's attorney and/or agent ("attorney"), and an irrevocable instruction to the attorney to complete and execute all or any form(s) of transfer and/or other document(s) at the discretion of the attorney and/or agent in relation to the T&N Ordinary Shares to which the Form of Acceptance relates in favour of the Offeror or such other person or persons as the Offeror or its agents may direct and to deliver all such documents together with the certificate(s) and/or other documents of title relating to T&N Ordinary Shares for registration within six months of the Offer becoming unconditional in all respects and to execute all such other documents and to do all such other acts and things as may, in the opinion of 31 33 the attorney, be necessary or expedient for the purposes of, or in connection with, the acceptance of the Offer and to vest in the Offeror or its nominee(s) such T&N Ordinary Shares; (e) that the execution of the Form of Acceptance and such delivery constitutes, subject to the Offer becoming unconditional in all respects and to an accepting T&N Shareholder not having validly withdrawn his acceptance, an irrevocable authority and request (subject to paragraph 6 of Part B): (i) to T&N or its agents to procure the registration of the transfer of the T&N Ordinary Shares in certificated form pursuant to the Offer and the delivery of the share certificates and/or other documents of title in respect thereof to the Offeror or as it may direct; (ii) if the T&N Ordinary Shares concerned are in certificated form, or if the proviso to sub-paragraph (iii)(aa) below applies, to the Offeror and Morgan Stanley or their respective agents to procure the despatch by post (or such other method as may be approved by the Panel) of a cheque drawn on a branch of a UK clearing bank in respect of any cash consideration to which such T&N Shareholder is entitled, at the risk of such T&N Shareholder, to the person or agent whose name and address outside Canada is set out in Box 6 of the Form of Acceptance or, if none is set out, to the first-named holder at his registered address outside Canada; and (iii) if the T&N Ordinary Shares concerned are in uncertificated form, to the Offeror and Morgan Stanley or their respective agents to procure the creation of an assured payment obligation in favour of the T&N Shareholder's payment bank in accordance with the CREST assured payment arrangements in respect of any cash consideration to which such shareholder is entitled provided that (aa) the Offeror may (if, for any reason, it wishes to do so) determine that all or any part of any such cash consideration shall be paid by cheque despatched by post, and (bb) if the T&N Shareholder concerned is a CREST member whose registered address is in Canada, any cash consideration to which such T&N Shareholder is entitled shall be paid by cheque despatched by post; and provided that sub-paragraph (ii) above shall apply to the despatch of any consideration by post pursuant to this sub-paragraph (iii); (f) that the Offeror shall be entitled, after the Offer becomes unconditional in all respects, or if the Offer will become unconditional in all respects or will lapse, immediately upon the outcome of the resolution in question, in respect of any T&N Ordinary Shares in respect of which the Offer has been accepted and not validly withdrawn to direct the exercise of any votes and any or all other rights and privileges (including the right to requisition the convening of a general meeting or separate class meeting of T&N); and that the execution of the Form of Acceptance will constitute an authority to T&N from such T&N Shareholder to send any notice, circular, warrant or other document or communication which may be required to be sent to him/her as a member of T&N in respect of such shares (including any share certificate(s) or other document(s) of title issued as a result of a conversion of T&N Ordinary Shares into certificated form) to the Offeror at its registered office, and the irrevocable appointment of any director of the Offeror or Morgan Stanley or their respective agents to sign such documents and do such things as may in the opinion of such attorney seem necessary or desirable in connection with the exercise of any votes or other rights or privileges attaching to the T&N Ordinary Shares held by such T&N Shareholder (including, without limitation, signing any consent to short notice of a general meeting or separate class meeting as his attorney and on his behalf and/or executing a form of proxy in respect of such T&N Ordinary Shares appointing any person nominated by the Offeror to attend general meetings and separate class meetings of T&N and attending any such meeting and exercising the votes attaching to such T&N Ordinary Shares on his behalf, where relevant, such votes to be cast so far as possible to satisfy any outstanding condition of the Offer) and will also constitute the agreement of such T&N Shareholder not to exercise any of such rights without the consent of the Offeror and the irrevocable undertaking of such T&N Shareholder not to appoint a proxy for or to attend any such general or separate class meeting. This authority will cease to be valid if the acceptance is withdrawn in accordance with paragraph 3 of Part B of this Appendix I; (g) that he/she will deliver, or procure the delivery to the Receiving Agent of his/her share certificate(s) and/or other document(s) of title in respect of all T&N Ordinary Shares in respect of which the Offer has been accepted or is deemed to have been accepted and not validly withdrawn held by him/her in certificated form or an indemnity acceptable to the Offeror in lieu thereof as soon as possible and in any event within six months of the Offer becoming unconditional in all respects; (h) that, the execution of the Form of Acceptance and such delivery constitutes the irrevocable appointment of the Receiving Agent as such T&N Shareholder's attorney and/or agent an irrevocable instruction and authority to the attorney and/or agent (i) subject to the Offer becoming or being declared unconditional in all respects in accordance with its terms and to such accepting T&N Shareholder not having validly withdrawn his acceptance, to transfer to itself (or to such other persons as the offeror or its agents may direct) by means of CREST all or any of the Relevant T&N Ordinary Shares (as defined below) (but not exceeding the number of T&N Ordinary Shares in respect of which the Offer is accepted or deemed to be accepted), and (ii) if the Offer does not become unconditional in all respects, to give instructions to CRESTCo, immediately after the lapsing of the Offer (or within such longer period as the Panel may permit, not exceeding 14 days of the lapsing of the Offer), to transfer 32 34 all Relevant T&N Ordinary Shares to the original available balance of the accepting T&N Shareholders. "Relevant T&N Ordinary Shares" means T&N Ordinary Shares in uncertificated form and in respect of which a transfer or transfers to escrow has or have been effected pursuant to the procedures described in paragraph 10(d) of the letter from Morgan Stanley contained in this document and where the transfer(s) to escrow was or were made in respect of T&N Ordinary Shares held under the same member account ID and participant ID as the member account ID and participant ID relating to the Form of Acceptance concerned (but irrespective of whether or not any Form of Acceptance Reference Number, or a Form of Acceptance Reference Number corresponding to that appearing on the Form of Acceptance concerned, was included in the TTE instruction concerned); (i) that he/she will take (or procure to be taken) the action set out in paragraph 10(d) of the letter from Morgan Stanley contained in this document to transfer all T&N Ordinary Shares in respect of which the Offer has been accepted or is deemed to have been accepted and not validly withdrawn held by him/her in uncertificated form to an escrow balance as soon as possible and in any event so that the transfer to escrow settles within six months of the Offer becoming unconditional in all respects; (j) that, if for any reason, any T&N Ordinary Shares in respect of which a transfer to an escrow balance has been effected in accordance with paragraph 10(d) of the letter from Morgan Stanley contained in this document are converted to certificated form, he/share will (without prejudice to paragraph (f) of this Part C), immediately deliver or procure the immediate delivery of the share certificate(s) or other document(s) of title in respect of all such T&N Ordinary Shares as so converted to the Receiving Agent at The Royal Bank of Scotland plc, Registrars Department, New Issues Section, PO Box 859, Consort House, East Street, Bedminster, Bristol BS99 1XZ or The Royal Bank of Scotland plc, Registrars Department, New Issues Section, PO Box 633, 5-10 Great Tower Street, London EC3R 5ER or as the Offeror or its agents may direct; (k) that he/she will do all such acts and things as shall, in the opinion of the Offeror or its agents, be necessary or expedient to vest in the Offeror or its nominee(s) or such other person as the Offeror may decide the T&N Ordinary Shares in respect of which the Offer has been accepted or is deemed to have been accepted and all such acts and things as may be necessary or expedient to enable the Receiving Agent to perform its function as Escrow Agent for the purposes of the Offer; (l) that he/she agrees to ratify each and every act or thing which may be done or effected by the Offeror or Morgan Stanley or any of their respective directors or agents or T&N or any of its directors or agents, as the case may be, in exercise of any of the powers and/or appointments and/or authorities thereunder; (m) that, if any provisions of Part B of this Appendix or this Part C shall be unenforceable or invalid or shall not operate so as to afford the Offeror or Morgan Stanley the benefit of the authority expressed to be given therein or herein, he/she shall, with all practicable speed, do all such acts and things and execute all such documents that may be required or desirable to enable the Offeror and/or Morgan Stanley or any of their respective directors to secure the full benefit of Part B of this Appendix and this Part C; (n) that the creation of an assured payment obligation in favour of his/her payment bank in accordance with the CREST assured payments arrangements as referred to in paragraph (e)(iii) of this Part C shall, to the extent of the obligation so created, discharge in full any obligation of the Offeror and/or Morgan Stanley to pay him/her the cash consideration to which he/she is entitled pursuant to the Offeror; (o) that the T&N Ordinary Shares in respect of which the Offer is accepted or deemed to be accepted are sold free from all liens, charges, equities, encumbrances, rights of pre-emption and other third party rights or interests of any nature whatsoever and together with all rights now or hereafter attaching thereto including voting rights and the right to receive all dividends and other distributions (if any) declared, paid or made after 16 October 1997 other than the right to receive and retain the second interim dividend of 3.2 pence (net) per T&N Ordinary Share payable on 14 November 1997, or the scrip alternative to such dividend, and the T&N Dividend of 3 pence (net) per T&N Ordinary Share payable on 30 January 1998; (p) that the terms and conditions of the Offer contained in this document are deemed to be incorporated in, and form part of, the Form of Acceptance which shall be read and construed accordingly; (q) that, on execution, the Form of Acceptance shall take effect as a deed; and (r) that the execution of the Form of Acceptance constitutes his/her submission, in relation to all matters arising out of the Offer and the Form of Acceptance, to the jurisdiction of the courts of England. References in this Part C to a T&N Shareholder shall include references to the person or persons executing the Form of Acceptance and, in the event of more than one person executing a Form of Acceptance, the provisions of this Part C shall apply to them jointly and to each of them. 33 35 APPENDIX II FINANCIAL INFORMATION ON FEDERAL-MOGUL The financial information contained in this Appendix II is extracted from the Form 10-K/A of Federal-Mogul filed with the US Securities and Exchange Commission containing the audited consolidated financial statements for the years ended 31 December 1994, 1995 and 1996 and the Form 10-Q of Federal-Mogul filed with the US Securities and Exchange Commission containing the unaudited quarterly report for the period ended 30 September 1997. 1. CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31 (AS RESTATED) ------------------------------- 1996 1995 1994 --------- --------- --------- (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) Net sales $ 2,032.7 $ 1,999.8 $ 1,889.5 Cost of products sold 1,660.5 1,602.2 1,507.6 --------- --------- --------- Gross Margin 372.2 397.6 381.9 Selling, general and administrative expenses (333.8) (299.3) (268.8) Gain on sales of businesses -- 24.0 -- Restructuring charges (57.6) (26.9) -- Re-engineering and other related charges (11.4) (13.9) -- Adjustment of assets held for sale to fair value (151.3) (51.8) -- Interest expense (42.6) (37.3) (21.2) Interest income 2.9 9.6 7.6 International currency exchange losses (3.7) (2.9) (5.5) Other expenses, net (3.4) (2.4) (2.5) --------- --------- --------- Earnings (loss) before income taxes (228.7) (3.3) 91.5 Income tax expense (benefit) (22.4) 2.5 31.8 --------- --------- --------- Net Earnings (loss) (206.3) (5.8) 59.7 ========= ========= ========= Preferred dividends 8.7 8.9 9.0 Net Earnings (loss) Available to Common Shareholders $ (215.0) $ (14.7) $ 50.7 EARNINGS (LOSS) PER COMMON (AND EQUIVALENT SHARE) Primary $ (6.12) $ (0.42) $ 1.45 --------- --------- --------- Fully Diluted $ (6.12) $ (0.42) $ 1.36 ========= ========= =========
See accompanying Notes to Consolidated Financial Statements. 34 36 2. CONSOLIDATED BALANCE SHEETS
DECEMBER 31 ----------------------- (AS RESTATED) 1996 1995 --------- ------------ (MILLIONS OF DOLLARS) ASSETS Cash and equivalents $ 33.1 $ 19.4 Accounts receivable 231.3 293.4 Inventories 417.0 505.8 Prepaid expenses and income tax benefits 81.5 62.8 --------- ----------- Total current assets 762.9 881.4 Property, plant and equipment 350.3 434.7 Goodwill 154.0 226.5 Other intangible assets 63.1 66.6 Business investments and other assets 124.9 100.9 --------- ----------- Total Assets $ 1,455.2 $ 1,710.1 ========= =========== LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt $ 280.1 $ 111.9 Accounts payable 142.7 172.7 Accrued compensation 37.6 32.3 Restructuring reserves 55.2 10.7 Other accrued liabilities 148.2 92.6 --------- ----------- Total current liabilities 663.8 420.2 Long-term debt 209.6 481.5 Postemployment benefits 207.1 211.5 Other accrued liabilities 56.2 46.6 --------- ----------- Total Liabilities 1,136.7 1,159.8 Series D preferred stock 76.6 76.6 Series C ESOP preferred stock 53.1 56.8 Unearned ESOP compensation (28.4) (34.3) Common stock 175.7 175.2 Additional paid-in capital 283.5 280.8 Retained earnings (deficit) (193.0) 40.2 Currency translation and other (49.0) (45.0) --------- ----------- Total Shareholders' Equity 318.5 550.3 --------- ----------- Total Liabilities and Shareholders' Equity $ 1,455.2 $ 1,710.1 ========= ===========
See accompanying Notes to Consolidated Financial Statements. 35 37 3. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 (AS RESTATED) ------------------------------- 1996 1995 1994 --------- --------- --------- (MILLIONS OF DOLLARS) CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES Net earnings (loss) $ (206.3) $ (5.8) $ 59.7 Adjustments to reconcile net earnings (loss) to net cash provided from (used by) operating activities: Depreciation and amortization 63.7 61.0 55.7 Gain on sale of businesses -- (24.0) -- Restructuring charges 57.6 26.9 -- Re-engineering and other related charges 11.4 13.9 -- Adjustment of assets held for sale to fair value 151.3 51.8 -- Deferred income taxes (27.8) (16.2) 4.1 Postemployment benefits (2.0) 1.8 4.9 Decrease (increase) in accounts receivable 46.5 (5.0) (55.3) Decrease (increase) in inventories 54.5 (103.9) (33.5) Increase (decrease) in accounts payable (25.5) 7.2 -- Payments against restructuring and re-engineering reserves (17.6) (19.4) (14.0) Increase (decrease) in current liabilities and other 43.2 (23.0) 2.7 --------- --------- --------- Net Cash Provided from (Used by) Operating Activities 149.0 (34.7) 24.3 CASH PROVIDED FROM (USED BY) INVESTING ACTIVITIES Expenditures for property, plant and equipment and other long-term assets (54.2) (78.5) (74.9) Acquisitions of businesses (.3) (72.1) (58.3) Payments for rationalization of acquired businesses -- (7.3) (24.5) Proceeds from sales of businesses 42.0 48.5 -- Other -- -- (.8) --------- --------- --------- Net Cash Used by Investing Activities (12.5) (109.4) (158.5) CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES Issuance of common stock 0.6 0.2 196.8 Repurchase of common stock -- (9.0) (10.6) Proceeds from issuance of long-term debt -- 166.2 157.8 Principal payments on long-term debt (29.4) (24.9) (203.7) Increase (decrease) in short-term debt (61.4) 33.7 14.8 Dividends (26.9) (27.3) (27.7) Other (5.7) (.4) (2.0) --------- --------- --------- Net Cash Provided from (Used by) Financing Activities (122.8) 138.5 125.4 --------- --------- --------- Increase (Decrease) in Cash and Equivalents 13.7 (5.6) (8.8) Cash and equivalents at beginning of year 19.4 25.0 33.8 --------- --------- --------- Cash and Equivalents at end of Year $ 33.1 $ 19.4 $ 25.0 ========= ========= =========
See accompanying Notes to Consolidated Financial Statements. 36 38 4. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SERIES C SERIES D ESOP UNEARNED ADDITIONAL RETAINED PREFERRED PREFERRED ESOP COMMON PAID-IN EARNINGS STOCK STOCK COMPENSATION STOCK CAPITAL (DEFICIT) ----------- ----------- ------------ -------- ---------- ----------- (MILLIONS OF DOLLARS) BALANCE AT JANUARY 1, 1994 (as originally reported) $76.6 $60.2 $(44.6) $147.5 $117.2 $46.4 Cumulative effect of restatement (see Note xviii) (5.1) ----- ----- ------ ------ ------ ----- BALANCE AT JANUARY 1, 1994 (as restated) $76.6 $60.2 $(44.6) $147.5 $117.2 $41.3 Net earnings (as restated) 59.7 Issuance of common stock 28.8 162.5 Exercise of stock options 1.6 6.1 Repurchase of common stock (3.0) (9.6) Retirement of preferred stock (1.1) Amortization of unearned ESOP compensation 4.8 Dividends (27.7) Preferred dividend tax benefits 1.6 Currency translation Pension adjustment ----- ----- ------ ------ ------ ----- BALANCE AT DECEMBER 31, 1994 76.6 59.1 (39.8) 174.9 277.8 73.3 Net loss (as restated) (5.8) Net issuance of restricted shares 2.2 6.5 Exercise of stock options .2 Repurchase of common stock (1.9) (5.3) Retirement of preferred stock (2.3) Amortization of unearned ESOP compensation 5.5 Dividends (27.3) Preferred dividend tax benefits 1.6 Currency translation Pension adjustment ----- ----- ------ ------ ------ ----- BALANCE AT DECEMBER 31, 1995 76.6 56.8 (34.3) 175.2 280.8 40.2 Net loss (as restated) (206.3) Net issuance of restricted shares .3 .9 Exercise of stock options .2 .4 Retirement of preferred stock (3.7) Amortization of unearned ESOP compensation 5.9 Dividends (26.9) Preferred dividend tax benefits 1.4 Currency translation effect on assets held for sale Currency translation Pension adjustment ----- ----- ------ ------ ------ ------- BALANCE AT DECEMBER 31, 1996 $76.6 $53.1 $(28.4) $175.7 $283.5 $(193.0) ===== ===== ====== ====== ====== ======= CURRENCY TRANSLATION AND OTHER TOTAL ------------- --------- BALANCE AT JANUARY 1, 1994 (as originally reported) $ (32.2) $ 371.1 Cumulative effect of restatement (see Note xviii) (5.1) ------ --------- BALANCE AT JANUARY 1, 1994 (as restated) $ (32.2) $ 366.0 Net earnings (as restated) 59.7 Issuance of common stock 191.3 Exercise of stock options 7.7 Repurchase of common stock (12.6) Retirement of preferred stock (1.1) Amortization of unearned ESOP compensation .2 5.0 Dividends (27.7) Preferred dividend tax benefits 1.6 Currency translation (6.3) (6.3) Pension adjustment 4.9 4.9 ------ --------- BALANCE AT DECEMBER 31, 1994 (33.4) 588.5 Net loss (as restated) (5.8) Net issuance of restricted shares (7.7) 1.0 Exercise of stock options .2 Repurchase of common stock (7.2) Retirement of preferred stock (2.3) Amortization of unearned ESOP compensation 5.5 Dividends (27.3) Preferred dividend tax benefits 1.6 Currency translation (1.5) (1.5) Pension adjustment (2.4) (2.4) ------ --------- BALANCE AT DECEMBER 31, 1995 (45.0) 550.3 Net loss (as restated) (206.3) Net issuance of restricted shares (1.2) -- Exercise of stock options .6 Retirement of preferred stock (3.7) Amortization of unearned ESOP compensation 5.9 Dividends (26.9) Preferred dividend tax benefits 1.4 Currency translation effect on assets held for sale 20.1 20.1 Currency translation (24.4) (24.4) Pension adjustment 1.5 1.5 --------- --------- BALANCE AT DECEMBER 31, 1996 $(49.0) $318.5 ========= =========
See accompanying Notes to Consolidated Financial Statements. 37 39 5. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (I) ACCOUNTING POLICIES Organization--Federal-Mogul's core business is providing value-added services for the global manufacture and distribution of non-discretionary parts to vehicular and industrial original equipment manufacturers and the vehicular replacement market. Principles of Consolidation--The consolidated financial statements include the accounts of Federal-Mogul and its majority-owned subsidiaries (the "company"). Intercompany accounts and transactions have been eliminated in consolidation. Cash and Equivalents--The company considers all highly liquid investments with maturities of 90 days or less from the date of purchase to be cash equivalents. Inventories--Inventories are stated at the lower of cost or market. Cost determined by the last-in, first-out (LIFO) method was used for 54% and 52% of the inventory at December 31, 1996 and 1995, respectively. The remaining inventories are costed using the first-in, first-out (FIFO) method. If inventories had been valued at current cost, amounts reported at December 31 would have been increased by $49.4 million in 1996 and $54.2 million in 1995. At December 31, inventories consisted of the following:
1996 1995 --------- --------- (MILLIONS OF DOLLARS) Finished products $ 417.0 $ 468.3 Work-in-process 28.0 34.1 Raw materials 20.0 28.6 --------- --------- 465.0 531.0 Reserve for inventory valuation (48.0) (25.2) --------- --------- $ 417.0 $ 505.8 ========= =========
Inventory quantity reductions resulting in liquidations of certain LIFO inventory layers and the reduction in international locations using the LIFO method increased net earnings by $3.1 million and $1.6 million ($.09 and $.04 per share) in 1996 and 1994, respectively. There was no effect on operations for 1995. The company provides inventory valuation reserves for parts on hand which exceed anticipated demand and assesses these reserves on a quarterly basis. Goodwill and Other Intangible Assets--Intangible assets, which result principally from acquisitions, consist of goodwill, trademarks and non-compete agreements, patents and other intangibles. Intangible assets are periodically reviewed for impairment based on an assessment of future cash flows, or fair value for assets held for sale, to ensure that they are appropriately valued. Intangible assets are amortized on a straight-line basis over their estimated useful lives, generally ranging from 7 to 40 years. Goodwill and other intangible assets reflected in the consolidated balance sheets are net of accumulated amortization of $18.7 million and $14.2 million for goodwill and $22.1 million and $16.9 million for other intangible assets at December 31, 1996 and 1995, respectively. Impairment charges recorded in 1996 and 1995 related solely to assets held for sale. Management believes that the remaining intangible assets, which relate only to the core manufacturing and distribution businesses, are not impaired, and the remaining amortization period is appropriate. Revenue Recognition--The company recognizes revenue and returns from product sales and the related customer incentive and warranty expense when goods are shipped to the customer. Currency Translation--Exchange adjustments related to international currency transactions and translation adjustments for subsidiaries whose functional currency is the United States dollar (principally those located in highly inflationary economies) are reflected in the consolidated statements of operations. Translation adjustments of international subsidiaries for which the local currency is the functional currency are reflected in the consolidated financial statements as a separate component of shareholders' equity. Earnings Per Share--The computation of primary earnings per share is based on the weighted average number of outstanding common shares during the period and, when their effect is dilutive, common stock equivalents consisting of certain shares subject to stock options. Fully-diluted earnings per share additionally assumes, when the effect is dilutive, the conversion of outstanding Series C Employee Stock Ownership Plan (ESOP) preferred stock (Note (xi)) and Series D preferred stock and the contingent issuance of common stock to satisfy the Series C ESOP preferred stock redemption price guarantee. The number of contingent shares used in the 38 40 fully-diluted calculation is based on the market price of the company's common stock on December 31, 1996, and the number of preferred shares held by the ESOP as of December 31 of each of the respective years. The primary weighted average number of common and equivalent shares outstanding (in thousands) was 35,105, 34,988 and 35,062 for 1996, 1995 and 1994, respectively. The fully-diluted weighted average number of common and equivalent shares outstanding (in thousands) was 35,105, 34,988 and 41,812 for 1996, 1995 and 1994, respectively. Net earnings used in the computation of primary earnings per share are reduced by preferred stock dividend requirements. Net earnings used in the computation of fully-diluted earnings per share are reduced by preferred stock dividend requirements when the effect of conversion is anti-dilutive and by amounts representing the additional after-tax contribution that would be necessary to meet ESOP debt service requirements under an assumed conversion of the Series C ESOP preferred stock when the effect is dilutive. Environmental Liabilities--The company recognizes environmental liabilities when a loss is probable and can be reasonably estimated. Such liabilities are generally not subject to insurance coverage. Each environmental obligation is estimated by engineering and legal specialists within the company based on current law and existing technologies. Such estimates are based primarily upon the estimated cost of investigation and remediation required and the likelihood that other potentially responsible parties will be able to fulfill their commitments at the sites where the company may be jointly and severally liable with such parties. The company periodically evaluates and revises its estimates for environmental obligations based on expenditures against established reserves and the availability of additional information. 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications--Certain items in the prior year financial statements have been reclassified to conform with the presentation used in 1996. (II) RESTRUCTURING CHARGES Results of operations in the fourth quarter of 1996 include a restructuring charge of $57.6 million. This charge is comprised of $42.8 million for employee severance and $14.8 million for exit costs and consolidation of certain facilities. The workforce reductions and consolidation of facilities will be substantially completed in 1997. The restructuring is designed to aggressively improve the company's cost structure, streamline operations and divest the company of underperforming assets. The after-tax cash impact of this charge is approximately $40 million, the majority of which is expected to be paid out during 1997. Employee severance costs result from the termination of approximately 1,430 employees, primarily in the international retail and wholesale operations, the North American distribution business, and at a closed North American manufacturing operation. The severance costs are based on the minimum levels that will be paid to the affected employees pursuant to the company's workforce reduction policies and certain foreign governmental requirements. Exit and consolidation costs principally include lease termination costs of international retail stores, and certain international wholesale operations, the consolidation of certain North American distribution facilities and the consolidation of a North American manufacturing operation. Results of operations in the second and fourth quarters of 1995 include restructuring charges of $6.1 million and $20.8 million, respectively. These charges are comprised of $20.1 million for employee severance and $6.8 million for exit costs and consolidation of certain facilities. The workforce reductions and consolidation of facilities were completed as of December 31, 1996. Employee severance costs for 1995 resulted from the termination of a total of approximately 750 employees, primarily in Argentina, the United States and Europe. The amounts paid to terminated employees in 1995 and 1996 approximated the related charges recorded in 1995. Exit costs for 1995 include efforts to consolidate and restructure selected operations primarily in the United States. The consolidation charge includes additional costs for certain replacement market and related facilities consolidated after the acquisition of SPX Corporation's Sealed Power Replacement aftermarket business. 39 41 (III) ADJUSTMENT OF ASSETS HELD FOR SALE TO FAIR VALUE The company continually reviews all components of its businesses for possible improvement of future profitability through acquisition, divestiture, reengineering or restructuring. The company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," effective as of January 1, 1995. This statement addresses the accounting for the impairment of long-lived assets and long-lived assets to be disposed of, certain identifiable intangibles and goodwill related to those assets, and establishes guidance for recognizing and measuring impairment losses and requires that the carrying amount of impaired assets be reduced to fair value. During 1996, management designed and implemented a restructuring plan to aggressively improve the company's cost structure, streamline operations and divest the company of underperforming assets. As part of this plan, the company decided to sell 132 international retail operations, sell or restructure 30 wholesale international replacement operations and consolidate a North American manufacturing operation. The company expects to complete substantially all of these actions in 1997. The carrying value of the assets held for sale was reduced to fair value based on estimates of selling values less costs to sell. Selling values used to determine the fair value of assets held for sale were determined using market prices (i.e., valuation multiples) of comparable companies from recently consummated transactions. The carrying value of net assets held for sale as of December 31, 1996 was $107 million which includes $38 million of accounts receivable, $88 million of inventory, $29 million of accounts payable, $1 million of net other current assets and liabilities, and $11 million of noncurrent assets. In accordance with SFAS 121, the carrying value of long-lived assets held for sale will not be amortized or depreciated in subsequent periods. The resulting adjustment of $148.5 million to reduce assets held for sale to fair value was recorded in the fourth quarter of 1996. Net sales for businesses to be disposed of approximated $234 million, $214 million and $129 million in 1996, 1995 and 1994, respectively. In 1996, based upon the final sale, the company recorded an additional writedown of $2.8 million to the net asset value of the United States ball bearings manufacturing operations. In 1995, the company decided to sell the ball bearings operations and reduced the carrying value by $17.0 million to record assets held for sale at fair value. In 1995, the company also decided to sell its heavy-wall bearing division in Germany and Brazil and certain other non-strategic assets. The company estimated the fair value of the businesses held for sale based on discussions with prospective buyers, adjusted for selling costs. The company reduced its carrying value by $17.0 million to record assets held for sale at fair value. This division was sold in January 1997 for $10.4 million, which approximated the carrying value of the assets at December 31, 1996. In addition, in 1995, the company reduced the carrying value of certain other impaired long-lived assets by $17.8 million to record them at fair value. No further significant fair value adjustments were recorded for these assets in 1996. (IV) REENGINEERING AND OTHER RELATED CHARGES In 1996, the company initiated an extensive effort to strategically review its businesses and focus on its competencies of manufacturing, engineering and distribution. As a result of this process, the company incurred $11.4 million of pretax charges for professional fees and personnel costs related to the strategic review of the company, and changes in management and related costs. In 1995, the company recorded $13.9 million of pretax charges for reengineering and other costs. These costs included $7.0 million in professional fees and personnel costs to reengineer the business on a company-wide basis and $6.9 million primarily for certain other non-recurring costs relating to brand consolidation at the customer level of the company's Federal-Mogul-Registered Trademark-, TRW-Registered Trademark- and Sealed Power-Registered Trademark- branded engine parts. (V) CHANGES IN ACCOUNTING ESTIMATES During the third and fourth quarters of 1996, the company made certain changes in accounting estimates totaling $51 million ($34 million after tax, $.97 per share) due to 1996 events and new information becoming available. The changes in accounting estimates included increasing the provision for customer incentive programs and related sales initiatives by $18 million, increasing the provision for excess and obsolete inventory by $13 million, increasing the provision for bad debts by $3 million, increasing the provision for environmental and legal matters by $9 million and increasing various other provisions by approximately $8 million. (VI) ACQUISITIONS OF BUSINESSES The company accounted for the following acquisitions as purchases, and accordingly, the purchase prices have been allocated to the acquired assets and assumed liabilities based on their estimated fair values as of the 40 42 acquisition date. The consolidated statements of operations include the operating results of the acquired businesses from the acquisition dates unless otherwise stated. On September 30, 1995, the company completed its acquisition of the Centropiezas group, a chain of retail stores in Puerto Rico. Wales-based Seal Technology Systems Limited, a leading designer and manufacturer of a specialized range of seals and gaskets for the automotive sector and other industrial markets was purchased September 25, 1995. The company acquired Bertolotti Pietro e Figli, S.r.l., a distributor of premium brand European auto and truck parts throughout Italy on June 28, 1995. On October 31, 1994, the company purchased all the outstanding shares of Varex Corporation Limited, the largest independent auto parts distributor in South Africa. The consolidated statements of operations include the operating results of Varex from July 1, 1994. (VII) SALES OF BUSINESSES In November 1996, the company completed the sale of the operations and substantially all of the assets of its United States ball bearings manufacturing operations to NTN-U.S.A. Corporation. The company received $31 million in cash and retained customer receivables while NTN-U.S.A. Corporation assumed certain liabilities. The results of operations have been included in the company's consolidated statement of operations through the date of sale. The company recognized no gain or loss on the sale. (Refer to Note (iii) for previous writedowns of assets to fair value.) In September 1996, the company completed the sale of the assets and business of its electrical products manufacturing operations to Capsonic Automotive, Inc. The company received $11 million in cash and retained customer receivables, while Capsonic Automotive assumed certain liabilities. The results of operations have been included in the company's consolidated statement of operations through the date of sale. The company recognized no gain or loss on the sale. In December 1995, the company sold its equity interest in Westwind Air Bearings Limited in England and its affiliated operations in the United States and Japan for $20.5 million. The company recognized a pre-tax gain on the sale of $16.2 million. In April 1995, the company completed the sale of the operations and substantially all of the assets of its Precision Forged Products Division to Borg-Warner Automotive, Inc. The company received $28.0 million in cash and retained customer receivables, while Borg-Warner assumed certain liabilities. The results of operations have been included in the company's consolidated statement of operations through the date of sale. The company recognized a pre-tax gain on the sale of $7.8 million. (VIII) FINANCIAL INSTRUMENTS FOREIGN EXCHANGE RISK AND COMMODITY PRICE MANAGEMENT The company is subject to exposure to market risks from changes in foreign exchange rates and raw material price fluctuations. Derivative financial instruments are utilized by the company to reduce those risks. The company does not hold or issue derivative financial instruments for trading or speculative purposes. The company's foreign exchange contracts at December 31 are summarized below:
1996 1995 ---------------------------- ------------------------ CONTRACT DEFERRED GAIN CONTRACT DEFERRED AMOUNT (LOSS) AMOUNT (LOSS) ----------- --------------- ----------- ----------- (MILLIONS OF DOLLARS) Forwards $ 6.6 $ -- $ 23.5 $ (.3) Options Purchased -- -- 8.0 -- ----- ----- ------- ------ $ 6.6 $ -- $ 31.5 $ (.3) ===== ===== ======= ======
The company has entered into copper contracts to hedge against the risk of price increases. These contracts are expected to offset the effects of price changes on the firm purchase commitments for copper. Under the agreements, the company is committed to purchase 4.7 million pounds of copper. The net unrealized gain on these firm purchase commitments at December 31, 1996 is $.1 million. Deferred gains and losses are included in other assets and liabilities and recognized in operations when the future purchase or sale occurs, or at the point in time when the purchase or sale is no longer expected to occur. 41 43 Concentrations of Credit Risk Financial instruments which potentially subject the company to concentrations of credit risk consist primarily of accounts receivable and cash investments. The company's customer base includes virtually every significant global automotive manufacturer and a large number of distributors and installers of automotive replacement parts. However, the company's credit evaluation process, reasonably short collection terms and the geographical dispersion of sales transactions help to mitigate any concentration of credit risk. The company also has cash investment policies that limit the amount of credit exposure to any one financial institution and require placement of investments in financial institutions evaluated as highly creditworthy. The company does not generally require collateral for its trade accounts receivable. The allowance for doubtful accounts of $16.3 million and $18.7 million at December 31, 1996 and 1995 is based upon the expected collectibility of all trade accounts receivable, including those sold. Fair Value of Financial Instruments The carrying amounts of certain financial instruments such as cash and equivalents, accounts receivable, accounts payable, and short-term and long-term debt approximate their fair values. The fair value of the long-term debt is estimated using discounted cash flow analysis and the company's current incremental borrowing rates for similar types of arrangements. Accounts Receivable Securitization On an ongoing basis, the company sells accounts receivables to Federal-Mogul Funding Corporation, a wholly owned subsidiary, which then sells such receivables without recourse to a master trust. Amounts sold under this arrangement were $95.0 million at December 31, 1996 and 1995. Accounts receivable at both December 31, 1996 and 1995 exclude the $95.0 million. (IX) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and include expenditures for additional facilities and those expenditures which materially extend the useful lives of existing buildings, machinery and equipment. Depreciation is computed principally by the straight-line method for financial reporting purposes and by accelerated methods for income tax purposes. At December 31, property, plant and equipment consisted of the following:
ESTIMATED USEFUL LIFE 1996 1995 ----------- --------- --------- (MILLIONS OF DOLLARS) Land -- $ 32.1 $ 35.7 Buildings and building improvements 40 yrs. 144.1 180.8 Machinery and equipment 3-12 yrs. 378.8 442.1 --------- --------- 555.0 658.6 Accumulated depreciation (204.7) (232.0) --------- --------- $ 350.3 $ 426.6 ========= =========
The company leases various facilities and equipment under both capital and operating leases. Net assets subject to capital leases were not significant at December 31, 1996 and 1995. The balance of the deferred gain resulting from the 1988 sale and leaseback of a portion of the corporate headquarters complex was $7.8 million at December 31, 1996. The deferred gain is being amortized over the term of the lease as a reduction of rent expense. Future minimum payments under noncancelable operating leases with initial or remaining terms of more than 1 year are, in millions: 1997-$28.1; 1998-$25.8; 1999-$22.1; 2000-$18.2; 2001-$14.3 and thereafter, $60.8. Future minimum lease payments have been reduced by approximately $31.2 million for amounts to be received under sublease agreements. Total rental expense under operating leases was $33.8 million in 1996, $34.0 million in 1995 and $25.7 million in 1994, exclusive of property taxes, insurance and other occupancy costs generally payable by the company. (X) DEBT The company's $300 million United States revolving credit facility matures in June 1998. The company also has a European revolving credit facility for $50 million. As of December 31, 1996, the company had $185 million 42 44 borrowed against the United States revolver and $9 million borrowed against the European revolver. The company's United States revolving credit facility contains restrictive covenants that, among other matters, require the company to maintain certain financial ratios. The covenants were amended in 1996 in relation to certain charges recorded in the third and fourth quarters of 1996. The amendments to the covenants are effective through March 31, 1997. The company intends to enter into a new consolidated multi-currency revolving credit facility in the first half of 1997. The revolving credit facility borrowings are included in short-term debt as of December 31, 1996. Short-term debt also includes international subsidiaries' local credit arrangements that are maintained in accordance with local customary practice. The weighted average interest rate for the company's short-term debt was 7.9% and 9.5% as of December 31, 1996 and 1995, respectively. Excluding the revolving credit facility which was classified as a current liability at December 31, 1996 and as a long-term liability at December 31, 1995, the weighted average interest rate for short-term debt increased to 10.9% at December 31, 1996 from 9.5% at December 31, 1995. The interest rate on the revolving credit facility at December 31, 1996 and 1995 was 6.1% and 6.2%, respectively. Long-term debt at December 31 consists of the following:
1996 1995 --------- --------- (MILLIONS OF DOLLARS) Revolving credit facility $ -- $ 185.0 Medium-term notes 125.0 125.0 Notes payable 64.8 68.1 ESOP obligation 28.0 33.7 European revolving credit facility -- 44.7 Other 17.7 38.1 --------- --------- 235.5 494.6 Less current maturities included in short-term debt 25.9 13.1 --------- --------- $ 209.6 $ 481.5 ========= =========
In August 1994, the company initiated a medium-term note program for up to $200 million. Notes were issued in maturities ranging from 5 to 10 years. The average interest rate was approximately 8.4%. In December 1990, the company privately placed $75 million in notes with insurance companies. The amount outstanding on these notes was $64.8 million as of December 31, 1996. The interest rate on the notes is approximately 11%. The notes will mature in December 2000. The note agreements contain restrictive covenants that, among other matters, require the company to maintain certain financial ratios and a minimum level of tangible net worth and limit the amount of indebtedness that the company may incur. The covenants were amended in 1996 in relation to certain charges recorded in the third and fourth quarters of 1996. The amendments to the covenants are effective through June 30, 1997. The company expects to be in compliance with the original covenants by the expiration of the amendments. The ESOP obligation represents the unpaid principal balance on an 11-year loan entered into by the company's ESOP in 1989. Proceeds of the loan were used by the ESOP to purchase the company's Series C ESOP preferred stock. Payment of principal and interest on the notes is unconditionally guaranteed by the company, and therefore, the unpaid principal balance of the borrowing is classified as long-term debt. Company contributions and dividends on the preferred shares held by the ESOP are used to meet semi-annual principal and interest obligations. The original ESOP obligation bore annual interest at the rate of 11.5%. The obligation was refinanced with on June 30, 1995 at a fixed interest rate of 7.2%. The ESOP obligation matures in December 2000. Aggregate maturities of long-term debt for each of the years following 1997 are, in millions: 1998-$28.5; 1999-$48.5; 2000-$45.1; 2001-$45.1; and thereafter, $42.4. Interest paid in 1996, 1995 and 1994 was $43.5 million, $37.1 million and $21.4 million, respectively. (XI) CAPITAL STOCK AND PREFERRED SHARE PURCHASE RIGHTS The company's articles of incorporation authorize the issuance of 60,000,000 shares of common stock, of which 35,130,359 shares, 35,044,859 shares and 34,987,810 shares were outstanding at December 31, 1996, 1995 and 1994, respectively. In February 1994, the company sold 5,750,000 shares of its common stock in a public offering which generated net proceeds of $191.3 million. The proceeds were used to repay bank debt outstanding, including debt incurred for the acquisition of SPX Corporation's Sealed Power Replacement aftermarket business. 43 45 The articles of incorporation also authorize the issuance of 5,000,000 shares of preferred stock. At December 31, 1996, 1995 and 1994, 1,600,000 shares of $3.875 Series D Convertible Exchangeable Preferred Stock (Series D preferred stock) were outstanding. Sold to institutional investors in a private placement, each share has a liquidation preference of $50 and is convertible into the company's common stock at a conversion price of $18 per share. The shares are redeemable and may be exchanged at the company's option for 7.75% convertible subordinated debentures due in 2012. Such debentures would be convertible into the company's common stock at the same conversion price as the Series D preferred stock. The company's ESOP covers substantially all domestic salaried employees and allocates Series C ESOP Convertible Preferred Stock (Series C ESOP preferred stock) to eligible employees based on their contributions to the Salaried Employees' Investment Program and their eligible compensation. At December 31, 1996, 1995 and 1994, respectively, 835,898 shares, 892,620 shares and 926,136 shares of Series C ESOP preferred stock were outstanding. The company repurchased and retired 56,722 Series C ESOP preferred shares valued at $3.6 million during 1996 and 33,516 Series C ESOP preferred shares valued at $2.1 million during 1995, all of which were forfeited by participants upon early withdrawal from the plan. The Series C ESOP preferred stock is convertible into shares of the company's common stock at a rate of two shares of common stock for each share of preferred stock. The Series C ESOP preferred stock may be issued only to a trustee acting on behalf of an employee stock ownership plan or other employee benefit plan of the company. The shares are automatically converted into shares of common stock in the event of any transfer to any person other than the plan trustee. The Series C ESOP preferred stock is redeemable, in whole or in part, at the option of the company. The charge to operations for the cost of the ESOP was $4.2 million in 1996, $4.4 million in 1995 and $4.9 million in 1994. The company made cash contributions to the plan of $8.1 million in 1996, $8.5 million in 1995 and $9.2 million in 1994, including preferred stock dividends of $4.1 million in 1996, $4.3 million in 1995 and $4.5 million in 1994. ESOP shares are released as principal and interest on the debt is paid. The ESOP Trust uses the preferred dividends not allocated to employees to make principal and interest payments on the debt. Compensation expense is measured based on the fair value of shares committed to be released to employees. Dividends on ESOP shares are treated as a reduction of retained earnings in the period declared. The number of allocated shares and suspense shares held by the ESOP were 504,435 and 331,463 at December 31, 1996, and 486,663 and 403,058 at December 31, 1995, respectively. There were no committed-to-be-released shares at December 31, 1996 and December 31, 1995. Any repurchase of the ESOP shares is strictly at the option of the company. In 1988, the company's Board of Directors authorized the distribution of one Preferred Share Purchase Right (Right) for each outstanding share of common stock of the company. Each Right entitles shareholders to buy one-half of one-hundredth of a share of a new series of preferred stock at a price of $70. As distributed, the Rights trade together with the common stock of the company. They may be exercised or traded separately only after the earlier to occur of: (i) 10 days following a public announcement that a person or group of persons has obtained the right to acquire 10% or more of the outstanding common stock of the company (20% in the case of certain institutional investors), or (ii) 10 business days (or such later date as may be determined by action of the Board of Directors) following the commencement or announcement of an intent to make a tender offer or exchange offer which would result in beneficial ownership by a person or group of persons of 10% or more of the company's outstanding common stock. Additionally, if the company is acquired in a merger or other business combination, each Right will entitle its holder to purchase, at the Right's exercise price, shares of the acquiring company's common stock (or stock of the company if it is the surviving corporation) having a market value of twice the Right's exercise price. The Rights may be redeemed at the option of the Board of Directors for $.005 per Right at any time before a person or group of persons acquires 10% or more of the company's common stock. The Board may amend the Rights at any time without shareholder approval. The Rights will expire by their terms on November 14, 1998. (XII) INCENTIVE STOCK PLANS The company's shareholders adopted stock option plans in 1976 and 1984 and a performance incentive stock plan in 1989. These plans provide generally for awarding restricted shares or granting options to purchase shares of the company's common stock. Restricted shares entitle employees to all of the rights of holders of common stock, subject to certain transfer restrictions and to forfeiture in the event that the conditions for their vesting are not met. Options entitle employees to purchase shares at an exercise price not less than 100% of the fair market value on the grant date and expire after 10 years. 44 46 Under the plans, options become exercisable from 6 months to 4 years after their date of grant, as determined by the Board of Directors at the time of grant. At December 31, 1996, 284,556 shares were available for future grants under the plans. The company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options. The exercise price of the company's employee stock options equals the market price of the underlying stock on the date of grant, and therefore, no compensation expense is recognized under APB 25. The following table summarizes activity relating to the company's incentive stock plans:
NUMBER WEIGHTED-AVERAGE OF SHARES PRICE ----------------- ----------------- (IN MILLIONS) Outstanding at January 1, 1994 2.6 $ 22.02 Options / stock granted .1 36.08 Options exercised (.3) 20.30 Options / stock lapsed or canceled -- -- -- ------ --------- Outstanding at December 31, 1994 2.4 22.98 Options / stock granted .5 18.72 Options exercised -- -- Options / stock lapsed or canceled (.3) 23.69 -- ------ --------- Outstanding at December 31, 1995 2.6 22.02 Options / stock granted .5 22.08 Options exercised -- -- Options / stock lapsed or canceled (.6) 22.32 ------ --------- Outstanding at December 31, 1996 2.5 $ 22.03 ====== ========= Options exercisable at December 31, 1996 1.3 $ 22.50 ====== ========= Options exercisable at December 31, 1995 1.5 $ 21.50 ====== ========= Options exercisable at December 31, 1994 1.2 $ 20.00 ====== =========
Pro forma information regarding net income and earnings per share is required by FASB Statement No. 123, "Accounting for Stock-Based Compensation" and has been determined as if the company had accounted for its employee stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.5% and 6.5%; dividend yields of 2.3% and 2.4%; volatility factors of the expected market price of the company's common stock of 11.2% and 8.1%; and a weighted average expected life of the option of 5 years. The effect of applying Statement No. 123's fair value method to the company's stock-based awards results in net income and earnings per share that approximate amounts reported. The weighted-average fair value of options granted during the years ended December 31, 1996 and 1995 are $2.56 and $.90, respectively. (XIII) POST EMPLOYMENT BENEFITS The company maintains several defined benefit pension plans which cover substantially all domestic employees and certain employees in other countries. Benefits for domestic salaried employees are based on compensation, age and years of service, while hourly employees' benefits are primarily based on negotiated rates and years of service. International plans maintained by the company provide benefits based on years of service and compensation. The company's funding policy is consistent with funding requirements of federal and international laws and regulations. Plan assets consist primarily of listed equity securities and fixed income instruments. As of December 31, 1996, plan assets included 309,000 shares of the company's common stock valued at approximately $6.8 million. 45 47 Net periodic pension cost for the company's defined benefit plans in 1996, 1995 and 1994 consists of the following:
1996 1995 1994 --------- --------- --------- (MILLIONS OF DOLLARS) United States Plans (Income)/Expense Service cost--benefits earned during the period $ 9.0 $ 7.3 $ 6.8 Interest cost on projected benefit obligation 15.0 15.0 14.0 Actual return on plan assets (30.8) (51.6) (3.7) Net amortization and deferral 3.3 28.6 (22.7) Curtailment loss 3.7 .5 1.1 --------- --------- --------- Net periodic pension (income) cost $ .2 $ (.2) $ (4.5) ========= ========= ========= International Plans 1996 1995 1994 ---- ---- ---- (MILLIONS OF DOLLARS) (Income)/Expense Service cost--benefits earned during the period $ .4 $ .4 $ .3 Interest cost on projected benefit obligation 2.5 2.7 2.4 -------- ------- -------- Net periodic pension cost $ 2.9 $ 3.1 $ 2.7 ======== ======= ========
The following table sets forth the funded status for the company's defined benefit plans at December 31:
ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS BENEFITS EXCEED ASSETS -------------------- ------------------ 1996 1995 1996 1995 --------- --------- ------ ------- (MILLIONS OF DOLLARS) United States Plans Actuarial present value of benefit obligations: Vested benefit obligation $ 96.2 $ 95.6 $ 88.8 $ 79.9 ========= ========= ========= ========= Accumulated benefit obligation $ 102.1 $ 103.4 $ 106.4 $ 95.4 ========= ========= ========= ========= Projected benefit obligation $ 104.0 $ 105.0 $ 107.1 $ 96.0 ========= ========= ========= ========= Plan assets at fair value 177.8 173.0 84.8 74.6 --------- --------- --------- --------- Plan assets in excess of (less than) projected benefit obligation 73.8 68.0 (22.3) (21.4) Unrecognized net (asset) liability at transition (5.8) (9.1) .5 .8 Unrecognized prior service cost .5 .2 10.0 8.8 Unrecognized net (gain) loss (23.2) (18.3) 3.2 6.4 --------- --------- --------- --------- Accrued pension asset (liability) included in the consolidated balance sheets $ 45.3 $ 40.8 $ (8.6) $ (5.4) ========= ========= ========= =========
46 48
ACCUMULATED BENEFITS EXCEED ASSETS ------------------------ 1996 1995 ----------- ----------- (MILLIONS OF DOLLARS) International Plans Actuarial present value of benefit obligations: Vested benefit obligation $ 32.9 $ 35.0 ========== ========== Accumulated benefit obligation $ 34.5 $ 36.6 ========== ========== Projected benefit obligation $ 34.5 $ 36.7 ========== ========== Plan assets less than projected benefit obligation (34.5) (36.7) Unrecognized net loss 4.0 4.4 ---------- ---------- Accrued pension liability included in the consolidated balance sheets $ (30.5) $ (32.3) ========== ==========
The assumptions used in computing the above information are as follows:
1996 1995 1994 ----- ----- ----- United States Plans Discount rates 7 1/2% 7 1/2% 8 1/2% Rates of increase in compensation levels 4 1/2% 4 1/2% 5 1/2% Expected long-term rates of return on assets 10% 10% 10%
1996 1995 1994 ----- ----- ----- International Plans Discount rates 7 1/2% 7 1/2% 8 1/2% Rates of increase in compensation levels 4 1/2% 4 1/2% 4 1/2%
The Company's minimum liability adjustment was $13.4 million and $15.3 million for United States plans at December 31, 1996 and 1995, respectively, and $3.5 million and $3.9 million for international plans at December 31, 1996 and 1995, respectively. The company also provides health care and life insurance benefits for certain domestic retirees covered under company-sponsored benefit plans. Participants in these plans may become eligible for these benefits if they reach normal retirement age while working for the company. The company's policy is to fund benefit costs as they are provided, with retirees paying a portion of the costs. The components of net periodic postretirement benefit costs are as follows as of December 31:
1996 1995 1994 --------- --------- --------- (MILLIONS OF DOLLARS) Service cost $ 2.8 $ 2.3 $ 2.8 Interest cost 10.8 10.4 9.0 Curtailment gain (7.5) (1.0) -- Amortized gains (.5) (1.1) -- --------- ------- ------ Net periodic postretirement benefits cost $ 5.6 $ 10.6 $ 11.8 ========= ======= ======
47 49 The following schedule reconciles the funded status of the company's postretirement benefit plans to the amounts recorded in the company's balance sheets as of December 31:
1996 1995 --------- --------- (MILLIONS OF DOLLARS) Accumulated postretirement benefit obligations (APBO): Retirees $ 103.9 $ 94.3 Active plan participants 46.9 48.7 --------- --------- 150.8 143.0 Unrecognized net gain (loss) (1.4) 7.6 Unrecognized prior service cost 4.1 4.5 --------- --------- Accrued postretirement benefits liability $ 153.5 $ 155.1 ========= =========
The discount rate used in determining the APBO was 7.5% at December 31, 1996 and 1995. At December 31, 1996, the assumed annual health care cost trend used in measuring the APBO approximated 7.5% in 1996, declining to 7.1% in 1997 and to an ultimate rate of 5.5% estimated to be achieved in 2008. At December 31, 1995, the assumed annual health care cost trend used in measuring the APBO approximated 8% in 1995, declining to 7.5% in 1996 and to an ultimate annual rate of 5.5% estimated to be achieved in 2008. Increasing the assumed cost trend rate by 1% each year would have increased the APBO by approximately 8.4% and 10.9% at December 31, 1996 and 1995, respectively. Aggregate service and interest costs would have increased by approximately 9.4% for 1996, and 12.9% for 1995 and 1994. In 1991, the company established a retiree health benefits account (as defined in Section 401(h) of the Internal Revenue Code) within its domestic salaried employees' pension plan. Annually through the year 2000, the company may elect to transfer excess pension plan assets (subject to defined limitations) to the 401(h) account for purposes of funding current salaried retiree health care costs. The company transferred excess pension plan assets of $4.2 million in 1996, $4.2 million in 1995 and $4.0 million in 1994 to the 401(h) account to fund salaried retiree health care benefits. (XIV) INCOME TAXES Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The components of earnings/(loss) before income taxes consisted of the following:
1996 1995 1994 --------- --------- --------- (MILLIONS OF DOLLARS) Domestic $ (88.3) $ 7.9 $ 90.5 International (140.4) (11.2) 1.0 --------- --------- --------- $ (228.7) $ (3.3) $ 91.5 ========= ========= =========
48 50 Significant components of the provision for income taxes/(tax benefit) are as follows:
1996 1995 1994 --------- --------- --------- (MILLIONS OF DOLLARS) Current: Federal $ (4.0) $ 12.7 $ 15.4 State and local 2.3 1.2 2.1 International 6.3 9.3 5.2 --------- --------- --------- Total current 4.6 23.2 22.7 Deferred: Federal (25.2) (9.0) 14.7 State and local (1.8) (.9) .8 International (10.8) (6.4) --------- --------- --------- Total deferred (27.0) (20.7) 9.1 --------- --------- --------- $ (22.4) $ 2.5 $ 31.8 ========= ========= =========
The reconciliation of income taxes/(tax benefits) computed at the United States federal statutory tax rate to income tax expense/(benefit) is:
1996 1995 1994 --------- --------- --------- (MILLIONS OF DOLLARS) Income taxes (tax benefits) at United States statutory rate $ (80.1) $ (1.1) $ 32.0 Tax effect from: Tax credits, state income taxes and other 1.8 (2.3) (2.4) Losses on international operations without tax benefits and foreign tax rate differences 55.9 5.9 2.2 --------- --------- --------- $ (22.4) $ 2.5 $ 31.8 ========= ========= =========
The following table summarizes the company's total provision for income taxes/(tax benefits):
1996 1995 1994 --------- --------- --------- (MILLIONS OF DOLLARS) Income tax expense (benefit) $ (22.4) $ 2.5 $ 31.8 Allocated to equity: Currency translation (4.9) 5.3 3.6 Preferred dividends (1.5) (1.6) (1.6) Investment securities .8 -- -- Other .7 .8 .6 --------- --------- --------- $ (27.3) $ 7.0 $ 34.4 ========= ========= =========
49 51 Significant components of the company's deferred tax assets and liabilities as of December 31 are as follows:
1996 1995 --------- --------- (MILLIONS OF DOLLARS) Deferred tax assets: Postretirement benefits $ 57.2 $ 58.5 Net operating loss carryforwards of international subsidiaries 68.1 56.0 Loss on foreign investment 49.0 -- Restructuring costs 8.3 -- Inventory basis 12.0 5.3 Allowance for doubtful accounts 7.0 4.2 Other temporary differences 27.6 16.2 --------- --------- Total deferred tax assets 229.2 140.2 Valuation allowance for deferred tax assets (89.4) (23.7) --------- --------- Net deferred tax assets 139.8 116.5 Deferred tax liabilities: Fixed asset basis differences (55.0) (62.3) Pension (12.4) (10.9) Restructuring costs -- (2.8) --------- --------- Total deferred tax liabilities (67.4) (76.0) --------- --------- $ 72.4 $ 40.5 ========= =========
Deferred tax assets and liabilities are recorded in the consolidated balance sheets as follows:
1996 1995 ----------- ----------- (MILLIONS OF DOLLARS) Assets: Prepaid expenses and income tax benefits $ 54.6 $ 34.9 Business investments and other assets 21.9 6.2 Liabilities: Other current accrued liabilities (3.6) -- Other long-term accrued liabilities (.5) (.6) -------- ------- $ 72.4 $ 40.5 ======== =======
Income taxes paid in 1996, 1995 and 1994 were $6.7 million, $19.4 million and $20.0 million, respectively. Undistributed earnings of the company's international subsidiaries amounted to approximately $23 million at December 31, 1996. No taxes have been provided on approximately $19 million of these earnings, which are considered by the company to be permanently reinvested. Upon distribution of these earnings, the company would be subject to United States income taxes and foreign withholding taxes. Determining the unrecognized deferred tax liability on the distribution of these earnings is not practicable as such liability, if any, is dependent on circumstances existing when remittance occurs. The company has a $92.0 million German net operating loss carryforward at December 31, 1996 that has no expiration date. The company has $76.0 million of additional foreign operating losses with various expiration dates through 2002. (XV) OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA The company is a global manufacturer and distributor of a broad range of non-discretionary parts, primarily vehicular components for automobiles, light trucks, heavy duty trucks and farm and construction vehicles and industrial products. The company sells parts to original equipment manufacturers, principally the major automotive manufacturers in the United States and Europe. Through its worldwide distribution network, the company sells replacement parts in the vehicular replacement market. All of these activities constitute a single business segment. Canadian operations are aggregated with the U.S. operations as they are not significant under the materiality thresholds of SFAS 14. 50 52 Financial information, summarized by geographic area, is as follows:
1996 1995 1994 --------- --------- --------- (MILLIONS OF DOLLARS) Net sales: United States and Canada $ 1,224.7 $ 1,280.6 $ 1,334.5 Europe 436.0 382.8 285.3 Other international 372.0 336.4 269.7 --------- --------- --------- $ 2,032.7 $ 1,999.8 $ 1,889.5 ========= ========= ========= Operating earnings (loss): United States and Canada $ (53.2) $ 57.5 $ 119.6 Europe 11.8 (13.2) (5.0) Other international (112.8) 13.2 25.1 --------- --------- --------- (154.2) 57.5 139.7 Corporate expenses and other (27.7) (27.8) (26.6) --------- --------- --------- Operating earnings (loss) $ (181.9) $ 29.7 $ 113.1 ========= ========= ========= 1996 1995 1994 --------- --------- --------- (MILLIONS OF DOLLARS) Identifiable assets: United States and Canada $ 775.5 $ 877.9 $ 885.5 Europe 451.0 493.9 342.5 Other international 228.7 322.7 253.7 --------- --------- --------- $ 1,455.2 $ 1,710.1 $ 1,481.7 ========= ========= =========
Transfers between geographic areas are not significant, and when made, are recorded at prices comparable to normal unaffiliated customer sales. (XVI) LITIGATION AND ENVIRONMENTAL MATTERS The company is one of a large number of defendants in a number of lawsuits brought by claimants alleging injury due to exposure to asbestos. The company is defending all such claims vigorously and believes that it has substantial defenses to liability and adequate insurance coverage for its defense costs. The company is also involved in various other legal actions and claims. While the outcome of litigation cannot be predicted with certainty, after consulting with the company's legal department, management believes that these matters will not have a material effect on the company's consolidated financial statements. The company is a party to lawsuits filed in various jurisdictions alleging claims pursuant to the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA) or other state or federal environmental laws. In addition, the company has been notified by the Environmental Protection Agency and various state agencies that it may be a potentially responsible party (PRP) for the cost of cleaning up certain other hazardous waste storage or disposal facilities pursuant to CERCLA and other federal and state environmental laws. PRP designation requires the funding of site investigations and subsequent remedial activities. Although these laws could impose joint and several liability upon each party at any site, the potential exposure is expected to be limited because at all sites other companies, generally including many large, solvent public companies, have been named as PRPs. In addition, the company has identified certain present and former properties at which it may be responsible for cleaning up environmental contamination. The company is actively seeking to resolve these matters. Although difficult to quantify based on the complexity of the issues, the company has accrued the estimated cost associated with such matters based upon current available information from site investigations and consultants. Management believes that these accruals, which have not been reduced by any anticipated insurance proceeds, will be adequate to cover the company's estimated liability for these exposures. 51 53 (XVII) QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD(1) FOURTH(2) YEAR --------- --------- ----------- ----------- --------- (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) Year ended December 31, 1996: Net sales $ 522.9 $ 536.6 $ 492.4 $ 480.8 $2,032.7 Gross margin 113.2 117.5 83.2 58.3 372.2 Net earnings (loss) 11.2 15.9 (12.6) (220.8) (206.3) Fully diluted earnings (loss) per share .25 .36 (.41) (6.34) (6.12) FIRST SECOND THIRD(1) FOURTH(2) YEAR --------- --------- ----------- ----------- --------- (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) Year ended December 31, 1995: Net sales $ 526.0 $ 506.7 $ 481.3 $ 485.8 $1,999.8 Gross margin 106.1 105.3 89.1 97.1 397.6 Net earnings (loss) 14.6 13.9 10.6 (44.9) (5.8) Fully diluted earnings (loss) per share .34 .32 .24 (1.32) (.42)
(1) Net loss includes a pretax charge of $38.5 million primarily relating to changes in estimates, adjustment of assets held for sale to fair value and other related charges. (2) Net loss includes a pretax charge for restructuring of $57.6 million, adjustment of assets held for sale to fair value of $144.9 million and $61.7 million primarily relating to changes in estimates, and other related charges. (3) Net earnings includes pretax charges for restructuring of $6.1 million and reengineering and other charges of $1.7 million. (4) Net loss includes pretax charges for restructuring of $20.8 million, reengineering and other charges of $12.2 million and an adjustment of assets held for sale to fair value of $51.8 million. (5) The restated quarterly net earnings (loss) were greater (less) than amounts previously reported by $.6 million, $.1 million, $4.7 million, $(.6) million and $.4 million, $(.3) million, $(.4) million, and $4.2 million for the first, second, third and fourth quarters of 1996 and 1995, respectively. The restated earnings (loss) per share on a fully diluted basis were greater (less) than amounts previously reported $.02, no effect, $.15, $(.02), and $.01, $(.01), $(.01), $.12, for the first, second, third and fourth quarters of 1996 and 1995, respectively. See Note (xviii) Restatement. (XVIII) RESTATEMENT The company has restated the previously issued 1996, 1995 and 1994 financial statements for certain charges recorded in 1996. The restatement does not affect the company's balance sheet at December 31, 1996. The corrections primarily pertain to timing in the recognition of the provision for doubtful accounts and customer incentive programs, the recognition of vendor rebates and the recognition of certain federal income tax credits. The following summarizes the net effect of these adjustments in millions:
1996 1995 1994 --------- --------- --------- (MILLIONS OF DOLLARS) Earnings (loss) before income taxes: As previously reported $ (249.3) $ (3.2) $ 102.1 As restated (228.7) (3.3) 91.5 Net earnings (loss): As previously reported (211.1) (9.7) 63.3 As restated (206.3) (5.8) 59.7 Earnings (loss) per common share shareholder: As previously reported (6.26) (.53) 1.46 As restated (6.12) (.42) 1.21 Retained earnings at December 31: As previously reported (193.0) 45.0 82.0 As restated (193.0) 40.2 73.3
In addition, previously reported retained earnings as of January 1, 1994 has been reduced by $5.1 million, which is net of applicable income taxes of $4.8 million, for the effect of similar items. 52 54 High and low prices for the company's common stock for each quarter in the past 2 years were as follows:
1996 1995 -------------------- -------------------- QUARTER HIGH LOW HIGH LOW - ------- --------- --------- --------- --------- First $ 20 7/8 $ 17 3/8 $ 23 1/4 $ 16 3/4 Second 19 7/8 17 7/8 19 7/8 16 7/8 Third 22 1/2 16 1/4 23 3/4 17 3/4 Fourth 24 1/2 20 3/8 21 1/2 17 1/4
Quarterly dividends of $.12 per common share were declared for 1996 and 1995. In February 1997, the company's Board of Directors declared a quarterly dividend of $.12 per common share. This was the 244th consecutive quarterly dividend declared by the company. 53 55 THIRD QUARTER RESULTS 6. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------------ ----------------------- (AS RESTATED) (AS RESTATED) 1997 1996 1997 1996 --------- ------------- --------- ----------- (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) Net sales $ 424.2 $ 492.4 $ 1,391.6 $ 1,551.9 Cost of products sold 321.4 409.2 1,061.4 1,238.0 --------- ------ --------- ----------- Gross margin 102.8 83.2 330.2 313.9 Selling, general and administrative expenses (74.0) (79.7) (225.9) (243.7) Adjustment of assets held for sale to fair value -- (6.4) -- (6.4) Re-engineering, severance and other related charges -- (5.6) -- (5.6) Interest expense (6.5) (11.0) (25.3) (32.8) Interest income 2.4 .6 4.2 2.1 International currency exchange losses -- (.7) -- (3.0) Other, net 2.9 (.3) 1.3 (1.4) --------- ------ --------- ----------- Earnings (Loss) Before Income Taxes and Extraordinary Item 27.6 (19.9) 84.5 23.1 Income taxes (benefits) 10.2 (7.3) 24.7 8.6 --------- ------ --------- ----------- Net Earnings (Loss) Before Extraordinary Item 17.4 (12.6) 59.8 14.5 Extraordinary item--loss on early retirement of debt, net of applicable income tax benefit -- -- 2.6 -- --------- ------ --------- ----------- Net Earnings (Loss) 17.4 (12.6) 57.2 14.5 Preferred stock dividends, net of tax benefits .6 2.2 4.9 .6 --------- ------ --------- ----------- Net Earnings (Loss) Available for Common Shares $ 16.8 $ (14.8) $ 52.3 $ 7.9 ========= ========= ========= ========== EARNINGS (LOSS) PER COMMON SHARE Primary Income (loss) before extraordinary item $ .45 $ (.41) $ 1.52 $ .23 Extraordinary item--loss on early retirement of debt, net of applicable income tax benefit -- -- (.07) -- --------- ------ --------- ---------- Net Earnings (Loss) $ .45 $ (.41) $ 1.45 $ .23 ========= ========= ========= ========== Fully Diluted Income (loss) before extraordinary item $ .40 $ (.41) $ 1.39 $ .23 Extraordinary item--loss on early retirement of debt, net of applicable income tax benefit -- -- (.06) -- --------- ------ --------- ---------- Net Earnings (Loss) $ .40 $ (.41) $ 1.33 $ .23 ========= ========= ========= ==========
See accompanying notes. 54 56 7. CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 DECEMBER 31 1997 1996 ------------- ------------ (MILLIONS OF DOLLARS) (UNAUDITED) ASSETS Current Assets: Cash and equivalents $ 20.5 $ 33.1 Accounts receivable (net of allowance for doubtful accounts of $17.1 million and $16.3 million) 239.4 231.3 Inventories 291.9 417.0 Prepaid expenses and income tax benefits 92.5 81.5 --------- ---------- Total Current Assets 644.3 762.9 Property, Plant and Equipment 312.8 350.3 Goodwill 146.3 154.0 Other Intangible Assets 60.7 63.1 Business Investments and Other Assets 133.0 124.9 --------- ---------- Total Assets $ 1,297.1 $ 1,455.2 ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Short-term debt $ 42.1 $ 280.1 Accounts payable 123.0 142.7 Accrued compensation 45.9 37.6 Other accrued liabilities 192.4 203.4 --------- ---------- Total Current Liabilities 403.4 663.8 Long-Term Debt 278.5 209.6 Post-employment Benefits 199.3 207.1 Other accrued Liabilities 67.9 56.2 --------- ---------- Total Liabilities 949.1 1,136.7 Shareholders' Equity: Series D preferred stock -- 76.6 Series C ESOP preferred stock 49.7 53.1 Unearned ESOP compensation (25.1) (28.4) Common stock 200.3 175.7 Additional paid-in capital 350.7 283.5 Accumulated deficit (154.6) (193.0) Currency translation and other (73.0) (49.0) --------- ---------- Total Shareholders' Equity 348.0 318.5 --------- ---------- Total Liabilities and Shareholders' Equity $ 1,297.1 $ 1,455.2 ========= ==========
See accompanying notes. 55 57 8. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30 ------------------ 1997 1996 ------- ------- (MILLIONS OF DOLLARS) CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES Net earnings $ 57.2 $ 14.5 Adjustments to reconcile net earnings to net cash provided from operating activities Depreciation and amortization 40.7 46.4 Deferred income taxes 5.3 (.7) Post-employment benefits 1.1 1.8 (Increase) decrease in accounts receivable (51.2) 8.3 Decrease in inventories 48.2 33.3 Increase (decrease) in accounts payable 1.1 (12.4) Increase in current liabilities and other 34.9 30.2 Adjustment of assets held for sale to fair value -- 6.4 Re-engineering, severance and other related charges -- 5.6 Loss on early retirement of debt 4.1 -- Payments against restructuring and re-engineering reserves (15.9) (13.2) --------- ------ Net Cash Provided From Operating Activities 125.5 120.2 CASH PROVIDED FROM (USED BY) INVESTING ACTIVITIES Expenditures for property, plant and equipment (29.9) (34.7) Proceeds from sale of business investments 78.7 11.0 Purchases of business investments -- (.3) --------- ------ Net Cash Provided From (Used By) Investing Activities 48.8 (24.0) CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES Issuance of common stock 12.0 .4 Fees for early retirement of debt (4.1) -- Fees related to issuance of debt (9.4) -- Net decrease in debt (163.6) (57.6) Dividends (18.2) (19.4) Other (3.6) (3.4) --------- ------ Net Cash Used By Financing Activities (186.9) (80.0) --------- ------ Increase (Decrease) in Cash and Equivalents (12.6) 16.2 Cash and Equivalents at Beginning of Period 33.1 19.4 --------- ------ Cash and Equivalents at End of Period $ 20.5 $ 35.6 ========= ======
See accompanying notes. 9. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1997 (i) BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- and nine-month periods ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K/A for the year ended December 31, 1996. 56 58 (II) EARNINGS PER COMMON SHARE The computation of primary earnings per share is based on the weighted average number of outstanding common shares during the period plus, when their effect is dilutive, common stock equivalents consisting of certain shares subject to stock options. Fully diluted earnings per share additionally assumes the conversion of outstanding Series C ESOP and Series D preferred stock and the contingent issuance of common stock to satisfy the Series C ESOP preferred stock redemption price guarantee when their effect is dilutive. The number of contingent shares used in the fully diluted calculation is based on the market price of the common stock on September 30, 1997 and the number of preferred shares held by the Employee Stock Ownership Plan (ESOP) that were allocated to participants'accounts as of September 30 of each of the respective years. The primary weighted average number of common and equivalent shares outstanding (in thousands) was 37,490 and 36,050 for the three- and nine-month periods ended September 30, 1997, and 35,097 and 35,088 for the three- and nine-month periods ended September 30, 1996. The fully diluted weighted average number of common and equivalent shares outstanding (in thousands) was 42,016 and 41,839 for the three- and nine- month periods ended September 30, 1997, and 35,097 and 35,122 for the three- and nine-month periods ended September 30, 1996, respectively. Net earnings used in the computations of primary earnings per share are reduced by preferred stock dividend requirements. Net earnings used in the computation of fully diluted earnings per share are reduced by amounts representing the preferred stock dividends when their effect is anti-dilutive and amounts representing the additional after-tax contribution that would be necessary to meet ESOP debt service requirements under an assumed conversion of the Series C ESOP preferred stock when their effect is dilutive. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997. The adoption of SFAS No. 128 would not materially impact the results of the earnings per share calculation for the three months and the nine months ended September 30, 1997 and 1996 and is not expected to materially impact the results of the earnings per share calculation for the year ended December 31, 1997. Quarterly dividends of $.12 per common share were declared for both the first, second and third quarters of 1997 and 1996. (III) INVENTORIES At September 30, 1997 and December 31, 1996, inventories consisted of the following:
1997 1996 --------- --------- (MILLIONS OF DOLLARS) Finished products $ 274.9 $ 417.0 Work-in-process 21.1 28.0 Raw materials 15.3 20.0 --------- --------- 311.3 465.0 Reserve for inventory valuation (19.4) (48.0) --------- --------- $ 291.9 $ 417.0 ========= =========
The $28.6 million decrease in the reserve for inventory valuation resulted primarily from the Company's initiative to dispose of slow moving and obsolete inventory that was fully reserved and the sales of certain international retail and wholesale businesses. As such, the reduction in the inventory reserves related to this initiative did not affect the Company's 1997 earnings. (IV) DEBT In June 1997, the Company entered into a new $350 million multicurrency revolving credit facility agreement with a consortium of international banks which matures in June 2002. This new agreement replaces the exiting U.S. and European revolving credit facilities and has similar pricing terms. The revolving credit facility contains restrictive covenants that, among other matters, require the Company to maintain certain financial ratios. As of September 30, 1997, there were no borrowings outstanding against the revolving credit facility. In April 1997, the Company issued $125 million of 10-year 8.8% senior notes. 57 59 (V) ADJUSTMENT OF ASSETS HELD FOR SALE The Company received $78.7 million in cash for businesses sold in the first nine months of 1997, while the purchasers assumed certain liabilities. The results of operations have been included in the Company's consolidated statements of earnings through the date of sale for the following transactions. In January 1997, the Company completed the previously announced sale of its heavy wall bearing division in Germany and Brazil to Zollern BHW Gleitlager GmbH, a member of Fuerstlich Hohenzollernsche Werke Laucherthal GmbH Co. On May 13, 1997, the Company completed the previously announced sale of its Australian replacement operations to Automotive Components Limited. On June 3, 1997, the Company completed the previously announced sale of its South African replacement operations. The Company sold the distribution operations to Chariots Holding Limited and the retail operations to Lexshell 16 Investment Holdings (Proprietary) Limited. The Company continually reviews and updates its impairment reserves related to the divestiture of its remaining retail/wholesale replacement operations and adjusts the reserve components to approximate the net fair value of its remaining businesses held for sale. There has been no net effect on the 1997 statement of earnings related to the above events. (VI) INCOME TAXES During the second quarter of 1997, the Company recognized an income tax benefit of $6.8 million related to the sales of the South African and Australian businesses. (VII) EXTRAORDINARY ITEM During the second quarter of 1997, the Company retired $64.7 million in private placement debt. The early retirement of the debt required a make-whole payment of $4.1 million, which was recorded as an extraordinary item of $2.6 million, net of the related tax benefit. (VIII) REDEMPTION OF SERIES D CONVERTIBLE EXCHANGEABLE PREFERRED STOCK On August 8, 1997, the Company announced its call for the redemption of all its outstanding $3.875 Series D Convertible Exchangeable Preferred Stock. Upon calling for redemption, the preferred stockholders elected to convert each preferred share into 2.778 shares of common stock. On August 28, 1997, the Company issued 4.4 million shares of common stock in exchange for all of the outstanding Series D convertible exchangeable preferred stock. (IX) RESTATEMENT In August 1997, the Company filed a Form 10-K/A which restated the previously issued 1996 financial statements for certain charges recorded in 1996. The restatement did not affect the Company's balance sheet at December 31, 1996. The corrections primarily pertained to timing in the recognition of the provision for doubtful accounts and customer incentive programs, the recognition of vendor rebates and the recognition of certain federal income tax credits. The following summarizes the net effect of these adjustments on the three-and nine-month periods ended September 30, 1996, in millions:
THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30 SEPTEMBER 30 1996 1996 ------------- ------------- (MILLIONS OF DOLLARS) Earnings (loss) before income taxes: As previously reported $ (27.4) $ 14.4 As restated (19.9) 23.1 Net earnings (loss): As previously reported (17.3) 9.1 As restated (12.6) 14.5 Earnings (loss) per common share: As previously reported (.56) .07 As restated (.41) .23 Accumulated deficit at December 31, 1996: As previously reported (193.0) (193.0) As restated (193.0) (193.0)
58 60 (X) SUBSEQUENT EVENT On October 16, the company announced they had made a cash offer to acquire all the outstanding common stock of T&N for 260 pence per share. The offer values T&N's share capital at $2.4 billion. In addition, the company will assume the debt of T&N at closing. The company will finance the acquisition through a committed bank facility from Chase Manhattan Bank. The company's intention is to put in place a permanent capital structure of a combination of equity and debt financing. The offer is subject to various conditions customary in the United Kingdom, including acceptances of the offer by T&N shareholders and the receipt of all applicable regulatory approvals in the United States and Europe. As part of the acquisition process, certain financing, professional and other related fees have been and will continue to be incurred in 1997. These fees have been capitalized as incurred and will be accounted for as direct acquisition or financing costs once the transaction closes. Management fully expects the acquisition to close, however, in the event the acquisition is not completed, these fees would be charged to expense and would materially impact net earnings at that time. The company may elect to accelerate payment of certain portions of the bank facility which would result in an extraordinary charge due to the write-off of the financing cost associated with the early retirement of debt. In addition, as part of financing the acquisition, the company purchased for $28.1 million a foreign currency option with a notional amount of $2.5 billion to cap the effect of potential unfavorable fluctuations in the British pound/US dollar exchange rate. The cost of the option and its change in fair value will be reflected in the results of operations in the fourth quarter of 1997. The option's fair value will exceed its cost if the British pound to US dollar exchange rate exceeds $1.667 at its expiration date in the first quarter of 1998. At closing on 10 November 1997, the British pound to US dollar exchange rate was $1.697. RESTRICTED STOCK: In October 1997, the company met certain share price performance criteria under the 1989 Long-Term Incentive Plan which resulted in the recognition of $5.4 million in compensation expense related to vesting of restricted stock. 59 61 APPENDIX III FINANCIAL INFORMATION ON T&N 1. NATURE OF FINANCIAL INFORMATION The financial information for the three years ended 31 December 1996 contained in this Appendix III is extracted from the audited consolidated accounts of T&N for the three years ended on that date. Figures for the years ended 31 December 1994 and 1995 have been restated to reflect disposals in subsequent years. The financial information contained in this Appendix III does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. Statutory accounts for each of the three financial years ended 31 December 1994, 1995 and 1996, on which unqualified audit reports (not containing a statement under section 237(2) or (3) of the Companies Act 1985) have been given by T&N's auditors, have been delivered to the Registrar of Companies. 2. CONSOLIDATED GROUP PROFIT AND LOSS ACCOUNT
YEAR ENDED 31 DECEMBER ---------------------------------------- NOTES 1996 1995 1994 ----- ------------ ------------ ------------ pound sterling pound sterling pound sterling m m m TURNOVER Continuing operations 1,891.5 1,849.3 1,643.9 Acquisitions 4.8 -- -- ------------ ------------ ------------ Total continuing operations 1,896.3 1,849.3 1,643.9 Discontinued operations 59.7 242.2 292.2 ------------ ------------ ------------ TOTAL TURNOVER EXCLUDING ASSOCIATED UNDERTAKINGS 1(a) 1,956.0 2,091.5 1,936.1 Cost of sales (1,418.3) (1,507.8) (1,407.7) ------------ ------------ ------------ GROSS PROFIT 537.7 583.7 528.4 Operating expenses (370.3) (369.7) (353.0) Share of profits of associated undertakings 11.1 12.6 5.0 ------------ ------------ ------------ OPERATING PROFIT BEFORE ASBESTOS-RELATED COSTS 1(b),(d) 178.5 226.6 180.4 Asbestos-related costs (515.0) (51.3) (140.0) ------------ ------------ ------------ OPERATING (LOSS)/PROFIT ON ORDINARY ACTIVITIES Continuing operations (342.5) 152.7 21.6 Acquisitions 0.3 -- -- ------------ ------------ ------------ Total continuing operations (342.2) 152.7 21.6 Discontinued operations 5.7 22.6 18.8 ------------ ------------ ------------ Total operating (loss)/profit on ordinary activities (336.5) 175.3 40.4 (Loss)/profit on disposal of discontinued operations 2 (1.0) 1.5 -- Release/(charge) of provision made in 1995 2 1.4 (1.4) -- Loss on disposal of properties (continuing operations) (2.0) -- -- Provision against fixed asset investments: Kolbenschmidt costs 3 (23.4) (19.5) -- ------------ ------------ ------------ (LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE FINANCE CHARGES (361.5) 155.9 40.4 Net interest payable and similar charges 4 (26.8) (35.8) (29.7) ------------ ------------ ------------ (LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION (388.3) 120.1 10.7 Tax on (loss)/profit on ordinary activities 5 (8.0) (41.4) (22.0) ------------ ------------ ------------ (LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION (396.3) 78.7 (11.3) Minority interests (4.5) (8.4) (5.2) ------------ ------------ ------------ (Loss)/profit attributable to shareholders (400.8) 70.3 (16.5) Dividends paid and proposed 6 (16.0) (31.9) (20.8) ------------ ------------ ------------ TRANSFER (FROM)/TO RESERVES 21 (416.8) 38.4 (37.3) ------------ ------------ ------------ (Loss)/earnings per L1 share 7 (75.4)p 13.3p (3.2)p Earnings per L1 share pre asbestos-related costs 7 14.8p 22.7p 19.3p Dividends per L1 share 6 3.0p 6.0p 10.85p ------------ ------------ ------------
60 62 3. CONSOLIDATED GROUP BALANCE SHEET
31 DECEMBER NOTES 1996 ----- ----------- pound sterling m FIXED ASSETS Tangible assets 11 697.2 Investments 12 59.5 ----------- 756.7 CURRENT ASSETS Stocks 13 247.6 Debtors falling due within one year 14 350.8 Debtors falling due after more than one year 14 66.1 Investments 15 5.6 Cash at bank and in hand 18 131.5 ----------- 801.6 ----------- CREDITORS: DUE WITHIN ONE YEAR Borrowings 18 77.2 Other creditors 16 472.5 ----------- 549.7 ----------- NET CURRENT ASSETS 251.9 ----------- TOTAL ASSETS LESS CURRENT LIABILITIES 1,008.6 CREDITORS: DUE AFTER MORE THAN ONE YEAR Borrowings 18 260.2 Other creditors 17 15.9 ----------- 276.1 ----------- PROVISIONS FOR LIABILITIES AND CHARGES 19 589.5 ----------- NET ASSETS 143.0 =========== CAPITAL AND RESERVES Called up share capital 20 532.2 Share premium account 21 0.2 Revaluation reserves 21 21.6 Associated undertakings' reserves 21 5.0 Goodwill write off reserve 21 (181.1) Profit and loss account 21 (259.6) ----------- EQUITY SHAREHOLDERS' FUNDS 118.3 Minority equity interests 24.7 ----------- 143.0 ===========
61 63 4. CONSOLIDATED GROUP CASH FLOW STATEMENT
YEAR ENDED NOTES 31 DECEMBER 1996 ----- -------------------------- pound sterling poound sterling m m CASH INFLOW FROM OPERATING ACTIVITIES Before asbestos-related payments 22(a) 287.3 Asbestos-related payments 22(a) (64.8) ---------- NET CASH INFLOW FROM OPERATING ACTIVITIES 22(a) 222.5 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE 22(b) (31.4) TAXATION 22(c) (28.9) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT 22(d) (125.5) ---------- 36.7 ACQUISITIONS AND DISPOSALS 22(e) 59.3 EQUITY DIVIDENDS PAID (31.9) ---------- 64.1 MANAGEMENT OF LIQUID RESOURCES 22(f) (6.2) FINANCING 22(g) Reduction in debt (30.1) Issue of T&N plc shares 1.2 Capital input by minorities 1.8 (27.1) ---------- ---------- INCREASE IN CASH 30.8 ---------- RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Increase in cash in the year 24 30.8 Cash outflow from decrease in debt and lease financing 24 30.1 Cash outflow from movement in liquid resources 24 6.2 ---------- Change in net debt resulting from cash flows 24 67.1 Exchange difference 24 42.6 ---------- Reduction in net debt 109.7 Net debt at start of year 24 (310.0) ---------- Net debt at end of year 24 (200.3) ==========
62 64 GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
YEAR ENDED DECEMBER ----------------------------------------- NOTES 1996 1995 1994 ----- ----- ---- ---- pound sterling pound sterling pound sterling m m m (Loss)/profit attributable to shareholders (400.8) 70.3 (16.5) Other recognised gains and losses: Unrealised profit on revaluation of fixed assets -- 1.6 -- Currency translation differences on foreign currency net investments 21 (23.1) (1.6) (9.1) Other recognised losses 21 (0.6) (1.4) (1.9) --------- --------- --------- (23.7) (1.4) (11.0) --------- --------- --------- Total recognised gains and losses relating to the year (424.5) 68.9 (27.5) ========= ========= ========= 1996 1995 1994 ---- ---- ---- pound sterling pound sterling pound sterling m m m HISTORICAL COST PROFITS/(LOSSES) Reported (loss)/profit on ordinary activities before taxation (388.3) 120.1 10.7 Realisation of revaluation surpluses 21 5.6 6.6 0.4 Difference between the historical depreciation charge and the actual depreciation charge 0.6 0.7 0.9 --------- --------- --------- Historical cost (loss)/profit on ordinary activities before taxation (382.1) 127.4 12.0 --------- --------- --------- Historical cost (loss)/profit for the year after taxation, minority interests and dividends (410.6) 45.7 (36.0) ========= ========= ========= 1996 1995 1994 ---- ---- ---- pound sterling pound sterling pound sterling m m m RECONCILIATIONS OF MOVEMENTS IN SHAREHOLDERS' FUNDS (LOSS)/PROFIT ATTRIBUTABLE TO SHAREHOLDERS (400.8) 70.3 (16.5) DIVIDENDS (16.0) (31.9) (20.8) --------- --------- --------- TRANSFER (FROM)/TO RESERVES (416.8) 38.4 (37.3) Other recognised gains and losses (as above) (23.7) (1.4) (11.0) New share capital subscribed 1.2 2.2 3.4 Goodwill 21 9.4 (4.4) (1.0) --------- --------- --------- Net change (429.9) 34.8 (45.9) Shareholders' funds at start of year 548.2 513.4 559.3 --------- --------- --------- Shareholders' funds at end of year 118.3 548.2 513.4 ========= ========= =========
63 65 5. PRINCIPAL ACCOUNTING POLICIES The Group follows applicable UK Accounting Standards and Practice. The financial statements are prepared under the historical cost convention, as modified by the revaluation of certain fixed assets. BASIS OF CONSOLIDATION The consolidated financial statements comprise the audited accounts of the Company and its subsidiary undertakings, together with the Group's share of the profits and losses and of the reserves of its associated undertakings. The accounts of subsidiaries are drawn up to the same date as those of the Company. Results of subsidiaries acquired or sold during the year are included from, or up to, their respective dates of acquisition or disposal. ASSOCIATED UNDERTAKINGS Associated undertakings are companies, other than subsidiaries, in which the Group has a long-term and substantial investment and over which significant influence is exercised, normally through board representation. Associated undertakings are accounted for on the equity basis, that is, the Group's share of profits before tax, and taxation are included in the profit and loss account. Its interest in their net assets, other than goodwill, is included in investments in the Group balance sheet. DEFERRED TAX Deferred tax is attributable to timing differences between results as computed for tax purposes and as stated in the accounts. These differences arise from, for example, different rates at which allowances are granted for capital expenditure for tax purposes and at which depreciation is charged in the accounts. Provision for deferred tax, including that relating to post retirement benefits, is made only to the extent that it is probable that an actual liability or asset will crystallise. DEPRECIATION Depreciation is provided on cost or the revalued amount, as applicable, to write fixed assets down to their estimated residual values on a straight line basis as follows: - - Freehold buildings, 2.5% per annum - - Leasehold buildings are assumed to have a life equal to the period of the lease, but with a maximum of 40 years - - Plant and machinery, at rates ranging from 7% to 33% per annum - - Mining assets, on a variable rate basis by reference to the current extraction rate of ore in relation to known ore reserves FOREIGN CURRENCIES Overseas companies' results and cash flows are translated into sterling at average exchange rates and their balance sheets at year end exchange rates. An adjustment to local currency results is made to reflect current price levels, where appropriate, before translation into sterling. Exchange differences arising from the translation of the opening balance sheets and results of overseas companies are dealt with through reserves. Exchange differences on transactions in foreign currencies are included in the profit and loss account. GRANTS Grants related to expenditure on tangible fixed assets are credited to profit over a period approximating to the lives of qualifying assets. Grants receivable to date, less the amounts so far credited to profit, are included in creditors. INTANGIBLES Goodwill, being the excess of the fair value of purchase consideration over the fair value attributed to the net tangible assets acquired, is charged to reserves. On disposal of businesses, any goodwill previously eliminated on acquisition is included in determining the profit or loss on disposal. Other intangibles are written off when acquired. LEASING Finance leases of significant items of plant and machinery are capitalised and depreciated in accordance with the Group's depreciation policy. The capital element of future lease payments is included under borrowings. Interest, calculated on the reducing balance method, is included within net financing charges. Operating lease rentals are charged to the profit and loss account when incurred. 64 66 PENSIONS AND OTHER POST-EMPLOYMENT BENEFITS The cost of providing pensions and other post-employment benefits is charged against profits on a systematic basis, with pension surpluses and deficits being amortised over the expected remaining service lives of current employees. Differences between the amounts charged in the profit and loss account and payments made to the plans are treated as assets or liabilities in the balance sheet. The unfunded post-employment medical benefit liability is included in provisions in the balance sheet. RESEARCH AND DEVELOPMENT Research and development revenue expenditure, including all expenditure on patents and trademarks, is written off when incurred. STOCKS Stocks are stated at the lower of original cost and net realisable value on a first-in-first-out basis. Cost comprises material, labour and an allocation of attributable overhead expenses. Net realisable value is the price at which stocks can be sold in the normal course of business after allowing for the costs of realisation. TURNOVER Turnover is the value of sales to third parties at net invoice value excluding value added tax or equivalent overseas sales taxes. 65 67 6. NOTES TO THE FINANCIAL INFORMATION (1.) Analysis of Results The Composites and Camshafts grouping comprises Camshafts, Powder Metal Products, Heat Transfer Products and Industrial Products and Materials. Figures for the Engine Parts Aftermarket Group are reflected in the product groupings to which they relate. (a) TURNOVER Market Supplied
1996 1995 1994 ------------ ------------ ------------ pound sterling pound sterling pound sterling m m m Light vehicle original equipment 782.0 756.6 639.4 Automotive aftermarket 529.4 480.1 464.5 Industrial and heavy duty original equipment 644.6 854.8 832.2 ------------ ------------ ------------ 1,956.0 2,091.5 1,936.1 ============ ============ ============ Product Groupings 1996 1995 1994 ------------ ------------ ------------ LM LM LM Bearings 333.1 342.5 310.8 Sealing Products 259.7 270.5 261.0 Friction Products 329.0 329.3 308.5 Piston Products 574.7 559.6 504.0 Composites and Camshafts 399.8 347.4 259.6 ------------ ------------ ------------ Continuing operations 1,896.3 1,849.3 1,643.9 Discontinued operations 59.7 242.2 292.2 ------------ ------------ ------------ 1,956.0 2,091.5 1,936.1 ============ ============ ============
Businesses acquired and discontinued 1996 1996 1995 1994 ACQUISITIONS DISCONTINUED DISCONTINUED DISCONTINUED ------------ ------------ ------------ ------------ pound sterling pound sterling pound sterling pound sterling m m m m Sealing Products -- 5.3 6.1 38.9 Friction Products -- -- 0.6 1.2 Piston Products 4.8 -- -- 1.4 Composites and Camshafts -- 0.1 85.0 117.3 Construction Materials and Engineering -- 54.3 150.5 133.4 ------------ ------------ ------------ ------------ 4.8 59.7 242.2 292.2 ============ ============ ============ ============
Regional BY ORIGIN BY DESTINATION ---------------------------------------- ---------------------------------------- 1996 1995 1994 1996 1995 1994 ------------ ------------ ------------ ------------ ------------ ------------ pound sterling pound sterling pound sterling pound sterling pound sterling pound sterling m m m m m m UK 507.7 594.7 569.7 312.5 360.7 351.2 Mainland Europe 733.3 731.3 627.8 824.2 861.7 733.6 North America 560.2 541.6 550.3 578.6 561.6 548.2 South Africa 116.5 121.0 101.9 98.2 110.1 97.4 Zimbabwe 17.0 80.6 69.0 19.4 34.3 30.9 Other countries 21.3 22.3 17.4 123.1 163.1 174.8 ------------ ------------ ------------ ------------ ------------ ------------ 1,956.0 2,091.5 1,936.1 1,956.0 2,091.5 1,936.1 ============ ============ ============ ============ ============ ============
Inter-group turnover between product groupings and regions is not material. 66 68 (b) OPERATING PROFIT BEFORE ASBESTOS-RELATED COSTS Product Groupings
1996 1995 1994 ---- ---- ---- pound sterling pound sterling pound sterling m m m Bearings 44.7 48.6 31.6 Sealing Products 21.1 25.9 25.1 Friction Products 16.9 29.0 26.9 Piston Products 41.4 55.1 43.9 Composites and Camshafts 48.7 45.4 34.1 ------------ ------------ ------------ Continuing operations 172.8 204.0 161.6 Discontinued operations 5.7 22.6 18.8 ------------ ------------ ------------ 178.5 226.6 180.4 ============ ============ ============
Businesses Acquired and Discontinued
1996 1996 1995 1994 ACQUISITIONS DISCONTINUED DISCONTINUED DISCONTINUED ------------ ------------ ------------ ------------ pound sterling pound sterling pound sterling pound sterling m m m m Sealing Products -- 0.3 0.3 (3.5) Friction Products -- -- (0.1) (0.1) Piston Products 0.3 -- -- 0.1 Composites and Camshafts -- -- 3.4 6.9 Construction Materials and Engineering -- 5.4 19.0 15.4 ------------ ------------ ------------ ------------ 0.3 5.7 22.6 18.8 ============ ============ ============ ============
Regional
1996 1995 1994 ----------- ------------ ------------ pound sterling pound sterling pound sterling m m m UK 68.4 69.5 50.7 Mainland Europe 46.1 72.1 49.2 North America 55.2 53.3 49.1 South Africa 7.9 13.0 8.7 Zimbabwe 1.5 15.5 18.1 Other countries (0.6) 3.2 4.6 ------------ ------------ ------------ 178.5 226.6 180.4 ============ ============ ============
Asbestos-related costs, financing charges, losses on disposal of discontinued operations and the provisions against the Kolbenschmidt investment are not allocated by product groupings or region. 67 69 (c) CAPITAL EMPLOYED Product groupings
1996 ------------ pound sterling m Bearings 124.5 Sealing Products 82.0 Friction Products 133.6 Piston Products 259.9 Composites and Camshafts 148.2 ------------ Continuing operations 748.2 Discontinued operations (3.7) ------------ 744.5 Assets held for disposal and trade investments 14.6 Asbestos-related provisions (440.6) Net deferred consideration for acquisitions and disposals 24.8 ------------ Capital employed 343.3 Net borrowings (200.3) ------------ Net assets 143.0 ============ Regional 1996 ------------ LM UK 230.6 Mainland Europe 240.4 North America 190.7 South Africa 40.4 Other countries 42.4 ------------ 744.5 ============
(d) Costs of continuing operations charged in arriving at operating profit before asbestos-related costs include L15.3m (1995 L11.3m, 1994 L19.8m) in respect of redundancy and rationalisation. L8.1m of these costs have been charged as administrative costs and the majority of the remainder as costs of sales. (e) Operating profit is stated after charging
1996 1995 1994 ------------ ------------ ------------ pound sterling pound sterling pound sterling m m m Auditor's and its associates' remuneration - -- as Group auditors (1.8) (1.8) (1.8) - -- fees for other services (1.4) (0.9) (0.7) Depreciation of tangible fixed assets - -- owned assets (97.3) (100.3) (95.7) - -- finance leased assets (1.0) (1.3) (2.4) Operating lease rentals - -- on plant and machinery (8.7) (7.8) (9.9) - -- on land and buildings (7.4) (7.0) (7.6)
68 70 (2.) SALE OF DISCONTINUED OPERATIONS The profit on disposal comprises:
1996 ------------ pound sterling m Loss on disposal of businesses (3.4) Profit on sale of 30% of Bellefontaine bearings business 2.4 ------------ (1.0) Add back provision made in 1995 1.4 ------------ 0.4 ============ Disposals during 1996 comprised the following: BUSINESS EFFECTIVE DATE - -------- ------------------- Budd Chemical Company 5 January 1996 Construction Materials businesses in Zimbabwe and Zambia 31 March 1996 Tempered Spring 3 June 1996 AETC 30 June 1996 Industrial Sealing businesses in South Africa 31 December 1996 Ferodo Zambia 31 December 1996 Hydra-Tight France 31 December 1996
In addition to the above disposals, the Tempered Spring business in the United States was closed. On 31 December 1996, 30% of the Glacier Vandervell Bellefontaine bearings business was sold. Details of assets disposed are set out below. NET ASSETS AT DATE OF DISPOSAL
CONSTRUCTION TEMPERED BELLE- MATERIALS SPRING AETC FONTAINE OTHERS TOTAL ------------ --------- -------- --------- --------- --------- pound pound pound pound pound pound sterling sterling sterling sterling sterling sterling m m m m m m Fixed assets 18.9 9.0 20.1 -- 4.3 52.3 Stocks 21.1 1.6 6.3 -- 2.2 31.2 Debtors 29.5 5.4 8.8 -- 2.1 45.8 Creditors (24.5) (5.3) (8.7) -- (3.5) (42.0) Net (overdraft)/cash (4.9) -- -- -- 0.6 (4.3) Goodwill on acquisition of businesses -- 1.0 5.1 1.5 2.0 9.6 Minority interest sold -- -- -- 1.8 -- 1.8 ------------ --------- --------- --------- --------- --------- 40.1 11.7 31.6 3.3 7.7 94.4 (Loss)/profit (1.6) (3.6) 5.9 2.4 (4.1) (1.0) ------------ --------- --------- --------- --------- --------- Consideration realised 38.5 8.1 37.5 5.7 3.6 93.4 Analysis of consideration realised Net cash proceeds 38.5 7.5 37.5 5.7 3.6 92.8 Preference shares -- 0.6 -- -- -- 0.6 ------------ --------- --------- --------- --------- --------- 38.5 8.1 37.5 5.7 3.6 93.4 ------------ --------- --------- --------- --------- --------- Cash arising during the year from disposal of operations Net cash proceeds 38.5 7.5 37.5 5.7 3.6 92.8 Prior year disposals -- -- -- -- 1.3 1.3 Deferred consideration (22.3) -- -- -- (1.3) (23.6) Net overdraft/(cash) disposed 4.9 -- -- -- (0.6) 4.3 ------------ --------- --------- --------- --------- --------- 21.1 7.5 37.5 5.7 3.0 74.8 ------------ --------- --------- --------- --------- --------- Operating profit in 1996 to date of disposal 1.5 -- 4.0 -- 0.2 5.7 ============ ========= ========= ========= ========= =========
69 71 (3.) OPTION TO ACQUIRE HOLDING IN KOLBENSCHMIDT AG ("KS")* The Company announced on 30 March 1995 that the Group had entered into option arrangements on 1,345,452 shares in KS, representing approximately 49.99% of the issued share capital of KS. The option arrangements were entered into with Commerzbank AG. In February 1996 the Group extended these arrangements until 31 December 1996. During 1996 KS issued to all its shareholders 9 shares for each share already held, such that the option arrangements related to the 13,454,520 shares still representing 49.99% of the issued share capital of KS. In December 1996 options over 6,727,260 shares expired. If Commerzbank AG sells these shares at above Dm 14 per share, the Company will receive half of the excess over Dm 14 per share. The remaining options over a further 6,727,260 shares were transferred to Metallbank GmbH and extended until 5 September 1997. The maximum consideration payable on exercise of these options would be Dm 114.4m (pound sterling m 43.4m). If the Company does not exercise the option over the shares held by Metallbank GmbH, and Metallbank GmbH sell the shares at a price less than Dm 17 per share, T&N is required to pay Metallbank GmbH the difference per share between the price received and Dm 17. The exceptional charge of pound sterling m 23.4m (1995 pound sterling m 19.5m) relates to continuing operations and comprises:
1996 1995 1994 ------------ ------------ ------------ pound pound pound sterling sterling sterling m m m Transfer of options to Metallbank 8.5 -- -- Payable on lapse of options with Commerzbank 10.0 -- -- Provision against costs previously capitalised -- 12.0 -- Other holding costs 4.9 7.5 -- ------------ ------------ ------------ 23.4 19.5 -- ============ ============ ============
(4.) Net Interest Payable and Similar Charges Interest payable on bank loans, overdrafts and other loans
1996 1995 1994 ------------ ------------ ------------ pound pound pound sterling sterling sterling m m m - -- repayable within five years, not by instalments (26.2) (31.5) (17.9) - -- repayable within five years, by instalments (4.4) (4.6) (4.8) - -- repayable wholly or partly in more than five years (1.5) (3.4) (12.1) Interest on finance leases repayable within five years (0.4) (0.3) (0.3) ------------ ------------ ------------ (32.5) (39.8) (35.1) INTEREST RECEIVABLE 5.7 4.0 5.4 ------------ ------------ ------------ (26.8) (35.8) (29.7) ============ ============ ============
(5.) Taxation
1996 1995 1994 ------------ ------------ ------------ pound pound pound sterling sterling sterling m m m UK corporation tax at 33% (1995 and 1994 33%) (15.2) (13.9) (6.8) Relief for overseas taxation 8.6 8.8 5.0 Advance corporation tax written back/(off) 0.7 (3.9) (4.0) Deferred tax 9.0 (4.4) 5.8 Prior period adjustments -- 0.4 (0.2) ------------ ------------ ------------ Total UK 3.1 (13.0) (0.2) Overseas (21.5) (23.3) (23.4) Overseas deferred tax 16.2 (0.8) 7.1 Associated undertakings (7.0) (5.6) (1.6) Prior period adjustments 1.2 1.3 (3.9) ------------ ------------ ------------ (8.0) (41.4) (22.0) ============ ============ ============
The overseas tax charge has been reduced by pound 5.0m (1995 pound 6.0m, 1994 poumd 2.2m) by utilising losses brought forward. - -------------------------- *More recent information is contained in T&N's unaudited interim report for the six months to 30 June 1997 which is reproduced on pages 85 to 90 of this document. 70 72 The tax (charge)/credit arises as follows:
1996 1995 1994 -------------- -------------- -------------- pound sterling pound sterling pound sterling m m m On the disposal of operations (1.8) (2.4) -- On loss on disposal of properties (0.1) -- -- On provision against fixed asset investments 0.6 5.5 -- On asbestos-related costs 35.5 1.6 13.0 On other profits (42.2) (46.1) (35.0) ------------ ------------ ------------ (8.0) (41.4) (22.0) ============ ============ ============
Corporation tax relief for the asbestos charge is available only when payments are made. As a consequence, the tax credit taken in these accounts is calculated by reference to the payments made rather than the charge in the accounts and has been increased by the related movement in the deferred tax debtor. No tax relief is available on the goodwill of L9.7m (1995 L6.6m, 1994 nil) charged in arriving at the profit on disposal of operations of L0.4m (1995 L0.1m, 1994 nil). (6.) DIVIDENDS
1996 1995 1994 -------------------------- -------------------------- -------------------------- pound pound pound sterling sterling sterling P PER SHARE m P PER SHARE m P PER SHARE m ---------------------------------------------------------------------------------- Interim 3.00 (16.0) 3.00 (15.9) 7.50 (3.1) Final -- -- 3.00 (16.0) 3.35 (17.7) ----------- ----------- ----------- ----------- ----------- ----------- 3.00 (16.0) 6.00 (31.9) 10.85 (20.8) =========== =========== =========== =========== =========== ===========
Because of the exceptional asbestos-related charge during 1996, the Company did not have sufficient distributable reserves to declare a final dividend for 1996. The directors declared a special first 1997 interim dividend of 3p per share payable to shareholders on the register on 2 May 1997 in lieu of the final 1996 dividend, with the result that shareholders received dividends totalling 6p per share, the same as for 1995, on the usual payment dates. (7.) (Loss)/Earnings per pound 1 Share (Loss)/Earnings:
1996 1995 1994 -------------------------- -------------------------- -------------------------- pound pound pound sterling sterling sterling P PER SHARE m P PER SHARE m P PER SHARE m ---------------------------------------------------------------------------------- Net basis (75.4) (400.8) 13.3 70.3 (3.2) (16.5) Nil basis (75.6) (401.5) 14.0 74.2 (2.5) (12.6) Final (pre asbestos-related costs basis) 14.8 78.7 22.7 120.1 19.3 99.1 ----------- ----------- ----------- ----------- ----------- ----------- Average number of shares in issue weighted on a time basis 531.6 530.2 514.5 =========== =========== ===========
In addition to earnings per share on the net basis, as required by SSAP 3, the earnings per share are also shown after adjustment for asbestos-related costs. The adjustment made is to add back asbestos-related costs of pound sterling 515.0m (1995 pound sterling 51.3m, 1994 pound sterling 140.0m) and associated tax credits of pound sterling 35.5m (1995 pound sterling 1.6m, 1994 pound sterling 13.0m). In the opinion of the directors, this allows shareholders to gain a clearer understanding of the performance of the Group. There is no material difference between the earnings per share figures noted above those calculated on a fully diluted basis. Earnings per share calculated on a nil basis has been adjusted for Advance Corporation Tax written back of pound sterling 0.7m (1995 charge of pound sterling 3.9m, 1994 charge of pound sterling 4.0m). 71 73 (8.) Employees
1996 1995 1994 AVERAGE AVERAGE AVERAGE NUMBER NUMBER NUMBER ------------ ------------ ------------ UK 10,036 11,613 11,996 Mainland Europe 9,765 10,228 10,433 North America 7,172 7,115 6,903 South Africa 4,379 4,221 3,924 Zimbabwe 2,069 8,785 8,780 Other countries 472 695 769 ------------ ------------ ------------ 33,893 42,657 42,805 ============ ============ ============
At the year end the total number of employees was 30,473 (1995 40,941, 1994 42,416). Employment costs
1996 1995 1994 ------------ ------------ ------------ pound pound pound sterling sterling sterling m m m Wages and salaries 601.1 635.8 600.5 Social security costs 96.0 96.0 91.5 Other pension costs (Note 9) 12.9 12.4 12.6 Other post-employment benefits (Note 9) 3.0 2.6 2.9 Redundancy payments 13.9 6.5 9.5 ------------ ------------ ------------ 726.9 753.3 717.0 ============ ============ ============
(9.) Post-employment benefits The Company and most of its subsidiaries operate both defined benefit and defined contribution pension schemes. With the exception of the schemes in Germany, the assets of the principal schemes are held in separate trustee- administered funds. The most significant schemes are in the UK, Germany and the US. The element of the total pension cost relating to overseas schemes has been determined in accordance with local best practice and regulations and, where applicable, on the advice of consultant actuaries. The UK scheme is the largest, covering the majority of UK employees. The pension cost is assessed in accordance with the advice of independent qualified actuaries in order to secure final salary-related benefits. The most recent actuarial review, using the projected unit method, was carried out on 31 March 1993 and, as a result of this review, a number of scheme improvements were made. At 31 March 1993 the market value of the assets of the UK scheme was pound sterling 747m (1990 pound sterling 648m) and the actuarial value of these assets represented 129% (1990 143%) of the benefits that had accrued to members, after allowing for increases in earnings and scheme improvements. The assumptions made which have the most significant effect on the results of this valuation are those relating to the differentials between the rates of return on investments and the rates of increase in salaries and pensions. It was assumed that the investment return would be 2% (1990 2%) per annum higher than the rate of annual salary increases, and 5% (1990 4.5%) per annum higher than the rate at which present and future pensions would increase. The surplus in the UK scheme is being amortised over 13 years, the average remaining service lives of employees. The credit arising from the amortisation of this surplus more than offsets ongoing pension costs. The resultant SSAP 24 credit, including interest, was pound sterling 5.7m (1995 pound sterling 4.9m, 1994 pound sterling 4.6m). From January 1994 until 31 March 1996 the Group made payments to the UK scheme at a rate of 4% of pensionable earnings. Since 1 April 1996 no payments have been necessary because of the surplus in the scheme. In 1996 the prepayment in respect of pensions for the UK scheme increased by pound sterling 9.0m to pound sterling 45.0m at the end of 1996. In 1995 it increased by pound sterling 11.8m to pound sterling 36.0m. This amount is included in debtors (Note 14). In the US, the Group operates a number of defined benefit schemes and defined contribution schemes. These schemes undergo an actuarial analysis annually. In Germany, the Group operates a number of defined benefit pension schemes. These undergo an actuarial valuation annually. Provisions for the liabilities amounted to pound sterling 76.9m at the end of 1996 (1995 pound sterling 89.1m, 1994 pound sterling 79.9m). 72 74 In addition, other post-employment benefits in the US are fully provided for in accordance with UK accounting standards. Provisions amounted to pound sterling 31.1m at the end of 1996 (1995 pound sterling 34.3m, 1994 pound sterling 46.7m) in respect of these benefits. The cost of post-employment medical benefits in the US was pound sterling 2.8m (1995 pound sterling 2.9m, 1994 pound sterling 2.9m). There are no other significant post-employment benefits. (10.) Directors' Emoluments
DIRECTORS' EMOLUMENTS 1996 1995 1994 ------------------------- ------------ ------------ ------------ pound pound pound sterling sterling sterling 000 000 000 Non-executive directors: Fees 195 212 166 Consultancy fee -- deputy non-executive chairman -- 180 180 ------------ ------------ ------------ 195 392 346 ------------ ------------ ------------ Executive directors: Remuneration 1,363 1,353 1,186 Performance-related bonuses 50 322 283 ------------ ------------ ------------ 1,413 1,675 1,469 Pension contributions 32 56 34 ------------ ------------ ------------ Total emoluments 1,445 1,731 1,503 Compensation for loss of office 564 -- -- ------------ ------------ ------------ 2,009 1,731 1,503 ============ ============ ============
The pension contributions of pound sterling 32,000 (1995 pound sterling 56,000, 1994 pound sterling 30,000) represent cash paid to the UK Pension Scheme at the contribution rate of 4% for the first quarter of 1996 and nil thereafter (1995 4% for the year, 1994 4% for the year) plus payments to Mr Harding's personal pension policy.
Chairman--highest paid director (excluding pension contributions): 1996 1995 1994 ------------ ------------ ------------ pound pound pound sterling sterling sterling 000 000 000 Performance-related bonus -- 77 71 ------------ ------------ ------------ 320 397 365 ============ ============ ============ FEES AND EMOLUMENTS, EXCLUDING PENSION CONTRIBUTIONS, WERE: 1996 1995 1994 - -------------------------------------------------------- ------------ ------------ ------------ NUMBER NUMBER NUMBER Nil - pound sterling 5,000 -- 2 -- pound sterling 5,001 - pound sterling 10,000 -- -- 1 pound sterling 15,001 - pound sterling 20,000 1 -- 3 pound sterling 20,001 - pound sterling 25,000 4 3 -- pound sterling 25,001 - pound sterling 30,000 2 2 -- pound sterling 30,001 - pound sterling 35,000 1 -- 1 pound sterling 35,001 - pound sterling 40,000 2 -- -- pound sterling 70,001 - pound sterling 75,000 1 -- -- pound sterling 125,001 - pound sterling 130,000 -- 1 -- pound sterling 165,001 - pound sterling 170,000 -- 1 -- pound sterling 175,001 - pound sterling 180,000 1 -- -- pound sterling 190,001 - pound sterling 195,000 -- -- 1 pound sterling 205,001 - pound sterling 210,000 -- -- 1 pound sterling 210,001 - pound sterling 215,000 -- 1 -- pound sterling 230,001 - pound sterling 235,000 -- -- 2 pound sterling 235,001 - pound sterling 240,000 1 -- 1 pound sterling 245,001 - pound sterling 250,000 -- 1 1 pound sterling 255,001 - pound sterling 260,000 -- 1 -- pound sterling 260,001 - pound sterling 265,000 1 2 -- pound sterling 265,001 - pound sterling 270,000 1 -- 1 pound sterling 320,001 - pound sterling 325,001 1 -- -- pound sterling 395,001 - pound sterling 400,000 -- 1 --
73 75 (11.) TANGIBLE FIXED ASSETS (A) COST OR VALUATION
LAND AND PLANT AND BUILDINGS MACHINERY TOTAL ------------ ------------ ------------ pound pound pound sterling sterling sterling m m m At 1 January 1996 289.7 1,078.5 1,368.2 Currency translation (24.9) (93.0) (117.9) Acquisition of businesses 1.0 4.8 5.8 Capital expenditure 9.2 115.4 124.6 Transfers between Group companies and reclassifications -- 2.2 2.2 Disposal of operations (43.5) (69.3) (112.8) Other disposals (0.7) (20.8) (21.5) ------------ ------------ ------------ At 31 December 1996 230.8 1,017.8 1,248.6 ============ ============ ============ Comprising: Cost 149.5 998.3 1,147.8 Valuation: in 1989 63.0 -- 63.0 other years 18.3 19.5 37.8 ------------ ------------ ------------ 230.8 1,017.8 1,248.6 ============ ============ ============
Revaluations are carried out on an existing use basis. (B) DEPRECIATION
LAND AND PLANT AND BUILDINGS MACHINERY TOTAL ------------ ------------ ------------ pound pound pound sterling sterling sterling m m m At 1 January 1996 47.2 528.1 575.3 Currency translation (3.0) (43.3) (46.3) Transfers between Group companies and reclassifications (0.2) 3.1 2.9 Disposal of operations (20.0) (40.7) (60.7) Other disposals (0.2) (17.9) (18.1) Charge for the year 7.1 91.2 98.3 ------------ ------------ ------------ At 31 December 1996 30.9 520.5 551.4 ============ ============ ============ Net book value At 31 December 1996 199.9 497.3 697.2 ============ ============ ============
Included in the cost of fixed assets of the Group at 31 December 1996 are buildings in the course of construction of pound sterling 2.3m and plant and machinery in the course of construction of pound sterling 25.9m. (C) NET BOOK VALUE OF LAND AND BUILDINGS
1996 ------------ pound sterling m Freehold land -- not depreciated 49.5 Freehold buildings 148.3 Long leasehold (over 50 years unexpired) 0.2 Short leasehold 1.9 ------------ 199.9 ============
74 76 (D) CAPITALISED LEASES INCLUDED IN PLANT AND MACHINERY
1996 ------------ pound sterling m Cost 28.4 Depreciation (23.8) ------------ Net book value 4.6 ============
(E) HISTORICAL COST OF TANGIBLE FIXED ASSETS
LAND AND PLANT AND BUILDINGS MACHINERY TOTAL ------------ ------------ ------------ pound pound pound sterling m sterling m sterling m Cost or ascribed value 199.4 1,016.6 1,216.0 Charge for the year (37.8) (519.5) (557.3) ------------ ------------ ------------ Net historical cost value At 31 December 1996 161.6 497.1 658.7 ============ ============ ============
(12.) FIXED ASSET INVESTMENTS
ASSOCIATED OTHER UNDERTAKINGS OTHER SHARES INVESTMENTS TOTAL ------------ ------------ ------------ ------------ pound pound pound pound sterling m sterling m sterling m sterling m Cost or valuation At 1 January 1996 52.4 7.6 19.9 79.9 Currency translation (5.9) (0.1) (5.7) (11.7) Additions 7.0 0.7 23.4 31.1 Disposals and repayments -- (0.2) -- (0.2) Reclassifications and other movements 0.9 (0.1) -- 0.8 Share of retained losses (2.7) -- -- (2.7) ------------ ------------ ------------ ------------ At 31 December 1996 51.7 7.9 37.6 97.2 ------------ ------------ ------------ ------------ Provisions: At 1 January 1996 -- (0.1) (19.8) (19.9) Currency translation -- -- 5.6 5.6 Provision for the year -- -- (23.4) (23.4) ------------ ------------ ------------ ------------ At 31 December 1996 -- (0.1) (37.6) (37.7) ============ ============ ============ ============ 51.7 7.8 -- 59.5 ============ ============ ============ ============
Listed investments included above in associated undertakings at net book value are pound sterling 7.5m -- market value pound sterling 5.7m. At 31 December 1996, Group associated undertakings investments included loans receivable of pound sterling 1.8m. (13.) STOCKS
1996 ------------ pound sterling m Raw materials and consumables 41.9 Work in progress 45.7 Finished goods 160.0 ------------ 247.6 ============
75 77 (14.) DEBTORS (A) DEBTORS FALLING DUE WITHIN ONE YEAR
1996 ------------ pound sterling m Trade 260.2 Amounts owed by associated undertakings 1.4 Amounts owed in respect of disposals of operations 24.8 Assets held for disposal 6.8 Overseas taxation recoverable 6.1 Deferred tax recoverable (Note 25) 13.9 Prepayments and accrued income 13.9 Other 23.7 ------------ 350.8 ============
(B) DEBTORS FALLING DUE AFTER MORE THAN ONE YEAR
1996 ------------ pound sterling m Amounts owed in respect of disposals of operations 3.4 Prepaid pension costs (Note 9) 45.0 Deferred tax recoverable (Note 25) 16.5 Overseas taxation recoverable 0.2 Other debtors 1.0 ------------ 66.1 ============
(15.) CURRENT ASSET INVESTMENTS
1996 ------------ pound sterling m Listed investments -- market value pound sterling 5.1m 5.1 Other investments -- market value pound sterling 0.6m 0.5 ------------ 5.6 ============
(16.) CREDITORS -- DUE WITHIN ONE YEAR
1996 ------------ pound sterling m Trade 168.9 Amounts owed to associated undertakings 2.1 Payroll and other taxes, including social security 54.1 Taxation -- United Kingdom corporation tax 5.9 -- Overseas taxation 13.6 Accruals and deferred income 69.4 Grants not yet credited to profit 1.7 Asbestos-related insurance premium 92.0 Other 64.8 ------------ 472.5 ============
76 78 (17.) CREDITORS -- DUE AFTER MORE THAN ONE YEAR
1996 ------------ pound sterling m Amounts owed in respect of acquisitions 3.4 Accruals and deferred income 1.3 Grants not yet credited to profit 4.4 Other 6.8 ------------ 15.9 ============
(18.) NET BORROWINGS
BORROWINGS 1996 - ---------- ------------ pound sterling m Repayable after more than five years -- Instalments 7.7 -- Otherwise 0.7 Two to five years -- Instalments 23.0 -- Otherwise 186.0 One to two years -- Instalments 8.7 -- Otherwise 34.1 ------------ Total due after more than one year 260.2 Total due within one year 77.2 ------------ Total borrowings 337.4 ------------ Cash at bank and in hand and current asset investments 137.1 ------------ Net borrowings 200.3 ============ Analysis of total borrowings Finance leases 5.3 Bank overdrafts and loans secured on assets of the Group 37.4 Unsecured bank overdrafts and loans 294.7 ------------ 337.4 ============ Analysis of borrowings by currency Sterling (33.9) Other European currencies 130.3 United States Dollar 80.4 South African Rand 9.3 Other currencies 14.2 ------------ 200.3 ============
The majority of the Group's borrowings are at variable rates between 35 and 50 basis points above the applicable base rate for the currency. Interest rate swaps have been entered into in a mix of currencies whereby the interest charge on total debt of L108m has been swapped from variable to fixed rates for periods of between two and five years. Included in cash and current asset investments, at 31 December 1996, amounts totalling pound sterling 22.8m are held by the Group's insurance company of which pound sterling 17.6m is required to meet insurance regulatory requirements and which, as a result, is not readily available for the general purposes of the Group. 77 79 (19.) PROVISIONS FOR LIABILITIES AND CHARGES
POST- EMPLOYMENT ASBESTOS- OTHER BENEFITS RESTRUCTURING RELATED PROVISIONS TOTAL ------------ ------------- ------------ ------------ ------------ pound pound pound pound pound sterling sterling sterling sterling sterling m m m m m At 1 January 1996 159.7 1.3 99.0 18.8 278.8 Reclassified from/(to) creditors 0.3 -- (97.7) 1.2 (96.2) Reclassified from debtors -- -- (1.3) -- (1.3) Currency translation (20.9) -- (9.6) (1.5) (32.0) Charge/(credit) for the year 15.4 -- 515.0 (1.3) 529.1 Payments (12.4) (1.3) (64.8) (10.4) (88.9) ------------ ------------- ------------ ------------ ------------ At 31 December 1996 142.1 -- 440.6 6.8 589.5 ============ ============= ============ ============ ============
Other provisions include leaving benefits which may become payable to employees in certain acquired companies and costs of environmental cleaning. (20.) CALLED UP SHARE CAPITAL
ISSUED AND AUTHORISED FULLY PAID NO. OF NO. OF SHARES SHARES ------------ ------------ Ordinary shares of L1 each At 1 January 1996 725,000,000 531,160,903 Options exercised -- 1,042,262 ------------ ------------ At 31 December 1996 725,000,000 532,203,165 ============ ============ EXECUTIVE SAVINGS- NO. OF RELATED NO. TOTAL NO. OF SHARE OPTION SCHEMES SHARES OF SHARES SHARES -------------------- ------------ ------------ ------------ At 1 January 1996 12,002,006 9,353,338 21,355,344 Granted 695,000 5,491,378 6,186,378 Exercised (260,797) (781,465) (1,042,262) Lapsed (103,980) (1,525,676) (1,629,656) ------------ ------------ ------------ At 31 December 1996 12,332,229 12,537,575 24,869,804 ============ ============ ============ SAVINGS- SHARE OPTION SCHEMES EXECUTIVE RELATED TOTAL -------------------- ------------ ------------ ------------ Number of holders 154 2,911 ------------ ------------ Latest dates exercisable range between 1997/2006 1997/2003 Exercisable at the following price per share 101.7p -- 2,883,633 2,883,633 111.4p 1,847,345 -- 1,847,345 127.2p-147.8p 1,005,230 6,453,393 7,458,623 158.1p-172.1p 4,891,153 2,342,484 7,233,637 182.8p-199.8p 754,346 858,065 1,612,411 201.6p-226.2p 3,834,155 -- 3,834,155 ------------ ------------ ------------ 12,332,229 12,537,575 24,869,804 ============ ============ ============
78 80 The interests in the Company, of those who were directors at 31 December 1996, were as follows:
ORDINARY SHARES 31.12.96 ------------ Sir Colin Hope 105,562 M A Bell 16,000 R H Boissier 2,488 D G Carruthers 67,414 D A Harding 5,000 Sir Terence Harrison 5,000 Professor F R Hartley 3,001 P S Lewis 1,000 A C McWilliam 2,326 I F R Much 34,168 A J P Sabberwal 67,370 T A Welsh 5,914 Sir Geoffrey Whalen 4,654 ------------ 319,897 ============
No director has any beneficial interest in shares of any subsidiary. (21.) RESERVES
SHARE ASSOCIATED GOODWILL PREMIUM REVALUATION UNDERTAKINGS' WRITE OFF PROFIT AND ACCOUNT RESERVES RESERVES RESERVE LOSS ACCOUNT ------------ ------------ ------------ ------------ ------------ pound pound pound pound pound sterling sterling sterling sterling sterling m m m m m At 1 January 1996 -- 29.3 12.9 (190.5) 165.3 Currency translation on overseas assets -- (1.7) (5.9) -- (58.1) Currency translation on net debt -- -- -- -- 42.6 Transfer to profit and loss -- -- (2.7) -- (414.1) Realisation of revaluation surpluses -- (5.6) -- -- 5.6 Premium on share issues 0.2 -- -- -- -- Goodwill arising on acquisitions -- -- -- (0.3) -- Goodwill on disposals -- -- -- 9.7 -- Other movements -- (0.4) 0.7 -- (0.9) ------------ ------------ ------------ ------------ ------------ At 31 December 1996 0.2 21.6 5.0 (181.1) (259.6) ============ ============ ============ ============ ============
Cumulative goodwill written off to Group reserves at 31 December 1996 totals pound sterling 248.3m, comprising pound sterling 181.1m shown above and pound sterling 67.2m written off to a merger reserve in earlier years. Retained earnings of overseas subsidiaries and associated undertakings would be liable to tax if remitted as dividends to the United Kingdom. 79 81 (22.) NOTES TO THE CASH FLOW STATEMENT
1996 ------------ pound sterling m (A) RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES Operating loss (336.5) Share of profits of associated undertakings (11.1) Dividends received from associated undertakings 6.8 Depreciation 98.3 Loss on sale of tangible fixed assets 2.5 Decrease in stocks 22.2 Decrease in debtors 1.0 Decrease in creditors (2.0) Decrease in provisions (7.9) Other non cash movements (1.0) Charge for asbestos-related costs 515.0 ------------ Cash inflow from operating activities before asbestos-related payments 287.3 Asbestos-related payments (64.8) ------------ Cash inflow from operating activities after asbestos-related payments 222.5 ============ (B) RETURNS ON INVESTMENT AND SERVICING OF FINANCE 1996 ------------ pound sterling m Interest received 5.2 Interest paid (35.4) Dividends paid to minorities (1.2) ------------ (31.4) ============ (C) TAXATION 1996 ------------ pound sterling m UK tax paid (9.3) Overseas tax paid (19.6) ------------ (28.9) ============ (D) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT 1996 ------------ pound sterling m Purchase of tangible fixed assets (114.3) Disposal of tangible fixed assets 2.3 Additions to trade and other investments (primarily Kolbenschmidt) (13.6) Disposal of trade investments 0.1 ------------ (125.5) ============
80 82
1996 ------------ pound sterling m (E) Acquisitions And Disposals Acquisitions (Note 23) (8.5) Sale of discontinued operations (Note 2) 74.8 Additions to associated undertakings (7.0) ------------ 59.3 ============ (F) Management of Liquid Resources 1996 ------------ pound sterling m Additions to current asset investments (4.4) Increases in short term investments (1.8) ------------ (6.2) ============ (G) Financing 1996 ------------ pound sterling m New loans 176.7 Repayment of loans (206.8) ------------ Cash outflow from decrease in debt and lease financing (30.1) Issues of ordinary share capital 1.2 Capital input by minorities 1.8 ------------ (27.1) ============ (H) Acquired and Discontinued OPERATIONS
In 1996, acquired and discontinued operations had no significant impact on any of the cash flow categories, other than as disclosed in acquisitions and disposals (Note 22(e)) above. (23.) Acquisitions On 12 July 1996 the Group acquired the trade, fixed assets and stock of the Cummins Engine Company's piston ring business in the United States. The consideration is contingent on the profits of the business during 1997 and therefore has not yet been finally determined. The maximum consideration of L6.5m has been provided in these accounts, this being the current best estimate of the amount which will be payable. There was no difference between the book value and fair value of the assets acquired. Accurate details of profits and losses prior to acquisition are not available because the business was part of a larger operating entity.
pound ASSETS ACQUIRED sterling m ---------------- ------------ Fixed assets 5.8 Stocks 0.4 ------------ 6.2 Goodwill 0.3 ------------ CASH CONSIDERATION 6.5 ------------ Cash paid for acquisitions Cash consideration 6.5 Consideration deferred (3.7) Prior year deferred consideration paid (mainly Connoisseur) 5.7 ------------ Cash outflow on acquisitions 8.5 ============
81 83 (24.) Analysis of Movement in Net Debt
EXCHANGE MOVEMENT ON -------------------------- AT 31 AT 1 JANUARY OPENING MOVEMENT IN DECEMBER 1996 CASH FLOW BALANCES YEAR 1996 ------------ ------------ ------------ ------------ ------------ pound pound pound pound pound sterling m sterling m sterling m sterling m sterling m Cash at bank and in hand 95.4 23.8 (10.3) 1.5 110.4 Overdrafts (35.7) 7.0 5.2 (0.5) (24.0) ------------ ------------ ------------ ------------ ------------ 59.7 30.8 (5.1) 1.0 86.4 ------------ ------------ ------------ ------------ ------------ Debt due within one year (106.4) 24.0 30.0 0.7 (51.7) Debt due after one year (273.9) 2.6 13.1 1.8 (256.4) Finance leases (10.3) 3.5 1.9 (0.4) (5.3) ------------ ------------ ------------ ------------ ------------ (390.6) 30.1 45.0 2.1 (313.4) ------------ ------------ ------------ ------------ ------------ Short term deposits 19.7 1.8 (0.3) (0.1) 21.1 Current asset investments 1.2 4.4 -- -- 5.6 ------------ ------------ ------------ ------------ ------------ 20.9 6.2 (0.3) (0.1) 26.7 ------------ ------------ ------------ ------------ ------------ Net borrowings (310.0) 67.1 39.6 3.0 (200.3) ============ ============ ============ ============ ============
(25.) Deferred Taxation
AT 31 DECEMBER 1996 ------------ pound sterling m Asset recognised Asbestos-related costs 27.4 Losses and other timing differences 3.0 ------------ 30.4 ============
No provision has been made for tax which would become payable on the amount by which assets have been revalued because there is no current intention to dispose of these assets.
AT 31 DECEMBER 1996 ------------ pound sterling m Unprovided assets/(liabilities) Excess of book value over tax value of fixed assets (63.4) Asbestos-related costs 52.0 Losses and other timing differences (17.7) ------------ (29.1) ===========
Provision for deferred taxation is only made to the extent that it is probable that an actual liability or asset will crystallise. Advance corporation tax of L56.5m is available for carry forward against future UK tax liabilities. (26.) Related Party Transactions The T&N Group is related to all its associated undertakings because it exerts significant influence over them. During the year various transactions have occurred between the T&N Group and its associates including: - -- sales of goods and equipment to associated undertakings of pound sterling 12.8m; - -- purchases of goods from associated undertakings of pound sterling 15.5m; - -- royalties received from associated undertakings of pound sterling 1.4m; - -- dividends received from associated undertakings of pound sterling 6.8m; - -- investments in associated undertakings as set out in Note 12. 82 84 Sales between associated undertakings totalled pound sterling 16.0m. Trading balances with associated undertakings at 31 December 1996 are set out in Notes 14 and 16. Entities which the T&N Group sold and acquired during the year, details of which are set out in Notes 2 and 23, are deemed to be related parties because the T&N Group exercised control over these whilst they were part of the T&N Group. Transactions during the year which are not eliminated on consolidation totalled L1.0m comprising mainly the provision of utilities to disposed businesses. All these transactions were entered into on arms length terms. (27.) Commitments and Contingent Liabilities
AT 31 DECEMBER 1996 ------------ pound sterling m Future capital expenditure -- contracts placed 12.6 ============ Operating leases -- payment commitments for 1997 On leases of land and buildings expiring within one year 1.0 between two and five years 2.1 in more than five years 2.1 ------------ 5.2 ============ On leases of plant and machinery expiring within one year 1.4 between two and five years 7.0 in more than five years 0.1 ------------ 8.5 ============
At 31 December 1996 the Company and its UK subsidiaries had contingent liabilities of pound sterling 64.3m in connection with guarantees relating to bank borrowings of certain overseas subsidiaries. The maximum potential liability under those guarantees is pound sterling 121.4m. Contingent liabilities also exist in respect of cross-guarantees given by the Company and its UK subsidiaries to support some of the Group's UK bank borrowings. (28.) Asbestos-related litigation* In the United States of America, T&N plc and two of its US subsidiaries ("the T&N Companies") are among many defendants named in numerous court actions alleging personal injury resulting from exposure to asbestos or asbestos- containing products. T&N plc is also subject to asbestos-disease litigation, to a lesser extent, in the UK. Because of the slow onset of asbestos-related diseases, the directors anticipate that similar claims will be made in the future. It is not known how many such claims will be made nor the expenditure which may arise therefrom. In previous years, there was insufficient information and insurance protection to enable an estimate of the outstanding cost of potential future asbestos-disease claims to be made with reasonable accuracy. Therefore, in accordance with Statement of Standard Accounting Practice No18, provision was made only for those claims notified and in respect of which payment was outstanding at each accounting date. The directors have now been able, by payment of a premium of pound sterling 92m, to arrange a pound sterling 500m layer of insurance cover, should the aggregate amount of claims notified after 30 June 1996 where the exposure occurred prior to 1 July 1996 (IBNR claims) exceed pound sterling 690m. IBNR CLAIMS This, together with recent claims experience and medical information, has enabled the directors to determine an estimate of the cost of future claims with reasonable accuracy. The directors have made provision of pound sterling 550 million for IBNR claims at 30 June 1996 (being a point between the high (pound sterling 690m) and low (pound sterling 429m) estimates prepared by actuaries using assumptions referred to below). For the purpose of these accounts this provision is being made on a discounted basis, using a rate of 7%. The directors intend to set aside this provision in a separate fund, and the - -------------------------- *More recent information is contained in T&N's unaudited interim report for the six months to 30 June 1997 which is reproduced on pages 85 to 90 of this document. 83 85 provision of L323m allows a margin to enable this to be phased in accordance with the assumptions over a period of approximately 36 months. Tax relief is available on this provision when payments are made. CLAIMS NOTIFIED AND OUTSTANDING AT 30 JUNE 1996 As regards claims notified and outstanding at 30 June 1996 in the UK, full provision is made in respect of such claims. As regards claims notified and outstanding at 30 June 1996 in the US, provision continues to be made based on data provided by the Center for Claims Resolution (CCR), whom T&N has appointed as its exclusive representative in relation to all asbestos-related personal injury claims made against the T&N Companies in the United States. In estimating the provision, the directors have had regard principally to the industry in which the plaintiff claims exposure, the alleged disease type, the State in which the action is being brought and the share which will be applicable to the T&N Companies having regard to the agreed method of operation of the CCR. Such shares may in certain circumstances be subject to retroactive adjustment. Even where settlement has already been agreed in principle with plaintiffs' lawyers in respect of a group of cases, the actual cost of each claim to the T&N Companies may not be determined until it is finally processed and paid sometime in the future. CONTINGENT LIABILITY Accordingly, although the directors believe that they have made appropriate provision for claims, because of the factors described in this note, there are contingencies in relation to the amount at which such claims will be finally settled. Given the substantial layer of insurance cover, one contingency in relation to IBNR claims concerns claims exceeding the amount provided, but below the level of insurance cover. This amounts to L140m gross, and L58m when discounted. The directors also recognise the importance of setting up a separate fund in accordance with the assumptions used in arriving at the discounted provision. In arriving at the IBNR provision, assumptions have been made regarding the total number of claims which it is anticipated may be received in the future, the average cost of settlement (which is sensitive to the industry in which the plaintiff claims exposure, the alleged disease type and the State in which the action is being brought), the rate of receipt of claims and the timing of settlement and the level of subrogation claims brought by insurance companies. In addition it has been assumed that the terms of the Georgine Settlement will not apply (even though the directors have received legal advice that this will not necessarily be the case). If the Georgine Settlement continues in force for some time, whether or not it is ultimately upheld by the Courts of the United States, the present value of the potential liability for US IBNR claims should reduce. So far as relates to claims reported at 30 June 1996, T&N is primarily exposed to differences between the assumptions referred to above and the actual claims settlement experience as it emerges. US PROPERTY DAMAGE LITIGATION Following the successful jury verdict in the Chase Manhattan property damage case in December 1995, judgement was entered in the Company's favour on all counts during the year. Motions have been filed with the Court by The Chase Manhattan Bank, seeking a new trial and appealing against the decision in the Company's favour. The Company has received legal advice that such motions stand no realistic prospect of success. Full provision has been made in respect of the anticipated legal costs which may be incurred in relation to the Chase Manhattan case, and for the other eight remaining property claims. 82 86 7. INTERIM RESULTS OF T&N The following is the text of the interim report containing T&N's results for the six months to 30 June 1997 which were announced on 18 August 1997. The figures below do not comprise statutory accounts. The figures for the year ended 31 December 1996 are extracted from the full Group accounts which have been filed with the Registrar of Companies. The figures for the six months ended 30 June 1996 and 30 June 1997 are unaudited. "CHAIRMAN'S STATEMENT Profit before tax on an FRS3 basis rose to pound sterling 114.7m in the six months to 30 June 1997 compared with pound sterling 58.1m in the first half of the previous year. Exceptional profits contributed pound sterling 29.4m to the improvement and there was no charge for asbestos-related costs (1996: pound sterling 25m). On an underlying basis, profit before tax was virtually unchanged from the previous year despite the adverse effects of exchange translation. Operating margins rose by a full percentage point to 10.6%. Cash generation was strong. TRADING Sales of continuing operations were pound sterling 908m, pound sterling 49m below the previous year after adverse exchange translation effects of pound sterling 84m. At constant exchange rates and excluding acquisitions, which contributed pound sterling 3m, sales grew by 4%. Operating profits on continuing businesses reached pound sterling 95.8m, up pound sterling 4.2m after adverse exchange translation effects of pound sterling 5.9m. Rationalisation costs charged against operating profit totalled pound sterling 9.9m compared with pound sterling 9.2m the previous year as the Group continued its productivity improvement programmes. Margins rose from 9.6% to 10.6% with all Product Groups showing an improvement. Bearings, Sealing Products and Composites & Camshafts were particularly strong while Pistons and Friction confirmed their recovery programmes were on track. Metal Leve, acquired in June, has made an encouraging start. In general, volumes in north America were strong; in Europe volumes were little changed. Total sales, including discontinued activities, were pound sterling 932m (1996: pound sterling 1,051m) and operating profit pound sterling 98.7m (1996: pound sterling 100.2m). The effect of exchange rate movements in the period was felt principally on the translation of overseas earnings. Compared with the first six months of the previous year, sterling strengthened by about 18% against the continental currencies and 7% against the dollar, reducing sales and operating profits of continuing businesses as mentioned above. Transaction effects were, however, relatively minor in the period. The Group's policy of manufacturing in the same geographical area as the customer confined the effect, in the main, to exports from the UK to Continental Europe amounting to less than 10% of Group sales. While some areas of activity experienced pressure on prices, in general the strong market position and technology base of the Product Groups enabled volumes to be maintained at satisfactory margins. Profit before tax in the period benefited from two exceptional credits. Profit from the disposal of non-core businesses, principally the Flexitallic industrial sealing activity sold in April, totalled pound sterling 15.9m after goodwill clawback of pound sterling 1.8m. The results also include pound sterling 13.5m from the sale of options over 24.9% of the equity in Kolbenschmidt AG received under the terms of a profit sharing arrangement with Commerzbank. The Group has negotiated matching call and put options over the remaining 24.9% of Kolbenschmidt equity with exercise dates up to December 1999. If exercised at the end of this period these options would generate a profit, net of holding costs, of approximately pound sterling 24m at current exchange rates largely recouping the costs incurred to date. The Group welcomes the steps being taken by Rheinmetall AG to merge their Pierburg subsidiary with Kolbenschmidt. An additional profit of pound sterling 5.0m from the sale of the Tenmat activity sold on 4 August has not been included in the half year accounts though the business has been treated as a discontinued activity. Asbestos-related costs arising in the period were charged to provisions set up in the 1996 accounts. Net interest charges fell in the period from pound sterling 15.2m to pound sterling 13.4m partly because of favourable exchange rate effects but also because of strong cash generation. Interest cover before exceptional credits was 7.4 times (1996: 6.6 times). Taxation accounted for pound sterling 38.4m, an effective rate of 33%, compared with pound sterling 20.3m (35%) in the first half of 1996. After minority interests of pound sterling 2.4m, profit attributable to T&N shareholders rose by pound sterling 39.3m to pound sterling 73.9m. Earnings per share rose to 13.9p compared with 6.5p the previous year. Excluding the effect of exceptional gains, earnings per share were 10.2p. The special dividend in lieu of the 1996 final was paid in July. The Board has decided to increase the interim dividend by 7% from 3.0p to 3.2p. This will be paid on 14 November 1997 to shareholders on the register on 12 September 1997. A Scrip Alternative will be offered. The results include a pension credit arising under SSAP24 of pound sterling 2.9m (1996: pound sterling 2.5m). The Group is currently discussing with its advisers the impact of recent Budget changes on the pension credit but at this stage does not expect the effect to be material this year. 85 87 CASH Cash generation continued to receive high priority in the period and cash generated by operating activities increased from pound sterling 94.9m to pound sterling 102.9m. Inventories at the end of the reporting period were pound sterling 239.2m compared to pound sterling 292.8m twelve months earlier. Adjusting for disposals and the effect of exchange rates, inventories on a like for like basis fell by about 8% over the twelve months. Asbestos-related payments in the period comprised pound sterling 92m paid in January in respect of the insurance premium charged in the 1996 accounts, and pound sterling 34.3m of ongoing payments, down from pound sterling 40.8m the previous year. The cash outflow on taxation was also down, from pound sterling 11.7m to pound sterling 8.5m. Capital expenditure totalled pound sterling 41.9m compared with pound sterling 53.7m so that net cash flow (excluding the insurance premium) before acquisitions, disposals and financing improved from an outflow of (pound sterling 32.2m) to an inflow of pound sterling 5.3m. Acquisitions, principally Metal Leve acquired in June, totalled pound sterling 33.0m. Disposals generated pound sterling 52.6m. Additional receipts totalling pound sterling 17m due from the sale in 1996 of the Group's Zimbabwean construction activity have been delayed owing to operational difficulties in the mining operations. The Group is receiving interest on the delayed payments which have been treated as a receivable. The proceeds of the disposals have been transferred to the asbestos claims fund which is shown separately in the balance sheet. With the disposal of Tenmat mentioned above, the Group currently has around pound sterling 70m in the asbestos fund. The Group will be appointing external fund managers to advise on the investment of the fund in the next few months. After favourable exchange effects of pound sterling 10.6m, bank borrowings at the close of the period were pound sterling 307.6m compared with pound sterling 312.7m a year earlier. With pound sterling 51.2m in the asbestos claims fund, net debt was pound sterling 256.4m (June 1996: pound sterling 312.7m). ASBESTOS The measures announced last year, to take a significant provision in respect of the estimated present value of possible future asbestos-related disease claims against the Group, and to purchase a substantial (pound sterling 500m) layer of insurance as additional cover, protect the Company against the decision of the US Supreme Court not to preserve the Georgine settlement. The procedures established by the settlement, which sought to resolve claims through an efficient administrative system rather than through the Courts, thus came to an end on 21 July 1997. The Company, working with the other members of the Center for Claims Resolution, will continue its efforts to achieve the essential aim of the Georgine settlement. Following the successful jury verdict in the Chase Manhattan property damage case in December 1995, Chase lodged various motions with the Court seeking a new trial. Such motions were defeated. Chase has now submitted an appeal against the jury's verdict. The Company has received legal advice that the appeal stands no realistic prospect of success. Further progress has been made in reducing the number of other property damage claims, and only four of such cases now remain pending. The Company's potential liability in respect of such cases has been fully provided for. In the United Kingdom, the claims processing and administration procedures continue to operate well. PROSPECTS Continued strong cash generation and operating margins back to 10.6%, even after charging substantial rationalisation costs, provide a sound basis for improvement to the Group's performance in the future. The strength of sterling is obviously an issue, but our strong market position, geographical spread and investment in technology is limiting the overall effect on the Group. The decision to increase the dividend reflects our confidence. SIR COLIN HOPE CHAIRMAN 86 88 GROUP PROFIT AND LOSS ACCOUNT
SIX MONTHS SIX MONTHS YEAR ENDED ENDED ENDED 31 DECEMBER NOTE 30 JUNE 1997 30 JUNE 1996 1996 --------- ------------ ------------ ----------- pound pound pound pound sterling sterling sterling sterling m m m m TURNOVER Turnover including share of associated undertakings 977 1,098 2,038 Associated undertakings (45) (47) (82) ------------ ------------ ------------ Turnover excluding associated undertakings 1 932 1,051 1,956 ------------ ------------ ------------ OPERATING PROFIT 1&2 98.7 100.2 178.5 Asbestos-related costs -- (25.0) (515.0) Profit/(loss) on disposals 3 15.9 0.8 (1.6) Kolbenschmidt option profit/(costs) 4 13.5 (2.7) (23.4) ------------ ------------ ------------ PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE INTEREST 128.1 73.3 (361.5) Net interest payable (13.4) (15.2) (26.8) ------------ ------------ ------------ PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION 114.7 58.1 (388.3) Taxation 5 (38.4) (20.3) (8.0) ------------ ------------ ------------ PROFIT/(LOSS) ON ORDINARY ACTIVITIES AFTER TAXATION 76.3 37.8 (396.3) Minority interests (2.4) (3.2) (4.5) ------------ ------------ ------------ Profit/(loss) attributable to shareholders 73.9 34.6 (400.8) Dividends (33.0) (15.9) (16.0) ------------ ------------ ------------ Transfer to/(from) reserves 40.9 18.7 (416.8) ------------ ------------ ------------ Earnings per 40p share (net) 7 13.9p 6.5p (75.4p) Dividends per 40p share 8 6.2p 3.0p 3.0p ============ ============ ============
GROUP BALANCE SHEET SIX MONTHS SIX MONTHS YEAR ENDED ENDED ENDED 31 DECEMBER NOTE 30 JUNE 1997 30 JUNE 1996 1996 --------- ------------ ------------ ------------ pound pound pound pound sterling sterling sterling sterling m m m m Tangible fixed assets and investments 726.3 775.1 756.7 ------------ ------------ ------------ Stocks 239.2 292.8 247.6 Debtors 460.3 523.7 416.9 Creditors (404.0) (398.7) (484.4) ------------ ------------ ------------ Operating working capital 295.5 417.8 180.1 ------------ ------------ ------------ OPERATING ASSETS 1,021.8 1,192.9 936.8 ------------ ------------ ------------ Dividends and ACT payable (41.3) (39.8) (4.0) Provisions for liabilities and charges 6 (554.7) (249.8) (589.5) ------------ ------------ ------------ ASSETS EMPLOYED 425.8 903.3 343.3 ------------ ------------ ------------ Share capital 7 213.0 531.5 532.2 Reserves (70.8) 34.6 (413.9) ------------ ------------ ------------ Shareholders' funds 142.2 566.1 118.3 Minority interests 27.2 24.5 24.7 ------------ ------------ ------------ EQUITY 169.4 590.6 143.0 ------------ ------------ ------------ Other borrowings 307.6 312.7 200.3 Asbestos fund (51.2) -- -- ------------ ------------ ------------ Net borrowings 256.4 312.7 200.3 ------------ ------------ ------------ CAPITAL EMPLOYED 425.8 903.3 343.3 ============ ============ ============
87 89 GROUP NET DEBT MOVEMENT
SIX MONTHS SIX MONTHS YEAR ENDED ENDED ENDED 31 DECEMBER NOTE 30 JUNE 1997 30 JUNE 1996 1996 --------- ------------ ------------ ------------ pound pound pound sterling sterling sterling m m m OPERATING PROFIT/(LOSS) 98.7 75.2 (336.5) Depreciation 49.2 51.6 98.3 Operating working capital (45.0) (53.2) 21.2 Asbestos-related costs -- 25.0 515.0 Provisions etc. -- (3.7) (10.7) ------------ --------- ------------ CASH INFLOW FROM OPERATING ACTIVITIES 102.9 94.9 287.3 Asbestos-related payments -- claims and costs (34.3) (40.8) (64.8) -- insurance premium (92.0) -- -- ------------ --------- ------------ NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES (23.4) 54.1 222.5 Returns on investment and servicing of finance (11.7) (18.2) (31.4) Taxation (8.5) (11.7) (28.9) ------------ --------- ------------ CASH (OUTFLOW)/INFLOW BEFORE INVESTING ACTIVITIES AND FINANCING (43.6) 24.2 162.2 Capital expenditure (41.9) (53.7) (114.3) Other (1.2) (2.7) (11.2) ------------ --------- ------------ NET CASH (OUTFLOW)/INFLOW BEFORE ACQUISITIONS, DISPOSALS AND FINANCING (86.7) (32.2) 36.7 Acquisitions 3 (33.0) (9.6) (15.5) Disposals 3 52.6 26.2 74.8 Equity dividends paid -- -- (31.9) Share issues 0.4 0.9 3.0 ------------ --------- ------------ (66.7) (14.7) 67.1 Currency translation 10.6 12.0 42.6 ------------ --------- ------------ Net debt change (56.1) (2.7) 109.7 ============ ========= ============
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
SIX MONTHS SIX MONTHS ENDED ENDED 30 JUNE 1997 30 JUNE 1996 ------------ ------------ pound pound sterling sterling m m Profit attributable to shareholders 73.9 34.6 Other recognised gains and losses: Currency translation differences on foreign currency net investments (7.6) (9.0) Other 0.9 0.3 ------------ ------------ (6.7) (8.7) ------------ ------------ Total recognised gains and losses relating to the period 67.2 25.9 ============ ============
RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
SIX MONTHS SIX MONTHS ENDED ENDED 30 JUNE 1997 30 JUNE 1996 ------------ ------------ pound pound sterling sterling m m Profit attributable to shareholders 73.9 34.6 Dividends (33.0) (15.9) ------------ ------------ Transfer to reserves 40.9 18.7 Other recognised gains and losses (as above) (6.7) (8.7) New share capital subscribed 0.2 0.5 Goodwill charged on disposal 1.8 7.7 Goodwill on acquisition (12.3) (0.3) ------------ ------------ Net change 23.9 17.9 Shareholders' funds at 31 December 1996/1995 118.3 548.2 ------------ ------------ Shareholders' funds at 30 June 1997/1996 142.2 566.1 ============ ============
88 90 NOTES TO THE ACCOUNTS
TURNOVER OPERATING PROFIT ---------------------------------------- ---------------------------------------- SIX MONTHS SIX MONTHS YEAR ENDED SIX MONTHS SIX MONTHS YEAR ENDED ENDED 30 ENDED 30 31 DECEMBER ENDED 30 ENDED 30 31 DECEMBER JUNE 1997 JUNE 1996 1996 JUNE 1997 JUNE 1996 1996 ------------ ------------ ------------ ------------ ------------ ------------ pound pound pound pound pound pound sterling sterling sterling sterling sterling sterling m m m m m m 1. PRODUCT GROUPINGS Bearings 167 175 333 25.0 23.7 44.7 Sealing Products 101 115 216 10.7 10.3 16.2 Friction Products 159 170 320 11.3 11.3 16.5 Piston Products 287 301 574 24.5 23.1 41.4 Composites and Camshafts 194 196 381 24.3 23.2 45.6 ------------ ------------ ------------ ------------ ------------ --------- Continuing operations* 908 957 1,824 95.8 91.6 164.4 Discontinued operations 24 94 132 2.9 8.6 14.1 ------------ ------------ ------------ ------------ ------------ --------- Total 932 1,051 1,956 98.7 100.2 178.5 ------------ ------------ ------------ ------------ ------------ --------- *Including acquisitions 3 -- -- 0.4 -- -- GEOGRAPHICAL -- BY ORIGIN UK 227 219 431 27.4 28.1 56.2 Mainland Europe 337 392 725 34.1 27.2 45.9 North America 283 281 537 31.4 30.9 54.1 South Africa 53 56 111 3.1 4.3 8.0 Other countries 8 9 20 (0.2) 1.1 0.2 ------------ ------------ ------------ ------------ ------------ --------- Continuing operations 908 957 1,824 95.8 91.6 164.4 Discontinued operations 24 94 132 2.9 8.6 14.1 ------------ ------------ ------------ ------------ ------------ --------- Total 932 1,051 1,956 98.7 100.2 178.5 ------------ ------------ ------------ ------------ ------------ --------- GEOGRAPHICAL -- BY DESTINATION UK 148 145 281 Mainland Europe 375 425 785 North America 284 282 551 South Africa 44 48 92 Other countries 57 57 115 ------------ ------------ ------------ Continuing operations 908 957 1,824 Discontinued operations 24 94 132 ------------ ------------ ------------ Total 932 1,051 1,956 ============ ============ ============
SIX MONTHS SIX MONTHS YEAR ENDED ENDED 30 ENDED 30 31 DECEMBER JUNE 1997 JUNE 1996 1996 ------------ ------------ ------------ pound pound pound sterling sterling sterling m m m 2. ASSOCIATED UNDERTAKINGS Share of turnover 45.0 47.0 82.0 ------------ ------------ ------------ Share of profits before taxation 6.2 7.4 11.1 ============ ============ ============
3. ACQUISITIONS AND DISCONTINUED OPERATIONS On 16 June 1997 the Group acquired Metal Leve Inc, a manufacturer of articulated pistons, based in Michigan, USA. On 27 February 1997 the Group acquired Michigan Stamping Corporation, which manufactures heat shields and is also based in Michigan, USA. The goodwill figures included in these accounts in respect of acquisitions are preliminary and may be subject to amendment. Disposals during the period comprised the Flexitallic Sealing businesses with effect from 10 April 1997, the Ferodo Caernarfon business with effect from 3 May 1997 and Kafue Fisheries on 26 June 1997. On 4 August 1997 the Tenmat businesses were sold. The profit on disposal is not included in these accounts. The trading results of the Tenmat businesses are included in discontinued operations. 4. OPTIONS OVER SHARES IN KOLBENSCHMIDT AG ('KS') At 31 December 1996 the Company held options to acquire 6,727,260 shares in KS, representing 24.99% of the issued share capital of KS. These arrangements expire on 5 September 1997. The option price is DM 17 per share and the consideration payable on exercise of the options would be DM 114.4m (pound sterling 37.6m). On 28 May 1997 the Company announced that it had entered into option arrangements to sell 6,727,260 shares in KS at a price of DM 30 per share. The revenue receivable on exercise of these options would be DM 201.8m (pound sterling 66.4m). These 89 91 arrangements expire on 15 December 1999. In addition, arrangements have been entered into to extend to 15 December 1999 the existing options to acquire KS shares. Both these new option arrangements are conditional on the proposed merger between KS and Pierburg AG, Rheinmetall AG's automotive subsidiary, taking place. The costs of these new arrangements (pound sterling 6.2m) have been included in investments. In December 1996 option arrangements with Commerzbank AG over a further 6,727,260 shares in KS expired. Commerzbank AG subsequently sold the shares subject to the arrangements and, under the terms of the agreement, the Company received part of the proceeds. This gain of (pound sterling 13.5m has been recognised as a profit. The exceptional credit/(charge) relates to continuing operations and comprises:
SIX MONTHS SIX MONTHS YEAR ENDED ENDED 30 ENDED 30 31 DECEMBER JUNE 1997 JUNE 1996 1996 ------------ ------------ ------------ pound sterling pound sterling pound sterling m m m Received from Commerzbank on sale of shares 13.5 -- -- Payable on lapse of options with Commerzbank -- -- (10.0) Transfer of options to Metallbank -- -- (8.5) Other holding costs -- (2.7) (4.9) ------------ ------------ ------------ 13.5 (2.7) (23.4) ============ ============ ============
5. TAXATION (CHARGE)/CREDIT
SIX MONTHS SIX MONTHS YEAR ENDED ENDED 30 ENDED 30 31 DECEMBER JUNE 1997 JUNE 1996 1996 ------------ ------------ ------------ pound sterling pound sterling pound sterling UK (8.2) (5.1) 3.1 Overseas (26.8) (11.6) (4.1) Associated undertakings (3.4) (3.6) (7.0) ------------ ------------ ------------ (38.4) (20.3) (8.0) ============ ============ ============
6. PROVISIONS FOR LIABILITIES AND CHARGES
Retirement benefits (137.1) (156.3) (142.1) Asbestos-related (412.3) (81.2) (440.6) Other (5.3) (12.3) (6.8) ------------ ------------ ------------ (554.7) (249.8) (589.5) ============ ============ ============
7. SHARE CAPITAL
SIX MONTHS ENDED 30 JUNE -------------------------- 1997 NUMBER 1997 ------------ ------------ (m) pound sterling m At 1 January 1997 532.2 532.2 Capital reduction -- (319.4) Shares issued 0.3 0.2 ------------ ------------ At 30 June 1997 532.5 213.0 ------------ ------------ Average number of shares in issue: Six months ended 30 June 1997 532.3 Six months ended 30 June 1996 531.4 ============
A capital reduction was approved by the Court on 29 January 1997 and took effect on 30 January 1997. In accordance with the terms of the capital reduction, the nominal value of authorised and issued shares was reduced from pound sterling 1.00 to 40p. The reduction in share capital of pound sterling 319.4m is transferred to other reserves and has no impact on shareholders' funds. 8. DIVIDENDS The 1997 dividends of 6.2p per share include an interim dividend of 3.2p per share and a further 3.0p per share as a 'first interim' dividend in lieu of a 1996 final dividend. 9. ACCOUNTING POLICIES There has been no change in accounting policies in the six month period ended 30 June 1997. The accounting policies are as disclosed in the accounts for the year ended 31 December 1996." 90 92 APPENDIX IV ADDITIONAL INFORMATION 1. RESPONSIBILITY (a) The directors of Federal-Mogul whose names are set out in paragraph 2(a) below and the directors of the Offeror, whose names are set out in paragraph 2(b) below, accept responsibility for the information contained in this document, other than the information contained in this document relating to T&N, the directors of T&N and their immediate families and persons connected with the directors of T&N. To the best of the knowledge and belief of such directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document for which they accept responsibility is in accordance with the facts and does not omit anything likely to affect the import of such information. (b) The directors of T&N, whose names are set out in paragraph 2(c) below, accept responsibility for the information contained in this document relating to T&N, the directors of T&N and their immediate families and persons connected with the directors of T&N. To the best of the knowledge and belief of the directors of T&N (who have taken all reasonable care to ensure that such is the case), the information contained in this document for which they accept responsibility is in accordance with the facts and does not omit anything likely to affect the import of such information. 2. DIRECTORS AND THE OFFEROR (A) DIRECTORS OF FEDERAL-MOGUL The directors of Federal-Mogul are as follows:
NAME POSITION - ---- ----------------------------------- Richard A. Snell Chairman, Chief Executive Officer and President John J. Fannon Director Roderick M. Hills Director Antonio Madero Director Robert S. Miller Jr. Director John C. Pope Director H. Michael Sekyra Director
(B) DIRECTORS OF THE OFFEROR
The names of the directors of the Offeror are as follows: NAME POSITION - ---- ----------------------------------- Richard A. Snell Director Thomas A. Ryan Director Alan Johnson Director
(C) DIRECTORS OF T&N
The names of the directors of T&N and the positions they hold are as follows: NAME POSITION - ---- ----------------------------------- Sir Colin Hope Chairman Ian F.R. Much Chief Executive David A. Harding Finance Director Robert G. Beeston Non-Executive Director Roger H. Boissier Non-Executive Director Sir Terence Harrison Non-Executive Director Professor Frank R. Hartley Non-Executive Director Paul S. Lewis Non-Executive Director Alister C. McWilliam Executive Director T. Allan Welsh Executive Director Sir Geoffrey Whalen Non-Executive Director
91 93 (D) INFORMATION ON THE OFFEROR Federal-Mogul Global Growth Limited is a wholly owned indirect subsidiary of Federal-Mogul and has its registered office at Malvern Drive, Ty-Glas Industrial Estate, Llanishen, Cardiff, Wales CF4 5WW. It was incorporated in England and Wales under the Companies Act 1985 as a private limited company on 23 October 1997. Federal-Mogul Global Growth Limited's authorised share capital is 1000 ordinary shares of L1 nominal value each of which 100 ordinary shares have been issued and fully paid. Federal-Mogul Global Growth Limited is a holding and investment company in the Federal-Mogul Group and has been specially formed to make the Offer. Federal-Mogul Global Growth Limited has not traded since its date of incorporation and no accounts of Federal-Mogul Global Growth Limited have been prepared. The immediate holding company of Federal-Mogul Global Growth Limited is F-M UK Holding Limited which is wholly-owned by Federal-Mogul. Two investors have a stake in Federal-Mogul above 5%: Capital Group (11.9%) and Janus Capital (11.9%). 3. SHAREHOLDINGS AND DEALINGS For the purposes of this paragraph 3, "disclosure period" means the period commencing on 26 September 1996 (being the date 12 months prior to the commencement of the Offer period) and ending at the close of business on 11 November 1997 (being the latest practicable date prior to the posting of this document). (A) HOLDINGS (i) At the close of business on 11 November 1997 (being the latest practicable date prior to the posting of this document), the directors of T&N were interested in the following T&N Ordinary Shares:
NUMBER OF DIRECTOR T&N ORDINARY SHARES --------------------------------------- --------------------- Sir Colin Hope 107,774 Ian Much 34,952 David Harding 5,104 Alister McWilliam 2,375 Allan Welsh 19,445 Robert Beeston 10,000 Roger Boissier 2,595 Sir Terence Harrison 10,000 Professor Hartley 3,131 Paul Lewis 1,000 Sir Geoffrey Whalen 4,856
(ii) At the close of business on 11 November 1997 (being the last practicable date prior to the posting of this document), the directors of T&N had the following options over T&N Ordinary Shares:
EXERCISE NORMAL EXERCISE NUMBER OF T&N PRICE NAME SCHEME PERIOD ORDINARY SHARES PER SHARE - ------------------- ------------------------------------ --------------------- --------------- ------------- Sir Colin Hope T&N UK Share Option Scheme and 1995 11.4.91-10.4.98 55,796 159.5p Executive Share Option Scheme 18.4.92-17.4.99 55,796 184.6p 10.4.93-9.4.00 86,084 147.8p 11.4.94-10.4.01 107,606 171.9p 19.3.95-18.3.02 94,112 111.4p 12.4.97-11.4.04 50,833 226.2p 1.2.00-31.7.00 8,145 119.7p Ian Much T&N UK Share Option Scheme and 1995 11.4.94-10.4.01 80,704 171.9p Executive Share Option Scheme 19.3.95-18.3.02 78,427 111.4p 15.4.96-14.4.03 20,913 172.1p 12.4.97-11.4.04 25,416 226.2p 10.5.98-9.5.05 100,000 159.0p 2.9.00-1.9.07 150,000 157.5p T&N UK Savings-Related Share Option 1.7.98-31.12.98 2,846 158.1p Scheme 1.7.00-31.12.00 4,924 158.4p 1.7.00-31.12.00 5,077 135.9p 1.7.01-31.12.01 2,215 155.7p
92 94
EXERCISE NORMAL EXERCISE NUMBER OF T&N PRICE NAME SCHEME PERIOD ORDINARY SHARES PER SHARE - ------------------- ------------------------------------ --------------------- --------------- ------------- David Harding T&N 1995 Executive Share Option 10.5.98-9.5.05 100,000 159.0p Scheme 6.9.99-5.9.06 50,000 137.0p 2.9.00-1.9.07 200,000 157.5p Alister McWilliam T&N UK Share Option Scheme and 1995 11.4.91-10.4.98 16,739 159.5p Executive Share Option Scheme 18.4.92-17.4.99 22,318 184.5p 10.4.93-9.4.00 21,521 147.7p 11.4.94-10.4.01 43,043 171.9p 19.3.95-18.3.02 29,279 111.4p 15.4.96-14.4.03 15,685 172.1p 12.4.97-11.4.04 25,416 226.2p 6.10.97-5.10.04 10,166 207.5p 10.5.98-9.5.05 50,000 159.0p 2.10.99-1.10.06 20,000 134.5p 2.9.00-1.9.07 90,000 157.5p T&N Savings-Related Share Option 1.7.00-31.12.00 Scheme 7,174 135.9p Allan Welsh T&N UK Share Option Scheme and 1995 11.4.94-10.4.01 43,043 171.9p Executive Share Option Scheme 19.3.95-18.3.02 41,827 111.4p 15.4.96-14.4.03 15,685 172.1p 12.4.97-11.4.04 25,416 226.2p 10.5.98-9.5.05 50,000 159.0p 2.10.99-1.10.06 20,000 134.5p 2.9.00-1.9.07 125,000 157.5p T&N Savings-Related Share Option 1.7.00-31.12.00 1,015 135.9p Scheme 1.2.02-31.7.02 2,882 119.7p 1.2.03-31.7.03 8,192 151.6p
(iii) The following irrevocable undertakings to accept the Offer have been given by the directors of T&N in respect of the following numbers of relevant securities:
NAME NUMBER OF T&N ORDINARY SHARES ------------------------- ------------------------------- Sir Colin Hope 107,774 Ian Much 34,952 David Harding 5,104 Alister McWilliam 2,375 Allan Welsh 19,445 Robert Beeston 10,000 Roger Boissier 2,595 Sir Terence Harrison 10,000 Professor Hartley 3,131 Paul Lewis 1,000 Sir Geoffrey Whalen 4,856
93 95 (B) DEALINGS In addition to the grant of the options referred to in paragraph (a)(ii) above, dealings for value in T&N Ordinary Shares by the directors of T&N and their immediate families and related trusts during the disclosure period were as follows:
NUMBER OF T&N NAME DATE TRANSACTION ORDINARY SHARES PRICE PER SHARE - --------------------- ------------------- ----------------------------------- --------------- --------------- Sir Colin Hope To be issued on 14 Scrip issue in respect of second November 1997 interim dividend 2,212 152.7p Ian Much 11 July 1997 Scrip issue in respect of first interim dividend 68 136.3p To be issued on 14 Scrip issue in respect of second November 1997 interim dividend 716 152.7p David Harding To be issued on 14 Scrip issue in respect of second November 1997 interim dividend 104 152.7p Alister McWilliam To be issued on 14 Scrip issue in respect of second November 1997 interim dividend 49 152.7p Allan Welsh 23 December 1996 Exercise and purchase 2,371 158.1p 31 December 1996 Sale 2,371 172.0p 11 July 1997 Scrip issue in respect of first interim dividend 130 136.3p 25 September 1997 Exercise and purchase 13,274 101.7p To be issued on 14 Scrip issue in respect of second November 1997 interim dividend 127 152.7p Robert Beeston 6 March 1997 Purchase 10,000 157.5p Roger Boissier 11 July 1997 Scrip issue in respect of first interim dividend 54 136.3p To be issued on 14 Scrip issue in respect of second November 1997 interim dividend 53 152.7p Sir Terence Harrison 4 October 1996 Purchase 5,000 134.0p 3 June 1997 Purchase 5,000 124.0p Professor Hartley 11 July 1997 Scrip issue in respect of first interim dividend 66 136.3p To be issued on 14 Scrip issue in respect of second November 1997 interim dividend 64 152.7p Paul Lewis 28 November 1996 Purchase 1,000 184.5p Sir Geoffrey Whalen 11 July 1997 Scrip issue in respect of first interim dividend 102 136.3p To be issued on 14 Scrip issue in respect of second November 1997 interim dividend 100 152.7p
(C) ARRANGEMENTS Hoare Govett Corporate Finance Limited offers a bridge facility to holders of options under the T&N UK Share Option Scheme and the T&N 1995 Executive Share Option Scheme to facilitate the exercise of options and, if required, the sale of shares arising after exercise of options in order to fund the subscription price, interest charge and dealing costs. (D) GENERAL Save as disclosed in paragraphs (a), (b) and (c) above: (i) none of Federal-Mogul nor the Offeror nor any member of the Federal-Mogul Group owns or controls any relevant securities nor has any such person dealt for value therein during the disclosure period; (ii) none of the directors of Federal-Mogul nor the directors of the Offeror nor any member of their immediate families is interested (as described in Parts VI and X of the Companies Act 1985), directly or indirectly, in relevant securities nor has any such person dealt for value therein during the disclosure period; 94 96 (iii) no person acting in concert with Federal-Mogul (excluding exempt market makers and exempt fund managers) owns or controls any relevant securities nor has any such person dealt for value therein during the disclosure period; (iv) neither Federal-Mogul nor any person acting in concert with Federal-Mogul has any arrangement of the kind referred to in paragraph 3(e) below with any of the directors, recent directors, shareholders or recent shareholders of T&N having any connection with or dependence upon the Offer; (v) T&N does not own or control and no director of T&N is interested (as described in parts VI and X of the Companies Act 1985), directly or indirectly, in any shares in Federal-Mogul or the Offeror nor has any such person dealt for value therein during the disclosure period; (vi) no director of T&N is interested (as described in Parts VI and X of the Companies Act 1985), directly or indirectly, in relevant securities nor has any such director or any member of his immediate family or any related trust or any company under its control dealt for value therein during the disclosure period; (vii) no subsidiary of T&N nor any pension fund of T&N or any subsidiary of T&N nor any bank, financial or other professional adviser (including stockbrokers) to T&N nor any person controlling, controlled by, or under the same control as, any such bank, financial or other professional adviser (other than exempt market-makers) owns or controls any relevant securities nor has any such person dealt for value therein during the period commencing on 26 September 1997 (the date of commencement of the Offer period) and ending on 11 November 1997 (the latest practicable date prior to the posting of this document); and (viii) neither T&N nor any person who is an associate of T&N has any arrangement of the kind referred to in paragraph 3(e) below relating to relevant securities. (E) DEFINITIONS For the purposes of this paragraph 3: (i) "arrangement" includes indemnity or option arrangements, and any agreement or understanding, formal or informal, of whatever nature relating to relevant securities which may be an inducement to deal or refrain from dealing; (ii) "relevant securities" means T&N Ordinary Shares and securities convertible into, rights to subscribe for, options (including traded options) in respect of, and derivatives referenced to, any of the foregoing; (iii) an "associate" of T&N means any of: (aa) its subsidiaries, its associated companies and companies of which any such subsidiaries or associated companies are associated companies (where ownership or control of 20 per cent. or more of the equity share capital is regarded as the test of associated company status); (bb) the banks, financial and other professional advisers (including stockbrokers) to T&N or any company referred to in (aa) above, including persons controlling, controlled by or under the same control as such banks, financial or other professional advisers; (cc) the directors of T&N (together with their close relatives and related trusts) or of any company referred to in (aa) above; (dd) the pension funds of T&N or of any company referred to in (aa) above; and (iv) "control" means a holding, or aggregate holdings, of shares carrying 30 per cent. or more of all the voting rights attributable to the share capital of a company which are currently exercisable at a general meeting, irrespective of whether the holding or holdings give de facto control, and references to a "bank" do not apply to a bank whose sole relationship with T&N is the provision of normal commercial banking services. 4. MARKET QUOTATIONS The following table shows the middle-market quotations for T&N Ordinary Shares, as derived from the London Stock Exchange Daily Official List on the following dates, unless otherwise indicated: (i) the first dealing day of each of the 6 months immediately prior to the date of this document; (ii) 25 September 1997, being the last dealing day prior to the announcement that T&N had received an approach from Federal-Mogul; and (iii) 11 November 1997, being the latest practicable date prior to the posting of this document. 95 97
DATE T&N ORDINARY SHARE PRICE (P) - ---------------------- ---------------------------- 2 June 1997 123p 1 July 1997 144p 1 August 1997 142p 1 September 1997 157 1/2p 25 September 1997 182p 1 October 1997 246 1/2p 3 November 1997 251p 11 November 1997 250p
5. MATERIAL CONTRACTS (1) FEDERAL-MOGUL The following contracts have been entered into by members of the Federal-Mogul Group, otherwise than in the ordinary course of business, since 26 September 1995 (being the date two years before the Offer period began) and are or may be material: (a) On 15 October 1997 a Senior Credit Agreement was entered into by Federal-Mogul and Chase Manhattan Bank as administrative agent and lender pursuant to which Federal-Mogul may borrow: (i) up to $2.35 billion in term loans (the "Term Loans") to be used to finance the acquisition of T&N, pay the fees and expenses in connection therewith and refinance existing indebtedness of T&N, and (ii) up to $400 million outstanding at a given time in revolving credit loans (the "Revolving Credit Loans") to be used to refinance Federal-Mogul's existing revolving credit agreement, to pay fees and expenses incurred under this Agreement and for working capital and other general corporate purposes. The Term Loans are divided into three tranches repayable over certain periods up to 31 December 2005. Revolving Credit Loans are available for six years commencing on the first date upon which payment for T&N shares must be made (the "Closing Date"). Federal-Mogul's obligations under this Agreement are secured by a lien on certain inventory and accounts receivable of Federal-Mogul and certain subsidiaries. In addition, Federal-Mogul and certain subsidiaries will guarantee the Term Loans and Revolving Credit Loans and will pledge the capital stock of certain of their subsidiaries and certain intercompany loans. (b) On 15 October 1997 a Senior Subordinated Credit Agreement was entered into by Federal-Mogul and Chase Manhattan Bank as administrative agent and lender pursuant to which Federal-Mogul may borrow $500 million (the "Loans") to finance the acquisition of T&N and pay the fees and expenses in connection therewith. The Loans will be subordinated to the loans under the Senior Credit Agreement and other senior indebtedness of Federal-Mogul and will mature on the first anniversary of the Closing Date unless unpaid at this date, in which case the loans will roll over into term loans maturing ten years after the Closing Date. The Loans will have the benefit of guarantees, on a subordinated basis, by the guarantors of the loans under the Senior Credit Agreement. (c) On 15 October 1997, Federal-Mogul purchased from Chase Manhattan Bank a foreign currency option with a notional amount of $2.5 billion to eliminate downside risks associated with fluctuation in the pounds sterling/US dollar exchange rate through to its expiration date of 15 January 1998. The option was purchased for $28.1 million. (2) T&N The following contracts have been entered into by members of the T&N Group, otherwise than in the ordinary course of business, since 26 September 1995 (being the date two years before the Offer period began) and are or may be material: (a) On 4 August 1997 T&N, Tenmat Limited, Tenmat Midlands Limited (together the "UK Vendors"), T&N Export Services Limited, T&N Technology Limited, Tenmat GmbH, Tenmat SARL, T&N Industries, Inc, True Fortune Limited (the "Purchaser"), Modular Stock Limited (the "Purchaser's Guarantor"), Isomoules Sarl and T&N Holdings Vermogensverwaltung Burschied GmbH ("Burschied GmbH") entered into an asset sale agreement relating to the sale by T&N of the business and assets of its Tenmat division. Under the terms of the agreement the UK Vendors (as defined in the agreement) sold with full title guarantee to the Purchaser certain assets and their UK business as a going concern, T&N Export Services Limited and the UK Vendors sold with full title guarantee to the Purchaser various debts, T&N Technology Limited and the Vendors sold with full title guarantee to the Purchaser certain intellectual property rights and the UK Vendors sold with full title guarantee to the Purchaser the UK properties, as such terms are defined in the Agreement. The consideration payable for the sale and purchase of the assets and the UK business was pound sterling 14,490,220 in cash, subject to adjustment under the terms of the agreement. In addition, the Purchaser's Guarantor procured that its wholly owned subsidiary Tenmat Holdings, Inc. acquired the entire issued share capital of Tenmat Inc, that its subsidiary Burshied GmbH acquired the German Business and that its subsidiary Isomoules Sarl acquired the French Business, where "German Business" and "French 96 98 Business" are defined in the agreement. The consideration payable in cash under these related agreements was, subject to adjustment, under the US Agreement pound sterling 1,808,588, under the French Agreement Ffr10,890,277 and under the German Agreement DM3,677,510. (b) By a letter agreement dated 16 June 1997 between Metallbank GmbH and T&N, the bank granted to T&N a call option in respect of 6,727,260 shares in Kolbenschmidt AG ('KS') on the terms set out in the letter. T&N has the right to exercise the call option until 15 December 1999 at a price of DM 17 net per KS share. The total premium amount paid in respect of this option was DM 15,472,698. A letter dated 18 July 1997 between the same parties clarified the terms of the earlier agreement. By a letter agreement dated 12 May 1997 between the same parties, the bank granted to T&N a put option in respect of 6,727,260 shares in KS on the terms set out in the letter. T&N has the right to exercise the put option on 15 December 1999 at a price of DM 30 net per KS share. The total amount paid to the bank in respect of this option was DM 1,345,452. (c) On 10 April 1997 T&N, T&N Investments Limited, T&N Investments Inc., Flexitallic Limited, Flexitallic Sealing Materials Limited, T&N Export Services Limited, Flexitallic, Inc., Goetze Vermogensverwaltungs GmbH, Flexitallic Canada Limited, Ferodo A.S., Dan Loc Corporation (the "Purchaser"), Dan Loc Holdings Inc., Dan Loc Limited, Delta 72 Unternehmensverwaltungs GmbH, Frederique s.r.o., Dan Loc (Canada) Limited, Dan Loc Investments Inc., and Dan Loc Transitional, L.P. entered into an agreement under which T&N and the Selling Subsidiaries (as defined) agreed to sell to the Purchaser and the Purchasing Subsidiaries (as defined) as a going concern the business of manufacture and/or selling of spiral wound gaskets, ring type joints, asbestos and non asbestos sheet ceiling materials, valve packing and related products. The Purchaser and the Purchasing Subsidiaries agreed to pay to T&N and the Selling Subsidiaries the aggregate amount of $70 million, subject to adjustment. The Purchaser also assumed certain liabilities. (d) On 10 April 1997 the same parties as those referred to in (c) above (with the exception of T&N Investments Limited, T&N Investments Inc., T&N Export Services Limited, Dan Loc Holdings Inc. and Dan Loc Investments Inc.) entered into a deed of special indemnity. Under the deed, T&N and the Selling Subsidiaries (as defined) agreed to indemnify the Purchaser and the Purchasing Subsidiaries in respect of certain environmental and asbestos-related matters. The indemnity is for a period of 27 years from closing and is unlimited as to amounts payable. (e) Under a stock purchase agreement dated 19 March, 1997 between Metal Leve S.A. Industria E Comercio (the "Parent"), Metal Leve International Limited (the "Seller") and T&N Industries Inc. (the "Buyer"), the Seller agreed to sell to the Buyer all of the issued and outstanding shares of common stock, par value $1 per share, of Metal Leve Inc. (a Michigan Corporation), subject to the terms of the agreement. Immediately prior to closing, the Parent and the Seller contributed the Contributed Assets (as defined) to Metal Leve Inc. The consideration payable by the Purchaser was $46 million, subject to adjustment in accordance with the terms of the agreement. The business of the Company (prior to closing) was the research and design with respect to, and the development, manufacture, marketing, sale and distribution of other pistons manufactured by Metal Leve Inc. in the US, articulated pistons and large bore composite pistons by the Parent and its subsidiaries and other diesel pistons sold by Metal Leve Inc. in the US. (f) On 30 December 1996 T&N entered into an asbestos liability policy with Curzon Insurance Limited of Guernsey (the "Insurer"). The period of insurance commenced on 1 July 1996 and is unlimited in time. The premium payable was pound sterling 92,046,000. Under the terms of the policy, the Insurer indemnifies T&N for the ultimate net loss suffered by it in excess of a retained limit of pound sterling 690 million, in connection with asbestos claims made after 1 July 1996 anywhere in the world. The policy is subject to an overall limit in respect of all claims of pound sterling 500 million. T&N may (with the approval of the Insurer) insure all or part of the retained limit. Any ultimate net losses suffered by any T&N subsidiary are conclusively presumed to have been suffered by T&N, to the extent of T&N's shareholding in such subsidiary as at 1 July 1996. (g) By a reinsurance agreement dated 30 December 1996 the Insurer referred to in (f) above reinsured the ultimate net loss in excess of the retained limit with Centre Reinsurance International Company (of Ireland), European International Reinsurance Company Limited (of Barbados) and Muencheuer Rueckversicherungs-Gesellschaft (of Germany). Each re-insurer is severally liable for 33 1/3% of any ultimate net loss, up to a maximum of pound sterling 166,666,666.66 each. (h) On 16 December 1996 Glacier Vandervell Inc. (a member of the T&N Group) ("Glacier") and Daido Metal America Corporation ("Daido") (together the "Members") entered into an agreement to form Glacier Daido America, L.L.C. (the "Company"), for the purpose of manufacture in North America of automotive bearing products for sale in north, central and south America and export to other countries. The agreement continues until 31 December 2050, unless earlier dissolved. The percentage interests of Glacier and Daido in the Company are 70% and 30% respectively. As initial capital contributions, Glacier contributed the net assets and liabilities of its Bellefontaine, Ohio bearings manufacturing facility (worth $30 million) and Daido contributed $9 million. 97 99 Additional capital contributions may be required of the Members in certain circumstances. Operational funds of up to $5 million may be advanced by the Members during the first 5 years of the term. (i) Under an asset transfer agreement dated 16 December 1996 between Glacier Vandervell Inc. (the "Transferor") and Glacier Daido America, L.L.C., of Delaware (the "Transferee"), the Transferor agreed to transfer to the Transferee substantially all of the operating assets and liabilities of the Transferor used in its Bellefontaine, Ohio bearing plant for the manufacture of thin wall fluid film automotive bearings and by-metal strip material for use in the manufacture of bearings (the "Business"). In consideration for the Transferred Assets (as defined in the agreement) the Transferee issued to the Transferor a 70% ownership interest in the Transferee. As additional consideration for the sale of the Transferred Assets to the Transferee, the Transferee assumed and agreed to perform and indemnify the Transferor against the Assumed Liabilities (defined in the agreement). As further consideration, the Transferee agreed to make a one time distribution to the Transferor on 18 December 1996 of US$9 million in accordance with the terms of the agreement. The aggregate consideration for the Transferred Assets was US$30 million. (j) By an agreement dated 19 July 1996 between T&N, AE Turbine Components Limited (together the "Vendors"), T&N Export Services Limited, Precision Castparts Corp. and AETC Limited (the "Purchaser"), the Vendors agreed to sell to the Purchaser the business of the manufacture, machining and repair of hot gas path components for gas turbines as a going concern together with certain specific assets. In addition, T&N Export Services Limited agreed to sell to the Purchaser certain specified debts. The consideration payable to the Vendors was an initial payment of pound sterling 41 million, subject to adjustment under the terms of the agreement. (k) On 7 March 1996 T&N International Limited ("TNI") and T&N (the "Sellers") entered into an agreement to sell to Africa Resources Limited (the "Purchaser"), the entire issued share capitals of SMM Holdings Limited (registered in England), THZ Holdings Limited (registered in England), TAP Building Products Limited (registered in Zambia) and African Associated Mines (Pvt) Limited (registered in Zimbabwe). The consideration payable for the acquisition is US$60 million, payable to T&N in monthly instalments of US$5 million payable on the last day of each month, with interest charged on any later payment. (l) In connection with the agreement referred to at (k) above, by a memorandum of deposit and charge dated 15 March 1996 between the Purchaser, Africa Construction Limited, the companies listed in the memorandum and T&N, the Purchaser and Africa Construction Limited agreed to secure certain of their obligations. (m) By an agreement for the sale and purchase of the business and assets of the division known as "Hydra-Tight" dated 23 October 1995 between T&N, Hydra-Tight Limited, Bolting Technology Limited, Flexitallic Engineering Limited, Pilgrim Engineering Developments Limited, Pilgrim Moorside Limited, HTD Limited, and Inhoco 420 Limited (the "Purchaser"), T&N agreed to sell or procure the sale of, and each of the Subsidiaries (as defined) agreed to sell to the Purchaser as a going concern the assets (including intellectual property) and undertaking of the its business of the design, manufacture, marketing and sale of hydraulic and mechanical products and the rental, hire or leasing of such products. The consideration payable (subject to adjustment under the terms of the agreement) to the Vendor for all the assets was the sum of pound sterling 6,998,000 in cash, the allotment and issue (at an aggregate sum of pound sterling 2,250,000) of the Consideration Securities (as defined) by the Purchaser to T&N or as T&N may direct. The Purchaser also agreed to make available to T&N an interest-free loan of pound sterling 2,764,000 and to pay further consideration of up to pound sterling 1,500,000, in each case on the terms set out in the agreement. (n) On 24 September 1995 T&N, T&N International Limited, T&N Industries Inc., T&N De Mexico S.A. De C.V. and Questreign Limited ("Questreign") entered into an agreement under which Questreign agreed to purchase, or to procure that a member of Questreign's Group purchased, from T&N or a member of the T&N Group the UK Business, the Mexican Shares and the Chem Shares, each as defined in the agreement. The consideration was paid in cash as follows. In respect of the UK business the sum of pound sterling 29,787,478 plus pound sterling 1,000,000 subject to adjustment, in respect of the Chem Shares the sum of pound sterling 825,152 and in respect of the Mexican Shares, the sum of pound sterling 1,804,000. The terms of the agreement were altered by a supplemental agreement entered into between the same parties on 5 October 1995. 6. SERVICE CONTRACTS OF THE DIRECTORS OF T&N The following directors of T&N have entered into service contracts having more than 12 months to run with T&N, short particulars of which are set out below: (a) Sir Colin Hope has a service contract with T&N which continues until terminated as follows: (i) prior to 1 June 1999 by not less than 12 months' written notice by T&N; (ii) thereafter by notice expiring on 31 May 2000 by T&N; 98 100 (iii) by not less than 12 months' written notice expiring on or before 31 May 2000 by Sir Colin Hope; or (iv) automatically on 31 May 2000. (b) Ian Much, David Harding, Alister McWilliam and Allan Welsh have service contracts with T&N which continue until terminated as follows: (i) by not less than two years' written notice by T&N; (ii) by not less than six month's written notice at any time by the relevant director; or (iii) automatically on the last day of the month in which the relevant director's sixty-second birthday occurs. Under the terms of their service contracts, the T&N executive directors are entitled to receive inter alia, a basic salary and an annual bonus. For the year to 31 December 1997 the basic salaries are as follows: Sir Colin Hope: pound sterling 310,000; Ian Much: pound sterling 300,000; David Harding: pound sterling 206,000; Alister McWilliam: pound sterling 160,000; and Allan Welsh: pound sterling 185,000. For the year to 31 December 1997 the T&N executive directors (other than Sir Colin Hope, who has waived his bonus entitlement) have a bonus opportunity equivalent to up to 40% of their annual salaries as at 31 December 1997 if certain objective criteria are met. These objective criteria vary according to the position of the director concerned and are based upon a basket of formulae comprising group and product group targets, including a group achievement of earnings per share of 17.2p per share. (c) Robert Beeston, Sir Terence Harrison and Paul Lewis have letters of appointment with T&N which continue until terminated by not less than 12 months' written notice at any time, or in any event, in the case of Robert Beeston, on 31 December 2000 and in the cases of Sir Terence Harrison and Paul Lewis on 31 December 1998. Under the terms of these letters of appointment Roger Beeston and Sir Terence Harrison are entitled to receive an annual fee of pound sterling 23,500 and Paul Lewis is entitled to receive an annual fee of pound sterling 26,500. It has been agreed that, conditional on the Offer becoming wholly unconditional: (i) Sir Colin Hope and Ian Much will resign as directors and employees of T&N receiving pound sterling 336,574 and pound sterling 900,500 respectively as compensation. (ii) David Harding, Allan Welsh and Alister McWilliam may, by 30 days' notice expiring not earlier than six months (or, in the case of David Harding, sixty days) after the Offer becomes wholly unconditional, terminate their employment with T&N. If they do so, or T&N terminates their employment within one year of the Offer becoming wholly unconditional, they will be entitled to receive pound sterling 620,700, pound sterling 549,900 and pound sterling 478,900 respectively as compensation. In addition T&N has agreed to make payment in respect of David Harding's contractual pension entitlement (less appropriate deductions for tax) to retirement benefits in excess of those which would be funded by contributions within the approved limit for that part of an employee's pension which can be funded through an approved pension scheme under the Finance Act 1989. Under his service agreement, T&N had agreed that David Harding's pension shall, subject to certain reservations, be as if the limitation did not apply and T&N has now varied that agreement such that a cash contribution will be made to fund that entitlement. Save as disclosed above, there are no service contracts between any director or proposed director of T&N with T&N or any of its subsidiaries having more than 12 months to run and no such contract has been entered into or amended within the six months preceding the date of this document. 7. BASES OF CALCULATIONS AND SOURCES OF INFORMATION In this document, unless otherwise stated, or the context otherwise requires, the following bases and sources have been used: (a) the prices of T&N Ordinary Shares as at a particular date are the closing middle-market quotations for those shares as derived from the London Stock Exchange Daily Official List as at that date; (b) references to the value which the Offer places on the T&N Ordinary Share Capital have been calculated using the Offer value of 260 pence per T&N Ordinary Share and T&N's fully diluted ordinary share capital, meaning the number of issued T&N Ordinary Shares as at 13 November 1997 and assuming the exercise of all outstanding options under the T&N Share Option Schemes and the issue on 14 November 1997 of 9,711,876 T&N Ordinary Shares pursuant to the scrip alternative to the 1997 second interim dividend; (c) the premia of the Offer over T&N's average share price in the one month and three months prior to 25 September 1997 have been calculated using the Offer value of 260 pence per T&N Ordinary Share and the arithmetic mean of the closing middle-market quotations for T&N Ordinary Shares as derived from the London Stock Exchange Daily Official List for the one month of 157.5 pence and for the three months of 149.75 pence respectively; 99 101 (d) the figures in paragraphs 3 and 4 of the letter from Morgan Stanley for consolidated net income before exceptional items, for Federal-Mogul and T&N respectively, have been calculated on the basis of certain assumptions; (e) the statements in paragraph 5 of the letter from Morgan Stanley as to the combined revenues, employees and geographic profile of Federal-Mogul and T&N for 1996 are derived from the published annual report and audited annual financial statements for Federal-Mogul Group for the year ended 31 December 1996 and the published consolidated annual report and accounts for T&N for the year ended 31 December 1996. No account has been taken of differences between UK GAAP and US GAAP. In addition, in the statements in paragraph 5 as to the combined revenues, employees, geographic profile, customers and financial benefits, no account has been taken of any divestitures which might be required by anti-trust authorities; (f) the statements in paragraph 5 of the letter from Morgan Stanley as to the effect of the acquisition on Federal-Mogul's earnings per share assume that Federal-Mogul has implemented an appropriate refinancing; (g) unless stated otherwise, US dollars have been converted into pounds sterling and vice versa at the rate of 1.6 US dollars to 1.0 pound sterling. The US dollar to pounds sterling exchange rate as at 10 November 1997 was 1.6871 as published in the Financial Times on 11 November 1997, the latest practicable date prior to the posting of this document; and (h) the current equity market capitalisation of Federal-Mogul of US$1,781 million has been calculated using the last reported sale price of Federal-Mogul's common stock on the New York Stock Exchange as at 10 November 1997 and the number of issued common stock as at 10 November 1997. 8. GENERAL (a) (i) Morgan Stanley is satisfied that resources are available to the Offeror sufficient to satisfy full acceptance of the Offer. (ii) Federal-Mogul estimates that the total amount of funds necessary to purchase all the T&N Ordinary Shares pursuant to the Offer will be approximately pound sterling 1,500 million. Subject to the proposed refinancing referred to in paragraph 5 of the letter from Morgan Stanley on page 12, the funds needed to satisfy this consideration will principally come from the proceeds of borrowings under the Senior Credit Agreement and the Senior Subordinated Credit Agreement referred to in paragraphs 5(1)(a) and (b) above respectively (the "Credit Agreements"). To the extent that the Offeror requires funds to pay the consideration under the Offer such funds will be made available by a combination of capital contributions to the Offeror and its intermediate holding companies and intercompany loans directly or indirectly to the Offeror from its direct and indirect holding companies. Payment of interest and principal on the facilities provided under the Credit Agreements will be funded partly out of receipts by companies within the Federal-Mogul Group from their investment in T&N and partly from sources within the Federal-Mogul Group. Subject to compliance, where necessary, with the procedures set out in sections 155 to 158 of the Companies Act, it is intended that certain members of the T&N Group will enter into various agreements to provide security to the lenders under the Credit Agreements. (b) Save as disclosed in this document, no agreement, arrangement or understanding (including any compensation arrangement) exists between the Offeror, Federal-Mogul or any person acting in concert with it for the purpose of the Offer and any of the directors, recent directors, shareholders or recent shareholders of T&N having any connection with or dependence on, the Offer. (c) So far as the directors of Federal-Mogul are aware and except as disclosed in paragraph 6 above, no proposal exists in connection with the Offer that any payment or other benefit be made or given to any director of T&N as compensation for loss of office or as consideration for or in connection with his retirement from office. (d) Save as disclosed in this document, there is no agreement, arrangement or understanding whereby the beneficial ownership of any of the T&N Ordinary Shares to be acquired by the Offeror pursuant to the Offer will be transferred to any other person, save that the Offeror reserves the right to transfer any such shares to any member of the Federal-Mogul Group. (e) Rothschilds, which is regulated by The Securities and Futures Authority in the UK, has given and not withdrawn its written consent to the issue of this document with the inclusion of its name in the form and context in which it appears. 100 EX-2.2 3 EX-2.2 1 EXHIBIT 2.2 EQUITY PURCHASE AGREEMENT THIS EQUITY PURCHASE AGREEMENT (this "AGREEMENT"), is dated as of January 9, 1998, by and among each of the Persons (as hereinafter defined) set forth in the Schedule of Sellers attached hereto (each a "SELLER" and collectively the "SELLERS") and Federal-Mogul Corporation, a Michigan corporation ("F-M" or the "BUYER"). Capitalized terms used herein without definition have the meanings accorded such terms in EXHIBIT A hereto. R E C I T A L S A. The Sellers collectively own (i) all of the partnership interests of Fel-Pro Master General Partnership, an Illinois general partnership ("MGP"), and (ii) all of the issued and outstanding capital stock of Felt Products Mfg. Co., a Delaware corporation, Fel-Pro Management Co., a Delaware corporation, Meridian Parts Corporation, a California corporation, and Fel-Pro Mexico S. de R.L. de C.V., a Mexican limited liability partnership (collectively, the "CORPORATIONS" and together with MGP, the "COMPANIES"). B. Buyer desires to purchase all of the partnership interests of MGP and all of the issued and outstanding capital stock of the Corporations. C. Buyer desires to purchase certain real property owned by Fel-Pro Realty Corporation ("REALTY"). NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE 1 PURCHASE AND SALE OF EQUITY INTERESTS SECTION 1.1 PURCHASE AND SALE (a) Upon the terms and subject to the conditions set forth in this Agreement, Sellers shall sell to the Buyer, without recourse, representation or warranty except as otherwise expressly provided herein, and Buyer shall purchase from Sellers, (i) all of the outstanding shares of capital stock of the Corporations (the "SHARES") and all of the partnership interests of MGP (the "PARTNERSHIP INTERESTS" and, together with the Shares, the "EQUITY INTERESTS"), and (ii) the real property listed on SECTION 1.1(C) OF THE DISCLOSURE SCHEDULE owned by Realty (the "INCLUDED REAL PROPERTY"), free and clear of all liens, mortgages, charges, security interests, defects in title, or other encumbrances of any nature whatsoever (a "LIEN"), other than, in the case of clause (ii) above, Permitted Liens, and together with all rights now and hereafter attaching thereto, for an aggregate purchase price equal to $716,750,000 minus the Debt Amount (the "PURCHASE PRICE"), which shall consist of (i) cash in an amount equal to $491,750,000 minus the Debt Amount (the "CASH PORTION"), and (ii) that number of shares of F-M Exchangeable Preferred Stock 2 equal to (x) $225,000,000 divided by (y) the product of the Effective Time Share Value multiplied by five (5) (the "STOCK PORTION"). Notwithstanding the foregoing, if F-M makes the F-M Cash Election, the Purchase Price shall be reduced to $706,750,000, no shares of the F-M Exchangeable Preferred Stock will be included as part of the Purchase Price and, in lieu thereof, the Cash Portion will be increased by $215,000,000. (b) The Purchase Price shall be allocated among the Equity Interests and the Included Real Property as is mutually agreed to by the Buyer and the Sellers' Representatives prior to the Closing. In the event the Buyer and the Sellers' Representatives are unable to agree on such an allocation, the Buyer and the Sellers shall retain a nationally recognized valuation or accounting firm, the fees and expenses of which shall be borne 50% by the Buyer and 50% by the Sellers, to perform such allocation based on its determination of the appropriate valuation of the Companies, the Included Entities and the Included Real Estate and the allocation of such firm shall be binding on the Sellers and the Buyer. (c) The Cash Portion and the Stock Portion shall be allocated among the holders of the Equity Interests and the owners of the Included Real Property in such amounts as is mutually agreed to prior to the Closing by the holders of the Equity Interests and the owners of the Included Real Property. (d) In addition to the Purchase Price, at the Closing, Buyer shall pay to the Sellers, by wire transfer to one or more accounts designated by the Sellers' Representatives, cash in the amount of $3,735,000 to compensate the Sellers for income taxes resulting from the 338 Election. (e) In the event the Closing does not occur prior to March 15, 1998 and Felt pays the approximately $1,900,000 installment of Taxes payable under Code Section 1363 (relating to LIFO recapture upon an S Election) due on March 15, 1998, each of the Purchase Price and the Cash Portion will be increased by the amount of such payment. SECTION 1.2. CLOSING. Unless the parties hereto shall agree in writing upon a different location, time or date, the closing of the sale and purchase of the Equity Interests and the Included Real Property (the "CLOSING") shall take place at the offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661 at 10:00 A.M., Chicago time, on (i) February 24, 1998, (ii) if the conditions required to be satisfied or waived pursuant to ARTICLES 5 and 6 hereof (other than those requiring the delivery of a certificate or other document, or the taking of other action, at the Closing) have been satisfied or waived prior to February 24, 1998, then on such earlier date which is designated by the Sellers' Representatives and reasonably satisfactory to Buyer, or (iii) if the conditions required to be satisfied or waived pursuant to ARTICLES 5 and 6 hereof (other than those requiring the delivery of a certificate or other document, or the taking of 2 3 other action, at the Closing) have not been satisfied or waived on February 24, 1998, then on such later date which is designated by the Sellers' Representatives and reasonably satisfactory to Buyer and is not less than three nor more than ten business days after the satisfaction or waiver of the last of the conditions required to be satisfied or waived pursuant to ARTICLES 5 and 6 hereof (other than those requiring the delivery of a certificate or other document, or the taking of other action, at the Closing), or (iv) at such other time and date as the parties hereto may designate by mutual written consent of the Buyer and the Sellers' Representatives. The term "CLOSING DATE" means the date and time at which the Closing occurs. SECTION 1.3 DELIVERIES AT THE CLOSING. Subject to the conditions set forth in this Agreement, at the Closing: (a) Sellers shall deliver to Buyer (i) newly-issued certificate(s) representing all of the Shares in the name of the Buyer, (ii) written assignments of all of the Partnership Interests sufficient to convey to Buyer good title to the Partnership Interests, (iii) instruments of conveyance with respect to the Included Real Property reasonably acceptable to Buyer and the Sellers, (iv) with respect to each Corporation and Included Entity (as set forth on Exhibit B hereto) which is a corporation, instruments evidencing the resignation of each director of such Corporation and Included Entity and each officer of such Corporation and Included Entity, as designated by Buyer at least five business days prior to the Closing, (v) all certificates and other instruments and documents which are expressly required pursuant to this Agreement to be delivered by Sellers to Buyer at the Closing and (vi) other certificates, instruments and documents reasonably requested by the Buyer which are necessary to consummate the transactions contemplated by this Agreement; and (b) Buyer shall (i) accept and purchase the Equity Interests and the Included Real Property from Sellers and pay and deliver to Sellers the Cash Portion by wire transfer of immediately available funds to a bank account or accounts, which account or accounts are to be specified in writing by the Sellers' Representatives at least two business days prior to the Closing Date, (ii) unless F-M has made the F-M Cash Election, deliver to the Sellers the certificates representing the shares of F-M Exchangeable Preferred Stock representing the Stock Portion, issued in the names of the Sellers as specified to F-M by the Sellers' Representatives at least three (3) business days prior to Closing, (iii) deliver to Sellers all certificates and other instruments and documents which are expressly required pursuant to this Agreement to be delivered by Buyer to Sellers at the Closing and (iv) deliver to Sellers other certificates, instruments and documents reasonably requested by the Sellers which are necessary to consummate the transactions contemplated by this Agreement. 3 4 ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLERS Subject to SECTION 10.1, Sellers represent and warrant to Buyer as of the date hereof as follows: SECTION 2.1 SELLERS. (a) Organization; Authority; Good Standing. Each Seller which is a trust is validly existing under its Charter Documents and has the power and authority to execute, deliver and perform its obligations under this Agreement. Each Seller who is an individual has the legal capacity to execute, deliver and perform his or her obligations under this Agreement. Realty is a corporation validly existing and in good standing under the laws of its state of incorporation and has the corporate power and authority to execute, deliver and perform its obligations under this Agreement. McCormick Investments, L.P. is a limited partnership validly existing and in good standing under the laws of its state of organization and has the partnership power and authority to execute, deliver and perform its obligations under this Agreement. (b) Enforceability. The execution and delivery of this Agreement and the consummation of the transactions provided for hereby have been duly authorized by the trustees and other trust fiduciaries, board of directors or partners, as the case may be, of each of the Sellers, and no other trust, corporate or partnership proceeding or action, as the case may be, on the part of any Seller is necessary to authorize the execution or delivery of this Agreement or the consummation of any of the transactions contemplated hereby. This Agreement has been duly executed by each Seller and constitutes the legal valid and binding obligations of each Seller, enforceable against such Seller in accordance with its terms, except that such enforcement may be limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other laws (whether statutory, regulatory or decisional), now or hereafter in effect, relating to or affecting the rights of creditors generally or by equitable principles (regardless of whether considered in a proceeding at law or in equity). (c) Ownership of Shares and Partnership Interests; Title. Each Seller is the record and beneficial owner of the Shares and/or the Partnership Interests set forth opposite its or their respective names in SECTION 2.1(C) OF THE DISCLOSURE SCHEDULE. Each Seller has, and shall transfer to Buyer at the Closing, good title to such Shares and/or Partnership Interests, free and clear of any and all Liens, except (i) as created by this Agreement, (ii) for restrictions imposed by federal and state securities laws and (iii) Liens described on SECTION 2.1(C) of the DISCLOSURE SCHEDULE, which Liens will not exist as of 4 5 the Closing. The Equity Interests set forth on SECTION 2.1(C) OF THE DISCLOSURE SCHEDULE constitute all of the Equity Interests. (d) Representation Letter. Each Seller who is to receive shares of F-M Exchangeable Preferred Stock has, or prior to the Closing will have, delivered to F-M a duly executed Representation Letter, dated as of the date hereof, substantially in the form attached hereto as EXHIBIT D, and each such Representation Letter is, or at the time of delivery will be, complete and accurate in all material respects. SECTION 2.2 COMPANIES AND INCLUDED ENTITIES. (a) Ownership of Equity Interests. Except as set forth on SECTION 2.2(A) of THE DISCLOSURE SCHEDULE, the Companies and the Included Entities, as the case may be, are the record and beneficial owners of all of the shares of capital stock, partnership interests, membership interests or other equity interests, as applicable, issued with respect to the Included Entities, free and clear of any Liens, except (i) as created by this Agreement, (ii) for restrictions imposed by federal and state securities laws and (iii) with respect to Included Entities that are partnerships or limited liability companies, restrictions pursuant to the partnership agreements or operating agreements, respectively. (b) Corporate Organization; Good Standing. Each Company and Included Entity which is a corporation is validly existing and in good standing under the laws of its jurisdiction of incorporation and has the corporate power and authority to own, lease and operate the assets held or used by it and to conduct its business as currently conducted. Each such Company and Included Entity is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where qualification as a foreign corporation is required, except where the failure to be so qualified and in good standing would not have a Material Adverse Effect. Sellers have previously made available to Buyer complete and correct copies of each such Company's and Included Entity's Charter Documents as presently in effect. The minute books of each such corporation have been made available to Buyer. (c) Limited Partnerships, Limited Liability Company Organization; Good Standing. Each Company and Included Entity which is either a limited partnership or a limited liability company is validly existing and in good standing under the laws of its jurisdiction of organization and has the partnership or limited liability company power and authority to own, lease and operate the assets held or used by it and to conduct its business as currently conducted. Each such Company and Included Entity is duly qualified to do business as a foreign limited partnership or limited liability company, as applicable, in each jurisdiction where qualification as a foreign limited partnership or limited liability company, as applicable, is required, except where the failure to be so 5 6 qualified would not have a Material Adverse Effect. Sellers have previously made available to Buyer complete and correct copies of each such Company's and Included Entity's Charter Documents as presently in effect. (d) MGP Organization. MGP is an Illinois general partnership validly existing and in good standing under the laws of the State of Illinois and has the power and authority to own, lease and operate the assets held or used by it and to conduct its business as currently conducted. MGP is duly qualified to do business in each jurisdiction where such qualification is required, except where the failure to be so qualified would not have a Material Adverse Effect. Sellers have previously made available to Buyer a complete and correct copy of the Charter Documents of MGP as presently in effect. (e) Trusts. Each trust (each, a "TRUST") which holds legal title to any of the Equity Interests as of the date hereof, has the requisite authority and power to enter into this Agreement and to consummate the transactions contemplated hereby. Each trust agreement creating a Trust is a legal, valid and binding trust agreement and each Trust is a valid trust under the laws of the jurisdiction in which it was created. SECTION 2.3 SUBSIDIARIES. As of the Closing, except for Included Entities, none of the Companies nor Included Entities will have any Subsidiaries. As of the Closing, except for interests in Included Entities and except as set forth in SECTION 2.3 OF THE DISCLOSURE SCHEDULE, none of the Companies nor Included Entities will own, directly or indirectly, any equity, profits or voting interest in any Person or have any agreement or commitment to purchase any such interest. SECTION 2.4 CAPITALIZATION. (a) The authorized capital stock of the Companies and Included Entities which are corporations is as set forth in SECTION 2.4 OF THE DISCLOSURE SCHEDULE. All of the outstanding shares of such capital stock have been duly authorized and validly issued, are fully paid and nonassessable and have not been issued in violation of any preemptive rights. As of the Closing, other than as set forth herein or in SECTION 2.4 OF THE DISCLOSURE SCHEDULE, there will be no security, option, warrant, right, call, subscription, agreement, commitment or understanding of any nature whatsoever, fixed or contingent, that directly or indirectly (i) calls for the issuance, sale, pledge or other disposition of any shares of capital stock or other equity interest of any such Company or Included Entity or any securities convertible into, or other rights to acquire, any shares of any capital stock or other equity interest of any such Company or Included Entity, (ii) relates to the voting or control of such capital stock, equity interest, securities or rights of any such Company or Included Entity or (iii) obligates any such Company or Included Entity to grant, offer or enter into any of the foregoing. 6 7 (b) With respect to each Company and Included Entity that is a partnership or limited liability company, all the partnership interests or membership interests of such entity are as described in its Charter Documents. As of the Closing, other than as set forth herein or as described in the applicable Charter Documents, there will be no security, option, warrant, right, call, subscription, agreement, commitment or understanding of any nature whatsoever, fixed or contingent, that directly or indirectly (i) calls for the issuance, sale, pledge or other disposition of any partnership interests, membership interests or other equity interest of any such Company or Included Entity or any securities convertible into, or other rights to acquire, any partnership interests, membership interests, or other equity interest of any such Company or Included Entity, (ii) relates to the voting or control of any partnership interests, membership interests, equity interest, securities or rights of any such Company or Included Entity or (iii) obligates any such Company or Included Entity to grant, offer or enter into any of the foregoing. (c) The Shares and Partnership Interests set forth on SECTION 2.1(C) OF THE DISCLOSURE SCHEDULE constitute all of the shares of capital stock, partnership interests, membership interests and other equity interests issued by, or with respect to, the Companies. SECTION 2.5 NO CONFLICTS. The execution, delivery and performance by the Sellers of this Agreement do not and will not (i)(A) contravene, conflict with or violate any provisions of the Charter Documents of any Seller, Company or Included Entity, (B) except as set forth in SECTION 2.5 OF THE DISCLOSURE SCHEDULE, contravene, violate, conflict with or result in the breach or termination of, or otherwise give any other person the right to accelerate, renegotiate or terminate or receive any payment, or constitute a default, event of default (or an event which with notice, lapse of time, or both, would constitute a default or event of default), under the terms of any contracts, agreements, leases, licenses, mortgages, indentures, bonds, notes or other instruments to which any of the Sellers, Companies or Included Entities is a party or by which any of them or their respective securities, properties or businesses are bound, or result in the creation of any Liens upon any of their respective securities, properties or businesses or (C) assuming that the Governmental Actions/Filings referred to in this SECTION 2.5 below or in SECTION 2.5 OF THE DISCLOSURE SCHEDULE are obtained or made, result in any violation by any Seller, Company or Included Entity of any law, rule or regulation applicable to it, or any license or authorization, approval, registration permit issued by any governmental, administrative or regulatory authority to any Seller, Company or Included Entity (each, a "PERMIT"), except, with respect to sub-clauses (B) and (C), for such contraventions, conflicts, terminations, violations, breaches, accelerations, renegotiations, payments, defaults or events of default as would not have a Material Adverse Effect, (ii) result in any violation by any Seller, Company or Included Entity of any judgment, injunction or 7 8 decree of any court or governmental, administrative or regulatory authority applicable to it or (iii) assuming that the notices referred to in SECTION 2.5 OF THE DISCLOSURE SCHEDULE are made, require any consent or approval of, notice to or filing, registration or qualification with, any governmental, administrative or regulatory authority (a "GOVERNMENTAL ACTION/FILING") to be made or obtained by any Seller, Company or Included Entity except (A) in connection or compliance with the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the "HSR ACT"), (B) any federal, state or local Tax filings, (C) any Governmental Actions/Filings that may be required to be made as a result of (x) the specific regulatory status of Buyer or any of its Affiliates, (y) any other facts that relate to the business or activities in which Buyer or any of its Affiliates is engaged or (z) without limitation of sub-clause (x) or (y), any other facts that relate to the business or activities in which Buyer or any of its Affiliates proposes to be engaged (other than, insofar as Governmental Actions/Filings are concerned, by acquiring ownership of the Companies and Included Entities, by reference to the Companies' and Included Entities' activities as presently conducted), (D) any Pension Benefit Guaranty Corporation ("PBGC") "Notice of Reportable Event" required under Section 4043(c) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and (E) any other Governmental Actions/Filings the failures of which to make or obtain would not have a Material Adverse Effect. SECTION 2.6 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES; BANK DEBT. (a) Sellers have delivered to Buyer the following financial statements (collectively, the "FINANCIAL STATEMENTS"): the combined balance sheets, statements of income and cash flow of the Fel-Pro Group for the year ended December 31, 1996 and for the nine-month period ended September 30, 1997. (i) The Fel-Pro Group December 31, 1996 financial statements and accompanying notes to the financial statements have been compiled from the financial statements of the Companies, the Included Entities and the Excluded Entities. SECTION 2.6(A) OF THE DISCLOSURE SCHEDULE sets forth which of such financial statements are audited and which of such financial statements are unaudited. The Fel-Pro Group December 31, 1996 financial statements present fairly, in all material respects, the combined financial position of the Companies, Included Entities, and Excluded Entities as of and for the fiscal year ended December 31, 1996 in accordance with generally accepted accounting principles applied on a consistent basis ("GAAP"). (ii) The Fel-Pro Group September 30, 1997 financial statements are the unaudited internal monthly statements of the Companies, the 8 9 Included Entities and the Excluded Entities. The Fel-Pro Group September 30, 1997 financial statements present fairly, in all material respects, the combined financial position of the Companies, Included Entities and Excluded Entities as of and for the nine-month period ended September 30, 1997 in accordance with GAAP, except for the absence of required footnote disclosure and customary year-end adjustments and expense reclassifications. (b) Except as set forth on SECTION 2.6(B) OF THE DISCLOSURE SCHEDULE, as of September 30, 1997, none of the Companies or Included Entities had any material liabilities or obligations of any nature, whether known or unknown, accrued, absolute, contingent or otherwise, and whether due or to become due (collectively, "LIABILITIES" and individually, a "LIABILITY") which were required by GAAP to be reflected in financial statements and that were not reflected or reserved against in the balance sheet of the Fel-Pro Group as of September 30, 1997. Since September 30, 1997, none of the Companies or Included Entities has incurred any material Liability that would be required by GAAP to be reflected in the financial statements of the Fel-Pro Group except Liabilities that were incurred in the usual and ordinary course of business consistent with past practice. (c) Either (x) the Bank Debt and all other indebtedness for borrowed money of any of the Companies or Included Entities shall be satisfied in full (i) by the Sellers or (ii) by the Companies or Included Entities, but only out of cash held by any such Company or Included Entity on or prior to the Closing, or (y) the principal amount of the Bank Debt and such other indebtedness outstanding as of the Closing shall have been included in the Debt Amount, but only if the prepayment thereof is permitted without premium or penalty. SECTION 2.7 BUSINESS SINCE SEPTEMBER 30, 1997. Except as disclosed in SECTION 2.7 OF THE DISCLOSURE SCHEDULE and except as specifically contemplated by this Agreement, since September 30, 1997 each of the Companies and the Included Entities has conducted its businesses and operations only in the ordinary and usual course in substantially the same manner as theretofore conducted and has not undergone or suffered any change in its condition (financial or otherwise), properties, liabilities or operations which has been, in any case or in the aggregate, materially adverse to the Companies and Included Entities, taken as a whole. For purposes of this Agreement, no change shall be considered to be "materially adverse" if such change is primarily the result of this Agreement or the transactions contemplated hereby or the announcement thereof, the filing of additional lawsuits or actions relating to asbestos fibers in products manufactured or sold by any Company or Included Entity or any action permitted by the last sentence of SECTION 4.6(A) hereof. 9 10 SECTION 2.8 COMPLIANCE WITH LAW; LITIGATION; INJUNCTIONS. (i) None of the Companies nor any Included Entity is in violation of any law, rule, regulation, order, judgment or decree applicable to it, except (A) as set forth in SECTION 2.8 OF THE DISCLOSURE SCHEDULE and (B) for violations the existence of which and cost of remedying would not have a Material Adverse Effect. Except for the matters set forth in SECTION 2.8 OF THE DISCLOSURE SCHEDULE (as to which no representation or warranty is made), (ii) there is no action, suit, claim or other proceeding or investigation (each, a "PROCEEDING") pending or, to Sellers' knowledge, threatened against any of the Companies or Included Entities, at law or in equity, before any federal, state or municipal court, governmental administrative or regulatory agency or arbitrator which, if, adversely determined, would result in a Liability for any Company or Included Entity in excess of $250,000, and (ii) none of the Companies nor any Included Entity, or any of their respective assets, properties or businesses, is a party to, or subject to or bound by, any order, injunction or decree of any court or governmental authority which has a Material Adverse Effect. (a) Except as set forth on SECTION 2.8 OF THE DISCLOSURE SCHEDULE, since January 1, 1997, none of the Companies or Included Entities has received any written notice in any form from a governmental, administrative or regulatory authority (including any citations, notices of violations, complaints, consent orders or inspection reports) alleging that any of the Companies or Included Entities was not at the time of such notice or is not currently in compliance, in all material respects, with all applicable Permits, laws, rules, regulations, judgments or decrees. SECTION 2.9 CONTRACTS AND AGREEMENTS; DEFAULTS. Set forth in Part A of SECTION 2.9 OF THE DISCLOSURE SCHEDULE is a list, as of the date of this Agreement, of (i) all outstanding mortgages, indentures, notes, installment obligations or other contracts or instruments to which any of the Companies or Included Entities is a party evidencing or providing for any borrowing of money by any of the Companies or Included Entities (except as such borrowings relate to intercompany payables or intercompany receivables), (ii) all outstanding guaranties by any of the Companies or Included Entities of any obligation of another Person for borrowings, excluding endorsements made for collection in the ordinary course of business, (iii) all outstanding contracts containing non-competition covenants of any of the Companies or Included Entities, (iv) all outstanding leases to which any of the Companies or Included Entities is a party involving obligations of more than $100,000 per annum and (v) each other outstanding contract to which any of the Companies or Included Entities is a party which was not entered into in the ordinary course of business or which requires or is likely to require the payment by any of the Companies or Included Entities in any future 12-month period of an amount, or requires any of the Companies or Included Entities to provide in any future 12-month period goods or services having a fair market value or aggregate sales price, of more than $250,000. Except as set forth in Part B of SECTION 2.9 OF THE DISCLOSURE SCHEDULE or for such breaches, defaults or events as have not had and are not reasonably likely to have a 10 11 Material Adverse Effect, (x) none of the Companies, Included Entities nor, to the knowledge of Sellers, any other party to any contract to which any of the Companies or Included Entities is a party is in breach of or default under any such contract, (y) no event has occurred which would (or which would after notice or lapse of time or both) become a breach or default by any of the Companies or Included Entities under any such contract, and (z) no event has occurred which would (or which would after notice or lapse of time or both) entitle any other party thereto to cancel or terminate any such contract. SECTION 2.10 AFFILIATED TRANSACTIONS. SECTION 2.10 OF THE DISCLOSURE SCHEDULE sets forth a complete and accurate list of all agreements, commitments, undertakings, leases, mortgages, notes or other contract or instruments, to which any of the Sellers or any Affiliate of any Seller (including, without limitation, the Excluded Entities, but excluding any of the Companies or Included Entities), on the one hand, and any of the Companies or Included Entities, on the other hand, is a party. SECTION 2.11 EMPLOYEE BENEFITS. (a) Except as set forth in SECTION 2.11(A) OF THE DISCLOSURE SCHEDULE, the Companies and Included Entities do not maintain or contribute to, or have any obligation to contribute to, or have any liability with respect to, any plan, program, arrangement, agreement or commitment that is an employment, consulting, severance or deferred compensation or change in control agreement, or an executive compensation, incentive bonus, pension, stock purchase, profit sharing, severance pay, life, health, disability, accident, medical insurance, vacation, or other material employee benefit plan, program, arrangement, agreement or commitment, including any "employee benefit plan" as defined in section 3(3) of ERISA (collectively, the "BENEFIT PLANS"). (b) The Companies and Included Entities have made available to the Buyer true and complete copies of each of the Benefit Plans and related trust agreements and/or insurance contracts, if any, and all summary plan descriptions related thereto, as they have been amended as of the date hereof, and the two most recent Forms 5500, including financial statements and actuarial valuations, filed with the IRS with respect to each of the Benefit Plans. (c) For purposes of this SECTION 2.11, "SELLER GROUP PLAN" means each "employee pension benefit plan" (within the meaning of section 3(2) of ERISA) subject to Title IV of ERISA (i) that is maintained, sponsored or contributed to by the Companies or Included Entities or by any other person or entity that is considered a single employer with the Companies or Included Entities for purposes of Title IV of ERISA or section 414 of the Internal Revenue Code of 1986, as amended (the "CODE") (the "SELLER GROUP"), (ii) or with respect to which any member of the Seller Group may incur liability under Title 11 12 IV of ERISA. No Seller Group Plan is a Multiemployer Plan (within the meaning of Section 3(37)(A) of ERISA) subject to ERISA. (d) With respect to each Seller Group Plan: (i) no such plan has been terminated so as to result, directly or indirectly, in any liability, contingent or otherwise, of any member of the Seller Group under Title IV of ERISA; (ii) no complete or partial withdrawal from such plan has been made by a member of the Seller Group, or by any other person, so as to result in a liability to a member of the Seller Group, whether such liability is contingent or otherwise; (iii) no proceeding has been initiated by any person (including the PBGC) to terminate any such plan or to appoint a trustee for any such plan; (iv) no condition or event currently exists or currently is expected to occur that could result, directly or indirectly, in any liability of any member of the Seller Group under Title IV of ERISA, whether to the PBGC or otherwise, on account of the termination of any such plan; (v) if any such plan were to be terminated as of the Closing Date, no member of the Seller Group would incur, directly or indirectly, any liability under Title IV of ERISA; (vi) no "reportable event" (as defined in section 4043 of ERISA) has occurred with respect to any such plan; (vii) no such plan which is subject to section 302 of ERISA or section 412 of the Code has incurred any "accumulated funding deficiency" (as defined in section 302 of ERISA and section 412 of the Code, respectively), whether or not waived; and (viii) the transactions contemplated hereby will not result in any event described in section 4062(e) of ERISA. (e) Except as described in SECTION 2.11(E) OF THE DISCLOSURE SCHEDULE, no event has occurred in connection with which the Companies or Included Entities could be subject to any material liability under ERISA, the Code or any other law, regulation or governmental order applicable to any Benefit Plan, including, without limitation, sections 406, 409, 502(i) or 4069 of ERISA, or sections 4971, 4975 or 4976 of the Code. Each Benefit 12 13 Plan is in compliance, in all material respects, with its terms, including, but not limited to, the payment provisions thereof, except as otherwise required by law, and is in compliance, in all material respects, with all applicable laws, rules and regulations, including, without limitation, ERISA and the Code. (f) Except as set forth in SECTION 2.11(F) OF THE DISCLOSURE SCHEDULE, each Benefit Plan which is an "employee pension benefit plan" (as defined in section 3(2) of ERISA) and intended to qualify under section 401 of the Code has received a favorable determination letter from the IRS with respect to such qualification, its related trust has been determined to be exempt from taxation under section 501(a) of the Code and, to the knowledge of the Sellers, nothing has occurred since the date of such letter that has or is likely to adversely affect such qualification or exemption. (g) With respect to each Benefit Plan, there are no actions, suits or claims pending (other than routine claims for benefits) or, to the knowledge of the Sellers, threatened, with respect to such Benefit Plan or against the assets of such Benefit Plan which, if adversely determined, would result in a Liability for any Company, Included Entity or Benefit Plan in excess of $250,000. (h) Except as disclosed in SECTION 2.11(H) OF THE DISCLOSURE SCHEDULE, the consummation of the transactions contemplated hereby, either alone or in combination with another event, will not (i) entitle any employee or former employee of any of the Companies or Included Entities to severance pay or unemployment compensation, (ii) increase the amount of compensation due to any such employee, (iii) accelerate the time of vesting of any compensation, stock incentive or other benefit or (iv) reasonably be expected to result in any "excess parachute payment" under section 280G of the Code. (i) Except as disclosed in SECTION 2.11(I) OF THE DISCLOSURE SCHEDULE, there is no announced plan or commitment (whether or not legally binding) to create any additional Benefit Plans or to amend or modify any existing Benefit Plan. Except as disclosed in Section 2.11(i) of the Disclosure Schedule, neither any Seller, nor any member of the Seller Group, has any liability with respect to or in connection with providing post-employment health and welfare benefits to any current or former employees, except as required under section 4980B of the Code or state continuation of coverage laws. 13 14 SECTION 2.12 LABOR MATTERS. (a) Except as set forth in SECTION 2.12(A) OF THE DISCLOSURE SCHEDULE, there are no collective bargaining agreements or other contracts between any of the Companies or Included Entities and any union or other employee organizations. Except as set forth in SECTION 2.12(A) OF THE DISCLOSURE SCHEDULE, there is no organizing activity involving any Company or any Included Entity pending or, to the knowledge of the Sellers, threatened by any labor organization or group or employees of the Company. (b) Except as set forth in SECTION 2.12(B) OF THE DISCLOSURE SCHEDULE, none of the Companies or Included Entities has any written or unwritten employment agreements or contracts, between such Company or Included Entity on the one hand and any executives, managers, employees, or consultants on the other hand. (c) Except as set forth in SECTION 2.12(C) OF THE DISCLOSURE SCHEDULE, there are no complaints, charges or claims against any of the Companies or Included Entities pending or, to the knowledge of the Sellers, threatened to be brought by or filed with any governmental, administrative or regulatory authority based on, arising out of, in connection with or otherwise relating to the employment by any of the Companies or Included Entities of any individual, including individuals classified by the Companies or Included Entities as independent contractors or "leased employees" (within the meaning of section 414(n) of the Code), or the failure to employ any individual, including any claim relating to employment discrimination, equal pay, employee safety and health, immigration, wages and hours or workers' compensation, which, if adversely determined, would result in a Liability for any Company or Included Entity in excess of $250,000. (d) Except as set forth in SECTION 2.12(D) OF THE DISCLOSURE SCHEDULE, each of the Companies and Included Entities is in compliance, in all material respects, with all laws, rules and regulations, (including any legal obligation to engage in affirmative action) relating to the employment of former, current, and prospective employees, independent contractors and "leased employees" (within the meaning of section 414(n) of the Code) including all such laws, rules and regulations relating to wages, hours, collective bargaining, employment discrimination, immigration, disability, civil rights, safety and health, workers' compensation and pay equity. (e) Except as set forth in SECTION 2.12(E) OF THE DISCLOSURE SCHEDULE, no representation, election, arbitration proceeding, grievance, labor strike, dispute, slowdown, stoppage or other labor trouble is pending or, to the knowledge of the Sellers, threatened against, involving or affecting any of the Companies or Included Entities. 14 15 (f) Except as set forth in SECTION 2.12(F) OF THE DISCLOSURE SCHEDULE, no individual has been treated by any of the Companies or Included Entities as a "leased employee" (within the meaning of section 414(n) of the Code). SECTION 2.13 TAXES. Except as set forth on SECTION 2.13 OF THE DISCLOSURE SCHEDULE: (A) GENERAL REPRESENTATIONS. (i) FILING OF RETURNS. Each of the Companies have duly and timely filed each material Tax Return required to be filed with any Tax Authority (or has timely and properly filed valid extensions of time with respect to the filing thereof) and Sellers or Sellers' Affiliates have duly and timely filed each material Tax Return required to be filed with any Tax Authority by Sellers or Sellers' Affiliates which include or are based upon the assets, operations, ownership or activities of any of the Companies or Included Entities, including any consolidated, combined, unitary, fiscal unity or similar Tax Return which includes or is based upon the assets, operations, ownership or activities of any of the Companies or Included Entities (or Sellers or Sellers' Affiliates have timely and properly filed valid extensions of time with respect to the filing thereof). Such Tax Returns were correct and complete in all material respects. Except as disclosed on SECTION 2.13 (A)(I) OF THE DISCLOSURE SCHEDULE, to the knowledge of Sellers, there is no investigation or other proceeding pending or threatened by any Tax Authority for any jurisdiction where any of the Companies or Included Entities do not file Tax Returns with respect to a given Tax that may lead to an assertion by such Tax Authority that any of the Companies or Included Entities is or may be subject in a given Tax in such jurisdiction. (ii) PAYMENT OF TAXES. The Companies and the Included Entities (or Sellers or Sellers' Affiliates on behalf of the Companies or Included Entities) have paid all Taxes shown to be due on all Tax Returns filed prior to the date hereof with respect to the assets, ownership, operations and activities of the Companies and the Included Entities. (iii) TAX OWNERSHIP. Except as disclosed in SECTION 2.13(A)(III) OF THE DISCLOSURE SCHEDULE, each asset with respect to which any of the Companies or Included Entities claim depreciation, amortization or similar expense for Tax purposes is owned for Tax purposes by such Company or Included Entity under Applicable Tax Law. 15 16 (iv) RULINGS. Except as disclosed in SECTION 2.13(A)(IV) OF THE DISCLOSURE Schedule, there are no outstanding rulings of or requests for rulings with any Tax Authority expressly addressed to any of the Companies or Included Entities (or to an Affiliate of any Company or Included Entity) that are, or if issued would be, binding upon the Companies for any Post-Closing Period. (v) CLOSING AGREEMENTS. Except as disclosed in SECTION 2.13(A)(V) OF THE DISCLOSURE SCHEDULE, none of the Companies or Included Entities (or Sellers or Sellers' Affiliates with respect to any of the Companies or Included Entities) has, in a manner that would be binding on any of the Companies or for any Post-Closing Period, (A) executed, become subject to or entered into any closing agreement pursuant to section 7121 of the Code or any similar or predecessor provision thereof under the Code or other Applicable Tax Law, (B) agreed to any extension of time with respect to the filing of any Tax Return of any of the Companies or Included Entities (including any Tax Return which includes or is based upon their respective assets, ownership, operations or activities), the payment of any Taxes of any of the Companies or Included Entities, or any limitation period regarding the assessment of any such Taxes or (C) received approval to make or agreed to a change in accounting method or has any application pending with any Tax Authority requesting permission for any such change. (vi) GAIN RECOGNITION. Except as disclosed in SECTION 2.13(A)(VI) OF THE DISCLOSURE SCHEDULE, no item of income or gain reported for financial purposes in any Pre-Closing Period is required to be included in taxable income for a Post-Closing Period. (vii) TAX EXEMPT FINANCING, ETC. None of the assets of the Companies or the Included Entities is (A) required to be or are being depreciated under the alternative depreciation system under section 168(g)(2) of the Code, or (B) is subject to section 168(f) of the Code. None of the assets of the Companies or the Included Entities are property which the Purchaser or the companies will be required to treat as "tax exempt use property" within the meaning of section 168(h)(1) of the Code. Except as disclosed on SECTION 2.13(A)(VII) OF THE DISCLOSURE SCHEDULE, no "industrial development bonds" within the meaning of section 103 of the United States Internal Revenue Code of 1954, as amended and in effect prior to the enactment of the United States Tax Reform Act of 1986, "private activity bonds" within the meaning of section 141 of the Code or other tax exempt financing which have been used to finance assets of the Companies whether leased or owned. 16 17 (viii) INTANGIBLE ELECTIONS. Except as set forth in SECTION 2.13(A)(VIII) OF THE DISCLOSURE SCHEDULE, no Company has made or is bound by any election under section 197 of the Code. (ix) ELIGIBILITY OF MERIDIAN PARTS CORPORATION UNDER SECTION 338(H)(10). The Sellers are eligible to make the 338 Election. (b) Definitions. For purposes of this Section 2.13, the following capitalized terms shall be given the meanings set forth below. (i) "APPLICABLE TAX LAW" shall mean any law of any nation, state, region, province, locality, municipality or other jurisdiction relating to Taxes, including regulations and other official pronouncements of any governmental entity or political subdivision of such jurisdiction charged with interpreting such laws. (ii) "POST-CLOSING PERIOD" shall mean, (A) with respect to any of the Companies or any of the Included Entities which are classified as partnerships under the Code, any Tax Period commencing after the Closing Date and the portion of any Straddle Period commencing after the Closing Date; and (B) with respect to any of the Companies or any of the Included Entities which are classified as S Corporations under the Code, any Tax Period commencing on the Closing Date and the portion of any Straddle Period commencing on the Closing Date. (iii) "PRE-CLOSING PERIOD" shall mean, (A) with respect to any of the Companies or any of the Included Entities which are classified as partnerships under the Code, any Tax Period ending on the Closing Date and the portion of any Straddle Period ending on the Closing Date; and (B) with respect to any of the Companies or any of the Included Entities which are classified as S Corporations under the Code, any Tax Period ending before the Closing Date and any portion of any Straddle Period ending before the Closing Date. (iv) "STRADDLE PERIOD" shall mean, with respect to any Company, any Tax Period that begins before and ends on or after the Closing Date. (v) "TAX" or "TAXES" shall mean any income, corporation, gross receipts, profits, gains, capital stock, capital duty, franchise, withholding, social security (including any social security charge or premium), unemployment, disability, property, wealth, welfare, stamp, excise, 17 18 occupation, sales, use, transfer, value added, alternative minimum, estimated or other similar tax (including any fee, assessment or other charge in the nature of or in lieu of any tax) imposed by any governmental entity (whether national, local, municipal or otherwise) or political subdivision thereof, and any interest, penalties, additions to tax or additional amounts in respect of the foregoing, and including any transferee or secondary liability in respect of any tax (whether by Applicable Tax Law, contractual agreement or otherwise) and any liability in respect of any tax as a result of being a member of any affiliated, consolidated, combined, unitary or similar group. (vi) "TAX AUTHORITY" shall mean, with respect to any Tax, the governmental entity or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Taxes for such entity or subdivision, including any governmental or quasi-governmental entity or agency that imposes, or is charged with collecting, social security or similar charges or premiums. (vii) "TAX BENEFIT" shall mean the present value of any refund, credit or reduction in otherwise required Tax payments including any interest payable thereon, which present value shall be computed as of the Closing Date or the first date on which the right to the refund, credit or other Tax reduction arises or otherwise becomes available to be utilized, whichever is later, (A) using the Tax rate applicable to the highest level of income with respect to such Tax under the Applicable Tax Law on such date, and (B) using the interest rate on such date imposed on corporate deficiencies paid within 30 days of a notice of proposed deficiency under the U.S. Code or other Applicable Tax Law. Any Tax Benefit shall be computed net of any related Tax cost (which shall be computed in the same manner in which Tax Benefits are otherwise computed pursuant to this definition). (viii) "TAX PERIOD" shall mean, with respect to any Tax, the period for which the tax is reported as provided under Applicable Tax Laws. (ix) "TAX RETURN" shall mean, with respect to any Tax, any information return with respect to such Tax, any report, statement, declaration or document required to be filed under the Applicable Tax Law in respect of such Tax, any claims for refund or Taxes paid, and any amendment or supplements to any of the foregoing. 18 19 SECTION 2.14 PERMITS. Except as set forth in SECTION 2.14 OF THE DISCLOSURE SCHEDULE or as would not have a Material Adverse Effect, (i) all Permits that are presently required for the operation of the businesses conducted by each of the Companies and the Included Entities as presently conducted, have been duly obtained by the relevant Company or Included Entity and are in full force and effect and will remain in full force and effect following consummation of the transactions contemplated hereby and (ii) the Companies and Included Entities are in compliance with all such Permits. No Proceeding to modify, suspend, terminate or otherwise limit any such Permit that is material to the businesses of the Companies and the Included Entities is pending or, to the knowledge of Sellers, threatened. SECTION 2.15 TITLE. Each of the Companies and Included Entities, has good title to each item of tangible personal property owned by such Company or Included Entity, free and clear of all Liens except Permitted Liens and Liens described in SECTION 2.15 OF THE DISCLOSURE SCHEDULE. The real property and tangible personal property owned or leased by the Companies and the Included Entities includes all real property and tangible personal property necessary for the conduct of the businesses and operations as currently conducted by the Companies and the Included Entities. SECTION 2.16 CONDITION OF ASSETS. Except as set forth in SECTION 2.16 OF THE DISCLOSURE SCHEDULE, all material items of tangible personal property of the Companies and Included Entities currently used in their businesses or operations is in all material respects in working condition, reasonable wear and tear and loss due to normal operations, excepted. SECTION 2.17 ENVIRONMENTAL. (a) Compliance with Environmental Requirements. To the knowledge of the Sellers, except as set forth in SECTION 2.17(A) OF THE DISCLOSURE SCHEDULE, the Companies and Included Entities are in compliance with all applicable federal, state and local laws, rules, regulations, ordinances and requirements relating to pollution or protection of the environment or human health ("ENVIRONMENTAL REQUIREMENTS"), with respect to which the failure to comply would have a Material Adverse Effect. (b) No Hazardous Wastes. To the knowledge of Sellers, except as set forth in SECTION 2.17(B) OF THE DISCLOSURE SCHEDULE, the Companies and the Included Entities have never generated, transported, treated, stored, or disposed of any Hazardous Materials at any site, location or facility in material violation of any Environmental Requirements, except where such a violation would not have a Material Adverse Effect, and no such Hazardous Materials are present on, in or under any real property owned or used by the Companies and the Included Entities in violation of any Environmental Requirement, except where the presence of such Hazardous Materials would not have a 19 20 Material Adverse Effect. For purposes of this Agreement, "HAZARDOUS MATERIALS" shall mean any pollutants or contaminants or hazardous or toxic substances, wastes or materials including petroleum products, PCBs and asbestos defined as such or governed by any applicable Environmental Requirement. (c) No Actions or Proceedings. The Companies and the Included Entities have not been subject to, or received any notice (written or oral) of any private, administrative or judicial action, or any notice (written or oral) of any intended private, administrative, or judicial action or material liability relating to the presence or alleged presence of Hazardous Materials in, under or upon any real property owned or used by the Companies or the Included Entities or any Hazardous Materials released or sent to off-site locations, which would have a Material Adverse Effect and, other than as set forth in SECTION 2.17(C) OF THE DISCLOSURE SCHEDULE, to the knowledge of the Sellers, (i) there is no reasonable basis for any such notice or action; and (ii) there are no pending or threatened actions or proceedings (or notices of potential actions or proceedings) from any governmental agency or any other entity regarding any matter relating to protection of the environment which would have a Material Adverse Effect. SECTION 2.18 REAL PROPERTY. Each Company or Included Entity has good and marketable fee simple title to all of the real property listed in SECTION 2.18 OF THE DISCLOSURE SCHEDULE under its name (collectively, the "OWNED REAL PROPERTY"), and has valid leasehold interests in all of the real property which it holds under the leases described in SECTION 2.18 OF THE DISCLOSURE SCHEDULE under its name (collectively, the "LEASED REAL PROPERTY"; and together with the Owned Real Property, the "REAL PROPERTY"), in each case free and clear of all Liens, except for Liens listed in SECTION 2.18 OF THE DISCLOSURE SCHEDULE and Permitted Liens. The Owned Real Property and the Leased Real Property, together, constitute all real properties used or occupied by the Companies or Included Entities in connection with their businesses and operations. SECTION 2.18 OF THE DISCLOSURE SCHEDULE includes a correct and complete list, and a brief description of all real estate in which the Companies or Included Entities have an ownership interest and accurately reflects the status of title to the subject real estate as of the date hereof. SECTION 2.18 OF THE DISCLOSURE SCHEDULE includes a correct and complete list, and a brief description of all real estate leased to the Companies or Included Entities and leased by the Companies or Included Entities, and all improvements thereon. With respect to the Real Property: (a) Easements. The applicable Company or Included Entity has all material easements and rights necessary to conduct its businesses and operations; (b) Condemnation. No material portion of any parcel thereof is subject to any pending or, to the knowledge of the Sellers, threatened condemnation proceeding or proceeding by any public authority; 20 21 (c) Subleases. Except for the leases described in SECTION 2.18(C) OF THE DISCLOSURE SCHEDULE, there are no leases, subleases, licenses, concessions or other agreements, written or oral, granting to any Person or Persons (other than the Companies or Included Entities) the right of use or occupancy of any portion of any parcel of the Real Property; (d) Options. There are no outstanding options or rights of first refusal to purchase any parcel of the Owned Real Property or any parcel of the Leased Real Property leased from an Affiliate of any Company, or any portion thereof or interest therein; (e) Possession. There are no parties (other than the Companies or Included Entities) in possession of any parcel of Real Property, other than tenants under any leases of the Real Property who are in possession of space to which they are entitled, and the applicable Company or Included Entity enjoys peaceful and undisturbed possession under all leases for Leased Real Property; (f) Utilities. All facilities located on each parcel of Real Property are supplied with utilities and other services necessary for the operation of such facilities, including gas, electricity, water and telephone, all of which services are adequate for the operation of such facilities as presently conducted by the applicable Company or Included Entity and are provided via public roads or via permanent, irrevocable, appurtenant easements benefiting the parcel of the Real Property; and (g) Access. Each parcel of Real Property abuts on and has direct vehicular access to a public road or access to a public road via a permanent, irrevocable, appurtenant easement benefiting the parcel of Real Property. SECTION 2.19 INTELLECTUAL PROPERTY. SECTION 2.19 OF THE DISCLOSURE SCHEDULE contains a complete and correct list of all registered trademarks and servicemarks owned by any Company or Included Entity and all patents, pending patent applications and applications for the registration of other trademarks or servicemarks owned or filed by any Company or Included Entity. SECTION 2.19 OF THE DISCLOSURE SCHEDULE also contains (a) a complete and correct list of all material trade or corporate names used by any Company or Included Entity, (b) a complete and correct list of all material licenses and other rights granted by any Company or Included Entity to any third party with respect to Proprietary Rights and (c) a complete and correct list of all material licenses and other rights granted by any third party with respect to Proprietary Rights to any Company or Included Entity, excluding commercially available software. Except as set forth in SECTION 2.19 OF THE DISCLOSURE SCHEDULE, the applicable Company or Included Entity has a valid 21 22 right to use all of its registered and unregistered trademarks and servicemarks and other Proprietary Rights material to the operation of its business as presently conducted. Except as set forth in SECTION 2.19 OF THE DISCLOSURE SCHEDULE, (A) none of the Companies, Included Entities nor any agent of the Companies or Included Entities has received any written notice of an allegation or claim of any infringement or misappropriation by, or conflict with, any third party with respect to the Proprietary Rights or products processes and services, which are material to the operation of the business as presently conducted, and (B) no Company or Included Entity has infringed, misappropriated or otherwise violated any Proprietary Rights of any third party, which would have a Material Adverse Effect. SECTION 2.20 INSURANCE POLICIES. Set forth on SECTION 2.20 OF THE DISCLOSURE SCHEDULE is a correct and complete list (specifying the insurer, the policy number or covering note number with respect to binders) of insurance policies, binders, contracts or instruments (collectively, the "POLICIES") to which any of the Companies or Included Entities is a party or by which any of their assets are covered by property, fire, liability, product liability, workmen's compensation, vehicular, crime, fiduciary, builders' risk, title and other insurance. True and complete copies all of such Policies have been or, at Closing, will be provided to Buyer. Except as set forth in SECTION 2.20 OF THE DISCLOSURE SCHEDULE, all such Policies are in full force and effect in accordance with their respective terms and will remain in full force and effect after the Closing. Except as set forth on SECTION 2.20 OF THE DISCLOSURE SCHEDULE, none of Sellers, the Companies or the Included Entities has received any notice that any of the Companies or Included Entities is in default with respect to any provision of any such policies, binders, contracts or instruments. Except as set forth on SECTION 2.20 OF THE DISCLOSURE SCHEDULE, none of the Companies or Included Entities has failed to give any notice or present any claim thereunder in due and timely fashion or as required by any such Policies so as to jeopardize full recovery under such Policies. SECTION 2.21 BROKERS. Except for Donaldson, Lufkin & Jenrette Securities Corporation and The Beacon Group, the fees of whom will be the sole responsibility of Sellers, none of the Sellers, the Companies, the Included Entities nor any of their respective directors, officers, employees or Affiliates has employed any broker or finder or has incurred or will incur any broker's, finder's or similar fees, commissions or expenses, in each case in connection with the transactions contemplated by this Agreement. SECTION 2.22 ACCOUNTS RECEIVABLE AND INVENTORY. The accounts receivable shown on the balance sheet at September 30, 1997 contained in the Financial Statements, or recorded by any of the Companies or Included Entities subsequent to the date of such balance sheet, except to the extent thereafter collected or written-off in the ordinary course of business and consistent with past practices, are bona fide accounts receivable 22 23 created in the ordinary course of business, and each of such accounts receivable exists without setoff, is not the subject of a pledge or assignment to secure debt and is free of any and all Liens. The Company and included Entities have good and sufficient title to the inventory owned by them, free and clear of Liens, other than Permitted Liens. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BUYER Subject to SECTION 10.1, Buyer hereby represents and warrants to each Seller as of the date hereof as follows: SECTION 3.1 INCORPORAION OF BUYER. F-M is a Michigan corporation validly existing as a corporation in good standing under the laws of the State of Michigan. SECTION 3.2 AUTHORITY, BINDING EFFECT. Buyer has the corporate power and corporate authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions provided for hereby, and all corporate action of Buyer necessary for the making and performance of this Agreement by Buyer has been duly taken. The execution, delivery and performance by Buyer of this Agreement do not and will not (i)(A) contravene any provisions of the Charter Documents of Buyer, (B) with or without the giving of notice or the passage of time or both, result in any breach by Buyer of, or default or permitted or required acceleration of performance by Buyer under, or the creation of any Lien upon any of Buyer's assets, or the creation in favor of any third party of any right of termination of, any mortgage, indenture, contract, agreement or other instrument to which Buyer is a party or (C) assuming that the Governmental Actions/Filings referred to in this SECTION 3.2 below are obtained or made, result in any violation by Buyer of any law, rule or regulation applicable to Buyer, or any Permit except, with respect to sub-clauses (B) and (C), for such violations, breaches or defaults as would not in the aggregate (x) result in the imposition of any liability on Seller, or (y) prevent Buyer from consummating its purchase of the Equity Interests as contemplated by this Agreement (clause (x) or (y), a "BUYER ADVERSE EFFECT"), (ii) result in any violation by Buyer of any judgment, injunction or decree of any court or governmental authority applicable to Buyer or (iii) require any Governmental Action/Filing to be made or obtained by Buyer except (A) in connection or in compliance with the HSR Act, (B) any federal, state or local Tax filings and (C) any other Governmental Actions/Filings the failure to make or obtain would not in the aggregate have a Buyer Adverse Effect. Buyer is not a party to, nor subject to or bound by, any Judgment injunction or decree of any court or governmental authority which may prevent Buyer from consummating its purchase of the Equity Interests as contemplated by this Agreement. This Agreement has been duly executed and delivered by Buyer. 23 24 This Agreement constitutes the valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms except that such enforcement may be limited by any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other laws (whether statutory, regulatory or decisional), now or hereafter in effect, relating to or affecting the rights of creditors generally or by equitable principles (regardless of whether considered in a proceeding at law or in equity). SECTION 3.3 ACQUISTITION OF EQUITY INTERESTS FOR INVESTMENT. Buyer is acquiring the Equity Interests for investment and not with a view toward, or for sale in connection with, any distribution thereof in violation of any applicable securities laws, nor with any present intention of publicly distributing or selling the Equity Interests in violation of any applicable securities laws. Buyer agrees that the Equity Interests may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of (i) without registration under the United States Securities Act of 1933, as amended, except pursuant to an exemption from such registration available under such Act and (ii) except in accordance with any applicable provisions of state securities laws. SECTION 3.4 BROKERS. Except for Morgan Stanley & Co. Incorporated, the fees of which will be the sole responsibility of Buyer, neither Buyer, nor any director, officer, employee or Affiliate thereof, has employed any broker or finder or has incurred or will incur any broker's, finder's or similar fees, commissions or expenses, in each case in connection with the transactions contemplated by this Agreement. SECTION 3.5 BUYER FINANCING. Buyer will have at the Closing sufficient funds to enable it to pay the Purchase Price and to perform its obligations hereunder. SECTION 3.6 CAPITALIZATION. (a) The authorized capital stock of F-M consists of 60,000,000 shares of F-M Common Stock and 5,000,000 shares of preferred stock ("F-M PREFERRED STOCK"). As of January 5, 1998, 40,202,603 shares of F-M Common Stock and 773,351 shares of F-M Preferred Stock were issued and outstanding. As of January 5, 1998, F-M was obligated to issue 14,929,200 shares of F-M Common Stock upon exercise or conversion of outstanding options, warrants and other convertible securities. F-M has no other obligations to issue shares of F-M Common Stock or F-M Preferred Stock. The Buyer has previously made available to the Sellers' Representatives correct and complete copies of the Charter Documents of F-M. (b) The F-M Exchangeable Preferred Stock has been duly authorized by all necessary actions of F-M (other than the filing of the Certificate of Designations with the Secretary of State of the State of Michigan), and, upon issuance, will be validly issued, fully paid and nonassessable, free and clear of all Liens, except (i) as created by this 24 25 Agreement and (ii) for restrictions on transfer pursuant to the Securities Act and applicable state securities laws. SECTION 3.7 SEC FILINGS. Since December 31, 1996, F-M has filed all forms, reports and documents required to be filed with the SEC pursuant to the federal securities laws and the SEC rules and regulations thereunder (the "BUYER SEC REPORTS"). As of their respective dates, the Buyer SEC Reports (i) were prepared in accordance with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Buyer SEC Reports and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. SECTION 3.8 SEC PROCEEDINGS. There are no Proceedings pending, or to F-M's knowledge threatened, against F-M before the SEC. No stop order suspending the effectiveness of any registration statement filed with the SEC with respect to the F-M Common Stock is in effect and no Proceedings for such purpose are pending or, to F-M's knowledge, threatened by the SEC. SECTION 3.9 FINANCIAL STATEMENTS. Each of the audited financial statements and each of the unaudited financial statements (including, in each case, any related notes thereto), contained in the Buyer SEC Reports fairly presents in all material respects the financial condition and results of operations of F-M and its Subsidiaries as at the respective dates thereof and for the periods referred to therein, all in accordance with GAAP, except as may be indicated in the notes thereto and except that the unaudited interim financial statements were or are subject to normal year-end adjustments in accordance with GAAP. SECTION 3.10 NO MATERIAL ADVERSE CHANGE. Since September 30, 1997, there has not been any material adverse change in the condition (financial or otherwise), properties, liabilities or operations of F-M and its Subsidiaries, taken as a whole. 25 26 ARTICLE 4 COVENANTS SECTION 4.1 ACCESS; CONFIDENTIALITY (a) At the reasonable request of Buyer, and upon reasonable advance notice, Sellers shall from time to time prior to the Closing give or cause to be given to the officers, employees, accountants, counsel and other authorized representatives of Buyer (collectively, "BUYER'S REPRESENTATIVES") access during normal business hours to any and all premises, properties, files, books, records, documents and other information of the Companies and Included Entities. (b) The provisions of the confidentiality agreement, dated October 1, 1997 between Fel-Pro Incorporated and F-M (the "CONFIDENTIALITY AGREEMENT"), shall survive the execution of this Agreement and shall apply with respect to all information made available to Buyer's Representatives pursuant to this SECTION 4.1. SECTION 4.2 NOTICE OF PROCEEDINGS; AGREEMENT TO DEFEND (a) Each party to this Agreement will notify the other promptly in writing upon (i) such party's becoming aware of any order, judgment or decree restraining or enjoining the consummation of this Agreement or the transactions contemplated hereby or any complaint or threatened complaint seeking such an order, judgment or decree or (ii) such party's receiving any notice from any governmental authority of its intention (A) to institute a Proceeding to restrain or enjoin, the consummation of this Agreement or the transactions contemplated hereby or (B) to nullify or render ineffective this Agreement or such transactions if consummated. (b) In the event any Person brings a Proceeding, which challenges the validity or legality of this Agreement or the transactions contemplated by this Agreement or any instrument or document contemplated hereby, the parties hereto agree to consult and to cooperate with each other and use all reasonable efforts to defend against such Proceeding and, in the event an injunction or other order is issued in connection with any of the foregoing, to use all reasonable efforts to have such injunction lifted or such order set aside so that the transactions contemplated by this Agreement and the instruments and documents contemplated hereby may proceed. SECTION 4.3 CONSUMMATION OF AGREEMENT. Subject to the provisions of SECTION 8.1 of this Agreement, each party hereto shall use all reasonable efforts to fulfill and perform all conditions and obligations on its part to be fulfilled and performed under this Agreement, and to cause the transactions contemplated by this Agreement to be fully 26 27 carried out. Notwithstanding anything herein to the contrary, nothing contained in this Agreement shall obligate Buyer to consent or agree to take any action (or to permit Sellers or any of the Companies or Included Entities to take any action), requested or required by any Person, involving the making of arrangements for or effecting any sale or disposition of, or holding separate, any assets or any properties of Buyer or any of its Affiliates or any of the Companies or Included Entities or the imposition of any limitation on the conduct by Buyer or the Companies or Included Entities of any of their respective businesses or operations. SECTION 4.4 CONSENTS AND FILINGS; HSR ACT. Each of the parties hereto shall (and shall cause its Affiliates to) use all reasonable efforts to obtain or make, as the case may be, as soon as possible, all Governmental Actions/Filings as may be required to be obtained or made, as the case may be, by it (and/or any of its Affiliates) in order to enable such party (and/or any of its Affiliates) to perform its obligations under this Agreement. Within 10 business days after the date of this Agreement, Buyer and Seller shall each file or cause to be filed with the United States Federal Trade Commission (the "FTC") and the United States Department of Justice (the "DOJ") their respective filings and any other required submissions under the HSR Act. Without limiting the generality of the preceding sentence, Buyer and Seller shall promptly file or cause to be filed any additional documents with the FTC and the DOJ that are required to be filed by such parties and their Affiliates under the HSR Act in connection with this Agreement and the transactions contemplated hereby and shall comply in a timely manner with all requests for further information by the FTC or DOJ. SECTION 4.5 ANNOUNCEMENTS. Neither party hereto will (and each such party will cause its Affiliates not to) issue any press release or otherwise make any public statement with respect to the transactions contemplated hereby without the prior written consent of the other party which shall not be unreasonably withheld, except as and to the extent that such party or any of its Affiliates determines in good faith that it is so obligated by applicable law, regulation or stock exchange rules, in which case such party shall give notice to the other party in advance of such party's or its Affiliate's intent to make such announcement or issue such press release and the parties hereto shall use all reasonable efforts to cause a mutually agreeable release or announcement to be issued. SECTION 4.6 CONDUCT OF BUSINESS OF THE COMPANY PRIOR TO THE CLOSING (a) Except as specifically contemplated by this Agreement and except as set forth in SECTION 4.6(A) OF THE DISCLOSURE SCHEDULE, during the period from the date of this Agreement to the Closing, Sellers shall cause each of the Companies and Included Entities to: 27 28 (1) carry on its business in, and only in, the ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent with such business, use all reasonable efforts to preserve intact its present business organization, keep available the services of its present officers and employees and preserve its relationships with clients, suppliers, customers, distributors and others having business dealings with it, pay its obligations in accordance with its normal payment practices unless such obligations are being contested in good faith, maintain all assets other than those disposed of in the ordinary course of business in satisfactory repair and condition, maintain its books of account and records in the usual regular and ordinary manner, and preserve its good will; and (2) promptly advise Buyer in writing of any change in its condition (financial or otherwise), properties, Liabilities, operations or prospects which is or may reasonably be expected to be materially adverse to it. Nothing contained in this Agreement shall be deemed to limit in any way Sellers' ability to cause the Companies and Included Entities to make distributions of Excluded Assets to Sellers or any Affiliates of any Seller or incur indebtedness for borrowed money so long as the principal amount of such indebtedness outstanding as of the Closing has been included in the Debt Amount and prepayment thereof is permitted without premium or penalty. (b) Sellers shall ensure that Companies and the Included Entities will not, during the period from the date of this Agreement to the Closing, except as set forth in SECTION 4.6(A) OR (B) OF THE DISCLOSURE SCHEDULE or as specifically contemplated by this Agreement, without the prior written consent of Buyer: (1) purchase, acquire, sell or lease any substantial properties or assets except in the ordinary course of business consistent with past practices; (2) enter into any contract of employment with any employee (other than contracts terminable at will by the applicable Company or Included Entity without penalty) or make any loan to any employee, except travel advances to employees in the ordinary course of business; (3) except in the ordinary course of business, as may be required by, or as a result of, applicable law, in order to replace or repair similar assets, or pursuant to contracts or commitments existing as of the date hereof, make (except pursuant to contracts or agreements existing on the date of this Agreement), or enter into any contract directly committing the Companies or Included Entities to 28 29 make, any single capital expenditure in excess of $250,000 provided further that the aggregate of all capital expenditures shall not exceed $750,000; (4) except as may be required by, or as a result of, applicable law or grant (except pursuant to contracts, agreements or benefit plans existing on the date of this Agreement) or agree to grant to any existing employee any material increase in the rates of salaries, compensation or other employment benefits of any class of employees of the Companies or Included Entities aggregating more than ten percent (10%) of the aggregate compensation of such employee as of the date hereof; (5) except for borrowings under any credit facility or loan agreement existing on the date of this Agreement, which borrowings shall be satisfied in full by Sellers or by the Companies or Included Entities, but only out of cash held by any Company or Included Entity, on or prior to the Closing and the incurrence of indebtedness for borrowed money by any Company or Included Entity, which is repaid out of Excluded Assets or which remains outstanding as of the Closing so long as the principal amount of such indebtedness outstanding as of the Closing is included in the Debt Amount and prepayment thereof is permitted without premium or penalty, incur or guarantee any indebtedness for borrowed money (other than endorsements made for collection in the ordinary course of business). (6) amend any of its Charter Documents; (7) acquire, by merger, consolidation, purchase of stock or assets or otherwise, any corporation, partnership, association or other business organization or division thereof; (8) alter its outstanding capital stock, other equity interests or partnership structure, as the case may be, or declare, set aside, make or pay any dividend or other distribution (other than dividends or distributions of Excluded Assets) in respect of its capital stock, partnership interests or other equity interests, as the case may be, or purchase or redeem any shares of its capital stock, partnership interests or other equity interests, as the case may be; (9) issue or sell any of its capital stock, partnership interests or other equity interests, as the case may be, or any options, warrants or other rights to purchase any such shares or interests or any securities convertible into or exchangeable for any such shares or interests; 29 30 (10) mortgage, pledge or subject to any Lien (other than Permitted Liens), any of its properties, other than in the ordinary course of business consistent with past practice; (11) compromise, settle or otherwise adjust any material claim or litigation; (12) make any change in its accounting procedures or practices unless mandated by generally accepted accounting principles; (13) except as provided for in Section 9.1(g), adopt, enter into, amend in any material respect, announce any intention to adopt or terminate, any Benefit Plan or other employee benefit plan, program or arrangement of general applicability; or (14) agree to do any of the foregoing. SECTION 4.7 TAX COVENANTS. (a) Preparation and Filing of Tax Returns; Payment of Taxes. Between the date hereof and the Closing, Sellers shall cause the Companies and the Included Entities to prepare and file on or before the due date therefor all Tax Returns required to be filed by the Companies and the Included Entities (except for any Tax Return for which an extension has been granted as permitted hereunder) on or before the Closing, and shall pay, or cause the Companies and the Included Entities to pay, all Taxes (including estimated Taxes) due on such Tax Return (or due with respect to Tax Returns for which an extension has been granted as permitted hereunder) or which are otherwise required to be paid at any time prior to or during such period. Such Tax Returns shall be prepared in accordance with the most recent Tax practices as to elections and accounting methods except for new elections that may be made therein that were not previously available. (b) Notification of Tax Proceedings. Between the date hereof and the Closing, to the extent any Seller has knowledge of the commencement or scheduling of any Tax audit, the assessment of any Tax, the issuance of any notice of Tax due or any bill for collection of any Tax due for Taxes, or the commencement or scheduling of any other administrative or judicial proceeding with respect to the determination, assessment or collection of any Tax of any Company or Included Entity, Sellers shall provide prompt notice to Purchaser of such matter, setting forth information (to the extent known) describing any asserted Tax liability in reasonable detail and including copies of any notice or other documentation received from the applicable Tax authority with respect to such matter. 30 31 (c) Tax Elections, Waivers and Settlements. Sellers shall not, and shall cause each Company or Included Entity not to, take any of the following actions: (i) make, revoke or amend any Tax election; (ii) execute any waiver of restrictions on assessment or collection of any Tax; or (iii) except as set forth on SECTION 4.7(C) OF THE DISCLOSURE SCHEDULE, enter into or amend any agreement or settlement with any Tax authority. SECTION 4.8 INTERCOMPANY ACCOUNTS. Sellers shall take all steps necessary such that (a) all indebtedness for borrowed money of any of the Companies or Included Entities are paid out of Excluded Assets or with the proceeds of indebtedness for borrowed money, the outstanding principal amount of which is included in the Debt Amount so long as prepayment thereof is permitted without premium or penalty and (b) all contracts between any Company or Included Entity and any Seller or any Affiliate of the Sellers (including, without limitation, the Excluded Entities but excluding the Companies and Included Entities) existing as of the Closing (other than the Chemical Lease) are canceled at or prior to the Closing without any consideration being paid in respect therefor. ARTICLE 5 CONDITIONS TO THE OBLIGATIONS OF SELLERS SECTION 5.1 SELLERS' CLOSING CONDITIONS. The obligations of Sellers under this Agreement to effect the Closing are, subject to the fulfillment of the following conditions prior to or at the Closing, each of which may be waived (as conditions to Sellers' obligations) by the Sellers' Representatives in their absolute discretion: (a) Representations, Warranties, Covenants (1) The representations and warranties of Buyer contained in ARTICLE 3 of this Agreement shall be true and correct in all material respects as of the date hereof and as of the Closing Date as though restated on and as of such date (except in the case of any representation or warranty that by its terms is made as of a date specified therein which shall be accurate in all material respects as of such date): (2) Buyer shall have performed and complied in all material respects with each and every covenant and agreement required by this Agreement to be performed or complied with by it at or prior to the Closing; and 31 32 (3) Buyer shall have furnished Seller with a certificate, dated the Closing Date and duly executed on behalf of Buyer to the effect that the conditions set forth in clauses (1) and (2) of this SECTION 5.1(A) have been satisfied. (b) Proceedings. No party to this Agreement shall be subject to any order, stay, injunction or decree of any court of competent jurisdiction or governmental, administrative or regulatory authority restraining or prohibiting the consummation of the transactions contemplated hereby. (c) Real Estate. At or prior to the Closing, Fel-Pro Chemical Products, L.P. ("CHEMICAL") shall have executed a real estate lease with Realty to lease the portion of the building currently leased by Chemical from Realty for a term of three years on market terms (the "CHEMICAL LEASE"), which lease shall be in a form reasonably acceptable to the Sellers. (d) HSR Act. The waiting period (and any extension thereof) under the HSR Act applicable to the transactions contemplated hereby shall have expired or been terminated. (e) Certificate of Designations. The Certificate of Designations in substantially the form attached hereto as EXHIBIT E (the "CERTIFICATE OF DESIGNATIONS") shall have been duly filed with the Secretary of State of the State of Michigan. (f) Registration Agreement. F-M shall have executed and delivered to the Sellers' Representatives the Registration Agreement in the form attached hereto as EXHIBIT F (the "REGISTRATION AGREEMENT"). ARTICLE 6 CONDITIONS TO THE OBLIGATIONS OF BUYER SECTION 6.1 BUYER'S CLOSING CONDITIONS. The obligations of Buyer under this Agreement to effect the Closing are, at its option, subject to the fulfillment of the following conditions prior to or at the Closing, each of which may be waived (as conditions to its obligations) by Buyer in its absolute discretion: 32 33 (a) Representations, Warranties, Covenants. (1) The representations and warranties of Sellers contained in ARTICLE 2 of this Agreement shall have been true and correct in all material respects as of the date hereof and, after taking into account all amendments and/or supplements to the Disclosure Schedule pursuant to SECTION 10.12(B) hereof, shall be true and correct in all material respects as of the Closing Date as though restated on and as of such date (except in the case of any representation or warranty that by its terms is made as of a date specified therein, which shall be accurate in all material respects as of such date); (2) Sellers shall have performed and complied in all material respects with each and every covenant and agreement required by this Agreement to be performed or complied with by them at or prior to the Closing; and (3) Sellers shall have furnished Buyer with a certificate, dated the Closing Date and duly executed on behalf of Sellers by the Sellers' Representatives, to the effect that the conditions set forth in clauses (1) and (2) of this SECTION 6.1(A) have been satisfied. (b) Proceedings. No party to this Agreement shall be subject to any law, rule or regulation or any order, stay, injunction or decree of any court of competent jurisdiction or governmental, administrative or regulatory authority, restraining or prohibiting the consummation of the transactions contemplated hereby. (c) Real Estate. At or prior to the Closing, Chemical shall have executed the Chemical Lease, which lease shall be in a form reasonably acceptable to the Buyer. (d) Consents. All consents of any governmental, administrative or regulatory authority required for the Sellers' consummation of the transactions contemplated by this Agreement shall have been made or obtained and all waiting periods specified under applicable laws, rules and regulations and all extensions thereof, the passing of which is necessary for such consummation, shall have passed. (e) Absence of Withholding Tax Liability. The Sellers agree to provide to the Buyer a certificate executed by each Seller that, as of the Closing Date, such Seller is not a foreign person within the meaning of Section 1445 of the Code and the Treasury Regulations thereunder. If such certificate is not delivered to Buyer, Buyer shall be entitled to withhold 10% of the Purchase Price as required by Section 1445 of the Code. (f) Debt-Free. As of the Closing, none of the Companies or Included Entities shall have any outstanding indebtedness for borrowed money except for such 33 34 indebtedness for borrowed money, the outstanding principal amount of which has been included in the Debt Amount and is prepayable without premium or penalty. (g) Registration Agreement. The Sellers that are to receive shares of Exchangeable Preferred Stock shall have executed and delivered to F-M the Registration Agreement. ARTICLE 7 TAX AND OTHER MATTERS SECTION 7.1 TAXES RELATED TO TRANSACTIONS. Notwithstanding anything to the contrary in this ARTICLE 7, Sellers shall be liable for and shall pay (i) any and all Taxes imposed on the Sellers arising in any way in connection with the transfer of the Equity Interests contemplated by SECTION 1.1; (ii) any taxes payable by the Sellers as partners or shareholders of the Companies or any of the Included Entities (including, without limitation, any shareholder level tax imposed upon the deemed asset sale and deemed liquidation of Meridian under Treasury Regulation ss.1.338(h)(10)-1); (iii) except for Taxes payable by Felt under Code Section 1363 (relating to LIFO recapture upon an S Election), any corporate level Taxes imposed upon any of the Companies or any of the Included Entities resulting from the transfer of the Equity Interests contemplated by SECTION 1.1 (including, without limitation, (A) any corporate level Taxes imposed upon any of the Companies under Code Section 1374 resulting from the transfer of the Equity Interests contemplated by SECTION 1.1, and (B) any Taxes incurred under Treasury Regulation ss.1.338(h)(10)-1(e)(1) and 1.338(h)(10)-1(f) upon the deemed asset sale by Meridian); and (iv) any other transfer Taxes incurred in connection with the transactions contemplated hereby and Sellers shall indemnify, defend and hold Buyer harmless against any and all such Taxes. SECTION 7.2 ALLOCATION OF LIABILITY FOR TAXES. (a) Sellers Liable For Shareholder And Partner Level Taxes. Except as set forth in SECTION 7.2(C), Sellers shall be liable for, and shall indemnify, defend and hold Buyer harmless from and against, any and all Taxes imposed on items of income, loss, deduction or credit which are passed through to the Sellers, as shareholders or partners of any of the Companies or any of the Included Entities, for any time periods during which (i) any of the Companies or any of the Included Entities are classified as S Corporations or Partnerships for purposes of the Code and (ii) the Sellers are such shareholders or partners; including, without limitation, any and all Taxes imposed on items of income, loss, deduction or credit which are passed through to the Sellers, as shareholders or partners, under the provisions of 34 35 Code Section 1366 (in the case of any "S corporation" (as such term is defined in Code Section 1361) hereinafter an "S Corporation")), or Code Section 702 (in the case of any partnership). (b) Sellers Liable For Installment Sale Obligation. Sellers shall be liable for, and shall indemnify, defend and hold Buyer harmless from and against, any income Taxes imposed on Felt (including, without limitation, any Taxes imposed under Code Sections 1374 and 453), relating to the installment sale of certain assets from Felt (or its affiliates or predecessors) to Fel-Pro Chemical Products L.P., Fel-Pro Specialty Sealing Products, L.P. and FP Diesel L.P. under the terms and conditions of the following promissory notes: (i) Amended and Restated Secured Promissory Note dated December 28, 1992 payable by Fel-Pro Chemical Products, L.P. to Fel-Pro Incorporated, (ii) Amended and Restated Secured Promissory Note dated December 28, 1992 payable by Fel-Pro Specialty Sealing Products LP to Fel-Pro Incorporated, and (iii) Amended and Restated Secured Promissory Note dated January 31, 1994 payable by FP Diesel LP (formerly Phillips) to Fel-Pro Incorporated. (c) Buyer Liable For Certain Corporate Level Taxes. Except for those corporate level Taxes expressly treated under SECTION 7.1 above and those corporate level Taxes allocated to Sellers under SECTIONS 7.2(B) or 7.7(D), Buyer shall be liable for, and shall indemnify, defend and hold Sellers harmless from and against, any Taxes imposed on any of the Companies or any of the Included Entities which are classified as corporations for U.S. Federal income tax proposes (including, without limitation, any Taxes payable by Felt under Code Section 1363 (relating to LIFO recapture upon an S Election)). SECTION 7.3 PRORATION OF TAXES (a) Method of Proration for Income Tax. Income Tax items shall be apportioned between the Pre-Closing Period and the Post-Closing Period based on a closing of the books and records of the relevant entity or entities as of the Closing Date (provided that depreciation, amortization and depletion for any Straddle Period shall be apportioned on a daily pro rata basis). Notwithstanding anything to the contrary in the preceding sentence, the parties agree that for U.S. federal income Tax purposes, Tax Items for any Straddle Period shall be apportioned between Pre-Closings Periods and Post-Closing Periods in accordance with U.S. Treasury Regulations Section 1.1362-3(b), which regulations shall be reasonably interpreted by the parties in a manner intended to achieve the method of apportionment described in the preceding sentence. (b) No Contrary Elections. Seller and Buyer will not exercise any option or election (including any election to ratably allocate a Tax year's items under Treasury 35 36 Regulation Section 1.1362-3(b)) to allocate Tax items in a manner inconsistent with SECTION 7.2(A) hereof. SECTION 7.4 PREPARATION AND FILING OF TAX RETURNS AND PAYMENT OF TAX. (a) Seller's Rights and Responsibilities. Sellers shall have the right and obligation to timely prepare and file, and cause to be timely prepared and filed, when due: (i) any Income Tax Return that is required to include the operations, ownership, assets or activities of any Company or Included Entity for any period ending on or prior to the Closing Date, including, without limitation, (x) all final returns of any of the Companies or Included Entities which are S Corporations or partnerships for the periods beginning on the first day of the 1998 fiscal year through and including the Closing Date, and (y) all returns related to the deemed asset sale and deemed liquidation of Meridian under Treasury Regulation ss.1.338(h)(10)-1(e)(1), (2); and (ii) all Tax Returns for transfer taxes to be paid by Sellers pursuant to the terms hereof. (b) Buyer's Rights and Responsibilities. Buyer shall have the right and obligation to timely prepare and file, or cause to be timely prepared and filed, when due, all other Tax Returns that are required to include the operations, ownership, assets or activities of any Company or Included Entity. SECTION 7.5 PARTNERSHIP ELECTIONS UNDER SECTION 754 Sellers shall cause such Included Entities as are identified by the Buyer in writing prior to the Closing Date and which are classified as partnerships for federal income tax purposes to make elections under Section 754 of the Code. SECTION 7.6 TAX CONTROVERSIES; ASSISTANCE AND COOPERATION. (a) Notice. In the event any Income Tax Authority informs a Seller, on the one hand, or Buyer, on the other, of any notice of proposed audit, claim, assessment or other dispute concerning an amount of Income Taxes with respect to which the other party may be liable, the party so informed shall promptly notify the other party of such matter. Such notice shall contain factual information (to the extent known) describing any asserted Income Tax liability in reasonable detail and shall be accompanied by copies of any notice or other documents received from any Tax authority with respect to such matter. (b) Consent to Settlement. Buyer and Sellers shall not agree to settle or permit the settlement of any Tax liability or compromise any claims with respect to Taxes, which settlement or compromise may affect the liability for Taxes (or right to tax benefit) of the other party, without such other party's consent. Neither Buyer nor the Sellers shall 36 37 make, revoke or amend any Tax election or amend any Tax return of the other party, without such other party's consent which may affect the other party's liability for Taxes or right to tax benefit. (c) Assistance and Cooperation. Sellers, on the one hand, and Buyer and Company, on the other, shall cooperate (and cause their affiliates to cooperate) with each other and with each other's agents, including accounting firms and legal counsel, in connection with Tax matters relating to the Companies or any Included Entity, including (i) preparation and filing of Tax Returns, (ii) determining the liability and amount of any Taxes due or the right to and amount of any refund of Taxes, (iii) examinations of Tax Returns, and (iv) any administrative or judicial proceeding in respect of Taxes assessed or proposed to be assessed. Such cooperation shall include each party making all information and documents in its possession relating to the Company and available to the other party. The parties shall retain all Tax Returns, schedules and work papers, and all material records and other documents relating thereto, until the expiration of the applicable statute of limitations (including, to the extent notified by any party, any extension thereof), of the Tax Period to which such Tax Returns and other documents and information relate. Each of the parties shall also make available to the other party, as reasonably requested and available, personnel (including officers, directors, employees and agents) responsible for preparing, maintaining, and interpreting information and documents relevant to Taxes, and personnel reasonably required as witnesses or for purposes of providing information or documents in connection with any administrative or judicial proceedings relating to Taxes. SECTION 7.7 MERIDIAN SECTION 338 ELECTION. (a) With respect to the purchase and sale (the "MERIDIAN TRANSACTION") pursuant hereto of the capital stock of Meridian Parts Corporation ("MERIDIAN"), the Buyer and the Sellers shall make a timely election (i) under Section 338(h)(10) of the Code and Section 1.338(h)(10)-1 of the Treasury Regulations promulgated pursuant to the Code (the "338 ELECTION"), but pursuant to Section 230515(e)(3) of the California General Taxation Code will elect to not make a similar Section 338(h)(10) election for purposes of tax in the State of California. The Sellers shall take all actions reasonably requested by the Buyer (including, but not limited to, the preparation, completion and timely joint filing by the Buyer and the Sellers of Form 8023-A, and the preparation, completion and timely filing of such other forms, returns, elections, schedules and other documents and instruments reasonably requested by the Buyer) to effect a timely Section 338(h)((10) election in accordance with Section 338(h)(10) of the Code and Section 1.338(h)(10)-1 of the Treasury Regulations promulgated pursuant to the Code, and the Buyer shall take all actions reasonably requested by the Sellers' Representatives to file any forms required by the California Franchise Tax Board to elect not to have Section 338(h)(10) applicable for California purposes, with respect to the Meridian Transaction. The Buyer and the Sellers 37 38 shall report the Meridian Transaction consistent with the 338 Election and with the California election described above and shall take no position contrary thereto or inconsistent therewith in any tax return, or in any discussion with or any proceeding before any taxing authority or other governmental body or otherwise. (b) The portion of the Purchase Price allocated to the Meridian Transaction pursuant to the allocation of the Purchase Price pursuant to SECTION 1.2 that comprises the "modified aggregate deemed sale price" (as defined in, and required to be allocated pursuant to, Section 338(h)(10) of the Code) shall be allocated with respect to the Meridian Transaction in accordance with a schedule prepared by the Sellers' Representatives and the Buyer consistent with the methodology utilized to calculate the amount identified in Section 1.1(d) and otherwise in accordance with the requirements of the Code and the regulations thereunder. Such allocation shall, for federal tax purposes, be binding on Meridian, the Sellers and the Buyer. Meridian, the Sellers and the Buyer shall file their respective federal tax returns in accordance with such allocation and shall not take any position inconsistent with such allocation. Meridian, the Sellers and the Buyer shall file their respective California tax returns consistent with the election not to have Section 338(h)(10) apply. In the event that any such allocation is disputed by any taxing authority, the party receiving notice of such dispute shall promptly notify and consult with the other parties hereto concerning resolution of such dispute and such dispute shall be settled or compromised by the Buyer, with the consent of the Sellers' Representative which consent shall not be unreasonably withheld. The Buyer shall cause Meridian to comply with this SECTION 7.7. (c) The Sellers shall, on a timely basis, prepare (in a manner consistent with prior practice and this Agreement), execute, and file on behalf of Meridian (A) the federal income tax returns to be filed on behalf of Meridian for the period ending as of the close of business on the Closing Date that will include the gain or loss resulting from the "deemed sale" and "deemed liquidation" that will occur (pursuant to Treasury Regulation Section 1.338(h)(10)-1(e)(1) and (2) promulgated under the Code) by reason of the Buyer's and the Sellers' election pursuant to Section 338(h)(10) of the Code and (B) any corresponding state and local income tax returns required to be filed on behalf of Company for the period ending as of the close of business on the Closing Date. The Buyer shall cooperate with the Sellers in connection with the preparation and filing of such returns by making the books, records and personnel of the appropriate companies and Included Entities available to the Sellers and taking such other actions as the Sellers may reasonably request. The Buyer shall have the right to review and comment upon such returns prior to filing. The Sellers shall bear the costs and expenses of preparing and filing such return. (d) ALLOCATION OF MERIDIAN INCOME TAXES. Sellers shall be responsible for all federal income Taxes attributable to Meridian for periods ending on or before the 38 39 Closing Date resulting from the 338 Election (including, without limitation, any built-in gain tax imposed upon Meridian under Code Section 1374). Buyer shall be responsible for all federal income Taxes of Meridian for periods ending after the Closing Date. Sellers will be liable for California income taxes of Meridian resulting from the refusal of the California Tax authorities to respect the election not to make a 338 Election for California tax purposes, and Buyer and Meridian will be liable for non-federal income Taxes of Meridian for periods ending after the Closing Date. SECTION 7.8 NO COMPETITION. Sellers' Representatives agree that during the two-year period commencing on the Closing Date, none of the Sellers' Representatives will, directly or indirectly, (i) participate or engage in any of the businesses currently engaged in by the Companies and Included Entities anywhere in the United States; or (ii) induce or attempt to influence any employee of any of the Companies or Included Entities as of the Closing Date to terminate such employee's employment or become an employee of any entity established by or associated with any of Seller or any Affiliate of the Sellers' Representatives. SECTION 7.9 CONFIDENTIALITY. If the transactions contemplated by this Agreement are consummated, the Sellers agree to maintain the confidentiality of all proprietary and other non-public information regarding the Companies and the Included Entities, except as necessary to file tax returns and other reports to governmental agencies and except as set forth below. In the event that any Seller reasonably believes that it is required by law to disclose any confidential information described in this SECTION 7.7, such Seller will (i) provide the Buyer with prompt notice before such disclosure in order that the Buyer may attempt to obtain a protective order or other assurance that confidential treatment will be accorded such confidential information and (ii) cooperate with the Buyer in attempting to obtain such order or other assurance. The provisions of this SECTION 7.7 shall not apply to any information, documents or materials which are in the public domain or shall come into the public domain, other than by reason of default by a Seller. SECTION 7.10 NAMES. Sellers agree to take such steps as are necessary as soon as practicable to change the name of any Excluded Entity to delete the names "Fel-Pro" or "FP" therefrom and agree not to employ, trade upon or utilize such names in any business of any kind or character. SECTION 7.11 AUTHORIZED SHARES. F-M shall use its best efforts to cause the number of authorized shares of F-M Common Stock to be increased, as soon as practicable, to an aggregate number of authorized shares of F-M Common Stock sufficient to effect the issuance of all of the shares of F-M Common Stock issuable upon exchange of the F-M Exchangeable Preferred Stock issuable in connection with the transactions contemplated hereby. F-M shall provide the Sellers' Representatives with copies of any solicitations of its stockholders in connection with such matter. Promptly following any 39 40 such increase, F-M shall reserve and keep available out of its authorized but unissued shares of F-M Common Stock a sufficient number of its shares of F-M Common Stock to effect the exchange of all shares of the F-M Exchangeable Preferred Stock issuable in connection with the transactions contemplated hereby. SECTION 7.12 STOCK LISTING. F-M shall take all action necessary, including, but not limited to filing an additional listing application, to list the shares of F-M Common Stock issuable upon conversion of the F-M Exchangeable Preferred Stock on the stock exchange or market on which the F-M Common Stock is then listed provided that all applicable listing requirements are satisfied. ARTICLE 8 TERMINATION SECTION 8.1 TERMINATION OF AGREEMENT. This Agreement may be terminated at any time on or prior to the Closing: (a) by the mutual written consent of the Sellers' Representatives and Buyer; (b) by either the Sellers' Representatives or Buyer, if the Closing has not taken place by April 20, 1998, and the terminating party is not in material breach of its obligations hereunder; (c) by Buyer or the Sellers' Representatives, if any court or governmental, administrative or regulatory body of competent jurisdiction in the United States shall have issued an order, stay, judgment or decree, or taken any other action, permanently prohibiting the transactions contemplated by this Agreement, or mandating that Buyer sell, dispose of or hold separate any assets or properties of Buyer or any of its Affiliates or any assets or properties of the Companies or Included Entities and such order, stay, judgment, decree or other action, shall have become final and non-appealable; or (d) by Buyer if the amendments and supplements to the Disclosure Schedule pursuant to SECTION 10.12(B) have, in the aggregate, a Material Adverse Effect. If Buyer or the Sellers' Representatives terminate this Agreement pursuant to the foregoing provisions of this SECTION 8.1, such termination shall be effected by written 40 41 notice to the other party specifying the provision pursuant to which such termination is made. SECTION 8.2 LIABILITIES UPON TERMINATION. Except for SECTION 4.5 hereof (and, to the extent relevant thereto, the terms of SECTIONS 10.4, 10.5, 10.6, 10.7, 10.13, 10.14, 10.17 and 10.18 hereof), which shall survive any termination of this Agreement, upon the termination of this Agreement pursuant to SECTION 8.1 hereof, this Agreement shall forthwith become null and void, and no party hereto or any of its officers, directors, partners, employees, agents, consultants, stockholders or principals shall have any rights, liabilities or obligations hereunder or with respect hereto; provided, however, that nothing contained in SECTION 8.1 or this SECTION 8.2 shall (i) relieve any party from liability for any willful failure to comply with any covenant or agreement contained herein (and the terms of SECTIONS 10.4, 10.5, 10.6, 10.7, 10.13, 10.14, 10.17 and 10.18 hereof shall apply to any such failure) or (ii) affect the Confidentiality Agreement, which shall survive any termination of this Agreement. ARTICLE 9 EMPLOYEE MATTERS SECTION 9.1 EMPLOYEE BENEFIT PLAN MATTERS. (a) Effective as of the Closing, Buyer shall cause the applicable Company or Included Entity to offer to employ or continue the employment of all persons who are designated on the records of such Company, Included Entity or Realty as of the Closing as employees, whether or not then actively at work, including, without limitation, any employees who are on vacation leave, leave of absence, sick leave or disability leave ("COMPANY EMPLOYEES"). Buyer shall also cause the applicable Company or Included Entity to honor any re-employment rights of any current or former employees of such Company or Included Entity, including, but not limited to, any such persons who are receiving long-term disability benefits as of the Closing. Nothing contained herein shall be deemed to require the Buyer to employ or cause any Company or Included Entity to employ any individual for any period of time following the Closing. (b) Each employee benefit plan, fund, policy or arrangement established or maintained by Buyer or its Affiliates for Company Employees ("BUYER PLAN") shall grant vesting and eligibility credit (for initial participation purposes), to the extent such credit was given under the Benefit Plans, to each Company Employee for all service on or prior to the Closing Date with any Company or Included Entity or any predecessor or Affiliate of any of the foregoing, for all purposes other than benefit accrual under a "defined benefit plan," within the meaning of Section 3(35) of ERISA; provided, that any 41 42 Buyer Plan may be designed to offset, or otherwise avoid duplication of, any benefits to which a Company Employee is entitled under any comparable Benefit Plan or any amount payable under a Benefit Plan may be reduced to the extent paid under a Buyer Plan. (c) Effective as of the Closing, Buyer shall establish, or shall cause the appropriate Companies and/or Included Entities, to continue, or be included in, a group health plan which shall cover all Company Employees and their family members who immediately prior to the Closing were covered under any group health plan maintained by any Company or Included Entity. Any such group health plan established or maintained by Buyer shall (i) waive any waiting period, (ii) waive any exclusion or limitation for preexisting conditions which were covered (generally and/or specifically as to any individual) under any group health plan maintained by the Companies and Included Entities prior to the Closing and (iii) grant credit (for purposes of annual deductibles, copayments and out-of-pocket limits) for any covered claims incurred or payments made prior to the Closing Date during the plan year in which the Closing Date occurs. (d) Buyer shall, or shall cause the applicable Company or Included Entity to, recognize and honor the terms of (including, but not by way of limitation, making contributions or benefit payments as may be required by) the ERP Bonus Program, the Fel-Pro Incorporated Management Deferred Compensation Plan and the Fel-Pro Incorporated Voluntary Deferral Plan, and shall not allow such plans to be amended or terminated in any way that adversely affects any participant's benefits thereunder; provided, that such deferred compensation plans may be amended so that no further accruals or additions to participant's benefits thereunder shall be required from the date of the adoption of such amendment (other than earnings or similar credits pursuant to the terms of such plans as currently in effect). In addition, Buyer shall cause the Companies and Included Entities to maintain in effect the benefit programs set forth on SECTION 9.1(D) OF THE DISCLOSURE SCHEDULE as currently in effect for the periods set forth on SECTION 9.1(D) OF THE DISCLOSURE SCHEDULE. Except as set forth in this SECTION 9.1(D) or the terms of any such Benefit Plan, Seller recognizes Buyer's right to amend or terminate any Benefit Plan or substitute any Buyer Plan at any time after the Closing. (e) Buyer shall, or shall cause the applicable Company or Included Entity to, make the severance payments listed on Part A of SECTION 9.1(E) OF THE DISCLOSURE SCHEDULE to any Company Employee (except for those Company Employees set forth on Part B of SECTION 9.1(E) OF THE DISCLOSURE SCHEDULE), who are terminated by the applicable Company or Included Entity other than for "cause" (as hereafter defined) on or prior to the date that is one year after the Closing Date. For purposes of this paragraph (e) "CAUSE" shall mean such Company Employee's theft, fraud, willful and 42 43 repeated neglect of duties or conviction of a felony. Notwithstanding anything contained herein to the contrary, Sellers shall be responsible for making all payments to Company Employees pursuant to (i) the Long-Term Incentive Plan resulting from a "CHANGE IN CONTROL", (ii) any and all retention bonus agreements executed in contemplation of or as a consequence of the Companies being sold (excluding the employment agreements listed on Part C of SECTION 9.1(E) OF THE DISCLOSURE SCHEDULE) (the "Retention Bonus Agreements")and (iii) the Special Bonus. The Sellers may, at their option, fulfill such responsibility by (i) causing the Companies and Included Entities to incur indebtedness for borrowed money, the proceeds of which are used to pay or fund such obligations, so long as the principal amount of such indebtedness has been included in the determination of the Debt Amount and prepayment thereof is permitted without premium or penalty, (ii) causing the Companies and Included Entities to pay or fund such obligations with Excluded Assets, (iii) paying or funding such obligations, or (iv) any combination of the foregoing. The bonuses payable pursuant to the Retention Bonus Agreements shall be accrued by the Companies and the Included Entities prior to the Closing and paid within seventy-five (75) days of the Closing Date. If requested by the Sellers' Representatives, the Buyer shall use its best efforts to cause the Companies and the Included Entities to amend the Retention Bonus Agreements to provide for the payment of such bonuses within seventy-five (75) days of the Closing Date. (f) Buyer shall be liable for and shall indemnify and hold the Sellers and their Affiliates harmless from and against any and all liability arising under the Workers Adjustment and Retraining Notification Act and any similar state laws as a result of actions by the Buyer or by any Company or Included Entity after the Closing. (g) Buyer acknowledges that the Companies and the Included Entities shall pay a bonus to the Eligible Employees in the aggregate gross pretax amount of $10,000,000 (the "SPECIAL BONUS") in consideration for the Eligible Employees' services to the Companies, the Included Entities and Realty prior to the Closing Date and agrees to cause the Companies and the Included Entities to comply with the terms of this SECTION 9.1(G). The Special Bonus shall be in addition to all other amounts owed to the Eligible Employees by the Companies, the Included Entities and Realty and shall not reduce any amounts that may be payable to any Eligible Employee at any time in the future (including, but not limited to, amounts payable under the bonus and other arrangements listed on SECTION 4.6 OF THE DISCLOSURE SCHEDULE). The Special Bonus to be paid to, or on account of, each Eligible Employee shall be determined and paid in accordance with, the following provisions: (1) Determination. The amount of the Special Bonus to be paid to or on account of each Eligible Employee shall be determined by first allocating the gross pretax amount of the Special Bonus among each Company, Included Entity and Realty based on the percentage that the wages of the Eligible Employees of such entity for 1997 43 44 and the first payroll of 1998 bears to the total wages of the Eligible Employees of the Companies, the Included Entities and Realty for 1997 and the first payroll of 1998. With respect to the Participating Eligible Employees, the amount of the Special Bonus allocated to each Company, Included Entity or Realty shall be allocated to the Participating Eligible Employees of such entity through the application of the formulas set forth in Section 17 of the Retirement Plan that are effective upon a Change of Control (the "CHANGE OF CONTROL FORMULAS"), disregarding for this purpose any applicable non-discrimination, allocation limitation or other testing rules contained in the Code that limit the amount that may be allocated to any Eligible Employee. With respect to the Non-Participating Eligible Employees, the amount of the Special Bonus allocated to each Company, Included Entity or Fel-Pro Realty Corporation shall be allocated to Non-Participating Eligible Employees based on the percentage that each Non-Participating Eligible Employee's wages for 1997 and the first payroll of 1998 bears to the total wages of all of the Non-Participating Eligible Employees for 1997 and the first payroll of 1998 employed by such entity. (2) Contribution and Payments. (A) With respect to Participating Eligible Employees, the amount of the Special Bonus allocated to each Participating Eligible Employee that the Company or Included Entity that employs or employed such Participating Eligible Employee is permitted to contribute to the Retirement Plan to satisfy the required allocation, taking into account all applicable non-discrimination, allocation limitations and other testing rules contained in the Code that limit the amount that may be allocated to such Participating Eligible Employee, shall be contributed to the Retirement Plan and allocated to such Participating Eligible Employee in accordance with the Change in Control Formulas. To the extent the amount of the Special Bonus allocated to a Participating Eligible Employee exceeds the amount that the Company or Included Entity that employs or employed such Participating Eligible Employee is permitted to contribute to the Retirement Plan, the excess shall be paid, in cash, directly to such Participating Eligible Employee. (B) With respect to Non-Participating Eligible Employees, the amount of the Special Bonus allocated to each such employee shall be paid, in cash, directly to such employee. (3) Timing. All contributions required to be made to the Retirement Plan pursuant to this SECTION 9.1(G) shall be made prior to the Closing Date. All payments required to be made directly to Eligible Employees pursuant to this SECTION 9.1(G) shall be accrued prior to the Closing Date and paid to such Eligible Employees within 75 days of the Closing Date. In the event that any Eligible Employee becomes ineligible to receive the Special Bonus allocated to such Eligible Employee that was to be 44 45 paid directly to such Eligible Employee in accordance with paragraph (2) above, the Buyer shall cause the amount allocated to such Eligible Employee to be paid to the Sellers. (4) Taxes. Any payments to be made directly to Eligible Employees hereunder shall be subject to customary withholding taxes and such other employment taxes as are required under applicable law to be collected from an employee with respect to compensation paid by an employer to an employee. ARTICLE 10 MISCELLANEOUS SECTION 10.1 EXCLUSIVITY OF REPRESENTATIONS; RELIANCE ON REPRESENTATIONS; TERMINATION OF EPRESENTATIONS. (a) THE REPRESENTATIONS AND WARRANTIES MADE BY SELLERS AND BUYER, RESPECTIVELY, IN THIS AGREEMENT ARE IN LIEU OF AND ARE EXCLUSIVE OF ALL OTHER REPRESENTATIONS AND WARRANTIES, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE AND ANY OTHER IMPLIED WARRANTIES, OF SELLERS AND BUYER, RESPECTIVELY. SELLERS AND BUYER EACH HEREBY DISCLAIMS ANY SUCH OTHER OR IMPLIED REPRESENTATIONS OR WARRANTIES, NOTWITHSTANDING THE DELIVERY OR DISCLOSURE BY SELLERS OR ANY OTHER PERSON TO BUYER OR ANY OF ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR REPRESENTATIVES, OR BY BUYER OR ANY OTHER PERSON TO SELLERS OR ANY OF ITS DIRECTORS, OFFICERS EMPLOYEES, AGENTS OR REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. (b) Except for the representations and warranties of Sellers set forth in SECTIONS 2.1(C), 2.1(D), 2.2(A), 2.4 and 2.21 and of Buyer set forth IN SECTIONS 3.4 AND 3.6 (such representations and warranties of Sellers and Buyer, the "SURVIVING REPRESENTATIONS AND WARRANTIES"), the representations and warranties of the Sellers set forth in ARTICLE 2 and of Buyer set forth in ARTICLE 3 shall terminate and merge at, and not survive, the closing and thereafter shall be void and no longer enforceable. The parties hereto agree and acknowledge that, except for claims of actual fraud or a breach of any Surviving Representations and Warranties, no party hereto will have any right to indemnification or the right to bring any claim or action for damages relating to the breach of any representation or warranty set forth herein or in any other agreement 45 46 contemplated hereby, whether such claim or action arises under contract or tort, as a result of a violation of law or otherwise. (c) ARTICLES 7, 10, and SECTION 9.1 hereof shall survive the Closing. SECTION 10.2 EXPENSES. The Sellers, on the one hand, and the Buyer, on the other hand, shall bear all of its respective expenses incurred in connection with the transactions contemplated by this Agreement, including, without limitation, accounting and legal fees incurred in connection herewith. The Sellers shall bear all of the expenses incurred by the Companies prior to the Closing in connection with the sale of the Equity Interests and the Included Real Property contemplated hereby. SECTION 10.3 FURTHER ASSURANCES. From time to time after the Closing Date, without the payment of any additional consideration except as otherwise set forth in this Agreement, each party hereto will execute all such instruments and take all such actions as the other party, being advised by counsel, shall reasonably request in connection with carrying out and effectuating the intent and purpose hereof and all transactions and things contemplated by this Agreement. SECTION 10.4 NOTICES. Notices and other communications provided for herein shall be in writing (which shall include notice by facsimile transmission) and shall be delivered or mailed (or if by graphic scanning or other facsimile communications equipment of the sending party hereto, delivered by such equipment), addressed as follows: If to Sellers to: Kenneth A. Lehman 2715 Sheridan Road Evanston, Illinois 60201 Telecopier No. (847) 475-2234 and Richard A. Morris 2323 Marcy Evanston, Illinois 60201 Telecopier No. (847) 328-3035 and David A. Weinberg 46 47 2135 North Cleveland Chicago, Illinois 60614 Telecopier No. (773) 929-2288 With a copy to: Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, Illinois 60661 Telecopier No. (312) 902-1061 Attention: Allan B. Muchin, Esq. David R. Shevitz, Esq. If to Buyer: Federal Mogul Corporation 26555 Northwestern Highway Southfield, Michigan 48034 Attention: Charles B. Grant Vice President-Corporate Development Diane L. Kaye, Esq. Vice President, General Counsel and Secretary or to such other address as a party may from time to time designate in writing in accordance with this section. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 10.5 ASSIGNMENT. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns; provided, however, that neither this Agreement nor any of the rights, interests, or obligations hereunder may be assigned by any of the parties hereto without the prior written consent of the other parties, except that (i) Buyer may assign any or all of its rights and obligations hereunder (other than F-M'S obligation to issue its stock consideration and its obligations under SECTIONS 7.11 AND 7.12) to one of its wholly-owned subsidiaries without the consent of the Sellers; provided, that any such assignment shall not relieve Buyer from any liability hereunder, and (ii) any Seller may assign any or all of its right and obligations hereunder to any Permitted Transferee to whom such Seller sells, assigns or transfers any or all of such Seller's Equity Interests prior to the Closing; provided, that such Permitted Transferee expressly agrees in writing to be bound by the terms of this Agreement. In the event of any transfer of Equity Interests 47 48 made pursuant to clause (ii) of the preceding sentence, the Schedule of Sellers and SECTION 2.1(C) OF THE DISCLOSURE SCHEDULE shall be amended to reflect such sale, assignment or transfer. Any assignment in violation of this Agreement shall be null and void ab initio. SECTION 10.6 CONSTRUCTION. (a) Unless otherwise expressly specified herein, (i) defined terms in the singular shall also include the plural and vice versa, (ii) the words "hereof," "herein," "hereunder" and other similar words refer to this Agreement as a whole, (iii) Article, Section, Schedule and Exhibit references in this Agreement are to Articles of, Sections of Schedules to and Exhibits to this Agreement and (iv) words of any gender (masculine, feminine, neuter) mean and include correlative words of the other genders. (b) The captions in this Agreement are for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. (c) All references to "days" shall be to calendar days unless business days are specified. (d) Unless the context otherwise requires, (i) "or" is not exclusive and (ii) "including" means "including but not limited to" and "including without limitation". (e) As used herein, the phrases "date of this Agreement" and "date hereof" and any other phrases of similar import shall mean January 9, 1998 (regardless, with respect to representations and warranties, of the date or time as of which such representations and warranties are made or deemed to have been made or as of which the accuracy or inaccuracy thereof is measured or determined). SECTION 10.7 LAW GOVERNING. THIS AGREEMENT IS INTENDED AS A CONTRACT UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW OF THE STATE OF ILLINOIS, INCLUDING WITHOUT LIMITATION AS TO ALL MATTERS OF CONSTRUCTION, VALIDITY, ENFORCEABILITY AND PERFORMANCE. SECTION 10.8 WAIVER OF PROVISIONS. The provisions, terms, covenants, representations, warranties and conditions of this Agreement may be waived only by a written instrument executed by the party hereto waiving compliance. The failure of any party hereto at any time or times to require performance of any provision of this Agreement shall in no manner affect the right of such party at a later date to enforce the same. No waiver by any party hereto of any condition or the breach of any provision, term, covenant, representation or warranty contained in this Agreement, whether by 48 49 conduct or otherwise, in any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such condition or of the breach of any other provision, term, covenant, representation or warranty of this Agreement. SECTION 10.9 COUNTERPARTS. This Agreement may be executed in several counterparts, and all counterparts so executed shall constitute one agreement, binding on the parties hereto, notwithstanding that such parties are not signatory to the same counterpart. SECTION 10.10 ENTIRE AGREEMENT. This Agreement and the Schedules and Exhibits hereto constitute the entire agreement between the parties and supersedes and cancels any and all prior agreements between them relating to the subject matter hereof, excluding the Confidentiality Agreement (which shall remain in full force and effect). This Agreement may not be amended or modified except by a written agreement signed by Buyer and Seller. SECTION 10.11 ACCESS TO BOOKS AND RECORDS. (a) After the Closing, Buyer shall, upon the Sellers' Representatives' request from time to time, and upon reasonable notice, in connection with the preparation by Sellers or their Affiliates of Tax returns and for such other purposes as the Sellers' Representatives shall reasonably request, (i) (A) provide to the authorized representatives of Sellers and its Affiliates full access, during normal business hours, to any and all premises, properties, files, books, records, documents and other information of the Companies and Included Entities, (B) cause its officers and the officers of the Companies and Included Entities to furnish to Sellers and their authorized representatives any and all financial, technical and operating data and other information pertaining to the Companies and Included Entities and (C) make available to Sellers and their authorized representatives personnel of Buyer and the Companies and Included Entities to consult with such personnel and (ii) make available for inspection and copying by Sellers at Sellers' expense true and complete copies of any documents relating to the foregoing. In exercising their rights under the foregoing provisions of this SECTION 10.11, Sellers and their representatives shall not interfere with Buyer's, the Companies' or the Included Entities' normal operations. Buyer shall cause the Companies and Included Entities to retain the files, books, records and documents of the Companies and the Included Entities for at least six years after the Closing Date. Thereafter, Buyer shall give the Sellers' Representatives at least 60 business days prior written notice of the proposed destruction of any such files, books, records or documents and, at the request and expense of Sellers, shall deliver to Sellers any of such files, books, records or documents that Sellers may request. 49 50 (b) After the Closing, Buyer, the Companies and the Included Entities, on the one hand, and the Sellers, on the other hand, will make available to the other, as reasonably requested, and to any taxing authority, all information, records or documents relating to the liability for Taxes or potential liability of the Companies or any of the Included Entities for Taxes for all periods prior to or including the Closing Date and will preserve such information, records or documents until the expiration of any applicable statute or limitations or extensions thereof. SECTION 10.12 DISCLOSURE SCHEDULE. (a) Any information disclosed in any section of the Disclosure Schedule, if reasonably related to any other sections of the Disclosure Schedule and described in reasonable detail to allow a reasonable person to make the applicable connection, shall be deemed fully disclosed for the purposes of all applicable sections of the Disclosure Schedule. Neither the specification (directly or indirectly by reference to a defined term hereof) of any dollar amount in the representations and warranties set forth in ARTICLE 2 nor the inclusion of any items in the Disclosure Schedule shall be deemed to constitute an admission by Sellers or Buyer, or otherwise imply, that any such amount or such items so included are material for the purposes of this Agreement. The inclusion of, or reference to, any item within any particular section of the Disclosure Schedule does not constitute an admission by either Sellers or Buyer that such item meets any or all of the criteria set forth in this Agreement for inclusion in such section of the Disclosure Schedule. The inclusion of, or reference to, any item within any particular section of the Disclosure Schedule does not constitute an admission by either Sellers or Buyer that the item constitutes a violation of any federal, state or local law, rule, statute, regulation, ordinance, permit, judgment, decree or other equivalent. (b) From the date hereof until the Closing Date, the Sellers may amend and/or supplement the Disclosure Schedule to reflect events or changes occurring after the execution of this Agreement. Such amendments and/or supplements shall not effect Buyer's right to terminate this Agreement under SECTION 8.1(D). SECTION 10.13 ARBITRATION. Any dispute arising out of or relating in any manner to this Agreement or the underlying transaction, or to the breach, termination or validity of this Agreement, shall be resolved in accordance with the procedures specified in this SECTION 10.13, which shall be the sole and exclusive procedures for resolution of any such disputes. Any such dispute shall be submitted to arbitration in accordance with the rules and procedures of the American Arbitration Association, before three independent and impartial arbitrators, none of whom shall be appointed by either party, provided, however, that if either party will not participate in non-binding mediation, the other may 50 51 initiate arbitration before the expiration of the above period. The place of arbitration shall be Chicago, Illinois. Substantive legal issues in the arbitration shall be determined in accordance with the laws of the State of Illinois in accordance with SECTION 10.7. The arbitrators are empowered to grant and issue mandatory directives, prohibitions, orders or restraints to enforce this Agreement as they may deem necessary or advisable, directed to or against any of the parties, including a directive or order requiring specific performance of any covenant, agreement or provision of this Agreement. The arbitrators are not empowered to award damages in excess of compensatory damages, and each party irrevocably waives any right to recover such damages with respect to any dispute resolved by arbitration. Judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. Each party shall bear its own costs, except that the costs of the mediator and the arbitrators shall be borne equally by the parties. SECTION 10.14 NO THIRD PARTY BENEFICIARY. This Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. SECTION 10.15 SELLERS' REPRESENTATIVES. (a) Each of the Sellers agrees that actions (including, but not limited to, waivers and consents to amendments) or omissions to act hereunder by Sellers' Representatives, whether before or after the Closing, shall be binding upon and enforceable against each Seller. (b) In furtherance of SECTION 10.15(A) hereof, Buyer shall be entitled to rely exclusively upon any communications or writings given or executed by the Sellers' Representatives and shall not be liable in any manner whatsoever for any action taken or not taken in reliance upon the actions taken or not taken or communications or writings given or executed by the Sellers' Representatives and Buyer shall be entitled to disregard any notices or communications given or made by Sellers unless given or made through the Sellers' Representatives. SECTION 10.16 NO PRESUMPTION. With regard to each and every term and condition of this Agreement and any and all agreements and instruments subject to the terms hereof or referred to herein, the parties hereto understand and agree that the same have or has been mutually negotiated, prepared and drafted, and if at any time the parties hereto desire or are required to interpret or construe any such term or condition or any agreement or instrument subject hereto, no consideration shall be given to the issue of 51 52 which party hereto actually prepared, drafted or requested any term or condition of this Agreement or any agreement or instrument subject hereto. SECTION 10.17 SEVERABILITY. To the fullest extent that they may effectively do so under applicable law, the parties hereto hereby waive any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect. Such parties further agree that any provision of this Agreement which, notwithstanding the preceding sentence, is rendered or held invalid, illegal or unenforceable in any respect in any jurisdiction shall be ineffective, but such ineffectiveness shall be limited as follows: (i) if such provision is rendered or held invalid, illegal or unenforceable in such jurisdiction only as to a particular Person or Persons or under any particular circumstance or circumstances, such provision shall be ineffective, but only in such jurisdiction and only with respect to such particular Person or Persons or under such particular circumstance or circumstances, as the case may be; (ii) without limitation of clause (i), such provision shall in any event be ineffective only as to such jurisdiction and only to the extent of such invalidity, illegality or unenforceability, and such invalidity, illegality or unenforceability in such jurisdiction shall not render invalid, illegal or unenforceable such provision in any other jurisdiction, and (iii) without limitation of clause (i) or (ii), such ineffectiveness shall not render invalid, illegal or unenforceable this Agreement or any of the remaining provisions hereof. Without limitation of the preceding sentence, (A) it is the intent of the parties hereto that, in the event that in any court proceeding, such court determines that any provision of this Agreement is illegal, invalid or unenforceable in any jurisdiction to any extent, such court shall have the power to, and shall, (1) modify such provision (including by limiting the Persons against whom, or the circumstances under which, such provision shall be effective in such jurisdiction) for purposes of such proceeding to the minimum extent necessary so that such provision, as so modified, may then be enforced in such proceeding and (2) enforce such provision, as so modified pursuant to clause (1), in such proceeding and (B) upon any determination that any provision of this Agreement is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of such parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible. Nothing in this SECTION 10.17 is intended to, or shall, (x) limit the ability of any party hereto to appeal any court ruling or the effect of any favorable ruling on appeal or (y) limit the intended effect of SECTION 10.7 or 10.13. SECTION 10.18 AFFILIATES; SUBSIDIARIES. References in this Agreement to "Affiliates" or "Subsidiaries" of a specified Person refer to, and include, only other Persons which from time to time constitute "Affiliates" or "Subsidiaries," as the case may be, of such specified Person, and do not include, at any particular time, other Persons that may have been, but at such time have ceased to be, "Affiliates" or "Subsidiaries," as the case may be, of such specified Person. 52 53 [signature page follows] 53 54 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. SELLERS: FEL-PRO REALTY CORPORATION By: -------------------------------- Title: ------------------------- MCCORMICK INVESTMENTS L.P. By: -------------------------------- Title: ------------------------- THE OTHER SELLERS LISTED ON THE ATTACHED SCHEDULE OF SELLERS By: --------------------------------------- Richard A. Morris, under power-of- attorney By: --------------------------------------- Kenneth A. Lehman, under power-of- attorney By: --------------------------------------- David A. Weinberg, under power-of- attorney 54 55 BUYER: FEDERAL-MOGUL CORPORATION By: ------------------------------- Title: ----------------------- 55 56 SCHEDULE OF SELLERS Fel-Pro Realty Corporation McCormick Investments L.P. MORRIS FAMILY A. FEL-PRO MANAGEMENT CO. Robert J. Morris Revocable Trust U/A/D 2/16/83 Ellen J. Morris Bruce E. Morris Richard A. Morris B. FEL-PRO MASTER GENERAL PARTNERSHIP Morris MGP Trust for Ellen U/A/D 3/1/96 Morris MGP Trust for Bruce U/A/D 6/23/96 Morris MGP Trust for Richard U/A/D 3/1/96 C. MERIDIAN PARTS CORPORATION Morris 1992 Gift Trust for Ellen U/A/D 12/10/92 Morris Meridian Trust for Ellen U/A/D 3/1/96 Morris 1992 Gift Trust for Bruce U/A/D 12/10/92 Morris Meridian Trust for Bruce U/A/D 6/23/96 Morris 1992 Gift Trust for Richard U/A/D 12/10/92 Morris Meridian Trust for Richard U/A/D 3/1/96 D. FELT PRODUCTS MFG. CO. Robert J. Morris Revocable Trust U/A/D 2/16/83 Robert J. Morris Trust U/A/D 7/26/65 Clara Morris Trust U/A/D 12/20/55 Ellen J. Morris Ellen J. Morris 1997 Children's Trust U/A/D 11/3/97 Bruce E. Morris Bruce Morris 1997 Children's Trust U/A/D 11/3/97 Richard A. Morris Richard A. Morris 1997 Children's Trust U/A/D 10/31/97 56 57 Ellen J. Morris Family Gift Trust U/A/D 9/27/85 Bruce E. Morris Family Gift Trust U/A/D 9/27/85 Richard A. Morris Family Gift Trust U/A/D 9/27/85 57 58 LEHMAN FAMILY A. FEL-PRO MANAGEMENT CO. Elliot Lehman Trust dated 5/20/87 Frances M. Lehman Trust dated 5/20/87 Kenneth A. Lehman Lucy G. Lehman Kay L. Schlozman Stanley F. Schlozman Paul A. Lehman B. FEL-PRO MASTER GENERAL PARTNERSHIP Kenneth A. Lehman 1992E Family Trust Paul A. Lehman 1992E Family Trust Kay Lehman Schlozman 1992E Family Trust Paul A. Lehman 1992F Family Trust Kay Lehman Schlozman 1992F Family Trust Kenneth A. Lehman 1992F Family Trust C. MERIDIAN PARTS CORPORATION Kenneth A. Lehman 1992E Family Trust dated 12/11/92 Paul A. Lehman 1992E Family Trust dated 12/11/92 Kay Lehman Schlozman 1992E Family Trust dated 12/11/92 Kenneth A. Lehman 1992F Family Trust dated 12/11/92 Paul A. Lehman 1992F Family Trust dated 12/11/92 Kay Lehman Schlozman 1992F Family Trust dated 12/11/92 D. FELT PRODUCTS MFG. CO. Elliot Lehman Trust dated 5/20/87 Frances M. Lehman Trust dated 5/20/87 E. Lehman Fifteen Year Income Trust F. Lehman Fifteen Year Income Trust Kenneth A. Lehman 1996 E Family Trust U/A/D 6/11/96 Kenneth A. Lehman 1996 F Family Trust U/A/D 6/11/96 Paul Lehman 1996 E Family Trust U/A/D 6/11/96 Paul Lehman 1996 E Family Trust U/A/D Kay Lehman Schlozman 1996 E Family Trust U/A/D 6/11/96 58 59 Kay Lehman Schlozman 1996 F Family Trust U/A/D 6/11/96 Kenneth A. Lehman Lucy G. Lehman Kay L. Schlozman Stanley F. Schlozman Paul A. Lehman Ronna Stamm Kay Schlozman Children's Trust U/A/D 12/20/82 Schlozman Family Trust U/A/D 9/30/85 Schlozman Family Gift Trust U/A/D 9/30/85 Kay Lehman Schlozman 1997 Children's Trust U/A/D 11/3/97 Paul Lehman Children's Trust U/A/D 12/20/82 Paul Lehman Irrevocable Children's Trust U/A/D 9/30/85 Paul Lehman Children's Trust U/A/D 9/30/85 Betsy Ganford Lehman Irrevocable Trust No. 1 dated 12/22/83 Betsy Ganford Lehman Irrevocable Trust No. 2 U/A/D 9/30/85 Kenneth Lehman Children's Trust U/A/D 12/20/82 F/B/O Betsy Ganford Lehman Kenneth Lehman Children's Trust U/A/D 9/30/85 F/B/O Betsy Ganford Lehman Amy Ganford Lehman Irrevocable Trust No. 1 dated 12/22/83 Amy Ganford Lehman Irrevocable Trust No. 2 U/A/D 9/30/85 Kenneth Lehman Children's Trust U/A/D 12/20/82 F/B/O Amy Ganford Lehman Kenneth Lehman Children's Trust U/A/D 9/30/85 F/B/O Amy Ganford Lehman Peter Ganford Lehman Irrevocable Trust No. 1 dated 12/22/83 Peter Ganford Lehman Irrevocable Trust No. 2 U/A/D 9/30/85 Kenneth Lehman Children's Trust U/A/D 12/20/82 F/B/O Peter Ganford Lehman Kenneth Lehman Children's Trust U/A/D 9/30/85 F/B/O Peter Ganford Lehman Daniel Aaron Schlozman Trust No. 1 U/A/D 12/30/81 Daniel Aaron Schlozman Trust No. 2 U/A/D 12/30/81 Schlozman 1994 Gift Trust for Julia U/A/D 1/3/94 Paul A. Lehman Irrevocable Family Trust A U/A/D 11/3/97 Jonathan Lehman Irrevocable Trust No. 1 dated 12/22/83 Michael Lehman Irrevocable Trust No. 1 dated 12/22/83 Elizabeth Lehman Irrevocable Trust No. 2 dated 5/12/97 59 60 WEINBERG/RADOV/KESSLER FAMILY A. FEL-PRO MANAGEMENT CO. Sylvia Radov Revocable Trust U/A/D 10/23/85 Lewis C. Weinberg Irrevocable Trust dated 8/12/76 Barbara W. Kessler Revocable Trust U/A/D 7/26/82 Dennis L. Kessler Revocable Trust U/A/D 7/26/82 David A. Weinberg Estate Trust U/A/D 6/5/84 Kessler 1996 Gift Trust for Daniel U/A/D 12/16/96 Daniel C. Weinberg Revocable Trust U/A/D 7/29/97 Carol Jung Ronna Stamm B. FEL-PRO MASTER GENERAL PARTNERSHIP Weinberg 1992 Gift Trust for Barbara U/A/D 12/10/92 Weinberg 1992 Gift Trust for David U/A/D 12/10/92 Weinberg 1992 Gift Trust for Daniel U/A/D 12/10/92 Sylvia MGP Trust for Barbara U/A/D 6/1/96 Sylvia MGP Trust for David U/A/D 6/1/96 Sylvia MGP Trust for Daniel U/A/D 6/1/96 C. MERIDIAN PARTS CORPORATION Sylvia 1992 Gift Trust for Barbara U/A/D 12/10/92 Sylvia 1992 Gift Trust for David U/A/D 12/10/92 Sylvia 1992 Gift Trust for Daniel U/A/D 12/10/92 D. FELT PRODUCTS MFG. CO. Sylvia M. Radov Lewis C. Weinberg Irrevocable Trust dated 8/12/76 Sylvia 1996 Gift Trust for Barbara U/A/D 4/4/96 Sylvia 1996 Gift Trust for David U/A/D 4/4/96 Sylvia 1996 Gift Trust for Daniel U/A/D 4/4/96 Barbara W. Kessler Revocable Trust U/A/D 7/26/82 Dennis L. Kessler Revocable Trust U/A/D 7/26/82 Dennis L. Kessler 1997 Children's Trust U/A/D 11/3/97 Kessler Family Trust U/A/D 9/30/85 60 61 David A. Weinberg Estate Trust U/A/D 6/5/84 DAW Family Trust U/A/D 9/30/85 Daniel C. Weinberg Revocable Trust U/A/D 7/29/97 Carol Jung Kessler 1996 Gift Trust for David U/A/D 12/16/96 Kessler 1996 Gift Trust for Daniel U/A/D 12/16/96 LCW-DCW Family Gift Trust U/A/D 9/30/85 SMR-DCW Family Gift Trust U/A/D 9/30/85 DCW Family Trust U/A/D 9/30/85 Lewis C. Weinberg Grandchildren's Gift Trust for Keith Albert U/A/D 12/1/82 Keith A. Kessler Keith A. Kessler 1997 Children's Trust U/A/D 11/3/97 Lewis C. Weinberg Grandchildren's Gift Trust for Arthur Jay U/A/D 12/1/82 Arthur J. Kessler Lewis C. Weinberg Grandchildren's Gift Trust for Eric Joseph U/A/D 12/1/82 Eric Joseph Kessler Irrevocable Trust U/A/D 12/27/77 Lewis C. Weinberg Grandchildren's Gift Trust for Mindy Joy U/A/D 12/1/82 Mindy Joy Weinberg Irrevocable Trust U/A/D 12/27/77 SMR-DAW Children's Gift Trust for Mindy Joy U/A/D 12/13/82 Lewis C. Weinberg Grandchildren's Gift Trust for Brian Lee U/A/D 12/1/82 Brian L. Weinberg SMR-DAW Children's Gift Trust for Brian U/A/D 12/13/82 Lewis C. Weinberg Grandchildren's Gift Trust for Zachary Daniel U/A/D 12/1/82 Zachary Daniel Weinberg Irrevocable Trust U/A/D 12/31/81 Abigail Weinberg Trust U/A/D 2/20/90 Abigail Weinberg Annual Gift Trust U/A/D 12/3/91 61 62 EXHIBIT A 1. For purposes of the Agreement to which this EXHIBIT A is attached (the "AGREEMENT"), the following terms shall have the following meanings: "AFFILIATE" means, as to any specified Person, any other Person which, directly or indirectly, controls, is controlled by or is under common control with, such specified Person. For the purposes of this definition, "control" means the possession of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "AVERAGE PRICE" means the average of the daily closing prices per share for the F-M Common Stock on the New York Stock Exchange (as reported in the NYSE Composite Transactions listing) for the twenty (20) trading days commencing with the first trading day after the announcement by the parties hereto of the execution of this Agreement. "BANK DEBT" means all borrowings under that certain line of credit by and between Fel-Pro Incorporated, Felt Products Mfg. Co. and The First National Bank of Chicago, dated April 22, 1997. "CHANGE OF CONTROL" has the meaning ascribed to it in the Retirement Plan. "CHARTER DOCUMENTS" means (i) with respect to a corporation, the articles or certificate of incorporation and bylaws of such corporation, (ii) with respect to a general partnership, the partnership or other similar agreement of such general partnership, (iii) with respect to a limited partnership, the certificate of limited partnership or similar state filing and partnership or other similar agreement of such limited partnership, (iv) with respect to a trust, the trust or similar agreement of such trust, (v) with respect to a limited liability company, the certificate of organization or other similar state filing and operating or other similar agreement of such limited liability company and (vi) with respect to any Person, including the foregoing, the charter or constantive documents and filings of such Person. "DEBT AMOUNT" means the aggregate principal amount of all indebtedness for borrowed money of the Companies and the Included Entities outstanding as of the Closing. "DISCLOSURE SCHEDULE" means the Disclosure Schedule, dated the date of the Agreement, delivered to Buyer, as from time to time amended and/or supplemented in accordance with SECTION 10.12(B) of the Agreement. A-1 63 "EFFECTIVE TIME SHARE VALUE" means (i) if the Average Price is greater than or equal to $40.00 and less than or equal to $42.00, the Average Price; (ii) if the Average Price is greater than $42.00, $42.00 plus fifty percent of the amount by which the Average Price exceeds $42.00; and (iii) if the Average Price is less than $40.00, $40.00 minus fifty percent of the amount by which $40.00 exceeds the Average Price. "ELIGIBLE EMPLOYEES" means the Participating Eligible Employees and the Non-Participating Eligible Employees. "EXCHANGE ACT" means the Securities Act of 1934, as amended, or any successor law including the rules and regulations promulgated thereunder. "EXCLUDED ASSETS" means the assets described on EXHIBIT C to the Agreement. "EXCLUDED ENTITIES" means those entities listed as Excluded Entities on EXHIBIT B to the Agreement. "FEL-PRO GROUP" means the Companies, the Included Entities and the Excluded Entities. "FELT" means Felt Products Mfg. Co., a Delaware corporation. "F-M CASH ELECTION" means the election, exercisable by F-M, in F-M's sole discretion, by written notice delivered to the Sellers' Representatives at least five (5) business days prior to the Closing Date, if the Average Price is below $40.00, to deliver cash in the amount of $215,000,000 to the Sellers at the Closing in lieu of shares of F-M Exchangeable Preferred Stock as part of the Purchase Price. "F-M COMMON STOCK" means the Common Stock of F-M. "F-M EXCHANGEABLE PREFERRED STOCK" means the Series E Mandatory Exchangeable Preferred Stock of F-M. "INCLUDED ENTITIES" means those entities listed as Included Entities on EXHIBIT B to the Agreement. "IRS" means the United States Internal Revenue Service or any successor agency, and, to the extent relevant, the United States Department of the Treasury. "KNOWLEDGE OF SELLER" or "SELLERS' KNOWLEDGE" (or words of similar import) means the actual knowledge of any member of the Operating Committee of Fel-Pro Incorporated, the general managers of FP Diesel LP, FP Performance Products LP and FP A-2 64 Chemical Products LP, respectively, the President of the Ventures Group of Fel-Pro Incorporated or the Vice President International. "LIEN" has the meaning set forth in SECTION 1.1. "MATERIAL ADVERSE EFFECT" means (i) a material adverse effect on the assets, condition (financial or otherwise), operations or business of the Companies and the Included Entities, on a combined basis, or (ii) an effect that will prevent Sellers from consummating the sale of the Equity Interests to Buyer as contemplated by the Agreement. For purposes hereof, the filing of additional lawsuits or actions relating to asbestos fibers in products manufactured or sold by any Company or Included Entity shall be deemed not to have a "Material Adverse Effect." "NON-PARTICIPATING ELIGIBLE EMPLOYEES" means those Company Employees, as of the Closing Date, who could satisfy the criteria set forth in Section 17 of the Retirement Plan to receive an allocation of a contribution upon a Change of Control if they were employed by a Company or Included Entity that participates in the Retirement Plan. "PARTICIPATING ELIGIBLE EMPLOYEES" means those Company Employees, as of the Closing Date, who could satisfy the criteria set forth in Section 17 of the Retirement Plan to receive an allocation of a contribution upon a Change of Control. "PERMITTED LIENS" means (i) Liens for Taxes not yet due and payable or that are being contested in good faith, (ii) Liens arising or resulting from any action taken by Buyer or any of its Affiliates, (iii) Liens created by, arising out of or specifically contemplated or permitted by the Agreement, and (iv) Liens identified as Permitted Liens in any Section of the Disclosure Schedule, (v) materialmen's, mechanics', workmen's, repairmen's, employees or other like Liens arising in the course of construction or in the ordinary course of operations or maintenance, in each such case securing obligations which are not delinquent or are being contested in good faith, (vi) zoning restrictions, easements, licenses or other restrictions on the use of real property or other immaterial irregularities in title thereto or encumbrances thereon, so long as the same do not materially interfere with or impair the use of such real property in the manner normally used, (vii) Liens arising out of judgments or awards with respect to which at the time an appeal or proceeding for review is being prosecuted in good faith if adequate reserves with respect thereto have been established and are being maintained and with respect to which there shall have been secured a stay of execution pending such appeal or proceeding for review and (viii) that are immaterial, individually and in the aggregate, with respect to the assets of the Companies and the Included Entities, taken as a whole. "PERMITTED TRANSFEREE" means, with respect to a Seller, (i) the spouse or lineal descendants (or their spouses) of such Seller, (ii) any trust for the benefit of such Seller or A-3 65 the benefit of the spouse or lineal descendants (or their spouses) of such Seller, (iii) any Person in which such Seller, the spouse and the lineal descendants (or their spouses) of such Seller are the direct and/or beneficial owners of all of the equity interests, (iv) the personal representative of such Seller upon such Seller's death for purposes of administration of such Seller's estate or upon such Seller's incompetency for purposes of the protection and management of the assets of such Seller, (v) if such Seller is a trust, the beneficiary or beneficiaries of such trust and (vi) another Seller. "PERSON" means any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust (including any beneficiary thereof), unincorporated organization or government or any agency or political subdivision thereof. "PROPRIETARY RIGHTS" means all patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); all trademarks, service marks, trade dress, trade names and corporate names; all registered and unregistered statutory and common law copyrights; all registrations, applications and renewals for any of the foregoing; all trade secrets, confidential information, ideas, formulae, compositions, know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, improvements, proposals, technical and computer data, documentation and software, financial, business and marketing plans, and franchisee, customer and supplier lists and related information and all other proprietary rights. "RETIREMENT PLAN" means the Fel-Pro Incorporated Employees' Profit Sharing and Retirement Plan (also incorporating the provisions of the Fel-Pro Incorporated Employees' Money Purchase Plan), including any amendments made prior to Closing. "SEC" means the Securities and Exchange Commission of the United States. "SECURITIES ACT" means the Securities Act of 1933, as amended, or any successor law including the rules and regulations promulgated thereunder. "SELLERS' REPRESENTATIVES" means, collectively, Richard A. Morris, David A. Weinberg and Kenneth A. Lehman, and any one of them, acting pursuant to the power-of-attorney granted to the foregoing pursuant to Section 4 of that certain Equityholders Agreement dated September 26, 1997. "SUBSIDIARY" means each corporation or other Person in which a Person owns or controls, directly or indirectly, capital stock or other equity interests representing more than 50% of the outstanding voting stock or other equity interests of such corporation or other Person. A-4 66 2. The following terms are defined in the sections of the Agreement indicated:
DEFINED TERM SECTION "338 Election".............................................................................7.7(a) "Agreement"..........................................................................Introduction "Benefit Plans"...........................................................................2.11(a) "Buyer"..............................................................................Introduction "Buyer Adverse Effect"........................................................................3.2 "Buyer Plan"...............................................................................9.1(b) "Buyer SEC Reports"...........................................................................3.7 "Buyer's Representatives"..................................................................4.1(a) "Cash Portion".............................................................................1.1(a) "cause"....................................................................................9.1(e) "Certificate of Designations...............................................................5.1(f) "change in control"........................................................................9.1(e) "Change of Control Formulas"............................................................9.1(g)(i) "Chemical".................................................................................5.1(c) "Chemical Lease"...........................................................................5.1(c) "Closing".....................................................................................1.2 "Closing Date"................................................................................1.2 "Code"....................................................................................2.11(c) "Companies".............................................................................Recital A "Company Employees"........................................................................9.1(a) "Confidentiality Agreement"................................................................4.1(b) "Corporations"..........................................................................Recital A "DOJ".........................................................................................4.4 "Environmental Requirements"..............................................................2.17(a) "ERISA".......................................................................................2.5 "Equity Interests"............................................................................1.1 "Financial Statements".....................................................................2.6(a) "F-M"................................................................................Introduction "F-M Preferred Stock".........................................................................3.6 "FTC".........................................................................................4.4 "GAAP"..................................................................................2.6(a)(i) "Governmental Action/Filing"..................................................................2.5 "Hazardous Materials".....................................................................2.17(b)
A-5 67 "HSR Act".....................................................................................2.5 "Included Real Property"......................................................................1.1 "Leased Real Property".......................................................................2.18 "Liabilities/Liability"....................................................................2.6(b) "Lien"........................................................................................1.1 "Meridian".................................................................................7.5(a) "Meridian Transaction".....................................................................7.5(a) "MGP"...................................................................................Recital A "Owned Real Property"........................................................................2.18 "Partnership Interests".......................................................................1.1 "PBGC"........................................................................................2.5 "Permit"......................................................................................2.5 "Policies"...................................................................................2.20 "Proceeding"..................................................................................2.8 "Purchase Price"..............................................................................1.1 "Real Property"..............................................................................2.18 "Realty"................................................................................Recital C "Registration Agreement"...................................................................5.1(g) "Seller(s)"..........................................................................Introduction "Seller Group"............................................................................2.11(c) "Seller Group Plan".......................................................................2.11(c) "Shares"......................................................................................1.1 "Special Bonus"............................................................................9.1(g) "Stock Portion"............................................................................1.1(a) "Surviving Representations and Warranties"................................................10.1(c) "Taxes"................................................................................2.13(b)(v) "Trust"....................................................................................2.2(e)
A-6 68 EXHIBIT B INCLUDED ENTITIES Fel-Pro Incorporated, an Illinois corporation Fel-Pro Canada, a Canadian corporation Fel-Pro Mercosur L.P., a Delaware limited partnership [INACTIVE] FP Performance Products LP, a Delaware limited partnership Fel-Pro Specialty Sealing Products L.P., a Delaware limited partnership Fel-Pro Chemical Products L.P., a Delaware limited partnership Fel-Pro Chemical Products Latin America L.P., a Delaware limited partnership Fel-Pro S.A., a Colombian corporation Fel-Pro Limited, a UK private limited corporation Polymer Scotland, Ltd., a UK private limited corporation FP Diesel L.P., a Delaware limited partnership FP Diesel, Limited, a UK private limited corporation MPC Export, Inc. a California corporation Fel-Pro Chemical Products Chile, S.A., a Chilean corporation Demech Fel-Pro Private Limited, an Indian limited partnership EXCLUDED ENTITIES Fel-Pro Investments, L.L.C., a Delaware limited liability company Fel-Pro Realty Corporation, an Illinois corporation McCormick Investments, Inc., a Delaware corporation McCormick Investments L.P., a Delaware limited partnership B-1 69 EXHIBIT C EXCLUDED ASSETS 12-28-97 Estimated(1) (000's) $ 9,096 a. All cash of the Companies and Included Entities, including, but (15,500) Line of Credit not limited to, the proceeds received in the repayment of any indebtedness ( 6,404) of borrowed money from another Company or Included Entity. 6,035 b. All marketable securities owned by any Company or Included Entity (except for marketable securities included in the Fel-Pro Incorporated Employee Benefits Trust). 9,860 c. All life insurance policies owned by any Company or Included Entity. 25,453 d. All receivables owing by all insurance trusts and split dollar insurance receivables owing to any Company or Included Entity. 8,558 e. All notes receivable due from the shareholders and partners. 0 f. All membership interests of three limited liability companies or partnerships created to hold only Excluded Assets. 156 g. All trade and accounts receivable that exist between any Company or Included Entity, on the one hand, and any Excluded Entity, on the other hand. (18,261) h. All notes receivable (notes payable) that exist between any of the Companies, the Included Entities or the Excluded Entities.
C-1 70 (1) These amounts are expected to change prior to the Closing. C-2 EX-3.2 4 EX-3.2 1 EXHIBIT 3.2 BYLAWS OF FEDERAL-MOGUL CORPORATION 2 BYLAWS OF FEDERAL-MOGUL CORPORATION INDEX PAGE ---- ARTICLE I - SHAREHOLDERS 1 - ------------------------- (1) Section 1 - Annual Meeting 1 (2) Section 2 - Special Meeting 1 Section 3 - Place of Meeting 2 Section 4 - Notice of Meeting 2 (3) Section 5 - Adjourned Meetings 2 Section 6 - Voting Lists 2 Section 7 - Quorum 3 Section 8 - Manner of Acting 3 (4) Section 9 - Postponement of Annual or Special Meeting 3 (5) Section 10 - Nomination and Shareholder Business Bylaw 3 ARTICLE II - DIRECTORS 6 - ----------------------- Section 1 - General Powers 6 (6) Section 2 - Number, Tenure, Qualifications, & Removal 6 Section 3 - Annual Meetings 7 Section 4 - Regular Meetings 7 Section 5 - Special Meetings 7 - ----------------------- (1) Amended 5/21/85, 7/25/90 (2) Amended 11/03/88 (3) Amended 7/25/90 (4) Amended 7/25/90 (5) Amended 7/25/90 (6) Amended 8/01/84, 2/04/88, 2/08/89, 9/28/89, 7/24/91, 4/26/95, 2/04/98 -i- 3 PAGE ---- (7) Section 6 - Notice 8 Section 7 - Quorum 8 Section 8 - Manner of Acting 9 Section 9 - Vacancies 9 Section 10 - Compensation 9 Section 11 - Committees 9 ARTICLE III - OFFICERS 9 - ----------------------- Section 1 - Number 9 Section 2 - Election and Term of Office 10 Section 3 - Removal and Resignations 10 Section 4 - Vacancies 10 Section 5 - The Chief Executive Officer 10 Section 6 - Authority of Officers, Agents and Employees, Generally 11 Section 7 - The Chairman of the Board, The Vice Chairman of the Board and The President 12 (8) Section 8 - The Secretary 12 Section 9 - The Treasurer 13 Section 10 - Assistant Secretaries and Assistant Treasurers 13 Section 11 - Remuneration 13 (9) ARTICLE IV - INDEMNIFICATION OF DIRECTORS, OFFICERS, - ----------------------------------------------------- EMPLOYEES AND AGENTS 14 -------------------- Section 1 - Non-Derivative Actions 14 Section 2 - Derivative Actions 14 Section 3 - Expenses or Successful Defense 15 Section 4 - Definition 15 Section 5 - Contract Right; Limitation on Indemnity 16 Section 6 - Right of Claimant to Bring Suit 16 Section 7 - Proportionate Indemnity 17 Section 8 - Expense Advance 17 Section 9 - Non-Exclusivity of Rights 17 Section 10 - Indemnification of Employees and Agents of the Corporation 18 - --------------------------- (7) Amended 7/25/90 (8) Amended 8/01/84 (9) Amended 11/03/88 -ii- 4 Page ---- Section 11 - Insurance 18 Section 12 - No Liability if Determination Made in Good Faith 18 Section 13 - Scope of Indemnity; Changes in Michigan Law 18 Section 14 - Severability 19 ARTICLE V - FIXING RECORD DATE 19 - ------------------------------- ARTICLE VI - LOANS, CHECKS, DEPOSITS, ETC. 20 - ------------------------------------------- Section 1 - Loans 20 Section 2 - Checks, Drafts, etc. 20 Section 3 - Deposits 20 ARTICLE VII - CERTIFICATES FOR SHARES 21 - -------------------------------------- (10) Section 1 - Certificates for Shares 21 Section 2 - Lost Certificates 21 Section 3 - Transfer of Shares 21 Section 4 - Regulations 22 Section 5 - Elimination of Certificates for Stock 22 ARTICLE VIII - FISCAL YEAR 22 - --------------------------- ARTICLE IX - SEAL 22 - ------------------ (11) ARTICLE X - EMERGENCY PROVISIONS 22 - ---------------------------------- Section 1 - General 22 Section 2 - Unavailable Directors 23 Section 3 - Authorized Number of Directors 23 Section 4 - Quorum 23 Section 5 - Creation of Emergency Committee 23 Section 6 - Constitution of Emergency Committee 24 Section 7 - Powers of Emergency Committee 24 Section 8 - Directors Becoming Available 25 Section 9 - Election of Board of Directors 25 Section 10 - Termination of Emergency Committee 25 ARTICLE XI - AMENDMENTS 25 - ------------------------ - ------------------------ (10) Amended 7/28/90 (11) Amended 8/01/84 -iii- 5 BYLAWS OF FEDERAL-MOGUL CORPORATION ARTICLE I Shareholders Section 1. Annual Meeting. The annual meeting of the shareholders shall be held on the fourth Wednesday in May of each year or at such other date as the Board of Directors in its discretion shall determine at the time stated in the notice of meeting, for the purpose of electing directors and for the transaction of such other business as may be determined by the Board of Directors or as otherwise properly may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday at the place of meeting, such meeting shall be held on the next succeeding business day. Section 2. Special Meetings. Special meetings of the shareholders may be called by the Chairman of the Board, or by the President, or pursuant to resolution of the Board of Directors. Business transacted at a special meeting of stockholders shall be confined to the purpose or purposes of the meeting as stated in the notice of the meeting. -1- 6 Section 3. Place of Meeting. The Board of Directors may designate any place either within or without the State of Michigan as the place of meeting for any annual or special meeting of shareholders called by the Board of Directors. If no designation is made or if a special meeting be called otherwise than by the Board of Directors, the place of meeting shall be the registered office of the Corporation in the State of Michigan. Section 4. Notice of Meetings. Written or printed notice stating the time, place and purposes of a meeting of shareholders shall be given not less than ten nor more than sixty days before the date of the meeting, by mail, by or at the direction of the Chairman of the Board, the President, the Secretary, or the directors or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail in a sealed envelope addressed to the shareholder at his address as it appears on the records of the Corporation, with postage thereon prepaid. Section 5. Adjourned Meetings. Any annual or special meeting of shareholders may be adjourned by the chairman of the meeting or pursuant to resolution of the Board of Directors. Notice need not be given of an adjourned meeting of shareholders if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting only such business may be transacted as might have been transacted at the original meeting. If after the adjournment the Board of Directors fixes a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record on the new record date entitled to vote at the meeting. Section 6. Voting Lists. It shall be the duty of the officer or agent who shall have charge of the stock transfer books for shares of the Corporation to make and certify a complete list of the shareholders entitled to vote at a shareholder's meeting or any adjournment thereof, arranged in alphabetical order within each class and series, with the addresses of, and the number of shares held by, each shareholder. Such list shall be produced at the time and place of the meeting, shall be subject to the inspection by any shareholder during the whole time of the meeting, and shall be -2- 7 prima facie evidence as to who are the shareholders entitled to examine such list or to vote in person or by proxy at such meeting. Section 7. Quorum. Unless a greater or lesser quorum is provided by law, a majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders. The shareholders present in person or by proxy at such meeting may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Whether or not a quorum is present, the meeting may be adjourned by a vote of the shares present. Section 8. Manner of Acting. The election of directors shall be determined by a plurality of the votes cast by the holders of shares entitled to vote thereon or their proxies. Except as otherwise provided by law, or by the Articles of Incorporation, all other matters shall be determined by a majority of the votes cast by the holders of shares entitled to vote thereon or their proxies. Section 9. Postponement of Annual or Special Meeting. The Board of Directors acting by resolution may postpone and reschedule any previously scheduled annual or special meeting of shareholders. Section 10. Nomination and Shareholder Business Bylaw. (A) Annual Meetings of Shareholders. (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any shareholder of the Corporation who was a shareholder of record at the time of giving of notice provided for in this Bylaw, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Bylaw. -3- 8 (2) For nominations or other business to be properly brought before an annual meeting by a shareholder pursuant to clause (c) of paragraph (A)(1) of this Bylaw, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such shareholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this Bylaw to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least -4- 9 70 days prior to the first anniversary of the preceding year's annual meeting, a shareholder's notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (B) Special Meetings of Shareholders. Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of shareholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) by any shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided hereunder, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw. Nominations by shareholders of persons for election to the Board of Directors may be made at such a special meeting of shareholders if this shareholder's notice required by paragraph (A)(2) of this Bylaw shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. (C) General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Bylaw shall be eligible to serve as directors and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedure set forth in this Bylaw. The Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Bylaw and, if any proposed nomination or business is not in compliance with this Bylaw, to declare that such defective proposal shall be disregarded. -5- 10 (2) For purposes of this Bylaw, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this Bylaw, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights of shareholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. ARTICLE II Directors Section 1. General Powers. The business and affairs of the Corporation shall be managed by its Board of Directors, except as otherwise provided by law or by the Articles of Incorporation. Section 2. Number, Tenure and Qualifications, and Removal. The number of directors of the Corporation shall be as determined from time to time by the Board of Directors but effective May 20, 1998, shall be ten members. Each director shall hold office for the term for which he is named or elected and until his successor shall have been elected and qualified, or until his resignation or removal. The age limit for directors, including directors who have served as Chief Executive Officer of the Corporation, shall be age seventy, and for employee directors who have not served as Chief Executive Officer of the Corporation shall be age sixty-five. A director shall not be eligible for re-election at the annual meeting of the shareholders next following the date on which he attains the applicable age limit. Notwithstanding the foregoing provisions of this Section 2, the term of office of an employee director who has not served as Chief Executive Officer of the Corporation shall expire upon termination of his employment unless the Board of Directors shall theretofore -6- 11 have requested that he continue to hold office following such termination of employment. Any director may be removed from office as a director but only for cause and by the affirmative vote of the holders of a majority of the shares entitled to vote at an election of directors. Section 3. Annual Meetings. The newly elected Board of Directors shall meet immediately following the annual meeting of shareholders at the place where such annual shareholders meeting is held for the purpose of the organization of the Board, the election of officers, and the transaction of such other business as may properly come before the meeting, and no notice of such meeting shall be necessary. Section 4. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such times and at such places, within or without the State of Michigan, as shall from time to time be determined by the Board. Section 5. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President or a majority of the directors, and shall be called at the request of any two directors. Such meetings, if called by the Chairman of the Board, the President or by a majority of the directors may be held at such place within or without the State of Michigan as the Chairman of the Board, the President or as a majority of the Board of Directors may from time to time determine. If any such special meetings are called other than by the Chairman of the Board, the President or a majority of the Board of Directors, they shall be held at the registered office of the Corporation in the State of Michigan unless otherwise consented to in writing by all of the directors or unless previous nuclear attack prevents the holding of a meeting at such place, in which case such meeting shall be held as close to such registered office as possible. Section 6. Notice. Notice of any special meeting of directors shall be given by or at the direction of the Chairman of the Board, the President, the Secretary or the directors calling the meeting by written notice delivered personally or mailed to each director at his business address, or by telegram. If mailed, such notice shall be given at least four days prior to the meeting and shall be -7- 12 deemed to be given when deposited in the United States mail in a sealed envelope so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be given at least twenty-four hours prior to the meeting and shall be deemed to be given when the telegram is delivered to the telegraph company. Any director may waive notice of any meeting. The attendance of a director at, or participation in, any meeting shall constitute a waiver of notice of such meeting, unless the director, at the beginning of the meeting, or upon his or her arrival, objects to the meeting or the transacting of business at the meeting and does not thereafter vote for or assent to any action taken at the meeting. A director may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can communicate with each other and such participation shall constitute attendance at any meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 7. Quorum. A majority of the Board of Directors then in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but, if less than a majority of the directors are present at said meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. Section 8. Manner of Acting. The vote of the majority of directors present at the meeting at which a quorum is present shall be the act of the Board of Directors, unless a larger number is required by law, the Articles of Incorporation or these Bylaws. Section 9. Vacancies. Vacancies in the Board of Directors may be filled by a majority of the remaining members of the Board though less than a quorum. Such vacancies may be filled for a term of office continuing only until the next election of Directors by the Shareholders. Section 10. Compensation. Directors as such shall not receive any stated salaries for their services, but by resolution of the Board of Directors, adopted by a majority of directors then in office, a fixed -8- 13 sum and expenses of attendance, if any may be allowed for attendance at each meeting of the Board of Directors; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any capacity other than as a director or officer and receiving compensation therefor. Section 11. Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more directors, and may designate one or more directors as alternate members of a committee to replace an absent or disqualified member at a committee meeting. In the absence or disqualification of a member of a committee, the members thereof present at a meeting and not disqualified from voting, whether or not they constitute a quorum, may by unanimous vote appoint another director to act at the meeting in the place of such absent or disqualified member. Committees and each member thereof shall serve at the pleasure of the Board. To the extent provided by the resolution of the Board of Directors a committee shall have and may exercise all powers and authority of the Board in the management of the business and affairs of the Corporation. ARTICLE III Officers Section 1. Number. The Board of Directors shall elect a Chairman of the Board, a President, a Secretary and a Treasurer, (and shall designate a Chief Executive Officer in accordance with Section 5 of this Article III) and may elect a Vice Chairman of the Board, a Controller, one or more Executive Vice Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other officers and agents as it may deem necessary for the transaction of the business of the Corporation. No one of the said officers except the Chairman of the Board, the Vice Chairman of the Board, and the President need be a director. Two or more of the above offices except those of President and Vice President may be held by the same person, but no officer shall execute, -9- 14 acknowledge or verify any instrument in more than one capacity if the instrument is required by law or the Articles of Incorporation or these Bylaws to be executed, acknowledged or verified by two or more officers. Section 2. Election and Term of Office. The officers of the Corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of shareholders subject to the power of the Board of Directors to designate any office at any time and elect any person thereto. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall hold office for the term for which he is elected and until his successor is elected and qualified or until his resignation or removal. Section 3. Removal and Resignations. Any officer or agent may be removed by the Board of Directors with or without cause. An officer may resign by written notice to the Corporation. Such resignations shall be effective upon receipt by the Corporation or at a subsequent time specified in the notice of resignation. Section 4. Vacancies. The Board of Directors shall have the power to fill any vacancies in any office occurring from whatever reason. Section 5. The Chief Executive Officer. The Board of Directors shall designate either the Chairman of the Board or the President as the Chief Executive Officer. Subject to the direction and under the supervision of the Board of Directors, the Chief Executive Officer shall manage the business and affairs of the Corporation, and shall be in charge of its property and have control over its officers, agents and employees. Subject to the direction and under the supervision of the Board of Directors, the Chief Executive Officer may execute in the name of the Corporation all deeds, bonds, mortgages, contracts and other documents except in cases where the execution thereof shall be expressly and specifically delegated by the Board of Directors or these Bylaws exclusively to some other person or persons. If the office of Chairman of the Board and Chief Executive Officer -10- 15 are combined, the President may act as the Chief Executive Officer in the case of the Chairman's sickness, disability or temporary absence from the Corporation's Registered Office, and whether or not the Chairman is sick, disabled or absent, the President may execute on behalf of the Corporation any deed, bond, mortgage, contract or document which a Chief Executive Officer is authorized hereinabove to execute, subject to the direction and supervision of the Board of Directors and the Chief Executive Officer. If the offices of President and Chief Executive Officer are combined, the Executive Vice President with the greatest length of service in such capacity or, if there be no Executive Vice President, the Chairman of the Board, may act as the Chief Executive Officer in the case of the President's sickness, disability or temporary absence from the Corporation's Registered Office, and whether or not the President is sick, disabled or absent, such Executive Vice President or Chairman of the Board, as the case may be, may execute on behalf of the Corporation any deed, bond, mortgage, contract or document which a Chief Executive Officer is authorized hereinabove to execute, subject to the direction and supervision of the Board of Directors and the Chief Executive Officer. Section 6. Authority of Officers, Agents and Employees, Generally. Except as otherwise provided by law, the Articles of Incorporation or these Bylaws, all officers, agents and employees of the Corporation shall have such powers and perform such duties as from time to time may be prescribed by the Board of Directors, or the Chief Executive Officer. However, unless specifically authorized by resolution of the Board of Directors, a person who is not an officer of the Corporation shall have no authority to execute on its behalf any (1) contract for the purchase or sale of lands or buildings, (2) deed, (3) lease of lands or buildings, (4) mortgage, (5) instrument creating any lien on the personal or real property of the Corporation or (6) contract or other instrument not entered into in the ordinary course of business. Section 7. The Chairman of the Board, The Vice Chairman of the Board and the President. In addition to the powers and duties elsewhere herein conferred or provided for, the Chairman of the Board, the Vice Chairman of the Board and the President shall have the following powers and duties subject to the direction and under the supervision of the Board of Directors. The Chairman -11- 16 of the Board shall preside at meetings of the Board of Directors and of the shareholders. In the absence of the Chairman of the Board, the Vice Chairman of the Board, if such office shall be created, shall so preside. The President shall preside at meetings of the Board of Directors and of the shareholders in the absence of the Chairman of the Board and any Vice Chairman of the Board. Section 8. The Secretary. In addition to the powers and duties elsewhere herein conferred or provided for, the Secretary shall have the following powers and duties subject to the direction and under the supervision of the Board of Directors and the Chief Executive Officer. He shall attend all meetings of the Board and all meetings of the shareholders and act as clerk thereof and record all votes and the minutes of all proceedings in a book to be kept for that purpose. He shall perform like duties for all directors' committees when required. He shall have custody of the seal of the Corporation and shall have authority to cause such seal to be affixed to or impressed or otherwise reproduced upon all documents the execution of which on behalf of the Corporation shall have been duly authorized. He shall cause to be kept records containing the names and addresses of all shareholders of the Corporation, the number, class and series of shares held by each and the dates when they respectively became shareholders of record thereof at the registered office of the Corporation or at the office of its transfer agent within or without the State of Michigan. In general, he shall perform the duties usually incident to the office of Secretary. At any meeting of the shareholders or Board of Directors at which the Secretary is not present a Secretary Pro Tempore or Clerk of the meeting may be appointed by the meeting. Section 9. The Treasurer. In addition to the powers and duties elsewhere herein conferred or provided for, the Treasurer shall have the following powers and duties subject to the direction and under the control of the Board of Directors and the Chief Executive Officer. He shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation. He shall deposit all moneys and other valuable effects in the name of and to the credit of the Corporation, in such depositaries as may be designated by the Board of Directors, and, in general, he shall perform the duties usually incident to the office of Treasurer. If required by the Board of Directors, the Treasurer shall furnish the -12- 17 corporation with a proper bond, in a sum and with one or more sureties satisfactory to the Board of Directors, for the faithful performance of the duties of his office, and for the restoration to the Corporation in case of his death, resignation, retirement or removal from office of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control and belonging to the Corporation. Section 10. Assistant Secretaries and Assistant Treasurers. In addition to the powers and duties elsewhere herein conferred or provided for, Assistant Secretaries and Assistant Treasurers shall have the following powers and duties subject to the direction and under the supervision of the Board of Directors and the Chief Executive Officer. Any Assistant Secretary or Assistant Treasurer may act as the Secretary or Treasurer, respectively, in the case of the sickness, disability or temporary absence from the Registered Office of the Corporation of the Secretary or Treasurer, as the case may be. In addition, any Assistant Secretary shall have the authority to cause the seal of the Corporation to be affixed to or impressed or otherwise reproduced upon all documents the execution of which on behalf of the Corporation shall have been duly authorized whether or not the Secretary is sick, disabled or absent. Section 11. Remuneration. The Board of Directors shall set from time to time the remuneration of the officers of the Corporation after reviewing the recommendation of the Chief Executive Officer and as appropriate the report or recommendation of a committee of the Board consisting of one or more directors who are not also salaried employees of the Corporation. ARTICLE IV Indemnification of Directors, Officers, Employees and Agents Section 1. Non-Derivative Actions. Subject to all of the other provisions of this Article IV, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to or called as a witness in any threatened, pending or completed action, suit or proceeding, whether -13- 18 civil, criminal, administrative or investigative (whether formal or informal) and any appeal thereof (other than an action by or in the right of the Corporation) by reason of the fact that the person is, was or agreed to become a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, whether for profit or not, against expenses (including attorneys' fees), judgments, penalties, fines, and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation or its shareholders, and with respect to any criminal action or proceeding, if the person had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the Corporation or its shareholders, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. Section 2. Derivative Actions. Subject to all of the provisions of this Article IV, the Corporation shall indemnify any person who was or is a party to or is threatened to be made a party to, or called as a witness in any threatened, pending or completed action or suit and any appeal thereof by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that the person is or was a director of officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, whether for profit or not, against expenses (including actual and reasonable attorneys' fees) and amounts paid in settlement incurred by the person in connection with such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation or its shareholders. However, indemnification shall not be made for any claim, issue or matter in which such person has been found liable to the Corporation unless and only to the -14- 19 extent that the court in which such action or suit was brought has determined upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnification for the expenses which the court considers proper. Section 3. Expenses or Successful Defense. To the extent that a person has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1, 2, 8 or 13 of these Bylaws, or in defense of any claim, issue or matter in the action, suit or proceeding, the person shall be indemnified against expenses (including actual and reasonable attorneys' fees) incurred by such person in connection with the action, suit or proceeding and any action, suit or proceeding brought to enforce the mandatory indemnification provided by this Section 3. Section 4. Definition. For the purposes of Sections 1, 2 and 13, "other enterprises" shall include employee benefit plans; "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and "serving at the request of the Corporation" shall include any service as a director, officer, employee, or agent of the Corporation which imposes duties on, or involves services by, the director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner the person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be considered to have acted in a manner "not opposed to the best interests of the Corporation or its shareholders" as referred to in Sections 1 and 2. Section 5. Contract Right; Limitation on Indemnity. This Article IV shall be applicable to all proceedings commenced or continuing after its adoption, whether such arise out of events, acts or omissions which occurred prior or subsequent to such adoption, and shall continue as to a person who has ceased to be a director, officer or a person serving at the request of the Corporation as a director, trustee, fiduciary, employee, agent or officer of another corporation, partnership, joint venture, trust or other person. This article IV shall be deemed to be a contract between the Corporation and each person who, at any time that this Article IV is in effect, serves or agrees to serve in any capacity which entitles him or her to indemnification hereunder and any repeal or other -15- 20 modification of this Article IV or any repeal or modification of the Michigan Business Corporation Act or any other applicable law shall not limit any rights of indemnification for proceedings then existing or later arising out of events, acts or omissions occurring prior to such repeal or modification for proceedings commenced after such repeal or modification to enforce this Article IV with regard to proceedings arising out of acts, omissions or events occurring prior to such repeal or modification. The right to indemnification conferred in this Article IV shall apply to services of a director or officer as an employee or agent of the Corporation as well as in such person's capacity as a director or officer. Except as provided in Sections 3 and 6 of these Bylaws, the Corporation shall have no obligations under this Article IV to indemnify any person in connection with any proceeding, or part thereof, initiated by such person without authorization by the Board of Directors. Section 6. Right of Claimant to Bring Suit. If a claim under Sections 1, 2, 8 or 13 of this Article is not paid in full by the Corporation within thirty days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that indemnification of the claimant is prohibited by applicable law, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, its General Counsel or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, its General Counsel or its shareholders) that indemnification of the claimant is prohibited by applicable law, shall be a defense to the action or create a presumption that indemnification of the claimant is prohibited by applicable law. -16- 21 Section 7. Proportionate Indemnity. If a person is entitled to indemnification under Sections 1, 2 or 13 of these Bylaws for a portion of expenses, including attorneys' fees, judgments, penalties, fines, and amounts paid in settlements, but not for the total amount thereof, the Corporation shall indemnify the person for the portion of the expenses, judgments, penalties, fines, or amounts paid in settlement for which the person is entitled to be indemnified. Section 8. Expense Advance. Expenses incurred in defending a civil or criminal action, suit or proceeding and any appeal thereof described in Sections 1, 2 or 13 of these Bylaws shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding; provided, however, that if required by the Michigan Business Corporation Act, such expenses shall not be paid by the Corporation unless the Corporation receives an undertaking by or on behalf of the person involved to repay the expenses if it is ultimately determined that the person is not entitled to be indemnified by the Corporation. Section 9. Non-Exclusivity of Rights. The indemnification or advancement of expenses provided under this Article IV is not exclusive of other rights to which a person seeking indemnification or advancement of expenses may be entitled under any statute, provision of the Corporation's Articles of Incorporation, contractual arrangement, vote of the shareholders or disinterested directors or otherwise. However, the total amount of expenses advanced or indemnified from all sources combined shall not exceed the amount of actual expenses incurred by the person seeking indemnification or advancement of expenses. Section 10. Indemnification of Employees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board of Directors, or by written opinion of the General Counsel with respect to agents and employees of the Corporation not serving on its Executive Council or Advisory Board or their equivalents, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article IV with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. -17- 22 Section 11. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise against any liability asserted against the person and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the Corporation would have power to indemnify the person against such liability under these Bylaws of the State of Michigan. Section 12. No Liability if Determination Made in Good Faith. Neither the Corporation nor its directors or officers nor any person acting on its behalf shall be liable to anyone for any determination as to the existence or absence of conduct which would provide a basis for making or refusing to make any payment under this Article IV or for taking or omitting to take any other action under this Article, in reliance upon the advice of counsel. Section 13. Scope of Indemnity; Changes in Michigan Law. Notwithstanding any of the other provisions in this Article IV, each person who was or is a party or is threatened to be made a party to or called as a witness in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (whether formal or informal) and any appeal thereof (hereinafter a "proceeding"), by reason of the fact that the person is, was or agreed to become a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, whether for profit or not, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, trustee, or agent or in any other capacity while serving as a director, officer, employee, trustee, or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Michigan Business Corporation Act, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to -18- 23 such amendment), against all expenses (including attorneys' fees and other expenses of litigation), judgments, fines, penalties and amounts paid in settlement actually and reasonably incurred by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee, trustee, or agent and shall inure to the benefit of his or her heirs, executors and administrators: provided, however, that, except as provided in Sections 3 and 6 hereof, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. Section 14. Severability. If any portion of this Article IV shall be invalidated or held to be unenforceable on any ground by any court of competent jurisdiction, the decision of which shall not have been reversed on appeal, such invalidity or unenforceability shall not affect the other provisions hereof, and this Article shall be construed in all respects as if such invalid or unenforceable provisions had been omitted therefrom. ARTICLE V Fixing Record Date In order to determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of shareholders of record entitled to notice of or to vote at a meeting of -19- 24 shareholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE VI Loans, Checks, Deposits, etc. Section 1. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. Section 2. Checks, Drafts, etc. All checks, drafts, or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officers, employees, or agents of the Corporation and in such manner as shall from time to time be determined by or pursuant to and in accordance with general or specific resolutions of the Board of Directors. Section 3. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositaries as the Board of Directors may select. Such selection shall be by or pursuant to and in accordance with a general or specific resolution of the Board of Directors. ARTICLE VII Certificates for Shares Section 1. Certificates for Shares. Certificates representing shares of the Corporation shall be in such form conforming to applicable laws as may be determined by the Board of Directors and shall be signed by or in the name of the Corporation by the Chairman of the Board, the Vice Chairman of the Board, the President or a Vice President and may also be signed by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Corporation, certifying the number, and -20- 25 class and series of shares represented by such certificate. The signatures of the officers may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation or its employee. In case any officer has signed or whose facsimile signature has been placed upon a certificate ceases to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. Section 2. Lost Certificates. If a certificate of stock be lost or destroyed, a new certificate of the identical tenor of the one alleged to be lost or destroyed may be issued upon satisfactory proof of such loss or destruction, and the giving of a bond sufficient to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged lost or destroyed certificate or the issuance of such a new certificate. Section 3. Transfer of Shares. Transfers of shares of the Corporation shall be made only on the books of the Corporation by the registered holder thereof or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or transfer agent of the Corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Section 4. Regulations. The Board of Directors may make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of the certificates for shares. It may appoint one or more transfer agents or registrars or both, and may require all certificates to bear the signature of either or both. Section 5. Elimination of Certificates for Stock. The Corporation may by resolution of the Board of Directors eliminate certificates representing shares of the Corporation and provide for such other methods of recording, noticing ownership and disclosure as may be provided by the rules of any national securities exchange on which such shares are listed. -21- 26 ARTICLE VIII Fiscal Year The fiscal year of the Corporation shall begin on the first day of January in each year and end on the thirty-first day of December in each year. ARTICLE IX Seal The following shall be the design for the corporate seal of the Corporation: two concentric rings with the words "Federal-Mogul Corporation, Michigan" between the circles and the words "Corporate Seal" in the center. ARTICLE X Emergency Provisions Section 1. General. The provisions of this Article shall be operative only during a national emergency declared by the President of the United States or the person performing the President's functions, or in the event of a nuclear, atomic or other attack on the United States or a disaster making it impossible or impracticable for the Corporation to conduct its business without recourse to the provisions of this Article. Said provisions in such event shall override all other Bylaws of the Corporation in conflict with any provisions of this Article, and shall remain operative so long as it remains impossible or impracticable to continue the business of the Corporation otherwise, but thereafter shall be inoperative; provided that all actions taken in good faith pursuant to such provisions shall thereafter remain in full force and effect unless and until revoked by action taken pursuant to the provisions of the Bylaws other than those contained in this Article. Section 2. Unavailable Directors. All directors of the Corporation who are not available to perform their duties as directors by reason of physical or mental incapacity or for any other reason or who -22- 27 are unwilling to perform their duties or whose whereabouts are unknown shall automatically cease to be directors, with like effect as if such persons had resigned as directors, so long as such unavailability continues. Section 3. Authorized Number of Directors. The authorized number of directors shall be the number of directors remaining after eliminating those who have ceased to be directors pursuant to Section 2 of this Article, or the minimum number required by law, whichever number is greater. Section 4. Quorum. The number of directors necessary to constitute a quorum shall be one-third of the authorized number of directors as specified in the foregoing Section, or such other minimum number as, pursuant to the law or lawful decree then in force, it is possible for the Bylaws of a corporation to specify. Section 5. Creation of Emergency Committee. In the event the number of directors remaining after eliminating those who have ceased to be directors pursuant to Section 2 of this Article is less than the minimum number of authorized directors required by law, then until the appointment of additional directors to make up such required minimum, all the powers and authorities which the Board could by law delegate, including all powers and authorities which the Board could delegate to a committee, shall be automatically vested in an emergency committee, and the emergency committee shall thereafter manage the affairs of the Corporation pursuant to such powers and authorities and shall have all other powers and authorities as may by law or lawful decree be conferred on any person or body of persons during a period of emergency. Section 6. Constitution of Emergency Committee. The emergency committee shall consist of all the directors remaining after eliminating those who have ceased to be directors pursuant to Section 2 of this Article, provided that such remaining directors are not less than three in number. In the event such remaining directors are less than three in number, the emergency committee shall consist of three persons, who shall be the remaining director or directors and either one or two officers or employees of the Corporation, as the remaining director or directors may in writing -23- 28 designate. If there is no remaining director, the emergency committee shall consist of the three most senior officers of the Corporation who are available to serve, and if and to the extent that officers are not available, the most senior employees of the Corporation. Seniority shall be determined in accordance with any designation of seniority in the minutes of the proceedings of the Board, and in the absence of such designation, shall be determined by rate of remuneration. In the event that there are no remaining directors and no officers or employees of the Corporation available, the emergency committee shall consist of three persons designated in writing by the shareholder owning the largest number of shares of record as of the date of the last record date. Section 7. Powers of Emergency Committee. The emergency committee, once appointed, shall govern its own procedures and shall have power to increase the number of members thereof beyond the original number, and in the event of a vacancy or vacancies therein, arising at any time, the remaining member or members of the emergency committee shall have the power to fill such vacancy or vacancies. In the event at any time after its appointment all members of the emergency committee shall die or resign or become unavailable to act for any reason whatsoever, a new emergency committee shall be appointed in accordance with the foregoing provisions of this Article. Section 8. Directors Becoming Available. Any person who has ceased to be a director pursuant to the provisions of Section 2 of this Article and who thereafter becomes available to serve as a director shall automatically become a member of the emergency committee. Section 9. Election of Board of Directors. The emergency committee shall, as soon after its appointment as is practicable, take all requisite action to secure the election of a Board of Directors, and upon such election all the powers and authorities of the emergency committee shall cease. Section 10. Termination of Emergency Committee. In the event, after the appointment of an emergency committee, a sufficient number of persons who ceased to be directors pursuant to Section 2 of this Article become available to serve as directors, so that if they had not ceased to be -24- 29 directors as aforesaid, there would be enough directors to constitute the minimum number of directors required by law, then all such persons shall automatically be deemed to be reappointed as directors and the powers and authorities of the emergency committee shall be at an end. ARTICLE XI Amendments These Bylaws may be altered or new Bylaws may be made and adopted by the affirmative vote of a majority of the Board of Directors. -25- EX-4.6 5 EX-4.6 1 EXHIBIT 4.6 10,000,000 TRUST CONVERTIBLE PREFERRED SECURITIES FEDERAL-MOGUL FINANCING TRUST 7% TRUST CONVERTIBLE PREFERRED SECURITIES (liquidation amount $50 per convertible preferred security) guaranteed to the extent set forth in the guarantee agreement by, and convertible into the common stock of, FEDERAL-MOGUL CORPORATION PURCHASE AGREEMENT November 24, 1997 2 November 24, 1997 Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York 10036 Dear Sirs and Mesdames: Federal-Mogul Financing Trust, a special purpose statutory business trust created under the laws of the State of Delaware (the "TRUST"), proposes to issue and sell to Morgan Stanley & Co. Incorporated (the "INITIAL PURCHASER") 10,000,000 of its 7% convertible preferred securities, liquidation preference $50 per convertible preferred security (the "FIRM SECURITIES"). The Trust also proposes to issue and sell to the Initial Purchaser not more than an additional 1,500,000 of its 7% convertible preferred securities, liquidation preference $50 per convertible preferred security (the "ADDITIONAL SECURITIES"), if and to the extent that you shall have determined to exercise the right to purchase such convertible preferred securities granted to you in Section 2 hereof. The Firm Securities and the Additional Securities are hereinafter collectively referred to as the "CONVERTIBLE PREFERRED SECURITIES." The Convertible Preferred Securities will be convertible into shares of common stock without par value (the "UNDERLYING SECURITIES") of Federal-Mogul Corporation, a Michigan corporation ("FEDERAL-MOGUL" or the "COMPANY"). 3 The Convertible Preferred Securities will be guaranteed by the Company to the extent described in the Memorandum (as defined below), with respect to distributions and amounts payable upon liquidation or redemption pursuant to the Preferred Securities Guarantee Agreement to be dated as of December 1, 1997 executed and delivered by the Company and The Bank of New York, as trustee (the "GUARANTEE TRUSTEE"), for the benefit of the holders from time to time of the Convertible Preferred Securities (the "GUARANTEE"). The Trust will use the proceeds from the sale of the Convertible Preferred Securities and the sale of Trust Common Securities (as defined below) to purchase from the Company $515,463,950 aggregate principal amount of its 7% Convertible Junior Subordinated Debentures due December 1, 2027 ($592,783,550 aggregate principal amount if and to the extent that you shall have determined to exercise the right to purchase Additional Securities granted to you in Section 2 hereof) (the "CONVERTIBLE DEBENTURES") to be issued under a Junior Subordinated Indenture to be dated as of December 1, 1997 between the Company and The Bank of New York, as trustee (the "INDENTURE TRUSTEE") (as supplemented by the First Supplemental Indenture to be dated as of December 1, 1997 between the Company and the Indenture Trustee, the "INDENTURE"). The Company will also be the holder of one hundred percent of the common securities representing undivided beneficial interests in the assets of the Trust (the "TRUST COMMON SECURITIES"). The Trust has been created under Delaware law pursuant to the filing of a Certificate of Trust (the "CERTIFICATE OF TRUST") with the Secretary of State of the State of Delaware, and will be governed by an Amended and Restated Declaration of Trust (the "DECLARATION") executed by the Company, as Sponsor, and by the trustees and administrators of the Trust (the "FMFT TRUSTEES"), all of whom have been appointed by the Company as holder of one hundred percent of the Trust Common Securities. A majority of the FMFT Trustees (the "ADMINISTRATORS") are persons who are employees or officers of or affiliated with the Company. One FMFT Trustee, The Bank of New York, is unaffiliated with the Company and shall act as institutional trustee (the "INSTITUTIONAL TRUSTEE") and as Indenture Trustee for the purposes of the Trust Indenture Act of 1939, as amended (the "TRUST INDENTURE ACT"). The Bank of New York (Delaware) will act as Delaware Trustee. The Convertible Preferred Securities and the Underlying Securities will be offered without being registered under the Securities Act of 1933, as amended (the "SECURITIES ACT"), to qualified institutional buyers in compliance with the exemption from registration provided by Rule 144A under the Securities Act and in offshore transactions in reliance on Regulation S under the Securities Act ("REGULATION S"). The Initial Purchaser and its direct and indirect transferees will be entitled to the benefits of a Registration Rights Agreement to be dated as of December 1, 1997 among the Trust, the Company and the Initial Purchaser (the "REGISTRATION RIGHTS AGREEMENT"). 4 In connection with the sale of the Convertible Preferred Securities, the Company has prepared a preliminary offering memorandum (the "PRELIMINARY MEMORANDUM") and will prepare a final offering memorandum (the "FINAL MEMORANDUM" and, with the Preliminary Memorandum, each a "MEMORANDUM") including or incorporating by reference a description of the terms of the Convertible Preferred Securities, the Convertible Debentures, the Guarantee and the Underlying Securities, the terms of the offering, a description of the Trust and a description of the Company. As used herein, the term "MEMORANDUM" shall include in each case the documents incorporated by reference therein. The terms "SUPPLEMENT," "AMENDMENT" and "AMEND" as used herein with respect to a Memorandum shall include all documents deemed to be incorporated by reference in the Preliminary Memorandum or Final Memorandum that are filed subsequent to the date of such Memorandum with the Securities and Exchange Commission (the "COMMISSION") pursuant to the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). 1. Representations and Warranties. Each of the Trust and the Company jointly and severally represents and warrants to, and agrees with, the Initial Purchaser that: (a) (i) Each document, if any, filed or to be filed pursuant to the Exchange Act and incorporated by reference in either Memorandum complied or will comply when so filed in all material respects with the Exchange Act and the applicable rules and regulations of the Commission thereunder and (ii) the Preliminary Memorandum does not contain, and the Final Memorandum, in the form used by the Initial Purchaser to confirm sales and on the Closing Date (as defined in Section 4), will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this paragraph do not apply to statements or omissions in either Memorandum based upon information relating to the Initial Purchaser furnished to the Company and the Trust in writing by the Initial Purchaser expressly for use therein. (b) The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in each Memorandum and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. 5 (c) Each subsidiary of the Company that is a "significant subsidiary" within the meaning of Regulation S-X under the Securities Act (each, a "SIGNIFICANT SUBSIDIARY") has been duly incorporated, is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has the corporate power and authority to own its property and to conduct its business as described in each Memorandum and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole; all of the issued shares of capital stock of each Significant Subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly by the Company, free and clear of all liens, encumbrances, equities or claims, except to the extent that failure to be so authorized, issued and fully paid and non-assessable and so owned would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. (d) The Trust has been duly created and is validly existing in good standing as a business trust under the Delaware Business Trust Act, is a "grantor trust" for Federal income tax purposes, has the power and authority to conduct its business as presently conducted and as described in each Memorandum and is not required to be authorized to do business in any other jurisdiction. (e) This Agreement has been duly authorized, executed and delivered by each of the Trust and the Company. (f) The Indenture has been duly authorized by the Company and, upon execution and delivery thereof by the Company (and assuming due authorization, execution and delivery by each party thereto other than the Company), will be a valid and binding agreement of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and general principles of equity. (g) The Convertible Debentures have been duly authorized by the Company and, when executed and authenticated in accordance with the provisions of the Indenture and delivered to the Trust against payment therefor as described in the Final Memorandum, will constitute valid and binding obligations of the Company, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and general principles of equity, and will be entitled to the benefits of the Indenture. 6 (h) The Guarantee has been duly authorized by the Company and, upon execution and delivery thereof by the Company (and assuming due authorization, execution and delivery by the Guarantee Trustee), will, as of the Closing Date, be a valid and binding agreement of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and general principles of equity and except as rights to indemnification may be limited under applicable law. (i) The Registration Rights Agreement has been duly authorized by each of the Trust and the Company and, when executed and delivered by each of the Trust and the Company (and assuming due authorization, execution and delivery by the Initial Purchaser), will be a valid and binding agreement of each of the Trust and the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and general principles of equity and except as rights to indemnification and contribution may be limited under applicable law. (j) The Declaration has been duly authorized by the Company and, upon execution and delivery thereof by the Company (and assuming due authorization, execution and delivery thereof by each party thereto other than the Company), will, as of the Closing Date, be a valid and binding agreement of the Company and the FMFT Trustees, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and general principles of equity and except as rights to indemnification may be limited under applicable law. (k) The Convertible Preferred Securities have been duly authorized by the Declaration and, when executed and authenticated in accordance with the provisions of the Declaration and delivered to and paid for by the Initial Purchaser in accordance with the terms of this Agreement, will be validly issued and (subject to the terms of the Declaration) fully paid and non-assessable undivided beneficial interests in the assets of the Trust, and the issuance of such Convertible Preferred Securities will not be subject to any preemptive or similar rights. Holders of the Convertible Preferred Securities will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. The Trust Common Securities have been duly authorized by the Declaration and, when issued and delivered to the Company against payment therefor as described in the Final Memorandum, will be validly issued undivided beneficial interests in the 7 assets of the Trust, and the issuance of such Trust Common Securities will not be subject to any preemptive rights. (l) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement, the Declaration, the Registration Rights Agreement, the Guarantee, the Indenture and the Convertible Debentures will not contravene any provision of applicable law, the Declaration or the certificate of incorporation or by-laws of the Company or any agreement or other instrument binding upon the Company or any of its Significant Subsidiaries that is material to the Company and its subsidiaries, taken as a whole, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any Significant Subsidiary, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Company of its obligations under this Agreement, the Declaration, the Registration Rights Agreement, the Guarantee, the Indenture or the Convertible Debentures, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Convertible Preferred Securities and the Underlying Securities and by Federal and state securities laws with respect to the Company's obligations under the Registration Rights Agreement. (m) The execution and delivery by the Trust of, and the performance by the Trust of its obligations under, this Agreement and the Registration Rights Agreement will not contravene any provision of applicable law or the Declaration or any agreement or other instrument binding upon the Trust that is material to the Trust, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Trust, and no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required for the performance by the Trust of its obligations under this Agreement, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Convertible Preferred Securities and the Underlying Securities and by Federal and state securities laws with respect to the Trust's obligations under the Registration Rights Agreement. (n) The authorized capital stock of the Company conforms as to legal matters in all material respects to the description thereof contained in the Final Memorandum. (o) The Underlying Securities reserved for issuance upon the conversion of the Convertible Debentures and the Convertible Preferred Securities have been duly authorized and reserved and, when issued upon 8 conversion of the Convertible Debentures or the Convertible Preferred Securities in accordance with the terms thereof, will be validly issued, fully paid and non-assessable, and the issuance of such Underlying Securities will not be subject to any preemptive or similar rights. (p) The outstanding shares of the Company's Common Stock have been duly authorized and are validly issued, fully paid and nonassessable and are not subject to any preemptive or similar rights. (q) There has not occurred any material adverse change, or any development involving a prospective material adverse change, in the condition, financial or otherwise, or in the earnings, business or operations of the Trust or the Company and its subsidiaries, taken as a whole, from that set forth in the Final Memorandum. (r) The Company and its subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole. (s) To the knowledge of the Company, there are no costs and liabilities associated with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties) that would singly or in the aggregate, have a material adverse effect on the Company and its subsidiaries, taken as a whole. (t) The Trust is not, and after giving effect to the offering and sale of the Convertible Preferred Securities and the application of the proceeds thereof as described in the Final Memorandum, will not be an "investment company" as such term is defined under the Investment Company Act of 1940, as amended, and the Company is not, and after giving effect to the sale of the Convertible Debentures and the application of the proceeds thereof as described in the Final Memorandum, will not be 9 an "investment company" as such term is defined under the Investment Company Act of 1940, as amended. (u) There are no legal or governmental proceedings pending or, to the knowledge of the Trust or the Company, threatened to which the Trust or the Company or any of its Significant Subsidiaries is a party or to which any of the properties of the Trust or the Company or any of its Significant Subsidiaries is subject other than proceedings accurately described in all material respects in the Final Memorandum and proceedings with respect to which there is not a reasonable probability of an adverse decision and that, if adversely decided, would not have a material adverse effect on the Trust or the Company and its subsidiaries, taken as a whole, or on the power or ability of the Trust or the Company to perform its respective obligations under this Agreement, the Indenture, the Convertible Preferred Securities, the Convertible Debentures, the Declaration, the Guarantee or the Registration Rights Agreement or to consummate the transactions contemplated by the Final Memorandum. (v) Neither the Company nor any affiliate (as defined in Rule 501(b) of Regulation D under the Securities Act, an "AFFILIATE") of the Company has directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) that is or will be integrated with the sale of the Convertible Preferred Securities in a manner that would require the registration of the Convertible Preferred Securities under the Securities Act or (ii) engaged in any form of general solicitation or general advertising in connection with the offering of the Convertible Preferred Securities (as those terms are used in Regulation D under the Securities Act), or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. (w) The Convertible Preferred Securities satisfy the requirements set forth in Rule 144A(d)(3) under the Securities Act. (x) None of the Company, its Affiliates or any person acting on its or their behalf has engaged or will engage in any directed selling efforts (as that term is defined in Regulation S under the Securities Act ("REGULATION S")) with respect to the Convertible Preferred Securities, and the Company and its Affiliates and any person acting on its or their behalf have complied and will comply with the offering restrictions requirements of Regulation S, except that no representation, warranty or agreement is made by the Company in this paragraph with respect to the actions or omissions of the Initial Purchaser or its agents. (y) Assuming the accuracy of the representations and warranties 10 and compliance with the agreements of the Initial Purchaser in Section 7, it is not necessary in connection with the offer, sale and delivery of the Convertible Preferred Securities to the Initial Purchaser in the manner contemplated by this Agreement or in connection with the initial resale of such Convertible Preferred Securities by the Initial Purchaser in accordance with Section 7 of this Agreement to register the Convertible Preferred Securities, the Underlying Securities, the Guarantee or the Convertible Debentures under the Securities Act or to qualify the Indenture under the Trust Indenture Act. 2. Agreements to Sell and Purchase. Upon the basis of the representations and warranties herein contained, the Trust hereby agrees to sell to the Initial Purchaser, and the Initial Purchaser, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees to purchase from the Trust the Firm Securities at a purchase price of $50 per Convertible Preferred Security (the "PURCHASE PRICE"). In consideration of such purchases on the Closing Date, the proceeds of which will be used to purchase the Convertible Debentures, the Company shall pay to the Initial Purchaser, in immediately available funds, on the Closing Date a commission of $1.50 per Convertible Preferred Security. On the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Trust agrees to sell to the Initial Purchaser the Additional Securities, and the Initial Purchaser shall have a one-time right to purchase up to 1,500,000 Additional Securities at the Purchase Price plus accrued distributions, if any, to the date of payment and delivery. If you elect to exercise such option, you shall so notify the Trust and the Company in writing not later than 30 days after the date of this Agreement, which notice shall specify the number of Additional Securities to be purchased by the Initial Purchaser and the date on which such Additional Securities are to be purchased. Such date may be the same as the Closing Date but not earlier than the Closing Date nor later than ten business days after the date of such notice. Additional Securities may be purchased as provided in Section 4 hereof solely for the purpose of covering over-allotments made in connection with the offering of the Firm Securities. Each of the Trust and the Company hereby agree that, without the prior written consent of the Initial Purchaser, it will not, during the period ending 90 days after the date of this Agreement, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any equity securities of the Company, the Trust or any similar trust or any securities convertible into or exercisable or exchangeable for any equity security of the Company, the Trust or any similar trust or (ii) enter into 11 any swap or other agreement that transfers to another, in whole or in part, any of the economic consequences of ownership of any equity securities of the Company, the Trust or any similar trust, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of any equity securities of the Company, the Trust or any similar trust or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the sale of the Convertible Preferred Securities under this Agreement, (B) the issuance by the Company of the Convertible Debentures, (C) the issuance to the Company by the Trust of the Trust Common Securities as described in the Final Memorandum or (D) the issuance of Common Stock upon conversion of the Convertible Preferred Securities and the Convertible Debentures, (E) the issuance by the Company of any shares of common stock upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof that has been publicly disclosed or of which the Initial Purchaser has been advised in writing, (F) the issuance of Common Stock pursuant to any employee incentive plans outstanding on the date hereof that have been publicly disclosed or of which the Initial Purchaser has been advised in writing and (G) any action or transaction otherwise prohibited by the preceding sentence to the extent relating to the issuance of Common Stock in connection with any acquisition by or merger or business combination or similar transaction concerning the Company. 3. Offering. You have advised the Trust and the Company that the Initial Purchaser will make an offering of the Convertible Preferred Securities purchased by the Initial Purchaser hereunder on the terms to be set forth in the Final Memorandum, as soon as practicable after this Agreement is entered into as in your judgment is advisable. 4. Payment and Delivery. Payment for the Firm Securities shall be made to the Trust in Federal or other funds immediately available in New York City against delivery of such Firm Securities for the account of the Initial Purchaser at 10:00 a.m., New York City time, on December 1, 1997, or at such other time on the same or such other date, not later than December 8, 1997, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the "CLOSING DATE." Payment for any Additional Securities shall be made to the Trust in Federal or other funds immediately available in New York City against delivery of such Firm Securities for the account of the Initial Purchaser at 10:00 a.m., New York City time, on the date specified in the notice described in Section 2 or at such other time on the same or on such other date, in any event not later than December 24, 1997, as shall be designated in writing by you. The time and date of such payment are hereinafter referred to as the "OPTION CLOSING DATE." Certificates for the Firm Securities and Additional Securities shall be in definitive or global form, as specified by you, and registered in such names and in 12 such denominations as you shall request in writing not later than one full business day prior to the Closing Date or the Option Closing Date, as the case may be. The certificates evidencing the Firm Securities and Additional Securities shall be delivered to you on the Closing Date or the Option Closing Date, as the case may be, with any transfer taxes payable in connection with the transfer of the Convertible Preferred Securities to the Initial Purchaser duly paid, against payment of the Purchase Price therefor plus accrued distributions, if any, to the date of payment and delivery. 5. Conditions to the Initial Purchaser's Obligations. The obligations of the Initial Purchaser to purchase and pay for the Firm Securities on the Closing Date are subject to the following conditions: (a) Subsequent to the execution and delivery of this Agreement and prior to the Closing Date: (i) there shall not have occurred any downgrading, nor shall any notice have been given of any intended or potential downgrading or of any review for a possible change that does not indicate the direction of the possible change, in the rating accorded the Company or any of the Company's securities or in the rating outlook for the Company by any "nationally recognized statistical rating organization," as such term is defined for purposes of Rule 436(g)(2) under the Securities Act; and (ii) there shall not have occurred any change, or any development involving a prospective change, in the condition, financial or otherwise, or in the earnings, business or operations of the Company and its subsidiaries (including the Trust), taken as a whole, from that set forth in the Final Memorandum (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement) that, in your judgment, is material and adverse and that makes it, in your judgment, impracticable to market the Convertible Preferred Securities on the terms and in the manner contemplated in the Final Memorandum. (b) The Initial Purchaser shall have received on the Closing Date certificates, dated the Closing Date and signed by an executive officer of the Company and an Administrator of the Trust, respectively, to the effect set forth in Section 5(a)(i) (in the case of the certificate signed by an executive officer of the Company) and to the effect that the representations and warranties of the Company and the Trust, respectively, contained in this Agreement are true and correct as of the Closing Date and that each of the Company and the Trust has complied with all of the agreements and satisfied all of the conditions on its part to be performed or satisfied 13 hereunder on or before the Closing Date. The executive officer or Administrator signing and delivering each such certificate may rely upon the best of his or her knowledge as to proceedings threatened. (c) The Initial Purchaser shall have received on the Closing Date an opinion or opinions of Cleary, Gottlieb, Steen & Hamilton, outside counsel for the Company and the Trust, dated the Closing Date, to the effect set forth in Exhibit A-1, an opinion of Diane L. Kaye, Vice President, General Counsel and Secretary of the Company, to the effect set forth in Exhibit A-2 and an opinion of Richards, Layton & Finger, special Delaware counsel to the Trust, to the effect set forth in Exhibit A-3. Such opinions shall be rendered to the Initial Purchaser at the request of the Company and the Trust and shall so state therein. (d) The Initial Purchaser shall have received on the Closing Date an opinion of Davis Polk & Wardwell, counsel for the Initial Purchaser, dated the Closing Date, to the effect set forth in Exhibit B. (e) The Initial Purchaser shall have received on each of the date hereof and on the Closing Date a letter, dated the date hereof or the Closing Date, as the case may be, in form and substance satisfactory to the Initial Purchaser, from Ernst & Young LLP, independent public accountants, containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in or incorporated by reference into each Memorandum; provided that the letter delivered on the Closing Date shall use a "cut-off date" not earlier than the date hereof. (f) The "lock-up" agreements, each substantially in the form of Exhibit C, between you and Richard Snell, Alan Johnson and Thomas Ryan relating to sales and certain other dispositions of common stock of the Company, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date. The obligations of the Initial Purchaser to purchase Additional Securities hereunder are subject to the delivery to you on the Option Closing Date of such documents as you may reasonably request with respect to the good standing of the Company and the Trust, the due authorization and issuance of the Additional Securities and other matters related to the issuance of the Additional Securities and the execution and authentication of any related Convertible Debentures. 6. Covenants of the Company and the Trust. In further consideration of 14 the agreements of the Initial Purchaser herein contained, each of the Company and the Trust covenants with the Initial Purchaser as follows: (a) To furnish to you in New York City, without charge, prior to 5:00 p.m., New York City time, on the business day next succeeding the date of this Agreement and during the period mentioned in Section 6(c), as many copies of the Final Memorandum, any documents incorporated by reference therein and any supplements and amendments thereto as you may reasonably request. (b) Before amending or supplementing either Memorandum, to furnish to you a copy of each such proposed amendment or supplement and not to use any such proposed amendment or supplement to which you reasonably object; provided, that the Company and the Trust may use any such proposed amendment or supplement, notwithstanding any such objection, if such use is, in the opinion of counsel for the Company and the Trust, necessary in order that the Final Memorandum, as so amended or supplemented, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or to cause such Final Memorandum, as amended or supplemented, to comply with applicable law. (c) If, during such period after the date hereof and prior to the date on which all of the Convertible Preferred Securities shall have been sold by the Initial Purchaser, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Final Memorandum in order to make the statements therein, in the light of the circumstances when the Final Memorandum is delivered to a purchaser, not misleading, or if, in the opinion of counsel for the Initial Purchaser, it is necessary to amend or supplement the Final Memorandum to comply with applicable law, forthwith to prepare and furnish, at its own expense, to the Initial Purchaser either amendments or supplements to the Final Memorandum so that the statements in such Final Memorandum as so amended or supplemented will not, in the light of the circumstances when such Final Memorandum is delivered to a purchaser, be misleading or so that such Final Memorandum, as amended or supplemented, will comply with applicable law. (d) To endeavor to qualify the Convertible Preferred Securities, the Guarantee, the Convertible Debentures and the Underlying Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as you shall reasonably request; provided, that neither Federal-Mogul nor the Trust will be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would 15 not otherwise be required to qualify but for this Agreement, or (ii) take any action that would subject it to general service of process in suits or to taxation in any such jurisdiction where it is not now so subject. (e) To reserve and keep available at all times, free of preemptive rights, sufficient Underlying Securities for the purpose of enabling the Company to satisfy any obligations to issue Underlying Securities upon the conversion of the Convertible Debentures and the Convertible Preferred Securities. (f) Whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all expenses incident to the performance of the Company's and the Trust's obligations under this Agreement, including: (i) the fees, disbursements and expenses of the Company's and the Trust's counsel and the Company's and the Trust's accountants in connection with the issuance and sale of the Convertible Preferred Securities and all other fees or expenses in connection with the preparation of each Memorandum and all amendments and supplements thereto, including all printing costs associated therewith, and the delivering of copies thereof to the Initial Purchaser, in the quantities herein above specified, (ii) all costs and expenses related to the transfer and delivery of the Convertible Preferred Securities to the Initial Purchaser, including any transfer or other taxes payable thereon, (iii) the cost of printing or producing any Blue Sky or legal investment memorandum in connection with the offer and sale of the Convertible Preferred Securities, the Underlying Securities, the Guarantee or the Convertible Debentures under state securities laws and all expenses in connection with the qualification of the Convertible Preferred Securities, the Underlying Securities, the Guarantee or the Convertible Debentures for offer and sale under state securities laws as provided in Section 6(d) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Initial Purchaser in connection with such qualification and in connection with the Blue Sky or legal investment memorandum, (iv) the fees and expenses, if any, incurred in connection with the admission of the Convertible Preferred Securities for trading in PORTAL or any appropriate market system, (v) the costs and charges of the Trustee and any transfer agent, registrar or depositary, (vi) the cost of the preparation, issuance and delivery of the Convertible Preferred Securities, the Underlying Securities, the Convertible Debentures and the Guarantee, (vii) the costs and expenses of the Company relating to investor presentations on any "road show" undertaken in connection with the marketing of the offering of the Convertible Preferred Securities, including, without limitation, reasonable expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with 16 the prior written approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants (for the avoidance of doubt, excluding transportation and lodging expenses of any representatives of the Initial Purchaser), and the cost of any aircraft chartered with the prior written approval of the Company in connection with the road show, and (viii) all other cost and expenses of the Company and the Trust incident to the performance by the Company and the Trust of their obligations hereunder for which provision is not otherwise made in this Section. It is understood, however, that except as provided in this Section, Section 8, and the last paragraph of Section 10, the Initial Purchaser will pay all of its costs and expenses, including fees and disbursements of its counsel, transfer taxes payable on resale of any of the Convertible Preferred Securities by it and any advertising expenses connected with any offers it may make. (g) Neither the Company nor any Affiliate will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) that could be integrated with the sale of the Convertible Preferred Securities in a manner that would require the registration under the Securities Act of the Convertible Preferred Securities. (h) Not to solicit any offer to buy or offer or sell the Convertible Preferred Securities or the Underlying Securities by means of any form of general solicitation or general advertising (as those terms are defined in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act. (i) While any of the Convertible Preferred Securities or the Underlying Securities remain "restricted securities" within the meaning of the Securities Act, to make available, upon request, to any seller of such Convertible Preferred Securities the information specified in Rule 144A(d)(4) under the Securities Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange Act. (j) During the period of two years after the Closing Date or the Option Closing Date, if later, the Company will not, and will not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to resell any of the Securities or the Underlying Securities that constitute "restricted securities" under Rule 144 that have been reacquired by any of them. (k) To use its best efforts to permit the Convertible Preferred Securities to be designated PORTAL securities in accordance with the rules and regulations adopted by the National Association of Securities 17 Dealers, Inc. relating to trading in the PORTAL Market. (l) None of the Company, its Affiliates or any person acting on its or their behalf (other than the Initial Purchaser) will engage in any directed selling efforts (as that term is defined in Regulation S) with respect to the Convertible Preferred Securities, and the Company and its Affiliates and each person acting on its or their behalf (other than the Initial Purchaser) will comply with the offering restrictions requirement of Regulation S. (m) To cause the Underlying Securities to be listed or approved for listing on the New York Stock Exchange, Inc. as promptly as practicable, but in any event within 90 days from the later of the Closing Date and the Option Closing Date. 7. Offering of Securities; Restrictions on Transfer. (a) The Initial Purchaser represents and warrants that it is a qualified institutional buyer as defined in Rule 144A under the Securities Act (a "QIB"). The Initial Purchaser agrees with the Company that (i) it will not solicit offers for, or offer or sell, the Convertible Preferred Securities by any form of general solicitation or general advertising (as those terms are defined in Regulation D under the Securities Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act and (ii) it will solicit offers for such Convertible Preferred Securities only from, and will offer and sell the Convertible Preferred Securities only to, persons that it reasonably believes to be (A) in the case of offers inside the United States, QIBs, and (B) in the case of offers or sales outside the United States, to persons other than U.S. persons ("FOREIGN PURCHASERS," which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other than an estate or trust)) in reliance upon Regulation S under the Securities Act that, in each case, in purchasing the Convertible Preferred Securities are deemed to have represented and agreed as provided in the Final Memorandum under the caption "Transfer Restrictions." (b) The Initial Purchaser represents, warrants, and agrees with respect to offers and sales outside the United States that: (i) the Initial Purchaser understands that no action has been or will be taken in any jurisdiction by the Company or the Trust that would permit a public offering of the Convertible Preferred Securities, or possession or distribution of either Memorandum or any other offering or publicity material relating to the Convertible Preferred Securities, in any country or jurisdiction where action for that purpose is required; (ii) the Initial Purchaser will comply with all applicable laws and 18 regulations in each jurisdiction in which it acquires, offers, sells or delivers Convertible Preferred Securities or has in its possession or distributes either Memorandum or any such other material, in all cases at its own expense; (iii) the Convertible Preferred Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Rule 144A or Regulation S under the Securities Act or pursuant to another exemption from the registration requirements of the Securities Act; (iv) the Initial Purchaser has offered the Convertible Preferred Securities and will offer and sell the Convertible Preferred Securities (A) as part of their distribution at any time and (B) otherwise until 40 days after the later of the commencement of the offering and the Closing Date (or Option Closing Date, if later), only in accordance with Rule 903 of Regulation S or as otherwise permitted in Section 7(a); accordingly, neither the Initial Purchaser, its Affiliates nor any persons acting on its or their behalf have engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Convertible Preferred Securities, and the Initial Purchaser, its Affiliates and any such persons have complied and will comply with the offering restrictions requirement of Regulation S; (v) the Initial Purchaser has (A) not offered or sold and, prior to the date six months after the Closing Date, will not offer or sell any Convertible Preferred Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (B) complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Convertible Preferred Securities in, from or otherwise involving the United Kingdom, and (C) only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Convertible Preferred Securities to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on; (vi) the Initial Purchaser understands that the Convertible Preferred Securities have not been and will not be registered under the 19 Securities and Exchange Law of Japan, and represents that it has not offered or sold, and agrees not to offer or sell, directly or indirectly, any Convertible Preferred Securities in Japan or for the account of any resident thereof except pursuant to any exemption from the registration requirements of the Securities and Exchange Law of Japan and otherwise in compliance with applicable provisions of Japanese law; and (vii) the Initial Purchaser agrees that, at or prior to confirmation of sales of the Convertible Preferred Securities, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Convertible Preferred Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the U.S. Securities Act of 1933 (the "Securities Act") and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the final closing date, except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above have the meaning given to them by Regulation S." Terms used in this Section 7(b) have the meanings given to them by Regulation S. 8. Indemnity and Contribution. (a) Each of the Company and the Trust jointly and severally agrees to indemnify and hold harmless the Initial Purchaser and each person, if any, who controls the Initial Purchaser within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) caused by any untrue statement or alleged untrue statement of a material fact contained in either Memorandum (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to the Initial Purchaser furnished to the Company and the Trust in writing by the Initial Purchaser expressly for use therein; provided, 20 that the indemnification contained in this paragraph (a) with respect to the Preliminary Memorandum shall not inure to the benefit of the Initial Purchaser (or to the benefit of any person controlling the Initial Purchaser) on account of any such loss, claim, damage, judgment, liability or expense arising from the sale of the Convertible Preferred Securities by the Initial Purchaser to any person if the untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in the Preliminary Memorandum was corrected in the Final Memorandum and the Initial Purchaser sold Convertible Preferred Securities to that person without sending or giving, at or prior to the written confirmation of such sale, a copy of the Final Memorandum (as then amended or supplemented) if the Company or the Trust had previously furnished sufficient copies thereof to the Initial Purchaser on a timely basis. (b) The Initial Purchaser agrees to indemnify and hold harmless the Trust, the FMFT Trustees, the Company, its directors, its officers and each person, if any, who controls the Trust or the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company and the Trust to the Initial Purchaser, but only with reference to information relating to the Initial Purchaser furnished to the Company and the Trust in writing by the Initial Purchaser expressly for use in either Memorandum or any amendments or supplements thereto. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b), such person (the "INDEMNIFIED PARTY") shall promptly notify the person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all such indemnified parties and that all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by Morgan Stanley & Co. 21 Incorporated, in the case of parties indemnified pursuant to Section 8(a), and by the Company, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (d) To the extent the indemnification provided for in Section 8(a) or 8(b) is unavailable to an indemnified party or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each indemnifying party under such paragraph, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Trust on the one hand and the Initial Purchaser on the other hand from the offering of the Convertible Preferred Securities or (ii) if the allocation provided by clause 8(d)(i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) above but also the relative fault of the Company and the Trust on the one hand and of the Initial Purchaser on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Trust on the one hand and the Initial Purchaser on the other hand in connection with the offering of the Convertible Preferred Securities shall be deemed to be in the same respective proportions as the net proceeds from the offering of the Convertible Preferred Securities (before deducting expenses) received by the Trust and the total discounts and commissions received by the Initial Purchaser, in each case as set forth in the Final Memorandum, bear to the aggregate offering price of the Convertible Preferred Securities. The relative fault of the Company and the Trust on the one hand and of the Initial Purchaser on the 22 other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Trust or by the Initial Purchaser and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) The Company, the Trust and the Initial Purchaser agree that it would not be just or equitable if contribution pursuant to this Section 8 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in Section 8(d) shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, the Initial Purchaser shall not be required to contribute any amount in excess of the amount by which the total price at which the Convertible Preferred Securities resold by it in the initial placement of such Convertible Preferred Securities were offered to investors exceeds the amount of any damages that the Initial Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 8 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. (f) The indemnity and contribution provisions contained in this Section 8 and the representations, warranties and other statements of the Company and the Trust contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of the Initial Purchaser or any person controlling the Initial Purchaser or by or on behalf of the Trust, the FMFT Trustees, the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Convertible Preferred Securities. 9. Termination. This Agreement shall be subject to termination by notice given by you to the Company, if (a) after the execution and delivery of this Agreement and prior to the Closing Date (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities 23 of the Company or the Trust shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in your judgment, is material and adverse and (b) in the case of any of the events specified in clauses 9(a)(i) through 9(a)(iv), such event, singly or together with any other such event, makes it, in your judgment, impracticable to market the Convertible Preferred Securities on the terms and in the manner contemplated in the Final Memorandum. If this Agreement shall be terminated by the Initial Purchaser because of any failure or refusal on the part of the Company or the Trust to comply with the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company or the Trust shall be unable to perform its obligations under this Agreement, the Company will reimburse the Initial Purchaser for all out-of-pocket expenses (including the fees and disbursements of their counsel) reasonably incurred by the Initial Purchaser in connection with this Agreement or the offering contemplated hereunder. 24 10. Effectiveness. This Agreement shall become effective upon the execution and delivery hereof by the parties hereto. 11. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 12. Applicable Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York. 13. Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed a part of this Agreement. Very truly yours, FEDERAL-MOGUL FINANCING TRUST By: FEDERAL-MOGUL CORPORATION, as Sponsor By:__________________________ Name: Title: FEDERAL-MOGUL CORPORATION By:__________________________ Name: Title: Accepted as of the date hereof MORGAN STANLEY & CO. INCORPORATED By:____________________________ Name: Title: 25 EXHIBIT A-1 OPINION OF OUTSIDE COUNSEL FOR THE COMPANY AND THE TRUST The opinion of Cleary, Gottlieb, Steen & Hamilton, outside counsel for the Company and the Trust to be delivered pursuant to Section 5(c) of the Purchase Agreement, shall be to the effect that: A. The Indenture is a valid, binding and enforceable agreement of the Company. B. The Convertible Debentures are valid, binding and enforceable obligations of the Company, entitled to the benefits of the Indenture. C. The Guarantee is a valid, binding and enforceable agreement of the Company. D. The statements in the Final Memorandum set forth under the headings "Federal-Mogul Financing Trust," "Description of the Convertible Preferred Securities," "Description of the Guarantee," "Description of the Convertible Debentures" and "Transfer Restrictions" in the Final Memorandum, insofar as such statements purport to summarize certain provisions of the Guarantee, the Convertible Debentures and the Indenture, provide a fair summary of such provisions. E. The Registration Rights Agreement is a valid, binding and enforceable agreement of the Company (except that such counsel may state that it expresses no opinion with respect to Section 6 of the Registration Rights Agreement providing for indemnification and contribution). F. The issuance and sale of the Convertible Preferred Securities by the Trust to the Initial Purchaser pursuant to the Purchase Agreement, the performance by the Trust and the Company of their respective obligations in the Purchase Agreement, the Declaration, the Registration Rights Agreement, the Guarantee, the Indenture and the Convertible Preferred Securities do not require any consent, approval, authorization, registration or qualification of or with any governmental authority of the United States or the State of New York, except such as may be required by the United States federal securities laws pursuant to the Registration Rights Agreement (but such counsel may state that they express no opinion as to any consent, approval, authorization, registration or qualification that may be required under state securities or Blue Sky laws). 26 G. Assuming the accuracy of the representations and warranties and compliance with the agreements contained in the Purchase Agreement (other than the representation and warranty contained in Section 1(y) thereof), no registration of the Convertible Preferred Securities, the Guarantee, the Convertible Debentures or the Underlying Shares under the Securities Act and no qualification of the Indenture under the Trust Indenture Act are required for the offer and sale of the Convertible Preferred Securities in the manner contemplated by the Purchase Agreement. H. The Trust is not and, after giving effect to the offering and sale of the Convertible Preferred Securities and the application of the proceeds thereof as described in the Final Memorandum, will not be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. I. Under current law and assuming full compliance with the terms of the Indenture and the Declaration, the Convertible Debentures will be classified for United States federal income tax purposes as indebtedness of the Company. J. Under current law and assuming full compliance with the terms of the Declaration and the Indenture, the Trust will be classified as a grantor trust and not as an association taxable as a corporation. K. The discussion set forth in the Final Memorandum under the caption "United States Federal Income Taxation" fairly and accurately summarizes the specific tax matters addressed therein, based upon current las and the assumptions stated or referred to therein. L. (i) The documents incorporated by reference in the Final Memorandum (except for financial statements and schedules and other financial and statistical data included therein and the Exhibits thereto, as to which such counsel need not express any view), as of the respective dates of their filing with the Commission, appeared on their face to be appropriately responsive in all material respects to the requirements of the Exchange Act and the rules and regulations thereunder. (ii) No information has come to the attention of such counsel that causes them to believe that the Final Memorandum (except the financial statements and schedules and other financial and statistical data, the information contained under the heading "Summary of Principal Differences Between Generally Accepted Accounting Principles in the United States and the United Kingdom" therein and the information appearing in Annex A, Annex B and Annex C thereto, as to which such counsel need not express any view), as of the date thereof or as of the date of such opinion, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary A-1-2 27 in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. With respect to paragraph L above, counsel may state that their opinion and belief are based upon their participation in the preparation of the Final Memorandum (and any amendments or supplements thereto) and review and discussion of the contents thereof and review of the documents incorporated by reference therein, but are without independent check or verification except as specified. Such counsel may state that, insofar as the foregoing opinions relate to the validity, binding effect or enforceability of any agreement or obligation of the Company or the Trust, (a) they have assumed that the Company and the Trust and each other party to such agreement or obligation has satisfied those legal requirements that are applicable to it to the extent necessary to make such agreement or obligation enforceable against it (except that no such assumption may be made as to the Company or the Trust regarding matters of the laws of the State of New York), and (b) such opinions are subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and to general principles of equity. A-1-3 28 EXHIBIT A-2 OPINION OF GENERAL COUNSEL OF THE COMPANY The opinion of Diane L. Kaye, Vice President, General Counsel and Secretary of the Company, to be delivered pursuant to Section 5(c) of the Purchase Agreement, shall be to the effect that: A. The Company has been duly incorporated, is validly existing as a corporation in good standing under the laws of the State of Michigan, with corporate power to own its properties and conduct its business as described in the Final Memorandum, and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. B. The shares of common stock outstanding on the [Closing Date] [Option Closing Date] have been duly authorized and are validly issued, fully paid and non-assessable. C. The authorized capital stock of the Company conforms as to legal matters to the description thereof contained in the Final Memorandum. D. All of the issued and outstanding capital stock of each Significant Subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and is owned beneficially and of record directly or indirectly by the Company free and clear of all liens, encumbrances, equities or claims, except to the extent that failure to be so authorized, issued and fully paid and non-assessable and so owned would not have a material adverse effect on the Company and its subsidiaries, taken as a whole. E. The Underlying Securities reserved for issuance upon the conversion of the Convertible Debentures and the Convertible Preferred Securities have been duly authorized and reserved and, when issued upon such conversion of the Convertible Debentures or the Convertible Preferred Securities in accordance with the terms thereof, will be validly issued, fully paid and non-assessable, and the issuance of such Underlying Securities will not be subject to any preemptive or similar rights. F. The execution and delivery of each of the Indenture, the Declaration, the Guarantee, the Registration Rights Agreement and the Purchase 29 Agreement have been duly authorized by all necessary corporate action of the Company, and each such document has been duly executed and delivered by the Company. G. The execution and delivery of the Convertible Debentures have been duly authorized by all necessary corporate action of the Company, and the Convertible Subordinated Debentures in global form have been duly executed and delivered by the Company. H. The statements set forth under the heading "Description of the Federal-Mogul Capital Stock" in the Final Memorandum, insofar as such statements purport to summarize certain provisions of the capital stock of the Company, provide a fair summary of such provisions, and the statements set forth under the heading "Part I.--Item 3. Legal Proceedings" in the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1996, insofar as the statements therein purport to summarize of the legal proceedings referred to therein, provide a fair summary of such proceedings. I. To the knowledge of such counsel (after reasonable investigation), other than as described in the Final Memorandum, no legal or governmental proceedings are pending or threatened to which the Company or any of its subsidiaries or the Trust is a party or to which any of the assets of the Company or any of its subsidiaries or the Trust are subject other than proceedings with respect to which there is not a reasonable probability of an adverse decision and that, if adversely decided, would have a material adverse effect on the Trust or on the Company and its subsidiaries (including the Trust), taken as a whole, or on the power or ability of the Company to perform its obligations under the Purchase Agreement, the Registration Rights Agreement, the Declaration, the Guarantee, the Indenture, the Convertible Debentures or the Convertible Preferred Securities or to consummate the transactions contemplated by the Final Memorandum. J. The execution and delivery by the Company of, and the performance by the Company of its obligations under, the Purchase Agreement, the Declaration, the Registration Rights Agreement, the Guarantee, the Indenture and the Convertible Debentures (a) do not require any consent, approval, authorization, registration or qualification of or with any governmental authority of the United States or the State of Michigan, except such as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Convertible Preferred Securities and by Federal and state securities laws with respect to the Company's obligations under the Registration Rights Agreement, (b) do not result in a breach or violation of the federal laws of the United States or the laws of the State of Michigan or the Company's articles of incorporation or bylaws and (c) to the best of such counsel's knowledge, do not A-2-2 30 result in any breach or violation of any agreement or other instrument binding upon the Company or any of its subsidiaries that is material to the Company and its subsidiaries, taken as a whole, or, to the best of such counsel's knowledge, any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Company or any subsidiary. K. The Company is not and, after giving effect to the offering and sale of the Convertible Debentures and the Convertible Preferred Securities and the application of the proceeds thereof as described in the Final Memorandum, will not be an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. A-2-3 31 EXHIBIT A-3 OPINION OF SPECIAL DELAWARE COUNSEL FOR THE TRUST The opinion of Richards, Layton & Finger, special Delaware counsel for the Trust, to be delivered pursuant to Section 5(c) of the Purchase Agreement, shall be to the effect that: A. The Trust has been duly created and is validly existing in good standing as a business trust under the Delaware Business Trust Act and all filings required under the laws of the State of Delaware with respect to the creation and valid existence of the Trust as a business trust have been made. B. Under the Declaration and the Delaware Business Trust Act, the Trust has the trust power and authority to own its properties and conduct its business, all as described in the Memorandum. C. The Declaration constitutes a valid and binding obligation of the Company, the Administrators and the Trustees, and is enforceable against the Company, the Administrators and the Trustees, in accordance with its terms. D. Under the Declaration and the Delaware Business Trust Act, the Trust has the trust power and authority to (A) execute and deliver the Purchase Agreement and the Registration Rights Agreement and to perform its obligations under the Purchase Agreement and the Registration Rights Agreement, and (B) issue and perform its obligations under the Trust Securities. E. Under the Declaration and the Delaware Business Trust Act, the execution and delivery by the Trust of the Purchase Agreement and the Registration Rights Agreement, and the performance by the Trust of its obligations thereunder, have been duly authorized by all necessary trust action on the part of the Trust. F. The Convertible Preferred Securities have been duly authorized by the Declaration and are duly and validly issued and, subject to the qualifications set forth herein, fully paid and nonassessable undivided beneficial interests in the assets of the Trust. The holders of the Convertible Preferred Security, as beneficial owners of the Trust, will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. Such counsel may state, however, that the holders of Convertible Preferred Security may be obligated, pursuant to the Declaration, (A) to provide indemnity and/or security in 32 connection with and pay taxes or governmental charges arising from transfers of Convertible Preferred Securities and the issuance of replacement Convertible Preferred Securities, and (B) to provide security or indemnity in connection with requests of or directions to the Property Trustee to exercise its rights and powers under the Declaration. G. The Common Securities have been duly authorized by the Declaration and are duly and validly issued undivided beneficial interests in the assets of the Trust. H. Under the Declaration and the Delaware Business Trust Act, the issuance of the Trust Securities is not subject to preemptive rights. I. The issuance and the sale of the Trust Securities by the Trust, the execution, delivery and performance by the Trust of the Purchase Agreement and the Registration Rights Agreement, the consummation by the Trust of the transactions contemplated by the Purchase Agreement and the Registration Rights Agreement and compliance by the Trust with its obligations under the Purchase Agreement and the Registration Rights Agreement do not violate (A) the Certificate or the Declaration, or (B) any applicable Delaware law or Delaware administrative regulation. J. After due inquiry on November __, 1997, limited to, and solely to the extent disclosed thereupon, the court dockets for active cases of the Court of Chancery of the State of Delaware in and for New Castle County, Delaware, of the Superior Court of the State of Delaware in and for New Castle County, Delaware, and of the United States Federal District Court sitting in the State of Delaware, we do not know of any legal or governmental proceeding pending against the Trust. K. No authorization, approval, consent or order of any Delaware court or any Delaware governmental authority or Delaware agency is required to be obtained by the Trust solely in connection with the issuance and sale of the Trust Securities. L. The Convertible Preferred Security Holders (other than those Convertible Preferred Security Holders who reside or are domiciled in the State of Delaware) will have no liability for income taxes imposed by the State of Delaware solely as a result of their participation in the Trust, and the Trust will not be liable for any income tax imposed by the State of Delaware. Such counsel may state that the opinion expressed in paragraph C above is subject, as to enforcement, to the effect upon the Declaration of (i) bankruptcy, A-3-2 33 insolvency, moratorium, receivership, reorganization, liquidation, fraudulent conveyance or transfer and other similar laws relating to or affecting the rights and remedies of creditors generally, (ii) principles of equity, including applicable law relating to fiduciary duties (regardless of whether considered and applied in a proceeding in equity or at law), and (iii) the effect of applicable public policy on the enforceability of provisions relating to the indemnification or contribution. A-3-3 34 EXHIBIT B OPINION OF DAVIS POLK & WARDWELL The opinion of Davis Polk & Wardwell to be delivered pursuant to Section 5(d) of the Purchase Agreement shall be to the effect that: A. The Convertible Debentures, when executed and authenticated in accordance with the provisions of the Indenture and delivered by the Company against payment therefor as described in the Final Memorandum, will be valid and binding obligations of the Company, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and general principles of equity, and will be entitled to the benefits of the Indenture. B. Each of the Indenture, the Guarantee, the Declaration and the Registration Rights Agreement is, assuming due authorization, execution and delivery thereof by the parties thereto, a valid and binding agreement of the parties thereto, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and general principles of equity and except as rights to indemnification and contribution under the Registration Rights Agreement may be limited under applicable law. C. The statements in the Final Memorandum under the captions "Federal-Mogul Financing Trust," "Description of the Convertible Preferred Securities," "Description of the Guarantee," "Description of the Convertible Debentures," "Plan of Distribution" and "Transfer Restrictions," insofar as such statements constitute summaries of the legal matters or documents referred to therein, fairly summarize the matters referred to therein. D. No facts have come to the attention of such counsel to cause such counsel to believe that (except for financial statements and schedules and other financial and statistical data included or incorporated by reference, and except for the information contained in the section thereof entitled "Summary of Certain Differences Between Generally Accepted Accounting Principles in the United States and in the United Kingdom" and in Annex A, Annex B or Annex C thereto, as to which such counsel need not express any belief) the Final Memorandum when issued contained, or as of the date such opinion is delivered contains, any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 35 E. Based upon the representations, warranties and agreements of the Company and the Trust in Sections 1(v), 1(w), 1(x), 6(g), 6(h) and 6(l) of the Purchase Agreement and of the Initial Purchaser in Section 7 of the Purchase Agreement, it is not necessary in connection with the offer, sale and delivery of the Convertible Preferred Securities to the Initial Purchaser under the Purchase Agreement or in connection with the initial resale of such Convertible Preferred Securities by the Initial Purchaser in accordance with Section 7 of the Purchase Agreement to register the Convertible Preferred Securities, the Underlying Securities, the Guarantee or the Convertible Debentures under the Securities Act of 1933 or to qualify the Indenture under the Trust Indenture Act, it being understood that no opinion is expressed as to any subsequent resale of any Convertible Preferred Security or Underlying Security. With respect to paragraph F above, Davis Polk & Wardwell may state that their opinion and belief are based upon their participation in the preparation of the Final Memorandum (and any amendments or supplements thereto) and review and discussion of the contents thereof (including the review of, but not participation in the preparation of, the incorporated documents), but are without independent check or verification except as specified. B-2 36 EXHIBIT C LOCK-UP LETTER November 24, 1997 Morgan Stanley & Co. Incorporated 1585 Broadway New York, NY 10036 Dear Sirs and Mesdames: The undersigned understands that Morgan Stanley & Co. Incorporated ("MORGAN STANLEY") proposes to enter into a Purchase Agreement (the "PURCHASE AGREEMENT") with Federal-Mogul Financing Trust, a special purpose statutory business trust formed under the laws of the State of Delaware (the "TRUST"), providing for the offering (the "OFFERING") by Morgan Stanley, as Initial Purchaser (the "INITIAL PURCHASER"), of 10,000,000 7% convertible preferred securities, liquidation preference $50 per convertible preferred security (the "CONVERTIBLE PREFERRED SECURITIES"), and up to an additional 1,500,000 Convertible Preferred Securities that are subject to an over-allotment option. The Convertible Preferred Securities will be convertible into shares of common stock without par value of Federal-Mogul Corporation, a Michigan corporation (the "COMMON STOCK"). 37 To induce the Initial Purchaser to enter into the Purchase Agreement, the undersigned hereby agrees that, without the prior written consent of Morgan Stanley, it will not, during the period commencing as of the date hereof and ending 90 days after the date of the final offering memorandum relating to the Offering (the "FINAL MEMORANDUM"), (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (i) transactions relating to shares of Common Stock or other securities acquired in open market transactions after the completion of the Offering, (ii) sales of shares of Common Stock or securities convertible into or exercisable or exchangeable for shares of Common Stock, (iii) the exercise of any options with respect to the Common Stock, or (iv) transfers of any Common Stock or securities convertible into or exercisable or exchangeable for shares of Common Stock to a person or an entity that is controlled by the undersigned and that agrees to be bound by the agreements set forth herein. The undersigned understands that whether or not the Offering actually occurs depends on a number of factors, including market conditions, and that any Offering will be made only pursuant to a Purchase Agreement, the terms of which are subject to negotiation between the Company and the Initial Purchaser. Very truly yours, (Name) __________________________ (Address) __________________________ EX-4.7 6 EX-4.7 1 EXHIBIT 4.7 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as of December 1, 1997 by and among Federal-Mogul Corporation, a Michigan corporation ("FEDERAL-MOGUL"), Federal-Mogul Financing Trust, a special purpose business trust created under the laws of the State of Delaware (the "TRUST"), and Morgan Stanley & Co. Incorporated (the "INITIAL PURCHASER") pursuant to the Purchase Agreement, dated as of November 24, 1997 (the "PURCHASE AGREEMENT"), among Federal-Mogul, the Trust and the Initial Purchaser. In order to induce the Initial Purchaser to enter into the Purchase Agreement, Federal-Mogul and the Trust have agreed to provide the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing under the Purchase Agreement. Federal-Mogul and the Trust agree with the Initial Purchaser, (i) for its benefit as Initial Purchaser and (ii) for the benefit of the beneficial owners (including the Initial Purchaser) from time to time of the Convertible Preferred Securities (as defined herein) and the beneficial owners from time to time of the Underlying Common Stock (as defined herein) issued upon conversion of the Convertible Debentures (as defined herein) (each of the foregoing a "HOLDER" and together the "HOLDERS"), as follows: Section 1. Definitions. Capitalized terms used herein without definition shall have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: Affiliate: With respect to any specified person, an "affiliate," as defined in Rule 144, of such person. Amendment Effectiveness Deadline Date: See Section 2(d) hereof. Applicable Conversion Price: The Applicable Conversion Price as of any date of determination means the Conversion Price in effect as of such date of determination or, if no Convertible Debentures are then outstanding, the Conversion Price that would be in effect were Convertible Debentures then outstanding. Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close. Common Stock: The shares of common stock without par value of Federal- Mogul and any other shares of common stock as may constitute "Common Stock" for purposes of the Indenture, including the Underlying Common Stock. 2 Conversion Price: Conversion Price shall have the meaning assigned such term in the Indenture. Convertible Debentures: The 7% Convertible Junior Subordinated Debentures of Federal-Mogul to be purchased by the Trust pursuant to the Debenture Purchase Agreement dated the date hereof between Federal-Mogul and the Trust. Convertible Preferred Securities: The 7% Trust Convertible Preferred Securities of the Trust. Damages Accrual Period: See Section 2(e) hereof. Damages Payment Date: Each payment date under the Declaration, in the case of Convertible Preferred Securities, each Interest Payment Date (as defined in the Indenture), in the case of Convertible Debentures, and each March 1, June 1, September 1 and December 1, in the case of Underlying Common Stock. Declaration: The Amended and Restated Declaration of Trust, dated as of the date hereof, of the Trust. Deferral Notice: See Section 3(i) hereof. Deferral Period: See Section 3(i) hereof. Effectiveness Deadline Date: See Section 2(a) hereof. Effectiveness Period: The period commencing with the date hereof and ending on the date that all Registrable Securities have ceased to be Registrable Securities. Event: See Section 2(e) hereof. Event Termination Date: See Section 2(e) hereof. Event Date: See Section 2(e) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Filing Deadline Date: See Section 2(a) hereof. Guarantee: The guarantee by Federal-Mogul of the Convertible Preferred Securities pursuant to the Preferred Securities Guarantee Agreement dated as of the date hereof. 2 3 Holder: See the second paragraph of this Agreement. Indenture: The Indenture dated as of the date hereof between Federal-Mogul and The Bank of New York, as trustee, pursuant to which the Convertible Debentures are being issued, as amended by the First Supplemental Indenture dated as of the date hereof between Federal-Mogul and The Bank of New York, as trustee. Initial Purchaser: Morgan Stanley & Co. Incorporated. Initial Shelf Registration Statement: See Section 2(a) hereof. Liquidated Damages Amount: See Section 2(e) hereof. Losses: See Section 6 hereof. Material Event: See Section 3(i) hereof. Notice and Questionnaire: A written notice delivered to Federal-Mogul and the Trust containing substantially the information called for by the Notice and Questionnaire attached as Appendix A to the Offering Memorandum of Federal-Mogul and the Trust dated November 24, 1997 relating to the Convertible Preferred Securities. Notice Holder: On any date, any Holder that has delivered a Notice and Questionnaire to Federal-Mogul or the Trust on or prior to such date. Prospectus: The prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any amendment or prospectus supplement, including post-effective amendments, and all material incorporated by reference or explicitly deemed to be incorporated by reference in such Prospectus. Purchase Agreement: See the first paragraph of this Agreement. Record Holder: (i) With respect to any Damages Payment Date relating to any Convertible Preferred Security or Convertible Debenture as to which any such Liquidated Damages Amount has accrued, the Registered Holder of such Convertible Preferred Security or Convertible Debenture on the record date with respect to the distribution payment date under the Declaration or the interest payment date under the Indenture, as the case may be, on which such Damages Payment Date shall occur and (ii) with respect to any Damages Payment Date relating to any Underlying Common Stock as to which any 3 4 such Liquidated Damages Amount has accrued, the registered holder of such Underlying Common Stock 15 days prior to the next succeeding Damages Payment Date. Registered Holder: The holder of a Convertible Preferred Security that is registered as such on the books of the Trust. Registrable Securities: The Convertible Preferred Securities, the Guarantee, the Convertible Debentures and the Underlying Common Stock, until such securities have been converted or exchanged, and, at all times subsequent to any such conversion or exchange, any securities into or for which such securities have been converted or exchanged, and any security issued with respect thereto upon any stock dividend, split or similar event until, in the case of any such security, (A) the earliest of (i) its effective registration under the Securities Act and resale in accordance with the Registration Statement covering it, (ii) expiration of the holding period that would be applicable thereto under Rule 144(k) were it not held by an Affiliate of Federal-Mogul or the Trust or (iii) its sale to the public pursuant to Rule 144, and (B) as a result of the event or circumstance described in any of the foregoing clauses (i) through (iii), the legends with respect to transfer restrictions required under the Declaration and the Indenture are removed or removable in accordance with the terms of the Declaration or the Indenture, as the case may be. Registration Expenses: See Section 5 hereof. Registration Statement: Any registration statement of Federal-Mogul or the Trust that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or explicitly deemed to be incorporated by reference in such registration statement. Restricted Securities: As this term is defined in Rule 144. Rule 144: Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. Rule 144A: Rule 144A under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. 4 5 Shelf Registration Statement: See Section 2(a) hereof. Subsequent Shelf Registration Statement: See Section 2(b) hereof. TIA: The Trust Indenture Act of 1939, as amended. Trustee: The Bank of New York (or any successor entity), the Institutional Trustee under the Declaration and the Trustee under the Indenture. Underlying Common Stock: The Common Stock into which the Convertible Debentures are convertible. Section 2. Shelf Registration. (a) Federal-Mogul and the Trust shall prepare and file with the SEC, as soon as practicable but in any event by the date (the "FILING DEADLINE DATE") one hundred and eighty (180) days after the date hereof, a Registration Statement for an offering to be made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act (a "SHELF REGISTRATION STATEMENT") registering the resale from time to time by Holders thereof of all of the Registrable Securities (the "INITIAL SHELF REGISTRATION STATEMENT"). The Initial Shelf Registration Statement shall be on Form S-3 or another appropriate form permitting registration of such Registrable Securities for resale by such Holders in accordance with the methods of distribution elected by the Holders and set forth in the Initial Shelf Registration Statement. Federal-Mogul and the Trust shall use their best efforts to cause the Initial Shelf Registration Statement to become effective under the Securities Act as promptly as is practicable but in any event by the date (the "EFFECTIVENESS DEADLINE DATE") two hundred and seventy (270) days after the date hereof, and to keep the Initial Shelf Registration Statement (or any Subsequent Shelf Registration Statement) continuously effective under the Securities Act until the expiration of the Effectiveness Period. At the time the Initial Shelf Registration Statement becomes effective, each Holder that became a Notice Holder on or prior to the date ten Business Days prior to such time of effectiveness shall be named as a selling securityholder in the Initial Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of Registrable Securities in accordance with applicable law. (b) If the Initial Shelf Registration Statement or any Subsequent Shelf Registration Statement ceases to be effective for any reason at any time during the Effectiveness Period (other than because all Registrable Securities registered thereunder shall have been resold pursuant thereto or shall have ceased to be Registrable Securities), Federal-Mogul and the Trust shall use their best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within thirty (30) days of such cessation of effectiveness amend the Shelf Registration Statement in a manner reasonably expected to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional Shelf Registration Statement covering all of the 5 6 securities that as of the date of such filing are Registrable Securities (a "SUBSEQUENT SHELF REGISTRATION STATEMENT"). If a Subsequent Shelf Registration Statement is filed, Federal-Mogul and the Trust shall use their best efforts to cause the Subsequent Shelf Registration Statement to become effective as promptly as is practicable after such filing and to keep such Registration Statement (or subsequent Subsequent Shelf Registration Statement) continuously effective until the end of the Effectiveness Period. (c) Federal-Mogul and the Trust shall supplement and amend the Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used by Federal-Mogul and the Trust for such Shelf Registration Statement, if required by the Securities Act or, to the extent to which Federal-Mogul and the Trust do not reasonably object, as reasonably requested by the Initial Purchaser or by the Trustee on behalf of the Registered Holders. (d) Each Holder of Registrable Securities agrees that if such Holder wishes to sell Registrable Securities pursuant to a Shelf Registration Statement and related Prospectus, it will do so only in accordance with this Section 2(d) and Section 3(i). Each Holder of Registrable Securities wishing to sell Registrable Securities pursuant to a Shelf Registration and related Prospectus agrees to deliver a Notice and Questionnaire to Federal-Mogul and the Trust at least three (3) Business Days prior to any intended distribution of Registrable Securities under the Shelf Registration Statement. From and after the date the Initial Shelf Registration Statement becomes effective, Federal-Mogul and the Trust shall, as promptly as is practicable after the date a Notice and Questionnaire is delivered, and in any event within five (5) Business Days after such date, (i) if required by applicable law, file with the SEC a post-effective amendment to the Shelf Registration Statement or prepare and, if required by applicable law, file a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that the Holder delivering such Notice and Questionnaire is named as a selling securityholder in the Shelf Registration Statement and the related Prospectus in such a manner as to permit such Holder to deliver such Prospectus to purchasers of the Registrable Securities in accordance with applicable law and, if Federal-Mogul and the Trust shall file a post-effective amendment to the Shelf Registration Statement, use their best efforts to cause such post-effective amendment to become effective under the Securities Act as promptly as is practicable, but in any event by the date (the "AMENDMENT EFFECTIVENESS DEADLINE DATE") forty-five (45) days after the date such post-effective amendment is required by this clause to be filed; (ii) provide such Holder copies of any documents filed pursuant to Section 2(d)(i); and (iii) notify such Holder as promptly as practicable after the effectiveness under the Securities Act of any post-effective amendment filed pursuant to Section 2(d)(i); provided, that if such Notice and Questionnaire is delivered during a Deferral Period, Federal-Mogul and the Trust shall so inform the Holder delivering such Notice and Questionnaire and shall take the actions set forth in clauses (i), (ii) and (iii) above upon expiration of the Deferral Period in accordance with Section 2(j). Federal-Mogul and the Trust shall be under no 6 7 obligation to name any Holder that is not a Notice Holder as a selling securityholder in any Registration Statement or related Prospectus. (e) The parties hereto agree that the Holders of Registrable Securities will suffer damages, and that it would not be feasible to ascertain the extent of such damages with precision, if (i) the Initial Shelf Registration Statement has not been filed on or prior to the Filing Deadline Date, (ii) the Initial Shelf Registration Statement has not become effective under the Securities Act on or prior to the Effectiveness Deadline Date, (iii) Federal-Mogul and the Trust have failed to perform their obligations set forth in Section 2(d) within the time period required, (iv) any post-effective amendment to the Shelf Registration Statement filed pursuant to Section 2(d)(1)(A) has not become effective under the Securities Act on or prior to the Amendment Effectiveness Deadline Date, (v) the aggregate duration of Deferral Periods in any period exceeds the number of days permitted in respect of such period pursuant to Section 3(i) hereof or (vi) the number of Deferral Periods in any period exceeds the number permitted in respect of such period pursuant to Section 3(i) (each of the events of a type described in any of the foregoing clauses (i) through (vi) are individually referred to herein as an "EVENT," and the Filing Deadline Date in the case of clause (i), the Effectiveness Deadline Date in the case of clause (ii), the date by which Federal-Mogul and the Trust are required to perform their obligations set forth in Section 2(d) in the case of clause (iii), the Amendment Effectiveness Deadline Date in the case of clause (iv), the date on which the aggregate duration of Deferral Periods in any period exceeds the number of days permitted by Section 3(i) hereof in the case of clause (v), and the date of the commencement of a Deferral Period that causes the limit on the number of Deferral Periods in any period under Section 3(i) hereof to be exceeded in the case of clause (vi), being referred to herein as an "EVENT DATE"). Events shall be deemed to continue until the "EVENT TERMINATION DATE," which shall be the following dates with respect to the respective types of Events: the date the Initial Registration Statement is filed in the case of an Event of the type described in clause (i), the date the Initial Registration Statement becomes effective under the Securities Act in the case of an Event of the type described in clause (ii), the date Federal-Mogul and the Trust perform their obligations set forth in Section 2(d) in the case of an Event of the type described in clause (iii), the date the relevant post-effective amendment to the Shelf Registration Statement becomes effective under the Securities Act in the case of an Event of the type described in clause (iv), termination of the Deferral Period that caused the limit on the aggregate duration of Deferral Periods in a period set forth in Section 3(i) to be exceeded in the case of the commencement of an Event of the type described in clause (v), and termination of the Deferral Period the commencement of which caused the number of Deferral Periods in a period permitted by Section 3(j) to be exceeded in the case of an Event of the type described in clause (vi). Accordingly, commencing on (and including) any Event Date and ending on (but excluding) the next date on which there are no Events that have occurred and are continuing (a "DAMAGES ACCRUAL PERIOD"), Federal-Mogul agrees to pay, as liquidated 7 8 damages and not as a penalty, an amount (the "LIQUIDATED DAMAGES AMOUNT"), payable on the Damages Payment Dates, (i) prior to the conversion thereof, to Record Holders (as set forth in the succeeding paragraph) of (x) Convertible Preferred Securities or (y) in the event that the Convertible Debentures are distributed to holders of Convertible Preferred Securities upon dissolution of the Trust in accordance with the Declaration, Convertible Debentures, accruing at a rate per annum equal to one-half of one percent (.5%) of the liquidation amount of such Convertible Preferred Securities or of the principal amount of such Convertible Debentures, as the case may be, and (ii) to Record Holders (as set forth in the succeeding paragraph) of shares of Underlying Common Stock issued upon conversion of Convertible Preferred Securities or Convertible Debentures that are Registrable Securities, accruing, for each portion of such Damages Accrual Period beginning on and including a Damages Payment Date (or, in respect of the first such portion, the Event Date) and ending on but excluding the next subsequent Damages Payment Date, at a rate per annum equal to one-half of one percent (.5%) of the aggregate Applicable Conversion Price of such shares of Underlying Common Stock as of the Business Day immediately preceding such next subsequent Damages Payment Date; provided, that in the case of a Damages Accrual Period that is in effect solely as a result of an Event of the type described in clause (iii) or (iv) of the preceding paragraph, such Liquidated Damages Amount shall be paid only to the Holders (as set forth in the succeeding paragraph) that have delivered Notice and Questionnaires that caused Federal-Mogul and the Trust to incur the obligations set forth in Section 2(d) the non-performance of which is the basis of such Event. Notwithstanding the foregoing, no Liquidated Damages Amounts shall accrue as to any Registrable Security from and after the earlier of (x) the date such security is no longer a Registrable Security and (y) expiration of the Effectiveness Period. The rate of accrual of the Liquidated Damages Amount with respect to any period shall not exceed the rate provided for in this paragraph notwithstanding the occurrence of multiple concurrent Events. Federal-Mogul shall pay on each Damages Payment Date that portion of the Liquidated Damages Amount payable pursuant to this Section 2(e) in respect of any Damages Accrual Period that has accrued from and including the next preceding Damages Payment Date during such Damages Accrual Period (or, in respect of the first such portion, the Event Date with respect to such Damages Accrual Period) to but excluding such Damages Payment Date on any Convertible Preferred Security, Convertible Debenture or share of Underlying Common Stock to the Record Holders thereof; provided, that any Liquidated Damages Amount accrued with respect to any Convertible Preferred Security or Convertible Debenture or portion thereof called for redemption on a redemption date or converted into Underlying Common Stock on a conversion date prior to the Damages Payment Date, shall, in any such event, be paid instead to the holder who submitted such Convertible Preferred Security or Convertible Debenture or portion thereof for redemption or conversion on the applicable redemption date or conversion date, as the case may be, on such date (or promptly following the conversion date, in the case of conversion); provided further, that, in the case of an Event 8 9 of the type described in clause (iii) or (iv) of the first paragraph of this Section 2(e), such Liquidated Damages Amount shall be paid only to the Holders entitled thereto pursuant to such first paragraph by check mailed to the address set forth in the Notice and Questionnaire delivered by such Holder. The Trustee shall be entitled, on behalf of Registered Holders of Convertible Preferred Securities, Convertible Debentures or Underlying Common Stock, to seek any available remedy for the enforcement of this Agreement, including for the payment of such Liquidated Damages Amount. Notwithstanding the foregoing, the parties agree that the sole damages payable for a violation of the terms of this Agreement with respect to which liquidated damages are expressly provided shall be such liquidated damages. Nothing shall preclude a Notice Holder or Holder of Registrable Securities from pursuing or obtaining specific performance or other equitable relief with respect to this Agreement. All of Federal-Mogul's obligations set forth in this Section 2(e) that are outstanding with respect to any Registrable Security at the time such security ceases to be a Registrable Security shall survive until such time as all such obligations with respect to such security have been satisfied in full (notwithstanding termination of this Agreement pursuant to Section 9(k)). The parties hereto agree that the liquidated damages provided for in this Section 2(e) constitute a reasonable estimate of the damages that may be incurred by Holders of Registrable Securities by reason of the failure of the Shelf Registration Statement to be filed or declared effective or available (absolutely or as a practical matter) for effecting resales of Registrable Securities in accordance with the provisions hereof. Section 3. Registration Procedures. In connection with the registration obligations of Federal-Mogul and the Trust under Section 2 hereof, Federal-Mogul and the Trust shall: (a) Before filing any Registration Statement or Prospectus or any amendments or supplements thereto with the SEC, furnish to the Initial Purchaser copies of all such documents proposed to be filed and use their best efforts to reflect in each such document when so filed with the SEC such comments as the Initial Purchaser reasonably shall propose within two (2) Business Days of the delivery of such copies to the Initial Purchaser. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable period specified in Section 2; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act; and use its best efforts to comply with the provisions of the Securities Act applicable to it with respect to the disposition of all 9 10 securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or such Prospectus as so supplemented. (c) As promptly as practicable give notice to the Notice Holders and the Initial Purchaser (i) when any Prospectus, Prospectus supplement, Registration Statement or post-effective amendment to a Registration Statement has been filed with the SEC and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request, following the effectiveness of the Initial Shelf Registration Statement under the Securities Act, by the SEC or any other federal or state governmental authority for amendments or supplements to any Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of any Registration Statement or the initiation or threatening of any proceedings for that purpose, (iv) of the receipt by Federal-Mogul or the Trust of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (v) of the occurrence of (but not the nature of or details concerning) a Material Event and (vi) of the determination by Federal-Mogul that a post-effective amendment to a Registration Statement would be appropriate, which notice may, at the discretion of Federal-Mogul (or as required pursuant to Section 3(i)), state that it constitutes a Deferral Notice, in which event the provisions of Section 3(i) shall apply. (d) Use its best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction in which they have been qualified for sale, in either case at the earliest possible moment. (e) If reasonably requested by the Initial Purchaser or any Notice Holder, as promptly as practicable incorporate in a Prospectus supplement or post-effective amendment to a Registration Statement such information as the Initial Purchaser or such Notice Holder shall, on the basis of an opinion of nationally-recognized counsel experienced in such matters, determine to be required to be included therein by applicable law and make any required filings of such Prospectus supplement or such post-effective amendment; provided, that Federal-Mogul and the Trust shall not be required to take any actions under this Section 3(e) that are not, in the reasonable opinion of counsel for Federal-Mogul, in compliance with applicable law. (f) As promptly as practicable furnish to each Notice Holder and the Initial Purchaser, without charge, at least one (1) conformed copy of the Registration Statement and any amendment thereto, including financial statements but excluding schedules, all 10 11 documents incorporated or deemed to be incorporated therein by reference and all exhibits (unless reasonably requested in writing by such Notice Holder or the Initial Purchaser, as the case may be). (g) Deliver to each Notice Holder in connection with any sale of Registrable Securities pursuant to a Registration Statement, without charge, as many copies of the Prospectus or Prospectuses relating to such Registrable Securities (including each preliminary prospectus) and any amendment or supplement thereto as such Notice Holder may reasonably request; and Federal-Mogul and the Trust hereby consent to the use of such Prospectus or each amendment or supplement thereto by each Notice Holder in connection with any offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto in the manner set forth therein. (h) As promptly as practicable register or qualify or cooperate with the Notice Holders in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Notice Holder reasonably requests in writing (which request may be included in the Notice and Questionnaire); keep each such registration or qualification (or exemption therefrom) effective during the Effective Period in connection with such Notice Holder's offer and sale of Registrable Securities pursuant to such registration or qualification (or exemption therefrom) and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of such Registrable Securities in the manner set forth in the relevant Registration Statement and the related Prospectus; provided, that neither Federal-Mogul nor the Trust will be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Agreement or (ii) take any action that would subject it to general service of process in suits or to taxation in any such jurisdiction where it is not then so subject. (i) Upon (A) the issuance by the SEC of a stop order suspending the effectiveness of the Shelf Registration Statement or the initiation of proceedings with respect to the Shelf Registration Statement under Section 8(d) or 8(e) of the Securities Act, (B) the occurrence of any event or the existence of any fact (a "MATERIAL EVENT") as a result of which any Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or any Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (C) the occurrence or existence of any pending corporate development that, in the discretion of Federal- Mogul, makes it appropriate to suspend the availability of the Shelf Registration Statement and the related Prospectus, (i) in the case of clause (B) above, subject to the next sentence, as promptly as practicable prepare and file, if necessary pursuant to applicable law, a post-effective amendment to 11 12 such Registration Statement or a supplement to the related Prospectus or any document incorporated therein by reference or file any other required document that would be incorporated by reference into such Registration Statement and Prospectus so that such Registration Statement does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and such Prospectus does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, and, in the case of a post-effective amendment to a Registration Statement, subject to the next sentence, use their best efforts to cause it to become effective as promptly as is practicable, and (ii) give notice to the Notice Holders that the availability of the Shelf Registration Statement is suspended (a "DEFERRAL NOTICE") and, upon receipt of any Deferral Notice, each Notice Holder shall not sell any Registrable Securities pursuant to the Registration Statement until such Notice Holder's receipt of copies of the supplemented or amended Prospectus provided for in clause (i) above, or until it is advised in writing by Federal-Mogul that the Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus. Federal-Mogul and the Trust will use their best efforts to ensure that the use of the Prospectus may be resumed (x) in the case of clause (A) above, as promptly as is practicable, (y) in the case of clause (B) above, as soon as, in the sole judgment of Federal-Mogul, public disclosure of such Material Event would not be prejudicial to or contrary to the interests of Federal-Mogul or the Trust or, if necessary to avoid unreasonable burden or expense, as soon as practicable thereafter and (z) in the case of clause (C) above, as soon as, in the discretion of Federal-Mogul, such suspension is no longer appropriate. Federal-Mogul and the Trust shall be entitled to exercise their right under this Section 3(i) to suspend the availability of the Shelf Registration Statement or any Prospectus, without incurring any obligation to pay liquidated damages pursuant to Section 2(e), no more than one (1) time in any three (3) month period or three (3) times in any twelve (12) month period, and the period during which the availability of the Registration Statement and any Prospectus is suspended (the "DEFERRAL PERIOD") shall, without incurring any obligation to pay liquidated damages pursuant to Section 2(e), not exceed thirty (30) days; provided, that in the case of a Material Event relating to an acquisition or a probable acquisition meeting the significance test of Rule 3-05(b)(2)(iv) of Regulation S-X under the Securities Act, Federal-Mogul and the Trust may, without incurring any obligation to pay liquidated damages pursuant to Section 2(e), deliver to Notice Holders a second certificate to the effect set forth above, which shall have the effect of extending the Deferral Period by up to an additional thirty (30) days, or such shorter period of time as is specified in such second notice; provided, that the aggregate duration of any Deferral Periods shall not, without incurring any obligation to pay liquidated damages pursuant to Section 2(e), exceed sixty (60) days in any three (3) month period or ninety (90) days in any twelve (12) month period. 12 13 (j) If requested in connection with a disposition of Registrable Securities pursuant to a Registration Statement, make reasonably available for inspection by the Notice Holders of such Registrable Securities and any broker-dealers, attorneys and accountants retained by such Notice Holders, all relevant financial and other records, pertinent corporate documents and properties of Federal-Mogul and the Trust and its subsidiaries, and cause the executive officers, directors and designated employees of Federal-Mogul and its subsidiaries to make reasonably available for inspection all relevant information reasonably requested by such Notice Holders or any such broker-dealers, attorneys or accountants in connection with such disposition, in each case as is customary for similar "due diligence" examinations; provided, that any information that is designated by Federal-Mogul and the Trust, in good faith, as confidential at the time of delivery of such information shall be kept confidential by such Notice Holders or any such broker-dealer, attorney or accountant, unless such disclosure is made in connection with a court proceeding or is required by law, or such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality; and provided further, that the foregoing inspection and information gathering shall, to the greatest extent possible, be coordinated on behalf of the Notice Holders and the other parties entitled thereto by the counsel referred to in Section 5. (k) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders earning statements (which need not be audited) satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) commencing on the first day of the first fiscal quarter of Federal-Mogul commencing after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (l) Unless all Registrable Securities shall be held in book-entry form, cooperate with each Notice Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to a Registration Statement, which certificates shall not bear any restrictive legends, and cause such Registrable Securities to be in such denominations and registered in such names as such Notice Holder may request. (m) Provide a CUSIP number for all Registrable Securities other than the Guarantee not later than the effective date of the Initial Shelf Registration Statement and provide the Trustee and the transfer agent for the Common Stock with printed certificates for the Registrable Securities that are in a form eligible for deposit with the Depository Trust Company. 13 14 (n) Provide such information as is required for any filings required to be made with the National Association of Securities Dealers, Inc. (o) Upon (i) the filing of the Initial Registration Statement and (ii) the effectiveness of the Initial Registration Statement, announce the same, in each case by release to Reuters Economic Services and Bloomberg Business News. Section 4. Holder's Obligations. Each Holder agrees, by acquisition of the Registrable Securities, that no Holder of Registrable Securities shall be entitled to sell any of such Registrable Securities pursuant to a Registration Statement or to receive a Prospectus relating thereto, unless such Holder has furnished Federal-Mogul and the Trust with a Notice and Questionnaire as required pursuant to Section 2(d) hereof (including the information required to be included in such Notice and Questionnaire) and the information set forth in the next sentence. Each Notice Holder agrees promptly to furnish to Federal-Mogul and the Trust all information required to be disclosed in order to make the information previously furnished to Federal-Mogul and the Trust by such Notice Holder not misleading and any other information regarding such Notice Holder and the distribution of such Registrable Securities as Federal-Mogul and the Trust may from time to time reasonably request. Any sale of any Registrable Securities by any Holder shall constitute a representation and warranty by such Holder that the information relating to such Holder and its plan of distribution is as set forth in the Prospectus delivered by such Holder in connection with such disposition, that such Prospectus does not as of the time of such sale contain any untrue statement of a material fact relating to or provided by such Holder or its plan of distribution and that such Prospectus does not as of the time of such sale omit to state any material fact relating to or provided by such Holder or its plan of distribution necessary to make the statements in such Prospectus, in the light of the circumstances under which they were made, not misleading. Section 5. Registration Expenses. Federal-Mogul shall bear all fees and expenses incurred in connection with the performance by Federal-Mogul and the Trust of their obligations under Sections 2 and 3 whether or not any of the Registration Statements become effective. Such fees and expenses shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (x) with respect to filings required to be made with the National Association of Securities Dealers, Inc. and (y) of compliance with federal and state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of the counsel specified in the next sentence in connection with Blue Sky qualifications of the Registrable Securities under the laws of such jurisdictions as the Notice Holders of a majority of the Registrable Securities being sold pursuant to a Registration Statement may designate), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company, (iii) duplication expenses relating to copies of any Registration Statement or Prospectus delivered to any Holders hereunder, (iv) fees and disbursements of counsel for Federal- 14 15 Mogul and the Trust in connection with the Shelf Registration Statement, (v) reasonable fees and disbursements of the Trustee and its counsel and of the registrar and transfer agent for the Common Stock and (vi) Securities Act liability insurance obtained by Federal-Mogul in its sole discretion. In addition, Federal-Mogul shall bear or reimburse the Notice Holders for the reasonable fees and disbursements of one firm of legal counsel for the Holders, which shall initially be Davis Polk & Wardwell, but which may, with the written consent of the Initial Purchaser (which shall not be unreasonably withheld), be another nationally recognized law firm experienced in securities law matters designated by Federal- Mogul. In addition, Federal-Mogul shall pay the internal expenses of Federal-Mogul and the Trust (including, without limitation, all salaries and expenses of officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange on which similar securities of Federal-Mogul are then listed and the fees and expenses of any person, including special experts, retained by Federal- Mogul or the Trust. Notwithstanding the provisions of this Section 5, each seller of Registrable Securities shall pay all registration expenses to the extent Federal-Mogul is prohibited by applicable Blue Sky laws from paying for or on behalf of such seller of Registrable Securities. Section 6. Indemnification. (a) Indemnification by Federal-Mogul. Federal-Mogul and the Trust shall jointly and severally indemnify and hold harmless each Notice Holder and each person, if any, who controls any Notice Holder (within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act) from and against all losses, liabilities, claims, damages and expenses (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (collectively, "LOSSES"), arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such Losses arise out of or are based upon the information relating to any Holder furnished to Federal-Mogul and the Trust in writing by such Holder expressly for use therein; provided, that the indemnification contained in this paragraph shall not inure to the benefit of any Holder of Registrable Securities (or to the benefit of any person controlling such Holder) on account of any such Losses arising out of or based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if either (A) (i) such Holder failed to send or deliver a copy of the Prospectus with or prior to the delivery of written confirmation of the sale by such Holder to the person asserting the claim from which such Losses arise and (ii) the Prospectus would have corrected such untrue statement or alleged untrue statement or such omission or alleged omission, or (B) (x) such untrue statement or 15 16 alleged untrue statement, omission or alleged omission is corrected in an amendment or supplement to the Prospectus and (y) having previously been furnished by or on behalf of Federal-Mogul or the Trust with copies of the Prospectus as so amended or supplemented, such Holder thereafter fails to deliver such Prospectus as so amended or supplemented, with or prior to the delivery of written confirmation of the sale of a Registrable Security to the person asserting the claim from which such Losses arise. (b) Indemnification by Holder of Registrable Securities. Each Holder agrees severally and not jointly to indemnify and hold harmless Federal-Mogul and the Trust and their respective directors and officers, including without limitation the trustees of the Trust, and each person, if any, who controls Federal-Mogul or the Trust (within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act), from and against all losses arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information relating to such Holder so furnished in writing by such Holder to Federal-Mogul and the Trust expressly for use in such Registration Statement or Prospectus. In no event shall the liability of any selling Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the proceeds received by such Holder upon the sale of the Registrable Securities pursuant to the Shelf Registration Statement giving rise to such indemnification obligation. (c) Conduct of Indemnification Proceedings. In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such person (the "INDEMNIFIED PARTY") shall promptly notify the person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the indemnifying party shall not, in respect of the legal expenses of any indemnified party in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of 16 17 more than one separate firm (in addition to any local counsel) for all indemnified parties, and that all such fees and expenses shall be reimbursed as they are incurred. Such separate firm shall be designated in writing by, in the case of parties indemnified pursuant to Section 6(a), the Holders of a majority (with Holders of Convertible Preferred Securities (or Convertible Debentures issued upon liquidation of the Trust) deemed to be the Holders, for purposes of determining such majority, of the number of outstanding shares of Underlying Common Stock into which such Convertible Preferred Securities (or Convertible Debentures) are or would be convertible or exchangeable as of the date on which such designation is made) of the Registrable Securities covered by the Shelf Registration Statement held by Holders that are indemnified parties pursuant to Section 6(a) and, in the case of parties indemnified pursuant to Section 6(b), Federal-Mogul. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by the second and third sentences of this paragraph, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. (d) Contribution. To the extent that the indemnification provided for in this Section 6 is unavailable to an indemnified party under Section 6(a) or 6(b) hereof in respect of any Losses or is insufficient to hold such indemnified party harmless, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party or parties on the other hand or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the indemnifying party or parties on the one hand and of the indemnified party or parties on the other hand in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. Benefits received by Federal-Mogul and the Trust shall be deemed to be equal to the total net proceeds from the initial placement 17 18 pursuant to the Purchase Agreement (before deducting expenses) of the Registrable Securities to which such Losses relate. Benefits received by any Holder shall be deemed to be equal to the value of receiving Registrable Securities that are registered under the Securities Act. The relative fault of the Holders on the one hand and Federal-Mogul and the Trust on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Holders or by Federal-Mogul or the Trust and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Holders' respective obligations to contribute pursuant to this paragraph are several in proportion to the respective number of Registrable Securities they have sold pursuant to a Registration Statement, and not joint. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation or by any other method or allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the Losses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding this Section 6(d), an indemnifying party that is a selling Holder of Registrable Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities sold by such indemnifying party and distributed to the public were offered to the public exceeds the amount of any damages that such indemnifying party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) The indemnity, contribution and expense reimbursement obligations of the parties hereunder shall be in addition to any liability any indemnified party may otherwise have hereunder, under the Purchase Agreement or otherwise. (f) The indemnity and contribution provisions contained in this Section 6 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Holder or any person controlling any Holder, or Federal-Mogul or the Trust, or Federal-Mogul's officers or directors or the trustees of the Trust or any person controlling Federal-Mogul or the Trust and (iii) the sale of any Registrable Securities by any Holder. 18 19 Section 7. Information Requirements. (a) Federal-Mogul and the Trust covenant that, at any time before the end of the Effectiveness Period Federal-Mogul is not subject to the reporting requirements of the Exchange Act, they will cooperate with any Holder of Registrable Securities and take such further reasonable action as any Holder of Registrable Securities may reasonably request (including, without limitation, making such reasonable representations as any such Holder may reasonably request), all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 and Rule 144A under the Securities Act and customarily taken in connection with sales pursuant to such exemptions. Upon the request of any Holder of Registrable Securities, each of Federal-Mogul and the Trust shall deliver to such Holder a written statement as to whether it has complied with such filing requirements, unless such a statement has been included in Federal-Mogul's most recent report required to be filed and filed pursuant to Section 13 or Section 15(d) of Exchange Act. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require Federal-Mogul or the Trust to register any of its securities (other than the Common Stock) under any section of the Exchange Act. Section 8. Miscellaneous. (a) No Conflicting Agreements. Neither Federal-Mogul nor the Trust has, as of the date hereof, nor shall, on or after the date of this Agreement, enter into any agreement with respect to its securities that conflicts with the rights granted to the Holders of Registrable Securities in this Agreement. Each of Federal-Mogul and the Trust represents and warrants that the rights granted to the Holders of Registrable Securities hereunder do not in any way conflict with the rights granted to the Holders of the Federal-Mogul's or the Trust's securities under any other agreements. (b) Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless Federal-Mogul and the Trust have obtained the written consent of Holders of a majority of the then outstanding Underlying Common Stock constituting Registrable Securities (with Holders of Convertible Preferred Securities (or Convertible Debentures issued upon liquidation of the Trust) deemed to be the Holders, for purposes of this Section, of the number of outstanding shares of Underlying Common Stock into which such Convertible Preferred Securities (or Debentures) are or would be convertible or exchangeable as of the date on which such consent is requested). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders of Registrable Securities may be given by Holders of at least a majority of the Registrable Securities being sold by such Holders pursuant to such 19 20 Registration Statement; provided, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. (c) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, by telecopier, by courier guaranteeing overnight delivery or by first-class mail, return receipt requested, and shall be deemed given (i) when made, if made by hand delivery, (ii) upon confirmation, if made by telecopier, (iii) one (1) Business Day after being deposited with such courier, if made by overnight courier or (iv) on the date indicated on the notice of receipt, if made by first-class mail, to the parties as follows: (w) if to a Holder of Registrable Securities, at the most current address given by such Holder to Federal-Mogul and the Trust in a Notice and Questionnaire or any amendment thereto; (x) if to Federal-Mogul, to: Federal-Mogul Corporation 26555 Northwestern Highway Southfield, Michigan 48034 Attention: Treasurer Telecopy No.: (248) 354-8103 (y) if to the Trust, to: Federal-Mogul Financing Trust c/o Federal-Mogul Corporation 26555 Northwestern Highway Southfield, Michigan 48034 Attention: Corporate Secretary Telecopy No.: (248) 354-8103 and (z) if to the Initial Purchaser, to: Morgan Stanley & Co. Incorporated 1585 Broadway New York, New York Attention: John Faulkner Telecopy No: (212) 761-8872 20 21 or to such other address as such person may have furnished to the other persons identified in this Section 9(c) in writing in accordance herewith. (d) Approval of Holders. Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by Federal-Mogul, the Trust or their respective affiliates (as such term is defined in Rule 405 under the Securities Act) (other than the Initial Purchaser or subsequent Holders of Registrable Securities if such subsequent Holders are deemed to be such affiliates solely by reason of their holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (e) Successors and Assigns. Any person who purchases any Registrable Securities from the Initial Purchaser shall be deemed, for purposes of this Agreement, to be an assignee of the Initial Purchaser. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties and shall inure to the benefit of and be binding upon each Holder of any Registrable Securities. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. (i) Severability. If any term, provision, covenant or restriction of this Agreement is held to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. (j) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and is intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and the registration rights granted by Federal-Mogul and the Trust with 21 22 respect to the Registrable Securities. Except as provided in the Purchase Agreement, there are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to the registration rights granted by Federal-Mogul with respect to the Registrable Securities. This Agreement supersedes all prior agreements and undertakings among the parties with respect to such registration rights. No party hereto shall have any rights, duties or obligations other than those specifically set forth in this Agreement. Without limiting the generality of the foregoing, Federal-Mogul shall have no obligation to participate in "road show" or, except as specifically provided in this Agreement, "due diligence" activities in connection with any underwritten public offering of Registrable Securities, and Federal-Mogul shall have no obligation to enter into underwriting or indemnification agreements with respect to, or deliver opinions, comfort letters or closing certificates in connection with, any such underwritten public offering. (k) Termination. This Agreement and the obligations of the parties hereunder shall terminate upon the end of the Effectiveness Period, except for any liabilities or obligations under Sections 4, 5 or 6 hereof and the obligations to make payments of and provide for liquidated damages under Section 2(e) hereof to the extent such damages accrue prior to the end of the Effectiveness Period, each of which shall remain in effect in accordance with their terms. 22 23 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. FEDERAL-MOGUL CORPORATION By:_______________________________ Name: Title: FEDERAL-MOGUL FINANCING TRUST By:_______________________________ Name: Title: Administrator Accepted as of the date first above written: MORGAN STANLEY & CO. INCORPORATED (for its benefit and for the benefit of the Holders) By:_______________________________ Name: Title: 23 EX-4.8 7 EX-4.8 1 EXHIBIT 4.8 ================================================================================ INDENTURE BETWEEN FEDERAL-MOGUL CORPORATION AS ISSUER AND THE BANK OF NEW YORK AS TRUSTEE DATED AS OF DECEMBER 1, 1997 SUBORDINATED DEBENTURES ================================================================================ 2 TABLE OF CONTENTS (1) ---------------
ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION PAGE SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.02. Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 1.03. Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 1.04. Acts of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 1.05. Notice, Etc., to Trustee and Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 1.06. Notice to Holders of Debentures; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 1.07. Language of Notices, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 1.08. Conflict with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 1.09. Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 1.10. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 1.11. Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 1.12. Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 1.13. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 1.14. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 1.15. Immunity of Incorporators, Shareholders, Officers, Directors and Employees . . . . . . . . . . . . . . 17 ARTICLE 2 ISSUE, DESCRIPTION, TERMS, EXECUTION, REGISTRATION AND EXCHANGE OF DEBENTURES SECTION 2.01. Designation, Terms, Amount Authentication and Delivery of Debentures . . . . . . . . . . . . . . . . . 18 SECTION 2.02. Form of Debenture and Trustee's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 2.03. Date and Denominations of Debentures and Provisions for Payment of Principal, Premium and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 2.04. Execution of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 2.05. Exchange of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 2.06. Temporary Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 2.07. Mutilated, Destroyed, Lost or Stolen Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 2.08. Cancellation of Surrendered Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 2.09. Provisions of Indenture and Debentures for Sole Benefit of Parties and Debentureholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
- -------------------------- (1) Note: This table of contents shall not, for any purpose be deemed to be part of the Indenture. 3 SECTION 2.10. Appointment of Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 2.11. Global Debenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 2.12. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE 3 SATISFACTION AND DISCHARGE SECTION 3.01. Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 SECTION 3.02. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 3.03. Company's Option to Effect Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . 31 SECTION 3.04. Discharge and Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 3.05. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 3.06. Conditions to Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE 4 REMEDIES SECTION 4.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 4.02. Acceleration of Maturity; Recission and Annulment . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 4.03. Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . . . . . . . . . . . . 40 SECTION 4.04. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 4.05. Trustee May Enforce Claims Without Possession of Debentures . . . . . . . . . . . . . . . . . . . . . 42 SECTION 4.06. Application of Money Collected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 4.07. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 SECTION 4.08. Unconditional Right of Holders to Receive Principal, Premium and Interest . . . . . . . . . . . . . . 44 SECTION 4.09. Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 4.10. Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 4.11. Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 4.12. Control by Holders of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 4.13. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 SECTION 4.14. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 4.15. Waiver of Stay or Extension Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE 5 THE TRUSTEE SECTION 5.01. Duties and Responsibilities of the Trustee; During Default; Prior to Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 5.02. Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4 SECTION 5.03. Not Responsible for Recitals or Issuance of Debentures . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 5.04. May Hold Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 5.05. Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 5.06. Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 5.07. Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . . . . 51 SECTION 5.08. Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 5.09. Disqualification; Conflicting Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 5.10. Corporate Trustee Required; Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 SECTION 5.11. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . . . . . . . 55 SECTION 5.12. Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . . . . . . . 55 SECTION 5.13. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 ARTICLE 6 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 6.01. Preservation of Information: Communications to Holders . . . . . . . . . . . . . . . . . . . . . . . . 56 SECTION 6.02. Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 SECTION 6.03. Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 ARTICLE 7 CONSOLIDATION, MERGER, SALE OR CONVEYANCE SECTION 7.01. Company May Consolidate, Etc. on Certain Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 SECTION 7.02. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 SECTION 7.03. Opinion of Counsel to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 ARTICLE 8 SUPPLEMENTAL INDENTURES SECTION 8.01. Supplemental Indentures Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 59 SECTION 8.02. Supplemental Indentures with Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 SECTION 8.03. Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 SECTION 8.04. Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 SECTION 8.05. Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 SECTION 8.06. Reference in Debentures to Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . 62 ARTICLE 9 COVENANTS SECTION 9.01. Payment of Principal, Premium and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 9.02. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 9.03. Money for Debentures Payments to Be Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 63
5 SECTION 9.04. Limitation on Dividends; Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 9.05. Covenants as to Federal-Mogul Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 9.06. Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 SECTION 9.07. Statement by Officers as to Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 SECTION 9.08. Financial Information; SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 ARTICLE 10 REDEMPTION OF DEBENTURES SECTION 10.01. Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 SECTION 10.02. Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 SECTION 10.03. Selection by Trustee of Debentures to Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . 68 SECTION 10.04. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 SECTION 10.05. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 SECTION 10.06. Debentures Payable on Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 SECTION 10.07. Debentures Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 ARTICLE 11 SINKING FUNDS SECTION 11.01. Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 SECTION 11.02. Satisfaction of Sinking Fund Payments with Debentures . . . . . . . . . . . . . . . . . . . . . . . . 71 SECTION 11.03. Redemption of Debentures for Sinking Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 ARTICLE 12 CONVERSION OF DEBENTURES SECTION 12.01. Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 SECTION 12.02. Exercise of Conversion Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 SECTION 12.03. No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 SECTION 12.04. Adjustment of Conversion Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 SECTION 12.05. Reservation of Shares of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 SECTION 12.06. Payment of Certain Taxes upon Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 SECTION 12.07. Nonassessability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 SECTION 12.08. Effect of Consolidation or Merger on Conversion Privilege . . . . . . . . . . . . . . . . . . . . . . 76 SECTION 12.09. Duties of Trustee Regarding Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 SECTION 12.10. Repayment of Certain Funds Upon Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
6 ARTICLE 13 SUBORDINATION OF DEBENTURES SECTION 13.01. Debentures Subordinate to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 SECTION 13.02. Payment Over of Proceeds Upon Dissolution, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 SECTION 13.03. Prior Payment to Senior Indebtedness Upon Acceleration of Debentures . . . . . . . . . . . . . . . . 78 SECTION 13.04. No Payment When Senior Indebtedness in Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 SECTION 13.05. Payment Permitted in Certain Situations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 SECTION 13.06. Subrogation to Rights of Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . 80 SECTION 13.07. Provisions Solely to Define Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 13.08. Trustee to Effectuate Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 13.09. No Waiver of Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 13.10. Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 SECTION 13.11. Reliance on Judicial Order or Certificate of Liquidating Agent . . . . . . . . . . . . . . . . . . . 83 SECTION 13.12. Trustee Not Fiduciary for Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 13.13. Rights of Trustee as Holder of Senior Indebtedness, Preservation of Trustee's Rights . . . . . . . . 83 SECTION 13.14. Article Applicable to Paying Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 SECTION 13.15. Certain Conversions Deemed Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
7 INDENTURE, dated as of December 1, 1997, between Federal-Mogul Corporation, a corporation duly organized and existing under the laws of the State of Michigan (the "COMPANY"), having its principal office at 26555 Northwestern Highway, Southfield, Michigan 48034 and The Bank of New York, a New York banking corporation having its principal corporate trust office at 101 Barclay Street, Floor 21 West, New York, New York 10286, as Trustee (the "TRUSTEE"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its secured or unsecured subordinated debentures, notes or other evidences of indebtedness (the "DEBENTURES"), to be issued in one or more series as in this Indenture provided. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Debentures by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Debentures or of a series thereof, as follows: ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (b) all other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and (d) a reference to a Section or Article is to a Section or Article of this Indenture. 8 "ACT," when used with respect to any Holder of a Debenture, has the meaning specified in Section 1.04. "AFFILIATE" has the same meaning as given to that term in Rule 405 of the Securities Act of 1933, as amended, or any successor rule thereunder. "AUTHENTICATING AGENT" means any Person authorized by the Trustee pursuant to Section 2.10 to act on behalf of the Trustee to authenticate Debentures of one or more series. "AUTHORIZED NEWSPAPER" means a newspaper, in the English language or in an official language of the country of publication, customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays, and of general circulation in the place, in connection with which the term is used, or in the financial community of such place. Where successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different newspapers in the same city meeting the foregoing requirements and in each case on any Business Day. "BOARD OF DIRECTORS" means either the board of directors of the Company or any duly authorized committee of that board. "BOARD RESOLUTION" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "BUSINESS DAY," when used with respect to any Place of Payment or any other particular location referred to in this Indenture or in the Debentures, means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in that Place of Payment or other location are authorized or obligated by law or executive order to close. "COMMISSION" means the United States Securities and Exchange Commission. "COMMON SECURITIES" means undivided beneficial interests in the assets of the Federal-Mogul Financing Trust that rank pari passu with Preferred Securities issued by such Federal-Mogul Financing Trust; provided, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to 2 9 payment in respect to distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of holders of Preferred Securities. "COMMON SECURITIES GUARANTEE" means any Guarantee that the Company enters into that operates directly or indirectly for the benefit of holders of Common Securities of Federal-Mogul Financing Trust. "COMMON STOCK" includes any stock of any class of the Company that has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and that is not subject to redemption by the Company. Subject to the anti-dilution provisions of any convertible Debenture, however, shares of Federal-Mogul Common Stock issuable on conversion of a Debenture shall include only shares of the class designated as Common Stock of the Company at the date of any supplemental indenture, Board Resolution or other instrument authorizing such Debenture or shares of any class or classes resulting from any reclassification or reclassifications thereof that have no preference in respect of the payment of dividends or the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company and that are not subject to redemption by the Company; provided, that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion that the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all classes resulting from all such reclassifications. "COMPANY" means the Person named as the "COMPANY" in the first paragraph of this Indenture until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "COMPANY" shall mean such successor Person. "COMPANY REQUEST" or "COMPANY ORDER" means a written request or order signed in the name of the Company by the Chairman of the Board of Directors or the President or any Executive Vice President or any Vice President and by the Treasurer or the Secretary or any Assistant Treasurer or any Assistant Secretary of the Company and delivered to the Trustee. "CORPORATE TRUST OFFICE" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered. "CORPORATION" means a corporation, association, company, joint-stock company or business trust. 3 10 "COVENANT DEFEASANCE" has the meaning specified in Section 3.05. "DEBENTURE REGISTER" has the meaning specified in Section 2.05. "DEBENTURE REGISTRAR" has the meaning specified in Section 2.05. "DEBENTURES" has the meaning stated in the first recital of this Indenture and more particularly means any Debentures authenticated and delivered under this Indenture. "DECLARATION," with respect to a Federal-Mogul Trust, means the Amended and Restated Declaration of Trust of such Federal-Mogul Trust. "DEFAULTED INTEREST" has the meaning specified in Section 2.03. "DEFEASANCE" has the meaning specified in Section 3.04. "DEPOSITARY" means, with respect to the Debentures of any series for which the Company shall determine that such Debentures will be issued as a Global Debenture, The Depository Trust Company, New York, New York, another clearing agency, or any successor registered as a clearing agency under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), or other applicable statute or regulation, which, in each case, shall be designated by the Company pursuant to either Section 2.01 or 2.11. "DOLLAR" or "$" means a dollar or other equivalent unit in such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts. "EVENT OF DEFAULT" has the meaning specified in Section 4.01. "FEDERAL-MOGUL TRUST" means Federal-Mogul Financing Trust, a Delaware statutory business trust, or any permitted successor thereto, or any substantially similar Delaware statutory business trust sponsored by the Company. "GLOBAL DEBENTURE" means, with respect to any series of Debentures, a Debenture executed by the Company and authenticated and made available for delivery by the Trustee to the Depositary, or pursuant to the Depositary's instruction, all in accordance with the Indenture, which shall be registered in the name of the Depositary or its nominee. 4 11 "GUARANTOR" means the Company in its capacity as guarantor under any Trust Securities Guarantees. "HOLDER", when used with respect to any Debenture, means the Person in whose name the Debenture is registered in the Debenture Register. "INDENTURE" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of Debentures of any series established as contemplated by Section 2.01. "INTEREST," when used with respect to an Original Issue Discount Debenture that by its terms bears interest only at Maturity, means interest payable at Maturity. "INTEREST PAYMENT DATE," when used with respect to any Debenture, means the Stated Maturity of an installment of interest on such Debenture. "MATURITY," when used with respect to any Debenture, means the date on which the principal of such Debenture or an installment of such principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, notice of option to elect repayment or otherwise. "OFFICERS' CERTIFICATE" means a certificate signed by the Chairman of the Board of Directors or the President or any Executive Vice President or any Vice President and by the Treasurer or the Secretary or any Assistant Treasurer or any Assistant Secretary of the Company and delivered to the Trustee. "OPINION OF COUNSEL" means a written opinion of counsel, who may be an employee of or counsel for the Company and who shall be acceptable to the Trustee. "ORIGINAL ISSUE DISCOUNT DEBENTURE" means any Debenture that provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 4.02. "OUTSTANDING," when used with respect to Debentures of any series, means, as of the date of determination, all Debentures of such series theretofore authenticated and delivered under this Indenture, except: 5 12 (i) Debentures of such series theretofore canceled by the Trustee or any Paying Agent or delivered to the Trustee for cancellation or that have previously been canceled; (ii) Debentures of such series for whose payment or redemption of which money or United States Government Obligations in the necessary amount has been theretofore deposited in accordance with Article 3 with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of Debentures of such series; provided, if Debentures of such series or portions of Debentures of such series are to be redeemed prior to the Maturity thereof, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Debentures of such series that have been paid pursuant to Section 2.07 or in exchange for or in lieu of which other Debentures of such series have been authenticated and delivered pursuant to this Indenture, other than any Debentures of such series in respect of which there shall have been presented to the Trustee proof satisfactory to it that Debentures of such series are held by a bona fide purchaser in whose hands Debentures of such series are valid obligations of the Company; and (iv) Debentures of such series as to which Defeasance has been effected pursuant to Section 3.04; provided, that in determining whether the Holders of the requisite aggregate principal amount of the Outstanding Debentures of such series have given any request, demand, authorization, direction, notice, consent or waiver hereunder or whether a quorum is present at a meeting of Holders of Debentures of such Series (A) the principal amount of an Original Issue Discount Debenture of such series that shall be deemed to be Outstanding shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon acceleration of the Maturity thereof pursuant to Section 4.02, (B) the principal amount of a Debenture of such series denominated in a foreign currency or currencies shall be the U.S. dollar equivalent, determined on the date of original issuance of such Debenture, of the principal amount (or, in the case of an Original Issue Discount Debenture of such series, the U.S. dollar equivalent on the date of original issuance of such Debenture of the amount determined as provided in (A) above) of such Debenture, and (C) Debentures of such series owned by the Company or any other obligor upon such Debentures, or any Affiliate of the 6 13 Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, or upon any such determination as to the presence of a quorum, only Debentures of such series that the Trustee actually knows to be so owned shall be so disregarded. Debentures of such series so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debentures and that the pledgee is not the Company or any other obligor upon such Debentures or any Affiliate of the Company or of such other obligor. "PAYING AGENT" means any Person authorized by the Company to pay the principal of and any premium and interest on any Debentures on behalf of the Company. "PERSON" means a legal person, including any individual, corporation, state, partnership, joint venture, trust, association, joint stock company, limited liability company, unincorporated association or government or any agency or political subdivision thereof, or any other entity of whatever nature. "PLACE OF PAYMENT," when used with respect to the Debentures of any series, means the place or places where, subject to the provisions of Section 9.02, the principal of and any premium and interest on Debentures of such series are payable as specified as contemplated by Section 2.01. "PREDECESSOR DEBENTURE" of any Debenture of any series means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such Debenture; and, for the purposes of this definition, any Debenture of any series authenticated and delivered under Section 2.07 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Debenture shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Debenture. "PREFERRED SECURITIES" means undivided beneficial interests in the assets of Federal-Mogul Trust that rank pari passu with Common Securities issued by such Federal-Mogul Trust; provided, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to payment in respect of distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of holders of Preferred Securities. "PREFERRED SECURITIES GUARANTEE" means any Guarantee that the Guarantor may enter into with The Bank of New York or other Persons that 7 14 operates directly or indirectly for the benefit of holders of Preferred Securities of such Federal-Mogul Trust. "REDEMPTION DATE," when used with respect to any Debenture to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "REDEMPTION PRICE," when used with respect to any Debenture to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "REPRESENTATIVE" means the (a) indenture trustee or other trustee, agent or representative for any Senior Indebtedness or (b) with respect to any Senior Indebtedness that does not have any such trustee, agent or other representative, (i) in the case of such Senior Indebtedness issued pursuant to an agreement providing for voting arrangements as among the holders or owners of such Senior Indebtedness, any holder or owner of such Senior Indebtedness acting with the consent of the required persons necessary to bind such holders or owners of such Senior Indebtedness and (ii) in the case of all other such Senior Indebtedness, the holder or owner of such Senior Indebtedness. "RESPONSIBLE OFFICER" means, when used with respect to the Trustee, any vice president, any assistant vice president, any assistant treasurer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "RULE 144(K)" means Rule 144(k) under the Securities Act or any successor rule. "SECURITIES ACT" means the Securities Act of 1933, as amended, or any successor statute. "SENIOR INDEBTEDNESS" means, with respect to the Company, (i) the principal, premium, if any, and interest in respect of (A) indebtedness of such obligor for money borrowed under any credit agreements, notes, guarantees or similar documents and (B) indebtedness evidenced by securities, debentures, bonds or other similar instruments issued by such obligor, (ii) all capital lease obligations of such obligor, (iii) all obligations of such obligor issued or assumed as the deferred purchase price of property, all conditional sale obligations of such obligor and all obligations of such obligor under any title retention agreement (but 8 15 excluding trade accounts payable arising in the ordinary course of business), (iv) all obligations of such obligor for the reimbursement on any letter of credit, bankers' acceptance, security purchase facility or similar credit transaction, (v) all obligations of such obligor (contingent or otherwise) with respect to an interest rate or other swap, cap or collar agreements, oil or gas commodity hedge transactions or other similar instruments or agreements or foreign currency hedge, exchange, purchase or similar instruments or agreements, (vi) all obligations of the types referred to in clauses (i) through (v) above of other persons for the payment of which such obligor is responsible or liable as obligor, guarantor or otherwise and (vii) all obligations of the types referred to in clauses (i) through (vi) above of other persons secured by any lien on any property or asset of such obligor (whether or not such obligation is assumed by such obligor) whether outstanding on the date of this Indenture or thereafter created, incurred, assumed, guaranteed or in effect guaranteed by such obligor, except for (1) any such indebtedness that is by its terms expressly subordinated to or pari passu with the Debentures and (2) any indebtedness between or among such obligor or its affiliates, including all other debt securities and guarantees in respect of those debt securities, issued to any trust, or a trustee of such trust, partnership or other entity affiliated with the Company that is a financing vehicle of the Company (a "FINANCING ENTITY") in connection with the issuance by such financing entity of preferred securities or other securities that rank pari passu with, or junior to, the Preferred Securities. Such Senior Indebtedness shall continue to be Senior Indebtedness and be entitled to the benefits of Article 13 provisions irrespective of any deferrals, renewals, extensions or refundings of, or amendments, modifications, supplements or waivers of any term of such Senior Indebtedness. "STATED MATURITY," when used with respect to any Debenture or any installment of principal thereof or interest thereon, means the date specified in such Debenture as the fixed date on which the principal of such Debenture or such installment of principal or interest is due and payable. "SUBSIDIARY" means, with respect to any Person, (i) any corporation at least a majority of whose outstanding Voting Stock shall at the time be owned, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, (ii) any general partnership, joint venture, business trust or similar entity, at least a majority of whose outstanding partnership or similar interests shall at the time be owned by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries and (iii) any limited partnership of which such Person or any of its Subsidiaries is a general partner. 9 16 "TRANSFER RESTRICTION TERMINATION DATE" means the first date on which the Preferred Securities, the Debentures and any Common Stock issued or issuable upon the conversion or exchange thereof (other than (i) such securities acquired by the Company or any Affiliate thereof and (ii) Common Stock issued upon the conversion or exchange of any such security described in clause (i) above) may be sold pursuant to Rule 144(k). "TRUSTEE" means the Person named as the "TRUSTEE" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "TRUSTEE" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "TRUSTEE" as used with respect to the Debentures of any series shall mean the Trustee with respect to Debentures of that series. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, that in the event the Trust Indenture Act of 1939 is amended after such date, "TRUST INDENTURE ACT" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "TRUST SECURITIES" means Common Securities and Preferred Securities of a Federal-Mogul Trust. "TRUST SECURITIES GUARANTEES" means the Common Securities Guarantee and the Preferred Securities Guarantee. "UNITED STATES" means the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction. "U.S. GOVERNMENT OBLIGATIONS" means direct obligations of the United States for the payment of which its full faith and credit is pledged, or obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States and the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States that, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such U.S. Government Obligations or a specific payment of principal of or interest on any such U.S. Government Obligations held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such 10 17 depository receipt from any amount received by the custodian in respect of the U.S. Government Obligations or the specific payment of principal of or interest on the U.S. Government Obligations evidenced by such depository receipt. "VOTING STOCK," as applied to stock of any Person, means shares, interests, participations or other equivalents in the equity interest (however designated) in such Person having ordinary voting power for the election of a majority of the directors (or the equivalent) of such Person, other than shares, interests, participations or other equivalents having such power only by reason of the occurrence of a contingency. "YIELD TO MATURITY" means the yield to maturity on Debentures of any series, calculated at the time of issuance of such series, or, if applicable, at the most recent redetermination of interest on such series, and calculated in accordance with accepted financial practice. SECTION 1.2. Compliance Certificates and Opinions. Except as otherwise expressly provided by this Indenture, upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion by or on behalf of the Company with respect to compliance with a condition or covenant provided for in this Indenture, except for certificates provided for in Section 9.07, shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual, the individual has made such examination or investigation as is necessary to 11 18 enable such individual to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.3. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which such officer's certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.4. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments and any such 12 19 record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "ACT" of the Holders signing such instrument or instruments and so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent or proxy, or of the holding by any Person of a Debenture of any series, shall be sufficient for any purpose of this Indenture and (subject to Section 5.02) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to the execution thereof. Where such execution is by a signer acting in a capacity other than the signer's individual capacity, such certificate or affidavit shall also constitute sufficient proof of the signer's authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Trustee deems sufficient. (c) The principal amount and serial numbers of Debentures of any series held by any Person, and the date of holding the same, shall be proved by the Debenture Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Debenture of any series shall bind every future Holder of the same Debenture and the Holder of every Debenture issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Debenture. (e) With respect to the Debentures of any series, upon receipt by the Trustee of (i) by written notice directing the time, method or place of conducting any proceeding or exercising any trust or power pursuant to Section 4.01 with respect to Debentures of such series or (ii) any written demand, request or notice with respect to any matter on which the Holders of Debentures of such series are entitled to act under this Indenture, in each case from Holders of less than, or proxies representing less than, the requisite principal amount of Outstanding Debentures of such series entitled to give such demand, request or notice, the Trustee shall establish a record date for determining Holders of Outstanding Debentures of such series entitled to join in such demand, request or notice, which 13 20 record date shall be the close of business on the day the Trustee received such demand, request or notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such demand, request or notice whether or not such Holders remain Holders after such record date; provided, that unless the Holders of the requisite principal amount of Outstanding Debentures of such series shall have joined in such demand, request or notice prior to the day that is the ninetieth day after such record date, such demand, request or notice shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, (i) after the expiration of such 90-day period, a new demand, request or notice identical to a demand, request or notice that has been canceled pursuant to the proviso to the preceding sentence or (ii) during any such 90-day period, a new demand, request or notice that has been canceled pursuant to the proviso to the preceding sentence or (iii) during any such 90-day period, a new demand, request or notice contrary to or different from such demand, request or notice, in either of which events a new record date shall be established pursuant to the provisions of this clause. (f) The Company may set any day as the record date for the purpose of determining the Holders of Outstanding Debentures of any series entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by Holders of Debentures of such series. With regard to any record date set pursuant to this paragraph, the Holders of Outstanding Debentures of such series on such record date (or their duly appointed agents), and only such Persons, shall be entitled to give or take the relevant action, whether or not such Holders remain Holders after such record date. With regard to any action that may be given or taken hereunder only by Holders of a requisite principal amount of Outstanding Debentures of any series (or their duly appointed agents) and for which a record date is set pursuant to this paragraph, the Company may, at its option, set an expiration date after which no such action purported to be given or taken by any Holder shall be effective hereunder unless given or taken on or prior to such expiration date by Holders of the requisite principal amount of Outstanding Debentures of such series on such record date (or their duly appointed agents). On or prior to any expiration date set pursuant to this paragraph, the Company may, on one or more occasions at its option, extend such date to any later date. Nothing in this paragraph shall prevent any Holder (or any duly appointed agent thereof) from giving or taking, after any expiration date, any action identical to, or, at any time, contrary to or different from, any action given or taken, or purported to have been given or taken, hereunder by a Holder on or prior to such date, in which event the Company may set a record date in respect thereof pursuant to this clause. Notwithstanding the foregoing or the Trust Indenture Act, 14 21 the Company shall not set a record date for, and the provisions of this clause shall not apply with respect to, any action to be given or taken by Holders pursuant to Section 4.01, 4.02 or 4.12. SECTION 1.5. Notice, Etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (a) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Trustee Administration, or (b) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this Indenture, to the attention of its Treasurer, or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.6. Notice to Holders of Debentures; Waiver. Except as otherwise expressly provided herein, where this Indenture provides for notice to Holders of Debentures of any event, such notice shall be sufficiently given to Holders of any series if in writing and mailed, first-class postage prepaid, to each Holder of a Debenture affected by such event, at the address of such Holder as registered in the books of the Company, not earlier than the earliest date, and not later than the latest date, prescribed for the giving of such notice; provided, that any notice of redemption of Debentures required to be given to all Holders shall also be given by release made by the Company to Reuters Economic Services and Bloomberg Business News not earlier than the earliest date, and not later than the latest date, prescribed for the giving of such notice. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice to Holders of Debentures by mail, then such notification as shall be made with the approval of the Trustee shall constitute sufficient notice to such Holders for every purpose hereunder. In any case where notice to Holders of Debentures is given by mail, neither the failure to mail such notice, nor any defect in any notice mailed to any particular Holder of a Debenture shall affect the sufficiency of such notice with respect to other Holders of Debentures. 15 22 Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders of Debentures shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 1.7. Language of Notices, Etc. Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication. SECTION 1.8. Conflict with Trust Indenture Act. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with another provision included in this Indenture that is required to be included in this Indenture by any of SECTIONs 310 to 318, inclusive, of the Trust Indenture Act, such required provision shall control. SECTION 1.9. Effect of Headings and Table of Contents. The Article and SECTION headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.10. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.11. Separability Clause. In case any provision in this Indenture or the Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.12. Benefits of Indenture. Nothing in this Indenture or the Debentures, express or implied, shall give to any Person, other than the parties hereto, any Authenticating Agent, any Paying Agent, any Debentures Registrar and their successors hereunder, the holders of Trust Securities, and the Holders of Debentures, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.13. Governing Law. This Indenture and the Debentures shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of laws principles thereof. 16 23 SECTION 1.14. Legal Holidays. In any case where any Interest Payment Date, Redemption Date, sinking fund payment date, Maturity or Stated Maturity of any Debenture of any series shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Debentures other than a provision in the Debentures of any series that specifically states that such provision shall apply in lieu of this Section) payment of interest or principal (and premium, if any) will be made on the next succeeding Business Day at such Place of Payment; provided, that no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be, to such succeeding Business Day and except that, if such Business Day is in the next succeeding calendar year, then such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. SECTION 1.15. Immunity of Incorporators, Shareholders, Officers, Directors and Employees. No recourse under or upon any obligation, covenant or agreement of this Indenture, or of a Debenture of any series, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, shareholder, officer, director or employee, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations of the Company, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, shareholders, officers, directors or employees, as such, of the Company or of any successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations or agreements contained in this Indenture or in any of the Debentures or implied therefrom; and that any and all such personal liability, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, shareholder, officer, director or employee, as such, because of the creation of the indebtedness hereby authorized, or under of by reason of the obligations or agreements contained in this Indenture or in any of the Debentures or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of such Debentures. All payments of interest and other amounts, if any, to be made by the Trustee hereunder shall be made only from the money deposited with the Trustee and only to the extent that the Trustee shall have sufficient income or proceeds to 17 24 make such payments in accordance with the terms of this Indenture, and each Holder thereof, by its acceptance of a Debenture, agrees that it will look solely to the income and proceeds deposited with the Trustee to the extent available for distribution to such Holder as provided and that the Trustee is not personally liable in any manner to such Holder for any amounts payable or any liability under this Indenture or any Debenture. ARTICLE 2 ISSUE, DESCRIPTION, TERMS, EXECUTION, REGISTRATION AND EXCHANGE OF DEBENTURES SECTION 2.1. Designation, Terms, Amount Authentication and Delivery of Debentures. The aggregate principal amount of Debentures that may be authenticated and delivered under this Indenture is unlimited. The Debentures may be issued in one or more series up to the aggregate principal amount of Debentures of that series from time to time authorized by or pursuant to a Board Resolution or pursuant to one or more indentures supplemental hereto, prior to the initial issuance of Debentures of a particular series. Prior to the initial issuance of Debentures of any series, there shall be established in or pursuant to a Board Resolution, and set forth in an Officers' Certificate, or established in one or more indentures supplemental hereto: (a) the title of the Debentures of the series (which shall distinguish the Debentures of the series from all other Debentures); (b) any limit upon the aggregate principal amount of the Debentures of that series that may be authenticated and delivered under this Indenture (except for Debentures authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Debentures of that series); (c) the date or dates on which the principal of the Debentures of the series is payable; (d) the rate or rates at which the Debentures of the series shall bear interest or the manner of calculation of such rate or rates, if any; 18 25 (e) the date or dates from which such interest shall accrue, the Interest Payment Dates on which such interest will be payable or the manner of determination of such Interest Payment Dates and the record date for the determination of Holders to whom interest is payable on any such Interest Payment Dates; (f) the right, if any, to extend or defer the interest payment periods and the duration of such extension; (g) the period or periods within which, the price or prices at which, and the terms and conditions upon which, Debentures of the series may be redeemed, in whole or in part, at the option of the Company; (h) the obligation, if any, of the Company to redeem or purchase Debentures of the series pursuant to any sinking fund or analogous provisions (including payments made in cash in anticipation of future sinking fund obligations) or at the option of a Holder thereof and the period or periods within which, the price or prices at which, and the terms and conditions upon which, Debentures of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (i) any exchangeability, conversion or prepayment provisions of the Debentures; (j) the form of the Debentures of the series including the form of the certificate of authentication for such series; (k) if other than denominations of $50 or any integral multiple thereof, the denominations in which the Debentures of the series shall be issuable; (l) any and all other terms with respect to such series (which terms shall not be inconsistent with the terms of this Indenture); and (m) whether the Debentures are issuable as a Global Debenture and, in such case, the identity of the Depositary for such series. (n) If the Debentures of such series are to be deposited as trust assets in a Federal-Mogul Trust the name of the applicable Federal-Mogul (which shall distinguish such Federal-Mogul Trust from all other Federal- 19 26 Mogul Trusts) into which the Debentures of such series are to be deposited as trust assets and the date of its Declaration of Trust. All Debentures of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to any such Board Resolution or in any indenture supplemental hereto. If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series. SECTION 2.2. Form of Debenture and Trustee's Certificate. The Debentures of any series and the Trustee's certificate of authentication to be borne by such Debentures shall be substantially of the tenor and purport as set forth in one or more indentures supplemental hereto or as provided in a Board Resolution and as set forth in an Officers' Certificate, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which Debentures of that series may be listed, or to conform to usage. SECTION 2.3. Date and Denominations of Debentures and Provisions for Payment of Principal, Premium and Interest. The Debentures shall be issuable as registered Debentures and in the denominations of $50 or any integral multiple thereof, subject to Section 2.01(k). The Debentures of a particular series shall bear interest payable on the dates and at the rate specified with respect to that series. The principal of and the interest on the Debentures of any series, as well as any premium thereon in case of redemption thereof prior to maturity, shall be payable in the coin or currency of the United States of America that at the time is legal tender for public and private debt, at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City and State of New York. Each Debenture shall be dated the date of its authentication. Interest on the Debentures shall be computed on the basis of a 360-day year composed of twelve 30-day months. The interest installment on any Debenture that is payable, and is punctually paid or duly provided for, on any Interest Payment Date for Debentures of that series shall be paid to the person in whose name said 20 27 Debenture (or one or more Predecessor Debentures) is registered at the close of business on the regular record date for such interest installment. In the case of any Debenture that is converted into Common Stock of the Company on or after any regular record date and prior to the next succeeding Interest Payment Date (other than a Debenture whose Maturity is prior to such Interest Payment Date), interest whose Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Debenture (or one or more Predecessor Debentures) is registered at the close of business on such regular record date. In the event that any Debenture of a particular series or portion thereof is called for redemption and the redemption date is subsequent to a regular record date with respect to any Interest Payment Date and prior to such Interest Payment Date, the amount of such payment shall include accumulated and unpaid interest accrued to, but excluding, such redemption date. Except as expressly provided, in the case of any Debenture that is converted, interest whose Stated Maturity is after the date of conversion of such Debenture shall not be payable. Any interest on any Debenture that is payable, but is not punctually paid or duly provided for, on any Interest Payment Date for Debentures of the same series (herein called "DEFAULTED INTEREST") shall forthwith cease to be payable to the registered Holder on the relevant regular record date by virtue of having been such Holder; and such Defaulted Interest shall be paid by the Company, at its election, as provided in clause (a) or clause (b) below: (a) The Company may make payment of any Defaulted Interest on Debentures to the persons in whose names such Debentures (or their respective Predecessor Debentures) are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner: the Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each such Debenture and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest, which shall not be more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after 21 28 the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such special record date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first class postage prepaid, to each Debentureholder at his or her address as it appears in the Debenture Register (as hereinafter defined), not less than 10 days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the persons in whose names such Debentures (or their Predecessor Debentures) are registered on such special record date and shall be no longer payable pursuant to the following clause (b). (b) The Company may make payment of any Defaulted Interest on any Debentures in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Debentures may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Unless otherwise set forth in a Board Resolution or one or more indentures supplemental hereto establishing the terms of any series of Debentures pursuant to Section 2.01 hereof, the term "regular record date" as used in this Section with respect to a series of Debentures with respect to any Interest Payment Date for such series shall mean either the fifteenth day of the month immediately preceding the month in which an Interest Payment Date established for such series pursuant to Section 2.01 hereof shall occur, if such Interest Payment Date is the first day of a month, or the last day of the month immediately preceding the month in which an Interest Payment Date established for such series pursuant to Section 2.01 hereof shall occur, if such Interest Payment Date is the fifteenth day of a month, whether or not such date is a Business Day. Subject to the foregoing provisions of this Section, each Debenture of a series delivered under this Indenture upon transfer of or in exchange for or in lieu of any other Debenture of such series shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Debenture. SECTION 2.4. Execution of Debentures. The Debentures shall be signed on behalf of the Company by the Chairman or Vice Chairman of its Board of 22 29 Directors or its President or one of its Vice Presidents, under its corporate seal attested by its Secretary or one of its Assistant Secretaries. The signature of the Chairman, Vice Chairman, President or a Vice President and/or the signature of the Secretary or an Assistant Secretary in attestation of the corporate seal, upon the Debentures, may be in the form of a manual or facsimile signature of a present or any future Chairman, Vice Chairman, President or Vice President and of a present or any future Secretary or Assistant Secretary and may be imprinted or otherwise reproduced on the Debentures and for that purpose the Company may use the manual or facsimile signature of any person who shall have been a Chairman, Vice Chairman, President or Vice President, or of any person who shall have been a Secretary or Assistant Secretary, notwithstanding the fact that at the time the Debentures shall be authenticated and delivered or disposed of such person shall have ceased to be the Chairman, Vice Chairman, President or a Vice President, or the Secretary or an Assistant Secretary, of the Company, as the case may be. The seal of the Company may be in the form of a facsimile of the seal of the Company and may be impressed, affixed, imprinted or otherwise reproduced on the Debentures. Only such Debentures as shall bear thereon a certificate of authentication substantially in the form established for such Debentures, executed manually by an authorized signatory of the Trustee, or by any Authenticating Agent with respect to such Debentures, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate executed by the Trustee, or by any Authenticating Agent appointed by the Trustee with respect to such Debentures, upon any Debenture executed by the Company shall be conclusive evidence that the Debenture so authenticated has been duly authenticated and made available for delivery hereunder and that the Holder is entitled to the benefits of this Indenture. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Debentures of any series executed by the Company to the Trustee for authentication, together with a written order of the Company for the authentication and delivery of such Debentures, signed by its President or any Vice President and its Treasurer or any Assistant Treasurer, and the Trustee in accordance with such written order shall authenticate and make available for delivery such Debentures. In authenticating such Debentures and accepting the additional responsibilities under this Indenture in relation to such Debentures, the Trustee shall be entitled to receive, and (subject to Section 5.01) shall be fully protected in 23 30 relying upon, an Opinion of Counsel stating that the form and terms thereof have been established in conformity with the provisions of this Indenture. The Trustee shall not be required to authenticate such Debentures if the issue of such Debentures pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Debentures and this Indenture or otherwise in a manner that is not reasonably acceptable to the Trustee. SECTION 2.5. Exchange of Debentures. (a) Debentures of any series may be exchanged upon presentation thereof at the office or agency of the Company designated for such purpose in the Borough of Manhattan, The City and State of New York, for other Debentures of such series of authorized denominations, and for a like aggregate principal amount, upon payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, all as provided in this Section 2.05. In respect of any Debentures so surrendered for exchange, the Company shall execute, the Trustee shall authenticate and such office or agency shall make available for delivery in exchange therefor the Debenture or Debentures of the same series that the Debentureholder making the exchange shall be entitled to receive, bearing numbers not contemporaneously outstanding. (b) The Company shall keep, or cause to be kept, at its office or agency designated for such purpose in the Borough of Manhattan, The City and State of New York, or such other location designated by the Company a register or registers (herein referred to as the "DEBENTURE REGISTER") in which, subject to such reasonable regulations as it may prescribe, the Company shall register the Debentures and the transfers of Debentures as in this Article provided and that at all reasonable times shall be open for inspection by the Trustee. The registrar for the purpose of registering Debentures and transfer of Debentures as herein provided shall be appointed as authorized by Board Resolution (the "DEBENTURE REGISTRAR"). Upon surrender for transfer of any Debenture at the office or agency of the Company designated for such purpose in the Borough of Manhattan, The City and State of New York, the Company shall execute, the Trustee shall authenticate and such office or agency shall make available for delivery in the name of the transferee or transferees a new Debenture or Debentures of the same series as the Debenture presented for a like aggregate principal amount. All Debentures presented or surrendered for exchange or registration of transfer, as provided in this Section, shall be accompanied by a written instrument or instruments of transfer, in form satisfactory to the Company or the Debenture 24 31 Registrar, duly executed by the registered Holder or by his duly authorized attorney in writing. (c) No service charge shall be made for any exchange or registration of transfer of Debentures, or issue of new Debentures in case of partial redemption of any series, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, other than exchanges pursuant to Section 2.06, Section 8.06 and Section 10.07 not involving any transfer. (d) The Company shall not be required (i) to issue, exchange or register the transfer of any Debentures during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of less than all the outstanding Debentures of the same series and ending at the close of business on the day of such mailing, nor (ii) to register the transfer of or exchange any Debentures of any series or portions thereof called for redemption. The provisions of this Section 2.05 are, with respect to any Global Debenture, subject to Section 2.11 hereof. SECTION 2.6. Temporary Debentures. Pending the preparation of definitive Debentures of any series, the Company may execute, and the Trustee shall authenticate and make available for delivery, temporary Debentures of any authorized denomination, and substantially in the form of the definitive Debentures in lieu of which they are issued, but with such omissions, insertions and variations as may be appropriate for temporary Debentures, all as may be determined by the Company. Every temporary Debenture of any series shall be executed by the Company and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Debentures of such series. Without unnecessary delay the Company will execute and will furnish definitive Debentures of such series and thereupon any or all temporary Debentures of such series may be surrendered in exchange therefor (without charge to the Holders), at the office or agency of the Company designated for the purpose in the Borough of Manhattan, The City and State of New York, and the Trustee shall authenticate and such office or agency shall make available for delivery in exchange for such temporary Debentures an equal aggregate principal amount of definitive Debentures of such series, unless the Company advises the Trustee to the effect that definitive Debentures need not be executed and furnished until further notice from the Company. Until so exchanged, the temporary Debentures of such series shall be entitled to the same benefits under this Indenture as definitive Debentures of such series authenticated and delivered hereunder. 25 32 SECTION 2.7. Mutilated, Destroyed, Lost or Stolen Debentures. In case any temporary or definitive Debenture shall become mutilated or be destroyed, lost or stolen, the Company (subject to the next succeeding sentence) shall execute, and upon its request the Trustee (subject as aforesaid) shall authenticate and make available for delivery, a new Debenture of the same series bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Debenture, or in lieu of and in substitution for the Debenture so destroyed, lost or stolen. In every case the applicant for a substituted Debenture shall furnish to the Company and to the Trustee such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and to the Trustee evidence to their satisfaction of the destruction, loss or theft of the applicant's Debenture and of the ownership thereof. The Trustee may authenticate any such substituted Debenture and make available for delivery the same upon the written request or authorization of any officer of the Company. Upon the issuance of any substituted Debenture, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. In case any Debenture that has matured or is about to mature shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Debenture, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Debenture) if the applicant for such payment shall furnish to the Company and to the Trustee such security or indemnity as they may require to save them harmless, and, in case of destruction, loss or theft, evidence to the satisfaction of the Company and the Trustee of the destruction, loss or theft of such Debenture and of the ownership thereof. Every Debenture issued pursuant to the provisions of this Section in substitution for any Debenture that is mutilated, destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Debenture shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures of the same series duly issued hereunder. All Debentures shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures, and shall preclude (to the extent lawful) any and all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. 26 33 SECTION 2.8. Cancellation of Surrendered Debentures. All Debentures surrendered for the purpose of payment, redemption, exchange or registration of transfer shall, if surrendered to the Company or any paying agent, be delivered to the Trustee for cancellation, or, if surrendered to the Trustee, shall be canceled by it, and no Debentures shall be issued in lieu thereof except as expressly required or permitted by any of the provisions of this Indenture. On written request of the Company, the Trustee shall deliver to the Company canceled Debentures held by the Trustee. If the Company shall otherwise acquire any of the Debentures, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Debentures unless and until the same are delivered to the Trustee for cancellation. SECTION 2.9. Provisions of Indenture and Debentures for Sole Benefit of Parties and Debentureholders. Nothing in this Indenture or in the Debentures, express or implied, shall give or be construed to give to any person, firm or corporation, other than the parties hereto and the Holders, any legal or equitable right, remedy or claim under or in respect of this Indenture, or under any covenant, condition or provision herein contained; all such covenants, conditions and provisions being for the sole benefit of the parties hereto and of the Holders. SECTION 2.10. Appointment of Authenticating Agent. So long as any of the Debentures of any series remain outstanding there may be an Authenticating Agent for any or all such series of Debentures, which the Trustee shall have the right to appoint. Said Authenticating Agent shall be authorized to act on behalf of the Trustee to authenticate Debentures of such series issued upon exchange, transfer or partial redemption thereof, and Debentures so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. All references in this Indenture to the authentication of Debentures by the Trustee shall be deemed to include authentication by an Authenticating Agent for such series except for authentication upon original issuance or pursuant to Section 2.07 hereof. Each Authenticating Agent shall be acceptable to the Company and shall be a corporation that has a combined capital and surplus, as most recently reported or determined by it, sufficient under the laws of any jurisdiction under which it is organized or in which it is doing business to conduct a trust business, and that is otherwise authorized under such laws to conduct such business and is subject to supervision or examination by Federal or State authorities. If at any time any Authenticating Agent shall cease to be eligible in accordance with these provisions, it shall resign immediately. 27 34 Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time (and upon request by the Company shall) terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon resignation, termination or cessation of eligibility of any Authenticating Agent, the Trustee may appoint an eligible successor Authenticating Agent acceptable to the Company. Any successor Authenticating Agent, upon acceptance of its appointment hereunder, shall become vested with all the rights, powers and duties of its predecessor hereunder as if originally named as an Authenticating Agent pursuant hereto. SECTION 2.11. Global Debenture. (a) If the Company shall establish pursuant to Section 2.01 that the Debentures of a particular series are to be issued as one or more Global Debentures, then the Company shall execute and the Trustee shall, in accordance with Section 2.04, authenticate and make available for delivery, one or more Global Debentures, which shall represent, and shall be denominated in an aggregate amount equal to the aggregate principal amount of, all of the Outstanding Debentures of such series, shall be registered in the name of the Depositary or its nominee, shall be made available for delivery by the Trustee to the Depositary or pursuant to the Depositary's instruction and shall bear a legend substantially to the following effect: "Except as otherwise provided in Section 2.11 of the Indenture, this Debenture may be transferred, in whole but not in part, only to another nominee of the Depositary or to a successor Depositary or to a nominee of such successor Depositary." (b) Notwithstanding the provisions of Section 2.05, the Global Debenture of a series may be transferred, in whole but not in part and in the manner provided in Section 2.05, only to another nominee of the Depositary for such series, or to a successor Depositary for such series selected or approved by the Company or to a nominee of such successor Depositary. (c) If at any time the Depositary for a series of Debentures notifies the Company that it is unwilling or unable to continue as Depositary for such series or if at any time the Depositary for such series shall no longer be registered or in good standing under the Exchange Act, or other applicable statute or regulation and a successor Depositary for such series is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, this Section 2.11 shall no longer be applicable to the Debentures of such series and the Company will execute and, subject to Section 2.05, the Trustee will authenticate and make available for delivery Debentures of such series in definitive registered form without coupons, in 28 35 authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Debentures of such series in exchange for such Global Debenture. In addition, the Company may at any time determine that the Debentures of any series shall no longer be represented by one or more Global Debentures and that the provisions of this Section 2.11 shall no longer apply to the Debentures of such series. In such event the Company will execute and, subject to Section 2.05, the Trustee, upon receipt of an Officers' Certificate evidencing such determination by the Company, will authenticate and make available for delivery Debentures of such series in definitive registered form without coupons, in authorized denominations, and in an aggregate principal amount equal to the principal amount of the Global Debentures of such series in exchange for such Global Debentures. Upon the exchange of the Global Debentures for such Debentures in definitive registered form without coupons, in authorized denominations, the Global Debentures shall be canceled by the Trustee. Such Debentures in definitive registered form issued in exchange for the Global Debentures pursuant to this Section 2.11 shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall make available for delivery such Debentures to the Depositary for delivery to the persons in whose names such Debentures are so registered. SECTION 2.12. CUSIP Numbers. The Company in issuing the Debentures may use "CUSIP" and "CINS" numbers (if then generally in use), and the Trustee shall use CUSIP numbers or CINS numbers, as the case may be, in notices of redemption or exchange as a convenience to Debentureholders and no representation shall be made as to the correctness of such numbers either as printed on the Debentures or as contained in any notice of redemption or exchange and any such redemption or exchange shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" or "CINS" numbers. ARTICLE 3 SATISFACTION AND DISCHARGE SECTION 3.1. Satisfaction and Discharge of Indenture. Except as otherwise specified as contemplated by Section 2.01, this Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Debentures herein expressly provided 29 36 for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when: (a) either, (i) all Debentures theretofore authenticated and delivered and have been delivered to the Trustee for cancellation; or (ii) all such Debentures not theretofore delivered to the Trustee for cancellation, (A) have become due and payable, or (B) will become due and payable at their Stated Maturity within one year, or (C) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (A), (B) or (C) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose, an amount sufficient to pay and discharge the entire indebtedness on such Debentures not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and any interest to the date of such deposit (in the case of Debentures that have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (b) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (c) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 5.06, the obligations of the Company to any Authenticating Agent under Section 2.10 and, if money shall 30 37 have been deposited with the Trustee pursuant to clause 3.01(a)(ii) of this Section, the obligations of the Trustee under Section 3.02 and the last paragraph of Section 9.03 shall survive. SECTION 3.2. Application of Trust Money. Subject to the provisions of the last paragraph of Section 9.03, all money and U.S. Government Obligations deposited with the Trustee pursuant to Section 3.01 or 3.03 and all money received by the Trustee in respect of such U.S. Government Obligations shall be held in trust and applied by it, in accordance with the provisions of the Debentures and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent), to the Persons entitled thereto, of the principal (and premium, if any) and any interest for whose payment such money and U.S. Government Obligations have been deposited with or received by the Trustee. Money deposited pursuant to this Section not in violation of this Indenture shall not be subject to claims of the holders of Senior Indebtedness under Article 14. All monies deposited with the Trustee pursuant to Section 3.04 for the payment of Debentures subsequently converted shall be returned to the Company upon a Company Request. All moneys deposited with the Trustee pursuant to Section 3.04 for the payment of Debentures subsequently converted shall be returned to the Company upon Company Request; provided, that the Company shall have furnished to the Trustee such security or indemnity as the Trustee may require. SECTION 3.3. Company's Option to Effect Defeasance or Covenant Defeasance. If applicable to Debentures of any series, the Company may elect, at its option at any time, to have Section 3.04 or Section 3.06 applied to any such series of Debentures or any Debentures of such series, as the case may be, designated pursuant to Section 2.01 as being defeasible pursuant to such Section 3.04 or 3.06, in accordance with any applicable requirements provided pursuant to Section 2.01 and upon compliance with the conditions set forth below in this Article. Any such election shall be evidenced by a Board Resolution or in another manner specified as contemplated by Section 2.01 for such Debentures. SECTION 3.4. Discharge and Defeasance. If this Section 3.04 is specified, under the terms of Section 2.01, to be applicable to Debentures of any series, then notwithstanding Section 3.01 and upon compliance with the applicable conditions set forth in 3.06: (1) the Company shall be deemed to have paid and discharged the entire indebtedness on all the Outstanding Debentures of any such series ("DEFEASANCE") and (2) the provisions of this Indenture as it relates to such Outstanding Debentures shall no longer be in effect (except (i) as to the rights of Holders of Debentures of such series to receive, solely from the 31 38 trust fund described in Section 3.06, payment of (a) the principal of (and premium, if any) and any installment of principal of (and premium, if any) or interest on Debentures of such series on the Stated Maturity of such principal (and premium, if any) or installment of principal (and premium, if any) or interest or upon optional redemption and/or (b) any mandatory sinking fund payments or analogous payments applicable to the Debentures of such series on that day on which such payments are due and payable in accordance with the terms of the Indenture and of Debentures of such series, (ii) the Company's obligations with respect to Debentures of such series under Sections 2.06, 2.05, 2.07, 9.02, 9.03, and 9.04 and (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder, including those under Section 5.08 hereof). SECTION 3.5. Covenant Defeasance. If this Section 3.05 is specified, as contemplated by Section 2.01, to be applicable to any series of Debentures or any Debentures of such series, as the case may be, (a) the Company shall be released from its obligations under Sections 9.04 through 9.07, inclusive, and any covenants provided pursuant to Section 2.01(u) or 8.01(b) for the benefit of the Holders of Debentures of such series that pursuant to the terms of such Debentures of such series are defeasible pursuant to this Section 3.05 and (b) the occurrence of any event specified in Sections 4.01(d) (with respect to any of Sections 9.03 through 9.07, inclusive, and any such covenants provided pursuant to Sections 2.01(u), 8.01(b) or 8.01(f) and 4.01(g) (if pursuant to the terms of such Debentures this Section 4.05 is applicable to any such event specified in Section 4.01(g)) shall be deemed not to be or result in an Event of Default, in each case with respect to Debentures of such series as provided in this Section on and after the date the conditions set forth in Section 3.06 are satisfied (hereinafter called "COVENANT DEFEASANCE"). For this purpose, such Covenant Defeasance means that, with respect to Debentures of such series, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section (to the extent so specified in the case of Section 4.01(d) and 4.01(g)), whether directly or indirectly by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document, but the remainder of this Indenture and such Debentures shall be unaffected thereby. SECTION 3.6. Conditions to Defeasance. The following shall be the conditions to the application of Section 3.04 or Section 3.05 to any applicable series of Debentures or any Debentures of such series, as the case may be (a) either 32 39 (i) with respect to all Outstanding Debentures of such series or such Debentures of such Series, as the case may be, with reference to this Section 3.06, the Company has deposited or caused to be deposited with the Trustee irrevocably (but subject to the provisions of Section 3.02 and the last paragraph of Section 9.03), as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Debentures of such series, (i) lawful money of the United States in an amount, or (ii) U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide not later than the opening of business on the due dates of any payment referred to in clause (i) or (ii) of this subparagraph (a)(1) lawful money of the United States in an amount, or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge (A) the principal of (and premium, if any) and each installment of principal (and premium, if any) and interest on such Debentures the Stated Maturity of such principal or installment of principal or interest or upon optional redemption and (B) any mandatory sinking fund payments or analogous payments applicable to the Debentures of such series on the day on which such payments are due and payable in accordance with the terms of this Indenture and of the Debentures of such series; or (ii) the Company has properly fulfilled such other means of satisfaction and discharge as is specified, as contemplated by Section 2.01, to be applicable to the Debentures of such series; (b) the Company has paid or caused to be paid all other sums payable with respect to the Debentures of such series; (c) such deposit for the benefit of Holders of Debentures of such series will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound; (d) no Event of Default or event that with the giving of notice or lapse of time, or both, would become an Event of Default with respect to the Debentures of such series shall have occurred and be continuing on the date of such deposit and no Event of Default under Section 4.01(e) or 33 40 Section 4.01(f) or event that, with the giving of notice or lapse of time, or both, would become an Event of Default under Section 4.01(e) or Section 4.01(f), shall have occurred and be continuing on the 91st day after such date; (e) in the event of an election to have Section 3.04 apply to the Debentures of any series, the Company has delivered to the Trustee an Opinion of Counsel to the effect that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of Debentures of such series will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred; (f) in the event of an election to have Section 3.05 apply to Debentures of any series, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of Debentures of such series will not recognize gain or loss for federal income tax purposes as a result of the deposit and Covenant Defeasance to be effected with respect to the Debentures of such series and will be subject to United States federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit and Covenant Defeasance were not to occur; (g) if the Debentures of such series are then listed on any domestic or foreign securities exchange, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that such deposit, defeasance and discharge will not cause the Debentures of such series to be delisted; (h) no default in the payment of the principal (and premium, if any) or any interest on any Senior Indebtedness beyond any applicable grace period shall have occurred and be continuing; (i) no other default with respect to any Senior Indebtedness shall have occurred and be continuing and shall have resulted in the acceleration of such Senior Indebtedness; and 34 41 (j) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the Defeasance or Covenant Defeasance with respect to Debentures of such series have been complied with and an Opinion of Counsel to the effect that either (i) as a result of such deposit and the related exercise of the Company's option under this Article, registration is not required under the Investment Company Act of 1940, as amended, by the Company, the trust funds representing such deposit or the Trustee or (ii) all necessary registrations under said Act have been effected. Any deposits with the Trustee referred to in Section 3.06(a)(i) shall be irrevocable and shall be made under the terms of an escrow/trust agreement in form and substance satisfactory to the Trustee. If any Outstanding Debentures of such series are to be redeemed prior to their Stated Maturity, whether pursuant to any optional redemption provisions or in accordance with any mandatory sinking fund requirement, the applicable escrow trust agreement shall provide therefor and the Company shall make such arrangements as are satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company. Upon Defeasance with respect to all the Debentures of any series, the terms and conditions of the Debentures of such series, including the terms and conditions with respect thereto set forth in this Indenture, shall no longer be binding upon, or applicable to, the Company; provided, that the Company shall not be discharged from any payment obligations in respect of Debentures of such series that are deemed not to be Outstanding under clause (iii) of the definition thereof if such obligations continue to be valid obligations of the Company under applicable law. Notwithstanding the cessation, termination and discharge of all obligations, covenants and agreements (except as provided above in this Section 3.06) of the Company under this Indenture with respect to the Debentures of any series, the obligations of the Company to the Trustee under Section 5.06, and the obligations of the Trustee under Section 3.02 and the last paragraph of Section 9.03 shall survive with respect the Debentures of such series. Anything in this Article to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in this Section 3.06 35 42 with respect to Debentures of any series that, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof that would then be required to be deposited to effect the Defeasance or Covenant Defeasance, as the case may be, with respect to Debentures of such series. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to this Section 3.06 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of Outstanding Debentures. ARTICLE 4 REMEDIES SECTION 4.1. Events of Default. "EVENT OF DEFAULT," wherever used herein with respect to Debentures of any series, unless otherwise provided the applicable supplemental indenture, means any one or more of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) default in the payment of any interest upon any Debenture of such series when it becomes due and payable, and continuance of such default for a period of 30 days (whether or not such payment is prohibited by the subordination provisions set forth in Article 13 hereof); provided, that a valid extension of an interest payment period by the Company in accordance with the terms of any indenture supplemental hereto, shall not constitute a default in the payment of interest for this purpose; or (b) default in the payment of the principal of (or premium, if any, on) any Debenture of such series as and when the same shall become due and payable whether at maturity, upon redemption, by declaration or otherwise, or in any payment required by any sinking or analogous fund established with respect to that series (whether or not such payment is prohibited by the subordination provisions set forth in Article 13 hereof); provided, that a valid extension of the maturity of the Debentures of such series in accordance with the terms of any indenture supplemental hereto 36 43 shall not constitute a default in the payment of principal or premium, if any; or (c) if the Debentures of such series are convertible or exchangeable into or for shares of Common Stock of the Company or other securities, cash or other property pursuant to any supplemental indenture, Board Resolution or other instrument authorizing Debentures of such series, failure by the Company to convert such Debentures (whether or not conversion or exchange is prohibited by the subordination provisions set forth in Article 13); or (d) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or that has expressly been included in this Indenture solely for the benefit of any series of Debentures other than such series), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Debentures of such series, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "NOTICE OF DEFAULT" hereunder; or (e) the entry by a court having jurisdiction in the premises of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (f) the commencement by the Company of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated as bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of 37 44 any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidation, assignee, trustee, sequestrator or similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors; or (g) in the event Debentures of any series are issued to a Federal-Mogul Trust or a trustee of such trust in connection with the issuance of Trust Securities by such Federal-Mogul Trust, such Federal-Mogul Trust shall have voluntarily or involuntarily dissolved, wound-up its business or otherwise terminated its existence except in connection with (i) the distribution of Debentures of such series to holders of Trust Securities in liquidation of their interest in such Federal-Mogul Trust, (ii) the redemption of all of the outstanding Trust Securities of such Federal-Mogul Trust or (iii) certain mergers, consolidations or amalgamations, each as permitted by the Declaration of such Federal-Mogul Trust; or (h) any other Event of Default provided pursuant to Section 2.01 with respect to Debentures of such series. SECTION 4.2. Acceleration of Maturity; Recission and Annulment. If an Event of Default described in clause (a), (b), (c), (d), (g) or (h) (if the Event of Default under clause (d) is with respect to less than all series of Debentures then Outstanding) of Section 4.01 above occurs and is continuing, then, and in each and every such case, unless the principal of all of the Debentures of such series shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Debentures of such series then Outstanding hereunder (each such series voting as a separate class), by notice in writing to the Company (and to the Trustee if given by the Holders of Debentures of such series), may declare the entire principal (or, if the Debentures of such series are Original Issue Discount Debentures, such portion of the principal amount as may be specified in the terms of such series) of all Debentures of such series and the interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable. If an Event of Default described in clause (d) (if the Event of Default under clause (d) relates to all series of Debentures then Outstanding), (e) or (f) of Section 4.01 occurs and is continuing, then and in each and every such case, unless the principal of all the Debentures of all series shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of all the Debentures of all series then Outstanding 38 45 hereunder (treated as one class), by notice in writing to the Company (and to the Trustee if given by Holders of Debentures), may declare the entire principal (or, if any Debentures are Original Issue Discount Debentures such portion of the principal as may be specified in the terms thereof) of all Debentures of all series then Outstanding and interest accrued thereon, if any, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable. The foregoing provisions, however, are subject to the condition that if, at any time after the principal (or, if any Debentures are Original Issue Discount Debentures, such portion of the principal as may be specified in the terms thereof) of the Debentures of any series (or of all the Debentures of all series, as the case may be) then Outstanding shall have been so declared due and payable, and before any judgment or decree for the payment of such moneys shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Debentures of such series (or of all Debentures of all series, as the case may be) and the principal of (and premium, if any on) Debentures of such series (or of all Debentures of all series, as the case may be) that shall have become due otherwise than by acceleration (with interest upon such principal and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest, at the same rate as the rate of interest or Yield to Maturity (in the case of Original Issue Discount Debentures) specified in the Debentures of such series (or at the respective rates of interest or Yields to Maturity of all Debentures of all series, as the case may be) to the date of such payment or deposit) and such amount as shall be sufficient to cover reasonable compensation to the Trustee, and each predecessor Trustee, their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith, and if any and all Events of Default under the Indenture, other than the non-payment of the principal of Debentures of such series (or, if any Debentures are Original Issue Discount Debentures, such portion of the principal as may be specified in the terms thereof) that shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein -- then and in every such case the Holders of a majority in aggregate principal amount of all the Debentures of such series, each series voting as a separate class (or of all Debentures of all series, as the case may be, voting as a single class), then Outstanding, by written notice to the Company and to the Trustee, may waive all such defaults with respect to the Debentures of such series (or with respect to all Debentures of all series, as the case may be) and rescind and annul such declaration and its consequence, but no such waiver or rescission and annulment 39 46 shall extend to or shall affect any subsequent default or shall impair any right consequent thereon. In case the Trustee shall have proceeded to enforce any right with respect to Debentures of such series under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company and the Trustee shall continue as though no such proceedings had been taken. SECTION 4.3. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if: (a) default is made in the payment of any interest on any Debenture of any series, or any payment required by any sinking or analogous fund established with respect to Debentures of such series as and when the same shall have become due and payable and such default continues for a period of 30 days (provided that a valid extension of the interest payment period permitted by the terms of the supplemental indenture or Board Resolutions setting forth the terms of the Debentures of such series shall not constitute a default in the payment of interest), or (b) default is made in the payment of the principal of (or premium, if any, on) any Debenture of any series when the same shall have become due and payable, whether upon maturity of the Debentures of such series or upon redemption or upon declaration or otherwise, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of Debentures of such series, the whole amount then due and payable on such Debentures of such series and any premium and interest and, to the extent that payment of such interest shall be legally enforceable under applicable law, interest on any overdue principal and on the premium, if any, and overdue interest, at the rate or rates prescribed therefor in Debentures of such series and, if the Debentures of such series are held by a Federal-Mogul Trust or a trustee of such trust, without duplication of any other amounts paid by such Federal- Mogul Trust or trustee in respect thereof, upon overdue installments of interest at the rate per annum expressed in the Debentures of such series; and in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of 40 47 collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel under Section 5.06. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon Debentures of such series and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon Debentures of such series, wherever situated. If an Event of Default with respect to Debentures of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Debentures of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, either at law or in equity or in bankruptcy or otherwise whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 4.4. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Debentures of any series or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Debentures of such series shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (a) to file and prove a claim for the whole amount of principal and any premium and interest owing and unpaid in respect of the Debentures of any series and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders of Debentures of such series, and 41 48 (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same, and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder of Debentures of such series to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders of Debentures of such series, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 5.06. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Debenture of any series, any plan of reorganization, arrangement, adjustment or composition affecting the Debentures of such series or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder of Debentures of any series in any such proceeding. SECTION 4.5. Trustee May Enforce Claims Without Possession of Debentures. All rights of action and claims under this Indenture or under any of the terms established with respect to the Debentures of any series may be prosecuted and enforced by the Trustee without the possession of any of the Debentures of such series or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel due under Section 5.06, be for the ratable benefit of the Holders of the Debentures of such series in respect of which such judgment has been recovered. SECTION 4.6. Application of Money Collected. Any money collected by the Trustee pursuant to this Article with respect to Debentures of any series shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or any premium or interest, upon presentation of the Debentures of such series, or both, as the case may be, and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 5.06; 42 49 SECOND: To the payment of all Senior Indebtedness of the Company and to the extent required by Article 13: THIRD: To the payment of the amounts then due and unpaid for principal of and any premium and interest on the Debentures of such series in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on Debentures of such series for principal and any premium and interest, respectively; and FOURTH: To the payment of the remainder, if any, to the Company. SECTION 4.7. Limitation on Suits. No Holder of any Debenture of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless; (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Debentures of such series and of the continuance thereof with respect to the Debentures of such series specifying such Event of Default, as hereinbefore provided; (b) the Holders of not less than 25% in principal amount of the Outstanding Debentures of such series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders shall have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60 day period by the Holders of a majority in principal amount of the Outstanding Debentures of such series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such 43 50 Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. SECTION 4.8. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, but subject to Article 13 of this Indenture, the Holder of any Debenture of any series shall have the right, which is absolute and unconditional, to receive payment of the principal of and any premium and (subject to Section 2.03) interest on Debenture of such series on the Stated Maturity or Maturities expressed in Debentures of such series (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 4.9. Restoration of Rights and Remedies. If the Trustee or any Holder of Debentures of any series has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders of Debentures of such series shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 4.10. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures in the last paragraph of Section 2.07, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of Debentures is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 4.11. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Debenture to exercise any right or remedy accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Subject to the provisions of Section 4.07, every right and remedy given by this Article or by law to the Trustee or to the 44 51 Holders of Debentures may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders of Debentures, as the case may be. SECTION 4.12. Control by Holders of Debentures. The Holders of a majority in aggregate principal amount of the Outstanding Debentures of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Debentures of such series; provided, that (a) such direction shall not be in conflict with any rule of law or with this Indenture, and (b) the Trustee may take any other action deemed proper by the Trustee; provided, that such direction shall not be in conflict with any rule of law or with this Indenture or be unduly prejudicial to the rights of Holders of Debentures of any other series at the time Outstanding. Subject to the provisions of Section 5.02, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall, by a Responsible Officer or Officers of the Trustee, determine that the proceeding so directed would involve the Trustee in personal liability. SECTION 4.13. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Debentures of any series may on behalf of the Holders of all the Debentures of such series waive any past default hereunder with respect to the Debentures of such series and its consequences, except a default (a) in the payment of the principal of (or premium, if any) or any interest on any Debenture of such series as and when the same shall become due by the terms of Debentures of such series otherwise than by acceleration (unless such default has been cured and sums sufficient to pay all matured installments of interest and principal and any premium has been deposited with the Trustee (in accordance with Section 4.02), or (b) in respect of a covenant or provision hereof that under Article 8 cannot be modified or amended without the consent of the Holder of each Outstanding Debenture of such series affected; 45 52 provided, that if the Debentures of such series are held by a Federal-Mogul Trust or a trustee of such trust, such waiver or modification to such waiver shall not be effective until the holders of a majority in liquidation preference of Trust Securities of the applicable Federal-Mogul Trust shall have consented to such waiver or modification to such waiver; provided further, that if the consent of the Holder of each Outstanding Debenture of such series is required, such waiver shall not be effective until each holder of the Trust Securities of the applicable Federal-Mogul Trust shall have consented to such waiver; provided further, that a default in respect of any covenant or provision contained in Article 12 may only be waived by the Holders affected thereby. Upon any such waiver, the default covered thereby shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture and the Company, the Trustee and the Holders of the Debentures of such series shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 4.14. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Debenture by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Debentures of any series, or to any suit instituted by any Holder of any Debenture for the enforcement of the payment of the principal of or any premium or interest on such Debenture on or after the Stated Maturity or Maturities expressed in such Debenture (or, in the case of redemption, on or after the Redemption Date). SECTION 4.15. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this 46 53 Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE 5 THE TRUSTEE SECTION 5.1. Duties and Responsibilities of the Trustee; During Default; Prior to Default. With respect to the Holders of any series of Debentures issued hereunder, the Trustee, prior to the occurrence of an Event of Default with respect to the Debentures of a such series and after the curing or waiving of all Events of Default that may have occurred with respect to Debentures of such series, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case an Event of Default with respect to the Debentures of such series has occurred (which has not been cured or waived), the Trustee shall exercise with respect to the Debentures of such series such of the rights and powers vested in it by this Indenture, and shall use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (a) prior to the occurrence of an Event of Default with respect to the Debentures of any series and after the curing or waiving of all such Events of Default with respect to the Debentures of such series that may have occurred: (i) the duties and obligations of the Trustee with respect to the Debentures of such series shall be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee: and 47 54 (ii) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such statement, certificates or opinions that by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; and (c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders pursuant to Section 4.12 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or Power conferred upon the Trustee, under this Indenture. No provision of this Indenture shall require the Trustee to extend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 5.2. Certain Rights of Trustee. Subject to the provisions of the Trust Indenture Act: (a) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by an Officers' Certificate and any 48 55 resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, conclusively rely upon an Officers' Certificate; (d) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Debentures of any series pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction, including such reasonable advances as may be requested by the Trustee; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it 49 56 by this Indenture, unless the Trustee was negligent in ascertaining the pertinent facts; and (i) the Trustee shall not be deemed to have notice of any default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Debentures and this Indenture. SECTION 5.3. Not Responsible for Recitals or Issuance of Debentures. The recitals contained herein and in the Debentures (except the Trustee's certificates of authentication) shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of any Debentures. The Trustee or any Authenticating Agent shall not be accountable for the use or application by the Company of Debentures or the proceeds thereof. SECTION 5.4. May Hold Debentures. The Trustee, any Authenticating Agent, any Paying Agent, or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Debentures and, subject to Section 5.09 and 5.11, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, or such other agent. SECTION 5.5. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. SECTION 5.6. Compensation and Reimbursement. The Company agrees: (a) to pay to the Trustee or any successor Trustee from time to time such compensation as shall be agreed in writing between the Company and the Trustee for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided herein, to reimburse the Trustee or any predecessor Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the 50 57 compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (c) to indemnify the Trustee and any predecessor Trustee for, and to hold it harmless against, any and all loss, damage, claim, liability or expense, including taxes (other than taxes based on the income of the Trustee) incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 4.01(e) or Section 4.01(f), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar laws. The Trustee shall have a lien prior to the Debentures as to all property and funds held by it hereunder for any amount owing it or any predecessor Trustee pursuant to this Section 5.06, except with respect to funds held in trust for the benefit of the Holders of particular Debentures. The provisions of this Section 5.06 shall survive the termination of this Indenture. SECTION 5.7. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 5.08. (b) The Trustee may resign at any time with respect to the Debentures of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 5.08 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Debentures of such series. 51 58 (c) The Trustee may be removed at any time with respect to the Debentures of any series by Act of the Holders of a majority in principal amount of the Outstanding Debentures of such series delivered to the Trustee and to the Company. If the instrument of acceptance by a successor Trustee required by Section 5.08 shall not have been delivered to the Trustee within 30 days after the delivery of such Act of removal, the Trustee being removed may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Debentures of such series. (d) If at any time: (i) the Trustee shall fail to comply with Section 310(b) of the Trust Indenture Act after written request therefor by the Company or by any Holder of a Debenture who has been a bona fide Holder of a Debenture for at least six months, or (ii) the Trustee shall cease to be eligible under Section 6.10 and Section 310(a) of the Trust Indenture Act and shall fail to resign after written request therefor by the Company or by any such Holder of a Debenture who has been a bona fide Holder of Debenture for at least six months, or (iii) the Trustee shall become incapable of acting or shall be adjudged bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (A) the Company by a Board Resolution may remove the Trustee with respect to all Debentures, or (B) subject to Section 4.14 any Holder of a Debenture who has been a bona fide Holder of a Debenture for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Debentures and the appointment of a successor Trustee or Trustees. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Debentures of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Debentures 52 59 of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Debentures of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Debentures of any particular series) and shall comply with the applicable requirements of Section 5.08. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Debentures of any series shall be appointed by Act of the Holders of a majority in principal amount of Outstanding Debentures of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 5.08, become the successor Trustee with respect to the Debentures of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Debentures of any series shall have been so appointed by the Company or the Holders of Debentures of such series and accepted appointment in the manner required by Section 5.08, any Holder of a Debenture of such series who has been a bona fide Holder of a Debenture of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Debentures of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Debentures of any series and each appointment of a successor Trustee with respect to the Debentures of any series in the manner provided in Section 1.06. Each notice shall include the name of the successor Trustee with respect to the Debentures of such series and the address of its Corporate Trust Office. SECTION 5.8. Acceptance of Appointment by Successor. (a) In case of the appointment hereunder of a successor Trustee with respect to all Debentures, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but on the written request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. 53 60 (b) In case of the appointment hereunder of a successor Trustee with respect to the Debentures of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Debentures of such series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and that (i) shall contain such provisions as shall be necessary or desirable to transfer and conform to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debentures of such series to which the appointment of such successor Trustee relates, (ii) if the retiring Trustee is not retiring with respect to all Debentures, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debentures of such series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (iii) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees as co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Debentures of such series to which the appointment of such successor Trustee relates; but, on the written request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Debentures of such series to which the appointment of such successor Trustee relates. (c) Upon the written request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be. (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 5.9. Disqualification; Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of Section 310(b) of the 54 61 Trust Indenture Act, the Trustee and the holder of Common Securities (as if it were the obligor referred to in Section 310(b) of the Trust Indenture Act) shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 5.10. Corporate Trustee Required; Eligibility. There shall be at all times a Trustee hereunder, which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $500,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereunder specified in this Article. SECTION 5.11. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Debentures), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). SECTION 5.12. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Debentures shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Debentures so authenticated with the same effect as if such successor Trustee had itself authenticated such Debentures. SECTION 5.13. Notice of Defaults. If a default occurs hereunder with respect to Debentures of any series, the Trustee shall give the Holders of Debentures of such series notice of such default as and to the extent provided by the Trust Indenture Act; provided, that in the case of any default of the character specified in Section 4.01(d) with respect to Debentures of such series, no such 55 62 notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event that is, or after notice or lapse of time or both would become, an Event of Default with respect to Debentures of such series. ARTICLE 6 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 6.1. Preservation of Information: Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders of Debentures (i) contained in the most recent list furnished to the Trustee as provided in Section 312(a) of the Trust Indenture Act, (ii) received by the Trustee in its capacity as Debenture Registrar and (iii) filed with it within the two preceding years pursuant to Section 313(c)(2) of the Trust Indenture Act. (b) If three or more Holders of Debentures of any series (herein referred to as "APPLICANTS") apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Debenture of such series for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of Debentures of such series with respect to their rights under this Indenture or under the Debentures of such series and is accompanied by a copy of the form of proxy or other communication that such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, at its election, either (i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 6.01(a), or (ii) inform such applicants as to the approximate number of Holders of Debentures of such series whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 6.01(a), and as to the approximate cost of mailing to such Holders the form of proxy or other communication, if any, specified in such application. 56 63 (c) Every Holder of Debentures, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of Debentures in accordance with Section 6.01(b), regardless of the source from which such information was derived and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 6.01(b). SECTION 6.2. Reports by Trustee. The Trustee shall in each year transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act in the manner provided pursuant thereto. If required by Section 313(a) of the Trust Indenture Act, the Trustee shall, within sixty days after each May 15 following the date of this Indenture deliver to Holders a brief report, dated as of such May 15, which complies with the provisions of Section 313(a). The trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 6.3. Reports by Company. The Company shall file with the Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. The Company shall transmit information to the Holders of the Debentures as required by Section 313(c) of the Trust Indenture Act. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). ARTICLE 7 CONSOLIDATION, MERGER, SALE OR CONVEYANCE SECTION 7.1. Company May Consolidate, Etc. on Certain Terms. The Company shall not merge or consolidate with any other corporation or sell or convey all or substantially all of its assets to any Person, unless (a) either the Company shall be the continuing corporation, or the successor corporation (if 57 64 other than the Company) shall be a corporation organized under the laws of the United States of America or any State thereof and shall expressly assume the due and punctual payment of the principal of and interest on all the Debentures, according to their tenor, and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed or observed by the Company, by supplemental indenture satisfactory to the Trustee, executed and delivered to the Trustee by such corporation, and (b) the Company or such successor corporation, as the case may be, shall not, immediately after such merger or consolidation, or such sale or conveyance, be in default in the performance of any such covenant or condition. SECTION 7.2. Successor Corporation Substituted. In case of any such consolidation, merger, sale or conveyance, and following such an assumption by the successor corporation, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein. Such successor corporation may cause to be signed, and may issue either in its own name or in the name of the Company prior to such succession any or all of the Debentures issuable hereunder that theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such successor corporation instead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall make available for delivery any securities that previously shall have been signed and delivered by the officers of the Company, to the Trustee for authentication, and any Debentures that such successor corporation thereafter shall cause to be signed and delivered to the Trustee for that purpose. All of the Debentures so issued shall in all respects have the same legal rank and benefit under this Indenture as the Debentures theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Debentures had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale or conveyance such changes in phraseology and form (but not in substance) may be made in the Debentures thereafter to be issued as may be appropriate. In the event of any such sale or conveyance (other than a conveyance by way of lease) the Company or any successor corporation that shall theretofore have become such in the manner described in this Article shall be discharged from all obligations and covenants under this Indenture and the Debentures and may be liquidated and dissolved. SECTION 7.3. Opinion of Counsel to Trustee. The Trustee may receive an Opinion of Counsel, prepared in accordance with Section 1.02, as conclusive 58 65 evidence that any such consolidation, merger, sale, lease or conveyance, and any such assumption, and any such liquidation or dissolution, complies with the applicable provisions of this Indenture. ARTICLE 8 SUPPLEMENTAL INDENTURES SECTION 8.1. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders of Debentures, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (a) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Debentures; or (b) to add to the covenants of the Company for the benefit of the Holders of Debentures of all or any series (and if such covenants are to be for the benefit of Debentures of less than all series, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (c) to comply with any requirements of the Commission in connection with the qualification of this Indenture under the Trust Indenture Act; (d) to add any additional Events of Default (and if such Events of Default are to be for the benefit of Debentures of less than all series, stating that such Events of Default are expressly being included solely for the benefit of such series); or (e) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Debenture Outstanding of any series created prior to the execution of such supplemental indenture that is entitled to the benefit of such provision; or 59 66 (f) to establish the form or terms of Debentures of any series as permitted by Sections 2.01; or (g) to evidence and provide for the acceptance of appointment thereunder by a successor Trustee with respect to the Debentures of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 5.08(b); or (h) to make provision with respect to the conversion rights of Holders pursuant to the requirements of Article 12, including providing for the conversion of the Debentures into any security or property (other than the Common Stock of the Company); or (i) to cure any ambiguity, to correct or supplement any provision herein that may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; provided, that such action shall not adversely affect the interests of the Holders of Debentures of any series in any material respect. SECTION 8.2. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Debentures of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Debentures of such series under this Indenture; provided, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Debenture affected thereby, (a) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Debenture of any series, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Debenture that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 4.02 or change the coin or currency in which any 60 67 Debenture or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (b) reduce the percentage in principal amount of the Outstanding Debentures of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of certain defaults hereunder and their consequences provided for in this Indenture, or (c) modify any of the provisions of this Section or Section 4.13, except to increase the percentage of Outstanding Debentures of any series the consent of the Holders of which is required pursuant to such provisions or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Debenture affected thereby, or (d) make any change that adversely affects the right to convert any Debenture of any series as provided in Article 12 or pursuant to Section 2.01 (except as permitted by Section 8.01) or decrease the conversion rate or increase the conversion price of any such Debenture of such series, or (e) if the Debentures of any series are secured, change the terms and conditions pursuant to which the Debentures of such series are secured in a manner adverse to the Holders of the secured Debentures of such series, or (f) make any change in Article 13 that adversely affects the rights of any Holders of Outstanding Debentures of such series, If the Debentures of such series are held by a Federal-Mogul Trust or a trustee of such trust, such supplemental indenture shall not be effective until the holders of a majority in liquidation preference of Trust Securities of the applicable Trust shall have consented to such supplemental indenture; provided, that if the consent of the Holder of each Outstanding Debenture of such series is required, such supplemental indenture shall not be effective until each holder of the Trust Securities of the applicable Federal-Mogul Trust shall have consented to such supplemental indenture. 61 68 A supplemental indenture that changes or eliminates any covenant or other provision of this Indenture that has expressly been included solely for the benefit of Debentures of one or more particular series, or that modifies the rights of the Holders of Debentures of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Debentures of any other series. It shall not be necessary for any Act of Holders of Debentures of any series under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 8.3. Execution of Supplemental Indentures. In executing or accepting the additional trusts created by any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 5.02) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 8.4. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Debentures theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 8.5. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act of 1939, as amended, in effect on such date. SECTION 8.6. Reference in Debentures to Supplemental Indentures. Debentures of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debentures of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and made available for delivery by the Trustee in exchange for Outstanding Debentures of such series. 62 69 ARTICLE 9 COVENANTS SECTION 9.1. Payment of Principal, Premium and Interest. The Company covenants and agrees for the benefit of Debentures of any series that it will duly and punctually pay the principal of and any premium and interest on the Debentures of such series in accordance with the terms of the Debentures of such series and this Indenture. SECTION 9.2. Maintenance of Office or Agency. So long as any series of the Debentures remain outstanding, the Company agrees to maintain an office or agency in the Borough of Manhattan, The City and State of New York, with respect to each such series and at such other location or locations as may be designated as provided in this Section 9.02, where (i) Debentures of that series may be presented for payment, (ii) Debentures of that series may be presented as herein above authorized for registration of transfer and exchange, and (iii) notices and demands to or upon the Company in respect of the Debentures of that series and this Indenture may be given or served, such designation to continue with respect to such office or agency until the Company shall, by written notice signed by its President or a Vice President and delivered to the Trustee, designate some other office or agency for such purposes or any of them. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, notices and demands. SECTION 9.3. Money for Debentures Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to Debentures of any series, it will, on or before each due date of the principal of and any premium or interest on any of the Debentures of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and any premium or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure to act. Whenever the Company shall have one or more Paying Agents for Debentures of any series it will, prior to each due date of the principal of and any premium or interest on any Debentures of such series, deposit with a Paying 63 70 Agent a sum sufficient to pay the principal and any premium or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure to act. The Company will cause each Paying Agent for Debentures of any series other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (a) hold all sums held by it for the payment of the principal of and any premium or interest on Debentures of such series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (b) give the Trustee notice of any default by the Company (or any other obligor upon the Debentures of such series) in the making of any payment of principal of and any premium or interest on the Debentures of such series; (c) comply with the provisions of the Trust Indenture Act applicable to it as Paying Agent; and (d) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of and any premium or interest on any Debenture of any series and remaining unclaimed for two years after such principal and any premium or interest has become due and payable 64 71 shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of the Debenture of such series shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money and all liability of the Company as trustee thereof shall thereupon cease; provided, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an Authorized Newspaper in each Place of Payment, notice that such money remains unclaimed and that after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 9.4. Limitation on Dividends; Transactions with Affiliates. If Debentures of any series are issued to a Federal- Mogul Trust or a trustee of such trust in connection with the issuance of Trust Securities by such Federal-Mogul Trust and (a) there shall have occurred any event that would constitute an Event of Default, (b) the Guarantor shall be in default with respect to its payment of any obligations under the Preferred Securities Guarantee or the Common Securities Guarantee relating to such Federal-Mogul Trust, or (c) the Company shall have given notice of its election to defer payments of interest on Debentures of such series by extending the interest payment period as provided herein and such period, or any extension thereof, shall be continuing, then the Company (y) shall not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock (other than (i) purchases or acquisitions of shares of Common Stock in connection with satisfaction by the Company or any of its subsidiaries of their respective obligations under any employee benefit plans, (ii) as a result of a reclassification of capital stock of the Company or the exchange or conversion of one class or series of the Company's capital stock for another class or series of capital stock of the Company or (iii) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock of the Company or the security being converted or exchanged) or make any guarantee payments with respect to the foregoing, and (z) shall not make any payment of interest, principal or premium, if any, on, or repay, repurchase or redeem, any debt securities (including guarantees) issued by the Company that rank pari passu with or junior to the Debentures of such series. SECTION 9.5. Covenants as to Federal-Mogul Trust. In the event Debentures are issued to a Federal-Mogul Trust or a trustee of such trust in connection with the issuance of Trust Securities by such Federal-Mogul Trust, for 65 72 so long as such Trust Securities remain outstanding, the Company will (a) maintain 100% direct or indirect ownership of the Common Securities of such Federal-Mogul Trust; provided, that any permitted successor of the Company under the Indenture may succeed to the Company's ownership of the Common Securities, (b) use its reasonable efforts to cause such Federal-Mogul Trust (i) to remain a statutory business trust, except in connection with a distribution of Debentures of such series to the holders of Trust Securities in liquidation of such Federal-Mogul Trust, the redemption of all of the Trust Securities of such Trust, or certain mergers, consolidations or amalgamations, each as permitted by the Declaration, (ii) to continue to be classified as a grantor trust for United States federal income tax purposes and (iii) to continue to qualify for an exemption from registration under the Investment Company Act of 1940, as amended, and (c) use its reasonable efforts to cause each holder of Trust Securities to be treated as owning an undivided beneficial interest in the Debentures of such series. SECTION 9.6. Existence. Subject to Article 7, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 9.7. Statement by Officers as to Default. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate signed by its principal executive officer, principal financial officer or principal accounting officer stating whether or not to the best knowledge of the signer thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture, and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. The Company shall file with the Trustee written notice of the occurrence of any default relating to an Event of Default of the type described in clause (e), (f) or (g) of Section 4.01 or any Event of Default within five Business Days of its becoming aware of any such default or Event of Default. SECTION 9.8. Financial Information; SEC Reports. The Company shall file with the Trustee, within 15 days after it files any annual and quarterly reports, information, documents and other reports with the Commission, copies of its annual report and of the information, documents and other reports (or copies of 66 73 such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. If at any time, the Company is not required to file any such reports with the Commission, the Company will deliver to the Trustee (a) as soon as available and in any event within 90 days after the end of each fiscal year of the Company (i) a consolidated balance sheet of the Company and its Subsidiaries as of the end of such fiscal year and the related consolidated statements of operations, stockholders' equity and cash flows for such fiscal year, all reported on by an independent public accountant of nationally recognized standing and (ii) a report containing a management's discussion and analysis of the financial condition and results of operations and a description of the business and properties of the Company and (b) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Company (i) an unaudited consolidated financial report for such quarter and (ii) a report containing a management's discussion and analysis of the financial condition and results of operations of the Company; provided, that the foregoing shall not be required for any fiscal year or quarter, as the case may be, with respect to which the Company files or expects to file with the Trustee an annual report or quarterly report, as the case may be, pursuant to the second paragraph of this Section 9.08. With respect to Debentures originally issued in an offering not registered pursuant to the Securities Act, if prior to the Transfer Restriction Termination Date, the Company is neither subject to Section 13 or 15(d) of the Exchange Act, the Company shall at the request of any Holder provide to such Holder and any prospective purchaser designated by such Holder such information, if any, required by Rule 144A(d)(4) under the Securities Act. ARTICLE 10 REDEMPTION OF DEBENTURES SECTION 10.1. Applicability of Article. Debentures of any series that are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 2.01 for Debentures of any series) in accordance with this Article. SECTION 10.2. Election to Redeem; Notice to Trustee. The election of the Company to redeem Debentures of any series shall be evidenced by an Officers' 67 74 Certificate. In the case of any redemption, at the election of the Company, the Company shall, upon not less than 40 nor more than 60 days prior to the Redemption Date fixed by the Company, notify the Trustee of such Redemption Date and of the principal amount of Debentures of such series to be redeemed. In the case of any redemption of Debentures of such series (a) prior to the expiration of any restriction on such redemption provided in the terms of such Debentures of such series or elsewhere in this Indenture, or (b) pursuant to an election of the Company that is subject to a condition specified in the terms of Debentures of such series, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction or condition. SECTION 10.3. Selection by Trustee of Debentures to Be Redeemed. If less than all the Debentures of any series and of like tenor are to be redeemed, the particular Debentures of such series to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Debentures of such series and of like tenor not previously called for redemption. If the Outstanding Debentures have not been distributed to the Holders of Trust Securities upon a dissolution of the Federal-Mogul Trust (where applicable), the Debentures to be redeemed may be selected by such method as the Trustee shall deem fair and appropriate and that may provide for the selection of portions (equal to the minimum authorized denomination for Debentures of such series or any integral multiple thereof) of the principal amount of Registered Debentures of such series of a denomination larger than the minimum authorized denomination for Debentures of such series. If the Outstanding Debentures have been distributed to the Holders of Trust Securities, then the Trustee must redeem the Outstanding Debentures pro rata. If Debentures of any series selected for partial redemption are converted in part before termination of the conversion right with respect to the portion of the Debenture of such series so selected, the converted portion of the Debentures of such series shall be deemed (so far as may be) to be the portion selected for redemption. Debentures (or portions thereof) that have been converted during a selection of Debentures of such series to be redeemed shall be treated by the Trustee as Outstanding for the purpose of such selection. In any case where more than one Debenture of such series is registered in the same name, the Trustee in its discretion may treat the aggregate principal amount so registered as if it were represented by one Debenture of such series. The Trustee shall promptly notify the Company in writing of the Debentures of such series selected for redemption and, in the case of any 68 75 Debentures of such series selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Debentures of such series of such series shall relate, in the case of any Debentures of such series redeemed or to be redeemed only in part, to the portion of the principal amount of the Debentures of such series that has been or is to be redeemed. SECTION 10.4. Notice of Redemption. Notice of redemption shall be given in the manner provided in Section 1.06 to the Holders of Debentures to be redeemed not less than 30 nor more than 60 days prior to the Redemption Date. All notices of redemption shall identify the Debentures (including the CUSP number) to be redeemed and shall state: (a) the Redemption Date; (b) the Redemption Price; (c) if less than all the Outstanding Debentures of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Debentures of such series to be redeemed, and a statement to the effect that on or after the Redemption Date upon surrender of such Debenture a new Debenture of such series in the principal amount equal to the unredeemed portion will be issued; (d) that on the Redemption Date the Redemption Price will become due and payable upon each such Debenture of such series to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date; (e) the place or places where such Debentures of such series, maturing after the Redemption Date, are to be surrendered for payment of the Redemption Price; (f) that the redemption is for a sinking fund, if such is the case; and (g) if applicable, the conversion rate or price, the date on which the right to convert the Debentures of such series to be redeemed will 69 76 terminate and the place or places where such Debentures may be surrendered for conversion. A notice of redemption published as contemplated by Section 1.06 need not identify particular Registered Debentures of such series to be redeemed. Notice of redemption of Debentures to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 10.5. Deposit of Redemption Price. Prior to 10:00 A.M., New York time, on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 9.03) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Debentures that are to be redeemed on that date. If any Debenture called for redemption is converted into Common Stock of the Company, any money deposited with the Trustee or with any Paying Agent or so segregated and held in trust for the redemption of such Debenture shall (subject to any right of the Holder of such Debenture or any Predecessor Debenture to receive interest as provided in Section 2.03) be paid to the Company upon Company Request or, if then held by the Company, shall be discharged from such trust. SECTION 10.6. Debentures Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Debentures so to be redeemed shall on the Redemption Date become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Debentures shall cease to bear interest. Upon surrender of any such Debenture for redemption in accordance with said notice maturing after the Redemption Date, such Debenture shall be paid by the Company at the Redemption Price together with accrued interest to the Redemption Date; provided, that, unless otherwise specified as contemplated by Section 2.01, installments of interest on Registered Debentures whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Debentures or one or more Predecessor Debentures, registered as such at the close of business on the relevant record dates according to their terms and the provisions of Section 2.03. 70 77 If any Debenture called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Debenture. SECTION 10.7. Debentures Redeemed in Part. Any Registered Debenture of any series that is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Debenture without service charge, a new Registered Debenture or Debentures of such series and of like tenor of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Debenture of such series so surrendered. ARTICLE 11 SINKING FUNDS SECTION 11.1. Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Debentures of any series except as otherwise specified as contemplated by Section 2.01 for Debentures of such series. The minimum amount of any sinking fund payment provided for by the terms of Debentures of any series is herein referred to as a "MANDATORY SINKING FUND PAYMENT," and any payment in excess of such minimum amount provided for by the terms of Debentures of any series is herein referred to as an "OPTIONAL SINKING FUND PAYMENT." If provided for by the terms of Debentures of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 11.02. Each sinking fund payment shall be applied to the redemption of Debentures of any series as provided for by the terms of Debentures of such series. SECTION 11.2. Satisfaction of Sinking Fund Payments with Debentures . The Company (a) may deliver Outstanding Debentures of any series (other than any previously called for redemption (b) an may apply as a credit Debentures of such series that have been redeemed either at the election of the Company pursuant to the terms of the Debentures of such series or through the application 71 78 of permitted optional sinking fund payments pursuant to the terms of the Debentures, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Debentures of such series required to be made pursuant to the terms of the Debentures of such series; provided, that the Debentures of such series have not been previously so credited. The Debentures shall be received and credited for such purpose by the Trustee at the Redemption Price specified in the Debentures of such series for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. SECTION 11.3. Redemption of Debentures for Sinking Fund. Not less than 60 days prior to each sinking fund payment date for Debentures of any series, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for such series pursuant to the terms of such series, the portion thereof, if any, that is to be satisfied by payment of cash and the portion thereof, if any, that is to be satisfied by delivering and crediting Debentures of such series pursuant to Section 11.02 and will also deliver to the Trustee any Debentures of such series to be so delivered. Not less than 45 days before each such sinking fund payment date the Trustee shall select the Debentures of such series to be redeemed upon such sinking fund payment date in the manner specified in Section 10.03 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 10.04. Such notice having been duly given, the redemption of such Debentures of such series shall be made upon the terms and in the manner stated in Sections 10.06 and 10.07. ARTICLE 12 CONVERSION OF DEBENTURES SECTION 12.1. Applicability of Article. The provisions of this Article shall be applicable to the Debentures of any series that are convertible into shares of Common Stock of the Company, and the issuance of such shares of Common Stock upon the conversion of Debentures of such series, except as otherwise specified as contemplated by Section 2.01 for the Debentures of such series. The terms and provisions applicable to the conversion of Debentures of any series into securities of the Company (other than Common Stock) shall, if applicable, be set forth in an Officers' Certificate or established in one or more indentures supplemental hereto, prior to the issuance of Debentures of such series in accordance with Section 2.01. 72 79 SECTION 12.2. Exercise of Conversion Privilege. In order to exercise a conversion privilege, the Holder of a Debenture of any series with such a privilege shall surrender such Debenture to the Company at the office or agency maintained for that purpose pursuant to Section 1.02, accompanied by written notice to the Company that the Holder elects to convert such Debenture or a specified portion thereof. Such notice shall also state, if different from the name and address of such Holder, the name or names (with address) in that the certificate or certificates for shares of Common Stock that shall be issuable on such conversion shall be issued. Debentures of such series surrendered for conversion shall (if so required by the Company or the Trustee) be duly endorsed by or accompanied by instruments of transfer in forms satisfactory to the Company and the Trustee duly executed by the registered Holder or its attorney duly authorized in writing. As promptly as practicable after the receipt of such notice and of any payment required pursuant to a Board Resolution and, subject to Section 2.01, set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto setting forth the terms of Debentures and the surrender of such Debentures in accordance with such reasonable regulations as the Company may prescribe, the Company shall issue and shall deliver, at the office or agency at which such Debenture is surrendered, to such Holder or on its written order, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Debenture (or specified portion thereof), in accordance with the provisions of such Board Resolution, Officers' Certificate or supplemental indenture, and cash as provided therein in respect of any fractional share of such Common Stock otherwise issuable upon such conversion. Such conversion shall be deemed to have been effected immediately prior to the close of business on the date on which such notice and such payment, if required, shall have been received in proper order for conversion by the Company and such Debenture shall have been surrendered as aforesaid (unless such Holder shall have so surrendered such Debenture and shall have instructed the Company to effect the conversion on a particular date following such surrender and such Holder shall be entitled to convert such Debenture on such date, in which case such conversion shall be deemed to be effected immediately prior to the close of business on such date) and at such time the rights of the Holder of such Debenture as such Debenture Holder shall cease and the person or persons in whose name or names any certificate or certificates for shares of Common Stock of the Company shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby. Except as set forth above and subject to Section 2.03, no payment or adjustment shall be made upon any conversion on account of any interest accrued on the Debentures of such series surrendered for conversion or on account of any dividends on the Common Stock of the Company issued upon 73 80 such conversion. Debentures surrendered for conversion on or after any regular record date and prior to the next succeeding Interest Payment Date (other than a Debenture or a portion of a Debenture called for redemption on a Redemption Date occurring after such regular record date and on or prior to such Interest Payment Date) shall be accompanied by payment equal to the amount of interest payable on such Debenture on such Interest Payment Date. In the case of any Debenture of any series that is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and make available for delivery to or on the order of the Holder thereof, at the expense of the Company, a new Debenture or Debentures of such series, of authorized denominations, in aggregate principal amount equal to the unconverted portion of such Debenture. SECTION 12.3. No Fractional Shares. No fractional share of Common Stock of the Company shall be issued upon conversions of Debentures of any series. If more than one Debenture of such series shall be surrendered for conversion at one time by the same Holder, the number of full shares that shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Debentures of such series (or specified portions thereof to the extent permitted hereby) so surrendered. If, except for the provisions of this Section 12.03, any Holder of a Debenture or Debentures of such series would be entitled to a fractional share of Common Stock of the Company upon the conversion of such Debenture or Debentures, or specified portions thereof, the Company shall pay to such Holder an amount in cash equal to the current market value of such fractional share computed (a) if such Common Stock is listed or admitted to unlisted trading privileges on a national securities exchange, on the basis of the last reported sale price regular way on such exchange on the last trading day prior to the date of conversion upon which such a sale shall have been effected, or (b) if such Common Stock is not at the time so listed or admitted to unlisted trading privileges on a national securities exchange or market, on the basis of the average of the bid and asked prices of such Common Stock in the over-the-counter market, on the last trading day prior to the date of conversion, as reported by the National Quotation Bureau, Incorporated or similar organization if the National Quotation Bureau, Incorporated is no longer reporting such information, or if not so available, the fair market price as determined by the Board of Directors. For purposes of this Section, "trading day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday other than any day on which the Common Stock is not traded on the American Stock Exchange, or if the Common Stock is not traded on the American Stock Exchange, on the principal exchange or market on which the Common Stock is traded or quoted. 74 81 SECTION 12.4. Adjustment of Conversion Price. The conversion price of Debentures of any series that is convertible into Common Stock of the Company shall be adjusted for any stock dividends, stock splits, reclassification, combinations or similar transactions in accordance with the terms of the supplemental indenture or Board Resolutions setting forth the terms of the Debentures of such series. Whenever the conversion price is adjusted, the Company shall compute the adjusted conversion price in accordance with terms of the applicable Board Resolution or supplemental indenture and shall prepare an Officers' Certificate setting forth the adjusted conversion price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at each office or agency maintained for the purpose of conversion of Debentures of such series pursuant to Section 9.02 and, if different, with the Trustee. The Company shall forthwith cause a notice setting forth the adjusted conversion price to be mailed, first class postage prepaid, to each Holder of Debentures of such series at its address appearing on the Debenture Register and to any conversion agent other than the Trustee. SECTION 12.5. Reservation of Shares of Common Stock. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock or treasury shares, for the purpose of effecting the conversion of Debentures, the full number of shares of Common Stock of the Company then issuable upon the conversion of all outstanding Debentures of any series that has conversion rights. SECTION 12.6. Payment of Certain Taxes upon Conversion. The Company will pay any and all taxes that may be payable in respect of the issue or delivery of shares of its Common Stock on conversion of Debentures pursuant hereto. The Company shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of shares of its Common Stock in a name other than that of the Holder of the Debenture or Debentures to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax, or has established, to the satisfaction of the Company, that such tax has been paid. SECTION 12.7. Nonassessability. The Company covenants that all shares of Common Stock that may be issued upon conversion of Debentures will upon issue in accordance with the terms hereof be duly and validly issued and fully paid and nonassessable. 75 82 SECTION 12.8. Effect of Consolidation or Merger on Conversion Privilege. With respect to Debentures of any series, in case of any consolidation of the Company with, or merger of the Company into or with any other Person, or in case of any sale of all or substantially all of the assets of the Company or any other similar event, the conversion privilege shall be modified in accordance with the terms of the supplemental indenture or Board Resolutions setting forth the terms of the Debentures of such series. SECTION 12.9. Duties of Trustee Regarding Conversion. Neither the Trustee nor any conversion agent shall at any time be under any duty or responsibility to any Holder of Debentures of any series that is convertible into Common Stock to determine whether any facts exist that may require any adjustment of the conversion price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, whether herein or in any supplemental indenture (or whether a supplemental indenture need be entered into), any resolutions of the Board of Directors or written instrument executed by one or more officers of the Company provided to be employed in making the same. Neither the Trustee nor any conversion agent shall be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Debentures and neither the Trustee nor any conversion agent makes any representation with respect thereto. Neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property upon the surrender of any Debenture for the purpose of conversion or to comply with any of the covenants of the Company contained in this Article 12 or in the applicable supplemental indenture, resolutions of the Board of Directors or written instrument executed by one or more duly authorized officers of the Company. All Debentures delivered for conversion shall be delivered to the Trustee to be canceled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 2.08. SECTION 12.10. Repayment of Certain Funds Upon Conversion. Any funds that at any time shall have been deposited by the Company or on its behalf with the Trustee or any other paying agent for the purpose of paying the principal of, and premium, if any, and interest, if any, on any of the Debentures (including funds deposited for the sinking fund referred to in Article 2 hereof) and that shall not be required for such purposes because of the conversion of such Debentures as provided in this Article 12 shall after such conversion be repaid to the Company by the Trustee upon the Company's written request, subject to Section 2.03 hereof. 76 83 ARTICLE 13 SUBORDINATION OF DEBENTURES SECTION 13.1. Debentures Subordinate to Senior Indebtedness. The Company covenants and agrees, and each Holder of a Debenture, by the Holder's acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article, the indebtedness represented by the Debentures and the payment of the principal of (and premium, if any) and interest on each and all of the Debentures are hereby expressly made subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness of the Company, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article shall prevent the occurrence of any default or Event of Default hereunder. SECTION 13.2. Payment Over of Proceeds Upon Dissolution, Etc. Upon any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due upon all Senior Indebtedness of the Company shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Company on account of the principal (and premium, if any) or interest on the Debentures; and upon any such dissolution or winding-up or liquidation or reorganization, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Debentures or the Trustee would be entitled to receive from the Company, except for the provisions of this Article, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, or by the Holders of the Debentures or by the Trustee under the Indenture if received by them or it, directly to the holders of Senior Indebtedness of the Company (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay such Senior Indebtedness in full, in money or money's worth, after giving effect to any concurrent payment or distribution to 77 84 or for the holders of such Senior Indebtedness, before any payment or distribution is made to the Holders of the Debentures or to the Trustee. In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee before all Senior Indebtedness of the Company is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, and their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Indebtedness of the Company, as the case may be, remaining unpaid to the extent necessary to pay such Senior Indebtedness in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Senior Indebtedness. For purposes of this Article only, the words "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment that are subordinated in right of payment to all Senior Indebtedness that may at the time be outstanding to substantially the same extent as, or to a greater extent than, the Debentures are so subordinated as provided in this Article. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article 7 shall not be deemed a dissolution, winding up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of the Company for the purposes of this Section if the Person formed by such consolidation or into which the Company is merged or the Person that acquires by conveyance or transfer such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Article 7. SECTION 13.3. Prior Payment to Senior Indebtedness Upon Acceleration of Debentures. In the event that any Debentures are declared due and payable before their Stated Maturity, then and in such event the holders of Senior Indebtedness shall be entitled to receive payment in full of all amounts due or to 78 85 become due on or in respect of all Senior Indebtedness or provision shall be made for such payment in cash, before the Holders of the Debentures are entitled to receive any payment (including any payment that may be payable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Debentures) by the Company on account of the principal of (or premium, if any) or interest on the Debentures or on account of the purchase or other acquisition of Debentures; provided, that nothing in this Section shall prevent the satisfaction of any sinking fund payment in accordance with Article 11 by delivering and crediting pursuant to Section 11.02 Debentures that have been acquired (upon redemption or otherwise) prior to such declaration of acceleration or that have been converted pursuant to Article 12. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Debenture prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company. The provisions of this Section shall not apply to any payment with respect to which Section 12.02 would be applicable. SECTION 13.4. No Payment When Senior Indebtedness in Default. In the event and during the continuation of any default by the Company in the payment of principal, premium, interest or any other payment due on any Senior Indebtedness of the Company, as the case may be, beyond any applicable grace period with respect thereto, or in the event that the maturity of any Senior Indebtedness of the Company, as the case may be, has been accelerated because of a default, then, in any such case, no payment shall be made by the Company with respect to the principal (including redemption and sinking fund payments) of, or premium, if any, or interest on the Debentures until such default is cured or waived or ceases to exist or any such acceleration or demand for payment has been rescinded. In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding paragraph of this Section 13.04 such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that the holders of the Senior Indebtedness (or their representative or representatives or a trustee) notify 79 86 the Trustee in writing within 90 days of such payment of the amounts then due and owing on the Senior Indebtedness and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Indebtedness. SECTION 13.5. Payment Permitted in Certain Situations. Nothing contained in this Article or elsewhere in this Indenture or in any of the Debentures shall prevent (a) the Company, at any time except during the pendency of any dissolution, winding-up, liquidation or reorganization of the Company, whether voluntary or involuntary or any bankruptcy, insolvency, receivership or other proceedings of the Company referred to in Section 13.02 or under the conditions described in Section 13.03 or 13.4, from making payments at any time of principal of or premium, if any, or interest on the Debentures, or (b) the application by the Trustee of any money deposited with it hereunder to the payment of or on account of the principal of, or premium, if any, or interest on the Debentures or the retention of such payment by the Holders, if, at the time of such application by the Trustee, it did not have knowledge that such payment would have been prohibited by the provisions of this Article. SECTION 13.6. Subrogation to Rights of Holders of Senior Indebtedness . Subject to the payment in full of all Senior Indebtedness or the provision for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Indebtedness, the rights of the Holders of Debentures shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Indebtedness pursuant to the provisions of this Article 13 (equally and ratably with the holders of indebtedness of the Company that by its express terms is subordinated to indebtedness of the Company to substantially the same extent as the Debentures are subordinated to the Senior Indebtedness and is entitled to like rights of subrogation) to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of (and premium, if any) and interest on the Debentures shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders of Debentures or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to or for the benefit of the holders of Senior Indebtedness by Holders of Debentures or the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of Debentures, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness. 80 87 SECTION 13.7. Provisions Solely to Define Relative Rights. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of Debentures on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Debentures is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of Debentures, the obligation of the Company, which is absolute and unconditional (and which, subject to the rights under this Article of the holders of Senior Indebtedness, is intended to rank equally with all other general obligations of the Company), to pay to the Holders of Debentures the principal of (and premium, if any) and interest on the Debentures as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of Debentures and creditors of the Company, as the case may be, other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Debenture from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder. SECTION 13.8. Trustee to Effectuate Subordination. Each Holder of a Debenture by such Holder's acceptance thereof authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee such Holder's attorney-in-fact for any and all such purposes. SECTION 13.9. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Debentures, without incurring responsibility to the Holders of Debentures and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of Debentures to the holders of Senior Indebtedness do any one or more of the following: (a) change the manner, place or terms of payment or 81 88 extend the time of payment of, or renew or alter, Senior Indebtedness or otherwise amend or supplement in any manner Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (c) release any Person liable in any manner for the collection of Senior Indebtedness; and (d) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 13.10. Notice to Trustee. The Company shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company that would prohibit the making of any payment to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company or a holder or holders of Senior Indebtedness or from any trustee therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 5.02, shall be entitled in all respects to assume that no such facts exist; provided, that if the Trustee shall have not received the notice provided for in this Section at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (or premium, if any) or interest on any Debentures, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date. Subject to the provisions of Section 5.02, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee therefor) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and 82 89 any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 13.11. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 5.02, and the Holders of Debentures shall be entitled to conclusively rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Debentures, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other indebtedness of the Company, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. SECTION 13.12. Trustee Not Fiduciary for Holders of Senior Indebtedness. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article, and no implied covenants or obligations with respect to the holders of such Senior Indebtedness shall be read into the Indenture against the Trustee. Except with respect to Section 13.04, the Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders or creditors if it shall in good faith pay over or distribute to Holders of Debentures or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. SECTION 13.13. Rights of Trustee as Holder of Senior Indebtedness, Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness that may at any time be held by it, to the same extent as any other holder of Senior Indebtedness and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 5.06. 83 90 SECTION 13.14. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "TRUSTEE" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, that Section 12.13 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. SECTION 13.15. Certain Conversions Deemed Payment. For the purposes of this Article only, (a) the issuance and delivery of junior securities (or cash paid in lieu of fractional shares) upon conversion of Debentures in accordance with Article 12, or pursuant to the terms set forth in an Officers' Certificate or established in one or more indentures supplemental hereto in accordance with Section 2.01, shall not be deemed to constitute a payment or distribution on account of the principal of or premium or interest on Debentures or on account of the purchase or other acquisition of Debentures, and (b) the payment, issuance or delivery of cash, property or securities (other than junior securities and cash paid in lieu of fractional shares) upon conversion of a Debenture shall be deemed to constitute payment on account of the principal of such Debenture. For the purposes of this Section, the term "junior securities" means (i) shares of any stock of any class of the Company and (ii) securities of the Company that are subordinated in right of payment to all Senior Indebtedness that may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Debentures are so subordinated as provided in this Article. Nothing contained in this Article or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness and the Holders of Debentures, the right, which is absolute and unconditional, of the Holder of any Debenture to convert such Debenture in accordance with Article 12. 84 91 This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. FEDERAL-MOGUL CORPORATION By ---------------------------------------- Name: Title: THE BANK OF NEW YORK, AS TRUSTEE By ---------------------------------------- Name: Title: EX-4.9 8 EX-4.9 1 EXHIBIT 4.9 ================================================================================ FIRST SUPPLEMENTAL INDENTURE BETWEEN FEDERAL-MOGUL CORPORATION AND THE BANK OF NEW YORK DATED AS OF DECEMBER 1, 1997 $515,463,950 (SUBJECT TO INCREASE UP TO $592,783,550 IN THE EVENT AN OVER-ALLOTMENT OPTION IS EXERCISED) 7% CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES =============================================================================== 2 FIRST SUPPLEMENTAL INDENTURE, dated as of December 1, 1997 (the "FIRST SUPPLEMENTAL Indenture"), between Federal-Mogul Corporation, a Michigan corporation (the "COMPANY"), and The Bank of New York, as trustee (the "TRUSTEE") under the Indenture dated as of December 1, 1997 between the Company and the Trustee (the "BASE INDENTURE" and, together with the First Supplemental Indenture, the "INDENTURE"). WHEREAS, the Company executed and delivered the Base Indenture to the Trustee to provide for the future issuance of the Company's unsecured junior subordinated debt securities to be issued from time to time in one or more series as might be determined by the Company under the Indenture, in an unlimited aggregate principal amount that may be authenticated and delivered as provided in the Base Indenture; WHEREAS, pursuant to the terms of the Base Indenture, the Company desires to provide for the establishment of a new series of its Debentures to be known as its 7% Convertible Junior Subordinated Debentures (the "CONVERTIBLE DEBENTURES"), the form and substance of such Convertible Debentures and the terms, provisions and conditions thereof to be set forth as provided in the Base Indenture and this First Supplemental Indenture; WHEREAS, Federal-Mogul Financing Trust, a Delaware statutory business trust (the "TRUST"), has offered to Morgan Stanley & Co. Incorporated (the "INITIAL PURCHASER") in a private placement $500,000,000 ($575,000,000 if the Initial Purchaser's over-allotment option is exercised) aggregate liquidation amount of its 7% Trust Convertible Preferred Securities (the "CONVERTIBLE PREFERRED SECURITIES"), representing undivided beneficial interests in the assets of the Trust and proposes to invest the proceeds from such offering, together with the proceeds of the issuance and sale by the Trust to the Company of $15,463,950 ($17,783,550, if the Initial Purchaser's option is exercised) aggregate liquidation amount of its Common Securities, in $515,463,950 ($592,783,550 if the Initial Purchaser's over-allotment option is exercised) aggregate principal amount of the Convertible Debentures; and WHEREAS, the Company has requested that the Trustee execute and deliver this First Supplemental Indenture and all requirements necessary to make this First Supplemental Indenture a valid instrument in accordance with its terms, and to make the Convertible Debentures, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company, have been performed, and the execution and delivery of this First Supplemental Indenture has been duly authorized in all respects. NOW THEREFORE, in consideration of the purchase and acceptance of the Convertible Debentures by the Holders thereof, and for the purpose of setting forth, as provided in the Base Indenture, the form and substance of the Convertible Debentures and the terms, provisions and conditions thereof, the Company covenants and agrees with the Trustee as follows: 3 ARTICLE 1 DEFINITIONS SECTION 1.1. Definition of Terms. For all purposes of this First Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms that are defined in the Base Indenture and not otherwise defined herein have the same meanings when used in this First Supplemental Indenture; (b) the terms defined in this Article have the meaning assigned to them in this Article and include the plural as well as the singular; (c) all other terms used herein that are defined in the Trust Indenture Act, whether directly or by reference therein, have the meanings assigned to them therein; (d) a reference to a Section or Article is to a Section or Article of this First Supplemental Indenture; (e) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this First Supplemental Indenture as a whole and not to any particular Article, Section or other subdivision; (f) headings are for convenience of reference only and do not affect interpretation; and (g) the following terms have the meanings given to them in the Declaration: (i) "ADMINISTRATORS"; (ii) "BUSINESS DAY"; (iii) "CLEARING AGENCY"; (iv) "COMMON STOCK"; (v) "CONVERTIBLE PREFERRED SECURITY CERTIFICATE"; (vi) "DELAWARE TRUSTEE"; (vii) "DISSOLUTION TAX OPINION"; (viii) "DISTRIBUTION"; (ix) "DTC"; (x) "INSTITUTIONAL TRUSTEE"; (xi) "INVESTMENT COMPANY EVENT"; (xii) "NO-RECOGNITION OPINION"; (xiii) "NON-U.S. Person"; (ix) "PORTAL MARKET"; (xv) "PURCHASE AGREEMENT"; (xvi) "QIB"; (xvii) "RULE 144A"; (xviii) "REGULATION S"; (xix) "RULE 144(K)"; (xx) "REDEMPTION TAX OPINION"; (xxi) "ADMINISTRATORS"; (xxii) "SPECIAL EVENT"; (xxiii) "TAX EVENT" and (xxiv) "TRUST SECURITIES". "ADDITIONAL INTEREST" shall have the meaning set forth in Section 2.05. "APPLICABLE PRICE" means (i) in the event of a Non-Stock Fundamental Change in which the holders of the Common Stock receive only cash, the amount of cash received by a holder of one share of Common Stock and (ii) in the event of any other Fundamental Change, the average of the daily Closing Prices of one share of Common Stock during the 10 Trading Days immediately prior to the record date for the determination of the holders of Common Stock entitled to receive cash, securities, property or other assets in connection with such Fundamental Change or, if there is no such record date, prior to the date upon which the holders of the Common Stock shall have the right to receive such cash, securities, property or other assets, but 2 4 the adjustment shall be based upon the consideration that the holders of Common Stock received in the transaction or event as a result of which more than 50% of the Common Stock shall have been exchanged for, converted into or acquired for, or shall constitute solely the right to receive, such cash, securities, property or other assets. "CLOSING PRICE" of any common stock on any day shall mean the last reported sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices regular way of such common stock, in each case on the New York Stock Exchange Composite Tape or, if the common stock is not listed or admitted to trading on such exchange, on the principal national securities exchange on which such common stock is listed or admitted to trading, or, if not listed or admitted to trading on any national securities exchange, on the Nasdaq Stock Market or, if not reported by the Nasdaq Stock Market, the average of the closing bid and asked prices as furnished by any New York Stock Exchange member firm selected from time to time by the board of directors of the Company for that purpose or, if not so available in such manner, as otherwise determined in good faith by the board of directors. "COMMON STOCK FUNDAMENTAL CHANGE" means any Fundamental Change in which more than 50% of the value (as determined in good faith by the board of directors of the Company) of the consideration received by holders of Common Stock consists of common stock that, for the 10 Trading Days immediately prior to such Fundamental Change, has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted on The NASDAQ National Market; provided, that a Fundamental Change shall not be a Common Stock Fundamental Change unless either (i) the Company continues to exist after the occurrence of such Fundamental Change and the outstanding Convertible Debentures continue to exist as outstanding Convertible Debentures or (ii) the outstanding Convertible Debentures continue to exist as Convertible Debentures and are convertible into shares of the common stock of the corporation succeeding to the business of the Company. "COMPOUNDED INTEREST" shall have the meaning specified in Section 4.01. "CONVERTIBLE PREFERRED SECURITIES" has the meaning specified in the recitals to this First Supplemental Indenture. "CONVERSION PRICE" has the meaning set forth in Section 6.01. "DECLARATION" means the Amended and Restated Declaration of Trust of Federal-Mogul Financing Trust, a Delaware statutory business trust, dated as of December 1, 1997. "DEFERRED INTEREST" has the meaning specified in Section 4.01. "DISSOLUTION EVENT" means that, as a result of the occurrence and continuation of a Special Event, the Trust is to be dissolved in accordance with the Declaration, and the Convertible Debentures held by the Institutional Trustee are to be distributed to the holders of the Trust Securities issued by the Trust pro rata in accordance with the Declaration. 3 5 "EXTENSION PERIOD" has the meaning specified in Section 4.01. "FUNDAMENTAL CHANGE" means the occurrence of any transaction or event or series of transactions or events pursuant to which all or substantially all of the Common Stock shall be exchanged for, converted into, acquired for or shall constitute solely the right to receive cash, securities, property or other assets (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise); provided, that in the case of any such series of transactions or events, for purposes of adjustment of the Conversion Price, such Fundamental Change shall be deemed to have occurred when substantially all of the Common Stock shall have been exchanged for, converted into or acquired for, or shall constitute solely the right to receive, such cash, securities, property or other assets. "MATURITY DATE" means the date on which the Convertible Debentures mature and on which the principal shall be due and payable together with all accrued and unpaid interest thereon including Compounded Interest and Additional Interest, if any. "NON-STOCK FUNDAMENTAL CHANGE" means any Fundamental Change other than a Common Stock Fundamental Change. "OFFER" means the recommended cash offer by the Company announced on October 16, 1997 to acquire the entire issued share capital of T&N plc ("T&N"). "OPTIONAL REDEMPTION PRICE" has the meaning specified in Section 3.02. "PURCHASER STOCK PRICE" means, with respect to any Common Stock Fundamental Change, the average of the daily Closing Prices for one share of the common stock received by holders of Common Stock in such Common Stock Fundamental Change during the 10 Trading Days immediately prior to the date fixed for the determination of the holders of Common Stock entitled to receive such common stock or, if there is no such date, prior to the date upon which the holders of Common Stock shall have the right to receive such common stock. "REFERENCE MARKET PRICE" initially means $27.43 and, in the event of any adjustment to the Conversion Price other than as a result of a Fundamental Change, the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the Conversion Price after giving effect to any such adjustment shall always be the same as the ratio of the initial Reference Market Price to the initial Conversion Price. "TRADING DAY," in reference to a given security, shall mean a day on which such security is traded on the national securities exchange or quotation system used to determine the Closing Price for such security. 4 6 ARTICLE 2 GENERAL TERMS AND CONDITIONS OF THE CONVERTIBLE DEBENTURES SECTION 2.1. Designation and Principal Amount. There is hereby authorized a series of Debentures designated the "7% CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES," limited in aggregate principal amount to the sum of (a) $515,463,950 and (b) such aggregate principal amount (which may not exceed $77,319,600 aggregate principal amount) of Convertible Debentures as shall be purchased by the Trust pursuant to an over-allotment option in accordance with the terms of the Purchase Agreement, except for Convertible Debentures authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Convertible Debentures under the terms of this Indenture, which amount shall be as set forth in any written order of the Company for the authentication and delivery of Convertible Debentures pursuant to Section 2.04 of the Base Indenture. SECTION 2.2. Maturity. The Maturity Date is December 1, 2027. SECTION 2.3. Form and Payment. Except as provided in Section 2.04, the Convertible Debentures shall be issued to the Trust in fully registered certificated form without coupons in denominations of $50 in principal amount and integral multiples thereof. Principal and interest on the Convertible Debentures issued in certificated form will be payable, the transfer of such Convertible Debentures will be registrable and such Convertible Debentures will be exchangeable for Convertible Debentures bearing identical terms and provisions, at the office or agency of the Company; provided, that payment of interest may be made at the option of the Company by check mailed to the Holder at such address as shall appear in the Debenture Register. Notwithstanding the foregoing, so long as the Holder of any Convertible Debentures is the Institutional Trustee, the payment of the principal of and interest (including Compounded Interest and Additional Interest, if any) on such Convertible Debentures held by the Institutional Trustee will be made at such place and to such account as may be designated by the Institutional Trustee. SECTION 2.4. Exchange and Registration of Transfer of Convertible Debentures Distributed Upon Dissolution; Restrictions on Transfers; Depositary . If distributed to holders of Convertible Preferred Securities in connection with a Dissolution Event, the Convertible Debentures will be issued to such holders in the same form as the Convertible Preferred Securities that such Convertible Debentures replace, and shall be governed by the following provisions: (a) So long as Convertible Debentures are eligible for book-entry settlement with the Despositary, or unless otherwise required by law, all Convertible Debentures that are so eligible will be represented by one or more Global Debentures. The transfer and exchange of beneficial interests in any such Global Debenture shall be effected through the Depositary in accordance with the Indenture and the procedures of the Depositary therefor. 5 7 Beneficial owners of a Convertible Debenture represented by a Global Debenture shall not be entitled to have certificates registered in their names, will not receive or be entitled to receive physical delivery of certificates in definitive form and will not be considered Holders of such Convertible Debenture. (b) Each Convertible Debenture that bears or is required to bear the legend set forth in this Section (a "RESTRICTED SECURITY") shall be subject to the restrictions on transfer provided in the legend set forth in this Section, unless such restrictions on transfer shall be waived by the written consent of the Company, and the Holder of each Restricted Security, by such securityholder's acceptance thereof, agrees to be bound by such restrictions on transfer. As used in this Section and in Section 2.04(c), the terms "TRANSFER" encompasses any sale, pledge, transfer or other disposition of any Restricted Security. Prior to the Transfer Restriction Termination Date, any certificate evidencing a Convertible Debenture shall bear a legend in substantially the following form, unless otherwise agreed by the Company (with written notice thereof to the Trustee): THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A UNITED STATES PERSON AND IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT, PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A) TO FEDERAL-MOGUL CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (E) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND THAT CONTINUES TO BE EFFECTIVE) AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE 6 8 SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE BANK OF NEW YORK, AS INSTITUTIONAL TRUSTEE (OR A SUCCESSOR INSTITUTIONAL TRUSTEE, AS APPLICABLE). THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE SECURITY EVIDENCED HEREBY PURSUANT TO CLAUSE 1(E) ABOVE OR UPON ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "UNITED STATES PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. EACH PURCHASER OR HOLDER OF THE SECURITY EVIDENCED HEREBY WILL BE DEEMED TO HAVE REPRESENTED EITHER THAT (A) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF SUBTITLE B OF TITLE 1 OF ERISA OR A PLAN DESCRIBED IN SECTION 4975 OF THE CODE OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH ERISA PLAN OR OTHER PLAN OR (B) ITS ACQUISITION, HOLDING AND DISPOSITION OF THE SECURITY EVIDENCED HEREBY WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE BY REASON OF PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 91-38, PTCE 84-14, PTCE 90-1, PTCE 95-60 OR PTCE 96-23. Following the Transfer Restriction Termination Date or the sale of a Debenture pursuant to an effective registration statement or Rule 144 (or any successor provision) under the Securities Act, any Convertible Debenture or security issued in exchange or substitution therefor (other than (i) Convertible Debentures acquired by the Company or any Affiliate thereof since the issue date of the Convertible Preferred Securities and (ii) Common Stock issued upon the conversion or exchange of any Convertible Debenture described in clause (i) above) may, upon surrender of such Convertible Debenture for exchange to the Debenture Registrar in accordance with the provisions of this Section, be exchanged for a new Convertible Debenture or Convertible Debentures, of like tenor and aggregate principal amount, which shall not bear the restrictive legend required by this Section. Notwithstanding any other provisions of the Indenture (other than the provisions set forth in this Section), a Global Debenture may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee to a successor Depositary or a nominee of such successor Depositary. 7 9 The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Convertible Debentures in global form. Initially, the Global Debenture shall be issued to DTC, registered in the name of Cede & Co. ("CEDE"), as the nominee of DTC, and deposited with the Trustee as custodian for Cede. If at any time the Depositary for the Global Debenture notifies the Company that it is unwilling or unable to continue as Depositary for such Convertible Debentures, or, at any time, ceases to be a clearing agency registered under the Exchange Act when the Depositary is required to be so registered to act as such depositary, the Company may appoint a successor Depositary with respect to such Convertible Debentures. If a successor Depositary for the Convertible Debentures is not appointed by the Company within 90 days after the Company receives such notice, the Company will execute, and the Trustee, upon receipt of an Officers' Certificate for authentication and delivery of Convertible Debentures, will authenticate and deliver, Convertible Debentures in definitive form, in an aggregate principal amount equal to the principal amount of the Global Debentures, in exchange for such Global Debentures. Similarly, either (i) if the Company so elects in its sole discretion or (ii) if there shall have occurred an Indenture Event of Default with respect to the Convertible Debentures, the Company will execute, and the Trustee, upon receipt of an Officers' Certificate for authentication and delivery of Convertible Debentures, will authenticate and deliver, Convertible Debentures in definitive form, in an aggregate principal amount equal to the principal amount of the Global Debentures, in exchange for such Global Debentures. Definitive Convertible Debentures issued in exchange for all or a part of a Global Debenture pursuant to this Section shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall deliver such definitive Convertible Debentures to the person in whose names such definitive Convertible Debentures are so registered. At such time as all interests in a Global Debenture have been redeemed, converted, exchanged, repurchased or canceled, such Global Debenture shall be, upon receipt thereof, canceled by the Trustee in accordance with standing procedures and instructions of the Depositary. At any time prior to such cancellation, if any interest in a Global Debenture is redeemed, converted, exchanged, repurchased by the Company pursuant to Article 3 or canceled, the principal amount of such Global Debenture shall, in accordance with the standing procedures and instructions of the Depositary be reduced or increased, as the case may be, and an endorsement shall be made on such Global Debenture by, or at the direction of, the Trustee to reflect such reduction or increase. (c) Any Convertible Debenture or Common Stock issued upon the conversion or exchange of a Convertible Debenture that, prior to the Transfer Restriction Termination Date, is purchased or owned by the Company or any Affiliate thereof may not be resold by the Company 8 10 or such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from the registration requirements of the Securities Act in a transaction that results in such Convertible Debentures or Common Stock, as the case may be, no longer being "restricted securities" (as defined under Rule 144 under the Securities Act). SECTION 2.5. Interest. (a) Each Convertible Debenture will bear interest at the rate of 7% per annum (the "COUPON RATE") from December 1, 1997 until the principal thereof becomes due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the Coupon Rate, compounded quarterly, payable (subject to the provisions of Article 4) quarterly in arrears on March 1, June 1, September 1 and December 1 of each year (each, an "INTEREST PAYMENT DATE"), commencing on March 1, 1998, to the Person in whose name such Convertible Debenture or any predecessor Convertible Debenture is registered at the close of business on the Regular Record Date for such interest installment, which Regular Record Date shall be one Business Day prior to that Interest Payment Date (provided, that, in the event that the Convertible Debentures are not held solely in book-entry form, the Regular Record Date shall be 15 days prior to that Interest Payment Date). (b) The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the following sentence, the amount of interest payable for any period shorter than a full quarterly period for which interest is computed, will be computed on the basis of the actual number of days elapsed per 30-day month. In the event that any date on which interest is payable on the Convertible Debentures is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (c) If, at any time while the Institutional Trustee is the Holder of any Convertible Debentures, the Trust or the Institutional Trustee is required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States or any other taxing authority then, in any such case, the Company will pay as additional interest ("ADDITIONAL INTEREST") such additional amounts as shall be required so that the net amounts received and retained by the Trust after paying such taxes, duties, assessments or other governmental charges will not be less than the amounts the Trust would have received had no such taxes, duties, assessments or other government charges been imposed. SECTION 2.6. No Satisfaction and Discharge. The Convertible Debentures are not entitled to the benefit of the Satisfaction and Discharge Provisions of Article 3 (other than Section 3.01(a)(i) thereof) of the Base Indenture. 9 11 ARTICLE 3 REDEMPTION OF THE CONVERTIBLE DEBENTURES SECTION 3.1. Tax Event Redemption. (a) If a Tax Event has occurred and is continuing and, after receipt of a Dissolution Tax Opinion by the Administrators; (i) the Company has received a Redemption Tax Opinion of nationally recognized tax counsel experienced in such matters, or (ii) the Administrators shall have been informed by such tax counsel that it cannot deliver a No-Recognition Opinion to the Trust, then, notwithstanding Section 3.02, the Company shall have the right upon not less than 30 days nor more than 60 days notice to the Holders of the Convertible Debentures to redeem the Convertible Debentures, in whole or in part, for cash within 90 days following the occurrence of such Tax Event (the "90-DAY PERIOD") at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest (including Compound Interest) thereon to the date of such redemption (the "REDEMPTION PRICE"); provided, that if at the time there is available to the Company or the Trust the opportunity to eliminate, within the 90-Day Period, the Tax Event by taking some ministerial action ("MINISTERIAL ACTION"), such as filing a form or making an election, or pursuing some other similar reasonable measure that will have no adverse effect on the Company, the Trust or the holders of the Trust Securities and will involve no material cost, the Company shall pursue such measures in lieu of redemption; provided further, that the Company shall have no right to redeem the Convertible Debentures while the Trust is pursuing any Ministerial Action pursuant to the Declaration. The Redemption Price shall be paid prior to 12:00 noon, New York time, on the date of such redemption or such earlier time as the Company determines; provided, that the Company shall deposit with the Trustee an amount sufficient to pay the Redemption Price prior to the redemption date. SECTION 3.2. Optional Redemption by Company. Pursuant to the procedures described in Article 10 of the Base Indenture, the Company shall have the right to redeem the Convertible Debentures, in whole or in part, from time to time, on or after December 6, 2000. Any redemption pursuant to this paragraph will be made upon not less than 30 days nor more than 60 days notice to the Holders of the Convertible Debentures, at the following prices (expressed as percentages of the principal amount of the Convertible Debentures) (the "OPTIONAL REDEMPTION Price") together with accrued and unpaid interest, including Compounded and Additional Interest to, but excluding, the Redemption Date. If the Convertible Debentures are redeemed during the period beginning December 6, 2000 and ending November 30, 2001, the Redemption Price shall be 104.9%. The table below shows Redemption Prices for Convertible Debentures redeemed during the 12-month period beginning December 1: 10 12 YEAR REDEMPTION PRICE 2001 104.2% 2002 103.5 2003 102.8 2004 102.1 2005 101.4 2006 100.7 2007 and thereafter 100.0 If Convertible Debentures are redeemed on any March 1, June 1, September 1 or December 1, accrued and unpaid interest shall be payable to Holders on the relevant Regular Record Date. So long as the corresponding Convertible Preferred Securities are outstanding, the proceeds from the redemption of the Convertible Debentures will be used to redeem Convertible Preferred Securities. Notwithstanding the foregoing, the Company may not redeem any Convertible Debentures, unless all accrued interest thereon (including Compound Interest) has been paid for all quarterly periods terminating on prior to the date of notice of redemption. So long as the corresponding Convertible Preferred Securities are outstanding, if the Convertible Debentures are only partially redeemed pursuant to this Section, the Convertible Debentures will be selected for redemption by any method utilized by the Trustee. Otherwise they will be redeemed pro rata. The Optional Redemption Price, together with any required interest payment, shall be paid prior to 12:00 noon, New York time, on the Redemption Date or at such earlier time as the Company determines; provided, that the Company shall deposit with the Trustee an amount sufficient to pay the Optional Redemption Price, together with any required interest payment, by 10:00 a.m., New York time, on the date such amounts are to be paid. SECTION 3.3. No Sinking Fund. The Convertible Debentures are not entitled to the benefit of any sinking fund. 11 13 ARTICLE 4 EXTENSION OF INTEREST PAYMENT PERIOD SECTION 4.1. Extension of Interest Payment Period. So long as an Event of Default under Section 4.01(a) of the Base Indenture shall not have occurred and be continuing, the Company shall have the right at any time, and from time to time, during the term of the Convertible Debentures to defer payments of interest by extending the interest payment period of such Convertible Debentures for a period not exceeding 20 consecutive quarters (the "EXTENSION PERIOD"), during which Extension Period no interest shall be due and payable; provided, that no Extension Period may extend beyond the Maturity Date or any earlier Redemption Date. To the extent permitted by applicable law, interest, the payment of which has been deferred because of the extension of the interest payment period pursuant to this Section, will bear interest thereon at the Coupon Rate compounded quarterly for each quarter of the Extension Period ("COMPOUNDED INTEREST"). At the end of the Extension Period, the Company shall pay all interest accrued and unpaid on the Convertible Debentures, including any Additional Interest and Compounded Interest (together, "DEFERRED INTEREST") that shall be payable to the Holders of the Convertible Debentures in whose names the Convertible Debentures are registered in the Debenture Register on the first Regular Record Date after the end of the Extension Period. Before the termination of any Extension Period, the Company may further extend such period; provided, that such period together with all such further extensions thereof shall not exceed 20 consecutive quarters, or extend beyond the Maturity Date or any earlier Redemption Date. Upon the termination of any Extension Period and upon the payment of all Deferred Interest then due, the Company may commence a new Extension Period, subject to the foregoing requirements. No interest shall be due and payable during an Extension Period, except at the end thereof, but the Company may prepay at any time all or any portion of the interest accrued during an Extension Period. SECTION 4.2. Notice of Extension. (a) If the Institutional Trustee is the only Holder of the Convertible Debentures at the time the Company selects an Extension Period, the Company shall give written notice to the Administrators and the Institutional Trustee of its selection of such Extension Period one Business Day prior to the earlier of (i) the next succeeding date on which Distributions on the Trust Securities are payable, or (ii) if applicable, the date the Administrators are required to give notice of the record date, or the date such Distributions are payable, to holders of the Convertible Preferred Securities but in any event at least one Business Day before such record date. (b) If the Institutional Trustee is not the only Holder of the Convertible Debentures at the time the Company selects an Extension Period, the Company shall give the Holders of the Convertible Debentures and the Trustee written notice of its selection of such Extension Period at least 10 Business Days before the earlier of (i) the next succeeding Interest Payment Date or (ii) the date the Company is required to give notice of the record or payment date of such interest payment to Holders of the Convertible Debentures. 12 14 (c) The quarter in which any notice is given pursuant to paragraphs (a) or (b) of this Section shall be counted as one of the 20 consecutive quarters permitted in the maximum Extension Period permitted under Section 4.01. SECTION 4.3. Limitation of Transactions. If the Company shall exercise its right to defer payment of interest as provided in Section 4.01, then (i) the Company shall not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock (other than (A) purchases or acquisitions of shares of its common stock in connection with satisfaction by the Company or any of its subsidiaries of their respective obligations under any incentive or employee benefit plans of the Company of any of its subsidiaries, (B) as a result of a reclassification of the Company's capital stock or the exchange or conversion of one class or series of the Company's capital stock for another class or series of its capital stock or the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged for the Company's capital stock), (ii) the Company shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by the Company that rank pari passu with or junior to the Convertible Debentures and (iii) the Company shall not make any guarantee payments with respect to the foregoing. ARTICLE 5 EXPENSES SECTION 5.1. Payment of Expenses. In connection with the offering, sale and issuance of the Convertible Debentures to the Institutional Trustee and in connection with the sale of the Trust Securities by the Trust, the Company, in its capacity as borrower with respect to the Convertible Debentures, shall: (a) pay all costs and expenses relating to the offering, sale and issuance of the Convertible Debentures and Trust Securities, including commissions to the purchaser payable pursuant to the Purchase Agreement and compensation of the Trustee under the Indenture in accordance with the provisions of Section 5.06 of the Base Indenture; (b) pay all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization, maintenance and dissolution of the Trust, the retention of the trustees and the Administrators of the Trust, the fees and expenses of the Institutional Trustee and the Delaware Trustee, the costs and expenses relating to the operation of the Trust, including without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other 13 15 telecommunications expenses and costs and expenses incurred in connection with the acquisition, financing, and disposition of Trust assets); (c) pay all costs and expenses related to the enforcement by the Institutional Trustee of the rights of the holders of the Convertible Preferred Securities; and (d) pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust. SECTION 5.2. Payment upon Resignation or Removal. Upon termination of this First Supplemental Indenture or the Base Indenture or the removal or resignation of the Trustee pursuant to Section 5.07 of the Base Indenture, the Company shall pay to the Trustee all amounts accrued to the date of such termination, removal or resignation. Upon termination of the Declaration or the removal or resignation of the Delaware Trustee or the Institutional Trustee, as the case may be, pursuant to Section 5.06 of the Declaration, the Company shall pay to the Delaware Trustee or the Institutional Trustee, and their respective counsel, as the case may be, all amounts accrued to the date of such termination, removal or resignation. ARTICLE 6 CONVERSION OF CONVERTIBLE DEBENTURES SECTION 6.1. Conversion Rights. Subject to and upon compliance with the provisions of this Article 6, the Convertible Debentures are convertible, at the option of the Holder, at any time beginning 90 days following the latest date of original issuance of any Convertible Debentures through the close of business on the Business Day before December 1, 2027 (or, in the case of Convertible Debentures called for redemption, the close of business on the Business Day prior to the corresponding Redemption Date) into fully paid and nonassessable shares of Common Stock of the Company at an initial conversion rate of 0.9709 shares of Common Stock for each $50 in aggregate principal amount of Convertible Debentures (equivalent to a conversion price of $51.50 per share of Common Stock (the "CONVERSION PRICE")), subject to adjustment as described in this Article. Within one Business Day after the date (the "DATE OF NON-COMPLETION") which is the earlier of (a) the date the Company withdraws the Offer, and (b) September 25, 1998, if the Offer has not been declared unconditional in all respects, the Company will provide notice of such occurrence to the Holders. Effective as of the fourteenth Trading Day following the Date of Non-Completion, the Conversion Price will be adjusted to the lower of (a) the Conversion Price in effect immediately prior to the Date of Non-Completion and (b) the product of (i) the average of the daily Closing Prices of the Common Stock during the ten consecutive Trading Days beginning on the third Trading Day after the Date of Non-Completion and (ii) 1.239; provided, that in no event shall the Conversion Price be reset to less than $41.51. A Holder of Convertible Debentures may convert any portion of the principal amount of the Convertible Debentures into that number of fully paid and nonassessable shares of Common 16 Stock obtained by dividing the principal amount of the Convertible Debentures to be converted by such Conversion Price. All calculations under this Article shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. SECTION 6.2. Conversion Procedures. (a) In order to convert all or a portion of the Convertible Debentures, the Holder thereof shall deliver to the Conversion Agent an irrevocable Notice of Conversion setting forth the principal amount of Convertible Debentures to be converted, together with the name or names, if other than the Holder, in which the shares of Common Stock should be issued upon conversion and, if such Convertible Debentures are definitive Convertible Debentures, surrender to the Conversion Agent the Convertible Debentures to be converted, duly endorsed or assigned to the Company or in blank. In addition, a holder of Convertible Preferred Securities may exercise its right under the Declaration to convert such Convertible Preferred Securities into Common Stock by delivering to the Conversion Agent an irrevocable Notice of Conversion setting forth the information called for by the preceding sentence and directing the Conversion Agent (i) to exchange such Convertible Preferred Security for a portion of the Convertible Debentures held by the Trust (at an exchange rate of $50 principal amount of Convertible Debentures for each Convertible Preferred Security) and (ii) to immediately convert such Convertible Debentures, on behalf of such holder, into Common Stock of the Company pursuant to this Article and, if such Convertible Preferred Securities are in definitive form, surrendering such Convertible Preferred Securities, duly endorsed or assigned to the Company or in blank. So long as any Convertible Preferred Securities are outstanding, the Trust shall not convert any Convertible Debentures except pursuant to a Notice of Conversion delivered to the Conversion Agent by a holder of Convertible Preferred Securities. If a Notice of Conversion is delivered after the close of business on a Regular Record Date and on or prior to the related Interest Payment Date, the interest installment payable on such Interest Payment Date shall be payable to the Holder of record at the close of business on such Regular Record Date, despite such conversion, and when surrendered for conversion, such Convertible Debenture (other than a Convertible Debenture or a portion of a Convertible Debenture called for redemption on a Redemption Date occurring after such Regular Record Date and on or prior to such Interest Payment Date) must be accompanied by payment of an amount equal to the interest payable on such Interest Payment Date. However, if a Redemption Date falls between such record date and the related Interest Payment Date, the Holder will be entitled to receive, on such Interest Payment Date, the interest accrued to, but excluding, such Redemption Date. Except as otherwise provided in the first and second sentences of this paragraph, in the case of any Convertible Debenture that is converted, interest whose Stated Maturity is after the date of conversion of such Convertible Debenture shall not be payable, and the Company shall not make nor be required to make any other payment, adjustment or allowance with respect to accrued but unpaid interest on the Convertible Debentures being converted, which shall be deemed to be paid in full. Each conversion shall be deemed to have been effected immediately prior to the close of business on the day on which the Notice of Conversion was received (the "CONVERSION DATE") by the Conversion Agent from the Holder of the Convertible Debentures or from a holder of the Convertible Preferred Securities effecting a 15 17 conversion thereof pursuant to its conversion rights under the Declaration, as the case may be. The Person or Persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock as of the Conversion Date. As promptly as practicable on or after the Conversion Date, the Company shall issue and deliver at the office of the Conversion Agent, unless otherwise directed by the Holder in the Notice of Conversion, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion, together with the cash payment, if any, in lieu of any fraction of any share to the Person or Persons entitled to receive the same. The Conversion Agent shall deliver such certificate or certificates to such Person or Persons entitled to receive such Common Stock. (b) The Company's delivery upon conversion of the fixed number of shares of Common Stock into which the Convertible Debentures are convertible (together with the cash payment, if any, in lieu of fractional shares) shall be deemed to satisfy the Company's obligation to pay the principal amount at Maturity of the portion of Convertible Debentures so converted and any unpaid interest (including Compounded Interest) accrued on such Convertible Debentures at the time of such conversion. (c) No fractional shares of Common Stock will be issued as a result of conversion, but in lieu thereof, the Company shall pay to the Conversion Agent a cash adjustment in an amount equal to the same fraction of the Closing Price of such fractional interest on the date on which the Convertible Debentures were duly surrendered to the Conversion Agent for conversion, or, if such day is not a Trading Day, on the next Trading Day, and the Conversion Agent in turn will make such payment, if any, to the Holder of the Convertible Debentures or the holder of the Convertible Preferred Securities so converted. (d) In the event of the conversion of any Convertible Debenture in part only, a new Convertible Debenture or Convertible Debentures for the unconverted portion thereof will be issued in the name of the Holder thereof upon the cancellation thereof in accordance with Section 12.02 of the Base Indenture. (e) In effecting the conversion transactions described in this Section, the Conversion Agent is acting as agent of the holders of Convertible Preferred Securities (in the exchange of Convertible Preferred Securities for Convertible Debentures) and as agent of the Holders of Convertible Debentures (in the conversion of Convertible Debentures into Common Stock), as the case may be. The Conversion Agent is hereby authorized (i) to exchange Convertible Debentures held by the Trust from time to time for Convertible Preferred Securities in connection with the conversion of such Convertible Preferred Securities in accordance with this Article and (ii) to convert all or a portion of the Convertible Debentures into Common Stock and thereupon to deliver such shares of Common Stock in accordance with the provisions of this Article and to deliver to the Trust a new Convertible Debenture or Convertible Debentures for any resulting unconverted principal amount. 16 18 SECTION 6.3. Conversion Price Adjustments. The Conversion Price shall be adjusted from time to time as follows: (a) In case the Company shall, while any of the Convertible Debentures are outstanding, (i) issue shares of Common Stock as a dividend or distribution with respect to Common Stock, (ii) subdivide outstanding shares of Common Stock, (iii) combine outstanding shares of Common Stock into a smaller number of shares or (iv) issue by reclassification of its shares of Common Stock any shares of capital stock of the Company, the conversion privilege and the Conversion Price for the Convertible Debentures shall be adjusted so that the Holder of any Convertible Debenture thereafter surrendered for conversion shall be entitled to receive the number of shares of capital stock of the Company that such Holder would have owned immediately following such action had such Convertible Debenture been converted immediately prior thereto. An adjustment made pursuant to this subsection shall become effective immediately after the record date in the case of a dividend or other distribution and shall become effective immediately after the effective date in case of a subdivision, combination or reclassification (or immediately after the record date if a record date shall have been established for such event). If, as a result of an adjustment made pursuant to this subsection, the Holder of any Convertible Debenture thereafter surrendered for conversion shall become entitled to receive shares of two or more classes or series of capital stock of the Company, the board of directors (whose determination shall be conclusive and shall be described in a board resolution filed with the Trustee) shall determine the allocation of the adjusted Conversion Price for the Convertible Debentures between or among shares of such classes or series of capital stock. (b) In case the Company shall, while any of the Convertible Debentures are outstanding, issue rights or warrants to all holders of its Common Stock entitling them (for a period expiring within 45 days after the date such rights or warrants are issued) to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share of Common Stock (as determined pursuant to subsection (h) below) on the record date mentioned below, the Conversion Price for the Convertible Debentures shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of issuance of such rights or warrants by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares that the aggregate offering price of the total number of shares so offered for subscription or purchase would purchase at such current market price, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. To the extent that no shares of Common Stock are so delivered after the expiration of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price that would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. For the purposes of this subsection, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. The Company shall not issue any rights or warrants in respect of 17 19 shares of Common Stock held in the treasury of the Company. In case any rights or warrants referred to in this subsection in respect of which an adjustment shall have been made shall expire unexercised within 45 days after the same shall have been distributed or issued by the Company, the Conversion Price shall be readjusted at the time of such expiration to the Conversion Price that would have been in effect if no adjustment had been made on account of the distribution or issuance of such expired rights or warrants. (c) Subject to the last sentence of this subsection, in case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness, shares of any class or series of capital stock, cash or assets or rights or warrants to subscribe for or purchase any of its securities (excluding any rights or warrants referred to in subsection (b), any dividend or distribution paid exclusively in cash and any dividend or distribution referred to in subsection (a) of this Section), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subsection by a fraction of which the numerator shall be the current market price per share (determined as provided in subsection (h)) of the Common Stock on the date fixed for the payment of such distribution (the "REFERENCE DATE") less the fair market value (as determined in good faith by the board of directors, whose determination shall be conclusive and described in a resolution of the board of directors), on the Reference Date, of the portion of the evidences of indebtedness, shares of capital stock, cash and assets so distributed or of such subscription rights or warrants applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following the Reference Date; provided, that in the event the numerator shall be less than one, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder of Convertible Debentures shall have the right to receive upon conversion the amount of such distribution such Holder would have received had such Holder converted each Convertible Debenture immediately prior to the Reference Date. In the event that no such dividend or distribution is so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price that would then be in effect if such dividend or distribution had not occurred. If the board of directors determines the fair market value of any distribution for purposes of this subsection by reference to the actual or when issued trading market for any securities comprising such distribution, it must in doing so consider the prices in such market over the same period used in computing the current market price per share of Common Stock (determined as provided in subsection (h)). For purposes of this subsection, any dividend or distribution that includes shares of Common Stock or rights or warrants to subscribe for or purchase shares of Common Stock shall be deemed instead to be (i) a dividend or distribution of the evidences of indebtedness, shares of capital stock, cash or assets other than such shares of Common Stock or such rights or warrants (making any Conversion Price reduction required by this subsection) immediately followed by (ii) a dividend or distribution of such shares of Common Stock or such rights or warrants (making any further Conversion Price reduction required by subsection (a) or (b)), except (A) the Reference Date of such dividend or distribution as defined in this subsection shall be substituted for (1) "the record date in the case 18 20 of a dividend or other distribution," and (2) "the record date for the determination of stockholders entitled to receive such rights or warrants" and (3) "the date fixed for such determination" within the meaning of subsections (a) and (b) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed outstanding for purposes of computing any adjustment of the Conversion Price in subsection (a). (d) In case the Company shall pay or make a dividend or other distribution on its Common Stock exclusively in cash (excluding any such distribution that constitutes a Fundamental Change and any quarterly cash dividend on Common Stock to the extent that the aggregate cash dividend per share of Common Stock in any quarter does not exceed the greater of (x) the amount per share of Common Stock of the next preceding quarterly dividend on Common Stock to the extent that such preceding quarterly dividend did not require an adjustment of the Conversion Price pursuant to this subsection (d) (as adjusted to reflect subdivisions or combinations of Common Stock) and (y) 3.75% of the current market price per share (determined as provided in subsection (h)) of the Common Stock), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subsection by a fraction of which the numerator shall be the current market price per share (determined as provided in subsection (h)) of the Common Stock on the date fixed for the payment of such distribution less the amount of cash so distributed (and not excluded as provided above) applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock (determined as provided in subsection (h)), such reduction to become effective immediately prior to the opening of business on the day following the date fixed for the payment of such distribution; provided, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the current market price per share (determined as provided in subsection (h)) of the Common Stock on the record date mentioned above, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder of shares of Convertible Debentures shall have the right to receive upon conversion the amount of cash such Holder would have received had such Holder converted each Convertible Debenture immediately prior to the record date for the distribution of the cash. If an adjustment is required to be made pursuant to this subsection (d) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded as provided above. If an adjustment is required to be made pursuant to this subsection as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution. In the event that no such dividend or distribution is so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price that would then be in effect if such Record Date had not been fixed. (e) In case a tender or exchange offer (other than an odd-lot offer) made by the Company or any Subsidiary of the Company for all or any portion of the Company's Common Stock shall expire and such tender or exchange offer shall involve the payment by the Company or such subsidiary of consideration per share of Common Stock having a fair market value (as 19 21 determined in good faith by the board of directors, whose determination shall be conclusive and described in a resolution of the board of directors) at the last time (the "EXPIRATION TIME") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the current market price (determined as provided in subsection (h)), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subsection by a fraction (which shall not be greater than one) of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the Closing Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (i) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "PURCHASED SHARES") and (ii) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the Closing Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become retroactively effective immediately prior to the opening of business on the day following the Expiration Time. (f) In case a tender or exchange offer made by a Person other than the Company or any Subsidiary of the Company for all or any portion of the Common Stock shall expire and such tender or exchange offer shall involve the payment by a Person other than the Company or any Subsidiary of the Company of consideration per share of Common Stock having a fair market value (as determined in good faith by the board of directors, whose determination shall be conclusive and described in a resolution of the board of directors) at the applicable Expiration Time that exceeds the Closing Price of the Common Stock on the Trading Day next succeeding the applicable Expiration Time in which as of the closing date of the offer the board of directors of the Company is not recommending rejection of the offer, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subsection by a fraction (which shall not be greater than one) of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the Closing Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (i) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "PURCHASED SHARES") and, (ii) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the Closing Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become retroactively effective immediately prior to the opening of business on the day following 20 22 the Expiration Time; provided, that the reduction of the Conversion Price contemplated by this subsection will only be made if the tender offer or exchange offer is made for an amount that increases that Person's ownership of Common Stock to more than 25% of the total shares of Common Stock outstanding; and provided further, that the reduction of the Conversion Price contemplated by this subsection will not be made if as of the close of the offer, the offering documents with respect to such offer disclose a plan or an intention to cause the Company to engage in a consolidation or merger of the Company or a sale of all or substantially all of the assets of the Company. (g) In the event that the Preferred Share Purchase Rights (the "RIGHTS") of the Company are separated from the Common Stock in accordance with the provisions of the Company's preferred share purchase rights plan (or any successor plan) such that the Holders of Convertible Debentures would thereafter not be entitled to receive any such Rights in respect of the Company's Common Stock issuable upon conversion of such Convertible Debentures, the Conversion Price will be adjusted as provided in clause (c) (subject to readjustment in the event of the expiration, termination or redemption of the Rights). In lieu of any such adjustment, the Company may amend its preferred share purchase rights plan to provide that upon conversion of the Convertible Debentures the Holders will receive, in addition to the Company's Common Stock issuable upon such conversion, the Rights that would have attached to such shares of Company's Common Stock if the Rights had not become separated from such Common Stock pursuant to the provisions of such plan. (h) For the purpose of any computation under subsection (b), (c), (d) or (e), the current market price per share of Common Stock on any date in question shall be deemed to be the average of the daily Closing Prices for the ten Trading Day period ending on the earlier of the day in question and, if applicable, the day before the "ex" date with respect to the issuance or distribution requiring such computation; provided, that if more than one event occurs that would require an adjustment pursuant to subsections (a) through (f), inclusive, the board of directors may make such adjustments to the Closing Prices during such ten Trading Day period as it deems appropriate to effectuate the intent of the adjustments in this Section, in which case any such determination by the board of directors shall be set forth in a board resolution and shall be conclusive. For purposes of this paragraph, the term "ex" date, when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the New York Stock Exchange, Inc. or on such successor securities exchange as the Common Stock may be listed or in the relevant market from which the Closing Prices were obtained without the right to receive such issuance or distribution, and when used with respect to any tender or exchange offer means the first date on which the Common Stock trades regular way on such securities exchange or in such market after the Expiration Time of such offer. (i) The Company may make such reductions in the Conversion Price, in addition to those required by subsections (a) through (f), as the board of directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any 21 23 event treated as such for income tax purposes. The Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) days, the reduction is irrevocable during the period, and the board of directors shall have made a determination that such reduction would be in the best interest of the Company, which determination shall be conclusive. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to Holders of the Convertible Debentures a notice of the reduction at least 15 days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period it will be in effect. (j) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Conversion Price; provided, that any adjustments that by reason of this subsection are not required to be made shall be carried forward and taken into account in determining whether any subsequent adjustment shall be required. (k) If any action would require adjustment of the Conversion Price pursuant to more than one of the provisions described above, only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value to the Holder of Convertible Debentures. (l) Except as specifically provided in this First Supplemental Indenture, the Conversion Price will not be adjusted for the issuance of Common Stock or any securities convertible into or exchangeable for Common Stock or carrying the right to purchase any of the foregoing. In addition, no adjustment of the conversion price will be made upon the issuance of any Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on securities of the Company and the investment of additional optional amounts in the Company's Common Stock under any such plan or the issuance of Common Stock or options or rights to purchase the Company's Common Stock pursuant to any present or future employee, director or consultant benefit plan or program of the Company or any of its subsidiaries or pursuant to any option, warrant, right or exercisable, exchangeable or convertible security outstanding as of the date the Convertible Debentures are first issued. SECTION 6.4. Merger, Consolidation, or Sale of Assets. (a) In the event that the Company shall be a party to any transaction (including without limitation (i) any recapitalization or reclassification of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination of the Common Stock), (ii) any consolidation or merger of the Company with or into another person or any merger of another person into the Company (other than a merger that does not result in a reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock), (iii) any sale or transfer of all or substantially all of the assets of the Company or (iv) any compulsory share exchange pursuant to which either shares of Common Stock shall be converted into the right to receive other securities, cash or other property, or, in the case of a sale or transfer of all or substantially all of the assets of the Company, the holders of Common Stock shall be entitled to receive other securities, cash or other property, then appropriate 22 24 provision shall be made as part of the terms of such transaction whereby the Holder of each Convertible Debenture then outstanding shall have the right thereafter to convert such Convertible Debenture only into: (i) in the case of any such transaction that does not constitute a Common Stock Fundamental Change and subject to funds being legally available for such purpose under applicable law at the time of such conversion, the kind and amount of the securities, cash or other property that would have been receivable upon such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange by a holder of the number of shares of Common Stock issuable upon conversion of such Convertible Debenture immediately prior to such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange, after giving effect, in the case of any Non-Stock Fundamental Change (as defined below), to any adjustment in the Conversion Price in accordance with clause (i) of subsection (c) of this Section; and (ii) in the case of any such transaction that constitutes a Common Stock Fundamental Change, common stock of the kind received by holders of Common Stock as a result of such Common Stock Fundamental Change in an amount determined in accordance with clause (ii) of subsection (c) of this Section. (b) The company formed by such consolidation or resulting from such merger or that acquired such assets or that acquires the Company's shares, as the case may be, shall enter into a supplemental indenture with the Trustee, satisfactory in form to the Trustee and executed and delivered to the Trustee, the provisions of which shall establish such right. Such supplemental indenture shall provide for adjustments that, for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The above provisions shall similarly apply to successive transactions of the foregoing type. (c) Notwithstanding any other provision of this Section to the contrary, if any Fundamental Change occurs, then the Conversion Price in effect will be adjusted immediately after such Fundamental Change as follows: (i) in the case of a Non-Stock Fundamental Change, the Conversion Price of the Convertible Debentures immediately following such Non-Stock Fundamental Change shall be the lower of (A) the Conversion Price in effect immediately prior to such Non-Stock Fundamental Change, but after giving effect to any other prior adjustments effected pursuant to Section 6.03, and (B) the product of the greater of the Applicable Price and the then applicable Reference Market Price and a fraction, the numerator of which is $50 and the denominator of which is (x) the amount of the Optional Redemption Price set forth in Section 3.02 for $50 in principal amount of Convertible Debentures if the redemption date were the date of such Non-Stock Fundamental Change (or, for the twelve-month periods commencing December 1, 1997 and December 1, 1998 and the period beginning December 1, 1999 and ending December 5, 2000, the product of 107%, 23 25 106.3% and 105.6% respectively), times $50 plus (y) any then-accrued and unpaid interest on $50 principal amount of Convertible Debentures; and (ii) in the case of a Common Stock Fundamental Change, the Conversion Price of the Convertible Debentures immediately following such Common Stock Fundamental Change shall be the Conversion Price in effect immediately prior to such Common Stock Fundamental Change, but after giving effect to any other prior adjustments effected pursuant to Section 6.03, multiplied by a fraction, the numerator of which is the Purchaser Stock Price and the denominator of which is the Applicable Price; provided, that in the event of a Common Stock Fundamental Change in which 100% of the value of the consideration received by a holder of Common Stock is common stock of the successor, acquirer or other third party (and cash, if any, paid with respect to any fractional interests in such common stock resulting from such Common Stock Fundamental Change) and all of the Common Stock shall have been exchanged for, converted into or acquired for, common stock of the successor, acquirer or other third party (and any cash with respect to fractional interests), the Conversion Price of the Convertible Debentures immediately following such Common Stock Fundamental Change shall be the Conversion Price in effect immediately prior to such Common Stock Fundamental Change multiplied by a fraction, the numerator of which is one (1) and the denominator of which is the number of shares of common stock of the successor, acquirer or other third party received by a holder of one share of Common Stock as a result of such Common Stock Fundamental Change. SECTION 6.5. Notice of Adjustments of Conversion Price. Whenever the Conversion Price is adjusted as herein provided: (a) the Company shall compute the adjusted Conversion Price and shall prepare a certificate signed by the Chief Financial Officer or the Treasurer of the Company setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with the Trustee and the transfer agent for the Convertible Preferred Securities and the Convertible Debentures; and (b) a notice stating the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall as soon as practicable be mailed by the Company to all record holders of Convertible Preferred Securities and the Convertible Debentures at their last addresses as they appear upon the transfer books of the Company and the Trust. SECTION 6.6. Prior Notice of Certain Events. In case: (a) the Company shall (i) declare any dividend (or any other distribution) on its Common Stock, other than a dividend payable in shares of Common Stock or a dividend payable in cash that would not require an adjustment pursuant to Section 6.03(c) or (d), (ii) authorize a tender or exchange offer that would require an adjustment pursuant to Section 6.03(e) or (iii) 24 26 become aware of a tender or exchange offer that would require an adjustment pursuant to Section 6.03(f). (b) the Company shall authorize the granting to all holders of Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or series or of any other rights or warrants; (c) of any reclassification of Common Stock (other than a subdivision or combination of the outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company shall be required, or of the sale or transfer of all or substantially all of the assets of the Company or of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall (i) if any Convertible Preferred Securities are outstanding, cause to be filed with Institutional Trustee for the Convertible Preferred Securities, and cause to be mailed to the holders of record of the Convertible Preferred Securities, at their last addresses as they shall appear upon the transfer books of the Trust, and (ii) shall cause to be filed with the Trustee and cause to be mailed to all Holders at their last addresses as they shall appear in the Debenture Register, at least 20 days prior to the applicable record or effective date hereinafter specified, a notice stating (A) the date on which a record (if any) is to be taken for the purpose of such dividend, distribution, rights or warrants or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined or (B) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up is expected to become effective or such tender or exchange offer is expected to expire, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such tender or exchange offer, reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up. SECTION 6.7. Certain Additional Rights. In case the Company shall, by dividend or otherwise, declare or make a distribution on the Common Stock referred to in Section 6.03(c) or 6.03(d), the Holder of the Convertible Debentures, upon the conversion thereof subsequent to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution and prior to the effectiveness of the Conversion Price adjustment in respect of such distribution, shall also be entitled to receive for each share of Common Stock into which the Convertible Debentures are converted, the portion of the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash and assets so distributed 25 27 applicable to one share of Common Stock; provided, that, at the election of the Company (whose election shall be evidenced by a resolution of the board of directors) with respect to all Holders so converting, the Company may, in lieu of distributing to such Holder any portion of such distribution not consisting of cash or securities of the Company, pay such Holder an amount in cash equal to the fair market value thereof (as determined in good faith by the board of directors, whose determination shall be conclusive and described in a resolution of the board of directors). If any conversion of Convertible Debentures described in the immediately preceding sentence occurs prior to the payment date for a distribution to holders of Common Stock that the Holder of Convertible Debentures so converted is entitled to receive in accordance with the immediately preceding sentence, the Company may elect (such election to be evidenced by a resolution of the Board of Directors) to distribute to such Holder a due bill for the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets to which such Holder is so entitled; provided, that such due bill (a) meets any applicable requirements of the principal national securities exchange or other market on which the Common Stock is then traded and (b) requires payment or delivery of such shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets no later than the date of payment or delivery thereof to holders of shares of Common Stock receiving such distribution. SECTION 6.8. Trustee Not Responsible for Determining Conversion Price or Adjustments. Neither the Trustee nor any Conversion Agent shall at any time be under any duty or responsibility to any Holder of any Convertible Debenture to determine whether any facts exist that may require any adjustment of the Conversion Price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or whether this supplemental indenture need be entered into. Neither the Trustee nor any Conversion Agent shall be accountable with respect to the validity or value (or the kind of account) of any shares of Common Stock or of any securities or property that may at any time be issued or delivered upon the conversion of any Convertible Debenture; and neither the Trustee nor any Conversion Agent makes any representation with respect thereto. Neither the Trustee nor any Conversion Agent shall be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property upon the surrender of any Convertible Debenture for the purpose of conversion. ARTICLE 7 FORM OF CONVERTIBLE DEBENTURE SECTION 7.1. Form of Convertible Debenture. The Convertible Debentures and the Trustee's Certificate of Authentication to be endorsed thereon are to be substantially in the following forms: [(FORM OF FACE OF CONVERTIBLE DEBENTURE)] 26 28 [IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE, INSERT THE FOLLOWING - - THIS DEBENTURE IS A GLOBAL DEBENTURE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS DEBENTURE IS EXCHANGEABLE FOR CONVERTIBLE DEBENTURES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS DEBENTURE (OTHER THAN A TRANSFER OF THIS DEBENTURE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN SUCH LIMITED CIRCUMSTANCES. UNLESS THIS DEBENTURE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEBENTURE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] THE HOLDER OF THIS DEBENTURE IS ENTITLED TO THE BENEFITS OF THE REGISTRATION RIGHTS AGREEMENT DATED AS OF DECEMBER 1, 1997, AMONG FEDERAL-MOGUL CORPORATION, FEDERAL-MOGUL FINANCING TRUST AND MORGAN STANLEY & CO. INCORPORATED. THE HOLDER OF THIS DEBENTURE AGREES TO BE BOUND BY THE TERMS OF THE REGISTRATION RIGHTS AGREEMENT, A COPY OF WHICH IS AVAILABLE UPON REQUEST FROM FEDERAL-MOGUL CORPORATION. No. CUSIP NO. FEDERAL-MOGUL CORPORATION 7% CONVERTIBLE JUNIOR SUBORDINATED DEBENTURE THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) 27 29 REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A UNITED STATES PERSON AND IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT, PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A) TO FEDERAL-MOGUL CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (E) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND THAT CONTINUES TO BE EFFECTIVE) AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY, UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE BANK OF NEW YORK, AS INSTITUTIONAL TRUSTEE (OR A SUCCESSOR INSTITUTIONAL TRUSTEE, AS APPLICABLE). THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE SECURITY EVIDENCED HEREBY PURSUANT TO CLAUSE 1(E) ABOVE OR UPON ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "UNITED STATES PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. EACH PURCHASER OR HOLDER OF THE SECURITY EVIDENCED HEREBY WILL BE DEEMED TO HAVE REPRESENTED EITHER THAT (A) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF SUBTITLE B OF TITLE 1 OF ERISA OR A PLAN DESCRIBED IN SECTION 4975 OF THE CODE OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH ERISA PLAN OR OTHER PLAN OR (B) ITS ACQUISITION, HOLDING AND DISPOSITION OF THE SECURITY EVIDENCED HEREBY WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE BY REASON OF PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 91-38, PTCE 84-14, PTCE 90-1, PTCE 95-60 OR PTCE 96-23. 28 30 Federal-Mogul Corporation, a Michigan corporation (the "COMPANY," which term includes any successor corporation under the Indenture herein referred to), for value received, hereby promises to pay to The Bank of New York, as Institutional Trustee for Federal-Mogul Financing Trust, or registered assigns, the principal sum set forth on Schedule A hereto on December 1, 2027, and to pay interest on said principal sum from December 1, 1997, or from the most recent interest payment date (each such date, an "INTEREST PAYMENT DATE") to which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on March 1, June 1, September 1 and December 1 of each year commencing March 1 , 1998, at the rate of 7% per annum until the principal hereof shall have become due and payable, and on any overdue principal and premium, if any, and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum compounded quarterly. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the following sentence, the amount of interest payable for any period shorter than a full quarterly period for which interest is computed, will be computed on the basis of the actual number of days elapsed per 30-day month. In the event that any date on which interest is payable on this Convertible Debenture is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture (referred to on the reverse hereof) be paid to the person in whose name this Convertible Debenture (or one or more Predecessor Debentures, as defined in said Indenture) is registered at the close of business on the Regular Record Date for such interest installment, which Regular Record Date shall be the Business Day prior to that Interest Payment Date unless otherwise provided in the Indenture (provided, that, in the event that this Convertible Debenture is not held solely in book-entry form, the Regular Record Date shall be 15 days prior to that Interest Payment Date). Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered Holders on such record date and may be paid to the person in whose name this Convertible Debenture (or one or more Predecessor Debentures) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered Holders of the Convertible Debentures not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Convertible Debentures may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The principal of (and premium, if any) and the interest on this Convertible Debenture shall be payable at the office or agency of the Company maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, that payment of interest may be made at the option of the Company by check mailed to the registered Holder at such address as shall appear in the Debenture Register. Notwithstanding the foregoing, so long 29 31 as the Holder of this Convertible Debenture is the Institutional Trustee, the payment of the principal of (and premium, if any) and interest on this Convertible Debenture will be made at such place and to such account as may be designated by the Institutional Trustee. The indebtedness evidenced by this Convertible Debenture is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Convertible Debenture is issued subject to the provisions of the Indenture with respect thereto. In the event and during the continuation of any default by the Company in the payment of principal, premium, interest or any other payment due on any Senior Indebtedness of the Company, as the case may be, beyond any applicable grace period with respect thereto, or in the event that the maturity of any Senior Indebtedness of the Company, as the case may be, has been accelerated because of a default, then, in any such case, no payment shall be made by the Company with respect to the principal (including redemption and sinking fund payments) of, or premium, if any, or interest on the Convertible Debentures until such default is cured or waived or ceases to exist or any such acceleration or demand for payment has been rescinded. Upon any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due upon all Senior Indebtedness of the Company shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Company on account of the principal (and premium, if any) or interest on the Convertible Debentures. Upon satisfaction of all claims of all Senior Indebtedness then outstanding, the rights of the holders of the Convertible Debentures will be subrogated to the rights of the holders of Senior Indebtedness of the Company to receive payments or distributions applicable to Senior Indebtedness as provided in the Indenture until all amounts owing on the Convertible Debentures are paid in full. Each Holder of this Convertible Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each Holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. The Holder of a Convertible Debenture may be treated as its owner for all purposes. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agent shall pay the money back to the Company at its written request. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Convertible Debentures or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder of the Convertible Debentures by accepting a Convertible Debenture waives and releases 30 32 all such liability. The waiver and release are part of the consideration for the issue of the Convertible Debentures. This Convertible Debenture shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose, until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Convertible Debenture are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be executed manually or by facsimile. FEDERAL-MOGUL CORPORATION By:___________________________ Name: Title Attest: By:_________________________________ Name: Title: 31 33 [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Convertible Debentures of the series of Convertible Debentures described in the within-mentioned Indenture. Dated: THE BANK OF NEW YORK, as Trustee By______________________ Authorized Signatory 32 34 [FORM OF REVERSE OF DEBENTURE] This Convertible Debenture is one of a duly authorized series of Debentures of the Company (herein sometimes referred to as the "DEBENTURES"), specified in the Indenture, all issued or to be issued in one or more series under and pursuant to an Indenture dated as of December 1, 1997, duly executed and delivered between the Company and The Bank of New York, as Trustee (the "TRUSTEE"), as supplemented by the First Supplemental Indenture dated as of December 1, 1997, between the Company and the Trustee (the Indenture as so supplemented, the "INDENTURE"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of the Convertible Debentures. By the terms of the Indenture, the Debentures are issuable thereunder in series that may vary as to amount, date of maturity, rate of interest and in other respects as provided in the Indenture. This series of Debentures is limited in aggregate principal amount as specified in said First Supplemental Indenture and herein sometimes referred to as the "CONVERTIBLE DEBENTURES." Because of the occurrence and continuation of a Special Event (as defined in the Indenture), in certain circumstances, this Convertible Debenture may become due and payable at the principal amount specified on the face hereof together with any interest accrued thereon (the "REDEMPTION PRICE"). The Redemption Price shall be paid prior to 12:00 noon, New York City time, on the date of such redemption or at such earlier time as the Company determines. The Company shall have the right to redeem this Convertible Debenture at the option of the Company, upon not less than 30 nor more than 60 days notice, without premium or penalty, in whole or in part at any time on or after December 6, 2000 (an "OPTIONAL REDEMPTION") at the following prices (expressed as percentages of the principal amount of the Convertible Debentures) (the "OPTIONAL REDEMPTION PRICE") together with accrued and unpaid interest, including Additional Interest and Compounded Interest to, but excluding, the redemption date. If this Convertible Debenture is redeemed during the period beginning December 6, 2000 and ending November 30, 2001, the Redemption Price shall be 104.9%. The table below shows Redemption Prices for Convertible Debentures redeemed during the 12-month period beginning December 1. 33 35 YEAR REDEMPTION PRICE 2001 104.2% 2002 103.5 2003 102.8 2004 102.1 2005 101.4 2006 100.7 2007 and thereafter 100.0 If Convertible Debentures are redeemed on any March 1, June 1, September 1 or December 1, accrued and unpaid interest shall be payable to Holders on the relevant record date. So long as the corresponding Convertible Preferred Securities are outstanding, the proceeds from the redemption of any of the Convertible Debentures will be used to redeem Convertible Preferred Securities. Notwithstanding the foregoing, the Company may not redeem any Convertible Debentures unless all accrued interest thereon (including Compound Interest) has been paid for all quarterly periods terminating on or prior to the date of notice of redemption. If the Convertible Debentures are only partially redeemed by the Company pursuant to an Optional Redemption, the Convertible Debentures will be redeemed pro rata or by lot or by any other method utilized by the Trustee; In the event of redemption of this Convertible Debenture in part only, a new Convertible Debenture or Convertible Debentures of this series for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Convertible Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Debentures of each series affected at the time outstanding, as defined in the Indenture, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of 34 36 modifying in any manner the rights of the Holders of the Debentures of such series; provided, that no such supplemental indenture shall (a) extend the stated maturity of any Debenture of any series, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, or make any change that adversely affects the right to convert any Debenture of any series or make any change in the subordination provisions that adversely affects the rights of any Holders of any Debenture of any series, without the consent of the Holder of each Debenture so affected, or (b) reduce the aforesaid percentage in aggregate principal amount of Debentures of such series, the Holders of which are required to consent to any such supplemental indenture, without the consent of the Holders of each Debenture of any series then outstanding and affected thereby. In addition, the Company and the Trustee may execute, without the consent of any Holder of any Debenture, any supplemental indenture to cure any ambiguities, to comply with the Trust Indenture Act and for certain other customary purposes, subject to certain exceptions. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Debentures of any series at the time outstanding affected thereby, on behalf of all of the Holders of the Debentures of such series, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture with respect to such series, and its consequences, except a default in the payment of the principal of or premium, if any, or interest on any Debentures of such series; provided, that a failure to convert any Debentures of such series in accordance with its terms may only be waived by the Holders affected thereby. Any such consent or waiver by the Holder of this Convertible Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Convertible Debenture and of any Convertible Debenture issued in exchange therefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Convertible Debenture. Notwithstanding any provision of the Indenture nor any provision of this Convertible Debenture, but subject to Article 13 of the Base Indenture, the Holder of this Convertible Debenture shall have the right, which is absolute and unconditional, to receive payment of the principal of and any premium and, subject to Section 2.03 of the Base Indenture, interest on this Convertible Debenture and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. As long as an Event of Default under Section 4.01(a) of the Indenture shall not have occurred and be continuing, the Company shall have the right at any time during the term of the Convertible Debentures and from time to time to extend the interest payment period of such Convertible Debentures for up to 20 consecutive quarters (an "EXTENSION PERIOD"), at the end of which period the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate specified for the Convertible Debentures to the extent that payment of such interest is enforceable under applicable law). Before the termination of any such Extension Period, the Company may further extend such Extension Period; provided, that such Extension Period together with all such further extensions thereof shall not exceed 20 consecutive quarters. At the termination of any such Extension Period and upon the payment of all accrued and unpaid 35 37 interest and any additional amounts then due, the Company may commence a new Extension Period. As provided in the Indenture and subject to certain limitations therein set forth, this Convertible Debenture is transferable by the Holder hereof on the Debenture Register of the Company, upon surrender of this Convertible Debenture for registration of transfer at the office or agency of the Trustee in the City and State of New York accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Convertible Debentures of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Convertible Debenture, the Company, the Trustee, any paying agent and the Debenture Registrar may deem and treat the Holder hereof as the absolute owner hereof (whether or not this Convertible Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Debenture Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Convertible Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. The Holder of any Convertible Debenture has the right, exercisable at any time beginning 90 days following the latest date of original issuance of any Convertible Preferred Securities through the close of business (New York time) on the Business Day before December 1, 2027 (or, in the case of a Convertible Debenture called for redemption, prior to the close of business on the Business Day prior to the corresponding redemption date), to convert the principal amount thereof (or any portion thereof that is an integral multiple of $50) into shares of Common Stock at the initial conversion rate of 0.9709 shares of Common Stock for each $50 in principal amount of Convertible Debentures (equivalent to a Conversion Price of $51.50 per share of Common Stock), subject to adjustment under certain circumstances. To convert a Convertible Debenture, a Holder must (a) complete and sign a conversion notice substantially in the form attached hereto, (b) surrender the Convertible Debenture to a Conversion Agent, (c) furnish appropriate endorsements or transfer documents if required by the 36 38 Conversion Agent and (d) pay any transfer or similar tax, if required. Upon conversion, no adjustment or payment will be made for interest or dividends, but if a Notice of Conversion is delivered on or after a Regular Record Date and prior to the related Interest Payment Date, the interest installment payable on such Interest Payment Date shall be payable to the Holder of record at the close of business on such Regular Record Date, despite such conversion, and when surrendered for conversion, such Convertible Debenture (other than a Convertible Debenture or a portion of a Convertible Debenture called for redemption on a Redemption Date occurring after such Regular Record Date and on or prior to such Interest Payment Date) must be accompanied by payment of an amount equal to the interest payable on such Interest Payment Date. However, if a Redemption Date falls between a record date and the subsequent Interest Payment Date, the Holder will be entitled to receive, on such Redemption Date, the interest accrued to, but excluding, the Redemption Date. The number of shares issuable upon conversion of a Convertible Debenture is determined by dividing the principal amount of the Convertible Debenture converted by the Conversion Price in effect on the Conversion Date. No fractional shares will be issued upon conversion but a cash adjustment will be made for any fractional interest. The outstanding principal amount of any Convertible Debenture shall be reduced by the portion of the principal amount thereof converted into shares of Common Stock. This Global Debenture is exchangeable for Convertible Debentures in definitive form only under certain limited circumstances set forth in the Indenture. Convertible Debentures of this series so issued are issuable only in registered form without Coupons in denominations of $50 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Convertible Debentures of this series are exchangeable for a like aggregate principal amount of Convertible Debentures of this series of a different authorized denomination, as requested by the Holder surrendering the same. All terms used in this Convertible Debenture that are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THE CONVERTIBLE DEBENTURES, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF. [FORM OF ELECTION TO CONVERT] ELECTION TO CONVERT To: Federal-Mogul Corporation The undersigned owner of this Convertible Debenture hereby irrevocably exercises the option to convert this Convertible Debenture, or the portion below designated, into Common Stock of Federal-Mogul Corporation in accordance with the terms of the Indenture referred to in this Convertible Debenture, and directs that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are 37 39 to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Date: , In whole portions of Convertible Debenture to be converted ($50 or integral multiples-thereof):$ Signature (for conversion only) Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number ______________________________________ ______________________________________ ______________________________________ Signature Guarantee:(1) ______________ (1) Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Conversion Agent, which requirements include membership of participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Conversion Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities and Exchange Act of 1934, as amended. 38 40 [FORM OF ASSIGNMENT FOR CONVERTIBLE DEBENTURES THAT ARE NOT GLOBAL DEBENTURES] ASSIGNMENT For value received ___________________ hereby sell(s), assign(s) and transfer(s) unto __________________________ (Please insert name, address, zip code and Social security or other taxpayer identification number of assignee) the within Security and hereby irrevocably constitutes and appoints ______________ attorney to transfer the said Convertible Debenture on the books of the Company, with full power of substitution in the premises. In connection with any transfer of the within Convertible Debenture occurring prior to the Transfer Restriction Termination Date, the undersigned confirms that such Security is being transferred: / / To Federal-Mogul Corporation or a subsidiary thereof; or / / Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or / / Pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or / / Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended; Unless one of the boxes is checked, the Trustee will refuse to register any of the Convertible Debentures evidenced by the certificate in the name of any person other than the registered Holder thereof; provided, however, that if the third or fourth box above is checked, the Trustee may require, prior to registering any such transfer of the Convertible Debentures, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by rule 144 under such Act. Unless the box below is checked, the undersigned confirms that such Security is not being transferred to an "AFFILIATE" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "AFFILIATE"): / / The transferee is an Affiliate of the Company. 39 41 Dated: __________________________ ___________________________ ___________________________ Signature(s) Signature(s) must be guaranteed by a commercial bank or trust company or a member firm of a major stock exchange. _________________________ Signature Guarantee NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of this Security in every particular without alteration or enlargement or any change whatever. 40 42 [FORM OF SCHEDULE FOR ENDORSEMENTS ON GLOBAL DEBENTURES TO REFLECT CHANGES IN PRINCIPAL AMOUNT] Schedule A Changes to Principal Amount of Global Debentures The initial principal amount of this Global Debenture shall be $[ ]. The following increases or decreases in the principal amount of this Global Debenture have been made:
DATE PRINCIPAL AMOUNT OF REMAINING PRINCIPAL SIGNATURE SECURITIES BY WHICH AMOUNT OF THIS OF THIS GLOBAL DEBENTURE GLOBAL DEBENTURE AUTHORIZED IS TO BE REDUCED OR OFFICIAL OF INCREASED, AND REASON THE TRUSTEE FOR REDUCTION OR INCREASE - -------- -------------------- ------------------ --------- - - -------- -------------------- ------------------ --------- - - -------- -------------------- ------------------ --------- - - -------- -------------------- ------------------ --------- - - -------- -------------------- ------------------ --------- - - -------- -------------------- ------------------ --------- - - -------- -------------------- ------------------ --------- - - -------- -------------------- ------------------ --------- -
41 43
DATE PRINCIPAL AMOUNT OF REMAINING PRINCIPAL SIGNATURE SECURITIES BY WHICH AMOUNT OF THIS OF THIS GLOBAL DEBENTURE GLOBAL DEBENTURE AUTHORIZED IS TO BE REDUCED OR OFFICIAL OF INCREASED, AND REASON THE TRUSTEE FOR REDUCTION OR INCREASE - -------- -------------------- ------------------ ---------
42 44 ARTICLE 8 ORIGINAL ISSUE OF CONVERTIBLE DEBENTURES SECTION 8.1. Original Issue of Convertible Debentures. Convertible Debentures in the aggregate principal amount of up to the sum of (a) $515,463,950 and (b) such aggregate principal amount (which may not exceed $77,319,600 aggregate principal amount) of Convertible Debentures as shall be purchased by the Trust pursuant to an over-allotment option in accordance with the terms of the Purchase Agreement may, upon execution of this First Supplemental Indenture, be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and make available for delivery said Convertible Debentures to or upon the written order of the Company, signed by its Chairman, its Executive Vice President, its President, or any Vice President and its Treasurer or an Assistant Treasurer, without any further action by the Company. ARTICLE 9 MISCELLANEOUS SECTION 9.1. Ratification of Indenture; First Supplemental Indenture Controls. The Indenture, as supplemented by this First Supplemental Indenture, is in all respects ratified and confirmed, and this First Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided. The provisions of this First Supplemental Indenture shall supersede the provisions of the Indenture to the extent the Indenture is inconsistent herewith. SECTION 9.2 Trustee Not Responsible for Recitals. The recitals herein contained are made by the Company and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this First Supplemental Indenture. SECTION 9.3. Governing Law. This First Supplemental Indenture and each Debenture shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of laws principles thereof. SECTION 9.4. Separability. In case any one or more of the provisions contained in this First Supplemental Indenture or in the Convertible Debentures shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this First Supplemental Indenture or of the Convertible Debentures, but this First Supplemental Indenture and the Convertible Debentures shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. 43 45 SECTION 9.5. Counterparts. This First Supplemental Indenture may be executed in any number of counterparts each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. 44 46 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the day and year first above written. FEDERAL-MOGUL CORPORATION By___________________________ Name: Title: THE BANK OF NEW YORK, as Trustee By___________________________ Name: Title: EX-4.10 9 EX-4.10 1 EXHIBIT 4.10 REGISTRATION AGREEMENT THIS REGISTRATION AGREEMENT (this "AGREEMENT"), dated as of January 9, 1998, is by and among Federal-Mogul Corporation, a Michigan corporation (the "CORPORATION"), and the Persons identified on Schedule 1 hereto (the "INVESTORS"). RECITALS A. Pursuant to that certain Equity Purchase Agreement dated as of January 9, 1998 (the "AGREEMENT") among the Corporation and the Investors, as partial consideration for the acquisition of the Equity Interests (as defined in the Agreement), the Corporation will issue to the Investors shares of the Series E Mandatory Exchangeable Preferred Stock of the Corporation (the "PREFERRED SHARES"). B. As a condition to the consummation of the transactions contemplated by the Agreement, the Corporation has agreed to grant certain securities registration rights to the Investors as set forth herein. AGREEMENTS In consideration of the premises and the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEFINITIONS. In addition to the capitalized terms defined elsewhere in this Agreement, the following capitalized terms shall have the following meaning when used in this Agreement: "AFFILIATE" means, as to any specified Person, any other Person which, directly or indirectly, controls, is controlled by or is under common control with, such specified Person. For the purposes of this definition, "control" means the possession of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "CERTIFICATE" shall have the meaning given such term in SECTION 3(A) hereof. "COMMISSION" means the Securities and Exchange Commission. "COMMITTED PORTION" means those shares of Common Stock to be included in a Qualified Public Offering that are not subject to an over-allotment option. "COMMON STOCK" means the Corporation's common stock. 2 "EXPIRATION TIME" means the first time at which (i) the Holders hold, in the aggregate, fewer than 3,000,000 Registrable Shares (as such number may be proportionately adjusted in the event the Common Stock is subdivided into a greater number of shares or combined into a fewer number of shares), and (ii) such securities may be sold by the Holders without restriction pursuant to Rule 144(k) under the Securities Act. "HOLDERS" means the holders of Registrable Shares who are parties to this Agreement or successors or assigns or subsequent holders contemplated by SECTION 14 hereof. "OVER-ALLOTMENT AMOUNT" means a number of shares of Common Stock which shall be determined by the Corporation and shall not be less than the product of (i) 0.5, multiplied by (ii) the number of shares of Common Stock to be included in the over-allotment option, if any, requested by the managing underwriter or underwriters in connection with a Qualified Public Offering. "PERSON" means a natural person, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or other entity, or a governmental entity or any department, agency or political subdivision thereof. "QUALIFIED PUBLIC OFFERING" means the first underwritten offering of Common Stock made by the Corporation for its own account after the date hereof and on or prior to January 1, 1999 pursuant to an effective registration statement under the Securities Act. "REGISTRABLE SHARES" means at any time (i) any outstanding shares of Common Stock issued or issuable upon conversion or exchange of the Preferred Shares (assuming the conditions precedent to such conversion or exchange had occurred in accordance with the terms of the Certificate); and (ii) any outstanding shares of Common Stock issued as, or issued upon the conversion, exchange or exercise of other securities issued as, a dividend or other distribution with respect to or in replacement of Preferred Shares or Registrable Shares; provided, however, that Registrable Shares shall not include (a) any share that has been sold under an effective registration statement pursuant to the Securities Act, or (b) any share that has been otherwise transferred (other than to an Investor or an Affiliate of an Investor) and (i) in respect of which the Corporation has delivered a new certificate or other evidence of ownership not bearing the legend set forth on the Preferred Shares upon the initial issuance thereof (or other legend of similar import) and (ii) in the opinion of counsel to the Corporation, the subsequent disposition of such share shall not require registration under the Securities Act. For purposes of requesting registration of securities pursuant to this Agreement, a Person will be deemed to be a holder of Registrable Shares whenever such Person has the right to acquire such Registrable Shares (by conversion, exchange or exercise), whether or not such acquisition has actually been effected. "REGISTRATION EXPENSES" has the meaning ascribed to it in SECTION 6 of this Agreement. "SECURITIES ACT" means the Securities Act of 1933, as amended. -2- 3 "SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "SUBSIDIARY" means any corporation, association or other entity of which securities or other ownership interests representing more than fifty percent (50%) of the ordinary voting power are, at the time as of which any determination is being made, owned or controlled by the Corporation or one or more Subsidiaries of the Corporation or by the Corporation and one or more Subsidiaries of the Corporation. 2. DEMAND REGISTRATIONS. (a) REQUESTS FOR REGISTRATION. At any time after January 1, 1999 and prior to the Expiration Time, the Holder or Holders of a majority of the Registrable Shares may request registration under the Securities Act of all or part of their Registrable Shares; provided, however, such Holder or Holders may only request registration pursuant to this SECTION 2(A) if the Corporation's Second Restated Articles of Incorporation (the "ARTICLES") have been amended to authorize additional shares of Common Stock for issuance. Within ten days after receipt of any request pursuant to this SECTION 2(A), the Corporation will give written notice of such request to all other holders of Registrable Shares and, subject to the terms hereof and applicable law, will use its best efforts to effect such registration and will include in such registration all Registrable Shares with respect to which the Corporation has received written requests for inclusion therein within 14 days after the Corporation's notice has been given. All registrations requested pursuant to this SECTION 2(A) are referred to herein as "DEMAND REGISTRATIONS." Subject to the terms hereof, the Corporation shall have the right to include securities for its own account in any Demand Registration, and holders of the Corporation's securities who have the right to participate in any Demand Registration pursuant to an agreement with the Corporation shall have the right to include securities (the "REQUIRED SHARES") in such Demand Registration. (b) NUMBER OF DEMAND REGISTRATIONS. The Holders may request no more than, and the Corporation will be obligated to effect no more than, three Demand Registrations pursuant to SECTION 2(A). A registration will not count as a Demand Registration hereunder until the related registration statement has become effective. (c) PAYMENT OF EXPENSES FOR DEMAND REGISTRATIONS. The Holders will pay all Registration Expenses for any Demand Registration (regardless of whether the related registration statement becomes effective but not if such registration statement fails to become effective because of the fault of the Corporation); provided, however, that in the event securities other than those of the Holders are included in any Demand Registration, the Holders, in the aggregate, will pay that proportion of such expenses as the number of Registrable Shares included in such Demand Registration bears to the total number of securities included in such Demand Registration. Registration Expenses to be borne by the Holders pursuant to this Section 2(c) shall be borne pro rata on the basis of the number of Registrable Shares owned by such Holders which are included in such Demand Registration. -3- 4 (d) PRIORITY ON DEMAND REGISTRATIONS. The Holder or Holders initiating the Demand Registration may elect whether the offering of such Registrable Shares pursuant to such Demand Registration shall be in the form of a firm commitment underwritten offering or otherwise; provided, however, that the Corporation shall not be obligated to register any offering pursuant to Rule 415 under the Securities Act (or any successor provision thereto). In any case in which an offering is in the form of a firm commitment underwritten offering, if the managing underwriter or underwriters of such offering advises the Corporation in writing that in its or their opinion it is probable that inclusion of the number of Registrable Shares, Required Shares, if any, and securities of the Corporation ("CORPORATION SHARES"), if any, proposed to be included in such offering would adversely affect the marketability of the Common Stock, the Corporation will include in such registration the number of Registrable Shares, Required Shares, if any, and Corporation Shares, if any, that in the opinion of such managing underwriter or underwriters can be sold without adversely affecting the market for the Common Stock. In such event, (a) first, the number of Required Shares, if any, and Corporation Shares, if any, to be offered shall be reduced to the extent necessary to reduce the total number of shares to be included in such offering to the number recommended by such managing underwriter or underwriters and (b) then, if necessary, the number of Registrable Shares to be offered shall be reduced pro rata on the basis of the relative number of Registrable Shares requested by each such Holder to be included in such registration to the extent necessary to reduce the total number of shares to be included in such offering to the number recommended by such managing underwriter or underwriters. (e) RESTRICTIONS ON REGISTRATIONS. (i) The Corporation may postpone for a reasonable period not to exceed 90 days, the filing, amendment or the effectiveness of a registration statement for a Demand Registration if the board of directors of the Corporation determines reasonably and in good faith that such filing would be significantly disadvantageous to the Corporation or its stockholders. (ii) A Holder shall not request the registration of Registrable Shares pursuant to SECTION 2(A) hereof during the period commencing on the seventh day prior to the effective date of an offering by the Company that is registered under the Securities Act and ending on the ninetieth day after such offering is completed. (f) SHORT-FORM REGISTRATIONS. If an underwritten Demand Registration is registered pursuant to Form S-3 (or any successor form thereto), and if the managing underwriter reasonably requests the inclusion in the registration statement of information which is not required under the Securities Act to be included on Form S-3, the Corporation will provide such information for inclusion by the managing underwriter. -4- 5 3. PIGGYBACK REGISTRATIONS. (a) RIGHT TO INITIAL PIGGYBACK. In connection with the registration under the Securities Act of a Qualified Public Offering, if the registration form to be used may be used for the registration of Registrable Shares (an "INITIAL PIGGYBACK REGISTRATION"), the Corporation will give written notice (the "OFFERING NOTICE") at least 21 days prior to the anticipated filing date to all holders of Registrable Shares of its intention to effect such a registration, and the Corporation will use its best efforts to effect such registration and will include in such registration all Registrable Shares with respect to which the Corporation has received written requests for inclusion therein within 14 days after the Corporation's notice has been given. Notwithstanding the foregoing, (i) the Holders of the Registrable Shares may only include shares in such Initial Piggyback Registration if the Articles have been amended to authorize additional shares of Common Stock for issuance, (ii) the aggregate number of Registrable Shares that may be included in the Committed Portion of such Initial Piggyback Registration may not exceed, in the aggregate, a number (as may be adjusted in accordance with the proviso below, the "MAXIMUM NUMBER") equal to 25% of the product of (A) the number of Preferred Shares initially issued, multiplied by (B) the Exchange Ratio (as such term is defined in the Certificate of Designations (the "CERTIFICATE") for the Preferred Shares) in effect on the tenth day prior to the date the registration statement with respect to the Initial Piggyback Registration becomes effective, provided, however, that such Maximum Number may be reduced if, and to the extent, that the managing underwriter or underwriters of the offering advise the Corporation that in its or their opinion it is probable that the inclusion of the Maximum Number of Registrable Shares in the Qualified Public Offering would adversely affect the marketability of the shares to be sold in such offering. In the event that the number of Registrable Shares that Holders have requested be included in the Initial Piggyback Registration exceeds the Maximum Number (such excess, the "EXCESS SHARES"), the number of Registrable Shares, if any, to be included in the Committed Portion of such Initial Piggyback Registration shall be reduced pro rata on the basis of the relative number of Registrable Shares requested by each such Holder to be included in such registration to the extent necessary to reduce the total number of Registrable Shares to be included in the Committed Portion of such Initial Piggyback Registration to the Maximum Number. Excess Shares shall be included in any over-allotment option granted to the underwriters of the Qualified Public Offering by the Corporation; provided, however, in the event the number of Excess Shares exceeds the Over-Allotment Amount, the number of Excess Shares to be included in such over-allotment option shall be reduced pro rata on the basis of the relative number of Excess Shares held by each holder of Excess Shares to the extent necessary to reduce the total number of Excess Shares to be included in such over-allotment option to the Over-Allotment Amount. Notwithstanding anything to the contrary set forth herein, in no event shall the number of shares of Common Stock included in such Initial Piggyback Registration for the account of each of Kenneth A. Lehman and David A. Weinberg, in his individual capacity, exceed a number equal to 25% of the product of (i) the number of Preferred Shares initially issued to such person, multiplied by (ii) the Exchange Ratio (as such term is defined in the Certificate) in effect on the tenth day prior to the date the registration statement with respect to the Initial Piggyback Registration becomes effective. -5- 6 (b) RIGHT TO ADDITIONAL PIGGYBACK. At any time after January 1, 1999 and prior to the Expiration Time, whenever Common Stock is to be registered under the Securities Act (other than pursuant to a Demand Registration), and the registration form to be used may be used for the registration of Registrable Shares (a "PIGGYBACK REGISTRATION"), the Corporation will give an Offering Notice at least 21 days prior to the anticipated filing date to all holders of Registrable Shares of its intention to effect such a registration, and the Corporation will use its best efforts to effect such registration and will include in such registration all Registrable Shares with respect to which the Corporation has received a written request for inclusion therein within 14 days after the Offering Notice has been given. (c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration (including, without limitation, the Initial Piggyback Registration) is an underwritten primary offering on behalf of the Corporation, and the managing underwriter or underwriters advise the Corporation in writing that in its or their opinion it is probable that the inclusion of the number of securities requested to be included in the registration would adversely affect the marketability of the shares to be sold in such offering, the Corporation will include in such registration (i) first, the securities the Corporation proposes to sell, (ii) second, the Registrable Shares requested to be included in such registration which in the opinion of such underwriters can be sold without having such effect, pro rata among the Holders of such Registrable Shares on the basis of the number of Registrable Shares owned by such Holders, with further successive pro rata allocations among the Holders of Registrable Shares if any such Holder has requested the registration of less than all the Registrable Shares it is entitled to register, and (iii) third, other securities requested to be included in such registration. (d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is an underwritten secondary offering on behalf of holders of the Corporation's securities (other than the Holders of Registrable Shares), and the managing underwriter or underwriters advise the Corporation in writing that in their opinion it is probable that the inclusion of the number of securities requested to be included in such registration would adversely affect the marketability of the shares to be sold in such offering, the Corporation will include in such registration the Registrable Shares requested to be included in such registration and the securities requested to be included therein by the holders of the Corporation's securities requesting such registration (all such Registrable Shares and other securities requesting such registration being collectively referred to as the "SECONDARY SHARES") which in the opinion of such underwriters can be sold without having such effect, pro rata among the holders of such Secondary Shares on the basis of the number of Secondary Shares owned or deemed to be owned by such holders, with further successive pro rata allocations among the holders of Secondary Shares if any such holder of Secondary Shares has requested the registration of less than all such Secondary Shares it is entitled to register. -6- 7 4. HOLDBACK AGREEMENTS. (a) The Corporation agrees, if reasonably requested by the managing underwriter or underwriters, not to effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to, and during the 90-day period beginning on, the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to a registration on Form S-4 or S-8 or any successor form or pursuant to any commitment to do so, conditional or otherwise, existing on the date hereof). (b) Each Holder agrees, if reasonably requested by the managing underwriter or underwriters, not to effect any public sale or distribution (including pursuant to Rule 144) of any equity securities of the Corporation or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to, and during the 90-day period beginning on, the effective date of any underwritten Piggyback Registration (which included such Holder's shares) or any underwritten Demand Registration (regardless of whether such Demand Registration included such Holder's shares). (c) Nothing herein shall prevent a Holder of Registrable Shares that is a partnership from making a distribution of Registrable Shares to its partners, a Holder of Registrable Shares that is a trust from making a distribution of Registrable Shares to its beneficiaries or a Holder of Registrable Shares that is a corporation from making a distribution of Registrable Shares to its shareholders. The Holders agree that any such distribution will be made in accordance with applicable law (including, without limitation, applicable federal and state securities laws) and that any distributees of Registrable Shares will take such shares subject to the terms of this Agreement. 5. REGISTRATION PROCEDURES. Whenever the Holders of Registrable Shares have requested that any Registrable Shares be registered pursuant to the terms of this Agreement, the Corporation will use its best efforts to effect the registration and the sale of such Registrable Shares in accordance with the terms hereof and the intended method of disposition thereof, and pursuant thereto the Corporation will as expeditiously as is practicable in connection with such an offering: (a) prepare and file with the Commission, on any registration form for which the Corporation then qualifies and which the Corporation deems appropriate, a registration statement with respect to such Registrable Shares and use its best efforts to cause such registration statement to become effective as soon as practicable after such filing; -7- 8 (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until such time as the Registrable Shares registered thereunder have been disposed of in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; provided, however, except as required by the Securities Act and the rules and regulations promulgated thereunder, the Corporation shall not be obligated to keep any registration statement effective for a period in excess of 45 days; (c) furnish to each seller of such Registrable Shares and the underwriters of the securities being registered such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller or underwriters may reasonably request in order to facilitate the disposition of the Registrable Shares owned by such seller or the sale of such securities by such underwriters; (d) register or qualify such Registrable Shares under such other securities laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or desirable to enable such seller to consummate the public sale or other disposition in such jurisdictions of the Registrable Shares owned by such seller; provided, however, that the Corporation shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified, (ii) subject itself to taxation in any such jurisdiction, (iii) consent to general service of process in any such jurisdiction, or (iv) provide any undertaking required by such other securities or "blue sky" laws or make any change in its charter or by-laws that the board of directors of the Corporation determines in good faith to be contrary to the best interest of the corporation and its stockholders; (e) cause all such Registrable Shares to be listed on each securities exchange on which similar securities issued by the Corporation are then listed, provided that all applicable listing requirements are satisfied; (f) provide a transfer agent and registrar for all such Registrable Shares not later than the effective date of such registration statement; (g) enter into such customary agreements (including underwriting agreements) and take all such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Shares in accordance with the Holders' intended methods of disposition; -8- 9 (h) make available for inspection by any seller of such Registrable Shares, any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant or other agent designated by any such seller or underwriter (collectively, the "INSPECTORS"), all financial and other records, pertinent corporate documents and properties of the Corporation (collectively, the "RECORDS") as shall be reasonably necessary to exercise their due diligence responsibilities, and cause the Corporation's officers, directors, employees and independent accountants to supply all information reasonably requested by any such Inspector in connection with such registration statement. Records that the Corporation determines, in good faith, to be confidential and that it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless the contents of such Records become publicly available or the release of such Records is ordered pursuant to a subpoena or other order from a court or governmental agency of competent jurisdiction or required pursuant to applicable state or federal law. Each seller of Registrable Shares agrees that it will, upon learning that disclosure of such Records are sought by a court or governmental agency, give notice to the Corporation and allow the Corporation, at the Corporation's expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential; (i) notify each seller of such Registrable Shares, promptly after it shall receive notice thereof, of the time when such registration statement has become effective or a supplement to any prospectus forming a part of such registration statement has been filed; (j) notify each seller of such Registrable Shares of any request by the Commission for the amending or supplementing of such registration statement or prospectus or for additional information; (k) prepare and promptly file with the Commission and promptly notify each seller of such Registrable Shares of the filing of such amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to such securities is required to be delivered under the Securities Act, any event shall have occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading; (l) advise each seller of such Registrable Shares, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use all reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; -9- 10 (m) prior to the filing of any registration statement or prospectus or any amendment or supplement to such registration statement or prospectus, furnish a copy thereof to each seller of such Registrable Shares and refrain from filing any such registration statement, prospectus, amendment or supplement to which counsel selected by the Holders of a majority of the Registrable Shares being registered shall have reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or the rules and regulations thereunder, unless, in the case of an amendment or supplement, in the opinion of counsel for the Corporation the filing of such amendment or supplement is reasonably necessary to protect the Corporation from any liabilities under any applicable federal or state law and such filing will not violate applicable laws; and (n) at the request of the managing underwriter or underwriters in connection with an underwritten offering, furnish on the date or dates provided for in the underwriting agreement: (i) an opinion of counsel, addressed to the underwriters, covering such customary matters as such underwriters may reasonably request; and (ii) a letter or letters from the independent certified public accountants of the Corporation addressed to the underwriters, covering such customary matters as such underwriters may reasonably request. Each Holder of Registrable Shares agrees that, upon receipt of any notice from the Corporation of the happening of any event of the kind described in paragraph (k) of this SECTION 5, such Holder shall forthwith discontinue disposition of Registrable Shares pursuant to the registration statement covering such Registrable Shares until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by paragraph (k) of this SECTION 5 and, if so directed by the Corporation, such Holder shall deliver to the Corporation (at the Corporation's expense) all copies of the prospectus covering such Registrable Shares current at the time of receipt of such notice. -10- 11 6. REGISTRATION EXPENSES. Subject to SECTION 2(C), all expenses incident to the Corporation's performance of or compliance with this Agreement, including, but not limited to, all registration and filing fees, fees and expenses of compliance with federal, state and foreign securities laws, printing expenses, messenger and delivery expenses, and fees and disbursements of counsel for the Corporation and its independent certified public accountants, underwriters (excluding discounts and commissions attributable to the Registrable Shares included in such registration which shall be borne by the holder of such Registrable Shares) and other Persons retained by the Corporation (all such expenses being herein called "REGISTRATION EXPENSES"), will be borne by the Corporation. In addition, the Corporation will pay its internal expenses (including, but not limited to, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review and the expense of any liability insurance obtained by the Corporation and the expenses and fees for listing the securities to be registered on each securities exchange. Registration Expenses shall not include expenses incurred by the Holders in connection with a Piggyback Registration (such expenses of the Holders shall include, but not be limited to, underwriting discounts and commissions relating to the Registrable Shares, brokerage fees, transfer taxes, and the fees and expenses of any counsel, accountants or other representatives retained by the Holders) which expenses shall be borne by the Holders. 7. INDEMNIFICATION. (a) The Corporation agrees to indemnify, to the fullest extent permitted by law, each seller of Registrable Shares, its partners, officers, directors trustees and beneficiaries and each Person who controls such seller (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses (including, but not limited to, reasonable attorneys' fees except as limited by SECTION 7(C)) caused by any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein, in the case of a prospectus, in light of the circumstances in which they were made, not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Corporation by such seller expressly for use therein or by such seller's failure to deliver a copy of the prospectus or any amendments or supplements thereto after the Corporation has furnished such seller with a sufficient number of copies of the same or by the seller's delivery of a prospectus after the Corporation notified such seller to discontinue delivery of prospectuses. In connection with an underwritten offering, the Corporation, if requested, will indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the sellers of Registrable Shares. -11- 12 (b) In connection with any registration statement in which a seller of Registrable Shares is participating, each such seller will furnish to the Corporation in writing such information and affidavits as the Corporation reasonably requests for use in connection with any such registration statement or prospectus and, to the fullest extent permitted by law, will indemnify the Corporation, its directors and officers and each Person who controls the Corporation (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses (including, but not limited to, reasonable attorneys' fees except as limited by SECTION 7(C)) resulting from any untrue statement of a material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission of a material fact required to be stated therein or necessary to make the statements therein, in the case of a prospectus, in light of the circumstances in which they were made, not misleading, but only to the extent that such untrue statement or omission is contained in or improperly omitted from, as the case may be, any information or affidavit so furnished in writing by such seller; provided that the obligation to indemnify will be several, not joint and several, among such sellers of Registrable Shares, and the liability of each such seller of Registrable Shares will be in proportion to, and provided further that such liability will be limited to, in any event, the net amount received by such seller from the sale of Registrable Shares pursuant to such registration statement. In connection with an underwritten offering, each seller of Registrable Shares will, if requested, agree to indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided in this SECTION 7(B) with respect to the Corporation. (c) Any Person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. (d) The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and will survive the transfer of securities. Each indemnifying party also agrees to make such provisions as are reasonably requested by any indemnified party for contribution to such party in the event such indemnifying party's indemnification is unavailable for any reason. -12- 13 8. COMPLIANCE WITH RULE 144. The Corporation covenants that it shall file the reports required to be filed by it under the Securities Exchange Act, and the rules and regulations thereunder so long as the Corporation is obligated to file such reports, and it shall take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Shares without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time or (b) any similar rules or regulations hereafter adopted by the Commission. Upon the written request of any Holder, the Corporation shall deliver to such Holder a written statement as to whether it has complied with such requirements. 9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may participate in any registration hereunder which is underwritten unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. The Holders of a majority of the Registrable Shares requested to be registered will have the right to select the managing underwriters to administer any offering relating to a Demand Registration, subject to the prior approval of the Corporation, which approval shall not be unreasonably withheld. 10. REDUCTIONS OF REGISTRABLE SHARES IN AN OFFERING. In the event the aggregate number of Registrable Shares to be included in a Demand Registration, Piggyback Registration or related over-allotment option is reduced by operation of the terms hereof to a number less than the number requested by the Holders to be included in such registration or related over-allotment option, such aggregate reduction may be allocated among, and borne by, the Holders in any manner agreed upon by the Holders notwithstanding any provision herein regarding the manner in which such reduction shall be allocated among, and borne by, the Holders. 11. TRANSFER RESTRICTIONS. (a) Except as otherwise specified in SECTION 11(D) hereof, the certificates evidencing Preferred Shares or shares of Common Stock for which Preferred Shares have been exchanged or into which Preferred Shares have been converted, shall bear a legend (the "PRIVATE PLACEMENT LEGEND") to the following effect: -13- 14 This Security (or its predecessor) was originally issued in a transaction exempt from registration under Section 5 of the Securities Act of 1933, as amended (the "SECURITIES ACT"), and this security and any securities issued in exchange therefor may not be offered, sold or otherwise transferred in the absence of such registration or an applicable exemption therefrom. By accepting this security, the holder agrees for the benefit of Federal-Mogul Corporation that, until the expiration of the holding period applicable to offers and sales of the securities evidenced hereby under Rule 144(k) under the Securities Act (or any successor provision), (A) it will not resell or otherwise transfer the security represented hereby except pursuant to (i) a registration statement that has been declared effective under the Securities Act (and that continues to be effective at the time of such transfer) or (ii) an applicable exemption from registration under the Securities Act and (B) it will deliver to each person whom the security evidenced hereby is transferred (other than a transfer pursuant to clause (A)(i) above) a notice substantially to the effect of this legend. (b) By its acceptance of any Preferred Shares represented by a certificate bearing the Private Placement Legend, or the shares of Common Stock for which such Preferred Shares have been exchanged or into which such Preferred Shares have been converted, the holder of such securities shall be deemed to have acknowledged the restrictions set forth in the Private Placement Legend and shall be deemed to have agreed that it will transfer such Preferred Shares, and any such shares of Common Stock for which such Preferred Shares have been exchanged or into which such Preferred Shares have been converted, only in accordance with the Private Placement Legend. (c) In connection with any transfer of any Preferred Shares represented by a certificate bearing the Private Placement Legend, or the shares of Common Stock for which such Preferred Shares have been exchanged or into which such Preferred Shares have been converted, each holder thereof agrees to deliver to the Corporation such satisfactory evidence, which may include an opinion of independent counsel, as reasonably may be requested by the Corporation to confirm that such transfer is being made in accordance with the limitations set forth in the Private Placement Legend or that the limitations set forth in the Private Placement Legend no longer are applicable. In the event the Corporation determines that any such transfer is not in accordance with the Private Placement Legend or the restrictions set forth herein, the Corporation shall not effect such transfer or shall so inform the transfer agent, if any, who shall not effect such transfer. -14- 15 (d) The Private Placement Legend may be removed from a certificate representing Preferred Shares or the certificate representing shares of Common Stock for which such Preferred Shares have been exchanged or into which such Preferred Shares have been converted, if (i) such shares are transferred pursuant to an effective registration statement under the Securities Act, or (ii) there is delivered to the Corporation such satisfactory evidence, which may include an opinion of independent counsel, as reasonably may be requested by the Corporation to confirm that neither such legend nor the restrictions on transfer set forth therein are required to ensure that transfers of such shares will not violate the registration and prospectus delivery requirements of the Securities Act. 12. REMEDIES. Any Person having rights under any provision of this Agreement will be entitled to enforce such rights specifically, to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. 13. AMENDMENTS AND WAIVERS. The provisions of this Agreement may be amended or waived at any time only by the written agreement of the Corporation and the Holders of a majority of the Registrable Shares. Any waiver, permit, consent or approval of any kind or character on the part of any such holders of any provision or condition of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in writing. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Holder of Registrable Shares and the Corporation. Each Holder acknowledges that by operation of this paragraph the Holders of a majority of the Registrable Shares, acting in conjunction with the Corporation, will have the right and power to diminish or eliminate all rights pursuant to this Agreement. 14. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed or not. In addition and whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of purchasers or holders of Registrable Shares are also for the benefit of, and enforceable by, any subsequent holder of Registrable Shares. 15. FINAL AGREEMENT. This Agreement constitutes the final agreement of the parties concerning the matters referred to herein, and supersedes all prior agreements and understandings. 16. SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. -15- 16 17. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are inserted for convenience of reference only and do not constitute a part of and shall not be utilized in interpreting this Agreement. 18. NOTICES. Any notices required or permitted to be sent hereunder shall be delivered personally, telecopied (and confirmed) or mailed, certified mail, return receipt requested, or delivered by overnight courier service to the following addresses, or such other addresses as shall be given by notice delivered hereunder, and shall be deemed to have been given upon delivery, if delivered personally or telecopied, three business days after mailing, if mailed, or one business day after delivery to the courier, if delivered by overnight courier service: If to the initial Holders of the Registrable Shares, to the addresses set forth on Schedule 1 hereto. If to the Holders of Registrable Shares other than the initial Holders of the Registrable Shares, to the addresses set forth on the stock record books of the Corporation. If to the Corporation, to: Federal-Mogul Corporation 26555 Northwestern Highway Southfield, Michigan 48034 Facsimile: (248) 354-7999 Attention: Charles B. Grant Vice President - Corporate Development Diane L. Kaye, Esq. Vice President, General Counsel and Secretary 19. GOVERNING LAW. The validity, meaning and effect of this Agreement shall be determined in accordance with the laws of the State of Illinois applicable to contracts made and to be performed in that state. 20. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute one instrument. Each party shall receive a duplicate original of the counterpart copy or copies executed by it and the Corporation. [Remainder of page intentionally left blank. Signature pages follow.] -16- 17 This Registration Agreement was executed as of the date first set forth above. FEDERAL-MOGUL CORPORATION By:_________________________________________ Its:_____________________________________ INVESTORS: THE INVESTORS AS LISTED ON SCHEDULE 1 HERETO By:__________________________________________ Richard A. Morris, under power-of-attorney By:__________________________________________ Kenneth A. Lehman, under power-of-attorney By:__________________________________________ David A. Weinberg, under power-of-attorney -17- 18 SCHEDULE 1 INVESTORS - -------------------------------------------------------------------------------- MORRIS FAMILY - -------------------------------------------------------------------------------- BRUCE MORRIS 1993 DESCENDANTS TRUST U/A/D 4/1/93 - -------------------------------------------------------------------------------- Bruce E. Morris, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 890 N W Torreyview Lane Portland, OR 97229 - -------------------------------------------------------------------------------- Richard A. Morris, as Business Advisor - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- Ellen J. Morris, as Business Advisor - -------------------------------------------------------------------------------- 4711 Golf Road Suite 800 Skokie, IL 60076 - -------------------------------------------------------------------------------- BRUCE MORRIS 1997 CHILDREN'S TRUST U/A/D 11/3/97 - -------------------------------------------------------------------------------- Richard A. Morris, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- BRUCE E. MORRIS FAMILY GIFT TRUST U/A/D 9/27/85 - -------------------------------------------------------------------------------- Bruce E. Morris, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 890 N W Torreyview Lane Portland, OR 97229 - -------------------------------------------------------------------------------- Linda Morris, as Trustee - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- CLARA MORRIS TRUST U/A/D 12/20/55 - -------------------------------------------------------------------------------- Robert J. Morris, as Trustee MORRIS FAMILY - -------------------------------------------------------------------------------- 335 Sheridan Road Winnetka, IL 60093 S-1 19 - -------------------------------------------------------------------------------- Howard Gilbert, as Trustee - -------------------------------------------------------------------------------- 55 East Monroe Suite 4100 Chicago, IL 60603 - -------------------------------------------------------------------------------- ELLEN J. MORRIS 1993 DESCENDANTS TRUST U/A/D 4/1/93 - -------------------------------------------------------------------------------- Ellen J. Morris, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 4711 Golf Road Suite 800 Skokie, IL 60076 - -------------------------------------------------------------------------------- Bruce E. Morris, as Business Advisor - -------------------------------------------------------------------------------- 890 N W Torreyview Lane Portland, OR 97229 - -------------------------------------------------------------------------------- Richard A. Morris, as Business Advisor - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- ELLEN J. MORRIS 1997 CHILDREN'S TRUST U/A/D 11/3/97 - -------------------------------------------------------------------------------- Richard A. Morris, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- ELLEN J. MORRIS FAMILY GIFT TRUST U/A/D 9/27/85 - -------------------------------------------------------------------------------- Ellen J. Morris, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 4711 Golf Road Suite 800 Skokie, IL 60076 - -------------------------------------------------------------------------------- Linda Morris, as Trustee - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 S-3 20 - -------------------------------------------------------------------------------- MORRIS MGP TRUST FOR BRUCE U/A/D 6/23/96 - -------------------------------------------------------------------------------- Richard A. Morris, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- Linda Morris, as Trustee - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- MORRIS 1992 GIFT TRUST FOR ELLEN U/A/D 12/10/92 - -------------------------------------------------------------------------------- Ellen J. Morris, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 4711 Golf Road Suite 800 Skokie, IL 60076 - -------------------------------------------------------------------------------- Audrey Morris, as Trustee - -------------------------------------------------------------------------------- 335 Sheridan Road Winnetka, IL 60093 - -------------------------------------------------------------------------------- MORRIS 1992 GIFT TRUST FOR RICHARD U/A/D 12/10/92 - -------------------------------------------------------------------------------- Richard A. Morris, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- Audrey Morris, as Trustee - -------------------------------------------------------------------------------- 335 Sheridan Road Winnetka, IL 60093 - -------------------------------------------------------------------------------- MORRIS MERIDIAN TRUST FOR BRUCE U/A/D 6/23/96 - -------------------------------------------------------------------------------- Richard A. Morris, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- Linda Morris, as Trustee - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 S-4 21 - -------------------------------------------------------------------------------- MORRIS 1992 GIFT TRUST FOR BRUCE U/A/D 12/10/92 - -------------------------------------------------------------------------------- Bruce E. Morris, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 890 N W Torreyview Lane Portland, OR 97229 - -------------------------------------------------------------------------------- Audrey Morris, as Trustee - -------------------------------------------------------------------------------- 335 Sheridan Road Winnetka, IL 60093 - -------------------------------------------------------------------------------- MORRIS MGP TRUST FOR ELLEN U/A/D 3/1/96 - -------------------------------------------------------------------------------- Ellen J. Morris, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 4711 Golf Road Suite 800 Skokie, IL 60076 - -------------------------------------------------------------------------------- Linda Morris, as Trustee - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- MORRIS MERIDIAN TRUST FOR RICHARD U/A/D 3/1/96 - -------------------------------------------------------------------------------- Richard A. Morris, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- Linda Morris, as Trustee - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- MORRIS MGP TRUST FOR RICHARD U/A/D 3/1/96 - -------------------------------------------------------------------------------- Richard A. Morris, as Trustee - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- Linda Morris, as Trustee - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 S-5 22 - -------------------------------------------------------------------------------- MORRIS MERIDIAN TRUST FOR ELLEN U/A/D 3/1/96 - -------------------------------------------------------------------------------- Ellen J. Morris, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 4711 Golf Road Suite 800 Skokie, IL 60076 - -------------------------------------------------------------------------------- Linda Morris, as Trustee - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- RICHARD A. MORRIS 1993 DESCENDANTS TRUST U/A/D 4/1/93 - -------------------------------------------------------------------------------- Richard A. Morris, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- Ellen J. Morris, as Business Advisor - -------------------------------------------------------------------------------- 4711 Golf Road Suite 800 Skokie, IL 60076 - -------------------------------------------------------------------------------- Bruce E. Morris, as Business Advisor - -------------------------------------------------------------------------------- 890 N W Torreyview Lane Portland, OR 97229 - -------------------------------------------------------------------------------- RICHARD A. MORRIS FAMILY GIFT TRUST U/A/D 9/27/85 - -------------------------------------------------------------------------------- Richard A. Morris, as Trustee - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- Linda Morris, as Trustee - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- Lowell Krischer, as Trustee - -------------------------------------------------------------------------------- Apex Floor Covering 1714 South Halsted Chicago, IL 60608 S-6 23 - -------------------------------------------------------------------------------- Richard A. Morris, as Business Advisor - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- RICHARD A. MORRIS 1997 CHILDREN'S TRUST U/A/D 10/31/97 - -------------------------------------------------------------------------------- Linda Morris, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- Lowell Krischer, as Trustee - -------------------------------------------------------------------------------- Apex Floor Covering 1714 South Halsted Chicago, IL 60608 - -------------------------------------------------------------------------------- ROBERT J. MORRIS 1993 DESCENDANTS TRUST U/A/D 4/1/93 - -------------------------------------------------------------------------------- Robert J. Morris, as Trustee - -------------------------------------------------------------------------------- 335 Sheridan Road Winnetka, IL 60093 - -------------------------------------------------------------------------------- Richard A. Morris, as Business Advisor - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- Ellen J. Morris, as Business Advisor - -------------------------------------------------------------------------------- 4711 Golf Road Suite 800 Skokie, IL 60076 - -------------------------------------------------------------------------------- Bruce E. Morris, as Business Advisor - -------------------------------------------------------------------------------- 890 N W Torreyview Lane Portland, OR 97229 - -------------------------------------------------------------------------------- ROBERT J. MORRIS TRUST U/A/D 7/26/65 - -------------------------------------------------------------------------------- Robert J. Morris, as Trustee - -------------------------------------------------------------------------------- 335 Sheridan Road Winnetka, IL 60093 S-7 24 - -------------------------------------------------------------------------------- Howard Gilbert, as Trustee - -------------------------------------------------------------------------------- 55 East Monroe Suite 4100 Chicago, IL 60603 - -------------------------------------------------------------------------------- ROBERT J. MORRIS REVOCABLE TRUST U/A/D 2/16/83 - -------------------------------------------------------------------------------- Robert J. Morris, as Trustee - -------------------------------------------------------------------------------- 335 Sheridan Road Winnetka, IL 60093 - -------------------------------------------------------------------------------- ELLEN J. MORRIS - -------------------------------------------------------------------------------- 4711 Golf Road Suite 800 Skokie, IL 60076 - -------------------------------------------------------------------------------- BRUCE E. MORRIS - -------------------------------------------------------------------------------- 890 N W Torreyview Lane Portland, OR 97229 - -------------------------------------------------------------------------------- RICHARD A. MORRIS - -------------------------------------------------------------------------------- 2323 Marcy Evanston, IL 60202 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LEHMAN FAMILY - -------------------------------------------------------------------------------- ELLIOT LEHMAN TRUST DATED 5/20/87 - -------------------------------------------------------------------------------- Elliot Lehman, as Trustee - -------------------------------------------------------------------------------- 1420 Sheridan Road, Apt. 9A Wilmette, IL 60091 - -------------------------------------------------------------------------------- FRANCES M. LEHMAN TRUST DATED 5/20/87 - -------------------------------------------------------------------------------- Frances M. Lehman, as Trustee - -------------------------------------------------------------------------------- 1420 Sheridan Road, Apt. 9A Wilmette, IL 60091 - -------------------------------------------------------------------------------- E. LEHMAN FIFTEEN YEAR INCOME TRUST - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road S-8 25 Evanston, IL 60201 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Kay Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- F. LEHMAN FIFTEEN YEAR INCOME TRUST - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Kay Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- KENNETH A. LEHMAN 1996 E FAMILY TRUST U/A/D 6/11/96 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- KENNETH A. LEHMAN 1996 F FAMILY TRUST U/A/D 6/11/96 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- S-9 26 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- PAUL LEHMAN 1996 E FAMILY TRUST U/A/D 6/11/96 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- PAUL LEHMAN 1996 F FAMILY TRUST U/A/D 6/11/96 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- KAY LEHMAN SCHLOZMAN 1996 E FAMILY TRUST U/A/D 6/11/96 - -------------------------------------------------------------------------------- Kay Lehman Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road S-10 27 Evanston, IL 60201 - ------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- KAY LEHMAN SCHLOZMAN 1996 F FAMILY TRUST U/A/D 6/11/96 - -------------------------------------------------------------------------------- Kay Lehman Schlozman, Individually and as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- Kenneth A. Lehman, Individually and as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- LUCY G. LEHMAN - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 S-11 28 - -------------------------------------------------------------------------------- STANLEY SCHLOZMAN - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- PAUL A. LEHMAN - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- RONNA STAMM - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- KENNETH LEHMAN CHILDREN'S TRUST U/A/D 9/30/85 F/B/O BETSY GANFORD LEHMAN - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- KENNETH LEHMAN CHILDREN'S TRUST U/A/D 9/30/85 F/B/O AMY GANFORD LEHMAN - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- KENNETH LEHMAN CHILDREN'S TRUST U/A/D 9/30/85 F/B/O PETER GANFORD LEHMAN - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- KAY SCHLOZMAN CHILDREN'S TRUST U/A/D 12/20/82 S-12 29 - -------------------------------------------------------------------------------- Kay Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- Stanley Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- SCHLOZMAN FAMILY TRUST U/A/D 9/30/85 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- Stanley Schlozman, as Business Advisor - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- SCHLOZMAN FAMILY GIFT TRUST U/A/D 9/30/85 - -------------------------------------------------------------------------------- Kay L. Schlozman, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - ------------------------------------------------------------------------------ Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- Stanley Schlozman, as Business Advisor - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 S-13 30 - -------------------------------------------------------------------------------- PAUL LEHMAN CHILDREN'S TRUST U/T/A DTD 12/20/82 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Ronna Stamm, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Kay Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- PAUL LEHMAN IRREVOCABLE CHILDREN'S TRUST U/A/D 9/30/85 - -------------------------------------------------------------------------------- Ronna Stamm, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Business Advisor - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- PAUL LEHMAN CHILDREN'S TRUST U/A/D 9/30/85 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 S-14 31 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- BETSY GANFORD LEHMAN IRREVOCABLE TRUST NO. 1 U/A/D 12/22/83 - -------------------------------------------------------------------------------- Lucy G. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Stanley F. Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- BETSY GANFORD LEHMAN IRREVOCABLE TRUST NO. 2 U/A/D 9/30/85 - -------------------------------------------------------------------------------- Lucy G. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee and Business Advisor - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- KENNETH LEHMAN CHILDREN'S TRUST U/A/D 12/20/82 F/B/O BETSY GANFORD LEHMAN - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Lucy Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Kay Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- AMY GANFORD LEHMAN IRREVOCABLE TRUST NO. 1 DATED 12/22/83 S-15 32 - -------------------------------------------------------------------------------- Lucy G. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Stanley F. Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- AMY GANFORD LEHMAN IRREVOCABLE TRUST NO. 2 U/A/D 9/30/85 - -------------------------------------------------------------------------------- Lucy G. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee and Business Advisor - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- KENNETH LEHMAN CHILDREN'S TRUST U/A/D 12/20/82 F/B/O AMY GANFORD LEHMAN - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Lucy Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Kay Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- PETER GANFORD LEHMAN IRREVOCABLE TRUST NO. 1 DATED 12/22/83 - -------------------------------------------------------------------------------- Lucy G. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Stanley F. Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street S-16 33 - -------------------------------------------------------------------------------- Brookline, MA 02146 - -------------------------------------------------------------------------------- PETER GANFORD LEHMAN IRREVOCABLE TRUST NO. 2 U/A/D 9/30/85 - -------------------------------------------------------------------------------- Lucy G. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee and Business Advisor - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- KENNETH LEHMAN CHILDREN'S TRUST U/A/D 12/20/82 F/B/O PETER GANFORD LEHMAN - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Lucy Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Kay Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- SCHLOZMAN 1994 GIFT TRUST FOR JULIA U/A/D 1/3/94 - -------------------------------------------------------------------------------- Stanley F. Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- Paul A. Lehman, as Business Advisor - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 S-17 34 - -------------------------------------------------------------------------------- JONATHAN LEHMAN IRREVOCABLE TRUST NO. 1 DATED 12/22/83 - -------------------------------------------------------------------------------- Ronna Stamm, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Stanley F. Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- MICHAEL LEHMAN IRREVOCABLE TRUST NO. 1 DATED 12/22/83 - -------------------------------------------------------------------------------- Ronna Stamm, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Stanley F. Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- ELIZABETH LEHMAN IRREVOCABLE TRUST NO. 2 U/A/D 5/12/97 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- Stanley F. Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- KAY LEHMAN SCHLOZMAN 1992E FAMILY TRUST U/A/D 12/11/92 - -------------------------------------------------------------------------------- Kay Lehman Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 S-18 35 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- KAY LEHMAN SCHLOZMAN 1992F FAMILY TRUST U/A/D 12/11/92 - -------------------------------------------------------------------------------- Kay Lehman Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- KENNETH A. LEHMAN 1992E FAMILY TRUST U/A/D 12/11/92 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- KENNETH A. LEHMAN 1992F FAMILY TRUST U/A/D 12/11/92 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee S-19 36 - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- KENNETH A. LEHMAN 1993 DESCENDANTS TRUST U/A/D 4/1/93 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Paul A. Lehman, as Business Advisor - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Kay Lehman Schlozman, as Business Advisor - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- LEHMAN 1993E DESCENDANTS TRUST U/A/D 4/1/93 - -------------------------------------------------------------------------------- Elliot Lehman, as Trustee - -------------------------------------------------------------------------------- 1420 Sheridan Road, Apt. 9A Wilmette, IL 60091 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Business Advisor - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Paul A. Lehman, as Business Advisor - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Kay Lehman Schlozman, as Business Advisor - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 S-20 37 - -------------------------------------------------------------------------------- LEHMAN 1993F DESCENDANTS TRUST U/A/D 4/1/93 - -------------------------------------------------------------------------------- Frances M. Lehman, as Trustee - -------------------------------------------------------------------------------- 1420 Sheridan Road, Apt. 9A Wilmette, IL 60091 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Business Advisor - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Paul A. Lehman, as Business Advisor - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Kay Lehman Schlozman, as Business Advisor - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- PAUL A. LEHMAN 1993 DESCENDANTS TRUST U/A/D 4/1/93 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Business Advisor - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Kay Lehman Schlozman, as Business Advisor - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- PAUL LEHMAN 1992E FAMILY TRUST U/A/D 12/11/92 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 S-21 38 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- PAUL LEHMAN 1992F FAMILY TRUST U/A/D 12/11/92 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- SCHLOZMAN 1993 DESCENDANTS TRUST U/A/D 4/1/93 - -------------------------------------------------------------------------------- Kay L. Schlozman, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Business Advisor - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Paul A. Lehman, as Business Advisor - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- DANIEL A. SCHLOZMAN TRUST NO. 1 U/A/D 12/31/81 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 S-22 39 - -------------------------------------------------------------------------------- DANIEL A. SCHLOZMAN TRUST NO. 2 U/A/D 12/31/81 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- KAY LEHMAN SCHLOZMAN 1997 CHILDREN'S TRUST U/A/D 11/3/97 - -------------------------------------------------------------------------------- Stanley F. Schlozman, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- Paul A. Lehman, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- PAUL A. LEHMAN IRREVOCABLE FAMILY TRUST A U/A/D 11/3/97 - -------------------------------------------------------------------------------- Ronna Stamm, as Trustee - -------------------------------------------------------------------------------- 1126 Michigan Evanston, IL 60202 - -------------------------------------------------------------------------------- Arthur W. Friedman, as Trustee - -------------------------------------------------------------------------------- Miller Shakman Hamilton 208 S. LaSalle Street Chicago, IL 60604 - -------------------------------------------------------------------------------- Kenneth A. Lehman, as Trustee - -------------------------------------------------------------------------------- 2715 Sheridan Road Evanston, IL 60201 - -------------------------------------------------------------------------------- Kay L. Schlozman, as Trustee - -------------------------------------------------------------------------------- 45 Warren Street Brookline, MA 02146 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- WEINBERG/RADOV/KESSLER FAMILY - -------------------------------------------------------------------------------- SYLVIA M. RADOV - -------------------------------------------------------------------------------- 5757 Gulf of Mexico Drive S-23 40 - -------------------------------------------------------------------------------- Apt. 305 Longboat Key, FL 34228 - -------------------------------------------------------------------------------- SYLVIA M. RADOV REVOCABLE TRUST U/A/D 10/23/85 - -------------------------------------------------------------------------------- Sylvia M. Radov, as Trustee - -------------------------------------------------------------------------------- 5757 Gulf of Mexico Drive Apt. 305 Longboat Key, FL 34228 - -------------------------------------------------------------------------------- LEWIS C. WEINBERG IRREVOCABLE TRUST DATED 8/12/76 - -------------------------------------------------------------------------------- Sylvia M. Radov, as Trustee - -------------------------------------------------------------------------------- 5757 Gulf of Mexico Drive Apt. 305 Longboat Key, FL 34228 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Trustee - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Trustee - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- Lewis C. Weinberg, as Trustee - -------------------------------------------------------------------------------- 505 N. Lake Shore Drive #3707 Chicago, IL 60611 - -------------------------------------------------------------------------------- SYLVIA 1996 GIFT TRUST FOR BARBARA U/A/D 4/4/96 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 S-24 41 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- SYLVIA 1996 GIFT TRUST FOR DAVID U/A/D 4/4/96 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- SYLVIA 1996 GIFT TRUST FOR DANIEL U/A/D 4/4/96 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- BARBARA W. KESSLER REVOCABLE TRUST U/A/D 7/26/82 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Trustee - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 S-25 42 - -------------------------------------------------------------------------------- DENNIS L. KESSLER REVOCABLE TRUST U/A/D 7/26/82 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- KESSLER FAMILY TRUST U/A/D 9/30/85 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- DAVID A. WEINBERG ESTATE TRUST U/A/D 6/5/84 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- DAW FAMILY TRUST U/A/D 9/30/85 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- LCW-DCW FAMILY GIFT TRUST U/A/D 9/30/85 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee and as Co-Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 S-26 43 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee and as Co-Business Advisor - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- SMR-DCW FAMILY GIFT TRUST U/A/D 9/30/85 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee and Business Advisor - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- DCW FAMILY TRUST U/A/D 9/30/85 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 S-27 44 - -------------------------------------------------------------------------------- LEWIS C. WEINBERG GRANDCHILDRENS GIFT TRUST FOR KEITH ALBERT U/A/D 12/1/82 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- KEITH A. KESSLER - -------------------------------------------------------------------------------- 7391 S W 165th St. Miami, FL 33157 - -------------------------------------------------------------------------------- LEWIS C. WEINBERG GRANDCHILDRENS GIFT TRUST FOR ARTHUR JAY U/A/D 12/1/82 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- LEWIS C. WEINBERG GRANDCHILDRENS GIFT TRUST FOR ERIC JOSEPH U/A/D 12/1/82 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- ERIC JOSEPH KESSLER IRREVOCABLE TRUST U/A/D 12/27/77 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Trustee - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 S-28 45 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- LEWIS C. WEINBERG GRANDCHILDRENS GIFT TRUST FOR MINDY JOY U/A/D 12/1/82 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- MINDY JOY WEINBERG IRREVOCABLE TRUST U/A/D 12/27/77 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Trustee - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- SMR-DAW CHILDREN'S GIFT TRUST FOR MINDY JOY U/A/D 12/13/82 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- LEWIS C. WEINBERG GRANDCHILDRENS GIFT TRUST FOR BRIAN LEE U/A/D 12/1/82 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 S-29 46 - -------------------------------------------------------------------------------- BRIAN L. WEINBERG - -------------------------------------------------------------------------------- 1100 Meredith Ln. Apt. 1012 Plano, TX 75093 - -------------------------------------------------------------------------------- SMR-DAW CHILDREN'S GIFT TRUST FOR BRIAN U/A/D 12/13/82 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- LEWIS C. WEINBERG GRANDCHILDRENS GIFT TRUST FOR ZACHARY DANIEL U/A/D 12/1/82 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- Carol Jung (formerly known as Carol J. Weinberg), as Trustee - -------------------------------------------------------------------------------- 2010 Copperton Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- ZACHARY DANIEL WEINBERG IRREVOCABLE TRUST U/A/D 12/31/81 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Trustee - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 S-30 47 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- Carol Jung (formerly known as Carol J. Weinberg), as Trustee - -------------------------------------------------------------------------------- 2010 Copperton Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- ABIGAIL WEINBERG GIFT TRUST U/A/D 2/20/90 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee and Business Advisor - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- ABIGAIL WEINBERG ANNUAL GIFT TRUST U/A/D 12/3/91 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee S-31 48 - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- CAROL JUNG - -------------------------------------------------------------------------------- 2010 Copperton Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- ARTHUR J. KESSLER - -------------------------------------------------------------------------------- 1039 W. Altgeld Chicago, IL 60614 - -------------------------------------------------------------------------------- DANIEL C. WEINBERG 1993 DESCENDANTS TRUST U/A/D 4/1/93 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- David A. Weinberg, as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- DANIEL C. WEINBERG REVOCABLE TRUST U/A/D 7/29/97 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Trustee - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- DAVID A. WEINBERG 1993 DESCENDANTS TRUST U/A/D 4/1/93 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Business Advisor - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 S-32 49 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- KESSLER 1993 DESCENDANTS TRUST U/A/D 4/1/93 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- David A. Weinberg, as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Business Advisor - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- KESSLER 1996 GIFT TRUST FOR DANIEL U/A/D 12/16/96 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee and Business Advisor - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- Brian Weinberg, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 1100 Meredith Ln. Apt. 1012 Plano, TX 75093 - -------------------------------------------------------------------------------- Eric Kessler, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 512 Elm Avenue Tacoma Park, MD 20912 - -------------------------------------------------------------------------------- KESSLER 1996 GIFT TRUST FOR DAVID U/A/D 12/16/96 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee S-33 50 - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- LEWIS 1992 GIFT TRUST FOR BARBARA U/A/D 12/10/92 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- LEWIS 1992 GIFT TRUST FOR DANIEL U/A/D 12/10/92 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee and Business Advisor - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- LEWIS 1992 GIFT TRUST FOR DAVID U/A/D 12/10/92 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 S-34 51 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- LEWIS 1993 DESCENDANTS TRUST U/A/D 4/1/93 - -------------------------------------------------------------------------------- Lewis C. Weinberg, as Trustee - -------------------------------------------------------------------------------- 505 N. Lake Shore Drive #3707 Chicago, IL 60611 - -------------------------------------------------------------------------------- David A. Weinberg, as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Business Advisor - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- SYLVIA 1992 GIFT TRUST FOR BARBARA U/A/D 12/10/92 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- SYLVIA 1992 GIFT TRUST FOR DANIEL U/A/D 12/10/92 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 S-35 52 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee and Business Advisor - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- SYLVIA 1992 GIFT TRUST FOR DAVID U/A/D 12/10/92 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- SYLVIA 1993 DESCENDANTS TRUST U/A/D 4/1/93 - -------------------------------------------------------------------------------- Sylvia M. Radov, as Trustee - -------------------------------------------------------------------------------- 5757 Gulf of Mexico Drive Apt. 305 Longboat Key, FL 34228 - -------------------------------------------------------------------------------- David A. Weinberg, as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Business Advisor - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 S-36 53 - -------------------------------------------------------------------------------- SYLVIA MGP TRUST FOR BARBARA U/A/D 6/1/96 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- SYLVIA MGP TRUST FOR DANIEL U/A/D 6/1/96 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee and Business Advisor - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- SYLVIA MGP TRUST FOR DAVID U/A/D 6/1/96 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 S-37 54 - -------------------------------------------------------------------------------- WEINBERG 1992 GIFT TRUST FOR BARBARA U/A/D 12/10/92 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- WEINBERG 1992 GIFT TRUST FOR DANIEL U/A/D 12/10/92 - -------------------------------------------------------------------------------- Daniel C. Weinberg, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 2581 Mace Rd. Camino, CA 95709 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee and Business Advisor - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 - -------------------------------------------------------------------------------- Dennis L. Kessler, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- WEINBERG 1992 GIFT TRUST FOR DAVID U/A/D 12/10/92 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Allan B. Muchin, as Trustee - -------------------------------------------------------------------------------- Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, IL 60661-13693 S-38 55 - -------------------------------------------------------------------------------- DENNIS L. KESSLER 1997 CHILDREN'S TRUST U/A/D 11/3/97 - -------------------------------------------------------------------------------- David A. Weinberg, as Trustee - -------------------------------------------------------------------------------- 2135 N. Cleveland Chicago, IL 60614 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- KEITH A. KESSLER 1997 CHILDREN'S TRUST U/A/D 11/3/97 - -------------------------------------------------------------------------------- Barbara W. Kessler, as Trustee and as Business Advisor - -------------------------------------------------------------------------------- 170 Lakeside Place Highland Park, IL 60035 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- S-39 EX-4.11 10 EX-4.11 1 EXHIBIT 4.11 CERTIFICATE OF DESIGNATIONS OF SERIES E MANDATORY EXCHANGEABLE PREFERRED STOCK OF FEDERAL-MOGUL CORPORATION PURSUANT TO SECTION 21.200(302) OF THE MICHIGAN BUSINESS CORPORATION ACT FEDERAL-MOGUL CORPORATION (the "Corporation"), a corporation organized and existing under the Michigan Business Corporation Act, hereby certifies, pursuant to Section 21.200(302) of the Michigan Business Corporation Act, that on February 4, 1998 the following resolution was adopted by the Board of Directors of the Corporation: RESOLVED, that, pursuant to the authority granted to and vested in the Board of Directors of the Corporation (hereinafter referred to as the "Board of Directors" or the "Board") by the provisions of the Second Restated Articles of Incorporation, as amended, of the Corporation and the Michigan Business Corporation Act, the Board of Directors hereby creates a series of Preferred Stock of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof, as follows: Section 1. Designation; Number of Shares; Special Purpose. (a) The shares of this series of Preferred Stock shall be designated as Series E Mandatory Exchangeable Preferred Stock (the "Exchangeable Preferred Stock"), and the number of shares constituting such series shall be 1,050,000. (b) Shares of Exchangeable Preferred Stock shall be issued by the Corporation only as consideration in connection with the Corporation's acquisition of certain equity interests pursuant to the Equity Purchase Agreement (the "Agreement"), dated as of January 9, 1998, by and among the Corporation and the Sellers named therein, and such shares of Exchangeable Preferred Stock shall be issued to the Sellers upon the consummation of the transactions contemplated by the Agreement. Section 2. Dividends and Distributions. (a) The holders of outstanding shares of Exchangeable Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds at the time legally available therefor, a cash dividend (a "Cash Dividend") in an amount equal to $2.40 per share per annum, which shall be fully cumulative, and shall be payable quarterly in arrears, in an amount of $0.60 per quarter, on the last day of each of March, June, September and December (each such date, a "Cash Dividend Payment Date"), commencing on March 31, 1998, to holders 1 2 of record of Exchangeable Preferred Stock at the start of business on the tenth Business Day (as defined in Section 8(f) hereof) prior to such Cash Dividend Payment Date; provided, however, that in the event that the outstanding shares of Exchangeable Preferred Stock are not exchanged for common stock of the Corporation ("Common Stock") by the Corporation pursuant to Section 6(a) hereof on or prior to February 24, 1999, the amount of the Cash Dividend thereafter shall equal the Increased Dividend Amount for the relevant period, and shall be payable quarterly in arrears. The amount of the Cash Dividend payable in respect of any period in which the applicable per annum dividend amount is increased pursuant to the preceding sentence shall be computed based on the actual number of days in such period during which each per annum dividend amount is in effect. The amount of the Cash Dividend payable in respect of the initial Cash Dividend Payment Date and in respect of any other period shorter than a full quarterly period shall be computed on the basis of the actual number of days in such period and the actual number of days in the year. In the event that any Cash Dividend Payment Date shall fall on any day other than a Business Day, the dividend payment due on such Cash Dividend Payment Date shall be paid on the Business Day immediately preceding such Cash Dividend Payment Date. Cash Dividends shall begin to accrue on outstanding shares of Exchangeable Preferred Stock from the initial issuance thereof and shall accrue on a daily basis whether or not the Corporation shall have earnings or surplus at the time. Unpaid Cash Dividends shall cumulate as of the Cash Dividend Payment Date on which they first become payable. No interest shall be payable in respect of any Cash Dividend that may be in arrears. With respect to any share of Exchangeable Preferred Stock, all accrued and unpaid Cash Dividends to the Exchange Date (as defined in Section 2(e) hereof) with respect to such share shall be payable by the Corporation out of funds legally available therefor on such Exchange Date. (b) The "Increased Dividend Amount" shall equal: (i) from 12 months after closing to 13 months after closing, $14.35 per annum, (ii) from 13 months after closing to 14 months after closing, $16.40 per annum, (iii) from 14 months after closing to 15 months after closing, $18.45 per annum, (iv) from 15 months after closing to 16 months after closing, $20.50 per annum, (v) from 16 months after closing to 17 months after closing, $22.55 per annum, (vi) from 17 months after closing to 18 months after closing, $24.60 per annum, and (vii) thereafter $26.65 per annum. (c) In the event that the Corporation declares or pays or sets apart for payment any dividend (a "Securities Dividend") with respect to the Common Stock that is payable in the form of securities of the Corporation (other than pursuant to a transaction of the type described in Section 8(b) hereof), the Corporation shall declare or pay or set apart for payment, as the case may be, a per share dividend (a "Preferred Securities Dividend") with respect to the Exchangeable Preferred Stock in the same form of the Securities Dividend and equal to the Securities Dividend paid or declared or set apart for payment, as the case may be, on that number of shares of Common Stock equal to the number of shares of Common Stock for which such share of Exchangeable Preferred Stock would be exchanged (assuming the conditions precedent to such exchange had occurred in accordance with the terms hereof) pursuant to Section 6 hereof on the record date for such Securities Dividend. Any Preferred Securities Dividend shall be payable to the holders of record of Exchangeable Preferred Stock at the start of business on the record date for the related Securities Dividend. 2 3 (d) In the event that full cumulative Cash Dividends on the Exchangeable Preferred Stock and any payable Preferred Securities Dividend have not been declared and paid or set apart for payment, the Corporation shall not declare or pay or set apart for payment any dividends or make any other distributions on, or make any payment on account of the purchase, redemption or other retirement of the Common Stock until full cumulative Cash Dividends on the Exchangeable Preferred Stock and any payable Preferred Securities Dividend shall have been paid or declared and set apart for payment; provided, however, that the foregoing shall not apply to (i) any dividend payable solely in shares of Common Stock or in shares of any stock of the Corporation ranking, as to dividends or as to distributions in the event of a liquidation, dissolution or winding-up of the Corporation, on parity with or junior to the Exchangeable Preferred Stock, or (ii) the acquisition of shares of Common Stock either (A) pursuant to any employee or director incentive or benefit plan or arrangement of the Corporation or any subsidiary of the Corporation (including any employment, severance or consulting agreement) heretofore or hereafter adopted, (B) pursuant to any contractual or other obligation of the Company existing as of the date of the initial issuance of the Exchangeable Preferred Stock, as the same may be amended, extended or renewed, or (C) in exchange solely for shares of Common Stock or any other stock ranking, as to dividends and as to distributions in the event of a liquidation, dissolution or winding-up of the Corporation, on parity with or junior to the Exchangeable Preferred Stock. (e) With respect to any share of Exchangeable Preferred Stock, from and after the earlier of the effective date of the conversion of such share pursuant to Section 5 hereof and the Effective Date (such earlier date, the "Exchange Date"), no dividends shall accrue with respect to such share. Section 3. Voting Rights. Except as otherwise required by law, holders of Exchangeable Preferred Stock shall have no voting rights and their consent shall not be required for the taking of any corporate action; provided, however, that in the event the Exchangeable Preferred Stock is not exchanged for Common Stock pursuant to Section 6 hereof on or prior to February 24, 1999, the holders of Exchangeable Preferred Stock shall thereafter be entitled to vote with the holders of Common Stock as a single class, and for such purposes, each share of Exchangeable Preferred Stock shall be treated as equal to the number of shares of Common Stock for which such share of Exchangeable Preferred Stock would be exchanged (assuming the conditions precedent to such exchange had occurred in accordance with the terms hereof) pursuant to Section 6 hereof on the record date with respect to the matter to be voted upon. Section 4. Liquidation, Dissolution or Winding-Up. (a) Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, the holders of Exchangeable Preferred Stock shall be entitled to receive out of assets of the Corporation which remain after satisfaction in full of all valid claims of creditors of the Corporation and which are available for payment to stockholders, and subject to the rights of the holders of any stock of the Corporation ranking senior to or on parity with the Exchangeable Preferred Stock in respect of distributions upon liquidation, dissolution or winding-up of the 3 4 Corporation, an amount per share of Exchangeable Preferred Stock equal to the amount that shall be paid or distributed with respect to the number of shares of Common Stock for which such share of Exchangeable Preferred Stock would be exchanged pursuant to Section 6 hereof (assuming the conditions precedent to such exchange had occurred in accordance with the terms hereof) on the record date for such payment or distribution, rounded to the nearest one-tenth of a share; it being understood that whenever the Exchange Ratio is adjusted as provided in Section 8 hereof, the rights of the holders of Exchangeable Preferred Stock to receive distributions and payments pursuant to this Section 4(a) shall be similarly adjusted. The holders of shares of Exchangeable Preferred Stock shall be treated as holders of the number of shares of Common Stock for which such shares of Exchangeable Preferred Stock would then be exchanged pursuant to Section 6 hereof (assuming the conditions precedent to such exchange had occurred in accordance with the terms hereof) for all purposes in connection with determining the payments and distributions such holders may be entitled to pursuant to this Section 4(a), including, without limitation, the determination of the aggregate and per share amounts to be distributed to the holders of Common Stock and Exchangeable Preferred Stock. (b) Neither the merger or consolidation of the Corporation with or into any other corporation, nor the merger or consolidation of any other corporation with or into the Corporation, nor the sale, lease, transfer or other exchange of all or any portion of the assets of the Corporation, shall be deemed to be a dissolution, liquidation or winding-up of the affairs of the Corporation for purposes of this Section 4. Section 5. Optional Conversion into Common Stock. (a) In the event the Corporation makes a Qualified Public Offering (as defined below), each holder of shares of Exchangeable Preferred Stock shall be entitled to have a number of shares (determined pursuant to Section 5(b) hereof) of Exchangeable Preferred Stock converted upon the closing of such Qualified Public Offering into shares of Common Stock for the purpose of the secondary sale of such shares of Common Stock in such Qualified Public Offering; provided, however, that, with respect to any shares of Common Stock to be included in any over-allotment option granted in connection with such Qualified Public Offering, the corresponding shares of Exchangeable Preferred Stock shall be converted into Common Stock only upon the closing of a sale pursuant to such over-allotment option. Shares of Exchangeable Preferred Stock to be converted into Common Stock in connection with a Qualified Public Offering shall be converted at the Exchange Ratio in effect at the time of the closing of the Qualified Public Offering; provided, however, that, with respect to any shares of Common Stock to be included in any over-allotment option granted in connection with such Qualified Public Offering, the corresponding shares of Exchangeable Preferred Stock shall be converted at the Exchange Ratio in effect at the time of the closing of a sale pursuant to such over-allotment option. The term "Qualified Public Offering" shall mean the first underwritten offering of Common Stock made by the Corporation for its own account after the date hereof and prior to January 1, 1999 pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"). 4 5 (b) In the event that the Corporation proposes to file a registration statement under the Securities Act with respect to a Qualified Public Offering, the Corporation shall give written notice (the "Offering Notice") of such proposed filing to the holders of Exchangeable Preferred Stock at least 21 days prior to the anticipated filing date. The maximum aggregate number of shares of Common Stock which holders may receive upon conversion of Exchangeable Preferred Stock in connection with the Qualified Public Offering shall equal the aggregate number of shares of Common Stock that is to be sold by holders of Exchangeable Preferred Stock in such Qualified Public Offering and in the over-allotment option granted to the underwriters in connection with such Qualified Public Offering. (c) Within 14 days after the Offering Notice is given, any holder that elects to have shares of Exchangeable Preferred Stock converted into shares of Common Stock pursuant to this Section 5 shall surrender the certificate or certificates representing such shares of Exchangeable Preferred Stock, duly assigned or endorsed for transfer to the underwriters of the Qualified Public Offering (or accompanied by duly executed stock powers relating thereto), at the principal executive office of the Corporation or such other place as the Corporation shall direct. Such shares shall be accompanied by a signed notice of conversion which shall state that such holder elects to convert shares pursuant to, and in accordance with, this Section 5 and shall specify (i) the number of shares of Exchangeable Preferred Stock such holder elects to convert, (ii) the name or names in which a check or checks from the underwriters shall be made payable in consideration for any shares of Common Stock sold in the Qualified Public Offering and in which a new certificate or certificates representing shares of Exchangeable Preferred Stock not converted shall be issued, and (iii) the address to which such holder wishes delivery to be made of such checks and certificates. (d) On the closing date of the Qualified Public Offering or the closing date of the sale pursuant to the related over-allotment option, as the case may be, the Corporation shall issue and send to the managing underwriter or underwriters or to the designee of the managing underwriter or underwriters, in the name and at the address designated by the managing underwriter or underwriters, a certificate or certificates representing the number of shares of Common Stock into which shares of Exchangeable Preferred Stock shall have been converted pursuant to this Section 5. In the event that there shall have been surrendered a certificate or certificates representing shares of Exchangeable Preferred Stock only a portion of which are converted pursuant to this Section 5, after the closing or expiration of any over-allotment option granted in connection with the Qualified Public Offering, the Corporation shall issue and deliver to the surrendering holder of such shares or such holder's designee a new certificate or certificates representing the number of shares of Exchangeable Preferred Stock which shall not have been converted. (e) The issuance by the Corporation of shares of Common Stock upon a conversion of shares of Exchangeable Preferred Stock pursuant to this Section 5 shall be effective as of the closing of the Qualified Public Offering or the closing of the related over-allotment option, as the case may be. On and after the effective date of such conversion, the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock, but no payment, allowance or 5 6 adjustment shall be made in respect of dividends or distributions payable to holders of Common Stock the record date for which coincides with or is prior to such effective date. In the event a proposed Qualified Public Offering is not completed or a sale pursuant to the related over-allotment option is not made, as the case may be, the shares of Exchangeable Preferred Stock that a holder elected to convert into Common Stock in connection with such proposed offering or such over-allotment option, as the case may be, shall not be converted to Common Stock, and the certificates for such shares of Exchangeable Preferred Stock shall be returned to the holder that surrendered such shares to the Corporation. (f) The Corporation shall not be obligated to deliver to holders of Exchangeable Preferred Stock any fractional share or shares of Common Stock issuable upon any conversion of such shares of Exchangeable Preferred Stock, but in lieu thereof may make a cash payment in respect thereof in any manner permitted by law. Section 6. Mandatory Exchange. (a) On the earlier of (i) the date which is fifteen business days after the date on which the Corporation receives from the holders of at least two-thirds of the outstanding shares of Exchangeable Preferred Stock written consents to the exchange of Exchangeable Preferred Stock for Common Stock pursuant to this Section 6(a), (ii) the effective date of the registration statement filed in connection with the first request for registration pursuant to Section 2(a) of the Registration Agreement, and (iii) February 24, 1999, all outstanding shares of Exchangeable Preferred Stock shall be exchanged by the Corporation for shares of Common Stock at the Exchange Ratio in effect at the time such exchange is consummated, which exchange shall be effective as of such date; provided, however, that no shares of Exchangeable Preferred Stock shall be exchanged for shares of Common Stock until the Corporation's Second Restated Articles of Incorporation have been amended to authorize additional shares of Common Stock for issuance; and provided, further, that in the event that by operation of the preceding proviso the Exchangeable Preferred Stock has not been exchanged for Common Stock by February 24, 1999, all outstanding shares of Exchangeable Preferred Stock shall be exchanged by the Corporation for shares of Common Stock on the date which is fifteen business days after the date on which the Corporation's Second Restated Articles of Incorporation are amended to authorize additional shares of Common Stock for issuance. (b) At least 5 days prior to the effective date (the "Effective Date") of the exchange made pursuant to this Section 6, the Corporation shall give written notice (an "Exchange Notice") of such exchange and the Effective Date to the Sellers' Representatives. On or after the Effective Date, the Corporation shall issue, upon surrender at the Corporation's principal executive office or such other place as the Corporation shall direct of a certificate representing a share or shares of Exchangeable Preferred Stock, to the holder of such Exchangeable Preferred Stock or to such holder's designee, at the address designated by such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled upon such exchange. 6 7 (c) On and after the Effective Date, the person or persons entitled to receive the Common Stock issuable upon the exchange made pursuant to this Section 6 shall be treated for all purposes as the record holder or holders of such shares of Common Stock, but no payment, allowance or adjustment shall be made in respect of dividends or distributions payable to holders of Common Stock the record date for which coincides with or is prior to such Effective Date. (d) The Corporation shall not be obligated to deliver to holders of Exchangeable Preferred Stock any fractional share or shares of Common Stock issuable upon the exchange of such shares of Exchangeable Preferred Stock, but in lieu thereof may make a cash payment in respect thereof in any manner permitted by law. (e) So long as the Corporation uses its best efforts to take such steps as are necessary so that the Corporation's Second Amended Restated Articles of Incorporation are amended to authorize additional shares of Common Stock, in the event the Exchangeable Preferred Stock is not exchanged for shares of Common Stock pursuant to Section 6(a) hereof on or prior to February 24, 1999, the exclusive remedy available to holders of Exchangeable Preferred Stock shall be the right to receive the Increased Dividend Amount pursuant to Section 2(a) hereof. Section 7. Consolidation, Merger and Similar Transactions. In the event that the Corporation shall consummate any consolidation, merger, recapitalization or similar transaction, however named, pursuant to which the outstanding shares of Common Stock are exchanged for or changed, reclassified or converted into other stock or securities or cash or any other property, or any combination thereof, outstanding shares of Exchangeable Preferred Stock shall, without any action on the part of the Corporation or any holder thereof, be automatically converted by virtue of such transaction, into the right to receive, on the same terms as apply to the holders of Common Stock, the aggregate amount of stock, securities, cash or other property (payable in like kind) receivable by a holder of the number of shares of Common Stock for which such shares of Exchangeable Preferred Stock would have been exchanged immediately prior to such transaction (assuming the conditions precedent to such exchange had occurred in accordance with the terms hereof), based on the Exchange Ratio then in effect. In the event that, in connection with such transaction, the holders of Common Stock may elect the kind of stock, securities, cash or other property receivable upon such transaction, the holders of Exchangeable Preferred Stock shall have the same rights and obligations with respect to such election as apply to the holders of Common Stock, and the failure of a holder of shares of Exchangeable Preferred Stock to exercise any such rights will result in such shares of Exchangeable Preferred Stock being converted in the same manner as would shares of Common Stock, the holder of which had failed to exercise such rights. Section 8. Exchange Ratio; Anti-Dilution Adjustments. (a) The term "Exchange Ratio" shall mean, at any time, that number of shares of Common Stock into which a share of Exchangeable Preferred Stock is convertible or for which a share of Exchangeable Preferred Stock is exchangeable pursuant to Section 5 or Section 6, 7 8 respectively, at such time. Upon issuance of the Exchangeable Preferred Stock, the Exchange Ratio shall equal 5. (b) In the event the Corporation shall, at any time or from time to time while any of the shares of the Exchangeable Preferred Stock are outstanding, (i) pay a dividend or make a distribution in respect of the Common Stock in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock into a greater number of shares, or (iii) combine the outstanding shares of Common Stock into a smaller number of shares, in each case whether by reclassification of shares, recapitalization of the Corporation (including a recapitalization to which Section 7 hereof does not apply), or otherwise, the Exchange Ratio in effect immediately prior to such action shall be adjusted by multiplying such Exchange Ratio by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock outstanding immediately before such event. An adjustment made pursuant to this Section 8(b) shall be given effect, in the case of the payment of such a dividend or distribution, as of the record date for the determination of shareholders entitled to receive such dividend or distribution, and in the case of a subdivision or combination, immediately as of the effective date thereof. (c) Notwithstanding any other provisions of this Section 8, the Corporation shall not be required to make any adjustment of the Exchange Ratio unless such adjustment would require an increase or decrease of at least one percent (1%) in the Exchange Ratio. Any lesser adjustment shall be carried forward and shall be made no later than the earlier of (i) the time of the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least one percent (1%) in the Exchange Ratio (in which case such adjustments shall be aggregated and effected simultaneously), and (ii) immediately prior to the exchange of Exchangeable Preferred Stock made pursuant to Section 6 hereof. (d) If the Corporation shall make any dividend or distribution on the Common Stock or issue any Common Stock, other capital stock or other security of the Corporation or any rights or warrants to purchase or acquire any such security, which transaction does not result in an adjustment to the Exchange Ratio pursuant to the foregoing provisions of this Section 8, the Board of Directors shall in its sole discretion consider whether such action is of such a nature that an adjustment to the Exchange Ratio should equitably be made in respect of such transaction. If in such case the Board of Directors determines that an adjustment to the Exchange Ratio should be made, an adjustment shall be made as determined by the Board of Directors of the Corporation. The determination of the Board of Directors as to whether an adjustment to the Exchange Ratio should be made pursuant to the foregoing provisions of this Section 8(d), and, if so, as to what adjustment should be made and when, shall be final and binding on the Corporation and all stockholders of the Corporation. (e) Whenever an adjustment to the Exchange Ratio is required pursuant to this Resolution, the Corporation shall forthwith place on file with the transfer agent for the Common Stock and the Exchangeable Preferred Stock, if any, and with the Secretary of the Corporation, a statement signed by an officer of the Corporation stating the adjusted Exchange Ratio determined 8 9 as provided herein of the Exchangeable Preferred Stock. Promptly after each adjustment to the Exchange Ratio, the Corporation shall mail a notice thereof and of the then prevailing Exchange Ratio to the Sellers' Representatives. (f) The term "Business Day" shall mean a day that is not a Saturday, Sunday or a day on which state or federally chartered banking institutions in Detroit, Michigan or Chicago, Illinois are authorized to close. Section 9. Ranking; Outstanding Shares; Retirement of Shares. (a) Except as set forth in Section 2 hereof, the Exchangeable Preferred Stock shall rank in parity with the Common Stock as to payment of dividends and the distribution of assets on liquidation, dissolution and winding-up of the Corporation, and unless otherwise provided in the Second Restated Articles of Incorporation of the Corporation, as the same may be amended from time to time, or a Certificate of Designations relating to a subsequent series of Preferred Stock of the Corporation, the Exchangeable Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to payment of dividends and the distribution of assets on liquidation, dissolution or winding-up of the Corporation; provided, however, that the Corporation shall not designate a series of the Corporation's preferred stock that would prohibit the exchange of Exchangeable Preferred Stock as provided herein or the payment of dividends thereon as provided herein. (b) For purposes of this Resolution, prior to the Effective Date, all shares of Exchangeable Preferred Stock issued by the Corporation shall be deemed outstanding except (i) from the date of the closing of a Qualified Public Offering or the closing of a sale pursuant to the related over-allotted option, as the case may be, all shares of Exchangeable Preferred Stock converted to Common Stock in connection with such Qualified Public Offering or such over-allotment option, as the case may be, pursuant to Section 5 hereof, and (ii) from the date of registration of transfer, all shares of Exchangeable Preferred Stock held of record by the Corporation or any majority-owned subsidiary of the Corporation. On and after the Effective Date, no shares of Exchangeable Preferred Stock shall be deemed outstanding, regardless of whether certificates representing such shares have been delivered to the Corporation for cancellation. (c) Any shares of Exchangeable Preferred Stock acquired by the Corporation by reason of the conversion or exchange of such shares as provided by this Resolution, or otherwise so acquired, shall be canceled as shares of Exchangeable Preferred Stock and restored to the status of authorized but unissued shares of Preferred Stock of the Corporation, undesignated as to series, and may thereafter be reissued as part of a new series of such Preferred Stock as permitted by law. Section 10. Miscellaneous. (a) All notices referred to herein shall be given in writing, by first class mail postage prepaid, overnight courier or facsimile and shall be deemed effective upon receipt. Notices to the 9 10 Corporation, shall be addressed to its office at 26555 Northwestern Highway, Southfield, Michigan, 48034 (Attention: Secretary), facsimile (248) 354-7999. Notices to the Sellers' Representatives shall be addressed to the address of such Representatives as it appears from time to time on the books and records of the Corporation. (b) The Corporation shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of Exchangeable Preferred Stock or shares of Common Stock or other securities issued on account of Exchangeable Preferred Stock pursuant hereto or certificates representing such shares or securities. The Corporation shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issuance or delivery of shares of Exchangeable Preferred Stock or Common Stock or other securities in a name other than that in which the shares of Exchangeable Preferred Stock with respect to which such shares or other securities are issued or delivered were registered, or in respect of any payment to any person with respect to any such shares or securities other than a payment to the registered holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the person otherwise entitled to such issuance, delivery or payment has paid to the Corporation the amount of any such tax or has established, to the reasonable satisfaction of the Corporation, that such tax has been paid or is not payable. (c) In the event that a holder of shares of Exchangeable Preferred Stock shall not by written notice designate the name in which shares of Common Stock to be issued upon conversion of such shares should be registered or to whom payment upon redemption of shares of Exchangeable Preferred Stock should be made or the address to which the certificate or certificates representing such shares, or such payment, should be sent, the Corporation shall be entitled to register such shares, and make such payment, in the name of the holder of such Exchangeable Preferred Stock as shown on the records of the Corporation and to send the certificate or certificates representing such shares, or such payment, to the address of such holder shown on the records of the Corporation. (d) Unless otherwise provided in the Second Restated Articles of Incorporation, as the same may be amended, of the Corporation, all payments in the form of dividends, distributions on voluntary or involuntary dissolution, liquidation or winding-up or otherwise made upon the shares of Exchangeable Preferred Stock and any other stock ranking on a parity with the Exchangeable Preferred Stock with respect to such dividend or distribution shall be made pro rata, so that amounts paid per share on the Exchangeable Preferred Stock and such other stock shall in all cases bear to each other the same ratio that the required dividends, distributions or payments, as the case may be, then payable per share on the shares of the Exchangeable Preferred Stock and such other stock bear to each other. (e) The Corporation may appoint, and from time to time discharge and change, a transfer agent for the Exchangeable Preferred Stock. Upon any such appointment or discharge of a transfer agent, the Corporation shall send notice thereof to each holder of record of Exchangeable Preferred Stock. 10 11 (f) The Corporation may amend this Resolution and the related Certificate of Designations from time to time as permitted by law; provided, however, that no such amendment adverse to the holders of Exchangeable Preferred Stock may be made without the written consent of the holders of a majority of the outstanding shares of Exchangeable Preferred Stock. (g) The Corporation shall use its best efforts to take such steps as are necessary so that the Common Stock into which Exchangeable Preferred Stock is converted pursuant to Section 5 hereof or for which Exchange Preferred Stock is exchanged pursuant to Section 6 hereof, shall be duly authorized and validly issued, and fully paid and nonassessable. IN WITNESS WHEREOF, I have executed and subscribed this Certificate of Designations and do affirm the foregoing as true under the penalties of perjury this 20th day of February, 1998. /s/ Thomas W. Ryan Name: THOMAS W. RYAN Title: Senior Vice President and Chief Financial Officer Attest: /s/ David A. Bozynski Name: DAVID A. BOZYNSKI Title: Vice President and Treasurer 11 EX-10.34 11 EX-10.34 1 EXHIBIT 10.34 - -------------------------------------------------------------------------------- AMENDED AND RESTATED DECLARATION OF TRUST FEDERAL-MOGUL FINANCING TRUST Dated as of December 1, 1997 - -------------------------------------------------------------------------------- 2
TABLE OF CONTENTS ----------- PAGE ---- ARTICLE 1 INTERPRETATION AND DEFINITIONS SECTION 1.01. Definitions.............................................................2 ARTICLE 2 TRUST INDENTURE ACT SECTION 2.01. Trust Indenture Act: Application.......................................10 SECTION 2.02. Lists of Holders of Securities.........................................10 SECTION 2.03. Reports by the Institutional Trustee...................................11 SECTION 2.04. Periodic Reports to Institutional Trustee..............................11 SECTION 2.05. Evidence of Compliance with Conditions.................................11 SECTION 2.06. Events of Default; Waiver..............................................12 SECTION 2.07. Event of Default: Notice...............................................14 ARTICLE 3 ORGANIZATION SECTION 3.01. Name...................................................................14 SECTION 3.02. Office.................................................................15 SECTION 3.03. Issuance of Trust Securities...........................................15 SECTION 3.04. Purchase of Debentures.................................................15 SECTION 3.05. Purpose................................................................16 SECTION 3.06. Title to Property of the Trust.........................................16 SECTION 3.07. Authorization to Enter into Certain Transactions.......................16 SECTION 3.08. Prohibition of Actions by the Trust, the Trustees and the Administrators....................................22 SECTION 3.09. Certain Duties and Responsibilities of the Institutional Trustee..................................................23 SECTION 3.10. Certain Rights of Institutional Trustee................................26 SECTION 3.11. Delaware Trustee.......................................................29 SECTION 3.12. Execution of Documents.................................................29 SECTION 3.13. Not Responsible for Recitals or Issuance of Securities.................29 SECTION 3.14. Duration of Trust......................................................29 SECTION 3.15. Mergers................................................................29 ARTICLE 4 SPONSOR
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SECTION 4.01. Sponsor's Purchase of Common Securities................................31 SECTION 4.02. Responsibilities of the Sponsor........................................31 ARTICLE 5 TRUSTEES AND ADMINISTRATORS SECTION 5.01. Number of Trustees and Administrators..................................32 SECTION 5.02. Delaware Trustee; Eligibility..........................................33 SECTION 5.03. Institutional Trustee; Eligibility.....................................33 SECTION 5.04. Certain Qualifications of Administrators and the Delaware Trustee Generally.............................................34 SECTION 5.05. Initial Administrators.................................................34 SECTION 5.06. Delaware Trustee.......................................................34 SECTION 5.07. Appointment, Removal and Resignation of Trustees and Administrators....35 SECTION 5.08. Vacancies among Trustees...............................................36 SECTION 5.09. Effect of Vacancies....................................................36 SECTION 5.10. Meetings...............................................................37 SECTION 5.11. Delegation of Power....................................................37 SECTION 5.12. Merger, Conversion, Consolidation or Succession to Business............38 ARTICLE 6 DISTRIBUTIONS SECTION 6.01. Distributions..........................................................38 ARTICLE 7 ISSUANCE OF SECURITIES SECTION 7.01. General Provisions Regarding Securities................................39 SECTION 7.02. Execution and Authentication...........................................39 SECTION 7.03. Form and Dating........................................................40 SECTION 7.04. Paying Agent, Registrar and Conversion Agent...........................40 ARTICLE 8 DISSOLUTION OF TRUST SECTION 8.01. Dissolution of Trust...................................................42 ARTICLE 9 TRANSFER OF INTERESTS
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SECTION 9.01. Transfer of Securities.................................................43 SECTION 9.02. Transfer of Certificates...............................................47 SECTION 9.03. Deemed Holders.........................................................48 SECTION 9.04. Book Entry Interests...................................................48 SECTION 9.05. Notices to Clearing Agency.............................................49 SECTION 9.06. Appointment of Successor Clearing Agency...............................50 SECTION 9.07. Definitive Convertible Preferred Security Certificates Under Certain Circumstances............................................50 SECTION 9.08. Mutilated, Destroyed, Lost or Stolen Certificates......................51 ARTICLE 10 LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS SECTION 10.01. Liability.............................................................52 SECTION 10.02. Exculpation...........................................................52 SECTION 10.03. Fiduciary Duty........................................................53 SECTION 10.04. Indemnification.......................................................54 SECTION 10.05. Outside Business......................................................57 ARTICLE 11 ACCOUNTING SECTION 11.01. Fiscal Year...........................................................58 SECTION 11.02. Certain Accounting Matters............................................58 SECTION 11.03. Banking...............................................................59 SECTION 11.04. Withholding...........................................................59 ARTICLE 12 AMENDMENTS AND MEETINGS SECTION 12.01. Amendments............................................................59 SECTION 12.02. Meetings of the Holders of Securities; Action by Written Consent......62 ARTICLE 13 REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND DELAWARE TRUSTEE SECTION 13.01. Representations and Warranties of Institutional Trustee...............63 SECTION 13.02. Representations and Warranties of Delaware Trustee....................64
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ARTICLE 14 MISCELLANEOUS SECTION 14.01. Notices...............................................................65 SECTION 14.02. Governing Law.........................................................67 SECTION 14.03. Intention of the Parties..............................................67 SECTION 14.04. Headings..............................................................67 SECTION 14.05. Successors and Assigns................................................67 SECTION 14.06. Partial Enforceability................................................67 SECTION 14.07. Counterparts..........................................................67
6 AMENDED AND RESTATED DECLARATION OF TRUST OF FEDERAL-MOGUL FINANCING TRUST December 1, 1997 AMENDED AND RESTATED DECLARATION OF TRUST (this "DECLARATION") dated and effective as of December 1, 1997, by the Trustees (as defined herein), the Administrators (as defined herein), the Sponsor (as defined herein) and by the holders, from time to time, of undivided beneficial interests in the assets of the Trust to be issued pursuant to this Declaration; WHEREAS, the Trustees and the Sponsor created Federal-Mogul Financing Trust (the "TRUST"), a statutory business trust under the Delaware Business Trust Act pursuant to a Declaration of Trust dated as of November 21, 1997 (the "ORIGINAL DECLARATION"), and a Certificate of Trust filed with the Secretary of State of the State of Delaware on November 21 , 1997, for the sole purposes of (i) issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust, (ii) investing the proceeds thereof in certain Debentures of the Debenture Issuer and (iii) engaging in only those other activities necessary or incidental thereto; WHEREAS, the parties hereto, by this Declaration, amend and restate each and every term and provision of the Original Declaration; and NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a statutory business trust under the Business Trust Act and that this Declaration constitute the governing instrument of such statutory business trust, the Trustees declare that all assets contributed to the Trust will be held in trust for the benefit of the holders, from time to time, of the securities representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration and in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I INTERPRETATION AND DEFINITIONS 7 SECTION 1.1. Definitions Unless the context otherwise requires: (a) capitalized terms used in this Declaration but not defined in the preamble above have the respective meanings assigned to them in this Section 1.01; (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to "the Declaration" or "this Declaration" are to this Declaration and each Annex and Exhibit hereto, as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles and Sections and Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits to this Declaration unless otherwise specified; (e) a term defined in the Trust Indenture Act (as defined herein) has the same meaning when used in this Declaration unless otherwise defined in this Declaration or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "ADMINISTRATORS" means each of Thomas W. Ryan, David A. Bozynski and Diane L. Kaye, solely in such Person's capacity as Administrator of the Trust and not in such Person's individual capacity, or such Administrator's successor in interest in such capacity, or any successor appointed as herein provided. "AFFILIATE" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. "AGENT" means any Paying Agent or Conversion Agent. "AUTHORIZED OFFICER" of a Person means any Person that is authorized to bind such Person; provided, that the Authorized Officer signing an Officers' Certificate given pursuant to Section 314(a)(4) of the Trust Indenture Act shall be the principal executive, financial or accounting officer of such Person. "BASE INDENTURE" means the Indenture dated as of December 1, 1997, among the Debenture Issuer and the Debenture Trustee, as modified or amended 2 8 from time to time. "BOOK ENTRY INTEREST" means a beneficial interest in a Global Certificate registered in the name of the Clearing Agency or its nominee, ownership and transfers of which shall be maintained and made through book entries by a Clearing Agency as described in Section 9.04. "BUSINESS DAY" means any day other than a Saturday, Sunday or any other day on which banking institutions in New York, New York are permitted or required by any applicable law to close. "BUSINESS TRUST ACT" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code ss.3801 et seq., as it may be amended from time to time, or any successor legislation. "CERTIFICATE" means a Common Security Certificate or a Convertible Preferred Security Certificate. "CLEARING AGENCY" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary for the Convertible Preferred Securities and in whose name or in the name of a nominee of that organization shall be registered a Global Certificate and that shall undertake to effect book entry transfers and pledges of the Convertible Preferred Securities. "CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Clearing Agency effects book entry transfers and pledges of securities deposited with the Clearing Agency. "CLOSING DATE" means December 1, 1997. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation. "COMMISSION" means the Securities and Exchange Commission. "COMMON SECURITY" has the meaning specified in Section 7.01. "COMMON SECURITIES GUARANTEE" means the guarantee agreement to be dated as of the date hereof, as modified or amended from time to time, of the Sponsor in respect of the Common Securities. 3 9 "COMMON SECURITY CERTIFICATE" means a definitive certificate in fully registered form representing a Common Security substantially in the form of Exhibit A-2. "COMMON STOCK" means the common stock of Federal-Mogul Corporation, a Michigan corporation, without par value and any other shares of common stock as may constitute "Common Stock" under the Indenture. "COMPANY INDEMNIFIED PERSON" means (a) any Administrator; (b) any Affiliate of any Administrator; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Administrator; or (d) any officer, employee or agent of the Trust or its Affiliates. "CONVERSION AGENT" has the meaning specified in Section 7.04. "CONVERTIBLE PREFERRED SECURITIES GUARANTEE" means the guarantee agreement to be dated as of the date hereof, as modified or amended from time to time, of the Sponsor in respect of the Convertible Preferred Securities. "CONVERTIBLE PREFERRED SECURITY" has the meaning specified in Section 7.01. "CONVERTIBLE PREFERRED SECURITY BENEFICIAL OWNER" means, with respect to a Book Entry Interest, a Person who is the beneficial owner of such Book Entry Interest, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). "CONVERTIBLE PREFERRED SECURITY CERTIFICATE" means a definitive certificate representing a Preferred Security substantially in the form of Exhibit A-1. "CORPORATE TRUST OFFICE" means the office of the Institutional Trustee at which the corporate trust business of the Institutional Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Agreement is located at 101 Barclay Street, Floor 21 West, New York, New York 10286. "COVERED PERSON" means: (a) any officer, director, shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) the Trust's Affiliates; and (b) any Holder of Securities. 4 10 "DEBENTURE ISSUER" means Federal-Mogul Corporation, a Michigan corporation, in its capacity as issuer of the Debentures under the Indenture. "DEBENTURE TRUSTEE" means The Bank of New York, as trustee under the Indenture until a successor is appointed thereunder, and thereafter means such successor trustee. "DEBENTURES" means the series of Debentures to be issued by the Debenture Issuer under the Indenture to be held by the Institutional Trustee, a specimen certificate for such series of Debentures being Exhibit B. "DELAWARE TRUSTEE" has the meaning set forth in Section 5.01. "DIRECT ACTION" has the meaning set forth in Section 3.07(a)(vi). "DISTRIBUTION" means a distribution payable to Holders of Securities in accordance with Section 6.01. "DTC" means The Depository Trust Company, the initial Clearing Agency. "EVENT OF DEFAULT" in respect of the Securities means an Event of Default as defined in the Indenture in respect of the Debentures that has occurred and is continuing. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, or any successor legislation. "FIDUCIARY INDEMNIFIED PERSON" has the meaning set forth in Section 10.04(b). "FISCAL YEAR" has the meaning set forth in Section 11.01. "GLOBAL CERTIFICATE" has the meaning set forth in Section 9.04. "HOLDER" means a Person in whose name a Certificate representing a Security is registered, such Person being a beneficial owner within the meaning of the Business Trust Act. "INDEMNIFIED PERSON" means a Company Indemnified Person or a Fiduciary Indemnified Person. "INDENTURE" means the Base Indenture as supplemented by the 5 11 Supplemental Indenture and as may be further supplemented from time to time. "INSTITUTIONAL TRUSTEE" has the meaning set forth in Section 5.01. "INSTITUTIONAL TRUSTEE ACCOUNT" has the meaning set forth in Section 3.07(a)(ii)(A). "INVESTMENT COMPANY" means an investment company as defined in the Investment Company Act. "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as amended from time to time, or any successor legislation. "INVESTMENT COMPANY EVENT" has the meaning set forth in Annex I hereto. "LEGAL ACTION" has the meaning set forth in Section 3.07(a)(vi). "LIQUIDATION DISTRIBUTION" has the meaning specified in the terms of the Securities as set forth in Annex I. "MAJORITY IN LIQUIDATION AMOUNT" of the Securities means, except as provided in the terms of the Convertible Preferred Securities or by the Trust Indenture Act, Holder(s) of outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Convertible Preferred Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. "MINISTERIAL ACTION" has the meaning set forth in the terms of the Securities as set forth in Annex I. "NON-U.S. PERSON" means a Person other than a U.S. person (as such term is defined in Regulation S). "OFFER" means the recommended cash offer announced by the boards of directors of the Sponsor and T&N plc ("T&N") on October 16, 1997 to be made on behalf of a wholly-owned indirect subsidiary of the Sponsor to acquire the entire issued share capital of T&N. 6 12 "OFFERING MEMORANDUM" has the meaning set forth in Section 4.02(a). "OFFICERS' CERTIFICATE" means, with respect to any Person, a certificate signed by two Authorized Officers of such Person. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Declaration shall include: (i) a statement that each officer signing the Certificate has read the covenant or condition and the definitions relating thereto; (ii) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Certificate; (iii) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (iv) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "OPTION CLOSING DATE" means the date of closing of any sale of Additional Securities (as defined in the Purchase Agreement). "PAYING AGENT" has the meaning specified in Section 7.04. "PAYMENT AMOUNT" has the meaning set forth in Section 6.01. "PERSON" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "PURCHASE AGREEMENT" means the Purchase Agreement for the offering and sale of Convertible Preferred Securities in the form of Exhibit C. "PORTAL MARKET" means the Private Offerings, Resales and Trading through Automated Linkages Market operated by the National Association of Securities Dealers, Inc., or any successor thereto. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. 7 13 "QUORUM" means a majority of the Administrators or, if there are only two Administrators, both of them. "REGISTRAR" has the meaning set forth in Section 7.04. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement dated as of the date hereof among Federal-Mogul Corporation, the Trust and Morgan Stanley & Co. Incorporated, as Initial Purchaser. "REGULATION S" means Regulation S under the Securities Act or any successor provision. "RELATED PARTY" means, with respect to the Sponsor, any direct or indirect wholly owned subsidiary of the Sponsor or any other Person that owns, directly or indirectly, 100% of the outstanding voting securities of the Sponsor. "RESPONSIBLE OFFICER" means, with respect to the Institutional Trustee, any officer within the Corporate Trust Office of the Institutional Trustee, including any vice president, any assistant vice president, any assistant secretary, the treasurer, any assistant treasurer or other officer of the Corporate Trust Office of the Institutional Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "RESTRICTED SECURITY" has the meaning specified in Section 9.01(f). "RULE 144A" means Rule 144A as promulgated under the Securities Act, or any successor rule. "RULE 144(K)" means Rule 144(k) as promulgated under the Securities Act, or any successor rule. "RULE 3A-5" means Rule 3a-5 as promulgated under the Investment Company Act, or any successor rule. "SECURITIES" means the Common Securities and the Convertible Preferred Securities. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, or any successor legislation. 8 14 "SECURITIES GUARANTEES" means the Common Securities Guarantee and the Convertible Preferred Securities Guarantee. "SPECIAL EVENT" has the meaning set forth in Annex I hereto. "SPONSOR" or "FEDERAL-MOGUL" means Federal-Mogul Corporation, a Michigan corporation, or any successor entity in a merger, consolidation or amalgamation, in its capacity as sponsor of the Trust. "SUCCESSOR DELAWARE TRUSTEE" has the meaning set forth in Section 5.07(b). "SUCCESSOR INSTITUTIONAL TRUSTEE" has the meaning set forth in Section 5.07(b). "SUPER MAJORITY" has the meaning set forth in Section 2.06(a)(ii). "SUPPLEMENTAL INDENTURE" means the First Supplemental Indenture dated as of December 1, 1997 among the Debenture Issuer and the Debenture Trustee pursuant to which the Debentures are to be issued, as modified or amended from time to time. "TAX EVENT" has the meaning set forth in Annex I hereto. "10% IN LIQUIDATION AMOUNT" of the Securities means, except as provided in the terms of the Convertible Preferred Securities or by the Trust Indenture Act, Holders of outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Convertible Preferred Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of 10% or more of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. "TRANSFER RESTRICTION TERMINATION DATE" means the first date on which the Securities and any Common Stock issued or issuable upon the conversion or exchange thereof (other than (i) Securities acquired by the Trust or any Affiliate thereof and (ii) Common Stock issued upon the conversion or exchange of any Security described in clause (i) above) may be sold pursuant to Rule 144(k). "TREASURY REGULATIONS" means the income tax regulations, including temporary and proposed regulations, promulgated under the Code by the United 9 15 States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "TRUSTEE" or "TRUSTEES" means each Person who has signed this Declaration as a trustee, so long as such Person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended from time to time, or any successor legislation. ARTICLE 2 TRUST INDENTURE ACT SECTION 2.1. Trust Indenture Act: Application. (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required to be part of this Declaration and shall, to the extent applicable, be governed by such provisions. (b) The Institutional Trustee shall be the only Trustee which is a Trustee for the purposes of the Trust Indenture Act. (c) If and to the extent that any provision of this Declaration limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. (d) The application of the Trust Indenture Act to this Declaration shall not affect the nature of the Securities as equity securities representing undivided beneficial interests in the assets of the Trust. SECTION 2.2. Lists of Holders of Securities. (a) Each of the Sponsor and the Administrators on behalf of the Trust shall provide the Institutional Trustee (i) within 14 days after each record date for payment of Distributions, a list in such form as the Institutional Trustee may reasonably require of the names and addresses of the Holders of the Securities ("LIST OF HOLDERS") as of such record date; provided, that neither the Sponsor nor the Administrators on behalf of the Trust shall be obligated to provide such List of Holders at any time the List of 10 16 Holders does not differ from the most recent List of Holders given to the Institutional Trustee by the Sponsor and the Administrators on behalf of the Trust, and (ii) at any other time, within 30 days of receipt by the Trust of a written request for a List of Holders, a List of Holders as of a date no more than 14 days before such List of Holders is given to the Institutional Trustee. The Institutional Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in Lists of Holders given to it or which it receives in the capacity as Paying Agent (if acting in such capacity); provided, that the Institutional Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Institutional Trustee shall comply with its obligations under Sections 310(b), 311(a), 311(b) and 312(b) of the Trust Indenture Act. SECTION 2.3. Reports by the Institutional Trustee. Within 60 days after May 15 of each year, the Institutional Trustee shall provide to the Holders of the Convertible Preferred Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form, in the manner and at the times provided by Section 313 of the Trust Indenture Act. The Institutional Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.4. Periodic Reports to Institutional Trustee. Each of the Sponsor and the Administrators on behalf of the Trust shall provide to the Institutional Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Delivery of such reports, information and documents to the Institutional Trustee is for informational purposes only and the Institutional Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Sponsor's compliance with any of its covenants hereunder (as to which the Institutional Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 2.5. Evidence of Compliance with Conditions. Each of the Sponsor and the Administrators on behalf of the Trust shall provide to the Institutional Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Declaration that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) of the Trust Indenture Act may be given in the form of an Officers' Certificate. 11 17 SECTION 2.6. Events of Default; Waiver. (a) The Holders of a Majority in Liquidation Amount of Convertible Preferred Securities may, by vote or consent, on behalf of the Holders of all of the Convertible Preferred Securities, waive any past Event of Default in respect of the Convertible Preferred Securities and its consequences; provided, that if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, the Event of Default under this Declaration shall also not be waivable; or (ii) requires the consent or vote of greater than a majority in principal amount of the holders of the Debentures (a "SUPER MAJORITY") to be waived under the Indenture, the Event of Default under this Declaration may only be waived by the vote or consent of the Holders of at least the proportion in liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of the Convertible Preferred Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. The foregoing provisions of this Section 2.06(a) shall be in lieu of Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such default shall cease to exist, and any Event of Default with respect to the Convertible Preferred Securities arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or an Event of Default with respect to the Convertible Preferred Securities or impair any right consequent thereon. Any waiver by the Holders of the Convertible Preferred Securities of an Event of Default with respect to the Convertible Preferred Securities shall also be deemed to constitute a waiver by the Holders of the Common Securities of any such Event of Default with respect to the Common Securities for all purposes of this Declaration without any further act, vote, or consent of the Holders of the Common Securities. (b) The Holders of a Majority in Liquidation Amount of the Common Securities may, by vote or consent, on behalf of the Holders of all of the Common Securities, waive any past Event of Default with respect to the Common Securities and its consequences; provided, that if the underlying Event of Default 12 18 under the Indenture: (i) is not waivable under the Indenture, except where the Holders of the Common Securities are deemed to have waived such Event of Default under this Declaration as provided below in this Section 2.06(b), the Event of Default under this Declaration shall also not be waivable; or (ii) requires the consent or vote of a Super Majority to be waived, except where the Holders of the Common Securities are deemed to have waived such Event of Default under this Declaration as provided below in this Section 2.06(b), the Event of Default under this Declaration may only be waived by the vote of the Holders of at least the proportion in liquidation amount of the Common Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding; provided further, that notwithstanding (i) or (ii) above, each Holder of Common Securities will be deemed to have waived any such Event of Default and all Events of Default with respect to the Common Securities and its or their consequences until all Events of Default with respect to the Convertible Preferred Securities have been cured, waived or otherwise eliminated, and until such Events of Default have been so cured, waived or otherwise eliminated, the Institutional Trustee will be deemed to be acting solely on behalf of the Holders of the Convertible Preferred Securities and only the Holders of the Convertible Preferred Securities will have the right to direct the Institutional Trustee in accordance with the terms of the Securities. The foregoing provisions of this Section 2.06(b) shall be in lieu of Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Subject to the foregoing provisions of this Section 2.06(b), upon such waiver, any such default shall cease to exist and any Event of Default with respect to the Common Securities arising therefrom shall be deemed to have been cured for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Common Securities or impair any right consequent thereon. (c) A waiver of an Event of Default under the Indenture by the Institutional Trustee at the direction of the Holders of the Preferred Securities constitutes a waiver of the corresponding Event of Default under this Declaration. The foregoing provisions of this Section 2.06(c) shall be in lieu of 13 19 Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. SECTION 2.7. Event of Default: Notice. (a) The Institutional Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Securities, notices of all defaults with respect to the Securities actually known to a Responsible Officer of the Institutional Trustee, unless such defaults have been cured before the giving of such notice (the term "DEFAULTS" for the purposes of this Section 2.07(a) being hereby defined to be Events of Default as defined in the Indenture, not including any periods of grace provided for therein and irrespective of the giving of any notice provided therein); provided, that except for a default in the payment of principal of (or premium, if any) or interest on any of the Debentures, the Institutional Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Institutional Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Securities. (b) The Institutional Trustee shall not be deemed to have knowledge of any default except: (i) a default under Sections 4.01(a) and 4.01(b) of the Indenture; or (ii) a default as to which the Institutional Trustee shall have received written notice or of which a Responsible Officer of the Institutional Trustee charged with the administration of this Declaration shall have actual knowledge. ARTICLE 3 ORGANIZATION SECTION 3.1. Name. The Trust is named "Federal-Mogul Financing Trust" as such name may be modified from time to time by the Administrators following written notice to the Holders of Securities. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Administrators. 14 20 SECTION 3.2. Office. The address of the principal office of the Trust is c/o Federal-Mogul Corporation, 26555 Northwestern Highway, Southfield, Michigan 48034. On ten Business Days written notice to the Holders of Securities, the Administrators may designate another principal office. SECTION 3.3. Issuance of Trust Securities. On November 24, 1997, the Sponsor, on behalf of the Trust and pursuant to the Original Declaration, executed and delivered the Purchase Agreement. On the Closing Date and contemporaneously with the execution and delivery of this Declaration, the Administrators, on behalf of the Trust, shall execute and deliver to (i) the initial purchaser named in the Purchase Agreement (the "INITIAL PURCHASER"), a Global Certificate, registered in the name of the nominee of the initial Clearing Agency as specified in Section 9.04, in an aggregate amount of 10,000,000 Convertible Preferred Securities having an aggregate liquidation amount of $500,000,000, against receipt of the aggregate purchase price of such Convertible Preferred Securities of $500,000,000, and (ii) the Sponsor, Common Securities Certificates, registered in the name of the Sponsor, in an aggregate amount of 309,279 Common Securities having an aggregate liquidation amount of $15,463,950, against receipt of the aggregate purchase price of such Common Securities of $15,463,950. In the event and to the extent the overallotment option granted by the Trust pursuant to the Purchase Agreement is exercised by such Initial Purchaser, on the Option Closing Date the Administrators, on behalf of the Trust, shall execute and deliver to (i) such Initial Purchaser a Global Certificate, registered in the name of the nominee of the initial Clearing Agency as specified in Section 9.04, in an aggregate amount of up to 1,500,000 Convertible Preferred Securities having an aggregate liquidation amount of up to $75,000,000 against receipt of the aggregate purchase price of such Convertible Preferred Securities of up to $75,000,000, and (ii) the Sponsor, Common Security Certificates, registered in the name of the Sponsor, in an aggregate amount of 46,392 Common Securities having an aggregate liquidation amount of $2,319,600, against receipt of the aggregate purchase price of such Common Securities of up to $2,319,600. SECTION 3.4. Purchase of Debentures. On the Closing Date and contemporaneously with the execution and delivery of this Declaration, the Institutional Trustee, on behalf of the Trust, shall purchase from the Sponsor with the proceeds received by the Trust from the sale of the Securities on such date pursuant to Section 3.03, at a purchase price of 100% of the principal amount thereof, Debentures, registered in the name of the Institutional Trustee and having an aggregate principal amount equal to $515,463,950, and, in satisfaction of the purchase price for such Debentures, the Institutional Trustee, on behalf of the Trust, shall deliver or cause to be delivered to the Sponsor the sum of 15 21 $515,463,950. In the event the overallotment option granted by the Trust with respect to the Convertible Preferred Securities pursuant to the Purchase Agreement is exercised by the Initial Purchaser named therein, on the Option Closing Date the Administrators, on behalf of the Trust, shall purchase from the Sponsor with the proceeds received by the Trust from the sale of the Convertible Preferred Securities on such date pursuant to Section 3.03, at a purchase price of 100% of the principal amount thereof, additional Debentures, registered in the name of the Institutional Trustee and having an aggregate principal amount of up to $77,319,600, and, in satisfaction of the purchase price for such Debentures, the Administrators, on behalf of the Trust, shall deliver or cause to be delivered to the Sponsor an amount equal to the aggregate principal amount being purchased. SECTION 3.5. Purpose. The exclusive purposes and functions of the Trust are (a) to issue and sell Securities and use the proceeds from such sale to acquire the Debentures, and (b) except as otherwise limited herein, to engage in only those other activities necessary or incidental thereto. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, pledge any of its assets, or otherwise undertake (or permit to be undertaken) any activity that would cause the Trust not to be classified for United States federal income tax purposes as a grantor trust. SECTION 3.6. Title to Property of the Trust. Except as provided in Section 3.07 with respect to the Debentures and the Institutional Trustee Account or as otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust. SECTION 3.7. Authorization to Enter into Certain Transactions. (a) The Trustees and the Administrators shall conduct the affairs of the Trust in accordance with the terms of this Declaration. Subject to the limitations set forth in paragraph (b) of this Section, and in accordance with the following provisions (i) and (ii), the Trustees and the Administrators shall have the authority to enter into all transactions and agreements determined by the Trustees and the Administrators to be appropriate in exercising the authority, express or implied, otherwise granted to the Trustees or the Administrators, as the case may be, under this Trust Agreement, and to perform all acts in futherance thereof, including without limitation, the following: (i) Each Administrator shall have the power and authority to act on behalf of the Trust with respect to the following matters: 16 22 (A) the issuance and sale of the Securities; (B) the receipt of the Debentures; (C) to cause the Trust to enter into, and to execute and deliver on behalf of the Trust, such agreements as may be necessary or desirable in connection with the purposes and function of the Trust, including agreements with the Clearing Agency, any Registrar, any Transfer Agent and any Paying Agent; (D) ensuring compliance with the Securities Act, applicable state securities or blue sky laws, and assisting in the compliance with the Trust Indenture Act; (E) to execute and file one or more registration statements relating to the Convertible Preferred Securities contemplated by the Registration Rights Agreement and the preparation and filing of all periodic and other reports and other documents pursuant to the foregoing; (F) to register the Convertible Preferred Securities under the Exchange Act, as amended, if required, and the preparation and filing of all periodic and other reports and other documents pursuant to the foregoing; (G) assisting in the designation of the Convertible Preferred Securities for trading in the PORTAL Market; (H) the sending of notices (other than notices of default) and other information regarding the Securities and the Debentures to the Holders in accordance with this Declaration; (I) the consent to the appointment of a Paying Agent, Transfer Agent and Registrar in accordance with this Declaration, which consent shall not be unreasonably withheld; (J) execution of the Securities in accordance with this Declaration; (K) execution and delivery of closing certificates pursuant to the Purchase Agreement and the application for a taxpayer 17 23 identification number; (L) except as otherwise required by the Business Trust Act or the Trust Indenture Act, to execute on behalf of the Trust (either acting along or together with any or all of the Administrators) any documents that the Administrators have the power to execute pursuant to this Declaration; (M) the taking of any action incidental to the foregoing as the Institutional Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Declaration for the benefit of the Holders (without consideration of the effect of any such action on any particular Holder); (N) execution and delivery of letters or documents to or instruments with DTC relating to the Convertible Preferred Securities; (O) execution and delivery of the Registration Rights Agreement and other related agreements relating to the sale of the Convertible Preferred Securities; (P) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including and with respect to, for the purposes of Section 316(c) of the Trust Indenture Act, Distributions, voting rights, redemptions and exchanges, and to issue relevant notices to the Holders of Convertible Preferred Securities and Holders of Common Securities as to such actions and applicable record dates; (Q) to duly prepare and file all applicable tax returns and tax information reports that are required to be filed with respect to the Trust on behalf of the Trust; and (R) to give prompt written notice to the Holders of the Securities of any notice received from the Debenture Issuer of its election to defer payments of interest on the Debentures by extending the interest payment period under the Indenture. (ii) As among the Trustees and the Administrators, the Institutional Trustee shall have the power, duty and authority to act on 18 24 behalf of the Trust with respect to the following matters: (A) establish and maintain a segregated non-interest bearing trust account (the "INSTITUTIONAL TRUSTEE ACCOUNT") in the name of and under the exclusive control of the Institutional Trustee on behalf of the Holders of the Securities and, upon the receipt of payments of funds made in respect of the Debentures held by the Institutional Trustee, deposit such funds into the Institutional Trustee Account and make payments to the Holders of the Convertible Preferred Securities and Holders of the Common Securities from the Institutional Trustee Account in accordance with Section 6.01; funds in the Institutional Trustee Account shall be held uninvested until disbursed in accordance with this Declaration; the Institutional Trustee Account shall be an account that is maintained with a banking institution the rating on whose long-term unsecured indebtedness is at least equal to the rating assigned to the outstanding long-term debt of the Debenture Issuer by a "nationally recognized statistical rating organization," as that term is defined for purposes of Rule 436(g)(2) under the Securities Act; (B) the collection of interest, principal and any other payments made in respect of the Debentures in the Institutional Trustee Account; (C) engage in such ministerial activities as shall be necessary or appropriate to effect the redemption of the Convertible Preferred Securities and the Common Securities to the extent the Debentures are redeemed or mature; (D) upon written notice of a Special Event issued by the Administrators in accordance with the terms of the Securities, engage in such ministerial activities as shall be necessary or appropriate to effect the distribution of the Debentures to Holders of Securities; (E) the distribution through the Paying Agent of amounts owed to the Holders in respect of the Securities; (F) the exercise of all of the rights, powers and privileges of a holder of the Debentures; 19 25 (G) the sending of notices of default and other information regarding the Securites and the Debentures to the Holders in accordance with this Declaration; (H) the distribution of the Trust property in accordance with the terms of this Declaration; (I) to the extent provided in this Declaration, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware; (J) after any Event of Default (provided that such Event of Default is not by or with respect to the Institutional Trustee), the taking of any action incidental to the foregoing as the Institutional Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Declaration and protect and conserve the Trust property for the benefit of the Holders (without consideration of the effect of any such action on any particular Holder); and (K) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Convertible Preferred Securities or to enable the Trust to effect the purposes for which the Trust was created. (iii) The Institutional Trustee shall have the power and authority to act on behalf of the Trust with respect to any of the duties, liabilities, powers or the authority of the Administrators set forth in Section 3.07(a)(i)(G) and (I) herein but shall not have a duty to do any such act unless specifically requested to do so in writing by the Sponsor, and shall then be fully protected in acting pursuant to such written request; and in the event of a conflict between the action of the Administrators and the action of the Instituional Trustee, the action of the Institutional Trustee shall prevail. 20 26 (iv) All monies deposited in the Institutional Trustee Account, and all Debentures held by the Institutional Trustee for the benefit of Holders of Securities, will not be subject to any right, charge, security interest, lien or claim of any kind in favor of, or for the benefit of, the Institutional Trustee or its agents or their creditors. (v) The Institutional Trustee shall take all actions and perform such duties as may be specifically required of the Institutional Trustee pursuant to the terms of the Securities. (vi) The Institutional Trustee may bring or defend, pay, collect, compromise, arbitrate, resort to legal action or otherwise adjust claims or demands of or against the Trust ("LEGAL ACTION") arising out of or in connection with an Event of Default of which a Responsible Officer of the Institutional Trustee has actual knowledge or the Institutional Trustee's duties and obligations under this Declaration or the Trust Indenture Act; provided, that if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Convertible Preferred Securities may to the fullest extent permitted by law directly institute a proceeding for enforcement of payment to such Holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Convertible Preferred Securities of such Holder (a "DIRECT ACTION") on or after the respective due date specified in the Debentures. In connection with such Direct Action, the rights of the Holders of the Common Securities will be subrogated to the rights of such Holder of Preferred Securities to the extent of any payment made by the Debenture Issuer to such Holder of Preferred Securities in such Direct Action; provided, however, that no Holder of the Common Securities may exercise any such right of subrogation so long as an Event of Default with respect to the Convertible Preferred Securities has occurred and is continuing. Except as provided in the preceding sentences, the Holders of Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Debentures. (vii) The Institutional Trustee shall have the legal power to exercise all of the rights, powers and privileges of a holder of Debentures under the Indenture and, if an Event of Default actually known to a Responsible Officer of the Institutional Trustee occurs and is continuing, 21 27 the Institutional Trustee shall, subject to the provisions of this Declaration, for the benefit of Holders of the Securities, enforce its rights as holder of the Debentures subject to the rights of the Holders pursuant to the terms of this Declaration and such Securities. (viii) The Institutional Trustee shall continue to serve as Trustee until either: (A) the Trust has been completely liquidated and the proceeds of the liquidation distributed to the Holders of Convertible Preferred Securities pursuant to the terms of the Convertible Preferred Securities; or (B) a Successor Institutional Trustee has been appointed and has accepted that appointment in accordance with Section 5.06. (b) Notwithstanding anything herein to the contrary, the Institutional Trustee and Administrators are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that the Trust will not be deemed to be an Investment Company required to be registered under the Investment Company Act or fail to be classified as a grantor trust for United States Federal income tax purposes and so that the Debentures will be treated as indebtedness of the Debenture Issuer for United States Federal income tax purposes. In this connection, the Institutional Trustee, the Administrators and the Holders of a Majority in Liquidation Amount of the Common Securities are authorized to take any action, not inconsistent with applicable law, the Certificate of Trust or this Declaration, as amended from time to time, that each of the Institutional Trustee, any Administrator and the Holders of a Majority in Liquidation Amount of the Common Securities determines in its discretion to be necessary or desirable for such purposes, so long as such action does not adversely affect in any material respect the interests of the Holders of the Convertible Preferred Securities. (c) All expenses incurred by the Administrators or the Trustees pursuant to this Section 3.07 shall be reimbursed by the Sponsor, and the Trustees shall have no obligations with respect to such expenses. SECTION 3.8. Prohibition of Actions by the Trust, the Trustees and the Administrators. (a) The Trust shall not, and the Institutional Trustee and the Administrators shall not cause the Trust to, engage in any activity other than as required or authorized by this Declaration. In particular neither the Trustees nor 22 28 the Administrators shall cause the Trust to: (i) invest any proceeds received by the Trust from holding the Debentures, but shall distribute all such proceeds to Holders of Securities pursuant to the terms of this Declaration and of the Securities; (ii) acquire any assets other than as expressly provided herein; (iii) possess Trust property for other than a Trust purpose; (iv) make any loans or incur any indebtedness other than loans represented by the Debentures; (v) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Securities in any way whatsoever; (vi) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Securities; or (vii) other than as provided in this Declaration or Annex I hereto, (A) direct the time, method and place of exercising any trust or power conferred upon the Debenture Trustee with respect to the Debentures, (B) waive any past default that is not waivable under the Indenture, (C) exercise any right to rescind or annul any declaration that the principal of all the Debentures shall be due and payable, or (D) consent to any amendment, modification or termination of the Indenture or the Debentures where such consent shall be required unless the Trust shall have received an opinion of counsel to the effect that such amendment, modification or termination will not cause more than an insubstantial risk that (x) the Trust will be deemed an Investment Company required to be registered under the Investment Company Act or (y) for United States federal income tax purposes the Trust will not be classified as a grantor trust. SECTION 3.9. Certain Duties and Responsibilities of the Institutional Trustee. (a) The Institutional Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration and no implied covenants shall be read into this Declaration against the Institutional Trustee. In case an Event of Default has occurred (and has not 23 29 been cured or waived pursuant to Section 2.06) and a Responsible Officer of the Institutional Trustee has actual knowledge thereof, the Institutional Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Declaration shall be construed to relieve the Institutional Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Institutional Trustee shall be determined solely by the express provisions of this Declaration and the Institutional Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Declaration, and no implied covenants or obligations shall be read into this Declaration against the Institutional Trustee; and (B) in the absence of bad faith on the part of the Institutional Trustee, the Institutional Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Institutional Trustee and conforming to the requirements of this Declaration; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Institutional Trustee, the Institutional Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Declaration (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein); (ii) the Institutional Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Institutional Trustee, unless it shall be proved that the Institutional Trustee was negligent in ascertaining the pertinent facts; (iii) the Institutional Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with 24 30 the direction of the Holders of not less than a Majority in Liquidation Amount of the Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under this Declaration; (iv) no provision of this Declaration shall require the Institutional Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Declaration or indemnity reasonably satisfactory to the Institutional Trustee against such risk or liability is not reasonably assured to it; (v) the Institutional Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Institutional Trustee Account shall be to deal with such property in a similar manner as the Institutional Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Institutional Trustee under this Declaration and the Trust Indenture Act; (vi) the Institutional Trustee shall have no duty or liability for or with respect to the value, genuineness, existence or sufficiency of the Debentures or the payment of any taxes or assessments levied thereon or in connection therewith; (vii) the Institutional Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree in writing with the Sponsor. Money held by the Institutional Trustee need not be segregated from other funds held by it except in relation to the Institutional Trustee Account maintained by the Institutional Trustee pursuant to Section 3.07(a)(ii)(A) and except to the extent otherwise required by law; and (viii) the Institutional Trustee shall not be responsible for monitoring the compliance by the Administrators or the Sponsor with their respective duties under this Declaration, nor shall the Institutional Trustee be liable for any default or misconduct of the Administrators or the Sponsor. 25 31 SECTION 3.10. Certain Rights of Institutional Trustee. (a) Subject to the provisions of Section 3.09: (i) the Institutional Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; (ii) if (A) in performing its duties under this Declaration the Institutional Trustee is required to decide between alternative courses of action, or (B) in construing any of the provisions of this Declaration, the Institutional Trustee finds the same ambiguous or inconsistent with any other provision contained herein, or (C) the Institutional Trustee is unsure of the application of any provision of this Declaration, then, except as to any matter as to which the Holders of Convertible Preferred Securities are entitled to vote under the terms of this Declaration, the Institutional Trustee may deliver a notice to the Sponsor requesting the Sponsor's opinion as to the course of action to be taken and the Institutional Trustee shall take such action, or refrain from taking such action, as the Institutional Trustee in its sole discretion shall deem advisable and in the best interest of the Holders, in which event the Institutional Trustee shall have no liability except for its own bad faith, negligence or willful misconduct; (iii) any direction or act of the Sponsor or the Administrators contemplated by this Declaration shall be sufficiently evidenced by an Officers' Certificate; (iv) whenever, in the administration of this Declaration, the Institutional Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Institutional Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate as to factual matters (other than the interpretation of this Declaration), which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Administrators; (v) the Institutional Trustee shall have no duty to see to any 26 32 recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or reregistration thereof; (vi) the Institutional Trustee may consult with counsel of its selection or other experts and the advice or opinion of such counsel and experts with respect to legal matters or advice within the scope of such experts' area of expertise shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice or opinion. Such counsel may be counsel to the Sponsor or any of its Affiliates, and may include any of its employees. The Institutional Trustee shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction; (vii) the Institutional Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any Holder pursuant to this Declaration, unless such Holder shall have provided to the Institutional Trustee security and indemnity, reasonably satisfactory to the Institutional Trustee, against the costs, expenses (including reasonable attorneys' fees and expenses and the expenses of the Institutional Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Institutional Trustee; provided, that, nothing contained in this Section 3.10(a)(vii) shall be taken to relieve the Institutional Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Declaration; (viii) the Institutional Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, approval, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Institutional Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (ix) the Institutional Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, custodians, nominees or attorneys and the Institutional 27 33 Trustee shall not be responsible for any misconduct or negligence on the part of any agent, custodians, nominees or attorney appointed with due care by it hereunder; (x) any action taken by the Institutional Trustee or its agents hereunder shall bind the Trust and the Holders of the Securities, and the signature of the Institutional Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Institutional Trustee to so act or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Institutional Trustee's or its agent's taking such action; (xi) whenever in the administration of this Declaration the Institutional Trustee shall deem it desirable to receive written instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Institutional Trustee (A) may request written instructions from the Holders of the Securities, which instructions may only be given by the Holders of the same proportion in liquidation amount of the Securities as would be entitled to direct the Institutional Trustee under the terms of the Securities in respect of such remedy, right or action, (B) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (C) shall be protected in conclusively relying on or acting in or accordance with such instructions; (xii) except as otherwise expressly provided by this Declaration, the Institutional Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration; and (xiii) the Institutional Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Declaration. (b) No provision of this Declaration shall be deemed to impose any duty or obligation on the Institutional Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Institutional Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Institutional Trustee shall be construed to be a duty. 28 34 SECTION 3.11. Delaware Trustee. Notwithstanding any other provision of this Declaration other than Section 5.02, the Delaware Trustee, acting in its capacity as such, shall not be entitled to exercise any powers, nor shall the Delaware Trustee, acting in its capacity as such, have any of the duties and responsibilities of the Administrators or the Institutional Trustee described in this Declaration. The Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Business Trust Act. SECTION 3.12. Execution of Documents. Except as otherwise required by the Business Trust Act or applicable law, the Institutional Trustee or any Administrator, as the case may be, is authorized to execute on behalf of the Trust any documents, agreements, instruments or certificates that the Institutional Trustee or the Administrators, as the case may be, have the power and authority to execute pursuant to Section 3.07; provided, that the registration statement referred to in Section 3.07(a)(i)(D), including any amendments thereto, shall be signed by a majority of Administrators. SECTION 3.13. Not Responsible for Recitals or Issuance of Securities . The recitals contained in this Declaration and the Securities shall be taken as the statements of the Sponsor, and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration, the Debentures or the Securities. SECTION 3.14. Duration of Trust. The Trust, unless dissolved pursuant to the provisions of Article 7.04 hereof, shall have existence for forty (40) years from December 1, 1997. SECTION 3.15. Mergers. (a) The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any Person, except as described in Section 3.15(b) and (c) of this Declaration or Sections 3 and 4 of Annex I. (b) The Trust may, with the consent of the Administrators or, if there are more than two, a majority of the Administrators and without the consent of the Holders of the Securities, the Delaware Trustee or the Institutional Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust organized as such under the laws of any State; provided, that: (i) such successor entity ( the "SUCCESSOR ENTITY") either: 29 35 (A) expressly assumes all of the obligations of the Trust under the Securities; or (B) substitutes for the Convertible Preferred Securities other securities having substantially the same terms as the Convertible Preferred Securities (the "SUCCESSOR SECURITIES") so long as the Successor Securities rank the same as the Convertible Preferred Securities rank with respect to Distributions and payments upon liquidation, redemption and otherwise; (ii) the Debenture Issuer expressly acknowledges a trustee of the Successor Entity possessing the same powers and duties as the Institutional Trustee as the Holder of the Debentures; (iii) such merger, consolidation, amalgamation or replacement does not cause the Convertible Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization; (iv) such merger, consolidation, amalgamation or replacement does not adversely affect the Holders of the Securities (including any Successor Securities) in any material respect; (v) such Successor Entity has a purpose substantially identical to that of the Trust; (vi) prior to such merger, consolidation, amalgamation or replacement, the Sponsor has received an opinion of independent counsel to the Trust experienced in such matters to the effect that: (A) such merger, consolidation, amalgamation or replacement does not adversely affect the Holders of the Securities (including any successor Securities) in any material respect; (B) following such merger, consolidation, amalgamation or replacement, neither the Trust nor the Successor Entity will be required to register as an Investment Company; (C) following such merger, consolidation, amalgamation or replacement, the Trust (or such Successor Entity) will continue 30 36 to be classified as a grantor trust for United States federal income tax purposes; and (vii) the Sponsor guarantees the obligations of such Successor Entity under the Successor Securities at least to the extent provided by the Securities Guarantees. (c) Notwithstanding Section 3.15(b), the Trust shall not, except with the consent of Holders of 100% in liquidation amount of the Securities, consolidate, amalgamate, merge with or into, or be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger or replacement would cause the Trust or Successor Entity to be classified as other than a grantor trust for United States federal income tax purposes. ARTICLE 4 SPONSOR SECTION 4.1. Sponsor's Purchase of Common Securities. On the Closing Date the Sponsor will purchase all of the Common Securities issued by the Trust, in an aggregate liquidation amount at least equal to 3% of the capital of the Trust, at the same time as the Convertible Preferred Securities are sold. SECTION 4.2. Responsibilities of the Sponsor. In connection with the issue and sale of the Convertible Preferred Securities, the Sponsor shall have the exclusive right and responsibility to engage in the following activities: (a) to prepare and distribute an offering memorandum (the "OFFERING MEMORANDUM") in preliminary and final form and any supplements and amendments thereto, in relation to the offering and sale by the Trust of Convertible Preferred Securities to qualified institutional buyers in reliance on Rule 144A under the Securities Act and outside the United States to non-U.S. persons in offshore transactions in reliance on Regulation S under the Securities Act and to prepare for filing by the Trust and the Debenture Issuer with the Commission any registration statement, including any amendment thereto, as contemplated by the Registration Rights Agreement; (b) to prepare or cause to be prepared for filing by the Trust an 31 37 application to the PORTAL Market; (c) to prepare for filing by the Trust of documents, or instruments to be delivered to DTC relating to the Convertible Preferred Securities; (d) to prepare for execution and filing by the Trust with the Commission a registration statement on Form 8-A, including any supplements and amendments thereto, relating to the registration of the Convertible Preferred Securities under Section 12(b) of the Exchange Act; (e) to determine the States in which to take appropriate action to qualify or register for sale or resale all or part of the Convertible Preferred Securities and to do any and all such acts, other than actions which must be taken by the Trust, and advise the Trust of actions it must take, and prepare for execution and filing any documents to be executed and filed by the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States; (f) to negotiate the terms of and execute the Purchase Agreement providing for the sale of the Convertible Preferred Securities; and (g) to negotiate the terms of the Registration Rights Agreement providing for, among other things, the registration under the Securities Act of resales from time to time of the Convertible Preferred Securities. (h) to provide any Holder of Securities originally issued in an offering not registered pursuant to the Securities Act, at the request of such Holder, if prior to the Transfer Restriction Termination Date the Company is neither subject to Section 13 or 15(d) of the Exchange Act, such information, if any, required by Rule 144A(d)(4) under the Securities Act. ARTICLE 5 TRUSTEES AND ADMINISTRATORS SECTION 5.1. Number of Trustees and Administrators. (a) The number of Trustees initially shall be two (2) and the number of Administrators shall initially be three (3). 32 38 (b) At any time before the issuance of any Securities, the Sponsor may, by written instrument, increase or decrease the number of Trustees or Administrators. (c) After the issuance of any Securities, the number of Trustees may be increased or decreased by vote of the Holders of a Majority in Liquidation Amount of the Convertible Preferred Securities voting as a class at a meeting of the Holders of the Convertible Preferred Securities; provided, that (i) if required by the Business Trust Act, there shall be one Trustee (the "DELAWARE TRUSTEE") that shall meet the requirements of Sections 5.02 and 5.04 and (ii) there shall be one Trustee (the "INSTITUTIONAL TRUSTEE") that shall meet the requirements of 5.03 at such time and for so long as this Declaration is required to qualify as an indenture under the Trust Indenture Act. SECTION 5.2. Delaware Trustee; Eligibility. (a) If required by the Business Trust Act, the Delaware Trustee shall be: (i) a natural person who is a resident of the State of Delaware; or (ii) if not a natural person, an entity that has its principal place of business in the State of Delaware, and otherwise meets the requirements of applicable law. (b) The initial Delaware Trustee shall be The Bank of New York (Delaware). (c) If at any time, the Institutional Trustee has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable law, then the Institutional Trustee shall also be the Delaware Trustee and Section 3.11 shall have no application. SECTION 5.3. Institutional Trustee; Eligibility. (a) The Institutional Trustee shall: (i) not be an Affiliate of the Sponsor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital 33 39 and surplus of at least 500 million U.S. dollars ($500,000,000), and subject to supervision or examination by federal, state, territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 5.03(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Institutional Trustee shall cease to be eligible to so act under Section 5.03(a), the Institutional Trustee shall immediately resign in the manner and with the effect set forth in Section 5.07(c). (c) If the Institutional Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Institutional Trustee and the Holder of the Common Securities (as if it were the obligor referred to in Section 310(b) of the Trust Indenture Act) shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. (d) The Indenture, the Debentures, the Convertible Preferred Securities and the Preferred Securities Guarantee shall be deemed to be specifically described in this Declaration for purposes of clause (i) of the first provision contained in Section 310(b) of the Trust Indenture Act. (e) The initial Institutional Trustee shall be The Bank of New York. SECTION 5.4. Certain Qualifications of Administrators and the Delaware Trustee Generally. Each Administrator and the Delaware Trustee (unless the Institutional Trustee also acts as Delaware Trustee) shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more Authorized Officers. SECTION 5.5. Initial Administrators. The initial Administrators shall be: Thomas W. Ryan, David A. Bozynski and Diane L. Kaye. SECTION 5.6. Delaware Trustee. The initial Delaware Trustee shall be The Bank of New York (Delaware). 34 40 SECTION 5.7. Appointment, Removal and Resignation of Trustees and Administrators. (a) Subject to Section 5.07(b), Trustees may be appointed or removed without cause at any time: (i) until the issuance of any Securities, by written instrument executed by the Sponsor; and (ii) after the issuance of any Securities, by vote of the Holders of a Majority in Liquidation Amount of the Convertible Preferred Securities voting as a class at a meeting of the Holders of the Convertible Preferred Securities. (b) The Trustee that acts as Institutional Trustee shall not be removed in accordance with Section 5.07(a) until a successor Trustee possessing the qualifications set forth in Section 5.03 (a "SUCCESSOR INSTITUTIONAL TRUSTEE") has been appointed and has accepted such appointment by written instrument executed by such Successor Institutional Trustee and delivered to the Administrators and the Sponsor. The Trustee that acts as Delaware Trustee shall not be removed in accordance with Section 5.07(a) until a successor Trustee possessing the qualifications to act as Delaware Trustee under Sections 5.02 and 5.04 (a "SUCCESSOR DELAWARE TRUSTEE") has been appointed and has accepted such appointment by written instrument executed by such Successor Delaware Trustee and delivered to the Administrators and the Sponsor. (c) A Trustee appointed to office shall hold office until his successor shall have been appointed or until his death, removal or resignation. Any Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing signed by the Trustee and delivered to the Sponsor and the Trust, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, that: (i) no such resignation of the Trustee that acts as the Institutional Trustee shall be effective: (A) until a Successor Institutional Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Institutional Trustee and delivered to the Trust, the Sponsor and the resigning Institutional Trustee; or (B) until the assets of the Trust have been completely liquidated and the proceeds thereof distributed to the holders of the 35 41 Securities; and (ii) no such resignation of the Trustee that acts as the Delaware Trustee shall be effective until a Successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Delaware Trustee and delivered to the Trust, the Sponsor and the resigning Delaware Trustee. (d) The Holders of the Common Securities shall use their best efforts to promptly appoint a Successor Delaware Trustee or Successor Institutional Trustee, as the case may be, if the Institutional Trustee or the Delaware Trustee delivers an instrument of resignation in accordance with this Section 5.07. (e) If no Successor Institutional Trustee or Successor Delaware Trustee shall have been appointed and accepted appointment as provided in this Section 5.07 within 60 days after delivery to the Sponsor and the Trust of an instrument of resignation or removal, the Institutional Trustee or Delaware Trustee resigning or being removed, as applicable, may petition any court of competent jurisdiction for appointment of a Successor Institutional Trustee or Successor Delaware Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Institutional Trustee or Successor Delaware Trustee, as the case may be. (f) No Institutional Trustee or Delaware Trustee shall be liable for the acts or omissions to act of any Successor Institutional Trustee or Successor Delaware Trustee, as the case may be. (g) The Holders of the Convertible Preferred Securities will have no right to vote to appoint, remove, replace or change the number of the Administrators, which voting rights are vested exclusively in the Holders of the Common Securities. SECTION 5.8. Vacancies among Trustees. If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 5.01, or if the number of Trustees is increased pursuant to Section 5.01, a vacancy shall occur. A resolution certifying the existence of such vacancy by the Trustees or, if there are more than two, a majority of the Trustees shall be conclusive evidence of the existence of such vacancy. The vacancy shall be filled with a Trustee appointed in accordance with Section 5.07. SECTION 5.9. Effect of Vacancies. The death, resignation, retirement, 36 42 removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee shall not operate to dissolve, terminate or annul the Trust. Whenever a vacancy in the number of Trustees shall occur, until such vacancy is filled by the appointment of a Trustee in accordance with Section 5.07, the Trustees in office, regardless of their number, shall have all the powers granted to the Trustees and shall discharge all the duties imposed upon the Trustees by this Declaration. SECTION 5.10. Meetings. Meetings of the Trustees or the Administrators shall be held from time to time upon the call of any Trustee or Administrator, as applicable. Regular meetings of the Trustees and the Administrators, respectively, may be held at a time and place fixed by resolution of the Trustees or the Administrators, as applicable. Notice of any in-person meetings of the Trustees or the Administrators shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 48 hours before such meeting. Notice of any telephonic meetings of the Trustees or the Administrators or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before a meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of a Trustee or an Administrator, as the case may be, at a meeting shall constitute a waiver of notice of such meeting except where a Trustee or an Administrator, as the case may be, attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Trustees or the Administrators, as the case may be, may be taken at a meeting by vote of a majority of the Trustees or Administrators present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or without a meeting by the unanimous written consent of the Trustees or the Administrators. In the event there is only one Trustee or Administrator, any and all action of such Trustee or Administrator shall be evidenced by a written consent of such Trustee or Administrator. Meetings of the Trustees and the Administrators together shall be held from time to time upon the call of any Trustee or Administrator. SECTION 5.11. Delegation of Power. (a) Any Trustee or Administrator may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 3.07, including any registration statement or amendment thereto filed with the Commission, or making any other 37 43 governmental filing; and (b) The Trustees and the Administrators shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Trustees or otherwise as the Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. SECTION 5.12. Merger, Conversion, Consolidation or Succession to Business. Any Person into which the Institutional Trustee or the Delaware Trustee, as the case may be, may be merged or converted or with which either may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Institutional Trustee or the Delaware Trustee, as the case may be, shall be a party, or any Person succeeding to all or substantially all the corporate trust business of the Institutional Trustee or the Delaware Trustee, as the case may be, shall be the successor of the Institutional Trustee or the Delaware Trustee, as the case may be, hereunder, provided such Person shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. ARTICLE 6 DISTRIBUTIONS SECTION 6.1. Distributions. Holders of Securities shall receive Distributions (as defined herein) in accordance with the applicable terms of the relevant Holder's Securities. Distributions shall be made on the Convertible Preferred Securities and the Common Securities in accordance with the preferences set forth in their respective terms. If and to the extent that the Debenture Issuer makes a payment of interest (including Compounded Interest (as defined in the Indenture) and Additional Interest (as defined in the Indenture)), premium and/or principal on the Debentures held by the Institutional Trustee (the amount of any such payment being a "PAYMENT AMOUNT"), the Institutional Trustee shall and is directed, to the extent funds are available for that purpose, to make a distribution (a "DISTRIBUTION") of the Payment Amount to Holders. ARTICLE 7 38 44 ISSUANCE OF SECURITIES SECTION 7.1. General Provisions Regarding Securities. (a) The Administrators shall on behalf of the Trust issue one class of convertible preferred securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Annex I (the "CONVERTIBLE PREFERRED SECURITIES") and one class of convertible common securities representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Annex I (the "COMMON SECURITIES"). The Trust shall issue no securities or other interests in the assets of the Trust other than the Convertible Preferred Securities and the Common Securities. (b) The consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (c) Upon issuance of the Securities as provided in this Declaration, the Securities so issued shall be deemed to be validly issued, fully paid and non-assessable. (d) Every Person, by virtue of having become a Holder or a Convertible Preferred Security Beneficial Owner in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of and shall be bound by this Declaration and the Preferred Securities Guarantee. SECTION 7.2. Execution and Authentication. (a) The Certificates shall be signed on behalf of the Trust by an Administrator. In case any Administrator of the Trust who shall have signed any of the Securities shall cease to be such Administrator before the Certificates so signed shall be delivered by the Trust, such Certificates nevertheless may be delivered as though the person who signed such Certificates had not ceased to be such Administrator; and any Certificate may be signed on behalf of the Trust by such persons who, at the actual date of execution of such Security, shall be the Administrators of the Trust, although at the date of the execution and delivery of this Declaration any such person was not such an Administrator. (b) One Administrator shall sign the Convertible Preferred Securities for the Trust by manual or facsimile signature. Unless otherwise determined by the Trust, such signature shall, in the case of Common Securities, be a manual signature. 39 45 A Convertible Preferred Security shall not be valid until authenticated by the manual signature of an authorized signatory of the Institutional Trustee. The signature shall be conclusive evidence that the Convertible Preferred Security has been authenticated under this Declaration. Upon a written order of the Trust signed by one Administrator, the Institutional Trustee shall authenticate the Convertible Preferred Securities for original issue. The Institutional Trustee may appoint an authenticating agent acceptable to the Trust to authenticate Convertible Preferred Securities. A Common Security need not be authenticated or countersigned. An authenticating agent may authenticate Convertible Preferred Securities whenever the Institutional Trustee may do so. Each reference in this Declaration to authentication by the Institutional Trustee includes authentication by such agent. An authenticating agent has the same rights as the Institutional Trustee to deal with the Company or an Affiliate. SECTION 7.3. Form and Dating. The Convertible Preferred Securities and the Institutional Trustee's certificate of authentication shall be substantially in the form of Exhibit A-1 and the Common Securities shall be substantially in the form of Exhibit A-2, each of which is hereby incorporated in and expressly made a part of this Declaration. Certificates may be typed, printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrators, as evidenced by their execution thereof. The Securities may have letters, numbers, notations or other marks of identification or designation and such legends or endorsements required by law, stock exchange rule, agreements to which the Trust is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Trust). The Trust, at the direction of the Sponsor, shall furnish any such legend not contained in Exhibit A-1 to the Institutional Trustee in writing. Each Convertible Preferred Security Certificate shall be dated the date of its authentication. The terms and provisions of the Securities set forth in Annex I and the forms of Securities set forth in Exhibits A-1 and A-2 are part of the terms of this Declaration and, to the extent applicable, the Institutional Trustee, the Delaware Trustee, the Administrators and the Sponsor, by their execution and delivery of this Declaration, expressly agree to such terms and provisions and to be bound thereby. SECTION 7.4. Paying Agent, Registrar and Conversion Agent. The Trust shall maintain in the Borough of Manhattan, City of New York, State of New York, an office or agency where Convertible Preferred Securities not held in book-entry only form may be presented for payment (the "PAYING AGENT"). The 40 46 Trust shall maintain an office or agency where Securities may be presented for conversion (the "CONVERSION AGENT"). The Trust shall keep or cause to be kept at such office or agency a register for the purpose of registering Securities and transfers and exchanges of Securities, such register to be held by a registrar (the "REGISTRAR"). The Trust may appoint the Paying Agent, the Registrar and the Conversion Agent and may appoint one or more additional paying agents, one or more additional registrars and one or more additional conversion agents in such other locations as it shall determine. Any such Paying Agent shall comply with Section 317(b) of the Trust Indenture Act. The term "PAYING AGENT" includes any additional paying agent, the term "REGISTRAR" includes any additional registrar and the term "CONVERSION AGENT" includes any additional conversion agent. The Trust may change any Paying Agent, Registrar or Conversion Agent at any time without prior notice to any Holder. The Trust shall notify the Institutional Trustee in writing of the name and address of any Agent not a party to this Declaration. If the Trust fails to appoint or maintain another entity as Paying Agent, Registrar or Conversion Agent, the Institutional Trustee shall act as such. The Trust initially appoints the Institutional Trustee as Paying Agent, Registrar and Conversion Agent for the Convertible Preferred Securities and the Common Securities. The Trust shall require each Paying Agent other than the Institutional Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders of the Institutional Trustee all money held by the Paying Agent for the payment of liquidation amounts, redemption amounts or Distribution on the Securities, and will notify the Institutional Trustee in writing if there are insufficient funds. While any such insufficiency continues, the Institutional Trustee may require a Paying Agent to pay all money held by it to the Institutional Trustee. The Trust at any time may require a Paying Agent to pay all money held by it to the Institutional Trustee and to account for any money disbursed by it. Upon payment over to the Institutional Trustee, the Paying Agent (if other than the Trust or an Affiliate of the Trust) shall have no further liability for the money. If the Trust or the Sponsor or an Affiliate of the Trust or the Sponsor acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. ARTICLE 8 DISSOLUTION OF TRUST 41 47 SECTION 8.1. Dissolution of Trust. (a) The Trust shall dissolve, and its affairs shall be wound up, upon the earliest to occur of the following: (i) upon the bankruptcy of the Holder of the Common Securities or the Sponsor; (ii) (other than in connection with a merger, consolidation or similar transaction not prohibited by the Indenture, this Declaration or the Securities Guaranties) upon the filing of a certificate of dissolution or its equivalent with respect to the Sponsor; the consent of a Majority in Liquidation Amount of the Securities voting together as a single class to dissolve the Trust or the revocation of the Sponsor's charter and the expiration of 90 days after the date of revocation without a reinstatement thereof; (iii) upon the entry of a decree of judicial dissolution of the Sponsor or the Trust; (iv) when all of the Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders in accordance with the terms of the Securities; (v) upon the occurrence and continuation of a Special Event pursuant to which the Trust shall have been dissolved in accordance with the terms of the Securities and all of the Debentures held by the Institutional Trustee shall have been distributed to the Holders of Securities in exchange for all of the Securities; (vi) upon the distribution of the Sponsor's Common Stock to all Holders of Convertible Preferred Securities upon conversion of all outstanding Convertible Preferred Securities; (vii) the expiration of the term of the Trust on December 1, 2037; or (viii) before the issuance of any Securities, with the consent of all of the Administrators and the Sponsor. (b) As soon as is practicable after the occurrence of an event referred to in Section 8.01(a), after the completion of the winding up of the affairs of the Trust, the Trustees shall file a certificate of cancellation with the Secretary of 42 48 State of the State of Delaware. (c) The provisions of Sections 3.09 and 3.10 and Article 10 shall survive the termination of the Trust. ARTICLE 9 TRANSFER OF INTERESTS SECTION 9.1. Transfer of Securities. (a) Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Securities. Any transfer or purported transfer of any Security not made in accordance with this Declaration shall be null and void. (b) Upon issuance of the Common Securities, the Sponsor shall acquire and retain beneficial and record ownership of the Common Securities and, for so long as the Convertible Preferred Securities remain outstanding, the Sponsor shall maintain 100% ownership of the Common Securities, provided that any permitted successor of the Sponsor under the Indenture may succeed to the Sponsor's ownership of the Common Securities. (c) Subject to this Article 9, Convertible Preferred Securities shall be freely transferable. (d) Subject to this Article 9, the Sponsor and any Related Party may only transfer Common Securities to the Sponsor or a Related Party of the Sponsor, and that any such transfer is subject to the condition precedent that the transferor obtain the written opinion of nationally recognized independent counsel experienced in such matters that such transfer would not cause more than an insubstantial risk that: (i) the Trust would not be classified for United States federal income tax purposes as a grantor trust; or (ii) the Trust would be an Investment Company required to register under the Investment Company Act or the transferee would become an Investment Company required to register under the Investment Company Act. 43 49 (e) The Trust shall not be required (i) to issue, register the transfer of or exchange any Convertible Preferred Securities during a period beginning at the opening of business 15 days before the day of any selection of Convertible Preferred Securities for redemption and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all Holders of Convertible Preferred Securities to be redeemed, or (ii) to register the transfer or exchange of any Convertible Preferred Security so selected for redemption in whole or in part, except the unredeemed portion of any Convertible Preferred Security being redeemed in part. (f) Each Security that bears or is required to bear the legend set forth in this Section 9.01(f) (a "RESTRICTED SECURITY") shall be subject to the restrictions on transfer provided in the legend set forth in this Section 9.01(f), unless such restrictions on transfer shall be waived by the written consent of the Administrators, and the Holder of each Restricted Security, by such Holder's acceptance thereof, agrees to be bound by such restrictions on transfer. As used in this Section 9.01(f) and in Section 9.01(f), the terms "transfer" encompasses any sale, pledge, transfer or other disposition of any Restricted Security. Prior to the Transfer Restriction Termination Date, any certificate representing Convertible Preferred Securities shall bear the following legend (unless such Convertible Preferred Securities have been sold pursuant to a registration statement that has been declared effective under the Securities Act): THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A UNITED STATES PERSON AND IS ACQUIRING THE CONVERTIBLE PREFERRED SECURITY EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT, PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE 44 50 TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A) TO FEDERAL-MOGUL CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (E) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND THAT CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER) AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY, UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE BANK OF NEW YORK, AS INSTITUTIONAL TRUSTEE (OR A SUCCESSOR INSTITUTIONAL TRUSTEE, AS APPLICABLE). THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE SECURITY EVIDENCED HEREBY PURSUANT TO CLAUSE 1(E) ABOVE OR UPON ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "UNITED STATES PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. EACH PURCHASER OR HOLDER OF THE SECURITY EVIDENCED HEREBY WILL BE DEEMED TO HAVE REPRESENTED EITHER THAT (A) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF SUBTITLE B OF TITLE 1 OF ERISA OR A PLAN DESCRIBED IN SECTION 4975 OF THE CODE OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH ERISA PLAN OR OTHER PLAN OR (B) 45 51 ITS ACQUISITION, HOLDING AND DISPOSITION OF THE SECURITY EVIDENCED HEREBY WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE BY REASON OF PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 91-38, PTCE 84-14, PTCE 90-1, PTCE 95-60 OR PTCE 96-23. Prior to the Transfer Restriction Termination Date, any certificate representing Common Stock issued upon conversion of the Convertible Debentures shall bear the following legend (unless such Common Stock has been sold pursuant to a registration statement that has been declared effective under the Securities Act): THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT UNTIL THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A) TO FEDERAL-MOGUL CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (E) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND THAT CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER) AND (2) IT WILL DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO 46 52 CLAUSE 1(E) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE 1(E) ABOVE OR UPON ANY TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE COMMON STOCK EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "UNITED STATES" AND "UNITED STATES PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Following the Transfer Restriction Termination Date, any Security or security issued in exchange or substitution therefor (other than (i) Securities acquired by the Sponsor or any Affiliate of the Sponsor and (ii) Common Stock issued upon the conversion or exchange of any Security described in clause (i) above) may, upon surrender of such Security for exchange to any Administrator on behalf of the Trust in accordance with the provisions of this Section 9.01, be exchanged for a new Security or Securities, of like tenor and aggregate liquidation amount, which shall not bear the restrictive legend required by this Section 9.01(f). (g) Any Convertible Preferred Security or Common Stock issued upon the conversion or exchange of a Convertible Preferred Security that, prior to the Transfer Restriction Termination Date, is purchased or owned by the Sponsor or any Affiliate thereof may not be resold by the Sponsor or such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from the registration requirements of the Securities Act in a transaction that results in such Convertible Preferred Securities or Common Stock, as the case may be, no longer being "restricted securities" (as defined under Rule 144). SECTION 9.2. Transfer of Certificates. The Registrar shall provide for the registration of Certificates and of transfers of Certificates, which will be effected without charge, but only upon payment (with such indemnity as the Registrar may require) in respect of any tax or other government charges that may be imposed in relation to it. Upon surrender for registration of transfer of any Certificate, the Trust shall cause one or more new Certificates to be issued in the name of the designated transferee or transferees. Every Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form 47 53 satisfactory to the Registrar duly executed by the Holder or such Holder's attorney duly authorized in writing. Each Certificate surrendered for registration of transfer shall be canceled by the Registrar. A transferee of a Certificate shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Certificate. By acceptance of a Certificate, each transferee shall be deemed to have agreed to be bound by this Declaration. SECTION 9.3. Deemed Holders. The Trust, the Administrators, the Trustees, the Paying Agent, the Transfer Agent or the Registrar may treat the Person in whose name any Certificate shall be registered on the books and records of the Trust as the sole Holder of such Certificate and of the Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Securities represented by such Certificate on the part of any Person, whether or not the Trust, the Administrators or the Institutional Trustee shall have actual or other notice thereof. SECTION 9.4. Book Entry Interests. (a) So long as Convertible Preferred Securities are eligible for book-entry settlement with the Clearing Agency or unless otherwise required by law, all Convertible Preferred Securities that are so eligible may be represented by one or more fully registered Convertible Preferred Security Certificates (each a "GLOBAL CERTIFICATE") in global form to be delivered to DTC, the initial Clearing Agency, by, or on behalf of, the Trust. Such Global Certificates shall initially be registered on the books and records of the Trust in the name of Cede & Co., the nominee of DTC, and no Convertible Preferred Security Beneficial Owner will receive a definitive Convertible Preferred Security Certificate representing such Convertible Preferred Security Beneficial Owner's interests in such Global Certificates, except as provided in Section 9.07 below. The transfer and exchange of beneficial interests in any such Security in global form shall be effected through the Clearing Agency in accordance with this Declaration and the procedures of the Clearing Agency therefor. (b) Any Global Certificate may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with the provisions of this Declaration as may be required by the Clearing Agency, by any national securities exchange or by the National Association of Securities Dealers, Inc. in order for the Convertible Preferred Securities to be tradeable on the PORTAL Market or as may be required for the Convertible Preferred Securities to be tradeable on any other market developed for trading of securities pursuant to Rule 144A or required to comply with any applicable law or any regulation 48 54 thereunder or with the rules and regulations of any securities exchange upon which the Convertible Preferred Securities may be listed or traded or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Convertible Preferred Securities are subject. (c) Unless and until definitive, fully registered Convertible Preferred Security Certificates have been issued to the Convertible Preferred Security Beneficial Owners of a Convertible Preferred Security represented by a Global Certificate pursuant to Section 9.07: (i) the provisions of this Section 9.04 shall be in full force and effect with respect to such Convertible Preferred Securities; (ii) the Trust and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Declaration (including the payment of Distributions on the Global Certificates and receiving approvals, votes or consents hereunder) as the Holder of such Convertible Preferred Securities and the sole holder of the Global Certificates and shall have no obligation to the Convertible Preferred Security Beneficial Owners of such Convertible Preferred Securities; (iii) to the extent that the provisions of this Section 9.04 conflict with any other provisions of this Declaration, the provisions of this Section 9.04 shall control; and (iv) the rights of the Convertible Preferred Security Beneficial Owners of Convertible Preferred Securities in global form shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Convertible Preferred Security Beneficial Owners and the Clearing Agency and/or the Clearing Agency Participants. (d) Notwithstanding any other provisions of this Declaration, a Convertible Preferred Security represented by a Global Certificate may not be transferred as a whole except by the Clearing Agency to a nominee of the Clearing Agency or by a nominee of the Clearing Agency to the Clearing Agency or another nominee to a successor Clearing Agency or a nominee of such successor Clearing Agency. SECTION 9.5. Notices to Clearing Agency. Whenever a notice or other communication to the Convertible Preferred Security Holders is required under 49 55 this Declaration, unless and until definitive Convertible Preferred Security Certificates shall have been issued to the Convertible Preferred Security Beneficial Owners pursuant to Section 9.07, the Administrators shall give all such notices and communications specified herein to be given to the Convertible Preferred Security Holders to the Clearing Agency, and shall have no notice obligations to the Convertible Preferred Security Beneficial Owners. SECTION 9.6. Appointment of Successor Clearing Agency. If any Clearing Agency elects to discontinue its services as securities depositary with respect to the Convertible Preferred Securities, the Administrators may, in their sole discretion, appoint a successor Clearing Agency with respect to such Convertible Preferred Securities. SECTION 9.7. Definitive Convertible Preferred Security Certificates Under Certain Circumstances. (a) If: (i) a Clearing Agency elects to discontinue its services as securities depositary with respect to the Convertible Preferred Securities and a successor Clearing Agency is not appointed within 90 days after such discontinuance pursuant to Section 9.06; or (ii) the Administrators elect after consultation with the Sponsor to terminate the book entry system through the Clearing Agency with respect to the Convertible Preferred Securities in global form, then: (A) definitive Convertible Preferred Security Certificates shall be prepared by the Administrators on behalf of the Trust with respect to such Convertible Preferred Securities; and (B) upon surrender of the Global Certificates by the Clearing Agency, accompanied by registration instructions, the Administrators shall cause definitive Global Preferred Security Certificates to be delivered to Convertible Preferred Security Beneficial Owners of such Convertible Preferred Securities in accordance with the instructions of the Clearing Agency. Neither the Trustees nor the Trust shall be liable for any delay in delivery of such instructions and each of them may conclusively rely on and shall be protected in relying on, said instructions of the Clearing Agency. The definitive Convertible Preferred Security Certificates 50 56 shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrators, as evidenced by their execution thereof, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements as the Administrators may deem appropriate, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which Convertible Preferred Securities may be listed, or to conform to usage. (b) At such time as all interests in a Global Certificate have been redeemed, converted, exchanged, repurchased or canceled, such Global Certificate shall be, upon receipt thereof, canceled by the Trust in accordance with standing procedures and instructions of the Clearing Agency. SECTION 9.8. Mutilated, Destroyed, Lost or Stolen Certificates. If: (i) any mutilated Certificates should be surrendered to the Administrators, or if the Administrators shall receive evidence to their satisfaction of the destruction, loss or theft of any Certificate; and (ii) there shall be delivered to the Registrar and the Institutional Trustee or the Administrators such security or indemnity as may be required by them to keep each of them harmless, then: in the absence of notice that such Certificate shall have been acquire by a bona fide purchaser, the Institutional Trustee or any Administrator on behalf of the Trust shall execute and deliver, in exchange for, or in lieu of, any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination. In connection with the issuance of any new Certificate under this Section 9.08, the Institutional Trustee or the Administrators may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this Section 9.08 shall constitute conclusive evidence of an ownership interest in the relevant Securities, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. 51 57 ARTICLE 10 LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS SECTION 10.1. Liability. (a) Except as expressly set forth in this Declaration, the Securities Guarantees and the terms of the Securities, the Sponsor shall not be: (i) personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders of the Securities, which shall be made solely from assets of the Trust; or (ii) required to pay to the Trust or to any Holder of Securities any deficit upon dissolution of the Trust or otherwise. (b) The Holder of the Common Securities shall be liable for all of the debts and obligations of the Trust (other than with respect to the Securities) to the extent not satisfied out of the Trust's assets. (c) Pursuant to Section 3803(a) of the Business Trust Act, the Holders of the Convertible Preferred Securities shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. SECTION 10.2. Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the 52 58 existence and amount of assets from which Distributions to Holders of Securities might properly be paid. SECTION 10.3. Fiduciary Duty. (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust or to any other Covered Person for its good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity (other than the duties imposed on the Institutional Trustee under the Trust Indenture Act), are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Person. (b) Unless otherwise expressly provided herein: (i) whenever a conflict of interest exists or arises between any Covered Persons and any Indemnified Person; or (ii) whenever this Declaration or any other agreement contemplated herein or therein provides that an Indemnified Person shall act in a manner that is, or provides terms that are, fair and reasonable to the Trust or any Holder of Securities, the Indemnified Person shall resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Indemnified Person, the resolution, action or term so made, taken or provided by the Indemnified Person shall not constitute a breach of this Declaration or any other agreement contemplated herein or of any duty or obligation of the Indemnified Person at law or in equity or otherwise. (c) Whenever in this Declaration an Indemnified Person is permitted or required to make a decision: (i) in its "discretion" or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting 53 59 the Trust or any other Person; or (ii) in its "good faith" or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law. SECTION 10.4. Indemnification. (a) (i) The Debenture Issuer shall indemnify, to the full extent permitted by law, any Company Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Trust), by reason of the fact that he is or was a Company Indemnified Person, against expenses (including reasonable attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Company Indemnified Person did not act in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (ii) The Debenture Issuer shall indemnify, to the full extent permitted by law, any Company Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by or in the right of the Trust to procure a judgment in its favor by reason of the fact that he is or was a Company Indemnified Person, against expenses (including reasonable attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust and except that no such indemnification shall be made in respect of any claim, issue or matter as to which such Company Indemnified Person shall have been adjudged to be liable to the Trust unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the 54 60 circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses that such Court of Chancery or such other court shall deem proper. (iii) To the extent that a Company Indemnified Person shall be successful on the merits or otherwise (including dismissal of an action without prejudice or the settlement of an action without admission of liability) in defense of any action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 10.04(a), or in defense of any claim, issue or matter therein, he shall be indemnified by the Debenture Issuer, to the full extent permitted by law, against expenses (including reasonable attorneys' fees) actually and reasonably incurred by him in connection therewith. (iv) Any indemnification under paragraphs (i) and (ii) of this Section 10.04(a) (unless ordered by a court) shall be made by the Debenture Issuer upon a determination that indemnification of the Company Indemnified Person is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (i) and (ii). Such determination shall be made (1) by the Administrators by a majority vote of a quorum consisting of such Administrators who were not parties to such action, suit or proceeding, (2) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Administrators so directs, by independent legal counsel in a written opinion, or (3) by the Holders of a Majority in Liquidation Amount of the Common Securities. (v) Expenses (including reasonable attorneys' fees) incurred by a Company Indemnified Person in defending a civil, criminal, administrative or investigative action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 10.04(a) shall be paid by the Debenture Issuer in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Company Indemnified Person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Debenture Issuer as authorized in this Section 10.04(a). Notwithstanding the foregoing, no advance shall be made by the Debenture Issuer if a determination is reasonably and promptly made (i) by the Administrators by a majority vote of a quorum of disinterested Administrators, (ii) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Administrators so directs, by independent legal counsel in a 55 61 written opinion or (iii) by the Holders of a Majority in Liquidation Amount of the Common Securities, that, based upon the facts known to the Administrators, such counsel or such Holders at the time such determination is made, such Company Indemnified Person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Trust, or, with respect to any criminal proceeding, that such Company Indemnified Person believed or had reasonable cause to believe his conduct was unlawful. In no event shall any advance be made in instances where the Administrators, such counsel or such Holders reasonably determine that such person deliberately breached his duty to the Trust or the Holders. (vi) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section 10.04(a) shall not be deemed exclusive of any other rights to which those seeking indemnification and advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors of the Debenture Issuer or Holders of Convertible Preferred Securities or otherwise. All rights to indemnification under this Section 10.04(a) shall be deemed to be provided by a contract between the Debenture Issuer and each Company Indemnified Person who serves in such capacity at any time while this Section 10.04(a) is in effect. Any repeal or modification of this Section 10.04(a) shall not affect any rights or obligations then existing. (vii) The Debenture Issuer or the Trust may purchase and maintain insurance on behalf of any person who is or was a Company Indemnified Person against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Debenture Issuer would have the power to indemnify him against such liability under the provisions of this Section 10.04(a). (viii) For purposes of this Section 10.04(a), references to "the Trust" shall include, in the event of a consolidation or merger, in addition to the resulting or surviving entity, any constituent entity (including any constituent of a constituent) absorbed in such consolidation or merger, so that any person who is or was a director, trustee, officer or employee of such constituent entity, or is or was serving at the request of such constituent entity as a director, trustee, officer, employee or agent of another entity, shall stand in the same position under the provisions of this Section 10.04(a) with respect to the resulting or surviving entity as he would have with respect to such constituent entity if its separate existence had continued. 56 62 (ix) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 10.04(a) shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a Company Indemnified Person and shall inure to the benefit of the heirs, executors and administrators of such a person. The provisions of this Section 10.04 shall survive the termination of this Declaration, the dissolution of the Trust or the resignation or removal of any Administrator or Trustee. (b) The Debenture Issuer agrees to indemnify the (i) Institutional Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the Institutional Trustee and the Delaware Trustee, and (iv) any officers, directors, shareholders, members, partners, employees, representatives, custodians, nominees or agents of the Institutional Trustee and the Delaware Trustee (each of the Persons in (i) through (iv) being referred to as a "FIDUCIARY INDEMNIFIED PERSON") for, and to hold each Fiduciary Indemnified Person harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration or the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against or investigating any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligation to indemnify as set forth in this Section 10.04(b) shall survive the satisfaction and discharge of this Declaration. SECTION 10.5. Outside Business. Any Covered Person, the Sponsor, the Delaware Trustee and the Institutional Trustee (subject to Section 5.03(c)) may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware Trustee, or the Institutional Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the Institutional Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the Institutional Trustee may engage or be interested in any 57 63 financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor of its Affiliates. ARTICLE 11 ACCOUNTING SECTION 11.1. Fiscal Year. The fiscal year ("FISCAL YEAR") of the Trust shall be the calendar year, or such other year as is required by the Code. SECTION 11.2. Certain Accounting Matters. (a) At all times during the existence of the Trust, the Administrators shall keep, or cause to be kept, full books, records and supporting documents, which shall reflect in reasonable detail, each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting in compliance with generally accepted accounting principles, consistently applied. The Trust shall use the accrual method of accounting for United States federal income tax purposes. The books of account and the records of the Trust shall be examined by and reported upon as of the end of each Fiscal Year of the Trust by a firm of independent certified public accountants selected by the Administrators. The books of account and the records of the Trust, together with a copy of this Declaration and a certified copy of the Certificate of Trust, or any amendment thereto, shall at all times be maintained at the principal office of the Trust or its duly authorized representative for any purpose reasonably related to its interest in the Trust during normal business hours. (b) The Administrators shall cause to be prepared and delivered to each of the Holders of Securities, within 90 days after the end of each Fiscal Year of the Trust, annual financial statements of the Trust, including a balance sheet of the Trust as of the end of such Fiscal Year, and the related income or loss. (c) The Administrators shall cause to be duly prepared and delivered to each of the Holders of Securities any annual United States federal income tax information statement required by the Code containing such information with regard to the Securities held by each Holder as is required by the Code and the Treasury Regulations. Notwithstanding any right under the Code to deliver any such statement at a later date, the Administrators shall endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust. 58 64 (d) The Administrators shall cause to be duly prepared and filed with the appropriate taxing authority, an annual United States federal income tax return, on a Form 1041 or such other form required by United States federal income tax law, and any other annual income tax returns required to be filed by the Administrators on behalf of the Trust with any state or local taxing authority. SECTION 11.3. Banking. The Trust shall maintain one or more bank accounts in the name and for the sole benefit of the Trust; provided, that all payments of funds in respect of the Debentures held by the Institutional Trustee shall be made directly to the Institutional Trustee Account and no other funds of the Trust shall be deposited in the Institutional Trustee Account. The sole signatories for such accounts (including the Institutional Trustee Account) shall be designated by the Administrators; provided, that the Institutional Trustee shall designate the signatories for the Institutional Trustee Account. SECTION 11.4. Withholding. The Trust and the Administrators shall comply with all withholding requirements under United States federal, state and local law. The Trust shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder, and any representations and forms as shall reasonably be requested by the Trust to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Administrators shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Holder, the amount withheld shall be deemed to be a distribution in the amount of the withholding to the Holder. In the event of any claimed overwithholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount required to be withheld was not withheld from actual Distributions made, the Trust may reduce subsequent Distributions by the amount of such withholding. ARTICLE 12 AMENDMENTS AND MEETINGS SECTION 12.1. Amendments. (a) Except as otherwise provided in this Declaration or by any applicable terms of the Securities, this Declaration may 59 65 only be amended by a written instrument approved and executed by: (i) the Administrators (or, if there are more than two Administrators, a majority of the Administrators); (ii) if the amendment affects the rights, powers, duties, obligations or immunities of the Institutional Trustee, the Institutional Trustee; and (iii) if the amendment affects the rights, powers, duties, obligations or immunities of the Delaware Trustee, the Delaware Trustee. (b) No amendment shall be made, and any such purported amendment shall be void and ineffective: (i) unless, in the case of any proposed amendment, the Institutional Trustee shall have first received an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); (ii) unless, in the case of any proposed amendment that affects the rights, powers, duties, obligations or immunities of the Institutional Trustee, the Institutional Trustee shall have first received: (A) an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and (B) an opinion of counsel (who may be counsel to the Sponsor or the Trust) that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and (iii) to the extent the result of such amendment would be to: (A) cause the trust to fail to continue to be classified for purposes of United States federal income taxation as a grantor trust; 60 66 (B) reduce or otherwise adversely affect the powers of the Institutional Trustee in contravention of the Trust Indenture Act; or (C) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act. (c) At any time the Trust has issued any Securities that remain outstanding, any amendment that would adversely affect the rights, privileges or preferences of any Holder of Securities may be effected only with such additional requirements as may be set forth in the terms of such Securities. (d) Section 9.01(d) and this Section 12.01 shall not be amended without the consent of all of the Holders of the Securities. (e) Article 4 shall not be amended without the consent of the Holders of a Majority in Liquidation Amount of the Common Securities. (f) The rights of the Holders of the Common Securities under Article 5 to increase or decrease the number of, and appoint and remove, Trustees shall not be amended without the consent of the Holders of a Majority in Liquidation Amount of the Common Securities. (g) Notwithstanding Section 12.01(c), this Declaration may be amended without the consent of the Holders of the Securities to: (i) cure any ambiguity; (ii) correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration; (iii) add to the covenants, restrictions or obligations of the Sponsor; and (iv) to conform to any change in Rule 3a-5 of the Investment Company Act or written change in interpretation or application of Rule 3a-5 of the Investment Company Act by any legislative body, court, government agency or regulatory authority, which amendment does not have a material adverse effect on the right, preferences or privileges of the Holders. 61 67 SECTION 12.2. Meetings of the Holders of Securities; Action by Written Consent. (a) Meetings of the Holders of any class of Securities may be called at any time by the Administrators (or as provided in the terms of the Securities) to consider and act on any matter on which Holders of such class of Securities are entitled to act under the terms of this Declaration, the terms of the Securities or the rules of any stock exchange on which the Convertible Preferred Securities are listed or admitted for trading. The Administrators shall call a meeting of the Holders of such class if directed to do so by the Holders of at least 10% in Liquidation Amount of such class of Securities. Such direction shall be given by delivering to the Administrators one or more calls in a writing stating that the signing Holders of Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of Securities calling a meeting shall specify in writing the Certificates held by the Holders of Securities exercising the right to call a meeting and only those Securities specified shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Except to the extent otherwise provided in the terms of the Securities, the following provisions shall apply to meetings of Holders of Securities: (i) notice of any such meeting shall be given to all the Holders of Securities having a right to vote thereat at least 7 days and not more than 60 days before the date of such meeting. Whenever a vote, consent or approval of the Holders of Securities is permitted or required under this Declaration or the rules of any stock exchange on which the Convertible Preferred Securities are listed or admitted for trading, such vote, consent or approval may be given at a meeting of the Holders of Securities. Any action that may be taken at a meeting of the Holders of Securities may be taken without a meeting if a consent in writing setting forth the action so taken is signed by the Holders of Securities owning not less than the minimum amount of Securities in liquidation amount that would be necessary to authorize or take such action at a meeting at which all Holders of Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of Securities entitled to vote who have not consented in writing. The Administrators may specify that any written ballot submitted to the Security Holder for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Administrators; 62 68 (ii) each Holder of a Security may authorize any Person to act for it by proxy on all matters in which a Holder of Securities is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of Securities executing it. Except as otherwise provided herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Securities were stockholders of a Delaware corporation; (iii) each meeting of the Holders of the Securities shall be conducted by the Administrators or by such other Person that the Administrators may designate; and (iv) unless the Business Trust Act, this Declaration, the terms of the Securities, the Trust Indenture Act or the listing rules of any stock exchange on which the Convertible Preferred Securities are then listed or trading, otherwise provides, the Administrators, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE 13 REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND DELAWARE TRUSTEE SECTION 13.1. Representations and Warranties of Institutional Trustee . The Trustee that acts as initial Institutional Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Institutional Trustee represents and warrants, as applicable, to the Trust and the Sponsor at the time of the Successor Institutional Trustee's acceptance of its appointment as Institutional Trustee, that: 63 69 (i) the Institutional Trustee is a New York banking corporation with trust powers, duly organized, validly existing and in good standing, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration; (ii) the execution, delivery and performance by the Institutional Trustee of the Declaration has been duly authorized by all necessary corporate action on the part of the Institutional Trustee. This Declaration has been duly executed and delivered by the Institutional Trustee, and it constitutes a legal, valid and binding obligation of the Institutional Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law); (iii) the execution, delivery and performance of this Declaration by the Institutional Trustee does not conflict with or constitute a breach of the charter or bylaws of the Institutional Trustee; and (iv) no consent, approval or authorization of, or registration with or notice to, any state or federal banking authority is required for the execution, delivery or performance by the Institutional Trustee, of this Declaration. SECTION 13.2. Representations and Warranties of Delaware Trustee . The Trustee that acts as initial Delaware Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Delaware Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Delaware Trustee's acceptance of its appointment as Delaware Trustee, that: (i) The Delaware Trustee is a natural person, who is a resident of the state of Delaware, or, if not a natural person, is a corporation with trust powers, that has its principal place of business in the State of Delaware, is duly organized, validly existing and in good standing, with authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration and, in either case, a Person that satisfies for the Trust the requirements of Section 3807 of the Business Trust Act. 64 70 (ii) The Delaware Trustee has been authorized to perform its obligations under the Certificate of Trust and this Declaration. This Declaration under Delaware law constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law). (iii) No consent, approval or authorization of, or registration with or notice to, any Delaware or federal banking authority is required for the execution, delivery or performance by the Delaware Trustee, of this Declaration. (iv) The execution, delivery and performance of this Declaration by the Delaware Trustee does not conflict with or constitute a breach of the charter or bylaws of the Delaware Trustee. ARTICLE 14 MISCELLANEOUS SECTION 14.1. Notices. All notices provided for in this Declaration shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (a) if given to the Trust, in care of the Administrators at the Trust's mailing address set forth below (or such other address as the Trust may give notice of to the Holders of the Securities): 65 71 Federal-Mogul Financing Trust c/o Federal-Mogul Corporation 26555 Northwestern Highway Southfield, MI 48034 Attention: Corporate Secretary (b) if given to the Delaware Trustee, at the mailing address set forth below (or such other address as Delaware Trustee may give notice of to the Holders of the Securities): The Bank of New York (Delaware) 23 White Clay Center Route 273 Newark, Delaware 19711 Attention: Corporate Trust Department (c) if given to the Institutional Trustee, at its Corporate Trust Office to the attention of Corporate Trust Trustee Administration (or such other address as the Institutional Trustee may give notice of to the Holders of the Securities). (d) if given to any Holder of Common Securities, at the mailing address of the Sponsor set forth below (or such other address as such Holder of Common Securities may give notice to the Trust): Federal-Mogul Corporation 26555 Northwestern Highway Southfield, MI 48034 Attention: Corporate Secretary (e) if given to any other Holder, at the address set forth on the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. 66 72 SECTION 14.2. Governing Law. This Declaration and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the State of Delaware and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws. SECTION 14.3. Intention of the Parties. It is the intention of the parties hereto that the Trust be classified for United States federal income tax purposes as a grantor trust. The provisions of this Declaration shall be interpreted to further this intention of the parties. SECTION 14.4. Headings. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. SECTION 14.5. Successors and Assigns. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether so expressed. SECTION 14.6. Partial Enforceability. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. SECTION 14.7. Counterparts. This Declaration may contain more than one counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Trustees to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. 67 73 IN WITNESS WHEREOF, the undersigned has caused these presents to be executed as of the day and year first above written. -------------------------------- Thomas W. Ryan, as Administrator ------------------------------------ David A. Bozynski, as Administrator ------------------------------------ Diane L. Kaye, as Administrator THE BANK OF NEW YORK (Delaware), as Delaware Trustee By: --------------------------------- Name: Title: THE BANK OF NEW YORK, as Institutional Trustee By: --------------------------------- Name: Title: FEDERAL-MOGUL CORPORATION, as Sponsor and Debenture Issuer By: --------------------------------- Name: Title: 74 ANNEX I TERMS OF 7% CONVERTIBLE PREFERRED SECURITIES 7% CONVERTIBLE COMMON SECURITIES Pursuant to Section 7.01 of the Amended and Restated Declaration of Trust, dated as of December 1, 1997 (as amended from time to time, the "DECLARATION"), the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Convertible Preferred Securities and the Common Securities are set out below (each capitalized term used but not defined herein having the meaning set forth in the Declaration or, if not defined in such Declaration, as defined in the Prospectus referred to below): 1. Designation and Number. (a) Convertible Preferred Securities. 10,000,000 Convertible Preferred Securities of the Federal-Mogul Financing Trust (the "Trust") with an aggregate liquidation amount with respect to the assets of the Trust of $500,000,000 (plus up to an additional 1,500,000 ($75,000,000) issuable upon exercise of the over-allotment option set forth in the Purchase Agreement) and a liquidation amount with respect to such assets of $50 per convertible preferred security, are hereby designated for the purposes of identification only as "7% Trust Convertible Preferred Securities" (the "CONVERTIBLE PREFERRED SECURITIES"). The Convertible Preferred Security Certificates evidencing the Convertible Preferred Securities shall be substantially in the form of Exhibit A-1 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice or to conform to the rules of any stock exchange on which the Convertible Preferred Securities are listed. (b) Common Securities. 309,279 Common Securities of the Trust with an aggregate liquidation amount with respect to the assets of the Trust of $15,463,950, (plus up to an additional 46,392 ($2,319,600) issuable upon exercise of the over-allotment option set forth in the Purchase Agreement) and a liquidation amount with respect to such assets of the Trust of $50 per common security, are hereby designated for the purposes of identification only as "7% Common Securities" (the "COMMON SECURITIES" and, together with the Convertible Preferred Securities, "the SECURITIES"). The Common Securities Certificates evidencing the Common Securities shall be in the form of Exhibit A-2 to the Declaration, with and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. I-1 75 2. Distributions. (a) Distributions payable on each Security will be fixed at a rate per annum of 7% (the "COUPON RATE") of the stated liquidation amount of $50 per Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Distributions in arrears for more than one quarter will bear interest thereon compounded quarterly at the Coupon Rate (to the extent permitted by applicable law). The term "DISTRIBUTIONS" as used herein includes such cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 30-day month. (b) Except as otherwise provided herein, distributions on the Securities will be cumulative, will accrue from December 1, 1997 and will be payable quarterly in arrears, on March 1, June 1, September 1 and December 1 of each year, commencing on March 1, 1998, except as otherwise described below. So long as the Debenture Issuer shall not be in default in the payment of interest on the Debentures, the Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time on the Debenture for a period not exceeding 20 consecutive quarters (each an "EXTENSION PERIOD"), during which Extension Period no interest shall be due and payable on the Debentures; provided, that no Extension Period shall last beyond the date of maturity or any redemption date of the Debentures. As a consequence of such deferral, Distributions will also be deferred. Despite such deferral, quarterly Distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at the Coupon Rate compounded quarterly during any such Extension Period. Prior to the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period; provided, that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarters or extend beyond the maturity or any redemption date of the Debentures. Payments of accrued Distributions will be payable to Holders as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. Upon the termination of I-2 76 any Extension Period and the payment of all amounts then due, the Debenture Issue may commence a new Extension Period, subject to the above requirements. (c) Distributions on the Securities will be payable to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates, which shall be one Business Day prior to the relevant payment dates (provided, that, if, at any time, the Securities are not held in book-entry form, the relevant record dates shall be 15 days prior to the relevant payment dates), which record and payment dates correspond to the record and interest payment dates on the Debentures. Such Distributions will be paid through the Institutional Trustee who will hold amounts received in respect of the Debentures in the Institutional Trustee Account for the benefit of the Holders of the Securities. The relevant record dates for the Common Securities shall be the same record date as for the Convertible Preferred Securities. If any date on which Distributions are payable on the Securities is not a Business Day, then payment of the Distribution payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (d) In the event of an election by the Holder to convert its Securities through the Conversion Agent into Common Stock pursuant to the terms of the Securities as set forth in this Annex I to the Declaration, no payment, allowance or adjustment shall be made with respect to accumulated and unpaid Distributions on such Securities, or be required to be made; provided, that if any Security is converted on or after a record date for payment of Distributions thereon and prior to the opening of business on the related Distribution payment date, the Distribution payable on such payment date with respect to such Security shall be distributed to the holder of record at the close of business on such record date, despite such conversion; provided further, that if the date of any redemption of related Debentures falls between such record date and such corresponding payment date, the amount of such Distribution shall include accumulated and unpaid Distributions accrued to but excluding such date of redemption. (e) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed Pro Rata (as defined herein) among the Holders of the Securities. 3. Liquidation Distribution Upon Dissolution. I-3 77 In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Trust (each a "LIQUIDATION"), the Holders of the Securities on the date of such Liquidation, will be entitled to receive out of the assets of the Trust, after satisfaction of liabilities of creditors of the Trust as provided by applicable law, an amount equal to the aggregate of the stated liquidation amount of $50 per Security plus accrued and unpaid Distributions thereon to the date of payment (the "LIQUIDATION DISTRIBUTION"), unless, in connection with such Liquidation, Debentures in an aggregate stated principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest equal to accrued and unpaid distributions on, the Securities have been distributed on a pro rata basis to the Holders of the Securities. If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Convertible Preferred Securities shall be paid on a pro rata basis. The Holders of the Common Securities will be entitled to receive distributions upon any such Liquidation pro rata with the holders of the Convertible Preferred Securities, except that if a Declaration Event of Default has occurred and is continuing, the Convertible Preferred Securities shall have a preference over the Common Securities with regard to such distributions. 4. Redemption and Distribution. (a) Upon the repayment of the Debentures in whole or in part, whether at maturity or upon redemption (either at the option of the Debenture Issuer or pursuant to a Special Event as described below), the proceeds from such repayment or payment shall be simultaneously applied to redeem Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or redeemed at a redemption price per Security equal to the redemption price of the Debentures, together with accrued and unpaid Distributions thereon through the date of the redemption, payable in cash (the "REDEMPTION PRICE"). (b) If fewer than all the outstanding Securities are to be so redeemed, the Common Securities and the Convertible Preferred Securities will be redeemed pro rata. (c) If, at any time, a Tax Event or an Investment Company Event (each, as defined below, a "SPECIAL EVENT") shall occur and be continuing, the Trust I-4 78 shall, except as provided below, be dissolved and Debentures with an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the Coupon Rate of, and accrued and unpaid interest equal to accrued and unpaid Distributions on, the Securities, shall be distributed, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to the Holders of the Securities in liquidation of such Holders' interests in the Trust on a pro rata basis within 90 days following the occurrence of such Special Event (the "90 DAY PERIOD"), upon not less than 30 or more than 60 days notice; provided, that, in the case of a Tax Event, such dissolution and distribution shall be conditioned on (i) the Administrators' receipt of an opinion of nationally recognized independent tax counsel experienced in such matters (a "NO RECOGNITION OPINION"), which opinion may rely on published revenue rulings of the Internal Revenue Service, to the effect that the Holders of the Securities will not recognize any gain or loss for United States federal income tax purposes as a result of such dissolution of the Trust and distribution of Debentures, (ii) the Debenture Issuer or the Trust being unable to avoid such Tax Event within such 90 Day Period by taking some ministerial action or pursuing some other reasonable measure that will have no adverse effect on the Trust, the Debenture Issuer or the Holders of the Securities and will involve no material cost (a "MINISTERIAL ACTION") and (iii) the Debenture Issuer's prior written consent to such dissolution and distribution. If, in the event of a Tax Event, after receipt of a Dissolution Tax Opinion (as defined herein) by the Administrators, (i) the Debenture Issuer has received an opinion (a "REDEMPTION TAX OPINION") of nationally recognized independent tax counsel experienced in such matters that, as a result of a Tax Event, there is more than an insubstantial risk that the Debenture Issuer would be precluded from deducting the interest on the Debentures for United States federal income tax purposes even after the Debentures were distributed to the Holders of Securities in liquidation of such Holders' interests in the Trust as described in this Section 4(c), or (ii) the Administrators shall have been informed by such tax counsel that a No Recognition Opinion cannot be delivered to the Trust, the Debenture Issuer shall have the right at any time, upon not less than 30 nor more than 60 days' notice, to redeem the Debentures in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon for cash within 90 days following the occurrence of such Tax Event. Following such redemption, Securities with an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so redeemed shall be redeemed by the Trust at the Redemption Price on a pro rata basis; provided, that, if at the time there is available to the Debenture Issuer or the Trust the opportunity to eliminate, within such 90 day period, the Tax Event by taking some Ministerial Action, the I-5 79 Trust or the Debenture Issuer will pursue such Ministerial Action in lieu of redemption. "TAX EVENT" means that the Administrators shall have received an opinion of nationally recognized independent tax counsel experienced in such matters (a "DISSOLUTION TAX OPINION") to the effect that as a result of (a) any amendment to, clarification of, or change (including any announced prospective change) in the laws, or any regulations thereunder, of the United States or any political subdivision or taxing authority thereof or therein, (b) any judicial decision, official administrative pronouncement, ruling, regulatory procedure, notice or announcement, including any notice or announcement of intent to adopt such procedures or regulations (an "ADMINISTRATIVE ACTION") or (c) any amendment to, clarification of, or change in the official position or the interpretation of such Administrative Action or judicial decision that differs from the theretofore generally accepted position, in each case, by any legislative body, court, governmental authority or regulatory body, irrespective of the manner in which such amendment, clarification or change is made known, which amendment, clarification, or change is effective or such pronouncement or decision is announced, in each case, on or after the date of the Offering Memorandum, there is the creation by such change in tax law of more than an insubstantial risk that (i) the Trust is or will be within 90 days of the date of such change subject to United States federal income tax with respect to interest accrued or received on the Debentures, (ii) the Trust is or will be within 90 days of the date of such change subject to more than a de minimis amount of taxes (other than withholding taxes), duties or other governmental charges, or (iii) interest paid in cash by the Debenture Issuer to the Trust on the Debentures is not, or within 90 days of the date of such change will not be, deductible, in whole or in part, by the Debenture Issuer for United States federal income tax purposes. Notwithstanding the foregoing, a Tax Event shall not include any change in tax law that requires the Debenture Issuer for United States federal income tax purposes to defer taking a deduction for any original issue discount ("OID") that accrues with respect to the Debentures until the interest payment related to such OID is paid by the Debenture Issuer in cash; provided, that such change in tax law does not create more than an insubstantial risk that the Debenture Issuer will be prevented from taking a deduction for OID accruing with respect to the Debentures at a date that is no later than the date the interest payment related to such OID is actually paid by the Debenture Issuer in cash. "INVESTMENT COMPANY EVENT" means that the Administrators shall have received an opinion of nationally recognized independent counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or I-6 80 regulation or a written change in interpretation or application of law or regulations by any legislative body, court, governmental agency or regulatory authority which became effective on or after the date of the Offering Memorandum (a "CHANGE IN 1940 ACT LAW"), there is more than an insubstantial risk that the Trust is or will be considered an "investment company" that is required to be registered under the Investment Company Act of 1940, as amended (the "1940 ACT"). After the date for any distribution of Debentures upon dissolution of the Trust: (i) the Securities will no longer be deemed to be outstanding and (ii) certificates representing Securities held in definitive form, except for certificates representing Convertible Preferred Securities held by the DTC or its nominee, will be deemed to represent Debentures having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the Coupon Rate of, and accrued and unpaid interest (including Compound Interest) equal to accrued and unpaid Distributions on, such Securities until such certificates are presented to the Debenture Issuer or its agent for transfer or reissue. (d) Notice of any redemption of, or notice of distribution of Debentures in exchange for the Securities (a "REDEMPTION/DISTRIBUTION NOTICE") will be given by the Trust not fewer than 30 nor more than 60 days before the date fixed for redemption or exchange thereof which, in the case of a redemption, will be the date fixed for redemption of the Debentures by mail to each Holder of Securities to be redeemed or exchanged and, in the case of a notice of redemption to be given to all Holders, by release made to Reuters Economic Services and Bloomberg Business News. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this Section 4, a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, or by such other means suitable to assure delivery of such written notice, to Holders of Securities and, if required, released as set forth in the preceding sentence. Each Redemption/Distribution Notice shall be addressed to the Holders of Securities at the address of each such Holder appearing in the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder of Securities shall affect the validity of the redemption or exchange proceedings with respect to any other Holder of Securities. (e) If Securities are to be redeemed and the Trust gives a Redemption/Distribution Notice, which notice may only be issued if the Debentures are redeemed as set out in this Section 4 (which notice will be I-7 81 irrevocable), then provided that the Debenture Issuer has paid the Institutional Trustee a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, the Institutional Trustee will pay the relevant Redemption Price to the Holders of such Securities by check mailed to the address of the relevant Holder appearing on the books and records of the Trust on the redemption date. If a Redemption/Distribution Notice shall have been given, then immediately prior to the close of business on the required date of such payment, Distributions will cease to accrue on the Securities so called for redemption and all rights of Holders of such Securities so called for redemption will cease, except the right of the Holders of such Securities to receive the Redemption Price, but without interest on such Redemption Price. In the event of any redemption in part, the Trust shall not be required to (i) issue, register the transfer of or exchange any Convertible Preferred Securities during a period beginning at the opening of business 15 days before any selection for redemption of Convertible Preferred Securities and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all Holders of Convertible Preferred Securities so selected for redemption or (ii) register the transfer of or exchange any Convertible Preferred Securities so selected for redemption, in whole or in part, except for the unredeemed portion of any Convertible Preferred Securities being redeemed in part. If any date fixed for redemption of Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of any Securities is improperly withheld or refused and not paid either by the Institutional Trustee or by the Sponsor as guarantor pursuant to the relevant Securities Guarantee, Distributions on such Securities will continue to accrue from the original redemption date to the actual date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. (f) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), the Sponsor or any of its subsidiaries may at any time and from time to time purchase outstanding Securities by tender, in the open market or by private agreement. 5. Conversion Rights. The Holders of Securities shall have the right at any time, beginning 90 I-8 82 days following the latest date of original issuance of any Convertible Preferred Securities through the close of business on the Business Day prior to December 1, 2027 (or, in the case of Securities called for redemption, prior to the close of business on the Business Day prior to the redemption date), at their option, to cause the Conversion Agent to convert Securities, on behalf of the converting Holders, into shares of Common Stock in the manner described herein on and subject to the following terms and conditions: (a) The Securities will be convertible at the office of the Conversion Agent into fully paid and nonassessable shares of Federal-Mogul Common Stock pursuant to the Holder's direction to the Conversion Agent to exchange such Securities for a portion of the Debentures theretofore held by the Trust on the basis of one Security per $50 principal amount of Debentures, and immediately convert such amount of Debentures into fully paid and nonassessable shares of Common Stock at an initial rate of 0.9709 shares of Common Stock for each $50 in principal amount of Debentures (which is equivalent to a conversion price of $51.50 per share of Common Stock, subject to certain adjustments and resets set forth in Sections 6.03 and 6.04 of the Supplemental Indenture (as so adjusted, "CONVERSION PRICE")). Within one Business Day after the date which is the earlier of (a) the date the Company withdraws the Offer, and (b) September 25, 1998, if the Offer has not been declared unconditional in all respects, the Company will provided notice of such occurrence to the Holders. (b) In order to convert Securities into Common Stock the Holder shall surrender such Securities to the Conversion Agent and submit to the Conversion Agent at the office referred to above an irrevocable request to convert Securities on behalf of such Holder (the "CONVERSION REQUEST"). The Conversion Request shall (i) set forth the number of Securities to be converted and the name or names, if other than the Holder, in which the shares of Common Stock should be issued and (ii) direct the Conversion Agent (a) to exchange such Securities for a portion of the Debentures held by the Trust (at the rate of exchange specified in the preceding paragraph) and (b) to immediately convert such Debentures on behalf of such Holder, into Common Stock (at the conversion rate specified in the preceding paragraph). The Conversion Agent shall notify the Trust of the Holder's election to exchange Securities for a portion of the Debentures held by the Trust and the Trust shall, upon receipt of such notice, deliver to the Conversion Agent the appropriate principal amount of Debentures for exchange in accordance with this Section. The Conversion Agent shall thereupon notify Debenture Issuer of the Holder's election to convert such Debentures into shares of Common Stock. If any Security is surrendered for conversion on or after a record date for payment of Distributions thereon and prior to the opening of I-9 83 business on the related Distribution payment date, such Security (other than a Security or a portion of a Security called for redemption on a redemption date occurring after such record date and on or prior to such distribution payment date) must be accompanied by payment of an amount equal to the Distribution payable on such Distribution payment date; provided further, that if the date of any redemption of the related Debentures falls between such record date and the related Distribution payment date, the amount of such payment shall include Distributions accrued to, but excluding, such date of redemption. Except as provided above, neither the Trust nor the Sponsor will make, or be required to make, any payment, allowance or adjustment upon any conversion on account of any accumulated and unpaid Distributions accrued on the Securities surrendered for conversion, or on account of any accumulated and unpaid dividends on the shares of Common Stock issued upon such conversion. Securities shall be deemed to have been converted immediately prior to the close of business on the day on which a Notice of Conversion relating to such Securities is received by the Trust in accordance with the foregoing provision (the "CONVERSION DATE"). The Person or Persons entitled to receive Common Stock issuable upon conversion of the Debentures shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the Conversion Date, the Debenture Issuer shall issue and deliver at the office of the Conversion Agent a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion, together with the cash payment, if any, in lieu of any fraction of any share to the Person or Persons entitled to receive the same, unless otherwise directed by the Holder in the notice of conversion and the Conversion Agent shall distribute such certificate or certificates to such Person or Persons. (c) Each Holder of a Security by his acceptance thereof appoints The Bank of New York as "CONVERSION AGENT" for the purpose of effecting the conversion of Securities in accordance with this Section. In effecting the conversion and transactions described in this Section, the Conversion Agent shall be acting as agent of the Holders of Securities directing it to effect such conversion transactions. The Conversion Agent is hereby authorized (i) to exchange Securities from time to time for Debentures held by the Trust in connection with the conversion of such Securities in accordance with this Section and (ii) to convert all or a portion of the Debentures into Common Stock and thereupon to deliver such shares of Common Stock in accordance with the provisions of this Section and to deliver to the Trust a new Debenture or Debentures for any resulting unconverted principal amount. (d) No fractional shares of Common Stock will be issued as a result of I-10 84 conversion, but in lieu thereof, such fractional interest will be paid in cash by the Debenture Issuer to the Conversion Agent, which in turn will make such payment to the Holder or Holders of Securities so converted. (e) The Debenture Issuer shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of the Debentures, free from any preemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the Debentures then outstanding. Notwithstanding the foregoing, the Debenture Issuer shall be entitled to deliver upon conversion of Debentures, shares of Common Stock reacquired and held in the treasury of the Debenture Issuer (in lieu of the issuance of authorized and unissued shares of Common Stock), so long as any such treasury shares are free and clear of all liens, charges, security interests or encumbrances. Any shares of Common Stock issued upon conversion of the Debentures shall be duly authorized, validly issued and fully paid and nonassessable. The Trust shall deliver the shares of Common Stock received upon conversion of the Debentures to the converting Holder free and clear of all liens, charges, security interests and encumbrances, except for United States withholding taxes. Each of the Debenture Issuer and the Trust shall prepare and shall use its best efforts to obtain and keep in force such governmental or regulatory permits or other authorizations as may be required by law, and shall comply with all applicable requirements as to registration or qualification of Common Stock (and all requirements to list Common Stock issuable upon conversion of Debentures that are at the time applicable), in order to enable the Debenture Issuer to lawfully issue Common Stock to the Trust upon conversion of the Debentures and the Trust to lawfully deliver Common Stock to each Holder upon conversion of the Securities. (f) The Debenture Issuer will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Debentures and the delivery of the shares of Common Stock by the Trust upon conversion of the Securities. The Debenture Issuer shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the Securities so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Trust the amount of any such tax, or has established to the satisfaction of the Trust that such tax has been paid. (g) Nothing in the preceding Paragraph (f) shall limit the requirement of the Trust to withhold taxes pursuant to the terms of the Securities or set forth in I-11 85 this Annex I to the Declaration or to the Declaration itself or otherwise require the Institutional Trustee or the Trust to pay any amounts on account of such withholdings. 6. Voting Rights - Convertible Preferred Securities. (a) Except as provided under Sections 6(b) and 8 and as otherwise required by law and provided in the Declaration (including rights to appoint and remove the Institutional Trustee), the Holders of the Convertible Preferred Securities will not have voting rights. (b) Subject to the requirements set forth in this paragraph, the Holders of a Majority in Liquidation Amount of the Convertible Preferred Securities, voting separately as a class, may direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under the Declaration, including the right to direct the Institutional Trustee, as holder of the Debentures, to (i) exercise the remedies available under the Indenture with respect to the Debentures, (ii) waive any past default and its consequences that is waivable under Section 5.13 of the Indenture, or (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures where such consent shall be required; provided, that if an Indenture Event of Default has occurred and is continuing, the holders of 25% of the aggregate liquidation amount of the Convertible Preferred Securities may direct the Institutional Trustee to declare the principal of and interest on the Debentures immediately due and payable; provided, further, that, where a consent under the Indenture would require the consent or act of a Super Majority, only the holders of at least such Super Majority in aggregate liquidation amount of the Convertible Preferred Securities may direct the Institutional Trustee to give such consent or take such action. The Institutional Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Convertible Preferred Securities. Other than with respect to directing the time, method and place of conducting any remedy available to the Institutional Trustee or the Debenture Trustee as set forth above, the Institutional Trustee shall not take any action in accordance with the directions of the Holders of the Convertible Preferred Securities under this paragraph unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. If the Institutional Trustee fails to enforce its rights under the Declaration, any Holder of Convertible Preferred Securities may, to the fullest I-12 86 extent permitted by law, institute a legal proceeding directly against any Person to enforce the Institutional Trustee's rights under the Declaration, without first instituting a legal proceeding against the Institutional Trustee or any other Person. Any approval required or direction of Holders of Convertible Preferred Securities may be given at a separate meeting of Holders of Convertible Preferred Securities convened for such purpose, at a meeting of all of the Holders of Securities in the Trust or pursuant to written consent. The Administrators will cause a notice of any meeting at which Holders of Convertible Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Convertible Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Convertible Preferred Securities will be required for the Trust to redeem and cancel Convertible Preferred Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. Notwithstanding that Holders of Convertible Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Convertible Preferred Securities that are owned by the Sponsor or any Affiliate of the Sponsor shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. Holders of Convertible Preferred Securities will have no rights to appoint or remove the Administrators, who may be appointed, removed or replaced solely by the Debenture Issuer as the indirect or direct holder of all of the Common Securities. 7. Voting Rights - Common Securities. (a) Except as provided under these Sections 7(b), (c) and 8 and as otherwise required by law and provided in the Declaration, the Holders of the Common Securities will not have voting rights. (b) Subject to Section 2.06 of the Declaration and only after any Event of Default with respect to the Convertible Preferred Securities has been cured, waived or otherwise eliminated and subject to the requirements of the second to I-13 87 last sentence of this paragraph, the Holders of a Majority in Liquidation Amount of the Common Securities, voting separately as a class, may direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under the Declaration, including (i) directing the time, method, and place of conducting any proceeding for any remedy available to the Debenture Trustee, or exercising any trust or power conferred on the Debenture Trustee with respect to the Debentures, (ii) waive any past default and its consequences that is waivable under Section 5.13 of the Indenture, or (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable, provided, that where a consent or action under the Indenture would require the consent or act of a Super Majority, the Institutional Trustee may only give such consent or take such action at the written direction of the Holders of at least the proportion in liquidation amount of the Common Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding. Pursuant to this Section 7(b), the Institutional Trustee shall not revoke, or take any action inconsistent with, any action previously authorized or approved by a vote of the Holders of the Convertible Preferred Securities, and shall not take any action in accordance with the direction of the Holders of the Common Securities under this Section 7(c) if the action is prejudicial to the Holders of the Convertible Preferred Securities. Other than with respect to directing the time, method and place of conducting any remedy available to the Institutional Trustee or the Debenture Trustee as set forth above, the Institutional Trustee shall not take any action in accordance with the directions of the Holders of the Common Securities under this paragraph unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. If the Institutional Trustee fails to enforce its rights under the Declaration, any Holder of Common Securities may, to the fullest extent permitted by law, institute a legal proceeding directly against any Person to enforce the Institutional Trustee's rights under the Declaration, without first instituting a legal proceeding against the Institutional Trustee or any other Person. Any approval or direction of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened for such purpose, at a meeting of all of the Holders of Securities in the Trust or pursuant to written consent. The Administrators will cause a notice of any meeting at which Holders of Common Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Common Securities. Each such notice will include a I-14 88 statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Debentures in accordance with the Declaration and the terms of the Securities. 8. Amendments to Declaration. (a) In addition to any requirements under Section 12.01 of the Declaration, if any proposed amendment to the Declaration provides for, or the Administrators otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the liquidation, dissolution or winding-up of the Trust, other than as described in Section 8.01 of the Declaration, then the Holders of outstanding Securities voting together as a single class, will be entitled to vote on such amendment or proposal (but not on any other amendment or proposal) and such amendment or proposal shall not be effective except with the approval of the Holders of at least a Majority in Liquidation Amount of the Securities affected thereby; provided, if any amendment or proposal referred to in clause (i) above would adversely affect only the Convertible Preferred Securities or only the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of a Majority in Liquidation Amount of such class of Securities. (b) In the event the consent of the Institutional Trustee as the holder of the Debentures is required under the Indenture with respect to any amendment, modification or termination on the Indenture or the Debentures, the Institutional Trustee shall request the written direction of the Holders of the Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification or termination as directed by a Majority in Liquidation Amount of the Securities voting together as a single class; provided, that where a consent under the Indenture would require the consent of the holders of a Super Majority, the Institutional Trustee may only give such consent at the direction of the Holders of at least the proportion in liquidation amount of the Securities that the relevant Super Majority represents of the aggregate principal amount of the Debentures outstanding; provided further, that I-15 89 the Institutional Trustee shall not take any action in accordance with the directions of the Holders of the Securities under this Section 8(b) unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. 9. pro rata. A reference in these terms of the Securities to any distribution or treatment as being "pro rata" shall mean pro rata to each Holder of Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities outstanding unless, in relation to a payment, an Event of Default under the Declaration has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Convertible Preferred Securities pro rata according to the aggregate liquidation amount of Convertible Preferred Securities held by the relevant Holder relative to the aggregate liquidation amount of all Convertible Preferred Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Convertible Preferred Securities, to each Holder of Common Securities pro rata according to the aggregate liquidation amount of Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all Common Securities outstanding. 10. Ranking. The Convertible Preferred Securities rank pari passu and payment thereon shall be made pro rata with the Common Securities except that, where a Declaration Event of Default occurs and is continuing, the rights of Holders of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights to payment of the Holders of the Convertible Preferred Securities. 11. Acceptance of Securities Guarantee and Indenture. Each Holder of Convertible Preferred Securities and Common Securities, by the acceptance thereof, agrees to the provisions of the Convertible Preferred Securities Guarantee and the Common Securities Guarantee, respectively, including the subordination provisions therein and to the provisions of the Indenture. 12. No Preemptive Rights. I-16 90 The Holders of the Securities shall have no preemptive rights or similar rights to subscribe for any additional securities. 13. Miscellaneous. These terms constitute a part of the Declaration. The Sponsor will provide a copy of the Declaration, the Convertible Preferred Securities Guarantee or the Common Securities Guarantee (as may be appropriate) and the Indenture to a Holder without charge on written request to the Sponsor at its principal place of business. I-17 91 EXHIBIT A-1 FORM OF CONVERTIBLE PREFERRED SECURITY CERTIFICATE IF THE CONVERTIBLE PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE INSERT __ THIS CONVERTIBLE PREFERRED SECURITY IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE DECLARATION HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITARY") OR A NOMINEE OF THE DEPOSITARY. THIS CONVERTIBLE PREFERRED SECURITY IS EXCHANGEABLE FOR CONVERTIBLE PREFERRED SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE DECLARATION AND NO TRANSFER OF THIS CONVERTIBLE PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS CONVERTIBLE PREFERRED SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS CONVERTIBLE PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE TRUST OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CONVERTIBLE PREFERRED SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE HOLDER OF THIS CONVERTIBLE PREFERRED SECURITY IS ENTITLED TO THE BENEFITS OF THE REGISTRATION RIGHTS AGREEMENT DATED AS OF DECEMBER 1, 1997, AMONG FEDERAL-MOGUL CORPORATION, FEDERAL-MOGUL FINANCING TRUST AND MORGAN STANLEY & CO. INCORPORATED. THE HOLDER OF THIS CONVERTIBLE PREFERRED SECURITY AGREES TO BE BOUND BY THE TERMS OF THE REGISTRATION RIGHTS AGREEMENT, A COPY OF WHICH IS AVAILABLE UPON REQUEST FROM FEDERAL-MOGUL A1-1 92 CORPORATION. CERTIFICATE NUMBER: NUMBER OF CONVERTIBLE PREFERRED SECURITIES: CUSIP NO. 313552 20 0 Certificate Evidencing Convertible Preferred Securities of FEDERAL-MOGUL FINANCING TRUST THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A UNITED STATES PERSON AND IS ACQUIRING THE CONVERTIBLE PREFERRED SECURITY EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT, PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A) TO FEDERAL-MOGUL CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (E) PURSUANT TO A A1-2 93 REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND THAT CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER) AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY, UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE BANK OF NEW YORK, AS INSTITUTIONAL TRUSTEE (OR A SUCCESSOR INSTITUTIONAL TRUSTEE, AS APPLICABLE). THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE SECURITY EVIDENCED HEREBY PURSUANT TO CLAUSE 1(E) ABOVE OR UPON ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "UNITED STATES PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. EACH PURCHASER OR HOLDER OF THE SECURITY EVIDENCED HEREBY WILL BE DEEMED TO HAVE REPRESENTED EITHER THAT (A) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF SUBTITLE B OF TITLE 1 OF ERISA OR A PLAN DESCRIBED IN SECTION 4975 OF THE CODE OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH ERISA PLAN OR OTHER PLAN OR (B) ITS ACQUISITION, HOLDING AND DISPOSITION OF THE SECURITY EVIDENCED HEREBY WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE BY REASON OF PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 91-38, PTCE 84-14, PTCE 90-1, PTCE 95-60 OR PTCE 96-23. 7% Trust Convertible Preferred Securities (liquidation amount $50 per Trust Convertible Preferred Security) A1-3 94 Federal-Mogul Financing Trust, a statutory business trust created under the laws of the State of Delaware (the "TRUST"), hereby certifies that Cede & Co. (the "HOLDER") is the registered owner of convertible preferred securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 7% Trust Convertible Preferred Securities (liquidation amount $50 per Trust Convertible Preferred Security) (the "CONVERTIBLE PREFERRED SECURITIES"). The Convertible Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Convertible Preferred Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of December 1, 1997, as the same may be amended from time to time (the "DECLARATION"), including the designation of the terms of the Convertible Preferred Securities as set forth in Annex I to the Declaration. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Convertible Preferred Securities Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Convertible Preferred Securities Guarantee and the Indenture to a Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. By acceptance of this certificate, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Convertible Preferred Securities as evidence of indirect beneficial ownership in the Debentures. Unless the Institutional Trustee's Certificate of Authentication hereon has been properly executed, these Convertible Preferred Securities shall not be entitled to any benefit under the Declaration or be valid or obligatory for any purpose. This certificate and the rights of the parties hereunder shall be governed by, and construed in accordance with, the laws of the State of Delaware and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws. A1-4 95 IN WITNESS WHEREOF, the Trust has executed this certificate this 1st day of December , 1997. Federal-Mogul Financing Trust By: --------------------------- Name: Title: Administrator [FORM OF CERTIFICATE OF AUTHENTICATION] INSTITUTIONAL TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Convertible Preferred Securities referred to in the within-mentioned Declaration. Dated: December 1, 1997 The Bank of New York, as Institutional Trustee or as Authentication Agent By: By: ------------------------------- Authorized Signatory Authorized Signatory A1-5 96 [FORM OF REVERSE OF SECURITY] Distributions payable on each Convertible Preferred Security will be fixed at a rate per annum of 7% (the "COUPON RATE") of the stated liquidation amount of $50 per Convertible Preferred Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Distributions in arrears for more than one quarter will bear interest thereon compounded quarterly at the Coupon Rate (to the extent permitted by applicable law). The term "DISTRIBUTIONS" as used herein includes such cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months and, for any period shorter than a full quarterly Distribution period, will be computed on the basis of the actual number of days elapsed per 30-day month. Except as otherwise described below, Distributions on the Convertible Preferred Securities will be cumulative, will accrue from the first date that any Convertible Preferred Securities are issued and will be payable quarterly in arrears, on March 1, June 1, September 1 and December 1 of each year, commencing on March 1, 1998, which payment dates correspond to the interest payment dates on the Debentures, to Holders of record at the close of business on the regular record date for such Distribution, which shall be the close of business one Business Day prior to such Distribution payment date (provided, that, if, at any time, the Securities are not held in book-entry form, the relevant record dates shall be 15 days prior to the relevant payment dates) unless otherwise provided in the Declaration. The Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time on the Debentures for a period not exceeding 20 consecutive quarters (each an "EXTENSION PERIOD"); provided, that no Extension Period shall last beyond the date of the maturity or any redemption date of the Debentures and, as a consequence of such deferral, Distributions will also be deferred. Despite such deferral, quarterly Distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at the Coupon Rate compounded quarterly during any such Extension Period. Prior to the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period; provided, that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarters or extend beyond the maturity or any redemption date of the Debentures. Payments of accrued Distributions will be payable to Holders as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. Upon the termination of any Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. The Convertible Preferred Securities shall be redeemable as provided in the Declaration. The Convertible Preferred Securities shall be convertible into shares of Common Stock, A1-6 97 through (i) the exchange of Preferred Securities for a portion of the Debentures and (ii) the immediate conversion of such Debentures into Common Stock, in the manner and according to the terms set forth in the Declaration. A1-7 98 CONVERSION REQUEST To: The Bank of New York, as Institutional Trustee of Federal-Mogul Financing Trust The undersigned owner of these Convertible Preferred Securities hereby irrevocably exercises the option to convert these Convertible Preferred Securities, or the portion below designated, into Common Stock of Federal-Mogul Corporation (the "COMMON STOCK") in accordance with the terms of the Amended and Restated Declaration of Trust (the "DECLARATION"), dated as of December 1, 1997, among Thomas W. Ryan, David A. Bozynski and Diane L. Kaye, as Administrators, The Bank of New York (Delaware), as Delaware Trustee, The Bank of New York, as Institutional Trustee, Federal-Mogul Corporation, as Sponsor, and the Holders, from time to time, of undivided beneficial interests in the assets of the Trust to be issued pursuant to the Declaration. Pursuant to the aforementioned exercise of the option to convert these Convertible Preferred Securities, the undersigned hereby directs the Conversion Agent (as that term is defined in the Declaration) to (i) exchange such Convertible Preferred Securities for a portion of the Debentures (as that term is defined in the Declaration) held by the Trust (at the rate of exchange specified in the terms of the Convertible Preferred Securities set forth as Annex I to the Declaration) and (ii) immediately convert such Debentures on behalf of the undersigned, into Common Stock (at the conversion rate specified in the terms of the Convertible Preferred Securities set forth as Annex I to the Declaration). The undersigned does also hereby direct the Conversion Agent that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. A1-8 99 Date: , ___________ in whole in part ----- Number of Convertible Preferred Securities to be converted: ----------------------------------- If a name or names other than the undersigned, please indicate in the spaces below the name or names in which the shares of Common Stock are to be issued, along with the address or addresses of such person or persons ------------------------------------------- ------------------------------------------- ------------------------------------------- ------------------------------------------- ------------------------------------------- ------------------------------------------- ------------------------------------------- Signature (for conversion only) Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number ------------------------------------------- ------------------------------------------- ------------------------------------------- --------------------- Signature Guarantee:(1) - ------------------------- (1) (Signature must be guaranteed by an "eligible guarantor institution" that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Conversion Agent, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Conversion Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) A1-9 100 FORM OF ASSIGNMENT FOR DEFINITIVE CONVERTIBLE PREFERRED SECURITY OR COMMON STOCK ISSUABLE UPON THE CONVERSION THEREOF For value received ___________________ hereby sell(s), assign(s) and transfer(s) unto ___________________________________________ (Please insert social security or other taxpayer identification number of assignee.) the within security and hereby irrevocably constitutes and appoints ______________ attorney to transfer the said security on the books of the issuer, with full power of substitution in the premises. In connection with any transfer of the within security occurring prior to the Transfer Restriction Termination Date, the undersigned confirms that such security is being transferred: [ ] To Federal-Mogul Corporation or a subsidiary thereof; or [ ] Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or [ ] Pursuant to and in compliance with Regulation S under the Securities Act of 1933, as amended; or [ ] Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended; and unless the box below is checked, the undersigned confirms that such security is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "AFFILIATE"): [ ] The transferee is an Affiliate of the Company. A1-10 101 Dated: -------------------------------- Signature(s) -------------------------------------- -------------------------------------- Signature(s) must be guaranteed by a commercial bank or trust company or a member firm of a major stock exchange. -------------------------------------- Signature Guarantee NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of this Security in every particular without alteration or enlargement or any change whatever. A1-11 102
SCHEDULE I CHANGES TO NUMBER OF CONVERTIBLE PREFERRED SECURITIES IN GLOBAL SECURITY - --------------------- ------------------------------------- ----------------------------------- -------------------- DATE NUMBER OF CONVERTIBLE PREFERRED REMAINING CONVERTIBLE PREFERRED NOTATION SECURITIES BY WHICH THIS GLOBAL SECURITIES REPRESENTED BY THIS MADE BY SECURITY IS TO BE REDUCED OR GLOBAL SECURITY INCREASED, AND REASON FOR REDUCTION OR INCREASE - --------------------- ------------------------------------- ----------------------------------- -------------------- - --------------------- ------------------------------------- ----------------------------------- -------------------- - --------------------- ------------------------------------- ----------------------------------- -------------------- - --------------------- ------------------------------------- ----------------------------------- -------------------- - --------------------- ------------------------------------- ----------------------------------- -------------------- - --------------------- ------------------------------------- ----------------------------------- -------------------- - --------------------- ------------------------------------- ----------------------------------- -------------------- - --------------------- ------------------------------------- ----------------------------------- --------------------
A1-12 103 EXHIBIT A-2 FORM OF COMMON SECURITY CERTIFICATE CERTIFICATE NUMBER: NUMBER OF COMMON SECURITIES: Certificate Evidencing Common Securities of FEDERAL-MOGUL FINANCING TRUST 7% Common Securities (liquidation amount $50 per Common Security) THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A UNITED STATES PERSON AND IS ACQUIRING THE CONVERTIBLE PREFERRED SECURITY EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT, PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A) TO FEDERAL-MOGUL CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (E) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND THAT A2-1 104 CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER) AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY, UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE BANK OF NEW YORK, AS INSTITUTIONAL TRUSTEE (OR A SUCCESSOR INSTITUTIONAL TRUSTEE, AS APPLICABLE). THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE SECURITY EVIDENCED HEREBY PURSUANT TO CLAUSE 1(E) ABOVE OR UPON ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "UNITED STATES PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. EACH PURCHASER OR HOLDER OF THE SECURITY EVIDENCED HEREBY WILL BE DEEMED TO HAVE REPRESENTED EITHER THAT (A) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF SUBTITLE B OF TITLE 1 OF ERISA OR A PLAN DESCRIBED IN SECTION 4975 OF THE CODE OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH ERISA PLAN OR OTHER PLAN OR (B) ITS ACQUISITION, HOLDING AND DISPOSITION OF THE SECURITY EVIDENCED HEREBY WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE BY REASON OF PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 91-38, PTCE 84-14, PTCE 90-1, PTCE 95-60 OR PTCE 96-23. Federal-Mogul Financing Trust, a statutory business trust created under the laws of the State of Delaware (the "TRUST"), hereby certifies that Federal-Mogul Corporation, a Michigan corporation (the "HOLDER") is the registered owner of common securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 7% Common Securities (liquidation amount $50 per Common Security) (the "COMMON SECURITIES"). Subject to the Declaration (as defined below), the Common Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and A2-2 105 provisions of the Common Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of December 1, 1997, as the same may be amended from time to time (the "DECLARATION"), including the designation of the terms of the Common Securities as set forth in Annex I to the Declaration. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Common Securities Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Common Securities Guarantee and the Indenture to a Holder without charge upon written request to the Sponsor at its principal place of business. Upon receipt of this certificate, the Sponsor is bound by the Declaration and is entitled to the benefits thereunder. By acceptance of this certificate, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Common Securities as evidence of indirect beneficial ownership in the Debentures. This certificate and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the State of Delaware and all rights and remedies shall be governed by such laws without regard to principles of conflicts of laws. IN WITNESS WHEREOF, the Trust has executed this certificate this 1st day of December, 1997. FEDERAL-MOGUL FINANCING TRUST By: ----------------------------------- Name: Title: Administrator A2-3 106 [FORM OF REVERSE OF SECURITY] Distributions payable on each Common Security will be fixed at a rate per annum of 7% (the "COUPON RATE") of the stated liquidation amount of $50 per Common Security, such rate being the rate of interest payable on the Debentures to be held by the Institutional Trustee. Distributions in arrears for more than one quarter will bear interest thereon compounded quarterly at the Coupon Rate (to the extent permitted by applicable law). The term "DISTRIBUTIONS" as used herein includes such cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months and, for any period shorter than a full quarterly Distribution period, will be computed on the basis of the actual number of days elapsed per 30-day month. Except as otherwise described below, Distributions on the Common Securities will be cumulative, will accrue from the first date that any Convertible Preferred Securities are issued and will be payable quarterly in arrears, on March 1, June 1, September 1 and December 1, which payment dates correspond to the interest payment dates on the Debentures, to Holders of record at the close of business on the regular record date for such Distribution, which shall be the close of business 15 days prior to such Distribution payment date unless otherwise provided in the Declaration. The Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time on the Debentures for a period not exceeding 20 consecutive quarters (each an "EXTENSION PERIOD"); provided, that no Extension Period shall last beyond the date of maturity of the Debentures and, as a consequence of such deferral, Distributions will also be deferred. Despite such deferral, quarterly Distributions will continue to accrue with interest thereon (to the extent permitted by applicable law) at the Coupon Rate compounded quarterly during any such Extension Period. Prior to the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period; provided, that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarters or extend beyond the date of maturity of the Debentures. Payments of accrued Distributions will be payable to Holders as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. Upon the termination of any Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. The Common Securities shall be redeemable as provided in the Declaration. The Common Securities shall be convertible into shares of Common Stock through (i) the exchange of Common Securities for a portion of the Debentures and (ii) the immediate conversion of such Debentures into Common Stock, in the manner and according to the terms set A2-4 107 ---- forth in the Declaration. A2-5 108 ---- CONVERSION REQUEST To: The Bank of New York as Institutional Trustee of Financing Trust The undersigned owner of these Common Securities hereby irrevocably exercises the option to convert these Common Securities, or the portion below designated, into Common Stock of Federal-Mogul Corporation (the "COMMON STOCK") in accordance with the terms of the Amended and Restated Declaration of Trust (the "DECLARATION"), dated as of December 1, 1997, among Thomas W. Ryan, David A. Bozynski and Diane L. Kaye, as Administrators, The Bank of New York (Delaware), as Delaware Trustee, The Bank of New York, as Institutional Trustee, Federal-Mogul Corporation, as Sponsor, and the Holders, from time to time, of undivided beneficial interests in the assets of the Trust to be issued pursuant to the Declaration. Pursuant to the aforementioned exercise of the option to convert these Common Securities, the undersigned hereby directs the Conversion Agent (as that term is defined in the Declaration) to (i) exchange such Common Securities for a portion of the Debentures (as that term is defined in the Declaration) held by the Trust (at the rate of exchange specified in the terms of the Common Securities set forth as Annex I to the Declaration) and (ii) immediately convert such Debentures on behalf of the undersigned, into Common Stock (at the conversion rate specified in the terms of the Common Securities set forth as Annex I to the Declaration). The undersigned does also hereby direct the Conversion Agent that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. A2-6 109 Date: , ___________ in whole in part ----- Number of Convertible Preferred Securities to be converted: ------------------------------------ If a name or names other than the undersigned, please indicate in the spaces below the name or names in which the shares of Common Stock are to be issued, along with the address or addresses of such person or persons ------------------------------------------- ------------------------------------------- ------------------------------------------- ------------------------------------------- ------------------------------------------- ------------------------------------------- ------------------------------------------- Signature (for conversion only) Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number ------------------------------------------- ------------------------------------------- ------------------------------------------- --------------------- (2) Signature Guarantee: - ------------------------- (2) (Signature must be guaranteed by an "eligible guarantor institution" that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Conversion Agent, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Conversion Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) A2-7 110 EXHIBIT B SPECIMEN OF DEBENTURE A2-8 111 EXHIBIT C PURCHASE AGREEMENT C-1 EX-10.35 12 EX-10.35 1 EXHIBIT 10.35 ------------------------------------------------- COMMON SECURITIES GUARANTEE AGREEMENT Federal-Mogul Financing Trust Dated as of December 1, 1997 ------------------------------------------------- 2 TABLE OF CONTENTS --------------
PAGE ---- ARTICLE 1 DEFINITIONS AND INTERPRETATION SECTION 1.01. Definitions and Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 2 GUARANTEE SECTION 2.01. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 2.02. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 2.03. Waiver of Notice and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 2.05. Rights of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 2.06. Guarantee of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 2.07. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 2.08. Independent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE 3 LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 3.01. Limitation of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 3.02. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE 4 TERMINATION SECTION 4.01. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE 5 MISCELLANEOUS SECTION 5.01. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 5.02. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 5.03. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 5.04. Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 SECTION 5.05. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
3 THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, UNITED STATES PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A UNITED STATES PERSON AND IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT, PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A) TO FEDERAL-MOGUL CORPORATION OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (E) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND THAT CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER) AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "UNITED STATES PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. EACH PURCHASER OR HOLDER OF THE SECURITY EVIDENCED HEREBY WILL BE DEEMED TO HAVE REPRESENTED EITHER THAT (A) IT IS NOT AN EMPLOYEE BENEFIT PLAN SUBJECT TO PART 4 OF SUBTITLE B OF TITLE 1 OF ERISA OR A PLAN DESCRIBED IN SECTION 4975 OF THE CODE OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE THE ASSETS OF ANY SUCH ERISA PLAN OR OTHER PLAN OR (B) ITS ACQUISITION, HOLDING AND DISPOSITION OF THE SECURITY EVIDENCED HEREBY WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE BY REASON OF PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 91-38, PTCE 84-14, PTCE 90-1, PTCE 95-60 OR PTCE 96-23. 4 COMMON SECURITIES GUARANTEE AGREEMENT This GUARANTEE AGREEMENT (the "COMMON SECURITIES GUARANTEE"), dated as of December 1, 1997, is executed and delivered by Federal-Mogul Corporation, a Michigan corporation (the "GUARANTOR"), for the benefit of the Holders (as defined herein) from time to time of the Common Securities (as defined herein) of Federal-Mogul Financing Trust, a Delaware business trust (the "ISSUER"). WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "DECLARATION"), dated as of the date hereof, among the trustees and administrators of the Issuer named therein, the Guarantor, as sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Issuer, the Issuer is issuing on the date hereof 309,279 common securities, having an aggregate liquidation amount of $15,463,950, designated the Common Securities (and may issue up to an additional 46,392 Common Securities having an aggregate liquidation amount of $2,319,600 solely to cover over-allotments) (collectively the "COMMON SECURITIES"); WHEREAS, as an incentive for the Holders to purchase the Common Securities, the Guarantor desires to irrevocably and unconditionally agree, to the extent set forth in this Common Securities Guarantee, to pay to the Holders of the Common Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; and WHEREAS, as of the date hereof, the Guarantor is also executing and delivering a guarantee agreement (the "PREFERRED SECURITIES GUARANTEE") with substantially identical terms to this Common Securities Guarantee for the benefit of the holders of the Convertible Preferred Securities (as defined herein), except that if an Event of Default (as defined in the Indenture (as defined herein)), has occurred and is continuing, the rights of Holders of the Common Securities to receive Guarantee Payments under this Common Securities Guarantee are subordinated to the rights of holders of Convertible Preferred Securities to receive Guarantee Payments under the Convertible Preferred Securities Guarantee. NOW, THEREFORE, in consideration of the purchase by each Holder of Common Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Common Securities Guarantee for the benefit of the Holders. 5 ARTICLE 1 DEFINITIONS AND INTERPRETATION SECTION 1.1. Definitions and Interpretation. In this Common Securities Guarantee, unless the context otherwise requires: (a) capitalized terms used in this Common Securities Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.01; (b) terms defined in the Declaration as at the date of execution of this Common Securities Guarantee have the same meaning when used in this Common Securities Guarantee unless otherwise defined in this Common Securities Guarantee; (c) a term defined anywhere in this Common Securities Guarantee has the same meaning throughout; (d) all references to "the Common Securities Guarantee" or "this Common Securities Guarantee" are to this Common Securities Guarantee as modified, supplemented or amended from time to time; (e) all references in this Common Securities Guarantee to Articles and Sections are to Articles and Sections of this Common Securities Guarantee, unless otherwise specified; and (f) a reference to the singular includes the plural and vice versa. "GUARANTEE PAYMENTS" means the following payments or distributions, without duplication, with respect to the Common Securities, to the extent not paid or made by the Issuer: (i) any accrued and unpaid Distributions that are required to be paid on such Common Securities to the extent the Issuer shall have funds available therefor, (ii) the redemption price (the "REDEMPTION PRICE"), plus all accrued and unpaid Distributions to the date of redemption with respect to any Common Securities called for redemption by the Issuer, to the extent the Issuer has funds available therefor, and (iii) upon a voluntary or involuntary liquidation, dissolution, winding-up or termination of the Issuer (other than in connection with a distribution of the Debentures to the Holders or the redemption of all the Common Securities), the lesser of (a) the aggregate of liquidation amount and all accrued and unpaid Distributions on the Common Securities to the date of payment, to the extent the Issuer has funds available therefor, and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer (in either case, the "LIQUIDATION DISTRIBUTION"). If an 6 Event of Default has occurred and is continuing, the rights of Holders of the Common Securities to receive Guarantee Payments under this Common Securities Guarantee are subordinated to the rights of holders of Convertible Preferred Securities to receive Guarantee Payments. "HOLDER" means any holder, as registered on the books and records of the Issuer, of any Common Securities. "MAJORITY IN LIQUIDATION AMOUNT" of the Common Securities means, except as provided in the terms of the Common Securities, a vote by Holder(s), voting separately as a class, of more than 50% of the Liquidation Amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all Common Securities. "TRUST SECURITIES" means the Common Securities and the Preferred Securities. ARTICLE 2 GUARANTEE SECTION 2.1. Guarantee. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim that the Issuer may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders. SECTION 2.2. Subordination. If an Event of Default (as defined in the Indenture) has occurred and is continuing, the rights of the Holders of the Common Securities to receive Guarantee Payments under this Common Securities Guarantee are subordinated to the rights of the Holders of the Preferred Securities to receive guarantee payments under the Preferred Securities Guarantee. SECTION 2.3. Waiver of Notice and Demand. The Guarantor hereby waives notice of acceptance of this Common Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. 7 SECTION 2.4. Obligations Not Affected. The obligations, covenants, agreements and duties of the Guarantor under this Common Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Common Securities to be performed or observed by the Issuer; (b) the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Common Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Common Securities (other than an extension of time for payment of Distributions, the Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures permitted by the Indenture); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Common Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer; (e) any invalidity of, or defect or deficiency in, the Common Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 2.04 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 2.5. Rights of Holders. The Guarantor expressly acknowledges that any Holder of Common Securities may institute a legal proceeding directly 8 against the Guarantor to enforce its rights under this Common Securities Guarantee, without instituting a legal proceeding against the Issuer or any other Person. SECTION 2.6. Guarantee of Payment. This Common Securities Guarantee creates a guarantee of payment and not of collection. SECTION 2.7. Subrogation. The Guarantor shall be subrogated to all (if any) rights of the Holders of Common Securities against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Common Securities Guarantee; provided, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Common Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Common Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. If an Event of Default has occurred and is continuing, the rights of Holders of the Common Securities to receive Guarantee Payments under this Common Securities Guarantee are subordinated to the rights of holders of Convertible Preferred Securities to receive Guarantee Payments under the Convertible Securities Guarantee. SECTION 2.8. Independent Obligations. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Common Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Common Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 2.04 hereof. ARTICLE 3 LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 3.1. Limitation of Transactions. So long as any Convertible Preferred Securities remain outstanding, if (i) the Guarantor has exercised its option to defer interest payments on the Debentures by extending the interest payment period and such extension shall be continuing, (ii) the Guarantor shall be in default with respect to its Guarantee Payments or other obligations under the Guarantee or (ii) there shall have occurred and be continuing any event that, with the giving of notice, would constitute a Declaration Event of Default then the 9 Guarantor (a) shall not declare or pay any dividend on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock (other than (i) purchases or acquisitions of shares of Common Stock in connection with the satisfaction by the Guarantor or any of its subsidiaries of their respective obligations under any employee benefit plans, (ii) as a result of a reclassification of the Guarantor's capital stock or the exchange or conversion of one class or series of the Guarantor's capital stock for another class or series of capital stock, or (iii) the purchase of fractional interests in shares of the Guarantor's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged for the Guarantor's capital stock) or make any guarantee payments with respect to the foregoing and (b) shall not make any payment of interest, principal or premium, if any, on, or repay, repurchase or redeem, any debt securities (including guarantees) issued by the Guarantor that rank pari passu with or junior to the Debentures. SECTION 3.2. Subordination. This Common Securities Guarantee will constitute an unsecured obligation of the guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor, (ii) pari passu with the most senior preferred or preference stock now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor in respect of the most senior preferred or preference stock of any Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock. ARTICLE 4 TERMINATION SECTION 4.1. Termination. This Common Securities Guarantee shall terminate as to each Holder upon (i) full payment of the Redemption Price and accrued and unpaid Distributions with respect to all Common Securities, (ii) upon the distribution of the Debentures held by the Trust to the Holders of the Common Securities, (iii) upon liquidation of the Trust, or (iv) upon distribution of Common Stock to such Holder in respect of the conversion of such Holder's Common Securities into Common Stock and will terminate completely upon full payment of the amounts payable in accordance with the Declaration. Notwithstanding the foregoing, this Common Securities Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Common Securities must restore payment of any sums paid under the Common Securities or under this Common Securities Guarantee. 10 ARTICLE 5 MISCELLANEOUS SECTION 5.1. Successors and Assigns. All guarantees and agreements contained in this Common Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Common Securities then outstanding. SECTION 5.2. Amendments. Except with respect to any changes that do not adversely affect the rights of Holders (in which case no consent of Holders will be required), this Common Securities Guarantee may only be amended with the prior approval of the Holders of at least a Majority in Liquidation Amount of the Common Securities. The provisions of Section 12.02 of the Declaration with respect to meetings of Holders of the Securities apply to the giving of such approval. Except in connection with any permitted merger or consolidation of the Guarantor with or into another entity or any permitted sale, transfer or lease of the Guarantor's assets to another entity (as described in Article 7 of the Indenture), the Guarantor may not assign its rights or delegate its obligations under the Guarantee without the prior approval of the Holders of at least a Majority in Liquidation Amount of the Common Securities then outstanding. SECTION 5.3. Notices. All notices provided for in this Common Securities Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (a) if given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Common Securities): Federal-Mogul Corporation 26555 Northwestern Highway Southfield, Michigan Attention: Corporate Secretary (b) if given to any Holder of Common Securities, at the address set forth on the books and records of the Issuer. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. 11 SECTION 5.4. Benefit. This Common Securities Guarantee is solely for the benefit of the Holders of the Common Securities and is not separately transferable from the Common Securities. SECTION 5.5. Governing Law. THIS COMMON SECURITIES GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF. THIS COMMON SECURITIES GUARANTEE is executed as of the day and year first above written. FEDERAL-MOGUL CORPORATION By: -------------------------------- Name: Title: EX-10.36 13 EX-10.36 1 EXHIBI 10.36 ================================================ FEDERAL-MOGUL CORPORATION THE FOREIGN SUBSIDIARY BORROWERS -------------------------- $2,750,000,000 SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF DECEMBER 18, 1997 ------------------------------- THE CHASE MANHATTAN BANK, as Administrative Agent ================================================ 2 TABLE OF CONTENTS
Page ---- ARTICLE I. DEFINITIONS......................................................................................... 2 SECTION 1.01. Defined Terms................................................................................ 2 SECTION 1.02. Other Definitional Provisions................................................................ 32 ARTICLE II. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS AND SWING LINE COMMITMENT......................... 33 SECTION 2.01. Revolving Credit Commitments................................................................. 33 SECTION 2.02. Repayment of Revolving Credit Loans; Evidence of Debt........................................ 33 SECTION 2.03. Procedure for Revolving Credit Borrowing..................................................... 34 SECTION 2.04. Termination or Reduction of Revolving Credit Commitments..................................... 34 SECTION 2.05. Borrowings of Revolving Credit Loans and Refunding of Loans.................................. 35 SECTION 2.06. Swing Line Commitments....................................................................... 36 SECTION 2.07. Procedure for Swing Line Borrowings; Interest Rate........................................... 37 SECTION 2.08. Repayment of Swing Line Loans; Evidence of Debt.............................................. 37 SECTION 2.09. Refunding of Swing Line Borrowings........................................................... 38 SECTION 2.10. Participating Interests...................................................................... 38 ARTICLE III. AMOUNT AND TERMS OF TERM LOAN COMMITMENTS......................................................... 39 SECTION 3.01. Term Loan Commitments........................................................................ 39 SECTION 3.02. Repayment of Term Loans; Evidence of Debt.................................................... 39 SECTION 3.03. Procedure for Term Loan Borrowing............................................................ 42 ARTICLE IV. AMOUNT AND TERMS OF MULTICURRENCY COMMITMENTS...................................................... 42 SECTION 4.01. Multicurrency Commitments.................................................................... 42 SECTION 4.02. Repayment of Multicurrency Loans; Evidence of Debt........................................... 42 SECTION 4.03. Procedure for Multicurrency Borrowing........................................................ 43 SECTION 4.04. Termination or Reduction of Multicurrency Commitments........................................ 43 ARTICLE V. LOCAL CURRENCY FACILITIES........................................................................... 44 SECTION 5.01. Terms of Local Currency Facilities........................................................... 44 SECTION 5.02. Reporting of Local Currency Outstandings..................................................... 45 ARTICLE VI. GENERAL PROVISIONS APPLICABLE TO THE LOANS ........................................................ 46 SECTION 6.01. Interest Rates and Payment Dates............................................................. 46 SECTION 6.02. Conversion and Continuation Options.......................................................... 46 SECTION 6.03. Minimum Amounts of Tranches.................................................................. 47 SECTION 6.04. Optional and Mandatory Prepayments........................................................... 47 SECTION 6.05. Facility Fees; Commitment Fee; Other Fees.................................................... 51 SECTION 6.06. Computation of Interest and Fees............................................................. 52 SECTION 6.07. Inability to Determine Interest Rate......................................................... 53 SECTION 6.08. Pro Rata Treatment and Payments.............................................................. 53 SECTION 6.09. Illegality................................................................................... 56 SECTION 6.10. Requirements of Law.......................................................................... 56
- i - 3 Page ---- SECTION 6.11. Taxes........................................................................................ 58 SECTION 6.12. Indemnity.................................................................................... 60 SECTION 6.13. Use of Proceeds.............................................................................. 61 SECTION 6.14. Change of Lending Office; Replacement of Lenders............................................. 61 ARTICLE VII. REPRESENTATIONS AND WARRANTIES.................................................................... 62 SECTION 7.01. Financial Condition.......................................................................... 62 SECTION 7.02. No Change.................................................................................... 63 SECTION 7.03. Corporate Existence; Compliance with Law..................................................... 63 SECTION 7.04. Corporate Power; Authorization; Enforceable Obligations...................................... 64 SECTION 7.05. No Legal Bar................................................................................. 64 SECTION 7.06. No Material Litigation....................................................................... 64 SECTION 7.07. No Default................................................................................... 65 SECTION 7.08. Ownership of Property; Liens................................................................. 65 SECTION 7.09. Intellectual Property........................................................................ 65 SECTION 7.10. No Burdensome Restrictions................................................................... 65 SECTION 7.11. Taxes........................................................................................ 65 SECTION 7.12. Federal Regulations.......................................................................... 65 SECTION 7.13. ERISA........................................................................................ 66 SECTION 7.14. Investment Company Act; Other Regulations.................................................... 66 SECTION 7.15. Subsidiaries................................................................................. 66 SECTION 7.16. Environmental Matters........................................................................ 66 SECTION 7.17. Accuracy and Completeness of Information..................................................... 67 SECTION 7.18. Other Unsecured Indebtedness................................................................. 68 SECTION 7.19. Foreign Subsidiary Borrowers................................................................. 68 SECTION 7.20. Security Documents........................................................................... 68 SECTION 7.21. Solvency..................................................................................... 68 ARTICLE VIII. CONDITIONS PRECEDENT............................................................................. 69 SECTION 8.01. Conditions to Effective Date................................................................. 69 SECTION 8.02. Conditions to Initial Revolving Credit Funding Date.......................................... 70 SECTION 8.03. Conditions to Initial Term Loan Funding Date................................................. 71 SECTION 8.04. Conditions to each Term Loan after Initial Term Loan Funding Date............................ 73 SECTION 8.05. Conditions to each Revolving Credit and Multicurrency Loan after Initial Revolving Credit Funding Date................................................................................. 73 ARTICLE IX. AFFIRMATIVE COVENANTS.............................................................................. 75 SECTION 9.01. Financial Statements......................................................................... 75 SECTION 9.02. Certificates; Other Information.............................................................. 76 SECTION 9.03. Accrual of Liabilities; Payment of Obligations............................................... 76 SECTION 9.04. Maintenance of Corporate Existence; Maintenance of Properties................................ 77 SECTION 9.05. Insurance.................................................................................... 77 SECTION 9.06. Notices...................................................................................... 77 SECTION 9.07. Compliance with Contractual Obligations and Laws............................................. 77 SECTION 9.08. Access to Books and Inspection............................................................... 78
- ii - 4 Page ---- SECTION 9.09. Use of Proceeds.............................................................................. 78 SECTION 9.10. Environmental Laws........................................................................... 78 SECTION 9.11. Additional Collateral and Guaranties......................................................... 79 SECTION 9.12. Interest Rate Protection..................................................................... 80 SECTION 9.13. Consummation of Compulsory Acquisition....................................................... 80 SECTION 9.14. Capital Markets Transaction.................................................................. 80 SECTION 9.15. U.K. Acquisition I Corporate Documents....................................................... 80 ARTICLE X. NEGATIVE COVENANTS.................................................................................. 81 SECTION 10.01. Cash Flow Coverage.......................................................................... 81 SECTION 10.02. Consolidated Leverage Ratio................................................................. 81 SECTION 10.03. Maintenance of Consolidated Net Worth....................................................... 82 SECTION 10.04. Limitation on Liens......................................................................... 82 SECTION 10.05. Limitation on Indebtedness.................................................................. 84 SECTION 10.06. Limitation on Guaranties.................................................................... 85 SECTION 10.07. Limitation on Fundamental Changes........................................................... 85 SECTION 10.08. Limitation on Sale of Assets................................................................ 86 SECTION 10.09. Limitation on Restricted Payments........................................................... 86 SECTION 10.10. Restrictions on Special Purpose Subsidiaries................................................ 87 SECTION 10.11. Limitation on Investments, Loans and Advances............................................... 88 SECTION 10.12. Limitation on Optional Payments and Modifications of Debt Instruments, etc. ................ 89 SECTION 10.13. Limitation on Sales and Leasebacks.......................................................... 89 SECTION 10.14. Limitation on Restrictions on Subsidiary Distributions...................................... 89 SECTION 10.15. Multiemployer Plans......................................................................... 90 SECTION 10.16. Limitation on More Restrictive Covenants.................................................... 90 SECTION 10.17. Affiliates.................................................................................. 90 ARTICLE XI. GUARANTEE.......................................................................................... 90 SECTION 11.01. Guarantee................................................................................... 90 SECTION 11.02. Right of Set-off............................................................................ 91 SECTION 11.03. No Subrogation.............................................................................. 91 SECTION 11.04. Amendments, etc. with respect to the Obligations; Waiver of Rights.......................... 92 SECTION 11.05. Guarantee Absolute and Unconditional........................................................ 92 SECTION 11.06. Reinstatement............................................................................... 93 SECTION 11.07. Payments.................................................................................... 94 ARTICLE XII. EVENTS OF DEFAULT................................................................................. 94 ARTICLE XIII. THE ADMINISTRATIVE AGENT......................................................................... 97 SECTION 13.01. Appointment................................................................................. 97 SECTION 13.02. Delegation of Duties........................................................................ 97 SECTION 13.03. Exculpatory Provisions...................................................................... 97 SECTION 13.04. Reliance by Administrative Agent............................................................ 97 SECTION 13.05. Notice of Default........................................................................... 98
- iii - 5 Page ---- SECTION 13.06. Non-Reliance on Agents and Other Lenders.................................................... 98 SECTION 13.07. Indemnification............................................................................. 99 SECTION 13.08. Administrative Agent in Its Individual Capacity............................................. 99 SECTION 13.09. Successor Administrative Agent.............................................................. 99 SECTION 13.10. Authorization to Release Liens..............................................................100 ARTICLE XIV. MISCELLANEOUS.....................................................................................100 SECTION 14.01. Amendments and Waivers......................................................................100 SECTION 14.02. Notices.....................................................................................101 SECTION 14.03. No Waiver; Cumulative Remedies..............................................................103 SECTION 14.04. Survival of Representations and Warranties..................................................103 SECTION 14.05. Payment of Expenses and Taxes...............................................................103 SECTION 14.06. Successors and Assigns; Participations and Assignments......................................104 SECTION 14.07. Adjustments; Set-Off........................................................................106 SECTION 14.08. Loan Conversion/Participations..............................................................107 SECTION 14.09. Counterparts................................................................................108 SECTION 14.10. Severability................................................................................108 SECTION 14.11. Integration.................................................................................108 SECTION 14.12. GOVERNING LAW...............................................................................108 SECTION 14.13. Submission To Jurisdiction; Waivers.........................................................109 SECTION 14.14. Acknowledgements............................................................................110 SECTION 14.15. WAIVERS OF JURY TRIAL.......................................................................110 SECTION 14.16. Power of Attorney...........................................................................110 SECTION 14.17. Release of Collateral.......................................................................110 SECTION 14.18. Judgment....................................................................................111 SECTION 14.19. Confidentiality.............................................................................111 SECTION 14.20. Unification of Certain Currencies...........................................................111
- iv - 6 ANNEXES: Annex A Pricing Grid Annex B Alternative Covenants SCHEDULES: I Commitments; Addresses II Subsidiaries; Foreign Subsidiary Borrowers III Existing Liens IV Existing Indebtedness and Existing Guaranties V Information Concerning Local Currency Loans 6.13 Use of Proceeds 7.20 Perfection Actions 10.8 Excluded Assets EXHIBITS: A-1 Form of Revolving Credit Note A-2 Form of Term Note B Form of Domestic Subsidiary Guarantee C Form of Security Agreement D-1 Form of Domestic Pledge Agreement D-2 Form of Trust Agreement E Form of Joinder Agreement F Form of Responsible Officer's Certificate G Form of Assignment and Acceptance H-1 Form of Opinion of Diane L. Kaye, Esq., General Counsel of the Company (Effective Date) H-2 Form of Opinion of Cleary Gottlieb Steen & Hamilton (Effective Date) H-3 Form of Opinion of Diane L. Kaye, Esq., General Counsel of the Company (Initial Revolving Credit Funding Date) H-4 Form of Opinion of Cleary Gottlieb Steen & Hamilton (Initial Revolving Credit Funding Date) H-5 Form of Opinion of Local Counsel (Initial Revolving Credit Funding Date) I Matters to be Covered by Foreign Subsidiary Opinion J Form of Local Currency Facility Addendum K Form of Prepayment Option Notice - v - 7 CREDIT AGREEMENT, dated as of December 18, 1997, among FEDERAL-MOGUL CORPORATION, a Michigan corporation (the "Company"), each FOREIGN SUBSIDIARY BORROWER (as hereinafter defined) (together with the Company, the "Borrowers"), the several banks and other financial institutions from time to time parties hereto (the "Lenders") and THE CHASE MANHATTAN BANK, a New York banking corporation (as hereinafter defined, the "Administrative Agent"), as administrative agent for the Lenders hereunder. W I T N E S S E T H: WHEREAS, the Company is party to the Revolving Credit, Competitive Advance and Multicurrency Facility Agreement, dated as of June 16, 1997 (the "Existing Credit Agreement"), with the several banks and other financial institutions party thereto and The Chase Manhattan Bank, as the administrative agent; WHEREAS, the Company, through an indirect, wholly owned Subsidiary organized under the laws of England ("U.K. Acquisition II"), intends to acquire (the "Acquisition") T & N PLC, a company organized under the laws of England (the "Target"); WHEREAS, the Acquisition will be accomplished by means of a tender offer (the "Tender Offer") to be made by U.K. Acquisition II for up to 100% (but in any event not less than 90%) (the "Minimum Number of Shares") of the issued and outstanding ordinary shares, pound 1 par value (the "Target Shares"), of the Target, and/or Options related thereto followed by a compulsory acquisition of any remaining such shares not acquired in the Tender Offer; WHEREAS, in order to finance, in part, the Acquisition, to refinance the Existing Credit Agreement and other existing indebtedness of the Company and the Target, to pay fees and expenses in connection with the Acquisition and the financing thereof, and to provide for the working capital and general corporate needs of the Company and its Subsidiaries prior to and following the Acquisition, the Company, The Chase Manhattan Bank, as Lender, and the Administrative Agent have entered into the Credit Agreement, dated as of September 26, 1997 (the "September 26, 1997 Credit Agreement"), which was amended and restated by the Amended and Restated Credit Agreement, dated as of October 15, 1997 (the "Amended and Restated Credit Agreement"); WHEREAS, the Acquisition will be financed, in part, with the proceeds of senior subordinated loans in the aggregate principal amount of $500,000,000 to be borrowed by the Company (the "Senior Subordinated Bridge Loans"); WHEREAS, the Company, the Lenders and the Administrative Agent desire to amend and restate the Amended and Restated Credit Agreement upon and subject to the terms and conditions hereinafter set forth; and WHEREAS, in order to effect the Acquisition, proceeds of Loans made under this Agreement and proceeds of the Senior Subordinated Bridge Loans will be invested indirectly 8 through wholly owned Subsidiaries, in U.K. Acquisition II in the manner described in Schedule 6.13; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein, the parties hereto agree that on the Effective Date the Amended and Restated Agreement shall be further amended and restated in its entirety as follows: ARTICLE I. DEFINITIONS SECTION I.01. Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "Accumulated Funding Deficiency": any accumulated funding deficiency within the meaning of Section 412 of the Code or Section 302 of ERISA. "Acquisition": as defined in the recitals hereto. "Adjusted Aggregate Committed Outstandings": with respect to each Revolving Credit Lender, the Aggregate Committed Outstandings of such Lender, plus the amount of any participating interests purchased by such Lender pursuant to Section 14.08, minus the amount of any participating interests sold by such Lender pursuant to Section 14.08. "Adjustment Date": as defined in the Pricing Grid. "Administrative Agent": Chase, together with its affiliates, as arranger of the Commitments and as administrative agent for the Lenders under this Agreement or any successor thereto appointed pursuant to Section 13.09. "Affiliate": of any Person, shall mean any Person that, directly or indirectly, controls or is controlled by or is under common control with such Person, or in the case of any Lender which is an investment fund, (i) the investment advisor thereof and (ii) any other investment fund having the same investment advisor. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or by contract or otherwise. "Aggregate Available Multicurrency Commitments": as at any date of determination with respect to all Multicurrency Lenders, an amount in U.S. Dollars equal to the Available Multicurrency Commitments of all Multicurrency Lenders on such date. "Aggregate Available Revolving Credit Commitments": as at any date of determination with respect to all Revolving Credit Lenders, an amount in U.S. Dollars equal to the Available Revolving Credit Commitments of all Revolving Credit Lenders on such date. -2- 9 "Aggregate Committed Outstandings": as at any date of determination with respect to any Revolving Credit Lender, an amount in U.S. Dollars equal to the sum of (a) the Aggregate Revolving Credit Outstandings of such Revolving Credit Lender on such date, (b) the U.S. Dollar Equivalent of the Aggregate Multicurrency Outstandings of such Revolving Credit Lender on such date and (c) the U.S. Dollar Equivalent of the Aggregate Local Currency Outstandings of such Revolving Credit Lender on such date. "Aggregate Local Currency Outstandings": as at any date of determination with respect to any Revolving Credit Lender, an amount in the applicable Local Currencies equal to the aggregate unpaid principal amount of such Revolving Credit Lender's Local Currency Loans. "Aggregate Multicurrency Outstandings": as at any date of determination with respect to any Revolving Credit Lender, an amount in the applicable Available Foreign Currencies equal to the aggregate unpaid principal amount of such Revolving Credit Lender's Multicurrency Loans. "Aggregate Revolving Credit Commitments": the aggregate amount of the Revolving Credit Commitments of all of the Revolving Credit Lenders. "Aggregate Revolving Credit Outstandings": as at any date of determination with respect to any Revolving Credit Lender, an amount equal to the sum of (a) the aggregate unpaid principal amount of such Revolving Credit Lender's Revolving Credit Loans on such date and (b) such Revolving Credit Lender's Revolving Credit Commitment Percentage of the aggregate unpaid principal amount of all Swing Line Loans on such date. "Agreement": this Second Amended and Restated Credit Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Agreement Currency": as defined in Section 14.18(b). "Amended and Restated Credit Agreement": as defined in the recitals hereto. "Applicable Margin": for each Type and Class of Loan, the rate per annum set forth under the relevant column heading below:
Base Eurodollar Loans/ Rate Loans Multicurrency Loans ---------- ------------------- Revolving Credit Loans .50% 1.50% Multicurrency Loans N.A. 1.50% Tranche A Term Loans 1.00% 2.00% Tranche B Term Loans 1.25% 2.25% Interim Term Loans 1.00% 2.00%
-3- 10 ;provided, that on and after the first Adjustment Date occurring after the Interim Term Loans have been repaid in full, the Applicable Margin with respect to Revolving Credit Loans, Multicurrency Loans, Tranche A Term Loans and Tranche B Term Loans will be determined pursuant to the Pricing Grid. "Asset Sale": any Disposition of Property or series of related Dispositions of Property (excluding any such Disposition permitted by clauses (b), (c), (d) and (e) of Section 10.08 as in effect prior to the Covenant Transition Date, and excluding any transfer of assets by the Company or any Subsidiary to the Company or any Subsidiary) which yields gross proceeds to the Company or any of its Subsidiaries (valued at the initial principal amount thereof in the case of non-cash proceeds consisting of notes or other debt securities and valued at fair market value in the case of other non-cash proceeds) in excess of $5,000,000. "Asset Sale Prepayment Percentage": 100%; provided, that the Asset Sale Prepayment Percentage shall be (a) 75% with respect to any Asset Sale consummated when the Consolidated Leverage Ratio as of the end of the most recently ended fiscal quarter was greater than or equal to 3.50 to 1.00 but less than 4.00 to 1.00, (b) 50% with respect to any Asset Sale consummated when the Consolidated Leverage Ratio as of the end of the most recently completed fiscal quarter was greater than or equal to 3.0 to 1.0 but less than 3.5 to 1.0 and (c) 0%, with respect to any Asset Sale consummated when the Consolidated Leverage Ratio as of the end of the most recently completed fiscal quarter was less than 3.0 to 1.0. "Assignee": as defined in Section 14.06(c). "Available Foreign Currencies": Deutsche Marks, Pounds Sterling, French Francs, Italian Lira, Australian Dollars and any other available and freely-convertible non-U.S. Dollar currency selected by the Company and approved by the Administrative Agent and the Majority Multicurrency Lenders. "Available Multicurrency Commitment": as at any date of determination with respect to any Multicurrency Lender (after giving effect to the making and payment of any Revolving Credit Loans required on such date pursuant to Section 2.05), an amount equal to the lesser of (a) the excess, if any, of (i) such Multicurrency Lender's Multicurrency Commitment in effect on such date over (ii) the U.S. Dollar Equivalent of the Aggregate Multicurrency Outstandings of such Multicurrency Lender on such date and (b) the excess, if any, of (i) the amount of such Lender's Revolving Credit Commitment in effect on such date over (ii) the Aggregate Committed Outstandings of such Lender on such date. "Available Revolving Credit Commitment": as at any date of determination with respect to any Revolving Credit Lender (after giving effect to the making and payment of any Revolving Credit Loans required on such date pursuant to Section 2.05), an amount equal to the excess, if any, of (a) the amount of such Revolving Credit Lender's Revolving Credit Commitment in effect on such date over (b) the Aggregate Committed -4- 11 Outstandings of such Revolving Credit Lender on such date. "Base Rate": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Base Rate shall be determined without regard to clause (b) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Base Rate Loans": Loans the rate of interest applicable to which is based upon the Base Rate. "Benefitted Lender": as defined in Section 14.07. "Board": the Board of Governors of the Federal Reserve System (or any successor thereto). "Borrowers": as defined in the preamble hereto. "Borrowing Date": any Business Day specified in a notice pursuant to Section 2.03, 2.07, 3.03 or 4.03 as a date on which a Borrower requests the Lenders to make Loans hereunder or, with respect to Local Currency Loans, the date on which a Local Currency Borrower requests Local Currency Lenders to make Local Currency Loans to such Local Currency Borrower pursuant to the Local Currency Facility to which such Local Currency Borrower and Local Currency Lenders are parties. "Business": as defined in Section 7.16. "Business Day": (a) when such term is used in respect of a day on which a Loan denominated in an Available Foreign Currency or Local Currency is to be made, a payment is to be made in respect of such Loan, an interest rate or Exchange Rate is to be set in respect of such Available Foreign Currency or Local Currency or any other dealing in such Available Foreign Currency or Local Currency is to be carried out pursuant to this Agreement, such term shall mean a London Banking Day which is also a day on which banks are open for general banking business in the city which is the principal financial center of the country of issuance of such Available Foreign Currency or Local Currency, (b) when such term is used in respect of a day on which a Eurodollar Loan is to be made, an interest rate is to be set in respect thereof or any payment is to be made in respect thereof, such term shall mean a London Banking Day, and (c) when such term is used in any context in this Agreement (including as described in the foregoing clauses (a) and -5- 12 (b)), such term shall mean a day which, in addition to complying with any applicable requirements set forth in the foregoing clauses (a) and (b), is a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "Capital Expenditures": all expenditures of the Company and its Subsidiaries on a consolidated basis for any fixed assets or improvements, or for replacements, substitutions or additions thereto, which have a useful life of more than one year, including, but not limited to, the direct or indirect acquisition of such assets by way of increased product or service charges, offset items or otherwise, including all expenditures under capital leases, all determined in accordance with GAAP. "Capital Stock": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person other than a corporation and any and all warrants or options to purchase any of the foregoing. For all purposes of this Agreement, "Capital Stock" shall include the 10,000,000 7% Trust Convertible Preferred Securities (Liquidation Amount $50 Per Convertible Preferred Security) issued by Federal-Mogul Financing Trust and guaranteed by the Company upon terms described in the Offering Memorandum issued November 24, 1997 and any other substantially equivalent securities hereafter issued by a financing vehicle for the benefit of the Company, and such Trust Convertible Securities and substantially equivalent securities will be treated as preferred stock of the Company and the Company shall not be deemed to have issued any Indebtedness or Guarantee in connection therewith. "Cash Equivalents": (a) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition and overnight bank deposits of any Lender or of any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-2 by S&P or P-2 by Moody's, (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's (or an equivalent rating for such foreign securities), (f) securities with maturities of one year or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition, provided that, in the case of any investment by a Foreign Subsidiary, "Cash Equivalents" shall also include: (i) direct -6- 13 obligations of the sovereign nation (or any agency thereof) in which such Foreign Subsidiary is organized and is conducting business or in obligations fully and unconditionally guaranteed by such sovereign nation (or any agency thereof), (ii) investments of the type and maturity described in clauses (a) through (f) above of foreign obligors, which Investments or obligors (or the parents of such obligors) have ratings described in such clauses or equivalent ratings from comparable foreign rating agencies and (iii) shares of money market mutual or similar funds which invest exclusively in assets otherwise satisfying the requirements of this definition (including this proviso). "Cash Flow Coverage": for any period, the ratio of (a) Consolidated EBITDA less Capital Expenditures, divided by (b) (i) Interest Expenses plus (ii) dividends paid on any class of the Company's Capital Stock in each case determined for such period. "Change of Control": (a) any "person" or "group" within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended, shall become the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of more than 50% of the then outstanding voting stock of the Company other than in a transaction having the approval of the board of directors of the Company at least a majority of which members are Continuing Directors or (b) Continuing Directors shall cease to constitute at least a majority of the directors constituting the board of directors of the Company. "Chase": The Chase Manhattan Bank, a New York banking corporation. "City Code": the City Code on Take-overs and Mergers, as published by the Panel and as amended from time to time. "Class": the collective reference to Loans outstanding under a single Facility. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Collateral": all Property of the Loan Parties, now owned or hereafter acquired, upon which a Lien is purported to be created by any Security Document. "Collateral Release Date": the date of receipt by the Administrative Agent of a written request by the Company to release the Collateral following either (i) the date on which there is in effect either (A) an S&P Bond Rating of at least BBB- or equivalent or (B) a Moody's Bond Rating of at least Baa3 or equivalent or (ii) the date on which the Consolidated Leverage Ratio is less than or equal to 2.0 to 1.0. "Commitment": as to any Lender, the sum of the Tranche A Term Loan Commitment, the Tranche B Term Loan Commitment, the Interim Term Loan Commitment and the Revolving Credit Commitment (and, without duplication, the Multicurrency Commitment) of such Lender. "Committed Outstandings Percentage": on any date with respect to any Lender, -7- 14 the percentage which the Adjusted Aggregate Committed Outstandings of such Lender constitutes of the Adjusted Aggregate Committed Outstandings of all Lenders. "Commonly Controlled Entity": an entity, whether or not incorporated, which is under common control with the Company within the meaning of Section 4001 of ERISA or is part of a group which includes the Company and which is treated as a single employer under Section 414 of the Code. "Company": as defined in the preamble hereto. "Company Guaranty: the guarantee contained in Article 11. "Compulsory Acquisition": the acquisition by U.K. Acquisition II, pursuant to Sections 428 to 430F of the Companies Act 1985, of England, of all of the issued and outstanding Target Shares not then owned by U.K. Acquisition II. "Consolidated Current Assets": at any date, all amounts (other than cash and Cash Equivalents) which would, in conformity with GAAP, be set forth opposite the caption "total current assets" (or any like caption) on a consolidated balance sheet of the Company and its Subsidiaries at such date. "Consolidated Current Liabilities": at any date, all amounts which would, in conformity with GAAP, be set forth opposite the caption "total current liabilities" (or any like caption) on a consolidated balance sheet of the Company and its Subsidiaries at such date, but excluding (a) the current portion of any Funded Debt of the Company and its Subsidiaries and (b) without duplication of clause (a) above, all Indebtedness consisting of Revolving Credit Loans and Multicurrency Loans to the extent otherwise included therein. "Consolidated EBITDA": for any period, the sum of (a) the consolidated net income (or loss) of the Company and its Subsidiaries for such period before deduction of income and franchise taxes and depreciation, determined in conformity with GAAP, but excluding the income of any Person (other than Subsidiaries of the Company) in which the Company or any of its Subsidiaries has an ownership interest, until such income has been received by the Company or a Subsidiary in a cash distribution, plus (b) any Interest Expenses reported during such period, plus (c) amortization of Intangible Assets deducted in determining net income for such period. "Consolidated Leverage Ratio": as at the last day of any period of four consecutive fiscal quarters, the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA for such period; provided, that for purposes of calculating Consolidated EBITDA for any period of four consecutive fiscal quarters, the Consolidated EBITDA of any Person acquired by the Company or its Subsidiaries during such period shall be included on a pro forma basis for such period (assuming the consummation of each such acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred on the first day of such period) if the -8- 15 consolidated balance sheet of such acquired Person and its consolidated Subsidiaries as at the end of the period preceding the acquisition of such Person and the related consolidated statements of income and stockholders' equity and of cash flows for the period in respect of which Consolidated EBITDA is to be calculated (i) have been provided to the Administrative Agent and the Lenders and (ii) either (A) have been reported on without a qualification arising out of the scope of the audit (other than a "going concern" or like qualification or exception) by independent certified public accountants of nationally recognized standing or (B) have been found acceptable by the Administrative Agent. "Consolidated Net Income": for any period, the consolidated net income (or loss) of the Company and its Subsidiaries for such period, determined in conformity with GAAP, but excluding the income of any Person (other than Subsidiaries of the Company) in which the Company or any of its Subsidiaries has an ownership interest, until such income has been received by the Company or a Subsidiary in a cash distribution. "Consolidated Net Worth": at any date, shareholders equity (including, but not limited to, Capital Stock, additional paid-in capital and retained earnings after deducting treasury stock and unearned compensation) of the Company and its Subsidiaries on a consolidated basis as at such date determined in accordance with GAAP; provided, that Consolidated Net Worth shall not reflect any additions or deductions resulting from foreign currency translation gains or losses. "Consolidated Total Debt": all Indebtedness of the Company and its Subsidiaries, determined on a consolidated basis. "Consolidated Working Capital": at any date, the excess of Consolidated Current Assets on such date over Consolidated Current Liabilities on such date. "Continuing Directors": the collective reference to (a) all members of the board of directors of the Company who have held office continually since September 26, 1997, and (b) all members of the board of directors of the Company who were elected as directors after September 26, 1997 and whose nomination for election by the Company's shareholders was approved by a vote of at least 50% of the Continuing Directors. "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Conversion Date": any date on which either (a) an Event of Default under paragraph (f) of Article XII has occurred or (b) the Commitments shall have been terminated and/or the Loans shall have been declared immediately due and payable pursuant to Article XII. "Conversion Sharing Percentage": on any date with respect to any Revolving Credit Lender and any Multicurrency Loans or Local Currency Loans of such Revolving -9- 16 Credit Lender, the percentage of such Loans such that, after giving effect to the conversion of such Loans to U.S. Dollars and the purchase and sale by such Revolving Credit Lender of participating interests as contemplated by Section 14.08, the Committed Outstandings Percentage of such Revolving Credit Lender will equal such Revolving Credit Lender's Revolving Credit Commitment Percentage on such date (calculated immediately prior to giving effect to any termination or expiration of the Revolving Credit Commitments on the Conversion Date). "Converted Loans": as defined in Section 14.08(a). "Covenant Transition Date": the date, on or after the repayment in full of the Interim Term Loans, on which the Administrative Agent receives a written notice signed by a Responsible Officer (which notice the Administrative Agent will promptly transmit to each Lender) to the effect that the Company has elected that the covenants set forth in Article X will be replaced in their entirety by the covenants set forth in Annex B. "Default": any of the events specified in Article XII whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition has been satisfied. "Disposition": with respect to any Property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof; and the terms "Dispose" and "Disposed of" shall have correlative meanings. "Dollars": dollars in lawful currency of the United States of America. "$": dollars in lawful currency of the United States of America. "Domestic Pledge Agreement": the Domestic Pledge Agreement, substantially in the form of Exhibit D-1, to be executed by the Company and certain of its Domestic Subsidiaries (pledging 100% of the Capital Stock owned by the Company and each of its Domestic Subsidiaries of each Domestic Subsidiary of the Company, including, but not limited to, 100% of the Capital Stock of U.S. Finance Subsidiary I, U.S. Finance Subsidiary II and U.S. Finance Subsidiary III), in favor of the Trustee. "Domestic Reference Lenders": Chase and two other Lenders selected by Chase and the Company on the Syndication Date; provided, that prior to the Syndication Date, all references to "Domestic Reference Lenders" shall be deemed to be references to Chase. "Domestic Subsidiary": any Subsidiary of the Company organized under the laws of any jurisdiction within the United States, other than any Subsidiary which is a Subsidiary of an Excluded Foreign Subsidiary. "Domestic Subsidiary Guarantee": the Domestic Subsidiary Guarantee, substantially in the form of Exhibit B, to be executed and delivered by each Domestic -10- 17 Subsidiary, including, but not limited to, U.S. Finance Subsidiary I, U.S. Finance Subsidiary II and U.S. Finance Subsidiary III, as the same may from time to time be amended, supplemented or otherwise modified. "Effective Date": as defined in Section 8.01. "Environmental Laws": any and all foreign, Federal, state, local or municipal, laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurocurrency Base Rate": (a) with respect to each Interest Period pertaining to a Multicurrency Loan denominated in any currency other than Pounds Sterling, the rate per annum determined by the Administrative Agent to be the offered rate for deposits in such currency with a term comparable to such Interest Period that appears on the applicable Telerate Page at approximately 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period; provided, however, that if at any time for any reason such offered rate for any such currency does not appear on a Telerate Page, "Eurocurrency Base Rate" shall mean, with respect to each day during each Interest Period pertaining to a Multicurrency Loan denominated in such currency, the rate per annum equal to the average (rounded upward to the nearest 1/16th of 1%) of the respective rates notified to the Administrative Agent by each of the Multicurrency Reference Lenders as the rate at which such Multicurrency Reference Lender is offered deposits in such currency at or about 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period in the London interbank market for delivery on the first day of such Interest Period for the number of days comprised therein; and (b) with respect to each day during each Interest Period pertaining to a Multicurrency Loan denominated in Pounds Sterling, the rate per annum equal to the average (rounded upward to the nearest 1/16th of 1%) of the respective rates notified to the Administrative Agent by each of the Multicurrency Reference Lenders as the rate at which such Multicurrency Reference Lender is offered deposits in Pounds Sterling at or about 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period in the Paris interbank market for delivery on the first day of such Interest Period for the number of days comprised therein. "Eurocurrency Rate": with respect to each day during each Interest Period pertaining to a Multicurrency Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurocurrency Base Rate ----------------------------------------------------- 1.00 - Eurocurrency Reserve Requirements -11- 18 "Eurocurrency Reserve Requirements": for any day as applied to a Eurodollar Loan or a Multicurrency Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves) under any regulations of the Board of Governors of the Federal Reserve System or other Governmental Authority having jurisdiction with respect thereto dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of such Board) maintained by a member bank of such System. "Eurodollar Base Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum equal to the average (rounded upward to the nearest 1/16th of 1%) of the respective rates notified to the Administrative Agent by each of the Domestic Reference Lenders as the rate at which such Domestic Reference Lender is offered Dollar deposits at or about 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period in the London interbank market for delivery on the first day of such Interest Period for the number of days comprised therein. "Eurodollar Loans": Loans the rate of interest applicable to which is based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate -------------------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Event of Default": any of the events specified in Article XII, provided that all requirements for the giving of notice, the lapse of time, or both, or any other condition, have been satisfied. "Excess Cash Flow": for any fiscal year of the Company, the excess, if any, of (a) the sum, without duplication, of (i) Consolidated Net Income for such fiscal year, (ii) an amount equal to the amount of all non-cash charges and/or losses (including depreciation and amortization) deducted in arriving at such Consolidated Net Income, (iii) decreases in Consolidated Working Capital for such fiscal year, (iv) the net increase during such fiscal year (if any) in deferred tax asset or liability accounts of the Company, and (v) the net increase during such fiscal year (if any) in the Company's accrued long-term liability account over (b) the sum, without duplication, of (i) an amount equal to the amount of all non-cash credits and/or gain included in arriving at such Consolidated Net Income, (ii) the aggregate amount actually paid by the Company and its Subsidiaries in cash during such fiscal year on account of Capital Expenditures (excluding the principal amount of Indebtedness incurred in connection with such expenditures and any such expenditures financed with the proceeds of any Reinvestment Deferred Amount), (iii) the aggregate amount of all prepayments of Revolving Credit Loans during such fiscal year to the -12- 19 extent accompanying permanent optional reductions of the Revolving Credit Commitments and all prepayments of the Term Loans during such fiscal year (other than mandatory prepayments pursuant to Section 6.04(d), (e) or (f)), (iv) the aggregate amount of all regularly scheduled principal payments of Funded Debt of the Company and its Subsidiaries made during such fiscal year (other than payments in respect of any revolving credit facility, including the Revolving Credit Facility, to the extent there is not an equivalent permanent reduction in commitments thereunder, and other than payments in respect of the Interim Term Loans made with the proceeds of issuance or incurrence of equity or debt securities), (v) increases in Consolidated Working Capital for such fiscal year, (vi) the net decrease during such fiscal year (if any) in deferred tax asset or liability accounts of the Company, (vii) the net decrease during such fiscal year (if any) in the Company's accrued long-term liability account, (viii) the amount of cash dividends paid by the Company during such fiscal year as permitted by this Agreement and (ix) the amount of cash used in connection with acquisitions of all or part of the Capital Stock or assets of any Person, including investments in joint ventures, made by the Company and its Subsidiaries during such fiscal year as permitted by this Agreement. "Excess Cash Flow Application Date": as defined in Section 6.04(f). "Excess Cash Flow Prepayment Percentage": 75%; provided, that the Excess Cash Flow Prepayment Percentage shall be (a) 50% for any fiscal year in respect of which the Consolidated Leverage Ratio on the last day thereof was greater than or equal to 3.50 to 1.00 but less than 4.00 to 1.00 and (b) 0% for any fiscal year in respect of which the Consolidated Leverage Ratio on the last day thereof was less than 3.50 to 1.00. "Exchange Notes": the "Exchange Notes" referred to in the Senior Subordinated Loan Documentation issued in exchange for the Senior Subordinated Bridge Loans. "Exchange Rate": with respect to any non-U.S. Dollar currency on any date, the rate at which such currency may be exchanged into U.S. Dollars, as set forth on such date on the relevant Reuters currency page at or about 11:00 A.M., London time, on such date. In the event that such rate does not appear on any Reuters currency page, the "Exchange Rate" with respect to such non-U.S. Dollar currency shall be determined by reference to such other publicly available service for displaying exchange rates as may be agreed upon by the Administrative Agent and the Company or, in the absence of such agreement, such "Exchange Rate" shall instead be the Administrative Agent's spot rate of exchange in the interbank market where its foreign currency exchange operations in respect of such non-U.S. Dollar currency are then being conducted, at or about 10:00 A.M., local time, on such date for the purchase of U.S. Dollars with such non-U.S. Dollar currency, for delivery two Business Days later; provided, that if at the time of any such determination, no such spot rate can reasonably be quoted, the Administrative Agent may use any reasonable method as it deems applicable to determine such rate, and such determination shall be conclusive absent manifest error. "Excluded Foreign Subsidiary": any Foreign Subsidiary (and any Domestic Subsidiary which is a Subsidiary of an Excluded Foreign Subsidiary) if the pledge of -13- 20 more than 65% of the Capital Stock of such Foreign Subsidiary (or Domestic Subsidiary, as the case may be) or the execution by such Foreign Subsidiary (or Domestic Subsidiary, as the case may be) of a Subsidiary Guarantee would, in the good faith judgment of the Company, result in adverse tax consequences to the Company or would be unlawful for such Foreign Subsidiary (or Domestic Subsidiary, as the case may be). "Existing Accounts Receivable Financing Program": the collective reference to (i) the Amended and Restated Pooling and Servicing Agreement dated as of February 1, 1997, among the Receivables Subsidiary, as Seller, the Company, as Servicer, and Chase, as Trustee, (ii) the Series 1997-1 Supplement dated as of February 1, 1997, among the Receivables Subsidiary, as Seller, the Company, as Servicer, and Chase, as Trustee, (iii) the Amended and Restated Receivables Purchase Agreement dated as of February 28, 1997, between the Receivables Subsidiary, as Buyer, and the Company, as Seller, (iv) the Amended and Restated Receivables Purchase Agreement dated as of February 28, 1997, between the Receivables Subsidiary, as Buyer, and Carter Automotive Company, Inc., a Delaware corporation, as Seller, (v) the Amended and Restated Receivables Purchase Agreement dated as of February 28, 1997, between the Receivables Subsidiary, as Buyer, and Mather Seal Company, Inc., a Michigan corporation, as Seller, and (vi) all other documents entered into in connection with any of the foregoing, as each of the foregoing are amended, restated, supplemented or otherwise modified from time to time. "Existing Credit Agreement": as defined in the recitals hereto. "Existing Plan": any Plan existing on the date of this Agreement without giving effect to any amendment thereof made after the date of this Agreement. "Existing Public Securities": the Company's Medium Term Notes and 8.8% Notes outstanding under the Indenture. "Facility": each of (a) the Tranche A Term Loan Commitments and the Tranche A Term Loans made thereunder (the "Tranche A Term Loan Facility"), (b) the Tranche B Term Loan Commitments and the Tranche B Term Loans made thereunder (the "Tranche B Term Loan Facility"), (c) the Interim Term Loan Commitments and the Interim Term Loans made thereunder (the "Interim Term Loan Facility"), (d) the Revolving Credit Commitments and the Revolving Credit Loans (including the Swing Line Loans) made thereunder (the "Revolving Credit Facility") and (e) the Multicurrency Commitments and the Multicurrency Loans made thereunder (the "Multicurrency Facility"). "Facility Fee Rate": .50% per annum; provided, that on and after the first Adjustment Date occurring after the date on which the Interim Term Loans are repaid in full, the Facility Fee Rate will be determined pursuant to the Pricing Grid. "Federal Funds Effective Rate": for any day, the weighted average of the rates per annum on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for -14- 21 any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it, in each case rounded up to the nearest 1/100th of 1%. "Foreign Subsidiary": any Subsidiary of the Company other than a Domestic Subsidiary. "Foreign Subsidiary Borrower": each Foreign Subsidiary listed as a Foreign Subsidiary Borrower in Schedule II as amended from time to time in accordance with Section 14.01(b). "Foreign Subsidiary Opinion": with respect to any Foreign Subsidiary Borrower, a legal opinion of counsel to such Foreign Subsidiary Borrower addressed to the Administrative Agent and the Lenders concluding that such Foreign Subsidiary Borrower and the Loan Documents to which it is a party substantially comply with the matters listed on Exhibit I, with such assumptions, qualifications and deviations therefrom as the Administrative Agent shall approve (such approval not to be unreasonably withheld). "Funded Debt": all Indebtedness of the Company and its Subsidiaries on a consolidated basis maturing one year or more after incurrence thereof or that matures within one year from the date on which it was created, but is renewable or extendible under terms such that under GAAP such Indebtedness would be treated as long-term indebtedness. "Funding Commitment Percentage": as at any date of determination (after giving effect to the making and payment of any Loans made on such date pursuant to Section 2.05), with respect to any Revolving Credit Lender, that percentage which the Available Revolving Credit Commitment of such Revolving Credit Lender then constitutes of the Aggregate Available Revolving Credit Commitments. "GAAP": generally accepted accounting principles in the United States of America in effect from time to time; provided, that if at any time after the date hereof there shall occur any change in respect of such generally accepted accounting principles from those used in the preparation of the audited financial statements referred to in Section 7.01 in a manner which would have a material effect on any matter which is material to Article X, the Company and the Administrative Agent will, within five Business Days of a notice from the Administrative Agent or the Company, as the case may be, to that effect, commence, and continue in good faith, negotiations with a view towards making appropriate amendments to the provisions hereof acceptable to the Required Lenders, to reflect as nearly as possible the effect of the provisions of Article X as in effect on the date hereof. "Governmental Authority": any nation or government, any state, or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. -15- 22 "Gross Cash Proceeds": in connection with any issuance or sale of Capital Stock, the gross cash proceeds of such issuance before deduction for investment banking fees, underwriting discounts and commissions and other fees and expenses incurred in connection therewith. "Guaranty": any guaranty by any Person of Indebtedness or other obligations of any other Person that is not a consolidated subsidiary of such Person or any assurance with respect to the financial condition of any other Person that is not a consolidated subsidiary of such Person (including, without limitation, any purchase or repurchase agreement, any indemnity or any keep-well, take-or-pay, through-put or other arrangement having the effect of assuring or holding harmless any third Person against loss with respect to any Indebtedness or other obligation of such other Person) except endorsements of negotiable instruments for collection in the ordinary course of business. "Indenture": the Indenture, dated as of August 12, 1994, between the Company and First Trust National Association (as successor to Continental Bank), as trustee. "Indebtedness": with respect to any Person, (a) all indebtedness of such Person which in accordance with GAAP would be shown as a liability on the balance sheet of such Person and (b) obligations under leases which, in accordance with GAAP, are to be recorded as capital leases; provided, however, that the term "Indebtedness" shall not include short-term obligations payable to suppliers incurred in the ordinary course of business or indebtedness incurred by a special purpose, Wholly Owned Subsidiary of the Company that purchases accounts receivable from the Company and its other Subsidiaries to the extent that such indebtedness is nonrecourse to the Company and each such other Subsidiary and is not required under GAAP to be reflected on the consolidated balance sheet of the Company. "Initial Measurement Date": the last day of the first full fiscal quarter commencing after the Initial Term Loan Funding Date. "Initial Revolving Credit Funding Date": as defined in Section 8.02. "Initial Term Loan Funding Date": as defined in Section 8.03. "Insolvency": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. "Intangible Assets": assets having no physical existence and that, in conformity with GAAP, should be classified as intangible assets, including, without limitation, patents, patent rights, trademarks, trade names, copyrights, franchises, licenses, customer lists, organizational expenses and goodwill. "Intellectual Property": as defined in Section 7.09. -16- 23 "Interest Expenses": with respect to any period, the aggregate of all interest expense reported by the Company and its Subsidiaries in accordance with GAAP during such period. As used in this definition, the term "interest" shall include, without limitation, all interest, fees and costs payable with respect to the obligations under this Agreement (other than fees and costs which may be capitalized as transaction costs in accordance with GAAP), any discount in respect of sales of accounts receivable and/or related contract rights and the interest portion of capitalized lease payments during such period, all as determined in accordance with GAAP. "Interest Payment Date": (a) as to any Base Rate Loan, the last day of each March, June, September and December to occur while such Loan is outstanding, (b) as to any Eurodollar Loan or Multicurrency Loan having an Interest Period of three months or less, the last day of such Interest Period and (c) as to any Eurodollar Loan or Multicurrency Loan having an Interest Period longer than three months, (i) each day which is three months, or a whole multiple thereof, after the first day of such Interest Period and (ii) the last day of such Interest Period. "Interest Period": with respect to any Eurodollar Loan or Multicurrency Loan: (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan or Multicurrency Loan and ending one, two, three, or six or (if available) twelve months thereafter, as selected by the relevant Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan or Multicurrency Loan and ending one, two, three, six or (if applicable) twelve months thereafter, as selected by the relevant Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period pertaining to a Eurodollar Loan or Multicurrency Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period applicable to a Eurodollar Loan or Multicurrency Loan that would otherwise extend beyond the Revolving Credit Termination Date shall end on the Revolving Credit Termination Date; -17- 24 (iii) any Interest Period pertaining to a Eurodollar Loan or Multicurrency Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; (iv) any Interest Period pertaining to a Multicurrency Loan denominated in an Available Foreign Currency being replaced by the "euro" upon the effectiveness of European Monetary Union that would otherwise extend beyond the date on which such replacement becomes effective shall end on such date; and (v) each Borrower shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan or Multicurrency Loan during an Interest Period for such Eurodollar Loan or Multicurrency Loan. "Interim Term Loan": as defined in Section 3.01. "Interim Term Loan Commitment": as to each Interim Term Loan Lender, the obligation of such Lender, if any, to make a Interim Term Loan to the Company hereunder in a principal amount not to exceed the amount set forth under the heading "Interim Term Loan Commitment" opposite such Lender's name on Schedule I. "Interim Term Loan Exposure": as to any Interim Term Loan Lender at any time, the sum of (a) the aggregate outstanding principal amount of the Interim Term Loans of such Interim Term Loan Lender and (b) the undrawn amount of such Interim Term Loan Lender's Interim Term Loan Commitment. "Interim Term Loan Lender": each Lender which has a Interim Term Loan Commitment or which has made a Interim Term Loan. "Interim Term Loan Percentage": as to any Lender at any time, the percentage which such Lender's Interim Term Loan Exposure then constitutes of the aggregate Interim Term Loan Exposures. "Investments": as defined in Section 10.11 (as in effect prior to the Covenant Transition Date). "Joinder Agreement": the Joinder Agreement to be entered into by each Foreign Subsidiary Borrower subsequent to the date hereof pursuant to Section 14.01(b)(i), substantially in the form of Exhibit E. "Judgment Currency": as defined in Section 14.18(b). "Lenders": as defined in the preamble hereto. -18- 25 "Lien": (i) any judgment lien or execution, attachment, levy, distraint or similar legal process and (ii) any mortgage, pledge, hypothecation, assignment, lien, charge, encumbrance or other security interest of any kind or nature whatsoever (including, without limitation, the interest of the lessor under any capital lease and the interest of the seller under any conditional sale or other title retention agreement), which secures or purports to secure any Indebtedness or other indebtedness or obligations. "Loan Documents": this Agreement, any Notes, the Security Documents, the Subsidiary Guarantees, the Trust Agreement, the Syndication Letter Agreement and any document or instrument evidencing or governing any Local Currency Facility. "Loan Parties": the Company and each Subsidiary of the Company which is a party to a Loan Document. "Loans": the collective reference to the Revolving Credit Loans, the Swing Line Loans, the Term Loans, the Multicurrency Loans and the Local Currency Loans. "Loans to be Converted": as defined in Section 14.08(a). "Local Currency": any available and freely convertible non-U.S. Dollar currency selected by a Local Currency Borrower and approved by the Administrative Agent. "Local Currency Borrower": each Foreign Subsidiary that the Company designates as a "Local Currency Borrower" in a Local Currency Facility Addendum. "Local Currency Facility": any Qualified Credit Facility that the Company designates as a "Local Currency Facility" pursuant to a Local Currency Facility Addendum. "Local Currency Facility Addendum": a Local Currency Facility Addendum received by the Administrative Agent, substantially in the form of Exhibit J, and conforming to the requirements of Article V. "Local Currency Facility Agent": with respect to each Local Currency Facility, the Local Currency Lender acting as agent for the Local Currency Lenders parties thereto (and, in the case of any Local Currency Facility to which only one Lender is a party, such Lender). "Local Currency Facility Maximum Borrowing Amount": as defined in Section 5.01(b). "Local Currency Lender": any Lender (or, if applicable, any affiliate, branch or agency thereof) party to a Local Currency Facility. "Local Currency Lender Maximum Borrowing Amount": as defined in Section 5.01(b). -19- 26 "Local Currency Loan": any loan made pursuant to a Local Currency Facility. "London Banking Day": any day on which banks in London are open for general banking business, including dealings in foreign currency and exchange. "Majority Facility Lenders": with respect to any Facility, the holders of more than 50% of the aggregate unpaid principal amount of the Term Loans or the Aggregate Committed Outstandings, as the case may be, outstanding under such Facility (or, in the case of the Revolving Credit Facility or Multicurrency Facility, prior to any termination of the Commitments, the holders of more than 50% of the total Revolving Credit Commitments or Multicurrency Commitments, respectively). "Majority Multicurrency Lenders": the Majority Facility Lenders in respect of the Multicurrency Facility. "Majority Revolving Credit Facility Lenders": the Majority Facility Lenders in respect of the Revolving Credit Facility. "Material Adverse Effect": a material adverse effect on (a) the business, operations, property, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole, (b) the ability of any Borrower to perform its obligations under this Agreement or any of the Notes or any of the other Loan Documents to which it is a party or (c) the validity or enforceability of this Agreement or any of the Notes or any of the other Loan Documents or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder. "Material Environmental Amount": an amount payable by the Company (net of the proceeds of any applicable insurance and amount reasonably expected to be paid by Persons that are not Affiliates of the Company and that are jointly liable with the Company in respect of such amount) and/or its Subsidiaries in excess of $20,000,000 in any year or $100,000,000 in the aggregate for remedial costs, compliance costs, compensatory damages, punitive damages, fines, penalties or any combination thereof. "Materials of Environmental Concern": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Minority Interest": the minority interest of Persons other than the Company and its Subsidiaries in the Company's Subsidiaries as shown from time to time in the most recent consolidated balance sheet of the Company and its Subsidiaries. "Moody's Bond Rating": for any day, the rating of the Company's senior long-term unsecured debt by Moody's Investor Service, Inc. ("Moody's") in effect at 11:00 -20- 27 A.M., New York City time, on such day. "Multicurrency Commitment": as to any Multicurrency Lender at any time, its obligation to make Multicurrency Loans to the Borrowers in an aggregate amount in Dollars or in Available Foreign Currencies of which the U.S. Dollar Equivalent does not exceed at any time outstanding the amount set forth opposite such Multicurrency Lender's name in Schedule I under the heading "Multicurrency Commitment", as such amount may be reduced from time to time as provided in Section 4.04 and the other applicable provisions hereof. "Multicurrency Commitment Percentage": as to any Multicurrency Lender at any time, the percentage which such Multicurrency Lender's Multicurrency Commitment then constitutes of the aggregate Multicurrency Commitments. "Multicurrency Lender": each Lender having an amount greater than zero set forth opposite such Revolving Credit Lender's name in Schedule I under the heading "Multicurrency Commitment"; provided that any Revolving Credit Lender may cause an affiliate of such Revolving Credit Lender to become a party to this Agreement as a Multicurrency Lender, whereupon such affiliate shall, on behalf of such Revolving Credit Lender, fulfill such Revolving Credit Lender's obligations and enjoy such Revolving Credit Lender's rights, as a Multicurrency Lender, and the term "Multicurrency Lender" shall, when the context requires, be deemed to refer to such affiliate. "Multicurrency Loans": as defined in Section 4.01. "Multicurrency Reference Lenders": Chase and two Lenders selected by Chase and the Company on the Syndication Date; provided, that prior to the Syndication Date all references to "Multicurrency Reference Lenders" shall be deemed to be references to Chase. "Multiemployer Plan": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA or any successor statute. "Net Cash Proceeds": (a) in connection with any Asset Sale or any Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of attorneys' fees, accountants' fees, investment banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset which is the subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a Security Document) and other customary fees and expenses actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), including any taxes resulting from the transfer of the proceeds of such sale to the Company and (b) in connection with any issuance or sale of equity -21- 28 securities or debt securities or instruments or the incurrence of loans, the cash proceeds received from such issuance or incurrence, net of attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith. "Netherlands BV I": a special purpose Netherlands corporation to be formed as an indirect Subsidiary of the Company prior to the Initial Revolving Credit Funding Date. "Netherlands BV II": a special purpose Netherlands corporation to be formed as an indirect Subsidiary of the Company prior to the Initial Revolving Credit Funding Date. "Netherlands BV III": a special purpose Netherlands corporation to be formed as an indirect Subsidiary of the Company prior to the Initial Revolving Credit Funding Date. "Netherlands BV IV": a special purpose Netherlands corporation to be formed as an indirect Subsidiary of the Company prior to the Initial Revolving Credit Funding Date. "Netherlands Pledge Agreements": the collective reference to (i) the Netherlands Pledge Agreement, to be executed and delivered by U.S. Finance Subsidiary I, in form and substance satisfactory to the Administrative Agent, creating a security interest in 100% of the Capital Stock of Netherlands BV I in favor of the Trustee to secure the obligations of the Borrowers hereunder and, (ii) the Netherlands Pledge Agreement, to be executed and delivered by U.S. Finance Subsidiary II, in form and substance satisfactory to the Administrative Agent, creating a security interest in 100% of the Capital Stock of Netherlands BV III in favor of the Trustee to secure the obligations of the Borrowers hereunder, each as amended, supplemented or otherwise modified from time to time. "Non-Excluded Taxes": as defined in Section 6.11(a). "Non-Multicurrency Lender": each Revolving Credit Lender which is not a Multicurrency Lender. "Notes": the collective reference to the Revolving Credit Notes and the Term Notes. "Notice of Local Currency Outstandings": with respect to each Local Currency Facility Agreement, a notice from the relevant Local Currency Facility Agent containing the information, delivered to the Person, in the manner and by the time, specified for a Notice of Local Currency Outstandings in Schedule V. "Obligations": collectively, the unpaid principal of and interest on the Loans and all other obligations and liabilities of (a) each Foreign Subsidiary Borrower under this Agreement and the other Loan Documents and (b) each Local Currency Borrower under any Local Currency Facility to which it is a party and under this Agreement and the other Loan Documents (including, without limitation, interest accruing at the then applicable rate provided in this Agreement or any other applicable Loan Document after the -22- 29 maturity of the Loans and interest accruing at the then applicable rate provided in this Agreement or any other applicable Loan Document after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, any Foreign Subsidiary Borrower or any Local Currency Borrower, as the case may be, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, the Notes, the other Loan Documents or any other document made, delivered or given in connection therewith, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Administrative Agent or to the Lenders that are required to be paid by any Borrower or Local Currency Borrower pursuant to the terms of this Agreement or any other Loan Document). "Offer Documents": the Press Release and the Tender Offer documentation subsequently to be posted by U.K. Acquisition II setting out the detailed terms of the Tender Offer. "Optionholders": the holders of Options. "Options": options to purchase up to 25,000,000 Target Shares. "Panel": The Panel of Take-overs and Mergers in the City of London. "Participants": as defined in Section 14.06(b). "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor corporation. "Person": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Company or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pledge Agreements": the collective reference to (i) the Domestic Pledge Agreement, (ii) the U.K. Acquisition I Share Mortgage, (iii) the U.K. Acquisition II Share Mortgage, (iii) the Netherlands Pledge Agreements and (iv) other pledge agreements in form and substance reasonably satisfactory to the Administrative Agent pursuant to which shares of Foreign Subsidiaries (other than Excluded Foreign Subsidiaries) and 65% (or such lesser percentage as owned by the Company or such Domestic Subsidiary) of the shares of Excluded Foreign Subsidiaries held directly by the Company or any Domestic -23- 30 Subsidiary are pledged, in each case, as the same may be amended, supplemented or otherwise modified. "Pledged Stock": the Capital Stock pledged pursuant to a Pledge Agreement. "Press Release": the press announcement released by or on behalf of the U.K. Acquisition II on October 16, 1997 publicly announcing a firm intention to make the Tender Offer. "Pricing Grid": the pricing grid attached hereto as Annex A. "Pro Forma Balance Sheet": as defined in Section 7.01(b). "Prime Rate": the rate of interest per annum publicly announced from time to time by Chase as its prime rate in effect at its principal office in New York City (each change in the Prime Rate to be effective on the date such change is publicly announced). The Prime Rate is not intended to be the lowest rate of interest charged by Chase in connection with extensions of credit to debtors. "Prohibited Transaction": any "prohibited transaction" as defined in Section 406 of ERISA or Section 4975 of the Code. "Properties": as defined in Section 7.16(a). "Property": any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including without limitation, Capital Stock. "Qualified Credit Facility": a credit facility (a) providing for one or more Local Currency Lenders to make loans denominated in a Local Currency to a Local Currency Borrower, (b) providing for such loans to bear interest at a rate or rates determined by the Company and such Local Currency Lender or Local Currency Lenders and (c) otherwise conforming to the requirements of Article V. "Receivables Subsidiary": Federal-Mogul Funding Corporation, a Michigan corporation. "Recovery Event": any settlement of or payment in respect of any property or casualty insurance claim or any condemnation proceeding relating to any asset of the Company or any of its Subsidiaries. "Reduction Period": the period from November 30, 1997 to the date which is four months after the Initial Term Loan Funding Date. "Reference Lenders": the collective reference to the Domestic Reference Lenders and the Multicurrency Reference Lenders. -24- 31 "Register": as defined in Section 14.06(d). "Reinvestment Deferred Amount": with respect to any Reinvestment Event, the aggregate Net Cash Proceeds received by the Company or any of its Subsidiaries in connection therewith which are not applied to prepay the Term Loans pursuant to Section 6.04(e) as a result of the delivery of a Reinvestment Notice. "Reinvestment Event": any Asset Sale or Recovery Event in respect of which the Company has delivered a Reinvestment Notice. "Reinvestment Notice": a written notice executed by a Responsible Officer stating that no Event of Default has occurred and is continuing and that the Company (directly or indirectly through a Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or Recovery Event to acquire assets useful in its business. "Reinvestment Prepayment Amount": with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amount expended prior to the relevant Reinvestment Prepayment Date to acquire assets useful in the Company's business. "Reinvestment Prepayment Date": with respect to any Reinvestment Event, the earlier of (a) the date occurring one year after such Reinvestment Event (provided, that in the case of a Recovery Event, a Reinvestment Prepayment Date shall not occur under this clause (a) in respect of the portion of the proceeds of such Recovery Event that will be applied to the repair or reconstruction of the affected assets so long as within one year after the date of such Recovery Event the Company has commenced repair or reconstruction in respect of the affected assets) and (b) the date on which the Company shall have determined not to acquire assets useful in the Company's business with all or any portion of the relevant Reinvestment Deferred Amount. "Reorganization": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Replacement Lender": a bank or financial institution (other than a Subsidiary of the Company) acceptable to the Administrative Agent and the Company. "Reportable Event": any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder. "Requested Local Currency Loans": as defined in Section 2.05(b). "Requested Multicurrency Loans": as defined in Section 2.05(a). "Required Lenders": the holders of more than 50% of (a) until the date on which -25- 32 all Commitments are terminated, the sum of (i) the aggregate undrawn amount of the Commitments, (ii) the aggregate unpaid principal amount of the Term Loans and (iii) the Aggregate Committed Outstandings and (b) thereafter, the sum of (i) the aggregate unpaid principal amount of the Term Loans and (ii) the Aggregate Committed Outstandings; provided that for purposes of this definition the Aggregate Committed Outstandings of each Lender shall be adjusted up or down so as to give effect to any participations purchased or sold pursuant to Section 14.08. "Required Prepayment Lenders": the Majority Facility Lenders in respect of the Tranche A Term Loan Facility, the Tranche B Term Loan Facility and the Interim Term Loan Facility. "Requirement of Law": as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": (i) as to the Company, the chief executive officer, the president, the chief financial officer, the treasurer, any assistant treasurer or the controller of the Company and (ii) as to any other Borrower, those of its officers or representatives whose signatures and incumbency shall have been certified to the Administrative Agent and the Lenders pursuant to Section 8.01(c) or 8.02(e). "Revolving Credit Commitment": as to any Lender at any time, its obligation to make Revolving Credit Loans to, and/or participate in Swing Line Loans made to, the Company in an aggregate amount not to exceed at any time outstanding the U.S. Dollar amount set forth opposite such Lender's name in Schedule I under the heading "Revolving Credit Commitment", as such amount may be reduced from time to time pursuant to Section 2.04 and the other applicable provisions hereof. "Revolving Credit Commitment Percentage": as to any Revolving Credit Lender at any time, the percentage which such Revolving Credit Lender's Revolving Credit Commitment then constitutes of the aggregate Revolving Credit Commitments of all Revolving Credit Lenders. "Revolving Credit Commitment Period": the period from and including the Initial Revolving Credit Funding Date to but not including the Revolving Credit Termination Date, or such earlier date on which the Revolving Credit Loans shall terminate as provided herein. "Revolving Credit Loan": as defined in Section 2.01. "Revolving Credit Note": as defined in Section 2.02(e). "Revolving Credit Termination Date": the date which is 6 years after the Initial -26- 33 Revolving Credit Funding Date. "Revolving Credit Lender": each Lender which has a Revolving Credit Commitment or which has made Revolving Credit Loans. "Secured Obligations": as defined in each Security Document, as applicable. "Secured Reimbursement Obligations": at any time, the aggregate undrawn face amount of, plus the aggregate unreimbursed amount of all drawings under, all letters of credit issued by any Lender for the account of any Borrower, other than any such letter of credit in respect of which the issuing Lender shall have delivered a written acknowledgement to the Administrative Agent to the effect that the obligations of the account party in respect of such letter of credit shall not be secured pursuant to the Security Documents or guaranteed pursuant to a Subsidiary Guarantee. "Security Agreement": the Security Agreement, substantially in the form of Exhibit C, to be executed and delivered by the Company and its Domestic Subsidiaries, as the same may be amended, supplemented or otherwise modified. "Security Documents": the collective reference to the Security Agreement, the Pledge Agreements, the Trust Agreement, and all other security documents hereafter delivered to the Administrative Agent (or the Trustee, as the case may be) granting a Lien on any Property of any Person to secure the obligations and liabilities of any Loan Party under any Loan Document. "Senior Subordinated Bridge Loans": as defined in the recitals hereto. "Senior Subordinated Bridge Loan Commitments": the commitments of the lenders under the Senior Subordinated Loan Documentation to make Senior Subordinated Bridge Loans to the Company. "Senior Subordinated Debt": the Senior Subordinated Bridge Loans, the Exchange Notes and the Senior Subordinated Term Notes. "Senior Subordinated Loan Documentation": collectively, (a) the Amended and Restated Senior Subordinated Credit Agreement, dated as of December 18, 1997, among the Company, the several lenders from time to time parties thereto and Chase as administrative agent, (b) the Notes (as defined in such Senior Subordinated Credit Agreement) issued under such Senior Subordinated Credit Agreement, (c) the Senior Subordinated Note Indenture (as defined in such Senior Subordinated Credit Agreement) and (d) all other agreements, schedules, certificates and other documents executed in connection therewith, including but not limited to, any guarantees of the Senior Subordinated Debt, as the same may be entered into, amended, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof. "Senior Subordinated Term Notes": the "Term Notes" issued under (and as -27- 34 defined in) the Senior Subordinated Loan Documentation. "September 26, 1997 Credit Agreement": as defined in the recitals hereto. "Single Employer Plan": any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "Solvent": when used with respect to any Person, means that, as of any date of determination, (a) the amount of the "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount of all "liabilities of such Person, contingent or otherwise", as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) "debt" means liability on a "claim", and (ii) "claim" means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured. "Special Purpose Subsidiaries": the collective reference to U.S. Finance Subsidiary I, U.S. Finance Subsidiary II, U.S. Finance Subsidiary III, Netherlands BV I, Netherlands BV II, Netherlands BV III, Netherlands BV IV, U.K. Acquisition I and U.K. Acquisition II. "S&P Bond Rating": for any day, the rating of the Company's senior long-term unsecured debt by Standard & Poor's Ratings Service ("S&P") in effect at 11:00 A.M., New York City time, on such day. "Subordinated Debt": (a) the Senior Subordinated Debt and (b) other unsecured Indebtedness of the Company having a final maturity date at least 91 days after the final maturity date of the Tranche B Term Loans and a weighted average life at least as long as the weighted average life of the Tranche B Term Loans, and having subordination terms acceptable to the Administrative Agent, acting reasonably. "Subsidiary": at any particular time, any Person which could be included as a consolidated subsidiary of the Company in the financial statements prepared and filed with the Company's annual reports on Form 10-K under the Securities Exchange Act of 1934, as amended, if such financial statements were prepared at, and as of, such time. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company. -28- 35 "Subsidiary Guarantees": the collective reference to the Domestic Subsidiary Guarantee and the U.K. Acquisition I Guarantee, and any other guarantee by a Subsidiary of the Indebtedness and obligations of the Borrowers hereunder that may be executed and delivered to the Administrative Agent hereunder. "Swing Line Commitment": as to the Swing Line Lender, in its capacity as a Swing Line Lender, its obligation to make Swing Line Loans to the Company in an aggregate principal amount not to exceed, at any one time outstanding $25,000,000. "Swing Line Lender": Chase, in its capacity as provider of the Swing Line Loans. "Swing Line Loan": as defined in Section 2.06. "Swing Line Loans": as defined in Section 2.06. "Syndication Date": the date on which Chase completes the primary syndication of the Facilities and the entities selected in such syndication process become parties to this Agreement. "Syndication Letter Agreement": the letter agreement, dated as of September 26, 1997, between the Company and Chase relating to the syndication of the Facilities, as amended by the Amended and Restated Fee Letter, dated as of October 15, 1997, between the Company and Chase. "Takeover Code": The City Code on Takeovers and Mergers in effect in England. "Target": as defined in the recitals hereto. "Target Shareholders": the holders of the Target Shares. "Target Shares": as defined in the recitals hereto. "Target U.S. Subsidiary": the collective reference to the Subsidiaries of Target organized under the laws of a State of the United States. "Tender Offer": as defined in the recitals hereto. "Term Loan Commitment Period": the period commencing on the Initial Term Loan Funding Date and ending on the earlier of (a) the day immediately following the date on which the Tender Offer lapses or is withdrawn by U.K. Acquisition II and (b) May 1, 1998. "Term Loan Commitments": the collective reference to the Tranche A Term Loan Commitments, the Tranche B Term Loan Commitments and the Interim Term Loan Commitments. -29- 36 "Term Loan Lenders": the collective reference to the Tranche A Term Loan Lenders, the Tranche B Term Loan Lenders and the Interim Term Loan Lenders. "Term Loans": the collective reference to the Tranche A Term Loans, Tranche B Term Loans and Interim Term Loans. "Tranche": the collective reference to Eurodollar Loans or Multicurrency Loans of any Class the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day). "Tranche A Term Loan": as defined in Section 3.01 "Tranche A Term Loan Commitment": as to any Lender, the obligation of such Lender, if any, to make a Tranche A Term Loan to the Company hereunder in a principal amount not to exceed the amount set forth under the heading "Tranche A Term Loan Commitment" opposite such Lender's name on Schedule I. "Tranche A Term Loan Exposure": as to any Tranche A Term Loan Lender, the sum of (a) the aggregate outstanding principal amount of the Tranche A Term Loans of such Tranche A Term Loan Lender and (b) the undrawn amount of such Tranche A Term Loan Lender's Tranche A Term Loan Commitment. "Tranche A Term Loan Lender": each Lender which has a Tranche A Term Loan Commitment or which has made a Tranche A Term Loan. "Tranche A Term Loan Percentage": as to Tranche A Term Loan Lender at any time, the percentage which such Lender's Tranche A Term Loan Exposure then constitutes of the aggregate Tranche A Term Loan Exposures. "Tranche B Term Loan": as defined in Section 3.01. "Tranche B Term Loan Commitment": as to Tranche B Term Loan Lender, the obligation of such Lender, if any, to make a Tranche B Term Loan to the Company hereunder in a principal amount not to exceed the amount set forth under the heading "Tranche B Term Loan Commitment" opposite such Lender's name on Schedule I. "Tranche B Term Loan Exposure": as to any Tranche B Term Loan Lender at any time, the sum of (a) the aggregate outstanding principal amount of the Tranche B Term Loans of such Tranche B Term Loan Lender and (b) the undrawn amount of such Tranche B Term Loan Lender's Tranche B Term Loan Commitment. "Tranche B Term Loan Lender": each Lender which has a Tranche B Term Loan Commitment or which has made a Tranche B Term Loan. -30- 37 "Tranche B Term Loan Percentage": as to any Lender at any time, the percentage which such Lender's Tranche B Term Loan Exposure then constitutes of the aggregate Tranche B Term Loan Exposures. "Transactions": the collective reference to the Tender Offer and the Compulsory Acquisition. "Transferee": as defined in Section 14.06(f). "Trust Agreement": the Trust Agreement, substantially in the form of Exhibit D-2, to be entered into by the Company, each other grantor pursuant to the Security Agreement and each other pledgor pursuant to a Pledge Agreement and a trustee acceptable to the Administrative Agent, pursuant to which such trustee shall hold certain of the Collateral to secure equally and ratably the obligations of the Company in respect of the Facilities and in respect of certain other indebtedness. "Trustee": the trustee named in the Trust Agreement. "Type": as to any Revolving Credit Loan or Term Loan, its nature as a Base Rate Loan or a Eurodollar Loan. "U.K. Acquisition I": a Wholly Owned Subsidiary of the Company to be organized under the laws of England prior to the Initial Revolving Credit Funding Date. "U.K. Acquisition I Guarantee": the U.K. Acquisition I Guarantee, in form and substance reasonably satisfactory to the Administrative Agent, to be executed and delivered by U.K. Acquisition I pursuant to Section 9.15, guaranteeing all of the obligations of the Borrowers hereunder, as the same may from time to time be amended, supplemented or otherwise modified. "U.K. Acquisition I Share Mortgage": the Deed of Charge, in form and substance reasonably satisfactory to the Administrative Agent, to be executed and delivered by U.S. Finance Subsidiary III creating in favor of the Trustee a security interest in 100% of the Capital Stock of U.K. Acquisition I, as the same may from time to time be amended, supplemented or otherwise modified. "U.K. Acquisition II": as defined in the recitals hereto. "U.K. Acquisition II Share Mortgage": the Deed of Charge, and related documents, in form and substance reasonably satisfactory to the Administrative Agent, to be executed and delivered by UK Acquisition I pursuant to Section 9.15, creating in favor of the Trustee, a security interest (i) in all of the Capital Stock of U.K. Acquisition II owned by U.K. Acquisition I (but in any event not in excess of 65% of the voting stock of U.K. Acquisition II) and (ii) any loans or advances made by U.K. acquisition I to U.K. Acquisition II, in each case securing the obligations of U.K. Acquisition I under the U.K. Acquisition I Guarantee, as the same may from time to time be amended, supplemented -31- 38 or otherwise modified. "U.S. Dollar Equivalent": with respect to an amount denominated in any currency other than U.S. Dollars, the equivalent in U.S. Dollars of such amount determined at the Exchange Rate on the date of determination of such equivalent. In making any determination of the U.S. Dollar Equivalent for purposes of calculating the amount of Loans to be borrowed from the respective Lenders on any Borrowing Date, the Administrative Agent shall use the relevant Exchange Rate in effect on the date on which the interest rate for such Loans is determined pursuant to the provisions of this Agreement and the other Loan Documents. "U.S. Dollars": dollars in lawful currency of the United States of America. "U.S. Finance Subsidiary I": a special purpose corporation to be organized as a direct or indirect Subsidiary of the Company under the laws of a State of the United States prior to the Initial Revolving Credit Funding Date. "U.S. Finance Subsidiary II": a special purpose corporation to be organized as a direct or indirect Subsidiary of the Company under the laws of a State of the United States prior to the Initial Revolving Credit Funding Date. "U.S. Finance Subsidiary III": a special purpose corporation to be organized as a direct or indirect Subsidiary of the Company under the laws of a State of the United States prior to the Initial Revolving Credit Funding Date. "Wholly Owned Subsidiary": as to any Person, any other Person all of the Capital Stock of which (other than directors' qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries. SECTION I.02. Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes, the other Loan Documents or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in the Notes and any other Loan Document, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms relating to the Company and its Subsidiaries not defined in Section 1.01 and accounting terms partly defined in Section 1.01, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to -32- 39 both the singular and plural forms of such terms. ARTICLE II. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS AND SWING LINE COMMITMENT SECTION II.01. Revolving Credit Commitments. (a) Subject to the terms and conditions hereof, each Revolving Credit Lender severally agrees to make revolving credit loans (each, a "Revolving Credit Loan") in U.S. Dollars to the Company from time to time during the Revolving Credit Commitment Period so long as after giving effect thereto and to any concurrent repayment or prepayment of Loans (i) the Available Revolving Credit Commitment of each Revolving Credit Lender is greater than or equal to zero and (ii) the Aggregate Committed Outstandings of all Revolving Credit Lenders do not exceed the Aggregate Revolving Credit Commitments. During the Revolving Credit Commitment Period the Company may use the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. (b) The Revolving Credit Loans may from time to time be (i) Eurodollar Loans, (ii) Base Rate Loans or (iii) a combination thereof, as determined by the Company and notified to the Administrative Agent in accordance with Sections 2.03 and 6.02, provided that no Revolving Credit Loan shall be made as a Eurodollar Loan after the day that is one month prior to the Revolving Credit Termination Date. SECTION II.02. Repayment of Revolving Credit Loans; Evidence of Debt. (a) The Company hereby unconditionally promises to pay to the Administrative Agent for the account of each Revolving Credit Lender the then unpaid principal amount of each Revolving Credit Loan of such Revolving Credit Lender on the Revolving Credit Termination Date and on such other dates and in such other amounts as may be required from time to time pursuant to this Agreement. The Company hereby further agrees to pay interest on the unpaid principal amount of the Revolving Credit Loans from time to time outstanding until payment thereof in full at the rates per annum, and on the dates, set forth in Section 6.01. (b) Each Revolving Credit Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Company to such Revolving Credit Lender resulting from each Revolving Credit Loan of such Revolving Credit Lender from time to time, including the amounts of principal and interest payable thereon and paid to such Revolving Credit Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain the Register pursuant to Section 14.06(d), and a subaccount therein for each Revolving Credit Lender, in which Register and subaccounts shall be recorded (i) the amount of each Revolving Credit Loan made hereunder, the Type thereof and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Company to each Revolving Credit Lender hereunder in respect of the Revolving Credit Loans and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Company in respect of the Revolving Credit Loans and each Revolving Credit Lender's share thereof. -33- 40 (d) The entries made in the Register and the accounts of each Revolving Credit Lender maintained pursuant to Section 2.02(b) shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of the Company therein recorded; provided, however, that the failure of any Revolving Credit Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Company to repay (with applicable interest) the Revolving Credit Loans made to the Company by such Revolving Credit Lender in accordance with the terms of this Agreement. (e) The Company agrees that, upon the request to the Administrative Agent by any Revolving Credit Lender, the Company will execute and deliver to such Revolving Credit Lender a promissory note of the Company evidencing the Revolving Credit Loans of such Revolving Credit Lender, substantially in the form of Exhibit A-1 with appropriate insertions as to date and principal amount (each, a "Revolving Credit Note"); provided, that the delivery of such Revolving Credit Notes shall not be a condition precedent to the Effective Date. SECTION II.03. Procedure for Revolving Credit Borrowing. The Company may borrow under the Revolving Credit Commitments during the Revolving Credit Commitment Period on any Business Day, provided that the Company shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:00 A.M., New York City time, (a) three Business Days prior to the requested Borrowing Date, if all or any part of the requested Revolving Credit Loans are to be initially Eurodollar Loans, or (b) on the requested Borrowing Date, otherwise), specifying in each case (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar Loans, Base Rate Loans or a combination thereof and (iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the amount of such Type of Loan and the length of the initial Interest Periods therefor. Each borrowing under the Revolving Credit Commitments (other than a borrowing under Section 2.05) shall be in an amount equal to (A) in the case of Base Rate Loans, $1,000,000 or a whole multiple of $1,000,000 in excess thereof (or, if the then Aggregate Available Revolving Credit Commitments are less than $1,000,000, such lesser amount) and (B) in the case of Eurodollar Loans, $10,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of any such notice from the Company, the Administrative Agent shall promptly notify each Revolving Credit Lender thereof. Not later than 11:00 A.M., New York City time, on each requested Borrowing Date each Revolving Credit Lender shall make an amount equal to its Funding Commitment Percentage of the principal amount of the Revolving Credit Loans requested to be made on such Borrowing Date available to the Administrative Agent at its New York office specified in Section 14.02 in U.S. Dollars and in immediately available funds. Except as otherwise provided in Section 2.05, the Administrative Agent shall on such date credit the account of the Company on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Revolving Credit Lenders and in like funds as received by the Administrative Agent. SECTION II.04. Termination or Reduction of Revolving Credit Commitments. The Company shall have the right, upon not less than three Business Days' notice to the Administrative Agent, to terminate the Revolving Credit Commitments or, from time to time, to -34- 41 reduce the amount of the Revolving Credit Commitments; provided that no such termination or reduction shall be permitted if, after giving effect thereto and to any prepayments of the Loans made on the effective date thereof, either (a) the Aggregate Available Revolving Credit Commitments would not be greater than or equal to zero or (b) the Available Revolving Credit Commitments of any Revolving Credit Lender would not be greater than or equal to zero. Any such reduction shall be in an amount equal to $10,000,000 or a whole multiple of $1,000,000 in excess thereof and shall reduce permanently the Revolving Credit Commitments then in effect. SECTION II.05. Borrowings of Revolving Credit Loans and Refunding of Loans. (a) If on any Borrowing Date on which a Borrower has requested the Multicurrency Lenders to make Multicurrency Loans (the "Requested Multicurrency Loans"), (i) the aggregate principal amount of the Requested Multicurrency Loans exceeds the Aggregate Available Multicurrency Commitments on such Borrowing Date (before giving effect to the making and payment of any Loans required to be made pursuant to this Section 2.05 on such Borrowing Date) and (ii) the U.S. Dollar Equivalent of the amount of such excess is less than or equal to the aggregate Available Revolving Credit Commitments of all Non-Multicurrency Lenders (before giving effect to the making and payment of any Loans pursuant to this Section 2.05 on such Borrowing Date), each Non-Multicurrency Lender shall make a Revolving Credit Loan to the Company on such Borrowing Date, and the proceeds of such Revolving Credit Loans shall be simultaneously applied to repay outstanding Revolving Credit Loans and/or Local Currency Loans of the Multicurrency Lenders (as directed by the Company), in each case in amounts such that, after giving effect to (1) such borrowings and repayments and (2) the borrowing from the Multicurrency Lenders of the Requested Multicurrency Loans, the Committed Outstandings Percentage of each Revolving Credit Lender will equal (as nearly as possible) its Revolving Credit Commitment Percentage. To effect such borrowings and repayments, (x) not later than 11:00 A.M., New York City time, on such Borrowing Date, the proceeds of such Revolving Credit Loans shall be made available by each Non-Multicurrency Lender to the Administrative Agent at its office specified in Section 14.02 in U.S. Dollars and in immediately available funds and the Administrative Agent shall apply the proceeds of such Revolving Credit Loans toward repayment of outstanding Revolving Credit Loans and/or Local Currency Loans of the Multicurrency Lenders (as directed by the Company) and (y) concurrently with the repayment of such Loans on such Borrowing Date, (I) the Multicurrency Lenders shall, in accordance with the applicable provisions hereof, make the Requested Multicurrency Loans in an aggregate amount equal to the amount so requested by such Borrower (but not in any event greater than the Aggregate Available Multicurrency Commitments after giving effect to the making of such repayment of any Loans on such Borrowing Date) and (II) the relevant Borrower or Local Currency Borrower shall pay to the Administrative Agent for the account of the Lenders whose Loans to such Borrower or Local Currency Borrower are repaid on such Borrowing Date pursuant to this Section 2.05 all interest accrued on the amounts repaid to the date of repayment, together with any amounts payable pursuant to Section 6.12 in connection with such repayment. (b) If on any Borrowing Date on which a Local Currency Borrower has requested Local Currency Lenders to make Local Currency Loans (the "Requested Local Currency Loans") under a Local Currency Facility to which such Local Currency Borrower and Local Currency Lenders are parties (i) the aggregate principal amount of the Requested Local Currency Loans exceeds the aggregate available amount of the commitments of such Local Currency Lenders -35- 42 under such Local Currency Facility on such Borrowing Date (before giving effect to the making and payment of any Revolving Credit Loans required to be made pursuant to this Section 2.05 on such Borrowing Date), (ii) after giving effect to the Requested Local Currency Loans, the U.S. Dollar Equivalent of the aggregate outstanding principal amount of Local Currency Loans of such Local Currency Borrower will be less than or equal to the aggregate commitments of such Local Currency Lenders under such Local Currency Facility and (iii) the U.S. Dollar Equivalent of the amount of the excess described in clause (i) above is less than or equal to the Aggregate Available Revolving Credit Commitments of all Lenders other than such Local Currency Lenders (before giving effect to the making and payment of any Revolving Credit Loans pursuant to this Section 2.05 on such Borrowing Date), each such other Lender shall make a Revolving Credit Loan to the Company, on such Borrowing Date, and the proceeds of such Revolving Credit Loans shall be simultaneously applied to repay outstanding Revolving Credit Loans, Multicurrency Loans and/or Local Currency Loans of such Local Currency Lenders (as directed by the Company) in each case in amounts such that, after giving effect to (1) such borrowings and repayments and (2) the borrowing from such Local Currency Lenders of the Requested Local Currency Loans, the Committed Outstandings Percentage of each Revolving Credit Lender will equal (as nearly as possible) its Revolving Credit Commitment Percentage. To effect such borrowings and repayments, (x) not later than 12:00 Noon, New York City time, on such Borrowing Date, the proceeds of such Revolving Credit Loans shall be made available by each such other Lender to the Administrative Agent at its office specified in Section 14.02 in U.S. Dollars and in immediately available funds and the Administrative Agent shall apply the proceeds of such Revolving Credit Loans toward the repayment of outstanding Revolving Credit Loans, Multicurrency Loans and/or Local Currency Loans of such Local Currency Lenders (as directed by the Company) and (y) concurrently with the repayment of such Loans on such Borrowing Date, (I) such Local Currency Lenders shall, in accordance with the applicable provisions hereof, make the Requested Local Currency Loans in an aggregate amount equal to the amount so requested by such Local Currency Borrower and (II) the relevant Borrower or Local Currency Borrower shall pay to the Administrative Agent for the account of the Lenders whose Loans to such Borrower or Local Currency Borrower are repaid on such Borrowing Date pursuant to this Section 2.05 all interest accrued on the amounts repaid to the date of repayment, together with any amounts payable pursuant to Section 6.12 in connection with such repayment. (c) If any borrowing of Revolving Credit Loans is required pursuant to this Section 2.05, the Company shall notify the Administrative Agent in the manner provided for Revolving Credit Loans in Section 2.03, except that the minimum borrowing amounts set forth in Section 2.03 shall not be applicable to the extent that such minimum borrowing amounts exceed the amounts of Revolving Credit Loans required to be made pursuant to this Section 2.05. SECTION II.06. Swing Line Commitments. Subject to the terms and conditions hereof, the Swing Line Lender agrees to make swing line loans (individually, a "Swing Line Loan"; collectively, the "Swing Line Loans") in U.S. Dollars to the Company from time to time during the Revolving Credit Commitment Period in an aggregate principal amount at any one time outstanding not to exceed the amount of the Swing Line Commitment, so long as after giving effect thereto (i) the Available Revolving Credit Commitment of each Revolving Credit Lender is greater than or equal to zero and (ii) the Aggregate Revolving Credit Outstandings of all Lenders do not exceed the Aggregate Revolving Credit Commitments. Amounts borrowed by -36- 43 the Company under this Section 2.06 may be repaid and, during the Revolving Credit Commitment Period, reborrowed. SECTION II.07. Procedure for Swing Line Borrowings; Interest Rate. (a) The Company shall give the Swing Line Lender irrevocable notice (which notice must be received by the Swing Line Lender prior to 10:00 A.M., New York City time on the requested Borrowing Date) specifying the amount of the requested Swing Line Loan, which shall be in an aggregate principal amount of not less than $5,000,000 or a whole multiple of $100,000 in excess thereof. The proceeds of the requested Swing Line Loan will be made available by the Swing Line Lender to the Company at the office of the Swing Line Lender by crediting the account of the Company at such office with such proceeds in U.S. Dollars. (b) All Swing Line Loans shall be either (i) Base Rate Loans bearing interest at the same rate as Revolving Credit Loans which are Base Rate Loans or (ii) bear interest at such rate as shall be agreed from time to time by the Company and the Swing Line Lender. No Swing Line Loan may be converted into a Eurodollar Loan. SECTION II.08. Repayment of Swing Line Loans; Evidence of Debt. (a) The Company hereby unconditionally promises to pay to the Swing Line Lender the then unpaid principal amount of the Swing Line Loans on the Revolving Credit Termination Date and on such other dates and in such other amounts as may be required from time to time pursuant to this Agreement. The Company hereby further agrees to pay interest on the unpaid principal amount of the Swing Line Loans from time to time outstanding until payment thereof in full at the rates per annum, and on the dates, set forth in Section 6.01. (b) The Swing Line Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Company resulting from each Swing Line Loan made by it from time to time, including the amounts of principal and interest payable thereon and paid from time to time under this Agreement. (c) The Administrative Agent shall maintain the Register pursuant to Section 14.06(d), and a subaccount therein for the Swing Line Lender, in which shall be recorded (i) the date and amount of each Swing Line Loan made hereunder, (ii) the amount of each Revolving Credit Lender's participating interest in such Swing Line Loans, (iii) the date and amount of any principal or interest due and payable or to become due and payable from the Company hereunder in respect of the Swing Line Loans and (iv) both the date and amount of any sum received by the Administrative Agent hereunder from the Company in respect of the Swing Line Loans, each Revolving Credit Lender's participating interest therein (if any) and the amount thereof payable to the Swing Line Lender. (d) The entries made in the Register and the accounts of the Swing Line Lender maintained pursuant to this Section 2.08 shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of the Company therein recorded; provided, however, that the failure of the Swing Line Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Company to repay (with applicable interest) the Swing Line Loans -37- 44 made to the Company by the Swing Line Lender in accordance with the terms of this Agreement. SECTION II.09. Refunding of Swing Line Borrowings. (a) The Swing Line Lender, at any time in its sole and absolute discretion may, on behalf of the Company (which hereby irrevocably directs and authorizes the Swing Line Lender to act on its behalf), request each Revolving Credit Lender, including Chase, to make a Revolving Credit Loan (which shall be a Base Rate Loan) in an amount equal to such Revolving Credit Lender's Funding Commitment Percentage of the principal amount of the Swing Line Loans (the "Refunded Swing Line Loans") outstanding on the date such notice is given; provided that the provisions of this Section shall not affect the Company's obligations to repay Swing Line Loans in accordance with the provisions of Sections 2.08 and 6.04(c) and (j). Unless the Revolving Credit Commitments shall have expired or terminated (in which event the procedures of Section 2.10 shall apply), each Revolving Credit Lender will make the proceeds of the Revolving Credit Loan made by it pursuant to the immediately preceding sentence available to the Administrative Agent at the office of the Administrative Agent specified in Section 14.02 prior to 10:00 A.M., New York City time, in funds immediately available on the Business Day next succeeding the date such notice is given. The proceeds of such Revolving Credit Loans shall be immediately made available by the Administrative Agent to the Swing Line Lender for application to the payment in full of the Refunded Swing Line Loans. Upon any request by the Swing Line Lender to the Revolving Credit Lenders pursuant to this Section 2.09, the Administrative Agent shall promptly give notice to the Company of such request. SECTION .10. Participating Interests. (a) If the Revolving Credit Commitments shall expire or terminate at any time while Swing Line Loans are outstanding, at the request of the Swing Line Lender in its sole discretion, either (i) each Revolving Credit Lender (including Chase) shall, notwithstanding the expiration or termination of the Revolving Credit Commitments, make a Revolving Credit Loan (which shall be a Base Rate Loan) or (ii) each Revolving Credit Lender (other than Chase) shall purchase an undivided participating interest in the Swing Line Loans of the Swing Line Lender, in either case in an amount equal to such Revolving Credit Lender's Funding Commitment Percentage (determined on the date of, and immediately prior to, expiration or termination of the Revolving Credit Commitments) of the aggregate principal amount of such Swing Line Loans. Each Revolving Credit Lender will make the proceeds of any Revolving Credit Loan made by it pursuant to the immediately preceding sentence available to the Administrative Agent for the account of the Swing Line Lender at the office of the Administrative Agent specified in Section 14.02 prior to 10:00 A.M., New York City time, in funds immediately available on the Business Day next succeeding the date of the request by the Swing Line Lender. The proceeds of such Revolving Credit Loans shall be immediately applied to repay the Swing Line Loans outstanding on the date of termination or expiration of the Revolving Credit Commitments. In the event that any of the Revolving Credit Lenders purchase undivided participating interests pursuant to the first sentence of this Section 2.10(a), each Revolving Credit Lender shall immediately transfer to the Swing Line Lender, in immediately available funds, the amount of its participation in the Swing Line Loans of the Swing Line Lender and upon receipt thereof the Swing Line Lender will deliver to any such Revolving Credit Lender that so requests a confirmation of such Revolving Credit Lender's undivided participating interest in the Swing Line Loans of the Swing Line Lender dated the date of receipt of such funds and in such amount. -38- 45 (b) Whenever, at any time after the Swing Line Lender has received payment from any Revolving Credit Lender in respect of such Revolving Credit Lender's participating interest in a Swing Line Loan of the Swing Line Lender, the Swing Line Lender receives any payment on account thereof, the Swing Line Lender will distribute to such Revolving Credit Lender its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Revolving Credit Lender's participating interest was outstanding and funded); provided, however, that in the event that any such payment received by the Swing Line Lender is required to be returned, such Revolving Credit Lender will return to the Swing Line Lender any portion thereof previously distributed by the Swing Line Lender to it. ARTICLE III. AMOUNT AND TERMS OF TERM LOAN COMMITMENTS SECTION III.01. Term Loan Commitments. Subject to the terms and conditions hereof, (a) each Tranche A Term Loan Lender severally agrees to make term loans ("Tranche A Term Loans") to the Company in an aggregate principal amount not to exceed the amount of the Tranche A Term Loan Commitment of such Lender, (b) each Tranche B Term Loan Lender severally agrees to make term loans ("Tranche B Term Loans") to the Company in an aggregate principal amount not to exceed the amount of the Tranche B Term Loan Commitment of such Lender and (c) each Interim Term Loan Lender severally agrees to make term loans ("Interim Term Loans") to the Company in an aggregate principal amount not to exceed the amount of the Interim Term Loan Commitment of such Lender. The Term Loans shall be made (i) on the Initial Term Loan Funding Date, in an amount equal to the aggregate purchase price of Target Shares purchased on such date and the amount applied to repay existing indebtedness of the Target on such date and to pay fees and expenses in respect of the transactions contemplated hereby and (ii) thereafter, until the last day of the Term Loan Commitment Period, on up to ten Borrowing Dates, in a minimum aggregate principal amount of $75,000,000 on each such Borrowing Date unless otherwise agreed by the Administrative Agent and Borrower. Each borrowing of Term Loans shall utilize ratably the Tranche A Term Loan Commitments, the Tranche B Term Loan Commitments and the Interim Term Loan Commitments. The Term Loans may from time to time be Eurodollar Loans or Base Rate Loans, as determined by the Company and notified to the Administrative Agent in accordance with Sections 3.03 and 6.02. SECTION III.02. Repayment of Term Loans; Evidence of Debt. (a) The Tranche A Term Loan of each Tranche A Lender shall mature in 20 consecutive quarterly installments, commencing on March 31, 1999, each of which shall be in an amount equal to such Lender's Tranche A Term Loan Percentage multiplied by the amount set forth below opposite such installment:
Installment Principal Amount ----------- ---------------- March 31, 1999 $19,000,000 June 30, 1999 $19,000,000 September 30, 1999 $19,000,000 December 31, 1999 $19,000,000
-39- 46 March 31, 2000 $19,000,000 June 30, 2000 $19,000,000 September 30, 2000 $19,000,000 December 31, 2000 $19,000,000 March 31, 2001 $30,000,000 June 30, 2001 $30,000,000 September 30, 2001 $30,000,000 December 31, 2001 $30,000,000 March 31, 2002 $41,000,000 June 30, 2002 $41,000,000 September 30, 2002 $41,000,000 December 31, 2002 $41,000,000 March 31, 2003 $41,000,000 June 30, 2003 $41,000,000 September 30, 2003 $41,000,000 December 31, 2003 $41,000,000
(b) The Tranche B Term Loan of each Tranche B Lender shall mature in 28 consecutive quarterly installments, commencing on March 31, 1999, each of which shall be in an amount equal to such Lender's Tranche B Term Loan Percentage multiplied by the amount set forth below opposite such installment:
Installment Principal Amount ----------- ---------------- March 31, 1999 $1,250,000 June 30, 1999 $1,250,000 September 30, 1999 $1,250,000 December 31, 1999 $1,250,000 March 31, 2000 $1,250,000 June 30, 2000 $1,250,000 September 30, 2000 $1,250,000 December 31, 2000 $1,250,000 March 31, 2001 $1,250,000 June 30, 2001 $1,250,000 September 30, 2001 $1,250,000 December 31, 2001 $1,250,000 March 31, 2002 $1,250,000 June 30, 2002 $1,250,000 September 30, 2002 $1,250,000 December 31, 2002 $1,250,000 March 31, 2003 $1,250,000 June 30, 2003 $1,250,000 September 30, 2003 $1,250,000 December 31, 2003 $1,250,000 March 31, 2004 $75,000,000 June 30, 2004 $75,000,000 September 30, 2004 $75,000,000
-40- 47 December 31, 2004 $75,000,000 March 31, 2005 $106,250,000 June 30, 2005 $106,250,000 September 30, 2005 $106,250,000 December 31, 2005 $106,250,000
(c) The Interim Term Loan of each Interim Lender shall mature on the date which is 18 months after the Initial Term Loan Funding Date. (d) The Company hereby unconditionally promises to pay to the Administrative Agent for the account of the appropriate Term Loan Lender the principal amount of each Term Loan of such Term Loan Lender in installments according to the amortization schedule set forth in paragraphs (a), (b) or (c) above, as applicable (or on such earlier date on which the Loans become due and payable pursuant to Article XII). The Company hereby further agrees to pay interest on the unpaid principal amount of the Term Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in Section 6.01. (e) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Company to such Lender resulting from each Term Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time in respect of such Term Loans under this Agreement. (f) The Administrative Agent, on behalf of the Company, shall maintain the Register pursuant to Section 14.06(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Term Loan made hereunder and any Note evidencing such Term Loan, the Type thereof and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Company to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Company and each Lender's share thereof. (g) The entries made in the Register and the accounts of each Lender maintained pursuant to Section 3.02(e) shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of the Company therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Company to repay (with applicable interest) the Term Loans by such Lender in accordance with the terms of this Agreement. (h) The Company agrees that, upon the request to the Administrative Agent by any Lender, the Company will execute and deliver to such Lender a promissory note of the Company evidencing any Term Loans of such Lender, substantially in the form of Exhibit A-2, with appropriate insertions as to date and principal amount. SECTION III.03. Procedure for Term Loan Borrowing. The Company may borrow under the Term Loans during the Term Loan Commitment Period, provided that the -41- 48 Company shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:00 A.M., New York City time, (a) three Business Days prior to the requested Borrowing Date, if all or any part of the requested Term Loans are to be initially Eurodollar Loans, or (b) one Business Day prior to the requested Borrowing Date, otherwise), specifying in each case (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar Loans, Base Rate Loans or a combination thereof and (iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the amount of such Type of Loan and the length of the initial Interest Periods therefor. Upon receipt of any such notice from the Company, the Administrative Agent shall promptly notify each Term Loan Lender thereof. Not later than 11:00 A.M., New York City time, on each requested Borrowing Date each Term Loan Lender shall make the amount of the Term Loans to be made by it on such Borrowing Date available to the Administrative Agent at its New York office specified in Section 14.02 in U.S. Dollars and in immediately available funds. The Administrative Agent shall on such date credit the account of the Company on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Term Loan Lenders and in like funds as received by the Administrative Agent. ARTICLE IV. AMOUNT AND TERMS OF MULTICURRENCY COMMITMENTS SECTION IV.01. Multicurrency Commitments. Subject to the terms and conditions hereof, each Multicurrency Lender severally agrees to make revolving credit loans (each, a "Multicurrency Loan") in U.S. Dollars or any Available Foreign Currency to any Borrower from time to time during the Revolving Credit Commitment Period so long as after giving effect thereto and to any concurrent repayment or prepayment of Loans (a) the Available Multicurrency Commitment of each Multicurrency Lender is greater than or equal to zero, (b) the aggregate outstanding principal amount of Multicurrency Loans does not exceed an amount of which the U.S. Dollar Equivalent is $120,000,000 and (c) the Aggregate Committed Outstandings of all Revolving Credit Lenders do not exceed the Aggregate Revolving Credit Commitments. During the Revolving Credit Commitment Period, any Borrower may use the Multicurrency Commitments by borrowing, repaying the Multicurrency Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. SECTION IV.02. Repayment of Multicurrency Loans; Evidence of Debt. (a) Each Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Multicurrency Lender the then unpaid principal amount of each Multicurrency Loan of such Multicurrency Lender to such Borrower on the Revolving Credit Termination Date and on such other date(s) and in such other amounts as may be required from time to time pursuant to this Agreement. Each Borrower hereby further agrees to pay interest on the unpaid principal amount of the Multicurrency Loans advanced to it and from time to time outstanding until payment thereof in full at the rates per annum, and on the dates, set forth in Section 6.01. (b) Each Multicurrency Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of each Borrower to such Multicurrency Lender resulting from each Multicurrency Loan of such Multicurrency Lender from time to time, including the amounts of principal and interest payable thereon and paid to such Multicurrency -42- 49 Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain the Register pursuant to Section 14.06(d), and a subaccount therein for each Multicurrency Lender, in which shall be recorded (i) the amount of each Multicurrency Loan made hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Multicurrency Lender hereunder in respect of the Multicurrency Loans and (iii) both the amount of any sum received by the Administrative Agent hereunder from each Borrower in respect of the Multicurrency Loans and each Multicurrency Lender's share thereof. (d) The entries made in the Register and the accounts of each Multicurrency Lender maintained pursuant to Section 4.02(b) shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of each Borrower therein recorded; provided, however, that the failure of any Multicurrency Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of such Borrower to repay (with applicable interest) the Multicurrency Loans made to such Borrower by such Multicurrency Lender in accordance with the terms of this Agreement. SECTION IV.03. Procedure for Multicurrency Borrowing. Any Borrower may request the Multicurrency Lenders to make Multicurrency Loans during the Revolving Credit Commitment Period on any Business Day provided that such Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 10:00 A.M., London time, three Business Days prior to the requested Borrowing Date), specifying in each case (i) the amount and currency to be borrowed, (ii) the requested Borrowing Date and (iii) the length of the initial Interest Period therefor. Each borrowing under the Multicurrency Commitments shall be in an amount in U.S. Dollars equal to, or an amount in an Available Foreign Currency of which the U.S. Dollar Equivalent is equal to, at least $5,000,000 (or, if the then Aggregate Available Multicurrency Commitments are less than $5,000,000, such lesser amount). Upon receipt of any such notice from any Borrower, the Administrative Agent shall promptly notify each Multicurrency Lender thereof. Not later than 12:00 P.M. Noon, London time, on the requested Borrowing Date, each Multicurrency Lender shall make an amount equal to its Multicurrency Commitment Percentage of the principal amount of Multicurrency Loans requested to be made on such Borrowing Date available to the Administrative Agent at the Administrative Agent's funding office for the applicable currency specified by the Administrative Agent from time to time by notice to the Multicurrency Lenders and in immediately available funds. The amounts made available by each Multicurrency Lender will then be made available to the relevant Borrower at the funding office for the relevant Available Foreign Currency specified from time to time by the Administrative Agent by notice to the Multicurrency Lenders and in like funds as received by the Administrative Agent. SECTION IV.04. Termination or Reduction of Multicurrency Commitments. The Company shall have the right, upon not less than three Business Days' notice to the Administrative Agent, to terminate the Multicurrency Commitments or, from time to time, to reduce the amount of the Multicurrency Commitments; provided that no such termination or reduction shall be permitted if, after giving effect thereto and to any prepayments of the Loans -43- 50 made on the effective date thereof, the Available Multicurrency Commitment of any Multicurrency Lender would be less than zero. Any such reduction shall be in an amount equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof and shall reduce permanently the Multicurrency Commitments then in effect. ARTICLE V. LOCAL CURRENCY FACILITIES SECTION V.01. Terms of Local Currency Facilities. (a) Subject to the provisions of this Article 5, the Company may in its discretion from time to time designate any Subsidiary of the Company organized under the laws of any jurisdiction outside the United States as a "Local Currency Borrower" and any Qualified Credit Facility to which such Local Currency Borrower and any one or more Lenders (or its affiliates, agencies or branches) is a party as a "Local Currency Facility", with the consent of each such Lender in its sole discretion, by delivering a Local Currency Facility Addendum to the Administrative Agent and the Lenders (through the Administrative Agent) executed by the Company, each such Local Currency Borrower and each such Lender, provided, that on the effective date of such designation no Event of Default shall have occurred and be continuing. Concurrently with the delivery of a Local Currency Facility Addendum, the Company or the relevant Local Currency Borrower shall furnish to the Administrative Agent copies of all documentation executed and delivered by such Local Currency Borrower in connection therewith, together with, if applicable, an English translation thereof. Except as otherwise provided in this Article V or in the definition of "Qualified Credit Facility" in Section 1.01, the terms and conditions of each Local Currency Facility shall be determined by mutual agreement of the relevant Local Currency Borrower(s) and Local Currency Lender(s). The documentation governing each Local Currency Facility shall (i) contain an express acknowledgement that such Local Currency Facility shall be subject to the provisions of this Article V and (ii) if more than one Lender is a party thereto, designate a Local Currency Facility Agent for such Local Currency Facility. Each of the Company and, by agreeing to any Local Currency Facility designation as contemplated hereby, each relevant Local Currency Lender (if any) party thereto which is an affiliate, branch or agency of a Lender, acknowledges and agrees that each reference in this Agreement to any Lender shall, to the extent applicable, be deemed to be a reference to such Local Currency Lender. In the event of any inconsistency between the terms of this Agreement and the terms of any Local Currency Facility, the terms of this Agreement shall prevail. (b) The documentation governing each Local Currency Facility shall set forth (i) the maximum amount (expressed in U.S. Dollars) available to be borrowed from all Local Currency Lenders under such Local Currency Facility (as the same may be reduced from time to time, a "Local Currency Facility Maximum Borrowing Amount") and (ii) with respect to each Local Currency Lender party to such Local Currency Facility, the maximum amount (expressed in U.S. Dollars) available to be borrowed from such Local Currency Lender thereunder (as the same may be reduced from time to time, a "Local Currency Lender Maximum Borrowing Amount"). (c) Except as otherwise required by applicable law, in no event shall the Local Currency Lenders party to a Local -44- 51 Currency Facility have the right to accelerate the Local Currency Loans outstanding thereunder, or to terminate their commitments (if any) to make such Local Currency Loans prior to the earlier of the stated termination date in respect thereof or the Revolving Credit Termination Date, except, in each case, in connection with an acceleration of the Loans or a termination of the Commitments pursuant to Article XII hereof, provided, that nothing in this paragraph (c) shall be deemed to require any Local Currency Lender to make a Local Currency Loan if the applicable conditions precedent to the making of such Local Currency Loan set forth in the documentation governing the relevant Local Currency Facility have not been satisfied. No Local Currency Loan may be made under a Local Currency Facility if (i) after giving effect thereto, the conditions precedent in Section 8.02 hereof would not be satisfied or (ii) after giving effect to the making of such Local Currency Loan and the simultaneous application of the proceeds thereof, the Aggregate Committed Outstandings of all Lenders at any time exceed the Aggregate Revolving Credit Commitments. (d) The relevant Local Currency Borrower shall furnish to the Administrative Agent copies of any amendment, supplement or other modification (including any change in commitment amounts or in the Local Currency Lenders participating in any Local Currency Facility) to the terms of any Local Currency Facility promptly after the effectiveness thereof (together with, if applicable, an English translation thereof). If any such amendment, supplement or other modification to a Local Currency Facility shall (i) add a Local Currency Lender as a Local Currency Lender thereunder or (ii) change the Local Currency Facility Maximum Borrowing Amount or any Local Currency Lender Maximum Borrowing Amount with respect thereto, the Company shall promptly furnish an appropriately revised Local Currency Facility Addendum, executed by the Company, the relevant Local Currency Borrower and the affected Local Currency Lenders (or any agent acting on their behalf), to the Administrative Agent and the Lenders (through the Administrative Agent). (e) The Company may terminate its designation of a facility as a Local Currency Facility, with the consent of each Local Currency Lender party thereto in its sole discretion, by written notice to the Administrative Agent, which notice shall be executed by the Company, the relevant Local Currency Borrower and each Local Currency Lender party to such Local Currency Facility (or any agent acting on their behalf). Once notice of such termination is received by the Administrative Agent, such Local Currency Facility and the loans and other obligations outstanding thereunder shall immediately cease to be subject to the terms of this Agreement. SECTION V.02. Reporting of Local Currency Outstandings. (a) On the date of the making of any Local Currency Loan having a maturity of 30 or more days to a Local Currency Borrower and on the last Business Day of each month on which a Local Currency Borrower has any outstanding Local Currency Loans, the Local Currency Facility Agent for such Local Currency Borrower shall deliver to the Administrative Agent a Notice of Local Currency Outstandings. The Administrative Agent will, at the request of any Local Currency Facility Agent, advise such Local Currency Facility Agent of the Exchange Rate used by the Administrative Agent in calculating the U.S. Dollar Equivalent of Local Currency Loans under the related Local Currency Facility on any date. (b) For purposes of any calculation under this Agreement in which the amount of the Aggregate Local Currency Outstandings of any Lender is a component, the Administrative -45- 52 Agent shall make such calculation on the basis of the Notices of Local Currency Outstandings received by it at least two Business Days prior to the date of such calculation. ARTICLE VI. GENERAL PROVISIONS APPLICABLE TO THE LOANS SECTION VI.01. Interest Rates and Payment Dates. (a) Each Eurodollar Loan of each Class shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such Interest Period plus the Applicable Margin for such Class of Loans in effect for such day. (b) Each Base Rate Loan of each Class shall bear interest for each day that it is outstanding at a rate per annum equal to the Base Rate for such day plus the Applicable Margin for such Class of Loans in effect for such day. (c) Each Multicurrency Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the applicable Eurocurrency Rate determined for such Interest Period plus the Applicable Margin for such Class of Loans in effect for such day. (d) If all or a portion of (i) the principal amount of any Loan, (ii) any interest payable thereon or (iii) any fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section plus 2% or, if higher, in the case of amounts required to be paid in U.S. Dollars, the rate described in paragraph (b) of this Section plus 2%. (e) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (d) of this Section shall be payable from time to time on demand. SECTION VI.02. Conversion and Continuation Options. (a) The Company may elect from time to time to convert outstanding Eurodollar Loans of any Class (in whole or in part) to Base Rate Loans of the same Class by giving the Administrative Agent at least two Business Days' prior irrevocable notice of such election, provided that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto. The Company may elect from time to time to convert outstanding Base Rate Loans (other than Swing Line Loans) of any Class (in whole or in part) to Eurodollar Loans of the same Class by giving the Administrative Agent at least three Business Days' prior irrevocable notice of such election. Any such notice of conversion to Eurodollar Loans shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. All or any part of outstanding Eurodollar Loans and Base Rate Loans may be converted as provided herein, provided that (i) no Base Rate Loan may be converted into a Eurodollar Loan when any Default or Event of Default has occurred and is continuing and the Administrative Agent or the Required Lenders have determined that such conversion is not appropriate, (ii) any such conversion may only be made -46- 53 if, after giving effect thereto, Section 6.03 shall not have been violated, (iii) no Base Rate Loan of any Class may be converted into a Eurodollar Loan after the date that is one month prior to the Revolving Credit Termination Date (in the case of Revolving Credit Loans) or the date of final maturity of the Loans of such Class (in the case of Term Loans) and (iv) Swing Line Loans may not be converted to Eurodollar Loans. (b) Any Eurodollar Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Company giving notice to the Administrative Agent of the length of the next Interest Period to be applicable to such Loans in accordance with the applicable provisions of the term "Interest Period" set forth in Section 1.01, provided that no Eurodollar Loan may be continued as such (i) when any Default or Event of Default has occurred and is continuing and the Administrative Agent or the Required Lenders have determined that such continuation is not appropriate, (ii) if, after giving effect thereto, Section 6.03 would be contravened or (iii) after the date that is one month prior to the Revolving Credit Termination Date, and provided, further, that if the Company shall fail to give such notice or if such continuation is not permitted pursuant to the preceding proviso such Eurodollar Loans shall be automatically converted to Base Rate Loans on the last day of such then expiring Interest Period. (c) Any Multicurrency Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the relevant Borrower giving the Administrative Agent at least two Business Days' prior irrevocable notice of such election, provided, that if the relevant Borrower shall fail to give such notice or if any Default or Event of Default has occurred and is continuing and the Administrative Agent or the Required Lenders have determined that such continuation would not be appropriate, such Multicurrency Loans shall automatically be continued for an Interest Period of one month. SECTION VI.03. Minimum Amounts of Tranches. All borrowings, conversions and continuations of Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, immediately after giving effect thereto, (a) the aggregate principal amount of the Eurodollar Loans comprising each Tranche shall be equal to $10,000,000 or a whole multiple of $1,000,000 in excess thereof, (b) the aggregate principal amount of the Multicurrency Loans comprising each Tranche shall be in an amount which is, or of which the U.S. Dollar Equivalent is, at least $5,000,000 and (c) there shall not be more than 25 Tranches at any one time outstanding. SECTION VI.04. Optional and Mandatory Prepayments. (a) The Company may at any time and from time to time prepay Revolving Credit Loans, Swing Line Loans and/or Term Loans, in whole or in part, upon at least three Business Days' irrevocable notice to the Administrative Agent (in the case of Eurodollar Loans) and at least one Business Day's irrevocable notice to the Administrative Agent (in the case of Base Rate Loans), specifying the date and amount of prepayment, which Class of Loans will be prepaid, and whether the prepayment is of Eurodollar Loans, Base Rate Loans or a combination thereof, and, if a combination thereof, the amount allocable to each; provided, the Swing Line Loans may be prepaid without prior notice. Upon the receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. If any such notice is given, the amount specified in such -47- 54 notice shall be due and payable on the date specified therein, together with any amounts payable pursuant to Section 6.12. Partial prepayments of Loans of any Class shall be in an aggregate principal amount of $10,000,000 or a whole multiple of $1,000,000 in excess thereof. Partial prepayments of the Swing Line Loans shall be in aggregate principal amount of $1,000,000 or a whole multiple of $100,000 in excess thereof. (b) The Borrowers may at any time and from time to time prepay, without premium or penalty, the Multicurrency Loans, in whole or in part, upon at least three Business Days' irrevocable notice to the Administrative Agent specifying the date and amount of prepayment. Upon the receipt of any such notice, the Administrative Agent shall promptly notify each Multicurrency Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein. Partial prepayments of Multicurrency Loans shall be in an aggregate principal amount of which the U.S. Dollar Equivalent is at least $5,000,000. (c) (i) If, at any time during the Revolving Credit Commitment Period, for any reason the Aggregate Committed Outstandings of all Revolving Credit Lenders exceed the Aggregate Revolving Credit Commitments then in effect, (A) the Company shall, without notice or demand, immediately prepay the Swing Line Loans and the Revolving Credit Loans and/or (B) the Borrowers shall, without notice or demand, immediately prepay the Multicurrency Loans such that the sum of (I) the aggregate principal amount of the Swing Line Loans and the Revolving Credit Loans so prepaid and (II) the U.S. Dollar Equivalent of the aggregate principal amount of the Multicurrency Loans so prepaid, equals or exceeds the amount of such excess. (ii) If, at any time during the Revolving Credit Commitment Period, for any reason either (A) the Aggregate Committed Outstandings of all Multicurrency Lenders exceed the aggregate Revolving Credit Commitments of the Multicurrency Lenders or (B) the Aggregate Multicurrency Outstandings exceed the aggregate Multicurrency Commitments, (I) the Company shall, without notice or demand, immediately prepay the Revolving Credit Loans and/or, as applicable, (II) the Borrowers shall, without notice or demand, immediately prepay Multicurrency Loans in amounts such that the sum of (x) the aggregate principal amount of the Revolving Credit Loans so prepaid and (y) the U.S. Dollar Equivalent of the Multicurrency Loans so prepaid, equals or exceeds the amount of such excess. (d) Unless the Required Prepayment Lenders and the Required Lenders shall otherwise agree, if any Capital Stock or Indebtedness (other than Indebtedness permitted by paragraphs (a) through (c), paragraphs (e) through (g) and paragraph (i) of Section 10.05 as in effect prior to the Covenant Transition Date) shall be issued or incurred by the Company or any of its Subsidiaries at any time after November 30, 1997, an amount equal to 100% of the Net Cash Proceeds thereof shall be applied on the date of such issuance or Incurrence toward the prepayment of the Term Loans as set forth in Section 6.08(b); provided, that, notwithstanding the foregoing: (i) on the Business Day immediately preceding the Initial Revolving Credit Funding Date (or on such earlier date as the Company shall elect), the Company shall reduce the Term Loan Commitments (in the same order as -48- 55 prepayments of the Term Loans are to be applied pursuant to Section 6.08(b)) by an amount equal to (A) the Net Cash Proceeds received by the Company from the issuance on December 1, 1997 of the $500,000,000 aggregate liquidation amount of 7% Trust Convertible Preferred Securities and (B) the Net Cash Proceeds of any subsequent issuance prior to the Initial Revolving Credit Funding Date of Capital Stock yielding Gross Cash Proceeds in an amount which, together with the Gross Cash Proceeds of all prior such issuances during the Reduction Period, aggregates less than $875,000,000; (ii) if subsequent to December 1, 1997 and prior to the Initial Term Loan Funding Date the Company receives Gross Cash Proceeds from the issuance of its Capital Stock in an amount which, together with the amount of Gross Cash Proceeds received in all prior Capital Stock issuance transactions consummated during the Reduction Period, aggregates $875,000,000 or more, the Company may, on the Business Day immediately preceding the Initial Revolving Credit Funding Date (or on such earlier date as the Company shall elect), reduce the Senior Subordinated Bridge Loan Commitments by an aggregate amount up to the amount of the Net Cash Proceeds of such subsequent issuance, and the Term Loan Commitments shall be reduced, in the same order as prepayments of the Term Loans are to be applied pursuant to Section 6.08(b), by an amount equal to the excess of such Net Cash Proceeds over the amount by which the Company has reduced the Senior Subordinated Bridge Loan Commitments pursuant to this clause) (such reduction of the Term Loan Commitments to occur simultaneously with any reduction of the Senior Subordinated Bridge Loan Commitments and in any event not later than the Business Day immediately preceding the Initial Revolving Credit Funding Date); (iii) if on or after the Initial Term Loan Funding Date the Company receives Gross Cash Proceeds from the issuance of its Capital Stock in an amount which, together with the amount of Gross Cash Proceeds received in the prior Capital Stock issuance transactions consummated during the Reduction Period, aggregates $875,000,000 or more, the Company may apply the Net Cash Proceeds of such issuance to prepay the Senior Subordinated Debt, and the remainder of such Net Cash Proceeds not so applied shall be applied on the date of receipt thereof to prepay the Term Loans as set forth in Section 6.08(b); (iv) Net Cash Proceeds of Subordinated Debt (other than Senior Subordinated Debt) issued prior to the date of repayment in full of the Interim Term Loans and the Senior Subordinated Debt shall be applied on the date of receipt thereof toward the prepayment of the Interim Term Loans or, at the Company's option (if no Default or Event of Default is in existence), the Senior Subordinated Debt, and after the repayment in full of the Interim Term Loans, the Company shall not be required to apply proceeds of Subordinated Debt toward prepayment of the Loans; (v) the Company shall not be required to make mandatory prepayments -49- 56 with the proceeds of Capital Stock issued to employees pursuant to stock option plans or similar arrangements, or Capital Stock issued as consideration for acquisitions made by the Company and its Subsidiaries; (vi) after the Interim Term Loans have been repaid in full, the Company shall not be required to make mandatory prepayments with proceeds of issuances by the Company of Capital Stock or Subordinated Debt, and the Company may use such Net Cash Proceeds to prepay the Senior Subordinated Debt or for other corporate purposes to the extent not prohibited hereunder; and (vii) after the Collateral Release Date, the Company shall not be required to make mandatory prepayments with the proceeds of Indebtedness. (e) Unless the Required Prepayment Lenders and the Required Lenders shall otherwise agree, if on any date the Company or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or Recovery Event then, unless a Reinvestment Notice shall be delivered in respect thereof, the Asset Sale Prepayment Percentage of such Net Cash Proceeds shall be applied on such date toward the prepayment of the Term Loans as set forth in Section 6.08(b); provided, that, notwithstanding the foregoing, (i) the aggregate Net Cash Proceeds of Asset Sales that may be excluded from the foregoing requirement pursuant to a Reinvestment Notice shall not exceed $35,000,000 in any fiscal year of the Company and (ii) on each Reinvestment Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied toward the prepayment of the Term Loans as set forth in Section 6.08(b); and provided, further that Net Cash Proceeds of any Asset Sale made by the Target or its Subsidiaries in order to comply with antitrust requirements shall not be required to be applied toward prepayment of the Term Loans until the date which is six months after the date of such Asset Sale. (f) Unless the Required Prepayment Lenders and the Required Lenders shall otherwise agree, if, for any fiscal year of the Company commencing with the fiscal year ending December 31, 1998, there shall be Excess Cash Flow, the Company shall, on the relevant Excess Cash Flow Application Date, apply the Excess Cash Flow Prepayment Percentage of such Excess Cash Flow toward the prepayment of the Term Loans as set forth in Section 6.08(b). Each such prepayment shall be made on a date (an "Excess Cash Flow Application Date") no later than five days after the earlier of (i) the date on which the financial statements of the Company referred to in Section 9.01(a), for the fiscal year with respect to which such prepayment is made, are required to be delivered to the Lenders and (ii) the date such financial statements are actually delivered. (g) Each prepayment of Loans pursuant to this Section 6.04 shall be accompanied by accrued and unpaid interest on the amount prepaid to the date of prepayment and any amounts payable under Section 6.12 in connection with such prepayment. (h) Notwithstanding the foregoing, mandatory prepayments of Revolving Credit Loans or Multicurrency Loans that would otherwise be required pursuant to this Section 6.04 solely as a result of fluctuations in Exchange Rates from time to time shall only be required to be -50- 57 made pursuant to this Section 6.04 on the last Business Day of each month on the basis of the Exchange Rate in effect on such Business Day. (i) Prepayments of any Class of Loans pursuant to this Section 6.04 shall be applied as follows: (i) in the case of prepayments made by the Company, first, to prepay Base Rate Loans of such Class then outstanding and second, to prepay Eurodollar Loans of such Class then outstanding and (ii) in case of prepayments of Multicurrency Loans made by a Borrower, to prepay Multicurrency Loans borrowed by such Borrower. Optional prepayments of the Tranche A Term Loans or the Tranche B Term Loans shall be applied to the installments thereof in the direct order of scheduled maturity. Mandatory prepayments of the Tranche A Term Loans or the Tranche B Term Loans shall be applied to the installments thereof ratably in accordance with the then outstanding amounts thereof. (j) The Company shall prepay all Swing Line Loans then outstanding simultaneously with each borrowing of Revolving Credit Loans. SECTION VI.05. Facility Fees; Commitment Fee; Other Fees. (a) The Company agrees to pay to the Administrative Agent for the account of each Revolving Credit Lender, a facility fee for the period from and including September 26, 1997 to but excluding October 15, 1997, computed at the Facility Fee Rate on the daily average amount of such Lender's Revolving Credit Commitment under the September 26, 1997 Credit Agreement (drawn and undrawn). The Company agrees to pay to the Administrative Agent for the account of each Revolving Credit Lender, a facility fee for the period from and including October 15, 1997 to but excluding the Revolving Credit Termination Date (or such earlier date on which the Revolving Credit Commitments shall terminate as provided herein), computed at the Facility Fee Rate on the daily average amount of such Lender's Revolving Credit Commitment (drawn and undrawn). Such facility fees shall be payable quarterly in arrears on the last day of each March, June, September and December and on the Revolving Credit Termination Date or such earlier date on which the Revolving Credit Commitments shall terminate as provided herein, commencing on the first of such dates to occur after the date hereof. (b) The Company agrees to pay to the Administrative Agent for the account of each Term Loan Lender, a commitment fee for the period from and including September 26, 1997 to but excluding October 15, 1997, computed at the rate of .50% per annum on the daily average undrawn amount of such Term Loan Lender's Term Loan Commitments under the September 26, 1997 Credit Agreement. The Company agrees to pay to the Administrative Agent for the account of each Term Loan Lender, a commitment fee for the period from and including October 15, 1997 to but excluding the earlier of the last day of the Term Loan Commitment Period or the date on which the Term Loan Commitments are fully utilized or terminated, computed at the rate of .50% per annum on the daily average undrawn amount of such Term Loan Lender's Term Loan Commitments. Such commitment fees shall be payable quarterly in arrears on the last day of each March, June, September and December and on the date on which the Term Loan Commitments are fully utilized or terminated, commencing on the first of such dates to occur after the date hereof. (c) The Company shall pay (without duplication of any other fee payable under -51- 58 this Section 6.05) to Chase, for its own account, fees in the amounts and on the dates separately agreed to by the Company and Chase. (d) The Company shall (without duplication of any other fee payable under this Section 6.05) pay to the Administrative Agent, for its own amount, fees in the amounts and on the dates separately agreed to by the Company and the Administrative Agent. SECTION VI.06. Computation of Interest and Fees. (a) Interest based on the Eurodollar Rate, the Eurocurrency Rate or (when it is based on the Federal Funds Effective Rate) the Base Rate shall be calculated on the basis of a 360-day year for the actual days elapsed; and facility fees and interest (other than as specified above) shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of each determination of a Eurodollar Rate or a Eurocurrency Rate. Any change in the interest rate on a Loan resulting from a change in the Base Rate or a change in the Prime Rate shall become effective as of the opening of business on the day on which such change becomes effective provided that such change becomes effective prior to 5:00 p.m., New York City time, on such day. The Administrative Agent shall as soon as practicable notify the Company and the Lenders of the effective date and the amount of each such change in the Base Rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrowers and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of a Borrower or any Lender, deliver to such Borrower or such Lender a statement showing in reasonable detail the quotations and calculations used by the Administrative Agent in determining any interest rate pursuant to Section 6.01(a) or (c). (c) (i) If any Domestic Reference Lender shall for any reason no longer have a Revolving Credit Commitment or any Revolving Credit Loans, such Domestic Reference Lender shall thereupon cease to be a Domestic Reference Lender, and if, as a result, there shall only be one Domestic Reference Lender remaining (at any time after the Syndication Date), the Administrative Agent (after consultation with the Company and the Lenders) shall, by notice to the Company and the Lenders, designate another Lender as a Domestic Reference Lender so that there shall at all times be at least two Domestic Reference Lenders. (ii) If any Multicurrency Reference Lender shall for any reason no longer have a Multicurrency Commitment or any Multicurrency Loans, such Multicurrency Reference Lender shall thereupon cease to be a Multicurrency Reference Lender, and if, as a result, there shall only be one Multicurrency Reference Lender remaining (at any time after the Syndication Date), the Administrative Agent (after consultation with the Company and the Lenders) shall, by notice to the Company and the Lenders, designate another Multicurrency Lender as a Multicurrency Reference Lender so that there shall at all times be at least two Multicurrency Reference Lenders. (d) Each Reference Lender shall use its best efforts to furnish quotations of rates to the Administrative Agent as contemplated hereby. If any of the Reference Lenders shall be unable or shall otherwise fail to supply such rates to the Administrative Agent upon its request, -52- 59 the rate of interest shall, subject to the provisions of Section 6.07, be determined on the basis of the quotations of the remaining applicable Reference Lenders or Reference Lender, as applicable. SECTION VI.07. Inability to Determine Interest Rate. If prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrowers) that, by reason of circumstances affecting the relevant market generally, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate or the Eurocurrency Rate with respect to the currency in which a Loan or a requested Loan is denominated (the "Affected Currency"), as the case may be, for such Interest Period, or (b) the Administrative Agent has received notice from the Required Lenders or the Majority Multicurrency Lenders, as the case may be, that the Eurodollar Rate or Eurocurrency Rate, as the case may be, determined or to be determined with respect to the Affected Currency for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as certified by such Lenders) of making or maintaining their Eurodollar Loans or Multicurrency Loans, as the case may be, during such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to the Company and the Lenders as soon as practicable thereafter. If such notice is given (i) any Eurodollar Loans or Multicurrency Loans, as the case may be, requested to be made on the first day of such Interest Period shall be made as Base Rate Loans in U.S. Dollars, (ii) any Revolving Credit Loans that were to have been converted on the first day of such Interest Period to or continued as Eurodollar Loans shall be converted to or continued as Base Rate Loans, (iii) any outstanding Eurodollar Loans shall be converted on the first day of such Interest Period to Base Rate Loans and (iv) any Multicurrency Loans to which such Interest Period relates shall be repaid on the first day of such Interest Period. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans or Multicurrency Loans shall be made or continued as such, nor shall the Company have the right to convert Base Rate Loans to Eurodollar Loans, as the case may be, provided that Loans may continue to be made, converted or continued, as the case may be, in U.S. Dollars or Available Foreign Currencies other than the Affected Currency. SECTION VI.08. Pro Rata Treatment and Payments. (a) (i) Except as provided in Section 2.05, each borrowing of Revolving Credit Loans by the Company from the Lenders hereunder shall be made pro rata according to the Funding Commitment Percentages of the Lenders in effect on the date of such borrowing. Each payment by the Company on account of any facility fee hereunder shall be allocated by the Administrative Agent among the Lenders in accordance with the respective amounts which such Lenders are entitled to receive pursuant to Section 6.05(a). Any reduction of the Revolving Credit Commitments of the Lenders shall be allocated by the Administrative Agent among the Lenders pro rata according to the Revolving Credit Commitment Percentages of the Lenders. Except as provided in Section 2.05, each payment (other than any optional prepayment) by the Company on account of principal of the Revolving Credit Loans shall be allocated by the Administrative Agent pro rata according to the -53- 60 respective principal amounts thereof then due and owing to each Revolving Credit Lender. Each optional prepayment by the Company on account of principal of or interest on the Revolving Credit Loans shall be allocated by the Administrative Agent pro rata according to the respective outstanding principal amounts thereof. (ii) Each borrowing by the Company of Term Loans hereunder, each payment by the Company on account of any commitment fee and any reduction of the Term Loan Commitments of the Lenders shall be made pro rata according to the respective Tranche A Term Loan Percentages, Tranche B Term Loan Percentages or Interim Term Loan Percentages, as the case may be, of the relevant Lenders. Each payment (including each prepayment) by the Company on account of principal of and interest on the Term Loans shall be made pro rata according to the respective outstanding principal amounts of the Term Loans then held by the Term Loan Lenders (except as otherwise provided in Section 6.08(b)). The amount of each principal prepayment of the Tranche A Term Loans, Tranche B Term Loans and Interim Term Loans, as the case may be, shall be applied to reduce the installments thereof pro rata based upon the then remaining principal amount thereof. Amounts prepaid on account of the Term Loans may not be reborrowed. (iii) All payments (including prepayments) to be made by the Company hereunder in respect of amounts denominated in Dollars, whether on account of principal, interest, fees or otherwise, shall be made without set-off or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Administrative Agent's office specified in Section 14.02, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders entitled to receive the same promptly upon receipt in like funds as received. (iv) Each borrowing of Multicurrency Loans by any Borrower shall be made, and any reduction of the Multicurrency Commitments shall be allocated by the Administrative Agent, pro rata according to the Multicurrency Commitment Percentages of the Multicurrency Lenders in effect on the date of such Loans or reductions. Each payment (including each prepayment) by a Borrower on account of principal of and interest on Multicurrency Loans shall be allocated by the Administrative Agent pro rata according to the respective principal amounts of the Multicurrency Loans then due and owing by such Borrower to each Multicurrency Lender. (v) All payments (including prepayments) to be made by a Borrower on account of Multicurrency Loans hereunder, whether on account of principal, interest, fees or otherwise, shall be made without set-off or counterclaim and shall be made prior to 12:00 Noon, London time, on the due date thereof to the Administrative Agent, for the account of the Multicurrency Lenders, at the payment office for the currency of such Multicurrency Loans specified from time to time by the Administrative Agent by notice to the Multicurrency Lenders, in the currency of such Multicurrency Loans and in immediately available funds. The Administrative Agent shall distribute such payments to the Multicurrency Lenders entitled to receive the same promptly upon receipt in like funds as received. (vi) If any payment hereunder (other than payments on the Eurodollar Loans or the Multicurrency Loans) becomes due and payable on a day other than a Business Day, the -54- 61 maturity of such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan or a Multicurrency Loan becomes due and payable on a day other than a Business Day, the maturity of such payment shall be extended to the next succeeding Business Day (and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension) unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. (b) Notwithstanding anything to the contrary in Sections 6.04 or 6.08, (i) all optional prepayments and mandatory prepayments of the Term Loans shall be applied first to the Interim Term Loans, and after repayment in full of the Interim Term Loans, to prepay the Tranche A Term Loans and Tranche B Term Loans ratably and (ii) so long as any Tranche A Term Loans are outstanding, each Tranche B Term Loan Lender may, at its option, decline any optional prepayment or mandatory payment applicable to the Tranche B Term Loans of such Lender; accordingly, with respect to the amount of any optional prepayment or mandatory prepayment described in Section 6.04 that is allocated to Tranche B Term Loans (such amounts, the "Tranche B Prepayment Amount"), at any time when Tranche A Term Loans remain outstanding, the Company will, (i) in the case of any optional prepayment which the Company wishes to make, not later than 10 Business Days prior to the date on which the Company wishes to make such optional prepayment, and (ii) in the case of any mandatory prepayment required to be made pursuant to Section 6.04, in lieu of applying such amount to the prepayment of Tranche B Term Loans, as provided in paragraph Section 6.04, on the date specified in Section 6.04 for such prepayment, give the Administrative Agent telephonic notice (promptly confirmed in writing) requesting that the Administrative Agent prepare and provide to each Tranche B Lender a notice (each, a "Prepayment Option Notice") as described below. As promptly as practicable after receiving such notice from the Company, the Administrative Agent will send to each Tranche B Lender a Prepayment Option Notice, which shall be in the form of Exhibit K, and shall include an offer by the Company to prepay on the date (each a "Prepayment Date") that is 5 Business Days after the date of the Prepayment Option Notice, the Tranche B Term Loans of such Lender by an amount equal to the portion of the Prepayment Amount indicated in such Lender's Prepayment Option Notice as being applicable to such Lender's Tranche B Term Loans. On the Prepayment Date, (i) the Company shall pay to the Administrative Agent the aggregate amount necessary to prepay that portion of the outstanding Tranche B Term Loans in respect of which Tranche B Lenders have accepted prepayment as described above (such Lenders, the "Accepting Lenders"), and such amount shall be applied to prepay the Tranche B Term Loans of each Accepting Lender and (ii) the Company shall pay to the Administrative Agent an amount equal to the portion of the Tranche B Prepayment Amount not accepted by the Accepting Lenders, and such amount shall be applied to the prepayment of the Tranche A Term Loans. (c) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a Borrowing Date that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the applicable Borrower a corresponding amount. If such amount is not made available to the -55- 62 Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate per annum equal to (i) the daily average Federal Funds Effective Rate (in the case of a borrowing of Revolving Credit Loans or Term Loans) and (ii) the Administrative Agent's reasonable estimate of its average daily cost of funds (in the case of a borrowing of Multicurrency Loans), in each case for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this Section shall be conclusive in the absence of manifest error. If such Lender's share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the applicable Borrower shall repay such Lender's share of such borrowing (together with interest thereon from the date such amount was made available to such Borrower (i) at the rate per annum applicable to Base Rate Loans hereunder (in the case of a borrowing of Revolving Credit Loans or Term Loans) or (ii) the Administrative Agent's reasonable estimate of its average daily cost of funds plus the Applicable Margin applicable to Multicurrency Loans (in the case of a borrowing of Multicurrency Loans)) to the Administrative Agent not later than three Business Days after receipt of written notice from the Administrative Agent specifying such Lender's share of such borrowing that was not made available to the Administrative Agent. SECTION VI.09. Illegality. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurodollar Loans or Multicurrency Loans, as the case may be, as contemplated by this Agreement, (a) such Lender shall immediately notify the Company and the Agent, (b) the commitment of such Lender hereunder to make Eurodollar Loans or Multicurrency Loans, as the case may be, continue Eurodollar Loans or Multicurrency Loans, as the case may be, as such and convert Base Rate Loans to Eurodollar Loans shall forthwith be suspended until such time as it shall no longer be unlawful for such Lender to make or maintain the affected Loans, (c) as applicable, such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Eurodollar Loans or within such earlier period as may be required by law and (d) as applicable, such Lender's Multicurrency Loans shall be prepaid on the last day of the then current Interest Period with respect thereto. If any such conversion of a Eurodollar Loan or a Multicurrency Loan, as the case may be, occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Company shall pay to such Lender such amounts, if any, as may be required pursuant to Section 6.12. SECTION .10. Requirements of Law. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority, made subsequent to the date hereof: (i) shall subject such Lender to any tax of any kind whatsoever with respect to this Agreement, any Note, any Eurodollar Loan made by it or any Multicurrency Loan made by it or its obligation to make any Eurodollar Loan or Multicurrency Loan or change the basis of taxation of payments to such Lender in respect -56- 63 thereof (except for taxes covered by Section 6.11 and changes in rate of tax on the overall net income of such Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurodollar Rate or the Eurocurrency Rate hereunder, including, without limitation, the imposition of any reserves with respect to Eurocurrency Liabilities under Regulation D of the Board; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or Multicurrency Loans or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the applicable Borrower shall promptly pay such Lender, upon its demand, any additional amount or amounts as will compensate such Lender for such increased cost or reduced amount receivable. If any Lender becomes entitled to claim any additional amounts pursuant to this Section, it shall promptly notify the Company (with a copy to the Administrative Agent) of the event by reason of which it becomes so entitled. A certificate as to any additional amounts payable pursuant to this Section submitted by such Lender to the Company (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Company (with a copy to the Administrative Agent) of a prompt written request therefor, the Company shall promptly pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) No Lender shall be entitled to compensation under this Section 6.10 for any costs incurred or reductions suffered with respect to any date that it has such costs unless it shall have notified the Company that it will demand compensation for such costs or reductions under paragraph (a) or (b) above, not more than 120 days after the later of (i) such date and (ii) the date on which it shall have become aware of such costs or reductions; provided that the foregoing shall in no way operate in derogation of the undertaking contained in the penultimate sentence of -57- 64 this paragraph (c). Notwithstanding any other provision of this Section 6.10, no Lender shall demand compensation for any increased cost or reduction referred to above if it shall not at the time be the general policy or practice of such Lender to demand such compensation in similar circumstances under comparable provisions of other credit agreements. In the event that any Lender determines that any event or circumstances that will lead to a claim under this Section 6.10 has occurred or will occur, such Lender will use its best efforts to so notify the Company; provided, that any failure to provide such notice shall in no way impair the rights of any Lender to demand and receive compensation under this Section 6.10, but without prejudice to any claims of the Company for compensation for actual damages sustained as a result of any failure to observe this undertaking. The agreements of this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. SECTION .11. Taxes. (a) All payments of principal and interest made by the Borrowers under this Agreement and any Note shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding income taxes and franchise taxes (imposed in lieu of income taxes) imposed on the Administrative Agent or any Lender as a result of a present or former connection between the Administrative Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Administrative Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement, any Note or any other Loan Document). If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts payable to the Administrative Agent or any Lender hereunder or under any Note, the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates and in the amounts specified in this Agreement, provided, however, that (i) the Company shall not be required to increase any such amounts payable to any Lender that is not organized under the laws of the United States of America or a state thereof if such Lender fails to comply with the requirements of paragraph (b) of this Section, and (ii) a Foreign Subsidiary Borrower shall not be required to increase any such amounts payable to any Lender if such Lender fails to comply with the requirements of paragraph (c) of this Section. Whenever any Non-Excluded Taxes are payable by a Borrower, as promptly as possible thereafter such Borrower shall send to the Administrative Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by such Borrower showing payment thereof. If a Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, such Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. The agreements in this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. -58- 65 (b) Each Lender that is not incorporated or organized under the laws of the United States of America or a state thereof shall: (i) at least five Business Days before the date of the initial payment to be made by the Company under this Agreement to such Lender, deliver to the Company and the Administrative Agent (A) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, as the case may be, certifying that it is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes and (B) an Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be, certifying that it is entitled to an exemption from United States backup withholding tax; (ii) deliver to the Company and the Administrative Agent two further copies of any such form or certification at least five Business Days before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Administrative Agent and the Company; (iii) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Company or the Administrative Agent; and (iv) file amendments to such forms as and when required; and each Lender (or Transferee) that is incorporated or organized under the laws of the United States of America or a State thereof shall provide two properly completed and duly executed copies of Form W-9, or successor applicable form, at the times specified for delivery of forms under paragraph (b)(i) of this Section, in each case unless an event (including, without limitation, any change in treaty, law or regulation) has occurred after the date such Person becomes a Lender hereunder which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender so advises the Company and the Administrative Agent; provided, however, that the Company may rely upon such forms provided to the Company for all periods prior to the occurrence of such event. Each Person that shall become a Lender or a Participant pursuant to Section 14.06 shall, upon the effectiveness of the related transfer, be required to provide all of the forms, certifications and statements required pursuant to this Section, provided that in the case of such Participant, the obligations of such Participant pursuant to this Section 6.11(b) shall be determined as if such Participant were a Lender, except that such Participant shall furnish all such required forms, certifications and statements to the Lender from which the related participation shall have been purchased. (c) Each Lender that is not incorporated or organized under the laws of the jurisdiction under which a Foreign Subsidiary Borrower is incorporated or organized shall, upon request by such Foreign Subsidiary Borrower, within a reasonable period of time after such request, deliver to such Foreign Subsidiary Borrower or the applicable governmental or taxing authority, as the case may be, any form or certificate required in order that any payment by such -59- 66 Foreign Subsidiary Borrower under this Agreement or any Notes to such Lender may be made free and clear of, and without deduction or withholding for or on account of any Non-Excluded Tax (or to allow any such deduction or withholding to be at a reduced rate) imposed on such payment under the laws of the jurisdiction under which such Foreign Subsidiary Borrower is incorporated or organized, provided that such Lender is legally entitled to complete, execute and deliver such form or certificate and such completion, execution or submission would not materially prejudice the legal position of such Lender. (d) No Lender shall be entitled to payment under this Section 6.11 unless it shall have notified the applicable Borrower that it will demand such payment not more than 120 days after the date on which it shall become aware that it was entitled to such payment provided that such notice requirement shall in no way operate in derogation of the undertaking contained in the second following sentence of this Section 6.11(d). Notwithstanding any other provision of this Section 6.11, no Lender shall demand any payment under this Section 6.11 if it shall not at the time be the general policy or practice of such Lender to demand such compensation in similar circumstances under comparable provisions of other credit agreements. In the event that any Lender determines that any event or circumstance that will lead to a claim by it under this Section 6.11 has occurred or will occur, such Lender will use its best efforts to so notify the Company provided that any failure to provide such notice shall in no way impair the rights of any Lender to demand and receive compensation under this Section 6.11, but without prejudice to any claims of the Company for failure to observe this undertaking. SECTION .12. Indemnity. Each Borrower agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (a) default by such Borrower in payment when due of the principal amount of or interest on any Eurodollar Loan or Multicurrency Loan, (b) default by such Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans or Multicurrency Loans after such Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (c) default by such Borrower in making any prepayment after such Borrower has given a notice thereof in accordance with the provisions of this Agreement or (d) the making by such Borrower of a prepayment of Eurodollar Loans or Multicurrency Loans on a day which is not the last day of an Interest Period with respect thereto, including, without limitation, in each case, any such loss or expense arising from the reemployment of funds obtained by it or from fees payable to terminate the deposits from which such funds were obtained. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. All payments required to be made by any Borrower to any Lender under this Section 6.12 shall be made no later than 30 days after receipt by such Borrower of a written notice from such Lender setting forth in reasonable detail the basis upon -60- 67 which such Lender is entitled to receive such payments. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. SECTION .13. Use of Proceeds. The proceeds of the Revolving Credit Loans and Multicurrency Loans shall be used (a) to refinance the Existing Credit Agreement, (b) to pay fees and expenses incurred by the Borrowers in connection with this Agreement and (c) for working capital and other general corporate purposes of the Borrowers and their Subsidiaries, including investments and acquisitions. The proceeds of the Term Loans shall be used in accordance with Schedule 6.13 (a) to finance the acquisition of the Target Shares, (b) to refinance existing indebtedness of the Target and (c) to pay fees and expenses incurred in connection with the Tender Offer and this Agreement. SECTION .14. Change of Lending Office; Replacement of Lenders. (a) Each Lender agrees that if it makes any demand for payment under Section 6.10 or 6.11, or if any adoption or change of the type described in Section 6.09 shall occur with respect to it, it shall use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions and so long as such efforts would not be disadvantageous to it, as determined in its sole discretion) to designate a different lending office if the making of such a designation would reduce or obviate the need for the Borrowers to make payments under Section 6.10 or 6.11, or would eliminate or reduce the effect of any adoption or change described in Section 6.09. (b) If at any time Lender makes any demand for payment under Section 6.10 or 6.11 as a result of any condition described in any such Section, then the Borrowers may, if such condition continues to exist after such Lender shall have used reasonable efforts pursuant to paragraph (a) of this Section 6.14 and on 10 Business Days' prior written notice to the Administrative Agent and such Lender, replace such Lender by causing such Lender to (and such Lender shall) assign pursuant to Section 14.06(c) all of its rights and obligations under this Agreement to another Lender or other bank or financial institution selected by the Company and acceptable to the Administrative Agent for a purchase price equal to the outstanding principal amount of all Loans, accrued interest, fees and other amounts owing to such Lender; provided that (i) the Borrowers shall have no right to replace the Administrative Agent, (ii) neither the Administrative Agent nor any Lender shall have any obligation to the Borrowers to find a replacement Lender or other bank or financial institution, (iii) such replacement must take place no later than 180 days after such Lender shall have made any such demand for payment, (iv) in no event shall any Lender hereby replaced be required to pay or surrender to such replacement Lender or other bank or financial institution any of the fees received by such Lender pursuant to this Agreement, (v) the Borrowers shall pay such amounts demanded under Section 6.10 or 6.11 to such Lender, together with any amounts as may be required pursuant to Section 6.12, prior to such Lender being replaced and the payment of such amounts shall be a condition to the replacement of such Lender and (vi) such Lender shall not be required to pay any fees required by Section 14.06(e) in connection with such replacement, which fees shall be paid by the Company. -61- 68 ARTICLE VII. REPRESENTATIONS AND WARRANTIES Each of the Company and the Foreign Subsidiary Borrowers (insofar as the representations and warranties set forth below relate respectively to such Foreign Subsidiary Borrower) represents and warrants to the Administrative Agent and each Lender that: SECTION VII.01. Financial Condition. (a) The consolidated balance sheets of the Company and its consolidated Subsidiaries as at December 31, 1995 and December 31, 1996, respectively, and the related consolidated statements of earnings, cash flows and shareholders' equity for the fiscal years ended on such dates, reported on by Ernst & Young LLP, copies of which have heretofore been furnished to each Lender, are complete and correct in all material respects and present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such dates, and the consolidated results of their operations and their consolidated cash flows for the fiscal years then ended. The unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries as at June 30, 1997 and the related unaudited consolidated statements of earnings and of cash flows for the six-month period ended on such date, certified by a Responsible Officer, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the six-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein). Neither the Company nor any of its consolidated Subsidiaries (taken as a whole) had, at the date of the most recent balance sheet referred to above, any material Guaranty, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto. During the period from December 31, 1996 to and including the date hereof there has been no sale, transfer or other disposition by the Company or any of its consolidated Subsidiaries of any material part of its business or property and no purchase or other acquisition of any business or property (including any capital stock of any other Person) material in relation to the consolidated financial condition of the Company and its consolidated Subsidiaries at December 31, 1996, other than any such sale, transfer or other disposition or purchase or acquisition that would have been permitted by this Agreement if this Agreement had been in effect at all times during such period. (b) The unaudited pro forma consolidated balance sheet of the Company and its consolidated Subsidiaries as at June 30, 1997 (including the notes thereto) (the "Pro Forma Balance Sheet"), copies of which have heretofore been furnished to each Lender, has been prepared giving effect (as if such events had occurred on such date) to (i) the consummation of the Acquisition, (ii) the Loans to be made hereunder and the use of proceeds thereof and (iii) the payment of fees and expenses in connection with the foregoing. The Pro Forma Balance Sheet has been prepared based on the best information available to the Company as of the date of delivery thereof, and presents fairly on a pro forma basis the estimated financial position of the Company and its consolidated Subsidiaries as at June 30, 1997, assuming that the events -62- 69 specified in the preceding sentence had actually occurred at such date. (c) The consolidated balance sheets of the Target and its consolidated Subsidiaries as at December 31, 1995 and December 31, 1996, respectively, and the related consolidated statements of earnings, cash flows and shareholders' equity for the fiscal years ended on such dates, reported on by KPMG Audit plc, copies of which have heretofore been furnished to each Lender, are, to the best of the Company's knowledge, complete and correct in all material respects and, to the best of the Company's knowledge, present fairly the consolidated financial condition of the Target and its consolidated Subsidiaries as at such dates, and the consolidated results of their operations and their consolidated cash flows for the fiscal years then ended. The unaudited consolidated balance sheet of the Target and its consolidated Subsidiaries as at June 30, 1997 and the related unaudited consolidated statements of earnings and of cash flows for the six-month period ended on such date, copies of which have heretofore been furnished to each Lender, are, to the best of the Company's knowledge, complete and correct and, to the best of the company's knowledge, present fairly the consolidated financial condition of the Target and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the six-month period then ended (subject to normal year-end audit adjustments). SECTION VII.02. No Change. Since December 31, 1996, (a) there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect, except as disclosed in the Company's Annual Report on Form 10-K/A for fiscal year 1996 and (b) to the best of the Company's knowledge, there has been no development or event which has had or could reasonably be expected to have a material adverse effect on the business, operations, property, condition (material or otherwise) or prospects of the Target and its Subsidiaries taken as a whole. SECTION VII.03. Corporate Existence; Compliance with Law. Each of the Company and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization except to the extent that, with respect to those Subsidiaries that are not Borrowers hereunder, the lack of such organization, existence or good standing could not, in the aggregate, reasonably be expected to have a Material Adverse Effect, (b) has the corporate or other power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged except to the extent that, with respect to those Subsidiaries that are not Borrowers hereunder, the lack of such power, authority or legal right could not, in the aggregate, reasonably be expected to have a Material Adverse Effect, (c) is duly qualified as a foreign corporation or other entity and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except to the extent that the failure to qualify or be in good standing could not, in the aggregate, reasonably be expected to have a Material Adverse Effect and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. SECTION VII.04. Corporate Power; Authorization; Enforceable Obligations. Each Loan Party has the corporate or other power and authority; and the legal right, to execute, -63- 70 deliver and perform the Loan Documents to which it is a party and, in the case of each Borrower, to borrow hereunder and has taken all necessary corporate or other action to authorize the borrowings on the terms and conditions of this Agreement and the Notes to which it is a party and to authorize the execution, delivery and performance of the Loan Documents to which it is a party. Each of the Company and U.K. Acquisition II has the corporate power and authority, and the legal right, to consummate the Transactions. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required with respect to the Company or any of its Subsidiaries in connection with the borrowings hereunder of the consummation of the Transactions or, with the execution, delivery, performance, validity or enforceability of the Loan Documents to which it is a party, except for consents, filings, authorizations or approvals which have been obtained and are in full force and effect, and except for (i) any such approvals which will be set forth in the Offer Documents as conditions to the Tender Offer and (ii) other approvals the failure to obtain which could not reasonably be expected to have a Material Adverse Effect. This Agreement has been, and each other Loan Document has been or when executed pursuant hereto will be, duly executed and delivered on behalf of each of the applicable Loan Parties. This Agreement and each other Loan Document to which a Loan Party is a party constitutes a legal, valid and binding obligation of such Person enforceable against such Person in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law) and by an implied covenant of good faith and fair dealing. SECTION VII.05. No Legal Bar. The execution, delivery and performance of the Loan Documents, the borrowings hereunder, the use of the proceeds thereof and the consummation of the Transactions will not violate any Requirement of Law or Contractual Obligation of the Company or of any of its Subsidiaries, other than any such violation which could not reasonably be expected to have a Material Adverse Effect, and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation, except Liens created pursuant to the Loan Documents and any Lien which could not reasonably be expected to have a Material Adverse Effect. SECTION VII.06. No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Company, threatened by or against the Company or any of its Subsidiaries or against any of its or their respective properties or revenues (a) with respect to any of the Loan Documents, the Transactions or any of the transactions contemplated hereby, or (b) which could reasonably be expected to have a Material Adverse Effect. SECTION VII.07. No Default. Neither the Company nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. SECTION VII.08. Ownership of Property; Liens. Each of the Company and its -64- 71 Subsidiaries has good record and marketable title in fee simple to, or a valid leasehold interest in, all its material real property, and good title to, or a valid leasehold interest in, all its other material property, and none of such property is subject to any Lien except as permitted by Section 10.04. SECTION VII.09. Intellectual Property. Each of the Company its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted except for those the failure to own or license which could not reasonably be expected to have a Material Adverse Effect (the "Intellectual Property"). No claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does the Company know of any valid basis for any such claim which, in the aggregate, could reasonably be expected to have a Material Adverse Effect. The use of such Intellectual Property by the Company and its Subsidiaries does not infringe on the rights of any Person, except for such claims and infringements that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. SECTION .10. No Burdensome Restrictions. No Requirement of Law or Contractual Obligation of the Company or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect. SECTION .11. Taxes. Each of the Company and its Subsidiaries has filed or caused to be filed all U.S. tax returns and all other material tax returns which, to the knowledge of the Borrowers, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any (i) with respect to which the failure to pay, in the aggregate, would not reasonably be expected to have a Material Adverse Effect or (ii) the amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Company or its Subsidiaries, as the case may be); no tax Lien has been filed, and, to the knowledge of the Company, no claim is being asserted, with respect to any such tax, fee or other charge. SECTION .12. Federal Regulations. No part of the proceeds of any Loans will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation G and Regulation U of the Board of Governors of the United States Federal Reserve System as now and from time to time hereafter in effect or for any purpose which violates the provisions of the Regulations of such Board of Governors (including but not limited to the provisions of Regulation G, Regulation U and Regulation X) or any similar rule of any other Governmental Authority. If any Borrower is requested by any Lender or the Administrative Agent, such Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of Form FR U-1 or FR G-3 referred to in said Regulation U and Regulation G, respectively. SECTION .13. ERISA. Neither a Reportable Event nor an Accumulated Funding Deficiency has occurred during the five-year period prior to the date on which this -65- 72 representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by an amount which could reasonably be expected to have a Material Adverse Effect, either individually or in the aggregate with all other Single Employer Plans under which such accrued benefits exceed such assets. Neither the Company nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan during the five-year period prior to the date on which this representation is made or deemed made which could, in the aggregate with other such withdrawals during such period, reasonably be expected to have a Material Adverse Effect, and neither the Company nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Company or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or is Insolvent. SECTION .14. Investment Company Act; Other Regulations. No Borrower is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. No Borrower is subject to any law or regulation which limits its ability to incur the Indebtedness to be incurred by it under the Loan Documents. SECTION .15. Subsidiaries. As of the date hereof, the Company has no Subsidiaries except those Subsidiaries identified on Schedule II to this Agreement. SECTION .16. Environmental Matters. (a) The facilities and properties owned, leased or operated by the Company and/or any of its Subsidiaries (the "Properties") do not contain, and have not previously contained, any Materials of Environmental Concern in amounts or concentrations which (i) constitute or constituted a violation of, or (ii) could reasonably be expected to give rise to liability under, any Environmental Law except in either case insofar as such violation or liability, or any aggregation thereof, is not reasonably likely to result in the payment of a Material Environmental Amount. (b) The Properties and all operations at the Properties are in compliance, and have in the last five years been in compliance, in all material respects with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the business operated by the Company or any of its Subsidiaries (the "Business") which could materially interfere with the continued operation of the Properties or materially impair the aggregate fair saleable value of the Properties. (c) Neither the Company nor any of its Subsidiaries has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding -66- 73 environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Business, nor does the Company or any of its Subsidiaries have knowledge or reason to believe that any such notice will be received or is being threatened except insofar as such notice or threatened notice, or any aggregation thereof, does not involve a matter or matters that is or are reasonably likely to result in the payment of a Material Environmental Amount. (d) Materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to a location which could reasonably be expected to give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could reasonably be expected to give rise to liability on the part of the Company or any Subsidiary under, any applicable Environmental Law except insofar as any such violation or liability referred to in this paragraph, or any aggregation thereof, is not reasonably likely to result in the payment of a Material Environmental Amount. (e) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Company, threatened, under any Environmental Law to which the Company or any Subsidiary is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business except insofar as such proceeding, action, decree, order or other requirement, or any aggregation thereof, is not reasonably likely to result in the payment of a Material Environmental Amount. (f) There has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of the Company or any Subsidiary in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could reasonably give rise to liability under Environmental Laws except insofar as any such violation or liability referred to in this paragraph, or any aggregation thereof, is not reasonably likely to result in the payment of a Material Environmental Amount. SECTION .17. Accuracy and Completeness of Information. All information heretofore furnished by each Loan Party to the Lenders for purposes of or in connection with this Agreement does not, and all such information hereafter furnished by such Loan Party to any Lender for purposes of this Agreement will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made or to be made, in the light of the circumstances under which they were or will be made, not misleading. Prior to the date hereof, the Company has disclosed to the Lenders in writing any and all facts which materially and adversely affect (to the extent the Company can as of the date hereof reasonably foresee), the business, operations or financial condition of the Company and its Subsidiaries, taken as a whole, or the ability of any Loan Party to perform its obligations under the Loan Documents. It is understood that no representation or warranty is made concerning the forecasts, estimates, pro forma information, projections and statements as to anticipated future performance or conditions, and the assumptions on which they were based, contained in any such information, reports, financial statements, exhibits or schedules, except that as of the date such forecasts, -67- 74 estimates, pro forma information, projections and statements were generated, (a) such forecasts, estimates, pro forma information, projections and statements were based on the good faith assumptions of the management of the Company and (b) such assumptions were believed by such management to be reasonable. It is further understood that the foregoing statements in this Section 7.17, to the extent they refer to information in respect of the Target, are made to the best of the Company's knowledge. SECTION .18. Other Unsecured Indebtedness. The obligations of each of the Borrowers under this Agreement and the Notes and the other Loan Documents rank at least pari passu in right of payment with all other unsubordinated Indebtedness of such Borrowers. SECTION .19. Foreign Subsidiary Borrowers. (a) Each Foreign Subsidiary Borrower will be a direct or indirect, Wholly Owned Subsidiary of the Company (or, with the consent of the Majority Multicurrency Lenders, which consent shall not be unreasonably withheld, a direct or indirect, majority-owned Subsidiary of the Company); and (b) Each Foreign Subsidiary Borrower will have, upon becoming a party hereto, full right and authority to enter into this Agreement and each other Loan Document to which it is a party, and to perform all of its obligations under this and each other Loan Document to which it is a party; all of the foregoing actions will have been, prior to any request for Loans by such Borrower, duly authorized by all necessary action on the part of such Borrower; and when such Foreign Subsidiary Borrower becomes a party hereto, this Agreement and each other Loan Document to which it is a party will constitute valid and binding obligations of such Borrower enforceable in accordance with their respective terms except as such terms may be limited by the application of bankruptcy, moratorium, insolvency and similar laws affecting the rights of creditors generally and by equitable principles affecting the availability of specific performance and other remedies. SECTION .20. Security Documents. Each Security Document, when executed and delivered by the Loan Party which is a party thereto, will be effective to create in favor of the Administrative Agent (or the Trustee, as the case may be), for the benefit of the Lenders (and, as the case may be, the holders of the Existing Public Securities), a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof. When the actions described in Schedule 7.20 in respect of each Security Document have been taken, the Security Documents shall constitute fully perfected Liens on, and security interests in, all right, title and interest of the Loan Parties in such Collateral and the proceeds thereof, as security for the Secured Obligations, in each case prior and superior in right to any other Person. SECTION .21. Solvency. Each Loan Party is, and after giving effect to the Acquisition and the incurrence of all Indebtedness and obligations being incurred in connection herewith and therewith will be and will continue to be, Solvent. -68- 75 ARTICLE VIII. CONDITIONS PRECEDENT SECTION VIII.01. Conditions to Effective Date. The Agreement shall become effective on the date of the satisfaction of the conditions precedent set forth in this Section 8.01 (the date on which such conditions are satisfied, the "Effective Date"): (a) Credit Agreement. The Administrative Agent shall have received this Agreement, executed and delivered by a duly authorized officer (or a duly authorized representative) of the Company and each Foreign Subsidiary Borrower that is a party hereto on the Effective Date, with a counterpart or copy for each Lender. (b) Corporate Proceedings. The Administrative Agent shall have received, with a counterpart or copy for each Lender, a copy of the resolutions, in form and substance satisfactory to the Administrative Agent, of the Board of Directors of the Company and each other Borrower that is a party hereto on the Effective Date, authorizing (i) the execution, delivery and performance by it of this Agreement and the Loan Documents to which it is a party and (ii) the borrowings by it contemplated hereunder, certified by the Secretary or an Assistant Secretary of the Company or such other Borrower, as the case may be, as of the Effective Date, which certificate shall be in form and substance satisfactory to the Administrative Agent and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. (c) Incumbency Certificate. The Administrative Agent shall have received, with a counterpart or copy for each Lender, a certificate of the Company, dated the Effective Date, as to the incumbency and signature of the officers or representatives of each Borrower executing any Loan Document on the Effective Date, satisfactory in form and substance to the Administrative Agent, executed by any of the Chief Executive Officer, the President, the Chief Financial Officer, the Treasurer or the Controller of the Company and the Secretary or any Assistant Secretary (or a duly authorized representative, if such representative is also a duly authorized officer of the Company or otherwise authorized by the Company) of the Company. (d) Corporate Documents. The Administrative Agent shall have received, with a counterpart or copy for each Lender, true and complete copies of the certificate of incorporation and by-laws of the Company and each other Borrower that is a party hereto on the Effective Date, certified as of the Effective Date as complete and correct copies thereof by the Secretary or an Assistant Secretary or a duly authorized representative of the Company or such other Borrower, as the case may be. (e) Approvals. All governmental and third party approvals necessary in connection with the transactions contemplated hereby shall have been obtained and be in full force and effect (other than (i) any such approvals which will be set forth in the Offer Documents as conditions to the Tender Offer and (ii) other approvals the failure to obtain which could not reasonably be expected to have a Material Adverse Effect). The Administrative Agent shall have received a certificate of a Responsible Officer of the Company to the foregoing effect, to which shall be attached copies of any such approvals -69- 76 theretofore obtained. (f) Related Agreements. The Administrative Agent shall have received, with a copy for each Lender, true and correct copies, certified as to authenticity by the Company, of the Indenture. (g) Fees. The Administrative Agent shall have received all fees to be received by the Administrative Agent or Chase on or prior to the Effective Date in connection with this Agreement. (h) Legal Opinions. The Administrative Agent shall have received the executed legal opinions of (i) Diane L. Kaye, Esq., General Counsel of the Company and (ii) Cleary Gottlieb Steen & Hamilton, counsel to the Company, each given upon the express instructions of the Company, substantially in the forms of Exhibits H-1 and H-2, respectively. After the document delivery conditions set forth above in this Section have been satisfied, the Administrative Agent will, at the request of the Company, provide to the Company written confirmation that such conditions have been satisfied. SECTION VIII.02. Conditions to Initial Revolving Credit Funding Date. The obligation of each Lender to make its initial Revolving Credit Loan and/or Multicurrency Loan is subject to the satisfaction of the following conditions precedent on the date of such Loans, which date shall in any event be on or after the Effective Date and on or prior to the last day of the Term Loan Commitment Period (the date on which such conditions are satisfied, the "Initial Revolving Credit Funding Date"): (a) Existing Credit Agreement. All loans, accrued interest, fees and any other amounts owing to the respective lenders and agents under the Existing Credit Agreement shall have been paid in full, and the commitments to make loans thereunder shall have been cancelled. (b) Security Documents and Subsidiary Guarantee. The Administrative Agent shall have received (i) the Domestic Subsidiary Guarantee, executed and delivered by a duly authorized officer of each guarantor party thereto and (ii) each of the Security Documents (other than the U.K. Acquisition II Share Mortgage), executed and delivered by a duly authorized officer of each party thereto. (c) Perfection Actions. The perfection actions specified in Schedule 7.20 in respect of each of the Security Documents (other than the UK Acquisition II Share Mortgage) shall have been completed (other than any such action which can not be taken until the applicable Collateral exists or until the initial Revolving Credit Loans are made, as the case may be). (d) Legal Opinions. The Administrative Agent shall have received the executed legal opinions of (i) Diane L. Kaye, Esq., General Counsel of the Company and (ii) -70- 77 Cleary Gottlieb Steen & Hamilton, counsel to the Company, substantially in the forms of Exhibits H-3 and H-4 respectively, and (iii) the legal opinion of local counsel in such jurisdictions as the Administrative Agent shall reasonably request, substantially in the form of Exhibit H-5, in each case given upon the express instructions of the Company. (e) Representations and Warranties. The representations and warranties contained in Sections 7.03, 7.04, 7.05, 7.12, 7.14 and 7.20 shall be true and correct in all material respects as if made on and as of such date. (f) No Default. No Default or Event of Default shall have occurred and be continuing under (i) paragraph (a) of Article XII or (ii) paragraph (f) of Article XII (only to extent such paragraph (f) relates to the Company or U.K. Acquisition II). (g) Illegality. (i) The borrowings hereunder and the use of the proceeds thereof shall not violate any Requirement of Law of the United States or the United Kingdom applicable to the Borrowers and (ii) the making of such Loans shall not violate any Requirement of Law of the United States or the United Kingdom applicable to the Lenders. (h) Certificate. The Administrative Agent shall have received a certificate of a Responsible Officer to the effect set forth in paragraphs (e), (f) and (g)(i) above. After the document delivery conditions set forth above in this Section have been satisfied, the Administrative Agent will, at the request of the Company, provide to the Company written confirmation that such conditions have been satisfied. It is understood that the Initial Revolving Credit Funding Date may occur prior to, or contemporaneously with, the Initial Term Loan Funding Date. SECTION VIII.03. Conditions to Initial Term Loan Funding Date. The obligation of each Lender to make its Initial Term Loan is subject to the satisfaction of the following conditions precedent on the date of such Term Loans, which date shall in any event be on or after the Initial Revolving Credit Funding Date and on or prior to the last day of the Term Loan Commitment Period (the date on which such conditions are satisfied, the "Initial Term Loan Funding Date"): (a) Offer Documents; Terms of Tender Offer. The terms of the Tender Offer as set forth in the Press Release shall have been approved by the Administrative Agent prior to the public announcement thereof by U.K. Acquisition II. The Administrative Agent shall have received copies of the Offer Documents, and of all other documents and materials filed or released publicly by the Company or U.K. Acquisition II in connection with the Tender Offer, certified as true and correct copies thereof as of the Initial Term Loan Funding Date by a Responsible Officer of the Company, and the conditions set forth in such documents shall conform to the conditions set forth in the Press Release as approved by the Administrative Agent prior to the release thereof. -71- 78 (b) The Tender Offer. The Tender Offer shall have been declared fully unconditional on behalf of U.K. Acquisition II, without any amendment, supplement, modification or waiver of the terms thereof contained in the Press Release not consented to by the Required Lenders, other than (i) any amendments, supplements, modifications or waivers which in the aggregate are not material and (ii) any waiver of the conditions contained in the Press Release, relating to matters other than aggregate purchase price and minimum acceptance conditions, that is required by the Panel. (c) Legal Opinion. The Administrative Agent shall have received: (i) the executed legal opinion of Clifford Chance, special English counsel to the Administrative Agent, in respect of the U.K. Acquisition I Share Mortgage and matters related thereto; (ii) the executed legal opinion of Clifford Chance, special Netherlands counsel to the Administrative Agent, in respect of the Netherlands Pledge Agreements and matters related thereto. (d) Representations and Warranties. The representations and warranties contained in Sections 7.03, 7.04, 7.05, 7.12, 7.14 and 7.20 shall be true and correct in all material respects as if made on and as of such date. (e) No Default. No Default or Event of Default shall have occurred and be continuing under (i) paragraph (a) of Article XII or (ii) paragraph (f) of Article XII (only to extent such paragraph (f) relates to the Company or U.K. Acquisition II). (f) Illegality. (i) The borrowings hereunder and the use of the proceeds thereof shall not violate any Requirement of Law of the United States or the United Kingdom applicable to the Borrowers and (ii) the making of such Loans shall not violate any Requirement of Law of the United States or the United Kingdom applicable to the Lenders. (g) No Injunction, etc. There shall not be in effect any injunction or restraining order of any Governmental Authority having jurisdiction to issue such injunction or restraining order prohibiting the making of the Term Loans made on such date, the use of the proceeds thereof or the consummation of the Tender Offer or the Acquisition. (h) Certificate. The Administrative Agent shall have received a certificate of a Responsible Officer to the effect set forth in paragraphs (d), (e), (f)(i) and (g) above. (i) Senior Subordinated Bridge Loans. Except to the extent that the Company terminates or reduces the Senior Subordinated Bridge Loan Commitments as provided in clauses (i) and (ii) of the proviso to Section 6.04(d), the Company shall have received at least $500,000,000 in cash proceeds from the issuance of the Senior Subordinated Bridge Loans pursuant to the Senior Subordinated Loan Documentation. -72- 79 (j) Related Agreements. The Administrative Agent shall have received, in form and substance reasonably satisfactory to it, with a copy for each Lender, true and correct copies, certified as to authenticity by the Company, of the Senior Subordinated Loan Documentation. It is understood that the Initial Term Loan Funding Date may occur contemporaneously with, or subsequent to, the Initial Revolving Credit Funding Date. SECTION VIII.04. Conditions to each Term Loan after Initial Term Loan Funding Date. The obligation of each Lender to make each Term Loan to be made by it after the Initial Term Loans is subject to the satisfaction of the following conditions precedent on the date of such Term Loans: (a) Representations and Warranties. The representations and warranties contained in Sections 7.03, 7.04, 7.05, 7.12, 7.14 and 7.20 shall be true and correct in all material respects as if made on and as of such date. (b) No Default. No Default or Event of Default shall have occurred and be continuing under (i) paragraph (a) of Article XII or (ii) paragraph (f) of Article XII (only to extent such paragraph (f) relates to the Company or U.K. Acquisition II). (c) Illegality. (i) The borrowings hereunder and the use of the proceeds thereof shall not violate any Requirement of Law of the United States or the United Kingdom applicable to the Borrowers and (ii) the making of such Loans shall not violate any Requirement of Law of the United States or the United Kingdom applicable to the Lenders. (d) No Injunction, etc. There shall not be in effect any injunction or restraining order of any Governmental Authority having jurisdiction to issue such injunction or restraining order prohibiting the making of the Term Loans made on such date, the use of the proceeds thereof or the consummation of the Tender Offer or the Acquisition. Each borrowing of Term Loans shall constitute a representation and warranty by the Company as of the date of such Term Loans that the conditions contained in this Section 8.04 (other than paragraph (c)(ii)) have been satisfied. SECTION VIII.05. Conditions to each Revolving Credit and Multicurrency Loan after Initial Revolving Credit Funding Date. The obligation of each Lender to make any Revolving Credit Loan and Multicurrency Loan requested to be made by it on any date (other than the Revolving Credit Loans and Multicurrency Loans made on the Initial Revolving Credit Funding Date in an amount sufficient to repay all amounts outstanding under the Existing Credit Agreement) is subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. Each of the representations and warranties made by the Company and other Borrowers in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of -73- 80 such date, except if such representation or warranty relates to an earlier date or refers to Schedules, in which case such representation and warranty shall be true and correct in all material respects on such earlier date and after giving effect to any amendments of such Schedules. (b) No Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Loans requested to be made on such date. (c) Foreign Subsidiary Opinion. If such Loan is the initial Loan to a Foreign Subsidiary Borrower, the Administrative Agent shall have received a Foreign Subsidiary Opinion in respect of such Foreign Subsidiary Borrower. (d) Corporate Proceedings. If such Loan is the initial Loan to a Foreign Subsidiary Borrower, the Administrative Agent shall have received, with a counterpart for each Lender, if applicable, a copy of the resolutions, in form and substance satisfactory to the Administrative Agent, of the Board of Directors of such Borrower authorizing (i) the execution, delivery and performance by it of this Agreement and the Loan Documents to which it is a party and (ii) the borrowings by it contemplated hereunder, certified by the Secretary or an Assistant Secretary of such Borrower as of the date on which such Loan is requested to be made, which certificate shall be in form and substance satisfactory to the Administrative Agent and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. (e) Incumbency Certificate. If such Loan is the initial Loan to a Foreign Subsidiary Borrower, the Administrative Agent shall have received, with a counterpart for each Lender, a certificate of such Borrower, dated the date on which such Loan is requested to be made, as to the incumbency and signature of the officers or representatives of such Borrower executing any Loan Document, satisfactory in form and substance to the Administrative Agent, executed by any Responsible Officer of such Borrower and the Secretary or any Assistant Secretary (or a duly authorized representative, if such representative is also a duty authorized officer of such Borrower or otherwise authorized by such Borrower). (f) Corporate Documents. If such Loan is the initial Loan to a Foreign Subsidiary Borrower, the Administrative Agent shall have received, with a counterpart for each Lender, true and complete copies of the organic documents of such Borrower, certified as of the date on which such Loan is required to be made as complete and correct copies thereof by the Secretary or an Assistant Secretary or a duly authorized representative of such Borrower. (g) Additional Matters. All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received such other documents and legal opinions in respect of any aspect or consequence of the transactions -74- 81 contemplated hereby or thereby as it shall reasonably request. Each borrowing of Revolving Credit Loans or Multicurrency Loans (other than any such Loans made on the Initial Revolving Credit Funding Date, to the extent the proceeds thereof are used solely to repay amounts outstanding under the Existing Credit Agreement) by a Borrower hereunder shall constitute a representation and warranty by the Company and such Borrower as of the date of such Loan that the conditions contained in this Section 8.05 have been satisfied. ARTICLE IX. AFFIRMATIVE COVENANTS From and after the Initial Revolving Credit Funding Date, each of the Company and, to the extent the covenants set forth below relate thereto, each Foreign Subsidiary Borrower, hereby covenants and agrees that so long as any of the Commitments remain in effect, any Note remains outstanding and unpaid or any other amount is owing to any Lender or the Administrative Agent hereunder, the Company or such Foreign Subsidiary Borrower, as applicable, will comply with the covenants set forth below in this Article IX: SECTION IX.01. Financial Statements. The Company will furnish to each Lender: (a) as soon as available, but in any event within 120 days after the end of each fiscal year of the Company, a copy of the consolidated balance sheet of the Company and its Subsidiaries as at the end of such year and the related consolidated statements of income and cash flows for such year, setting forth in each case in comparative form the figures for the previous year, certified without qualification or exception by independent public accountants of nationally recognized standing selected by the Company, it being understood and agreed that the delivery of the Company's Annual Report on Form 10-K for such fiscal year signed by a Responsible Officer will satisfy the requirement set forth in this clause; and (b) as soon as available, but in any event within 60 days after the end of each of the first three quarterly periods of each fiscal year of the Company, a copy of the unaudited consolidated condensed balance sheet of the Company and its Subsidiaries as at the end of each such quarter and the related unaudited consolidated condensed statements of income and cash flows of the Company and its Subsidiaries for the portion of the fiscal year through such date, setting forth in each case in comparative form such figures for the previous year, certified by a Responsible Officer, it being understood and agreed that the delivery of the Company's Quarterly Report on Form 10-Q for the relevant fiscal quarter signed by a Responsible Officer will satisfy the requirement set forth in this clause; all such financial statements to be complete and correct in all material respects and prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except for such changes in accounting principles as may be approved by such Responsible Officer and concurred in by the Company's independent public accountants and disclosed therein). -75- 82 SECTION IX.02. Certificates; Other Information. The Company will furnish to each Lender: (a) concurrently with each delivery of the financial statements referred to in Sections 9.01(a) and (b), a certificate of a Responsible Officer in the form of Exhibit F (i) stating that such officer has no knowledge of any Default or Event of Default except as specified in such certificate and (ii) showing in reasonable detail the calculations supporting such statement in respect of Sections 10.01, 10.02 and 10.03; (b) on or prior to February 28 of each year, a copy of the projections by the Company of the operating budget and cash flow budget of the Company and its Subsidiaries for the succeeding fiscal year, such projections to be accompanied by a certificate of a Responsible Officer to the effect that such projections have been prepared on a reasonable basis and in good faith, it being understood that no representation or warranty shall be deemed to be made concerning the projections and budgets and the assumptions on which they were based, except that as of the date on which such projections and budgets were generated, (a) they were based on the good faith assumptions of the management of the Company and (b) such assumptions were believed by such management to be reasonable; (c) promptly after the same are sent, copies of all financial statements and reports which the Company sends to its common or preferred stockholders as a class, and promptly after the same are filed, copies of all regular, periodic and special reports which the Company may file with the Securities and Exchange Commission or any successor or analogous Governmental Authority; (d) if requested by the Administrative Agent or by any Lender through the Administrative Agent, promptly after the same is furnished to PBGC, copies of all information furnished by the Company, any Subsidiary or any Commonly Controlled Entity to PBGC, except, in each case, information furnished as to ordinary operational aspects of the business of the Company or any Subsidiary and not relating to any deviation by the Company or any Subsidiary from rules and regulations of PBGC; and (e) promptly, such additional financial and other information as any Lender may from time to time reasonably request. SECTION IX.03. Accrual of Liabilities; Payment of Obligations. The Company will maintain, and cause each of its Subsidiaries to maintain, in accordance with GAAP, appropriate reserves for the accrual of taxes and all other obligations, liabilities and claims and pay, discharge or otherwise satisfy, and cause each of its Subsidiaries to pay, discharge or otherwise satisfy, at or before their maturity or before they become delinquent, as the case may be, all obligations except (a) where the same are being contested in good faith by appropriate proceedings diligently pursued or (b) where the failure so to pay, discharge or otherwise satisfy obligations would not, in the aggregate, reasonably be expected to have a Material Adverse Effect. SECTION IX.04. Maintenance of Corporate Existence; Maintenance of -76- 83 Properties. The Company will (a) maintain its corporate existence, rights and franchises necessary to continue its business and the corporate existence, rights and franchises necessary to continue the business of each of its Subsidiaries, provided that the foregoing shall not be a limitation (i) on the right of the Company to discontinue any operations if in the opinion of the Company such discontinuance is in the best interest of the Company and would not materially affect the ability of the Company to pay its debts as they become due, (ii) on asset sales permitted under Section 10.08 and (iii) on the right of any Subsidiary of the Company to merge with or be liquidated into the Company or another Subsidiary of the Company if a Default does not then exist and would not result therefrom; and (b) maintain, and cause each Subsidiary to maintain, the properties which are used or useful in its respective operations in good working order and condition. SECTION IX.05. Insurance. The Company will maintain, and cause each of its Subsidiaries to maintain, insurance with financially sound and reputable companies in such form and upon such terms and in such amounts and against such risks (including liability for bodily injury and property damage) and subject to such deductibles or retentions as in the reasonable opinion of the Company is available on commercially reasonable terms and will provide sound and reasonable protection for the Company's or such Subsidiary's assets and operations. At the Administrative Agent's request, the Company will furnish to the Administrative Agent (with copies for each Lender) certificates of insurance or other evidence that such insurance is being maintained. SECTION IX.06. Notices. The Company will (a) promptly give notice in writing to the Administrative Agent (which shall promptly notify each Lender) of the occurrence of any Default or Event of Default under this Agreement, or of the commencement of (i) any material litigation or proceedings affecting the Company or any Subsidiary or (ii) any dispute between the Company or any Subsidiary and any Governmental Authority or any other party if such litigation, proceedings or dispute could reasonably be expected to result in a Material Adverse Effect; and (b) as soon as possible and in any event within 45 days after the Company knows or has reason to know that any Reportable Event (other than a Reportable Event not subject to the provision for 30-day notice to PBGC pursuant to the regulations issued under ERISA) has occurred with respect to any Single Employer Plan or that PBGC or any Borrower or any Commonly Controlled Entity has instituted or will institute proceedings under Title IV of ERISA to terminate any Single Employer Plan, deliver to the Administrative Agent (which shall promptly notify each Lender) a certificate of a Responsible Officer of the Company setting forth details as to such Reportable Event and the action that the Company proposes to take with respect thereto, together with a copy of any notice of such Reportable Event that may be required to be filed with PBGC, or any notice delivered by PBGC evidencing its intent to institute such proceedings or any notice to PBGC that such Plan is to be terminated, as the case may be. For all purposes of clause (b) of this Section 9.06, the Company shall be deemed to have all knowledge or knowledge of all facts attributable to the administrator of a Single Employer Plan. SECTION IX.07. Compliance with Contractual Obligations and Laws. The Company will, and will cause each of its Subsidiaries to, comply with all provisions of any Contractual Obligation, applicable law, rule, regulation, order, writ, judgment, injunction, decree, award or ordinance to which it is subject, except to the extent that the failure to comply therewith -77- 84 could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. SECTION IX.08. Access to Books and Inspection. The Company shall keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and give the Administrative Agent and any reasonable number of representatives of the Lenders access, at the Company's principal office, upon reasonable notice during normal business hours to, and permit any such representatives to examine, copy or make excerpts from, any and all books, records and documents in the possession of the Company relating to its affairs and the affairs of the Subsidiaries, and to inspect any of the properties of the Company or the Subsidiaries. Notwithstanding any provision in this Section, the Company (i) shall be given a reasonable opportunity upon reasonable notice to have an officer or officers of the Company accompany any such representative during any such visit, and (ii) shall not be responsible for any expenses incurred by any such representative. SECTION IX.09. Use of Proceeds. The Borrowers shall use the proceeds of the Loans for the purposes specified in Section 6.13. SECTION .10. Environmental Laws. The Company will, and will cause each Subsidiary to, (a) comply with, and ensure compliance by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws except to the extent that the failure to do so, or any aggregation thereof, is not reasonably likely to result in the payment of a Material Environmental Amount, (b) conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings is not reasonably likely to result in the payment of a Material Environmental Amount and (c) defend, indemnify and hold harmless the Administrative Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Company, any of its Subsidiaries or the Properties, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, investigation and laboratory fees, response costs, court costs, litigation expenses and reasonable attorneys' and consultants' fees, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The agreements in clause (c) of this Section shall survive repayment of the Notes and all other amounts payable hereunder. SECTION .11. Additional Collateral and Guaranties. (a) With respect to any new Subsidiary (other than an Excluded Foreign -78- 85 Subsidiary) created or acquired after the Initial Revolving Credit Funding Date by the Company or any Domestic Subsidiary (which new Subsidiary, for the purposes of this paragraph (a), shall include any existing Subsidiary that ceases to be an Excluded Foreign Subsidiary and, at the request of the Administrative Agent, shall also include any Foreign Subsidiary (other than any Excluded Foreign Subsidiary) of the Company or any Domestic Subsidiary which is in existence on the Initial Revolving Credit Funding Date but does not execute a Subsidiary Guarantee on the Initial Revolving Credit Funding Date), the Company or its Subsidiaries, as applicable, shall promptly (i) execute and deliver to the Trustee such amendments to the applicable Pledge Agreement, or such additional Pledge Agreement, as the Administrative Agent deems necessary or advisable in order to grant to the Trustee, as security for the Secured Obligations secured under such Pledge Agreement, a perfected first priority security interest in the Capital Stock of such new Subsidiary which is owned by the Company or any of its Subsidiaries (other than an Excluded Foreign Subsidiary), (ii) deliver to the Trustee the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Company or such pledgor Subsidiary, as the case may be, or take such other perfection actions in respect of such Capital Stock as shall be reasonably requested by the Administrative Agent to perfect its security interest therein, (iii) cause such new Subsidiary (A) to become a party to the Security Agreement (if such Subsidiary is a Domestic Subsidiary) and a Subsidiary Guarantee and (B) to take such actions as shall be necessary or advisable to grant to the Trustee, as security for the Secured Obligations secured under the Security Agreement, a perfected first priority security interest in the Collateral described in the Security Agreement with respect to such new Subsidiary, including, without limitation, the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Security Agreement or by law or as may be reasonably requested by the Administrative Agent, and (iv) if reasonably requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (b) With respect to any new Excluded Foreign Subsidiary created or acquired after the Initial Revolving Credit Funding Date by the Company or any of its Domestic Subsidiaries, the Company or such Domestic Subsidiary, as applicable, shall promptly (i) execute and deliver to the Administrative Agent such amendments or supplements to the Pledge Agreement, or such other security documents, as the Administrative Agent deems necessary or advisable in order to grant to the Trustee, as security for the Secured Obligations secured under the Pledge Agreement, a perfected first priority security interest in the Capital Stock of such new Subsidiary which is owned by the Company or any of its Domestic Subsidiaries (provided that in no event shall more than 65% of the total outstanding Capital Stock of any such new Excluded Foreign Subsidiary be required to be so pledged), (ii) deliver to the Trustee the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the Company or such Subsidiary, as the case may be and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (c) Notwithstanding anything in this Section 9.11 to the contrary, (i) shares of the Capital Stock of Netherlands BV II and Netherlands BV IV shall not be required to be pledged -79- 86 hereunder, and shares of Capital Stock of any other Foreign Subsidiary shall not be required to be pledged hereunder to the extent that, in the good faith judgment of the Company, the pledging of such Capital Stock would result in adverse tax consequences to the Company or would be unlawful and (ii) so long as the Existing Accounts Receivable Financing Program is in effect, the Receivables Subsidiary shall not be required to become a party to a Subsidiary Guarantee or to create a security interest in any of its assets. SECTION .12. Interest Rate Protection. The Company shall, within six months after the Initial Term Loan Funding Date, obtain interest rate protection in respect of the amount, if any, of the floating rate indebtedness of the Company and it Subsidiaries in excess of $1,000,000,000, for periods and pursuant to terms and conditions reasonably acceptable to the Administrative Agent. SECTION .13. Consummation of Compulsory Acquisition. As promptly as reasonably practicable after the Initial Term Loan Funding Date, the Company shall cause U.K. Acquisition II to consummate the Compulsory Acquisition in respect of the Target Shares, and related Options, not already owned by U.K. Acquisition II. SECTION .14. Capital Markets Transaction. The Company shall use its best efforts to consummate as promptly as practicable after the Effective Date one or more public offerings or private placements of debt or equity securities yielding net proceeds in an aggregate amount sufficient to prepay in full the Interim Term Loans. SECTION .15. U.K. Acquisition I Corporate Documents. (a) As soon as practicable after the Initial Revolving Credit Funding Date, the Company shall deliver to the Administrative Agent, with a counterpart or copy for each Lender, the following documents, certified as complete and correct copies thereof by the Secretary or an Assistant Secretary or a duly authorized representative of U.K Acquisition I, in each case in form and substance satisfactory to the Administrative Agent: (i) the statutory declaration of each member of the Board of Directors of U.K. Acquisition I; (ii) the auditor's report in respect of U.K. Acquisition I; (iii) the resolutions of the Board of Directors of U.K. Acquisition I authorizing the execution, delivery and performance of the Loan Documents to which it is or is required to be a party (including a U.K. Acquisition I Guarantee in respect of all obligations of the Borrowers hereunder without limitation as to amount), certified by the Secretary or an Assistant Secretary of U.K. Acquisition I, which certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded; and (iv) such other documents as shall be required to effect and evidence an exemption from the financial assistance requirements of Section 151 of the Companies Act. -80- 87 (b) Promptly upon the completion of steps set forth in paragraph (a) above, the Company shall cause U.K. Acquisition I to (i) execute and deliver to the Administrative Agent the U.K. Acquisition I Guarantee and the U.K. Acquisition II Share Mortgage, (ii) deliver to the Trustee the certificates representing shares of Capital Stock of U.K. Acquisition II charged pursuant to the U.K. Acquisition II Share Mortgage, together with undated stock transfer forms in blank, executed and delivered by a duly authorized officer of U.K. Acquisition I, or take such other perfection actions in respect of such Capital Stock as shall be reasonably requested by the Administrative Agent to perfect its security interest therein and (iii) deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. ARTICLE X. NEGATIVE COVENANTS From and after the Initial Revolving Credit Funding Date, the Company hereby covenants and agrees that so long as any of the Commitments remain in effect, any Loan remains outstanding and unpaid or any other amount is owing to any Lender or the Administrative Agent hereunder, the Company will comply with the covenants set forth below in this Article X (provided, that from and after the Covenant Transition Date, the covenants set forth below in this Article X will be deemed replaced by the covenants set forth in Annex B and cross references to Article X of the Credit Agreement contained in the Loan Documents will be modified accordingly): SECTION X.01. Cash Flow Coverage. The Company will not permit the Cash Flow Coverage for any period of four consecutive fiscal quarters ending during any period set forth below to be less than the ratio set forth below for such period:
Period Cash Flow Coverage ------ ------------------ Initial Measurement Date - December 30, 1998 1.2 to 1.0 December 31, 1998 and 1.50 to 1.0 thereafter
SECTION X.02. Consolidated Leverage Ratio. The Company will not permit the Consolidated Leverage Ratio at the last day of any fiscal quarter ending during any period set forth below to be greater than the ratio set forth below for such period:
Period Consolidated Leverage Ratio ------ --------------------------- Initial Measurement Date - 5.25 to 1.0 December 30, 1998 December 31, 1998 - 4.50 to 1.0 December 30, 1999 December 31, 1999 - 4.00 to 1.0
-81- 88 December 30, 2000 December 31, 2000 and 3.50 to 1.0 thereafter
SECTION X.03. Maintenance of Consolidated Net Worth. The Company will not permit Consolidated Net Worth at any time to be less than $270,000,000. SECTION X.04. Limitation on Liens. The Company will not, nor will it permit any of its Subsidiaries to, create, assume or incur or suffer to be created, assumed or incurred or to exist any Lien on any of its properties or assets, whether now owned or hereafter acquired, provided, however, that the foregoing restriction shall not apply to the following: (a) Liens existing on the date of this Agreement and described on Schedule III, and Liens on assets of the Target and its Subsidiaries existing on the date of consummation of the Acquisition; (b) Liens on property or assets of any corporation existing at the time such corporation becomes a Subsidiary and not created in contemplation thereof; (c) Liens in favor of the Company or any Wholly Owned Subsidiary; (d) Liens in favor of any Governmental Authority to secure progress, advance or other payments pursuant to any contract or provision of any statute; (e) Liens (including, without limitation, the interest of the lessor under any capital lease) on property or assets existing at the time of the acquisition thereof (including acquisition through merger or consolidation) or to secure the payment of all or any part of the purchase price or construction cost thereof or to secure any Indebtedness incurred prior to, at the time of, or within six months after, the acquisition or completion of such property or assets for the purpose of financing all or any part of the purchase price or construction cost thereof; (f) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Lien referred to in the foregoing clauses (a) through (e), inclusive; provided that (i) no such extension, renewal or replacement shall result in an increase in the liabilities secured thereby and (ii) such extension, renewal or replacement Lien shall be limited to all or a part of the same property that secured the Lien so extended, renewed or replaced (plus additions, accessions, replacements and improvements to such property); (g) Liens for taxes not yet due or which are being contested in good faith and by appropriate proceedings diligently pursued if adequate reserves with respect thereto are maintained on the books of the Company or such Subsidiary, as the case may be, in accordance with GAAP or in the case of a Subsidiary located outside the United States, general accounting principles in effect from time to time in their respective jurisdictions -82- 89 of incorporation; (h) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other like Liens arising in the ordinary course of business (A) which are not overdue for a period of more than 60 days or (B) which are being contested in good faith and by appropriate proceedings diligently pursued if adequate reserves with respect thereto are maintained on the books of the Company or such Subsidiary, as the case may be, in accordance with GAAP; (i) easements, rights-of-way, zoning and similar restrictions and other similar encumbrances or title defects incurred in the ordinary course of business which, in the aggregate, are not greater than $15,000,000 (to the extent the dollar values of such encumbrances are calculable) and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Company or its Subsidiaries; (j) any attachment or judgment lien, unless the judgment it secures shall not, within 30 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 30 days after the expiration of any such stay; (k) pledges or deposits in connection with workers' compensation, unemployment insurance and other social legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; (l) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (m) liens created pursuant to the Security Documents; (n) other Liens incidental to the conduct of the Company's or any Subsidiary's business or the ownership of its property and assets that were incurred in connection with the borrowing of money or the obtaining of advances or credit or capital leases; provided, however, that the indebtedness secured thereby does not exceed in the aggregate for the Company and all Subsidiaries of the Company an amount equal to $50,000,000; and provided, further, that at no time shall the sum of (i) the Indebtedness secured by the Liens permitted under this Section 10.04(n) plus (ii) all other Indebtedness of the Company's Subsidiaries (other than Subsidiaries which are parties to a Subsidiary Guarantee) plus (iii) the aggregate amount of Secured Reimbursement Obligations be equal to or greater than forty percent (40%) of Consolidated Net Worth (determined as of the most recent fiscal quarter of the Company); and (o) Liens granted by a special-purpose, Wholly Owned Subsidiary of the Company that purchases accounts receivable from the Company and its Subsidiaries to the extent such Liens are granted on such accounts receivable to secure the payment of -83- 90 indebtedness of such Wholly Owned Subsidiary. SECTION X.05. Limitation on Indebtedness. The Company will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness of any Loan Party pursuant to any Loan Document; (b) Indebtedness of the Company to any Subsidiary and of any Subsidiary which is a party to a Subsidiary Guarantee to the Company or any other Subsidiary; (c) (i) Indebtedness of the Special Purpose Subsidiaries described in Schedule 6.13, (ii) additional Indebtedness of Excluded Foreign Subsidiaries to the Company or any Subsidiary which is a party to a Subsidiary Guarantee in an aggregate principal amount not exceeding $100,000,000 at any time outstanding, (iii) Indebtedness of any Subsidiary which is not a party to a Subsidiary Guarantee owing to any other Subsidiary which is not a party to a Subsidiary Guarantee and (iv) Indebtedness in the form of any investment permitted by Section 10.11; (d) Indebtedness of the Company having a weighted average life longer than the combined weighted average life of the Tranche A Term Loans and the Tranche B Term Loans and a final maturity after the final maturity of the Tranche B Term Loans, the proceeds of which are used to prepay the Term Loans; (e) Subordinated Debt (i) incurred after the prepayment in full of the Interim Term Loans or (ii) the proceeds of which are used to prepay (A) the Interim Term Loans or, (B) so long as no Default or Event of Default is in existence, the Senior Subordinated Debt; (f) Indebtedness secured by Liens permitted by Section 10.04(e), including capital lease obligations, in an aggregate principal amount not to exceed $50,000,000 at any one time outstanding and any refinancings, refundings, renewals or extensions thereof (without any increase in the principal amount thereof); (g) Indebtedness outstanding on the date hereof and listed on Schedule IV and any refinancings, refundings, renewals or extensions thereof (without any increase in the principal amount thereof), and Indebtedness of the Target and its Subsidiaries outstanding on the date of consummation of the Acquisition, but not any refinancings, refundings, renewals or extensions thereof; (h) additional Indebtedness of the Company or any of its Subsidiaries in an aggregate principal amount (for the Company and all Subsidiaries) at any one time outstanding not to exceed forty percent (40%) of Consolidated Net Worth (determined as of the end of the most recent fiscal quarter of the Company); and (i) the Senior Subordinated Debt. -84- 91 SECTION X.06. Limitation on Guaranties. The Company will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Guaranty except: (a) Guaranties in existence on the date hereof and listed on Schedule IV and Guaranties of any refinancings, refundings, renewals or extensions of the Indebtedness or obligations guaranteed thereby, provided that the amount of such Indebtedness or obligations are not increased, and Guaranties of the Target and its Subsidiaries in existence on the date of consummation of the Acquisition; (b) the Subsidiary Guarantees; (c) Guaranties of Indebtedness permitted under clauses (a) through (f) and clause (h) of Section 10.05; (d) additional Guaranties in respect of Indebtedness and other obligations not exceeding $10,000,000 at any time outstanding; (e) Guaranties of the Loan Parties in respect of the Senior Subordinated Debt in accordance with the Senior Subordinated Loan Documentation; and (f) Guaranties of the Loan Parties in respect of Subordinated Debt which Guaranties shall have subordination terms acceptable to the Administrative Agent, acting reasonably. SECTION X.07. Limitation on Fundamental Changes. The Company will not, and will not permit any of its Subsidiaries to, enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of all or substantially all of its Property or business, or make any material change in its present method of conducting business, except: (a) any Subsidiary of the Company may be merged or consolidated with or into the Company (provided that the Company shall be the continuing or surviving corporation) or with or into any Subsidiary which is a party to a Subsidiary Guarantee (provided that such Subsidiary which is a party to a Subsidiary Guarantee shall be the continuing or surviving corporation) and any Subsidiary of the Company which is not a party to a Subsidiary Guarantee may be merged or consolidated with or into any other Subsidiary which is not a party to a Subsidiary Guarantee; (b) any Subsidiary of the Company may Dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or any Subsidiary which is a party to a Subsidiary Guarantee, and any Subsidiary of the Company which is not a party to a Subsidiary Guarantee may Dispose of assets to any other Subsidiary which is not a party to a Subsidiary Guarantee; and (c) Dispositions permitted by Section 10.08(a), (d), (e), (f), (g), (i) and (j). -85- 92 SECTION X.08. Limitation on Sale of Assets. The Company will not, and will not permit any of its Subsidiaries to, Dispose of any of its Property or business (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any Person, except: (a) the Disposition of obsolete or worn out property in the ordinary course of business; (b) the sale of inventory in the ordinary course of business; (c) Dispositions permitted by Section 10.07(a) and (b) or Section 10.11; (d) the sale or issuance of the Capital Stock of any Subsidiary which is a party to a Subsidiary Guarantee to the Company or any Subsidiary, or the sale or issuance of Capital Stock of any Foreign Subsidiary to any other Foreign Subsidiary; (e) sales of receivables under the Company's existing accounts receivable financing program as in effect on September 26, 1997; (f) Dispositions of assets required to comply with anti-trust laws; (g) Dispositions of assets listed in Schedule 10.8; (h) Dispositions pursuant to sale and leaseback transactions permitted pursuant to Section 10.13; (i) the Transactions described in Section 10.10 (prior to the Covenant Transition Date) or Section 10.13 (after the Covenant Transition Date) may be consummated; and (j) the sale of other assets having a fair market value not to exceed $80,000,000 in the aggregate for any fiscal year of the Company. SECTION X.09. Limitation on Restricted Payments. The Company will not, and will not permit any of its Subsidiaries to, declare or pay any dividend (other than dividends payable solely in common stock of the Person making such dividend) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of Capital Stock of the Company or any Subsidiary or any warrants or options to purchase any such Capital Stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Company or any Subsidiary (collectively, "Restricted Payments"), except that: (a) any Subsidiary may make Restricted Payments to the Company or any Subsidiary which is a party to a Subsidiary Guarantee, and any Foreign Subsidiary may -86- 93 make Restricted Payments to any Foreign Subsidiary; (b) so long as no Default or Event of Default shall have occurred and be continuing, the Company may pay dividends in respect of its preferred stock at the stated rate, and dividends in respect of its common stock at a rate not exceeding $.48 per share per year, as adjusted for stock splits and similar events; and (c) the Company may issue common stock upon conversion of any of its convertible preferred stock, or the preferred stock of an Affiliate described in the second sentence of the definition of "Capital Stock". SECTION .10. Restrictions on Special Purpose Subsidiaries. The Company will not permit any Special Purpose Subsidiary to (a) create, assume, incur or suffer to exist any Lien, any Indebtedness, any Guaranty or any other liabilities, direct or contingent, (b) make or suffer to exist any Investment, (c) conduct, transact or otherwise engage in any business or other operations or (d) own or lease any Property, except that, notwithstanding the foregoing prohibitions: (i) a Special Purpose Subsidiary may make an Investment in the form of a loan or an equity contribution to, or hold the Capital Stock of, another Special Purpose Subsidiary (x) as described on Schedule 6.13 or (y) which does not have an adverse impact on the Collateral; (ii) U.K. Acquisition II may consummate the Acquisition; (iii) following consummation of the Acquisition, U.K. Acquisition I may acquire directly from the Target or indirectly through U.K. Acquisition II, for fair market value, up to 100% of the Capital Stock of Target U.S. Subsidiary; (iv) the Special Purpose Subsidiaries may execute and deliver the Loan Documents to which they are parties, incur and perform their obligations thereunder and create and suffer to exist the Liens created thereby; and (v) the Special Purpose Subsidiaries may perform obligations under the Investments permitted above and under their respective organic documents and other Requirements of Law, may incur obligations to Governmental Authorities in the ordinary course of business, such as income and franchise tax liabilities and other incidental liabilities, and may incur other immaterial liabilities directly related and incidental to the permitted activities enumerated above. To the extent permitted by applicable law, the certificate of incorporation or other charter or other organizational documents of each Special Purpose Subsidiary shall contain the restrictions on the actions of such Special Purpose Subsidiary substantially equivalent to those set forth above. SECTION .11. Limitation on Investments, Loans and Advances. The Company -87- 94 will not, and will not permit any of its Subsidiaries to, make any advance, loan, extension of credit (by way of guaranty of obligations of such Person or otherwise) or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting all or a material part of a business unit of, or make any other investment in, any Person ("Investments"), except: (a) extensions of trade credit in the ordinary course of business; (b) Investments in Cash Equivalents; (c) Guaranties permitted by Section 10.06; (d) loans and advances to employees of the Company or its Subsidiaries in the ordinary course of business (including, without limitation, for travel, entertainment and relocation expenses); (e) the Acquisition; (f) Investments made by the Company or any of its Subsidiaries with the proceeds of any Reinvestment Deferred Amount (provided that if such investment is the acquisition of, in a single transaction or in a series of related transactions, all or substantially all of the equity interests of any Person, such acquisition is approved by the board of directors or analogous governing body of such Person); (g) Investments (x) by any Subsidiary in the Company or (y) by the Company or any of its Subsidiaries in any Person that, prior to such investment, is a Subsidiary which is a party to a Subsidiary Guarantee; (h) the Investments described in Section 10.10 or otherwise indicated on Schedule 6.13; (i) Investments (x) by the Company or any of its Subsidiaries in any entity which at the time of such Investment is an Excluded Foreign Subsidiary and which was not acquired or created in anticipation of the making of such Investment in an aggregate amount outstanding not exceeding $100,000,000 for all Excluded Foreign Subsidiaries, and (y) investments by a Subsidiary which is not a party to a Subsidiary Guarantee in any other Subsidiary which is not a party to a Subsidiary Guarantee; (j) Investments for which the consideration paid by the Company and its Subsidiaries is Capital Stock of the Company (provided that if such Investment is the acquisition of, in a single transaction or in a series of related transactions, all or substantially all of the equity interests of any Person, such acquisition is approved by the board of directors or analogous governing body of such Person); and (k) in addition to Investments otherwise expressly permitted by this Section 10.11, Investments by the Company or any of its Subsidiaries in an aggregate amount -88- 95 (valued at cost) not to exceed at any time outstanding $150,000,000 while this Agreement is outstanding (provided that if such Investment is the acquisition of, in a single transaction or in a series of related transactions, all or substantially all of the equity interests of any Person, such acquisition is approved by the board of directors or analogous governing body of such Person). SECTION .12. Limitation on Optional Payments and Modifications of Debt Instruments, etc. (a) Except as provided in Section 6.04(d) and 10.05(e), the Company will not, and will not permit any of its Subsidiaries to, make or offer to make any payment, prepayment, repurchase or redemption of or otherwise defease or segregate funds with respect to the Subordinated Debt (other than scheduled interest payments required to be made in cash) or (b) amend, modify, waive or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of the Subordinated Debt (other than any such amendment, modification, waiver or other change which would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or extend the date for payment of interest thereon). Notwithstanding the foregoing, the Senior Subordinated Bridge Loans may be refinanced and replaced by the Exchange Notes and the Senior Subordinated Term Notes. SECTION .13. Limitation on Sales and Leasebacks. Enter into any arrangement with any Person providing for the leasing by the Company or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Company or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Company or such Subsidiary; provided, that (i) the Company may consummate sale and leaseback transactions in respect of assets having a book value in the aggregate not exceeding $50,000,000 and (ii) the Company and its Subsidiaries may consummate sale and leaseback transactions in which the transferee is the Company or a Subsidiary which is a party to a Subsidiary Guarantee and any Subsidiary which is not a party to a Subsidiary Guarantee may consummate sale and leaseback transactions in which the transferor is another Subsidiary which is not a party to a Subsidiary Guarantee. SECTION .14. Limitation on Restrictions on Subsidiary Distributions. The Company will not, and will not permit any Subsidiary to, enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary of the Company to (a) pay dividends or make any other distributions in respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness owed to, the Company or any other Subsidiary of the Company, (b) make loans or advances to the Company or any other Subsidiary of the Company or (c) transfer any of its assets to the Company or any other Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents, (ii) any restrictions with respect to a Subsidiary imposed pursuant to an agreement which has been entered into in connection with the Disposition of all or substantially all of the Capital Stock or assets of such Subsidiary and (iii) any restrictions with respect to assets encumbered by a Lien permitted by Section 10.04 so long as such restriction applies only to the asset encumbered by such permitted Lien. -89- 96 SECTION .15. Multiemployer Plans. The Company will not, as of any date, permit any liability to occur to which the Company or any Commonly Controlled Entity would become subject under ERISA if the Company or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding such date. SECTION .16. Limitation on More Restrictive Covenants. The Company shall not enter into any new debt agreement that would contain, nor enter into any amendment, supplement or other modification to any indenture, instrument or other agreement concerning the Funded Debt or any refinancing thereof, if such indenture, instrument or other agreement at the time entered into or after giving effect to any such amendment, supplement or other modification thereto, would contain (a) any covenant or event of default that is more restrictive on any Borrower than those set forth in this Agreement, (b) with respect to the Company, any covenant with respect to financial performance the scope of which is materially different from the covenants respecting such matters set forth in Sections 10.01, 10.02 or 10.03, (c) any covenant which would prohibit the granting of liens on its assets by any Borrower or its Subsidiaries in favor of the Lenders, other than, in the case of this clause (c), Indebtedness incurred pursuant to Section 10.05(f), and in the case of clauses (a) and (c), Indebtedness incurred pursuant to Section 10.05(g) constituting a refinancing, refunding, extension or renewal of existing Indebtedness and having terms no more restrictive than the Indebtedness refinanced, refunded, extended or renewed thereby. SECTION .17. Affiliates. The Company, will not, nor will it permit any of its Subsidiaries to, enter into any transaction (including, without limitation, the purchase or sale of any property or service) with, or make any payment or transfer to, any Affiliate except in the ordinary course of business and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than the Company or such Subsidiary would obtain in a comparable arms-length transaction. ARTICLE XI. GUARANTEE SECTION XI.01. Guarantee. (a) The Company hereby unconditionally and irrevocably guarantees to the Administrative Agent, for the ratable benefit of the Administrative Agent and the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Foreign Subsidiary Borrowers and the Local Currency Borrowers when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations. (b) The Company further agrees to pay any and all expenses (including, without limitation, all reasonable fees and disbursements of counsel) which may be paid or incurred by the Administrative Agent, or any Lender in enforcing, or obtaining advice of counsel in respect of, any rights with respect to, or collecting, any or all of the Obligations and/or enforcing any rights with respect to, or collecting against, the Company under this Section. This Section shall remain in full force and effect until the Obligations are paid in full and the Commitments are -90- 97 terminated, notwithstanding that from time to time prior thereto the Borrowers and the Local Currency Borrower may be free from any Obligations. (c) No payment or payments made by any Borrower or Local Currency Borrower or any other Person or received or collected by the Administrative Agent or any Lender from any Borrower or Local Currency Borrower or any other Person by virtue of any action or proceeding or any set-off or appropriation or application, at any time or from time to time, in reduction of or in payment of the Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of the Company hereunder which shall, notwithstanding any such payment or payments, remain liable hereunder for the Obligations until the Obligations are paid in full and the Commitments are terminated. (d) The Company agrees that whenever, at any time, or from time to time, it shall make any payment to the Administrative Agent or any Lender on account of its liability under this Section, it will notify the Administrative Agent and such Lender in writing that such payment is made under this Section for such purpose. SECTION XI.02. Right of Set-off. The Administrative Agent and each Lender is hereby irrevocably authorized at any time and from time to time without notice to the Company, any such notice being expressly waived by the Company, to set off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Administrative Agent or such Lender (or any Affiliate of such Lender) to or for the credit or the account of the Company, or any part thereof in such amounts as the Administrative Agent or such Lender may elect, against or on account of the obligations and liabilities of the Company to the Administrative Agent or such Lender hereunder which are then due and payable and claims of every nature and description of the Administrative Agent or such Lender against the Company, in any currency, whether arising hereunder, under any other Loan Document or otherwise in connection therewith, as the Administrative Agent or such Lender may elect, whether or not the Administrative Agent or such Lender has made any demand for payment. The Administrative Agent and each Lender shall notify the Company promptly of any such set-off and the application made by the Administrative Agent or such Lender, as the case may be, of the proceeds thereof; provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Administrative Agent and each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Administrative Agent or such Lender may have. SECTION XI.03. No Subrogation. Notwithstanding any payment or payments made by the Company hereunder, or any set-off or application of funds of the Company by the Administrative Agent or any Lender, the Company shall not be entitled to be subrogated to any of the rights of the Administrative Agent or any Lender against the Foreign Subsidiary Borrowers or Local Currency Borrowers or against any collateral security or guarantee or right of offset held by the Administrative Agent or any Lender for the payment of the Obligations, nor shall the Company seek or be entitled to seek any contribution or reimbursement from such Borrowers in respect of payments made by the Company hereunder, until all amounts owing to -91- 98 the Administrative Agent and the Lenders by such Borrowers on account of the Obligations are paid in full and the Commitments are terminated. If any amount shall be paid to the Company on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by the Company in trust for the Administrative Agent and the Lenders, segregated from other funds of the Company, and shall, forthwith upon receipt by the Company, be turned over to the Administrative Agent in the exact form received by the Company (duly indorsed by the Company to the Administrative Agent, if required), to be applied against the Obligations, whether matured or unmatured, in such order as Administrative Agent may determine. The provisions of this Section shall survive the termination of this Agreement and the payment in full of the Obligations and the termination of the Commitments. SECTION XI.04. Amendments, etc. with respect to the Obligations; Waiver of Rights. The Company shall remain obligated hereunder notwithstanding that, without any reservation of rights against the Company, and without notice to or further assent by the Company, any demand for payment of any of the Obligations made by the Administrative Agent or any Lender may be rescinded by the Administrative Agent or such Lender, and any of the Obligations continued, and the Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any Lender, and any Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, in accordance with the provisions thereof as the Administrative Agent (or the requisite Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Administrative Agent or any Lender for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. None of the Administrative Agent or any Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Obligations or for this Agreement or any property subject thereto. When making any demand hereunder against the Company, the Administrative Agent or any Lender may, but shall be under no obligation to, make a similar demand on any Borrower or any other guarantor, and any failure by the Administrative Agent or any Lender to make any such demand or to collect any payments from any Foreign Subsidiary Borrower or Local Currency Borrower or any such other guarantor or any release of any Foreign Subsidiary Borrower or Local Currency Borrower or such other guarantor shall not relieve the Company of its obligations or liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of the Administrative Agent or any Lender against the Company. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. SECTION XI.05. Guarantee Absolute and Unconditional. The Company waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon this Agreement or acceptance of this Agreement; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon this Agreement; and all dealings between the Foreign Subsidiary Borrower and the Local Currency Borrowers and the Company, on the one hand, and the Administrative Agent and the -92- 99 Lenders, on the other, shall likewise be conclusively presumed to have been had or consummated in reliance upon this Agreement. The Company waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Foreign Subsidiary Borrowers and the Local Currency Borrowers and the Company with respect to the Obligations. This Article XI shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity, regularity or enforceability of this Agreement, any other Loan Document, any of the Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any Lender, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Foreign Subsidiary Borrowers or the Local Currency Borrowers against the Administrative Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Foreign Subsidiary Borrowers or the Local Currency Borrowers or the Company) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Foreign Subsidiary Borrowers or the Local Currency Borrowers for the Obligations, or of the Company under this Article XI, in bankruptcy or in any other instance. When pursuing its rights and remedies hereunder against the Company, the Administrative Agent and any Lender may, but shall be under no obligation to, pursue such rights and remedies as it may have against the Foreign Subsidiary Borrowers or the Local Currency Borrowers or any other Person or against any collateral security or guarantee for the Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any Lender to pursue such other rights or remedies or to collect any payments from the Foreign Subsidiary Borrowers or the Local Currency Borrowers or any such other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Foreign Subsidiary Borrowers or the Local Currency Borrowers or any such other Person or of any such collateral security, guarantee or right of offset, shall not relieve the Company of any liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent or any Lender against the Company. This Article XI shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the Company and its successors and assigns, and shall inure to the benefit of the Administrative Agent and the Lenders, and their respective successors, indorsees, transferees and assigns, until all the Obligations and the obligations of the Company under this Agreement shall have been satisfied by payment in full and the Commitments shall be terminated, notwithstanding that from time to time during the term of this Agreement the Foreign Subsidiary Borrowers or the Local Currency Borrowers may be free from any Obligations. SECTION XI.06. Reinstatement. This Article XI shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Foreign Subsidiary Borrower or the Local Currency Borrower or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, any Foreign Subsidiary Borrower or the Local Currency Borrower or any substantial part of its property, or otherwise, all as though such payments had not been made. SECTION XI.07. Payments. The Company hereby agrees that all payments -93- 100 required to be made by it hereunder will be made to the Administrative Agent without set-off or counterclaim in accordance with the terms of the Obligations, including, without limitation, in the currency in which payment is due. ARTICLE XII. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) Any Borrower shall fail to pay any principal of any Loan made to it when due in accordance with the terms hereof; or any Borrower shall fail to pay any interest, or any other amount payable by it hereunder, within five days after any such interest or other amount becomes due in accordance with the terms hereof; or (b) Any representation or warranty made or deemed made by any Borrower herein or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement or under or in connection with the Senior Subordinated Loan Documentation shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) Any Borrower shall default in the observance or performance of any agreement contained in Sections 9.04(a) or 9.06 or Article X; or (d) Any Borrower shall default in the observance or performance of any other agreement contained in this Agreement (other than as provided in paragraphs (a) through (c) of this Article), and such default shall continue unremedied for a period of 30 days after receipt by such Borrower of notice of such default from the Administrative Agent or any Lender; or (e) The Company or any of its Subsidiaries shall (i) default in any payment or payments of principal or interest in an aggregate amount for the Company and its Subsidiaries of more than $10,000,000 (or its equivalent in another currency) at any one time on any Indebtedness (other than the Loans) or in the payment of more than $10,000,000 in the aggregate under any Guaranties (other than the Company Guaranty), beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness or Guaranty was created; or (ii) default in the observance or performance of any other agreement or condition relating to any Indebtedness (other than the Loans) the principal amount of which exceeds $10,000,000 in the aggregate for the Company and its Subsidiaries or any Guaranty (other than the Company Guaranty) guaranteeing Indebtedness the principal amount of which exceeds $10,000,000 in the aggregate for the Company and its Subsidiaries or contained in any instrument or agreement evidencing, securing or relating to any such Indebtedness or Guaranty, beyond any applicable period of grace (not to exceed 30 days), or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Guaranty (or a trustee or agent on behalf of such holder or holders -94- 101 or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Guaranty to become payable; or (f) (i) Any Borrower or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or any Borrower or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against any Borrower or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against any Borrower or any of its material Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) any Borrower or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) any Borrower or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (i) Any Person shall engage in any Prohibited Transaction involving any Plan, (ii) any Accumulated Funding Deficiency, whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of any Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) any Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or (h) One or more judgments or decrees shall be entered against the Company or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by -95- 102 insurance as to which the insurance carrier has admitted liability) of $30,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or (i) The validity or enforceability of this Agreement, any Loan Document or any of the other documents required to be delivered in connection herewith shall be challenged by the Company or any of its Subsidiaries or shall fail to remain in full force and effect for any reason other than in accordance with its express terms; or (j) A Change of Control shall occur; or (k) The subordination provisions of any Subordinated Debt shall cease, for any reason, to be valid or any Loan Party shall so assert in writing; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Company, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Company declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Company, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable, provided, that, notwithstanding the foregoing, during the Term Loan Commitment Period (x) if the applicable conditions precedent to any Term Loan set forth in Article VIII are satisfied, no such declaration under clause (B)(i) or (B)(ii) above shall relieve the Lenders of their obligations to make such Term Loan, (y) no acceleration of the Loans under clause (B)(i) or (B)(ii) above shall apply to any outstanding Term Loans until the end of the Term Loan Commitment Period and, in any event, no acceleration of the Loans under clause (B)(i) or (B)(ii) above shall apply to any amount of outstanding Term Loans (whether such Term Loans were made before or after such acceleration) to the extent that the proceeds thereof have not been disbursed to pay Target Shareholders or Optionholders for the purchase of Target Shares or Options pursuant to the Tender Offer (such undisbursed proceeds, "Acquisition Funds") and (z) neither the Administrative Agent nor any Lender will take any enforcement action against any Acquisition Funds or otherwise seek to prevent the disbursement of any Acquisition Funds to pay Target Shareholders or Optionholders for the purchase of Target Shares or Options pursuant to the Tender Offer. Except as expressly provided above in this Article, presentment, demand, protest and all other notices of any kind are hereby expressly waived. -96- 103 ARTICLE XIII. THE ADMINISTRATIVE AGENT SECTION XIII.01. Appointment. Each Lender hereby irrevocably designates and appoints Chase as the Administrative Agent of such Lender under this Agreement and the other Loan Documents, and each Lender irrevocably authorizes Chase to act as the Administrative Agent of such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. SECTION XIII.02. Delegation of Duties. The Administrative Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. SECTION XIII.03. Exculpatory Provisions. Neither the Administrative Agent nor any of its respective officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its or such Person's gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Borrower or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of a Borrower to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document or to inspect the properties, books or records of the Borrowers. SECTION XIII.04. Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrowers or any of them), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment or transfer thereof shall have been filed with the -97- 104 Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. SECTION XIII.05. Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or a Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. SECTION XIII.06. Non-Reliance on Agents and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by the Administrative Agent hereafter taken, including any review of the affairs of a Loan Party or any affiliate of a Loan Party, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall have no duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Loan Party or any affiliate of a Loan Party which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. -98- 105 SECTION XIII.07. Indemnification. The Lenders agree to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by the Borrowers and without limiting the obligation of the Borrowers to do so), ratably according to their respective Revolving Credit Percentages, Tranche A Term Loan Percentages, Tranche B Term Loan Percentages and Interim Term Loan Percentages in effect on the date on which indemnification is sought under this Section 13.07 (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with such Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements which resulted from the Administrative Agent's gross negligence or willful misconduct. The agreements in this Section 13.07 shall survive the payment of the Loans and all other amounts payable hereunder. SECTION XIII.08. Administrative Agent in Its Individual Capacity. The Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with any Loan Party as though the Administrative Agent were not the Administrative Agent. With respect to its Loans made or renewed by it the Administrative Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. SECTION XIII.09. Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 30 days' notice to the Lenders and the Company. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successors agent for the Lenders, which successor agent shall (unless an Event of Default under paragraph (a) or (f) of Article XII with respect to the Company shall have occurred and be continuing) be approved by the Company (which approval shall not be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 30 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided -99- 106 for above. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Article XIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents. SECTION .10. Authorization to Release Liens. The Administrative Agent is hereby irrevocably authorized by each of the Lenders to release, or direct the Trustee to release, any Lien created by any Security Document covering any Property of the Company or any of its Subsidiaries that is the subject of a Disposition which is permitted by this Agreement or which has been consented to in accordance with Section 14.01. In addition, the Administrative Agent is hereby authorized by each of the Lenders to release, and to direct the Trustee to release, the Liens on the Collateral on the Collateral Release Date. ARTICLE XIV. MISCELLANEOUS SECTION XIV.01. Amendments and Waivers. (a) Neither this Agreement or any other Loan Document, nor any terms hereof or thereof may be amended, supplemented, waived or modified except in accordance with the provisions of this Section 14.01. The Required Lenders may, or, with the written consent of the Required Lenders, the Administrative Agent may, from time to time, (i) enter into with the relevant Loan Parties written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights or obligations of the Lenders or of the Loans Parties hereunder or thereunder or (ii) waive at the Loan Parties' request, on such terms and conditions as the Required Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall: (_)(_)(A) reduce the amount or extend the scheduled date of maturity of any Loan or any scheduled installment thereof, or reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof or increase the amount or extend the expiration date of any Lender's Commitment, in each case without the consent of each Lender affected thereby; (B) amend, supplement, modify or waive any provision of this Section 14.01 or reduce the percentages specified in the definition of "Required Lenders", "Required Prepayment Lenders" or "Majority Facility Lenders" or consent to the assignment or transfer by any Borrower of any of its rights and obligations under this Agreement and the other Loan Documents or release the Company from its obligations under the Company Guaranty, in each case without the consent of all the Lenders; (C) release all or substantially all of the Collateral (except as provided in Sections 13.10 and 14.17) or all or substantially all of the guarantors under the Subsidiary Guarantees, in each case without the consent of all the Lenders; or -100- 107 (D) amend, supplement, modify or waive any provision of Section 2.06, 2.07, 2.08, 2.09 or 2.10 or any other provision of this Agreement governing the rights and obligations of the Swing Line Lender, or the definitions used therein, without the consent of the Swing Line Lender. Any such waiver and any amendment, supplement or modification pursuant to this Section 14.01 shall apply to each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the Administrative Agent, and all future holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders and the Administrative Agent shall be restored to their former positions and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. (b) In addition to amendments effected pursuant to the foregoing paragraph (a), Schedule II may be amended as follows: (i) Schedule II will be amended to add Subsidiaries of the Company as additional Foreign Subsidiary Borrowers upon (A) execution and delivery by the Company, any such Foreign Subsidiary Borrower and the Administrative Agent, of a Joinder Agreement providing for any such Subsidiary to become a Foreign Subsidiary Borrower, and (B) delivery to the Administrative Agent of (I) a Foreign Subsidiary Opinion in respect of such additional Foreign Subsidiary Borrower and the documents required pursuant to Sections 8.02(d), (e) and (f) and (II) such other documents with respect thereto as the Administrative Agent shall reasonably request. (ii) Schedule II will be amended to remove any Subsidiary as a Foreign Subsidiary Borrower upon (A) written notice by the Company to the Administrative Agent to such effect and (B) repayment in full of all outstanding Loans of such Foreign Subsidiary Borrower. (c) The Administrative Agent shall give prompt notice to each Lender of any amendment effected pursuant to Section 14.01(b). (d) Notwithstanding the provisions of this Section 14.01, any Local Currency Facility may be amended, supplemented or otherwise modified in accordance with its terms so long as after giving effect thereto either (i) such Local Currency Facility ceases to be a "Local Currency Facility" and the Company so notifies the Administrative Agent or (ii) the Local Currency Facility continues to meet the requirements of a Local Currency Facility set forth herein. SECTION XIV.02. Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile transmission) and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three days after being deposited in the mail, postage prepaid (or, if later, the first Business Day after being so deposited), or, in the case of telecopy notice, -101- 108 when received (or if received on a day that is not a Business Day or if received after 5:00 p.m. local time at the place of reception on a Business Day, on the next succeeding Business Day), addressed as follows in the case of the Borrowers and the Administrative Agent, and as set forth in Schedule I in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes: The Company: Federal-Mogul Corporation World Headquarters 26555 Northwestern Highway Southfield, Michigan 48034 Attention: Sandra W. Galac Telephone: 248-354-2653 Telecopy: 248-354-8103 The Foreign Subsidiary Borrowers: c/o Federal-Mogul Corporation World Headquarters 26555 Northwestern Highway Southfield, Michigan 48034 Attention: Sandra W. Galac Telephone: 248-354-2653 Telecopy: 248-354-8103 The Administrative Agent (New York Office): The Chase Manhattan Bank One Chase Manhattan Plaza 8th Floor New York, New York 10081 Attention: James Tabois Telephone: 212-552-7952 Telecopy: 212-552-5650 The Administrative Agent (London Office): Chase Manhattan International Ltd. 9 Thomas Moore Street London, E1 (YT) Attention: Steven Hurford Telephone: 011-44-171-777-2347 Telecopy: 011-44-171-777-2367 provided that any notice, request or demand to or upon (i) the Administrative Agent or the Lenders pursuant to Section 2.03, 2.05, 3.03, 4.03, 6.02, 6.04, 6.07 or 6.11 or (ii) the Swing Line Lender pursuant to Sections 2.06, 2.07, 2.08, 2.09, or 2.10, shall not be effective until received. All notices to the Administrative Agent in respect of Multicurrency Loans shall be delivered to the Administrative Agent's London Office specified above. -102- 109 SECTION XIV.03. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of any Borrower, the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. SECTION XIV.04. Survival of Representations and Warranties. All representations and warranties made hereunder, in the other Loan Documents and in any certificate delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans hereunder. SECTION XIV.05. Payment of Expenses and Taxes. The Company agrees (a) to pay or reimburse the Administrative Agent for all of its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation, execution and delivery of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby, including, without limitation, the reasonable fees and disbursements of counsel (and any special or local counsel retained by such counsel to assist it) to the Administrative Agent, (b) to pay or reimburse each Lender and the Administrative Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, (c) to pay, indemnify, and hold each Lender and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender and the Administrative Agent (and their respective directors, officers, employees, agents, affiliates and successors) harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents and any such other documents, including, without limitation, any of the foregoing relating to the use of proceeds of the Loans or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Company, any of its Subsidiaries or any of the Properties (regardless of whether the Administrative Agent or any Lender is a party to the litigation or other proceeding giving rise thereto), (all the foregoing in this clause (d), collectively, the "indemnified liabilities"), provided, that the Company shall have no obligation hereunder to the Administrative Agent or any Lender with respect to (i) indemnified liabilities arising from the gross negligence or willful misconduct of the party seeking indemnification or (ii) expenses incurred by the Administrative Agent or any Lender in connection with the assignment of Loans to an assignee (except pursuant to Section 6.14(b)(vi)) or the sale of any Loan to a Participant. The agreements in this Section shall survive repayment of the Loans and -103- 110 all other amounts payable hereunder. SECTION XIV.06. Successors and Assigns; Participations and Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the Borrowers, the Lenders, the Administrative Agent, all future holders of the Loans and their respective successors and assigns, except that no Borrower may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan for all purposes under this Agreement and the other Loan Documents, and the Borrowers and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. No Lender shall be entitled to create in favor of any Participant, in the participation agreement pursuant to which the Participant's participating interest shall be created or otherwise, any right to vote on, consent to or approve any matter relating to this Agreement or any other Loan Document except for those specified in clauses (A) and (B) of the proviso to Section 14.01(a). Each Borrower agrees that if amounts outstanding under this Agreement are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have, to the maximum extent permitted by law, the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement; provided that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in Section 14.07(a) as fully as if it were a Lender hereunder. Each Borrower agrees that each Participant shall be entitled to the benefits of Sections 6.09, 6.10, 6.11 and 6.12 with respect to its participation in the Commitments and the Loans outstanding from time to time hereunder as if it was a Lender; provided that, in the case of Section 6.11. such Participant shall have complied with the requirements of said Section and provided, further, that no Participant shall be entitled to receive any greater amount pursuant to any such Section than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender may, in accordance with applicable law, at any time and from time to time assign to any Lender or any Affiliate thereof or, with the prior written consent of the Administrative Agent (such consent not to be unreasonably withheld) and, prior to the occurrence and continuance of an Event of Default, the Company (such consent not to be unreasonably withheld), to an additional bank or financial institution or other entity that is regularly engaged in making or purchasing loans (an "Assignee") all or any part of its rights and obligations under this Agreement and the other Loan Documents including, without limitation, its Commitments and Loans, pursuant to an Assignment and Acceptance, substantially in the -104- 111 form of Exhibit G, executed by such Assignee, such assigning Lender (and, in the case of an Assignee that is not then a Lender or an Affiliate thereof, by the Administrative Agent and, prior to the occurrence and continuance of an Event of Default, the Company) and delivered to the Administrative Agent for their acceptance and recording in the Register; provided that (i) if any Lender assigns a part of its rights and obligations in respect of Loans of a Class and/or Commitment to make Loans of such Class under this Agreement to an Assignee, such Lender shall assign proportionate interests in its respective Loans of such Class and Commitment to make Loans of such Class and other related rights and obligations hereunder to such Assignee, (ii) if any Lender assigns a part of its rights and obligations under this Agreement in respect of its Revolving Credit Loans and/or Revolving Credit Commitments to an Assignee, such Lender shall assign proportionate interests in (A) its participations in the Swing Line Loans and other rights and obligations hereunder in respect of the Swing Line Loans to such Assignee and (B) its Multicurrency Loans and Multicurrency Commitments, (iii) in the case of any such assignment to an additional bank, financial institution or other entity, the aggregate amount of any Commitment (or, if the Commitments have terminated or expired, the aggregate principal amount of any Loans) being assigned shall not be less than $5,000,000 (or (x) if less, the then outstanding amount of such Commitments and/or Loans or (y) such lesser amount as may be agreed by the Company and the Administrative Agent). Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (I) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with Commitments and rights in respect of Loans as set forth therein, and (II) the assigning Lender thereunder shall be released from its obligations under this Agreement to the extent that such obligations shall have been expressly assumed by the Assignee pursuant to such Assignment and Acceptance (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto). (d) The Administrative Agent, on behalf of the Borrowers, shall maintain at its address referred to in Section 14.02 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of (i) the names and addresses of the Lenders and the Commitments of, and principal amounts of the Loans owing to, each Lender from time to time and (ii) the other information required from time to time pursuant to Section 2.06 in respect of Swing Line Loans. The entries in the Register shall constitute prima facie evidence of the information recorded therein, and the Borrowers, the Administrative Agent and the Lenders may (and, in the case of any Loan or other obligation hereunder not evidenced by a Note, shall) treat each Person whose name is recorded in the Register as the owner of a Loan or other obligation hereunder as the owner thereof for all purposes of this Agreement and the other Loan Documents, notwithstanding any notice to the contrary. Any assignment of any Loan or other obligation hereunder not evidenced by a Note shall be effective only upon appropriate entries with respect thereto being made in the Register. The Register shall be available for inspection by the Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an Assignee (and, in the case of an Assignee that is not then a Lender or an Affiliate -105- 112 thereof, executed by the Company and the Administrative Agent), together with payment to the Administrative Agent by the Lender or the Assignee of a registration and processing fee of $2,500, the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give prompt notice of such acceptance and recordation to the Lenders and the Borrowers. (f) Each Borrower authorizes each Lender to disclose to any Participant or Assignee (each, a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning such Borrower and its Affiliates which has been delivered to such Lender by or on behalf of such Borrower pursuant to this Agreement or which has been delivered to such Lender by or on behalf of such Borrower in connection with such Lender's credit evaluation of such Borrower and its Affiliates prior to becoming a party to this Agreement. (g) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this Section concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including, without limitation, any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law. (h) If, pursuant to this Section, any interest in this Agreement or any Loan is transferred to any Transferee (which is not a Lender) which is organized under the laws of any jurisdiction other than the United States or any state thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to agree (for the benefit of the transferor Lender, the Administrative Agent and the Company) to provide the transferor Lender (and, in the case of any Transferee registered in the Register, the Administrative Agent and the Company) the tax forms and other documents required to be delivered pursuant to Section 6.11(b) and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. (i) If, pursuant to this Section, any interest in this Agreement or any Loan is transferred to any Transferee, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to agree (for the benefit of the transferor Lender, the Administrative Agent and the Foreign Subsidiary Borrowers) to provide the transferor Lender, the Administrative Agent and the Foreign Subsidiary Borrowers the tax forms and other documents required to be delivered pursuant to Section 6.11(c) and to comply from time to time with all applicable laws and regulations with regard to such withholding tax exemption. SECTION XIV.07. Adjustments; Set-Off. (a) If any Lender (a "Benefitted Lender") shall at any time receive any payment of all or part of its Loans then due and owing to it by any Borrower, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in paragraph (f) of Article XII, or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans then due and owing to it by such Borrower, or interest thereon, such Benefitted Lender shall purchase for -106- 113 cash from the other Lenders a participating interest in such portion of each such other Lender's Loans owing to it by such Borrower, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to any Borrower, any such notice being expressly waived by the Borrowers to the extent permitted by applicable law, upon any amount becoming due and payable hereunder (whether at the stated maturity thereof, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch, agency or Affiliate thereof to or for the credit or the account of any Borrower. Each Lender agrees promptly to notify the Borrowers and the Administrative Agent after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. SECTION XIV.08. Loan Conversion/Participations. (a) (i) On any Conversion Date, to the extent not otherwise prohibited by a Requirement of Law or otherwise, all Loans outstanding in any currency other than U.S. Dollars ("Loans to be Converted") shall be converted into U.S. Dollars (calculated on the basis of the relevant Exchange Rates as of the Business Day immediately preceding the Conversion Date) ("Converted Loans") and (ii) on the Conversion Date (with respect to Loans described in the foregoing clause (i)) (A) each Lender severally, unconditionally and irrevocably agrees that it shall purchase in U.S. Dollars a participating interest in such Converted Loans in an amount equal to its Conversion Sharing Percentage of the outstanding principal amount of the Converted Loans and (B) to the extent necessary to cause the Committed Outstandings Percentage of each Revolving Credit Lender to equal its Revolving Credit Commitment Percentage (calculated immediately prior to the termination or expiration of the Revolving Credit Loans), each Revolving Credit Lender severally, unconditionally and irrevocably agrees that it shall purchase or sell a participating interest in Revolving Credit Loans then outstanding. Each Revolving Credit Lender will immediately transfer to the Administrative Agent, in immediately available funds, the amounts of its participation(s), and the proceeds of such participation(s) shall be distributed by the Administrative Agent to each Revolving Credit Lender from which a participating interest is being purchased in the amount(s) provided for in the preceding sentence. All Converted Loans shall bear interest at the rate which would otherwise be applicable to Base Rate Loans. (b) If, for any reason, the Loans to be Converted may not be converted into U.S. Dollars in the manner contemplated by paragraph (a) of this Section 14.08, (i) effective on such Conversion Date, each Revolving Credit Lender severally, unconditionally and irrevocably agrees that it shall purchase a participating interest in such Loans to be Converted, in an amount equal to its Conversion Sharing Percentage of such Loans to be Converted, and (ii) each -107- 114 Revolving Credit Lender shall purchase or sell participating interests as provided in paragraph (a)(ii)(B) of this Section 14.08. Each Revolving Credit Lender will immediately transfer to the appropriate Administrative Agent, in immediately available funds, the amount(s) of its participation(s), and the proceeds of such participation(s) shall be distributed by the Administrative Agent to each relevant Revolving Credit Lender in the amount(s) provided for in the preceding sentence. (c) To the extent any Non-Excluded Taxes are required to be withheld from any amounts payable by a Lender to another Lender in connection with its participating interest in any Converted Loan, each Borrower, with respect to the relevant Loans made to it, and the Company with respect to Local Currency Loans, shall be required to pay increased amounts to the Lender receiving such payments to the same extent they would be required under Section 6.11 if such Borrower were making payments directly to such Lender. (d) At any time after the actions contemplated by paragraphs (a) or (b) of this Section 14.08 have been taken, upon the notice of any Lender to the Borrowers the following shall occur: (i) the Company (through the guarantee contained in Article XI) shall automatically be deemed to have assumed the Converted Loans in which such Lender holds a participation, and (ii) such Loans shall be assigned by the relevant Lender holding such Loans or obligations to the Lender who gave the notice requesting such assumption by the Company. SECTION XIV.09. Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be delivered to the Borrowers and the Administrative Agent. SECTION .10. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION .11. Integration. This Agreement and the other Loan Documents represent the agreement of the Borrowers, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Borrowers, the Administrative Agent or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. SECTION .12. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. SECTION .13. Submission To Jurisdiction; Waivers. (a) The Company and each Foreign Subsidiary Borrower hereby irrevocably and unconditionally: -108- 115 (i) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (ii) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Company or such Foreign Subsidiary Borrower, as the case may be, at the address specified in Section 14.02, or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (v) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. (b) Each Foreign Subsidiary Borrower hereby irrevocably appoints the Company as its agent for service of process in any proceeding referred to in Section 14.13(a) and agrees that service of process in any such proceeding may be made by mailing or delivering a copy thereof to it care of Company at its address for notices set forth in Section 14.02. SECTION .14. Acknowledgements. Each Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) none of the Administrative Agent or any Lender has any fiduciary relationship with or duty to such Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Administrative Agents and the Lenders, on the one hand, and the Borrowers, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrowers and the Lenders. -109- 116 SECTION .15. WAIVERS OF JURY TRIAL. THE BORROWERS, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. SECTION .16. Power of Attorney. Each Foreign Subsidiary Borrower hereby grants to the Company an irrevocable power of attorney to act as its attorney-in-fact with regard to matters relating to this Agreement and each other Loan Document, including, without limitation, execution and delivery of any amendments, supplements, waivers or other modifications hereto or thereto, receipt of any notices hereunder or thereunder and receipt of service of process in connection herewith or therewith. Each Foreign Subsidiary Borrower hereby explicitly acknowledges that each of the Administrative Agent and each Lender has executed and delivered this Agreement and each other Loan Document to which it is a party, and has performed its obligations under this Agreement and each other Loan Document to which it is a party, in reliance upon the irrevocable grant of such power of attorney pursuant to this Section. The power of attorney granted by each Foreign Subsidiary Borrower hereunder is coupled with an interest. SECTION .17. Release of Collateral. As promptly as practicable after the Collateral Release Date, the Administrative Agent shall, and shall instruct the Trustee to, take all necessary action to release the Liens created by the Security Documents in all Collateral. SECTION .18. Judgment. (a) If for the purpose of obtaining judgment in any court it is necessary to convert a sum due hereunder in one currency into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the first currency with such other currency in the city in which it normally conducts its foreign exchange operation for the first currency on the Business Day preceding the day on which final judgment is given. (b) The obligation of each Borrower in respect of any sum due from it to any Lender hereunder shall, notwithstanding any judgment in a currency (the "Judgment Currency") other than that in which such sum is denominated in accordance with the applicable provisions of this Agreement (the "Agreement Currency"), be discharged only to the extent that on the Business Day following receipt by such Lender of any sum adjudged to be so due in the Judgment Currency such Lender may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency; if the amount of Agreement Currency so purchased is less than the sum originally due to such Lender in the Agreement Currency, such Borrower agrees notwithstanding any such judgment to indemnify such Lender against such loss, and if the amount of the Agreement Currency so purchased exceeds the sum originally due to any Lender, such Lender agrees to remit to such Borrower such excess. SECTION .19. Confidentiality. Each Lender agrees to keep confidential any written information (a) provided to it by or on behalf of the Company or any of its Subsidiaries -110- 117 pursuant to or in connection with this Agreement or (b) obtained by such Lender based on a review of the books and records of the Company or any of its Subsidiaries; provided that nothing herein shall prevent any Lender from disclosing any such information (i) to the Administrative Agent or any other Lender, (ii) to any Transferee or prospective Transferee which agrees to comply with the provisions of this Section, (iii) to its employees, directors, agents, attorneys, accountants and other professional advisors, or to any direct or indirect contractual counterparties in swap agreements or such contractual counterparties' professional advisors provided that such contractual counterparty or professional advisor to such contractual agrees in writing to keep such information confidential to the same extent required of the Lenders hereunder, (iv) upon the request or demand of any Governmental Authority (or the National Association of Insurance Commissioners) having jurisdiction over such Lender or as shall be required pursuant to any Requirement of Law, (v) in response to any order of any court or other Governmental Authority (or the National Association of Insurance Commissioners) or as may otherwise be required pursuant to any Requirement of Law, (vi) in connection with any litigation to which such Lender is a party, (vii) which has been publicly disclosed other than in breach of this Agreement, or (viii) to the extent reasonably necessary, in connection with the exercise of any remedy hereunder. SECTION .20. Unification of Certain Currencies. If the "Euro" (or some other similar unit of account) becomes a currency in its own right in connection with European monetary union contemplated by the Maastricht Treaty, then each of the Borrowers, the Lenders and the Administrative Agent agrees to negotiate in good faith an amendment to this Agreement satisfactory in form and substance to the Borrowers, the Lenders and the Administrative Agent to account therefor. -111- 118 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. FEDERAL-MOGUL CORPORATION By: -------------------------------------- Name: Title: THE CHASE MANHATTAN BANK, as Administrative Agent and a Lender By: -------------------------------------- Name: Title: 119 ANNEX A PRICING GRID(1)
Applicable Margin for Multicurrency Applicable Margin for Applicable Margin for Applicable Margin for Consolidated Loans and Revolving Revolving Credit Loans Tranche A Term Loans Tranche A Term Loans Leverage Credit Loans which which are which are which are Ratio are Eurodollar Loans ABR Loans Eurodollar Loans ABR Loans ------------ -------------------- ---------------------- --------------------- ------------------ greater than or equal to 4.5 to 1 150 50 200 100 less than 4.5 to 1 137.5 37.5 175 75 less than 4.0 to 1 117.5 17.5 150 50 less that 3.5 to 1 95 0 125 25 less than 3.0 to 1 75 0 100 0 Applicable Margin for Applicable Margin Consolidated Tranche B Term Loans for Tranche B Term Leverage which are Loans which are Facility Ratio Eurodollar Loans ABR Loans Fee Rate ------------ --------------------- ------------------ -------- greater than or equal to 4.5 to 1 225 125 50 less than 4.5 to 1 200 100 37.5 less than 4.0 to 1 175 75 32.5 less that 3.5 to 1 150 50 30.0 less than 3.0 to 1 150 50 25.0
Changes in the Applicable Margin and Facility Fee Rate resulting from changes in the Consolidated Leverage Ratio shall become effective on the date (the "Adjustment Date") on which financial statements are delivered to the Lenders pursuant to Section 9.01 (but in any event not later than the 60th day after the end of each of the first three quarterly periods of each fiscal year or the 120th day after the end of each fiscal year, as the case may be) and shall remain in effect until the next change to be effected pursuant to this paragraph. Each determination of the Consolidated Leverage Ratio pursuant to this definition shall be made with respect to the period of four consecutive fiscal quarters of the Company ending at the end of the period covered by the relevant financial statements. - -------------------- (1) Applicable Margins and Facility Fee expressed in basis points. 120 ANNEX B From and after the Covenant Transition Date, the following Article X will be deemed to replace Article X set forth in the Agreement to which this Annex B is attached and cross references to Article X of the Credit Agreement contained in the Loan Documents will be modified accordingly. ARTICLE X. NEGATIVE COVENANTS The Company hereby covenants and agrees that so long as the Commitments remain in effect, any Loan remains outstanding and unpaid or any other amount is owing to any Lender or the Administrative Agent hereunder the Company will comply with the covenants set forth below in this Article X: SECTION X.01. Cash Flow Coverage. The Company will not permit the Cash Flow Coverage to be less than a ratio of 1.50 to 1.00 for any period of four consecutive fiscal quarters. SECTION X.02. Consolidated Leverage Ratio. The Company will not permit the Consolidated Leverage Ratio at the last day of any fiscal quarter to be greater than 3.00 to 1.00 SECTION X.03. Maintenance of Net Worth. The Company will not permit Consolidated Net Worth at any time to be less than $270,000,000. SECTION X.04. Limitation on Liens. The Company will not, nor will it permit any of its Subsidiaries to, create, assume or incur or suffer to be created, assumed or incurred or to exist any Lien on any of its properties or assets, whether now owned or hereafter acquired, provided, however, that the foregoing restriction shall not apply to the following: (a) Liens existing on the date of this Agreement and described on Schedule III, and Liens on assets of the Target and its Subsidiaries existing on the date of consummation of the Acquisition; (b) Liens on property or assets of any corporation existing at the time such corporation becomes a Subsidiary and not created in contemplation thereof; (c) Liens in favor of the Company or any Wholly Owned Subsidiary; (d) Liens in favor of any Governmental Authority to secure progress, advance or other payments pursuant to any contract or provision of any statute; (e) Liens (including, without limitation, the interest of the lessor under any capital lease) on property or assets existing at the time of the acquisition thereof (including acquisition through merger or consolidation) or to secure the payment of all or any part of the purchase price or construction cost thereof or to secure any Indebtedness 121 2 incurred prior to, at the time of, or within six months after, the acquisition or completion of such property or assets for the purpose of financing all or any part of the purchase price or construction cost thereof; (f) any extension, renewal or replacement (or successive extensions, renewals or replacements), as a whole or in part, of any Lien referred to in the foregoing clauses (a) through (e), inclusive; provided that (i) no such extension, renewal or replacement shall result in an increase in the liabilities secured thereby and (ii) such extension, renewal or replacement Lien shall be limited to all or a part of the same property that secured the Lien so extended, renewed or replaced (plus additions, accessions, replacements and improvements to such property); (g) Liens for taxes not yet due or which are being contested in good faith and by appropriate proceedings diligently pursued if adequate reserves with respect thereto are maintained on the books of the Company or such Subsidiary, as the case may be, in accordance with GAAP or in the case of a Subsidiary located outside the United States, general accounting principles in effect from time to time in their respective jurisdictions of incorporation; (h) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other like Liens arising in the ordinary course of business (A) which are not overdue for a period of more than 60 days or (B) which are being contested in good faith and by appropriate proceedings diligently pursued if adequate reserves with respect thereto are maintained on the books of the Company or such Subsidiary, as the case may be, in accordance with GAAP; (i) easements, rights-of-way, zoning and similar restrictions and other similar encumbrances or title defects incurred in the ordinary course of business which, in the aggregate, are not greater than $15,000,000 (to the extent the dollar values of such encumbrances are calculable) and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Company or its Subsidiaries; (j) any attachment or judgment lien, unless the judgment it secures shall not, within 30 days after the entry thereof, have been discharged or execution thereof stayed pending appeal, or shall not have been discharged within 30 days after the expiration of any such stay; (k) pledges or deposits in connection with workers' compensation, unemployment insurance and other social legislation and deposits securing liability to insurance carriers under insurance or self-insurance arrangements; (l) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (m) liens ratably securing the obligations of the Borrowers to the Lenders hereunder or under the Notes; 122 3 (n) other Liens incidental to the conduct of the Company's or any Subsidiary's business or the ownership of its property and assets that were incurred in connection with the borrowing of money or the obtaining of advances or credit or capital leases; provided, however, that the indebtedness secured thereby does not exceed in the aggregate for the Company and all Subsidiaries of the Company an amount equal to $50,000,000; and provided, further, that at no time shall the sum of (i) the Indebtedness secured by the Liens permitted under this Section 10.04(n) plus (ii) all other Indebtedness of the Company's Subsidiaries (other than Subsidiaries which are parties to a Subsidiary Guarantee) plus (iii) the aggregate amount of Secured Reimbursement Obligations be equal to or greater than forty percent (40%) of Consolidated Net Worth (determined as of the end of the most recent fiscal quarter of the Company); and (o) Liens granted by a special-purpose, Wholly Owned Subsidiary of the Company that purchases accounts receivable from the Company and its Subsidiaries to the extent such Liens are granted on such accounts receivable to secure the payment of indebtedness of such Wholly Owned Subsidiary. SECTION X.05. Subsidiary Indebtedness. The Company will not permit any Subsidiary other than a Subsidiary which is a party to a Subsidiary Guarantee to create, incur or suffer to exist any Indebtedness to any Person other than the Company or a Subsidiary, except (i) Indebtedness of the Company and its Subsidiaries and the Target and its Subsidiaries existing on the Covenant Transition Date and refinancings, refundings, renewals or extensions thereof, (ii) Indebtedness of any Loan Party pursuant to any Loan Document, (iii) Indebtedness of the Special Purpose Subsidiaries described in Schedule 6.13, (iv) additional Indebtedness of Excluded Foreign Subsidiaries to the Company or any Subsidiary which is a party to a Subsidiary Guarantee in an aggregate principal amount not exceeding $100,000,000 at any time outstanding, (v) Indebtedness of any Subsidiary which is not a party to a Subsidiary Guarantee owing to any other Subsidiary which is not a party to a Subsidiary Guarantee, (vi) Indebtedness in the form of any investment permitted by Section 10.11 as in effect on the Covenant Transition Date, (vii) Indebtedness secured by Liens permitted by Section 10.04(e), including capital lease obligations, in an aggregate principal amount not to exceed $50,000,000 at any one time outstanding and any refinancings, refundings, renewals or extensions thereof (without any increase in the principal amount thereof) and (viii) Indebtedness which, together with the secured Indebtedness allowed under Section 10.04(n), shall not exceed forty percent (40%) of Consolidated Net Worth (determined as of the end of the most recent fiscal quarter of the Company). SECTION X.06. Limitation on Mergers. The Company will not, nor will it permit any of its Subsidiaries to, merge or consolidate with or into any other corporation except that any Subsidiary may merge or consolidate (i) with or into the Company (provided that the Company shall be the continuing or surviving corporation), (ii) with or into any one or more wholly-owned Subsidiaries or (iii) with or into any Person to be acquired pursuant to Section 10.12. SECTION X.07. Multiemployer Plans. The Company will not, as of any date, permit any liability to occur to which the Company or any Commonly Controlled Entity would become subject under ERISA if the Company or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding such date. 123 4 SECTION X.08. Asset Sales. The Company will not, nor will it permit any Subsidiary to, lease, sell or otherwise dispose of all or any portion of its property, assets or business to any Person other than the Company or a Subsidiary except for (a) sales of assets in the ordinary course of business, (b) sales of accounts receivable or related contract rights, (c) dispositions of assets required to comply with anti-trust laws, (d) dispositions of assets listed in Schedule 10.8, (e) dispositions in connection with sale and leaseback transactions in respect of assets having a book value in the aggregate not exceeding $50,000,000 and (f) any other sales of assets, other than the assets set forth on Schedule 10.8 and sales of assets occurring prior to the Covenant Transition Date, having a book value which, when added to the book value of all other assets sold pursuant to this clause (g) during such fiscal year, does not exceed 5% of the gross book value of the assets of the Company and its consolidated Subsidiaries, determined in accordance with GAAP, as of the last day of the fiscal year ended immediately prior to the date of such sale. SECTION X.09. Limitation on More Restrictive Covenants. The Company shall not enter into any new debt agreement that would contain, nor enter into any amendment, supplement or other modification to any indenture, instrument or other agreement concerning the Funded Debt or any refinancing thereof, if such indenture, instrument or other agreement at the time entered into or after giving effect to any such amendment, supplement or other modification thereto, would contain (a) any covenant or event of default that is more restrictive on any Borrower than those set forth in this Agreement, (b) with respect to the Company, any covenant with respect to financial performance the scope of which is materially different from the covenants respecting such matters set forth in Sections 10.01, 10.02 or 10.03, (c) any covenant which would prohibit the granting of liens on its assets by any Borrower or its Subsidiaries in favor of the Lenders, other than in the case of this clause (c), Indebtedness incurred pursuant to Section 10.05(f) as in effect on the Covenant Transition Date and in the case of clauses (a) and (c), Indebtedness incurred pursuant to Section 10.05(g) as in effect on the Covenant Transition Date constituting a refinancing, refunding extension or renewal of existing Indebtedness and having terms no more restrictive than the Indebtedness refinanced, refunded, extended or renewed thereby. SECTION .10. Subsidiary Guaranties. The Company will not, and will not allow any Subsidiary to, make or suffer to exist any Guaranty except (a) any Guaranty existing on the Covenant Transition Date and any replacement in whole or in part of such Guaranty in connection with any extension, refinancing or refunding of the Indebtedness guarantied thereby, (b) Guaranties of any Indebtedness permitted to exist hereunder other than Indebtedness outstanding on the Covenant Transition Date or any extension, renewals or refinancings thereof and (c) additional Guaranties with respect to Indebtedness or other obligations not exceeding $10,000,000 in the aggregate at any one time. SECTION .11. Affiliates. The Company, will not, nor will it permit any of its Subsidiaries to, enter into any transaction (including, without limitation, the purchase or sale of any property or service) with, or make any payment or transfer to, any Affiliate except in the ordinary course of business and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than the Company or such Subsidiary would obtain in a comparable arms-length transaction. SECTION .12. Acquisitions. The Company will not, nor will it permit any of its 124 5 Subsidiaries to, acquire, in a single transaction or in a series of related transactions, all or substantially all of the equity interests in, or assets of, any other Person, or all or substantially all of the assets constituting a division or business segment of any other Person, except that the Company or any of its Subsidiaries may make any such acquisition if: (a) after giving effect thereto, no Default or Event of Default shall be in existence; and (b) if such acquisition is the acquisition of equity interests of any Person, such acquisition is approved by the board of directors or analogous governing body of such Person. SECTION .13. Restrictions on Special Purpose Subsidiaries. The Company will not permit any Special Purpose Subsidiary to (a) create, assume, incur or suffer to exist any Lien, any Indebtedness, any Guaranty or any other liabilities, direct or contingent, (b) make or suffer to exist any Investment, (c) conduct, transact or otherwise engage in any business or other operations or (d) own or lease any Property, except that, notwithstanding the foregoing prohibitions: (i) a Special Purpose Subsidiary may make an Investment in the form of a loan or an equity contribution to, or hold the Capital Stock of, another Special Purpose Subsidiary (x) as described on Schedule 6.13 or (y) which does not have an adverse impact on the Collateral; (ii) U.K. Acquisition II may consummate the Acquisition; (iii) following consummation of the Acquisition, U.K. Acquisition I may acquire directly from the Target or indirectly through U.K. Acquisition II, for fair market value, up to 100% of the Capital Stock of Target U.S. Subsidiary; (iv) the Special Purpose Subsidiaries may execute and deliver the Loan Documents to which they are parties, incur and perform their obligations thereunder and create and suffer to exist the Liens created thereby; and (v) the Special Purpose Subsidiaries may perform obligations under the Investments permitted above and under their respective organic documents and other Requirements of Law, may incur obligations to Governmental Authorities in the ordinary course of business, such as income and franchise tax liabilities and other incidental liabilities, and may incur other immaterial liabilities directly related and incidental to the permitted activities enumerated above. 125 SCHEDULE I COMMITMENTS; ADDRESSES Part A. Revolving Credit Commitment and Multicurrency Commitment Amounts (U.S. Dollars)
Lender Revolving Credit Commitment Multicurrency Commitment ------ --------------------------- ------------------------ The Chase Manhattan Bank $ $ TOTAL $400,000,000 $120,000,000
Part B. Term Loan Commitments
Lender Tranche A Tranche B Interim ------ --------- --------- ------- The Chase Manhattan Bank $ $ $ TOTAL $600,000,000 $750,000,000 $1,000,000,000
126 SCHEDULE V INFORMATION CONCERNING LOCAL CURRENCY LOANS NOTICE OF LOCAL CURRENCY OUTSTANDINGS 1. Deliver to: Loan & Agency Services Group One Chase Manhattan Plaza, 8th Floor New York, New York 10081 Attention: Sandra Miklave Fax: 212-552-5658 Telephone No.: 212-552-7953 2. Delivery time: By close of business in New York on the date of making of each Local Currency Loan and on the last Business Day of each month on which the applicable Foreign Subsidiary Borrower has outstanding any Local Currency Loans. 3. Information Required: Name of Foreign Subsidiary Borrower, amount and currency of outstanding Local Currency Loans. 127 SCHEDULE 6.13 USE OF PROCEEDS The Company will own all of the Capital Stock of one or more special purpose Domestic Subsidiaries (either directly or through one or more special purpose Domestic Subsidiaries). One or more of such wholly owned special purpose Domestic Subsidiaries will own all of the Capital Stock of U.K. Acquisition I. The Capital Stock of U.K. Acquisition II will be owned by U.K. Acquisition I and one or more other wholly owned Special Purpose Subsidiaries. The proceeds of the Term Loans will be used to provide debt and equity financing to the Special Purpose Subsidiaries which shall, directly or indirectly through other Special Purpose Subsidiaries, invest such funds in U.K. Acquisition II for use by it to finance the Acquisition, to repay existing Indebtedness, of the Target and its Subsidiaries and to pay related fees and expenses or to make loans directly to Target US Subsidiary. 128 SCHEDULE 7.20 PERFECTION ACTIONS 1. Capital Stock of Domestic Subsidiaries: The certificates representing the shares of Capital Stock of issuers organized under the laws of a State of the United States shall be delivered to the Administrative Agent along with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof. 2. Capital Stock of Foreign Subsidiaries: The customary steps for perfection of a pledge of stock of an issuer organized under the laws of a jurisdiction outside the United States, as advised by counsel qualified in such jurisdiction, shall be taken. 3. Pledged Notes: The promissory notes shall be delivered to the Administrative Agent along with an undated note allonge for each such note executed in blank by a duly authorized officer of the pledgor thereof. 4. Inventory and Accounts Receivable: UCC-1 Financing Statements describing the collateral shall be filed in the appropriate filing offices. EX-10.37 14 EX-10.37 1 EXHIBIT 10.37 =============================================================================== FEDERAL-MOGUL CORPORATION ---------------------------------------- $500,000,000 AMENDED AND RESTATED SENIOR SUBORDINATED CREDIT AGREEMENT dated as of December 18, 1997 ---------------------------------------- THE CHASE MANHATTAN BANK, as Administrative Agent ---------------------- CHASE SECURITIES INC., as Arranger =============================================================================== [CHASE LOGO] 2 TABLE OF CONTENTS
Page SECTION 1. DEFINITIONS......................................................................................... 2 1.1 Defined Terms................................................................................... 2 1.2 Other Definitional Provisions................................................................... 27 SECTION 2. AMOUNT AND TERMS OF LOANS........................................................................... 27 2.1 Loans........................................................................................... 27 2.2 Procedure for Borrowing and Conversion.......................................................... 28 2.3 Maturity and Exchange Notes..................................................................... 29 2.4 Repayment of Loans; Evidence of Debt............................................................ 29 2.5 Optional and Mandatory Prepayments.............................................................. 30 2.6 Interest Rates and Payment Dates................................................................ 31 2.7 Computation of Interest and Fees................................................................ 33 2.8 Pro Rata Treatment and Payments................................................................. 33 2.9 Requirements of Law............................................................................. 34 2.10 Taxes........................................................................................... 36 2.11 Indemnity....................................................................................... 38 2.12 Replacement Lenders............................................................................. 38 SECTION 3. REPRESENTATIONS AND WARRANTIES...................................................................... 39 3.1 Financial Condition............................................................................. 39 3.2 No Change....................................................................................... 40 3.3 Corporate Existence; Compliance with Law........................................................ 40 3.4 Corporate Power; Authorization; Enforceable Obligations......................................... 41 3.5 No Legal Bar.................................................................................... 41 3.6 No Material Litigation.......................................................................... 42 3.7 No Default...................................................................................... 42 3.8 Ownership of Property; Liens.................................................................... 42 3.9 Intellectual Property........................................................................... 42 3.10 No Burdensome Restrictions...................................................................... 42 3.11 Taxes........................................................................................... 42 3.12 Federal Regulations............................................................................. 42 3.13 ERISA........................................................................................... 43 3.14 Investment Company Act; Other Regulations....................................................... 43 3.15 Subsidiaries.................................................................................... 43 3.16 Environmental Matters........................................................................... 43 3.17 Accuracy and Completeness of Information........................................................ 44 3.18 Other Unsecured Indebtedness.................................................................... 45 3.19 Foreign Subsidiaries............................................................................ 45 3.20 Solvency........................................................................................ 45 3.21 Purpose of Loans................................................................................ 45 3.22 Delivery of the Transaction Documents........................................................... 45
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3.23 Representations and Warranties Contained in the Transaction Documents................ 45 SECTION 4. CONDITIONS PRECEDENT..................................................................... 46 4.1 Conditions to Effective Date......................................................... 46 4.2 Conditions to Closing Date........................................................... 47 SECTION 5. AFFIRMATIVE COVENANTS.................................................................... 48 5.1 Financial Statements................................................................. 49 5.2 Certificates; Other Information...................................................... 49 5.3 Accrual of Liabilities; Payment of Obligations....................................... 50 5.4 Maintenance of Corporate Existence; Maintenance of Properties........................ 50 5.5 Insurance............................................................................ 50 5.6 Notices.............................................................................. 50 5.7 Compliance with Contractual Obligations and Laws..................................... 51 5.8 Access to Books and Inspection....................................................... 51 5.9 Environmental Laws................................................................... 52 5.10 Additional Guarantees................................................................ 52 5.11 Interest Rate Protection............................................................. 52 5.12 Consummation of Compulsory Acquisition............................................... 52 5.13 Take-Out Financing................................................................... 52 5.14 Exchange Notes....................................................................... 53 5.15 U.K. Acquisition I Corporate Documents............................................... 54 5.16 Further Assurances................................................................... 54 SECTION 6. NEGATIVE COVENANTS....................................................................... 54 6.1 Limitation on Indebtedness........................................................... 54 6.2 Limitation on Restricted Payments.................................................... 56 6.3 Limitation on Restrictions on Distributions from Restricted Subsidiaries............. 58 6.4 Limitation on Sales of Assets and Subsidiary Stock................................... 59 6.5 Limitation on Affiliate Transactions................................................. 61 6.6 Change of Control.................................................................... 61 6.7 Limitation on Capital Stock of Subsidiaries.......................................... 62 6.8 Merger, Consolidation, etc........................................................... 62 6.9 Limitation on Lines of Business...................................................... 63 SECTION 7. EVENTS OF DEFAULT........................................................................ 64 SECTION 8. SUBORDINATION............................................................................ 66 8.1 Agreement To Subordinate............................................................. 66 8.2 Liquidation; Dissolution; Bankruptcy................................................. 66 8.3 Default on Senior Indebtedness....................................................... 67 8.4 Acceleration of Payment of Loans..................................................... 67 8.5 When Distribution Must Be Paid Over.................................................. 68 8.6 Subrogation.......................................................................... 68 8.7 Relative Rights...................................................................... 68 8.8 Subordination May Not Be Impaired By the Borrower.................................... 68 8.9 Rights of Administrative Agent....................................................... 68 8.10 Distribution or Notice to Representative............................................. 69 8.11 Section 8 Not To Prevent Events of Default or Limit Right To Accelerate.............. 69
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8.12 Administrative Agent Entitled to Rely........................................................... 69 8.13 Administrative Agent to Effectuate Subordination................................................ 69 8.14 Administrative Agent Not Fiduciary for Lenders of Senior Indebtedness........................... 69 8.15 Reliance by Lenders of Senior Indebtedness on Subordination Provisions.......................... 69 8.16 Certain Amendments Prohibited................................................................... 70 SECTION 9. THE ADMINISTRATIVE AGENT............................................................................ 70 9.1 Appointment..................................................................................... 70 9.2 Delegation of Duties............................................................................ 70 9.3 Exculpatory Provisions.......................................................................... 70 9.4 Reliance by Administrative Agent................................................................ 70 9.5 Notice of Default............................................................................... 71 9.6 Non-Reliance on Administrative Agent and Other Lenders.......................................... 71 9.7 Indemnification................................................................................. 71 9.8 Administrative Agent in Its Individual Capacity................................................. 72 9.9 Successor Administrative Agent.................................................................. 72 SECTION 10. MISCELLANEOUS...................................................................................... 73 10.1 Amendments and Waivers......................................................................... 73 10.2 Notices........................................................................................ 73 10.3 No Waiver; Cumulative Remedies................................................................. 74 10.4 Survival of Representations and Warranties..................................................... 74 10.5 Payment of Expenses and Taxes.................................................................. 74 10.6 Successors and Assigns; Participations and Assignments......................................... 75 10.7 Adjustments; Set-off........................................................................... 77 10.8 Counterparts................................................................................... 78 10.9 Severability................................................................................... 78 10.10 Integration.................................................................................... 78 10.11 GOVERNING LAW.................................................................................. 78 10.12 Submission To Jurisdiction; Waivers............................................................ 78 10.13 Acknowledgements............................................................................... 79 10.14 Confidentiality................................................................................ 79 10.15 WAIVERS OF JURY TRIAL.......................................................................... 79 10.16 No Guarantee of Domestic Obligations by Foreign Subsidiary of Borrower......................... 80
5 SCHEDULES: 1.1 Commitments 2 Subsidiaries EXHIBITS: EXHIBIT A Form of Domestic Subsidiary Guarantee EXHIBIT B Form of Senior Subordinated Indenture EXHIBIT C-1 Form of Initial Loan Note EXHIBIT C-2 Form of Term Note EXHIBIT D Form of Closing Certificate EXHIBIT E Form of Assignment and Acceptance EXHIBIT F-1 Form of General Counsel Opinion (Effective Date) EXHIBIT F-2 Form of Opinion of Cleary Gottlieb Steen & Hamilton (Effective Date) EXHIBIT F-3 Form of General Counsel Opinion (Closing Date) EXHIBIT F-4 Form of Opinion of Cleary Gottlieb Steen & Hamilton (Closing Date)
6 AMENDED AND RESTATED SENIOR SUBORDINATED CREDIT AGREEMENT, dated as of December 18, 1997, among FEDERAL-MOGUL CORPORATION, a Michigan corporation (the "Borrower"), the several lenders from time to time parties hereto (collectively, the "Lenders"; individually, a "Lender"), and THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Lenders hereunder (in such capacity, the "Administrative Agent"). W I T N E S S E T H : WHEREAS, the Borrower is party to the Revolving Credit, Competitive Advance and Multicurrency Facility Agreement, dated as of June 16, 1997 (the "Existing Credit Agreement"), with the several banks and other financial institutions party thereto and The Chase Manhattan Bank, as the administrative agent; WHEREAS, the Borrower, through an indirect wholly owned Subsidiary organized under the laws of England ("U.K. Acquisition II"), intends to acquire (the "Acquisition") T&N PLC, a company organized under the laws of England (the "Target"); WHEREAS, the Acquisition will be accomplished by means of a tender offer (the "Tender Offer") to be made by U.K. Acquisition II for up to 100% (but in any event not less than 90%) (the "Minimum Number of Shares") of the issued and outstanding ordinary shares, (pound)1 par value (the "Target Shares"), of the Target, and/or Options related thereto, followed by a compulsory acquisition of any remaining such shares not acquired in the Tender Offer; WHEREAS, in order to finance the Acquisition, to refinance the Existing Credit Agreement and other existing indebtedness of the Borrower and the Target and to pay fees and expenses in connection with the Acquisition and the financing thereof, the Borrower has requested the Lenders to establish a senior subordinated credit facilities aggregating $500,000,000; WHEREAS, the Lenders are willing to establish such credit facilities upon and subject to the terms and conditions hereinafter set forth; WHEREAS, the Borrower and The Chase Manhattan Bank, as Lender and the Administrative Agent have entered into the Senior Subordinated Credit Agreement, dated as of October 15, 1997 (the "Senior Subordinated Credit Agreement"); WHEREAS, the Borrower and the Lenders and the Administrative Agent desire to amend and restate the Senior Subordinated Credit Agreement upon and subject to the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto hereby agree that on the Effective Date the Senior Subordinated Credit Agreement shall be amended and restated in its entirety as follows: 7 2 SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "ABR Borrowing": a Borrowing comprised of ABR Loans. "ABR Loan": a Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Section 2. "Accepting Holder": as defined in Section 2.5(d). "Accumulated Funding Deficiency": any accumulated funding deficiency within the meaning of Section 412 of the Code or Section 302 of ERISA. "Acquisition": as defined in the recitals hereto. "Acquisition Documents": the collective reference to each of the documents effectuating the Acquisition. "Acquisition Funds": as defined in Section 7. "Additional Assets": (i) any property or assets (other than Indebtedness and Capital Stock) to be used by the Borrower or a Restricted Subsidiary in a Related Business; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Borrower or another Restricted Subsidiary; or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; provided, however, that, in the case of clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a Related Business. "Administrative Agent": as defined in the recitals hereto "Adjusted LIBO Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate 1.00 - Eurocurrency Reserve Requirements "Adjusted Margin": with respect to any Loan, 0 basis points during the three month period commencing on the Initial Maturity Date and shall increase by an additional 50 basis points at the beginning of each subsequent three-month period. "Adjusted Rate": the rate equal to the greatest of (i) 50 basis points plus the interest rate borne by the Loans on the day immediately preceding the Initial Maturity Date, (ii) 650 basis points plus the Treasury Rate (as defined below) on the Initial Maturity Date and (iii) 300 basis points plus the CSI High Yield Index Rate on the Initial Maturity Date; for purposes hereof, the "Treasury Rate" means (x) the rate borne by direct obligations of the United States maturing on the tenth anniversary of the Closing Date or (y) if there are no 8 3 such obligations, the rate determined by linear interpolation between the rates borne by the two direct obligations of the United States maturing closest to, but straddling, the tenth anniversary of the Closing Date, in each case as published by the Board of Governors. "Affiliate": as to any Person, any other Person (other than a Subsidiary) which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person, or in the case of any Lender which is an investment fund, (i) the investment advisor thereof and (ii) any other investment fund having the same investment advisor. For purposes of this definition, "control" of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Affiliate Transaction": as defined in Section 6.5. "Agreement": this Amended and Restated Senior Subordinated Credit Agreement, as amended, supplemented or otherwise modified from time to time. "Alternate Base Rate": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (i) the Applicable Margin less 1% plus (ii) the greatest of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City; and "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates per annum on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it, in each case rounded up to the nearest 1/100 of 1%. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. The Prime Rate is not intended to be the lowest rate of interest charged by Chase in connection with extensions of credit to debtors. "Applicable Margin": with respect to any Loan, 450 basis points during the six (6) month period commencing on the Closing Date and shall increase by (i) an additional 100 basis points commencing on the date that is six months after the Closing Date, and (ii) an additional 50 basis points at the end of each successive three month period thereafter until the Initial Maturity Date. 9 4 "Asset Disposition": any sale, lease, transfer or other disposition (or series of related sales, leases, transfers, issuances or dispositions that are part of a common plan) of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares) of property or other assets (each referred to for the purposes of this definition as a "disposition") by the Borrower, or any of its Restricted Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction), other than (i) disposition of obsolete or worn out property disposed of in the ordinary course of business or property that is no longer useful in the conduct of the Borrower's and/or its Restricted Subsidiaries' business disposed of in the ordinary course of business; (ii) disposition of inventory in the ordinary course of business; (iii) transfers resulting from any casualty or condemnation of property or assets (provided that, except with respect to the loss or condemnation of all or substantially all of the assets of the Borrower and its Restricted Subsidiaries, the proceeds from such casualty or condemnation (including insurance) are used to commence the replacement or rebuilding the lost or condemned assets within one year); (iv) intercompany sales or transfers of assets made in the ordinary course of business; (v) licenses or sublicenses of intellectual property and general intangibles and licenses, leases or subleases of other property in the ordinary course of business and which do not materially interfere with the business of the Borrower and its Restricted Subsidiaries; (vi) any consignment arrangements or similar arrangements for the sale of assets in the ordinary course of business; (vii) the sale or discount of overdue accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof; (viii) a disposition by a Restricted Subsidiary to the Borrower or by the Borrower or a Restricted Subsidiary to a Wholly-Owned Subsidiary; (ix) a disposition subject to Section 6.2; (x) a disposition subject to Section 6.8; and (xi) sales of receivables under the Borrower's existing accounts receivable program as in effect on the date hereof. "Assignee": as defined in Section 10.6(c). "Attributable Debt": in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate assumed in making calculations in accordance with FAS 13, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life": as of the date of determination, with respect to any Indebtedness, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Indebtedness multiplied by the amount of such payment by (ii) the sum of all such payments. "Bank Indebtedness": any and all amounts payable under or in respect of the Senior Credit Facility or any Guarantee thereof, including principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Borrower whether or not a claim for postfiling interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof. "Benefitted Lender": as defined in Section 10.7(a). 10 5 "Blockage Notice": as defined in Section 8.3. "Board of Directors": as to any Person the board of directors of such Person or any committee thereof duly authorized to act on behalf of such board. "Board of Governors": the Board of Governors of the Federal Reserve System (or any successor thereto). "Borrowing": a group of Loans of a single Type made by the Lenders on a single date and as to which a single Interest Period is in effect. "Borrowing Request": as defined in Section 2.2. "Business": as defined in subsection 3.16. "Business Day": a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close. "Capitalized Lease Obligations": an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP; and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date such lease may be terminated without penalty. "Capital Stock": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. For all purposes of this Agreement, "Capital Stock" of the Borrower shall include the 10,000,000 7% Trust Convertible Preferred Securities (Liquidation Amount $50 per Convertible Preferred Security) issued by Federal-Mogul Financing Trust and guaranteed by the Borrower upon terms substantially similar to the terms described in the Offering Memorandum dated November 24, 1997 and any other substantially equivalent securities hereafter issued by a financing vehicle for the benefit of the Borrower, and such Trust Convertible Preferred Securities and substantially equivalent securities will be treated as preferred stock of the Borrower and the Borrower shall not be deemed to have issued any Indebtedness or Guarantee in connection therewith. "Cash Equivalents": securities with maturities of 6 months or less from the date of acquisition which are issued or fully guaranteed or insured by the United States Government or any agency thereof (or, in the case of any Senior Indebtedness not denominated in Dollars, the government which issued such other currency). "Change of Control" means the occurrence of any of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Borrower and its Subsidiaries to any Person or group of related Persons for purposes 11 6 of Section 13(d) of the Exchange Act (a "Group") (whether or not otherwise in compliance with the provisions of this Agreement); or (ii) a majority of the Board of Directors of the Borrower (but not a committee thereof) shall consist of Persons who are not Continuing Directors; or (iii) the acquisition by any Person or Group of the power, directly or indirectly, to vote or direct the voting of securities having more than 50% of the ordinary voting power for the election of directors of the Borrower. "Chase": The Chase Manhattan Bank, a New York banking corporation. "City Code": the City Code on Take-overs and Mergers, as published by the Panel and as amended from time to time. "Closing Date": the date of the Initial Loans. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Commitment": as to any Lender, its obligation to make a Loan to the Borrower on the Closing Date in an amount equal to the amount set forth opposite such Lender's name in Schedule 1.1 under the heading "Commitment"; collectively, as to all such Lenders, the "Commitments". "Commitment Percentage": as to any Lender at any time, the percentage of the aggregate Commitments then constituted by such Lender's Commitment (or, after the Loans are made on the Closing Date, the percentage of the aggregate Loans then constituted by such Lender's Loans). "Commonly Controlled Entity": an entity, whether or not incorporated, which is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414 of the Code. "Compulsory Acquisition": the acquisition by U.K. Acquisition II, pursuant to Sections 428 to 430F of the Companies Act 1985, of England, of all of the issued and outstanding Target Shares not then owned by U.K. Acquisition II. "Consolidated Coverage Ratio": as of any date of determination means, with respect to any Person, the ratio of (i) the aggregate amount of EBITDA of such Person for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination for which consolidated financial statements of such person are available to (ii) Consolidated Interest Expense for such four fiscal quarters (in each case, determined, for each fiscal quarter of the four fiscal quarters ending prior to the Closing Date, on a pro forma basis to give effect to the Transactions as if the Transactions had occurred at the beginning of such four-quarter period); provided, however, that (1) if the Borrower or any Restricted Subsidiary has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness or both, 12 7 EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period (except that, in making such computation, the amount of Indebtedness under any revolving credit facility outstanding on the date of such calculation shall be computed based on (A) the average daily balance of such Indebtedness during such four fiscal quarters or such shorter period when such facility was outstanding or (B) if such facility was created after the end of such four fiscal quarters, the average daily balance of such Indebtedness during the period from the date of creation of such facility to the date of the calculation) and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, (2) if since the beginning of such period any Indebtedness of the Borrower or any of its Restricted Subsidiaries has been repaid, repurchased, defeased or otherwise discharged (other than Indebtedness under a revolving credit or similar arrangement unless such revolving credit Indebtedness has been permanently repaid and has not been replaced), Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Indebtedness had been repaid, repurchased, defeased or otherwise discharged on the first day of such period, (3) if since the beginning of such period the Borrower or any Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets that are the subject of such Asset Disposition for such period or increased by an amount equal to the EBITDA (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Borrower or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Borrower and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Borrower and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale) as if such Asset Disposition occurred on the first day of such period, (4) if since the beginning of such period the Borrower or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person that becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period and (5) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Borrower or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (3) or (4) above if made by the Borrower or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition, Investment or acquisition of assets occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred or repaid, repurchased, defeased or 13 8 otherwise discharged in connection therewith, the pro forma calculations shall be as determined in good faith by a responsible financial or accounting officer of the Borrower. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term as at the date of determination in excess of 12 months). "Consolidated Interest Expense": for any period, the total interest expense of the Borrower and its Restricted Subsidiaries, plus, to the extent not included in such interest expense, (i) interest expense attributable to Capitalized Lease Obligations, (ii) amortization of debt discount, (iii) capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing (excluding commissions, discounts and other fees and charges in respect of trade letters of credit), (vi) interest actually paid by the Borrower or any such Restricted Subsidiary under any Guarantee of Indebtedness or other obligation of any other Person, (vii) net payments (whether positive or negative) pursuant to Interest Rate Agreements, (viii) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Borrower) in connection with Indebtedness Incurred by such plan or trust and (ix) cash and Disqualified Stock dividends in respect of all Preferred Stock of Subsidiaries and Disqualified Stock of the Borrower held by Persons other than the Borrower or a Wholly-Owned Subsidiary and less to the extent included in such interest expense, the amortization of capitalized debt issuance costs. Notwithstanding the foregoing, the Consolidated Interest Expense with respect to any Restricted Subsidiary of the Borrower, that was not a Wholly-Owned Subsidiary, shall be included only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income. "Consolidated Net Income": for any period, the consolidated net income (loss) of the Borrower and its Restricted Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income: (i) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (A) the Borrower's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Borrower or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Borrower's equity in the net loss of such Person shall be included to the extent of the aggregate Investment of the Borrower or any of its Restricted Subsidiaries in such Person, (ii) any net income (loss) of any Person acquired by the Borrower or a Restricted Subsidiary in a pooling of interests transaction attributable to any period prior to the date of such combination, (iii) any net income (loss) of any Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of 14 9 dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Borrower, except that (A) subject to the limitations contained in (iv) below, the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Borrower or another Restricted Subsidiary as a dividend (subject, in the case of a dividend that could have been made to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the net loss of such Restricted Subsidiary shall be included to the extent of the aggregate Investment of the Borrower or any of its other Restricted Subsidiaries in such Restricted Subsidiary, (iv) any gain or loss realized upon the sale or other disposition of any asset of the Borrower or its consolidated Restricted Subsidiaries (including pursuant to any Sale/Leaseback Transaction) that is not in the ordinary course of business, (v) any extraordinary gain or loss, and (vi) the cumulative effect of a change in accounting principles. "Continuing Director" means, as of the date of determination, any Person who (i) was a member of the Board of Directors of the Borrower on September 26, 1997 or (ii) was nominated for election or elected to the Board of Directors of the Borrower after September 26, 1997 with the affirmative vote of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election. "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "CSI": Chase Securities Inc., a Delaware corporation. "CSI High Yield Index Rate": means the average yield to worst of the CSI High Yield Index as published in the Chase High Yield Research Weekly Update Report as published by Chase. "Currency Agreement": in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement as to which such Person is a party or a beneficiary. "Default": any event or condition that is, or after notice or passage of time or both would be, an Event of Default. "Designated Senior Indebtedness": (i) the Bank Indebtedness and (ii) any other Senior Indebtedness which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $50,000,000 and is specifically designated by the Borrower in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of this Agreement. 15 10 "Disqualified Stock": with respect to any Person, any Capital Stock that by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock (excluding Capital Stock that is convertible or exchangeable solely at the option of the Borrower or a Restricted Subsidiary provided that any such conversion or exchange will be deemed an Incurrence of Indebtedness) or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case, on or prior to the first anniversary of the Final Maturity Date provided, that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such Final Maturity Date shall be deemed to be Disqualified Stock. "Dollars" and "$": dollars in lawful currency of the United States of America. "Domestic Subsidiary": any Restricted Subsidiary of the Borrower organized under the laws of any jurisdiction within the United States. "Domestic Subsidiary Guarantee": the Domestic Subsidiary Guarantee, substantially in the form of Exhibit A, to be executed and delivered by each Domestic Subsidiary (other than any Domestic Subsidiary which is a Subsidiary of an Excluded Foreign Subsidiary), including but not limited to, U.S. Finance Subsidiary I, U.S. Finance Subsidiary II and U.S. Finance Subsidiary III, as the same may from time to time be amended, supplemented or otherwise modified. "EBITDA": for any period means the Consolidated Net Income for such period, plus the following to the extent deducted in calculating such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization expense, (v) exchange or translation losses on foreign currencies, and (vi) all other non-cash items reducing Consolidated Net Income (excluding any non-cash item to the extent it represents an accrual of or reserve for cash disbursements for any subsequent period prior to the Final Maturity Date of the Securities) and less, to the extent added in calculating Consolidated Net Income, (x) exchange or translation gains on foreign currencies and (y) non-cash items increasing Consolidated Net Income (excluding such non-cash items to the extent they represent an accrual for cash receipts reasonably expected to be received prior to the Final Maturity Date), in each case for such period. Notwithstanding the foregoing, the income tax expense, depreciation expense and amortization expense of a Subsidiary of the Borrower shall be included in EBITDA only to the extent (and in the same proportion) that the net income of such Subsidiary was included in calculating Consolidated Net Income. "Effective Date": as defined in Section 4.1. "Environmental Laws": any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect. 16 11 "Eurocurrency Reserves Requirements": for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves) under any regulations of the Board of Governors or other Governmental Authority having jurisdiction with respect thereto dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board of Governors) maintained by a member bank of such system. "Eurodollar Base Rate": with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum equal to the rate at which Chase is offered Dollar deposits at or about 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period in the London interbank market for delivery on the first day of such Interest Period for the number of days comprised therein. "Eurodollar Borrowing": a Borrowing comprised of Eurodollar Loans. "Eurodollar Loan": a Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Section 2. "Excluded Foreign Subsidiary": any Foreign Subsidiary (and any Domestic Subsidiary which is a Subsidiary of an Excluded Foreign Subsidiary) if the execution by such Foreign Subsidiary (or Domestic Subsidiary, as the case may be) of a Note Guarantee would, in the good faith judgment of the Borrower, result in adverse tax consequences to the Borrower or would be unlawful for such Foreign Subsidiary (or Domestic Subsidiary, as the case may be). "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "ESOP Guaranty": the Guaranty, dated as of June 30, 1995, as amended, made by the Borrower in favor of Bank of America National Trust and Savings Association, as agent under the ESOP Loan Agreement. "ESOP Loan Agreement": the Loan Agreement, dated as of June 30, 1995, as amended, among the Federal-Mogul Corporation Salaried Employees' Stock Ownership Trust, as borrower, various financial institutions, as lenders, and Bank of America National Trust and Savings Association, as agent. "Event of Default": any of the events specified in Section 7, provided that all requirements for the giving of notice, the lapse of time, or both, and any other conditions, have been satisfied. "Exchange Act": the Securities Exchange Act of 1934, as amended. "Exchange Note": each senior subordinated note issued under the Senior Subordinated Indenture delivered pursuant to Section 2.3 and 5.14; collectively, the "Exchange Notes". 17 12 "Exchange Request": as defined in Section 5.14. "Existing Credit Agreement": as defined in the Recitals hereto. "FDIC": the Federal Deposit Insurance Corporation and any Governmental Authority which succeeds to the powers and functions thereof. "Final Maturity Date": the tenth anniversary of the Closing Date. "Foreign Subsidiary": any Restricted Subsidiary of the Borrower other than a Domestic Subsidiary. "GAAP": generally accepted accounting principles in the United States of America (or, in the case of financial statements for any Foreign Subsidiary Borrower (as defined in the Senior Credit Agreement) and its Subsidiaries for any period prior to the date it became a Foreign Subsidiary Borrower, in the country of organization of such Foreign Subsidiary Borrower) in effect on the Closing Date, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such entity as are approved by a significant segment of the accounting profession. "Governmental Authority": any nation or government, any state, province or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee": (without duplication) any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person, and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guarantor Subordinated Obligation": any Indebtedness of a Note Guarantor (whether outstanding on the date of this Agreement or thereafter Incurred) which is subordinate or junior in right of payment to its obligations under the Note Guarantee pursuant to a written agreement. "Hedging Obligations": of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. 18 13 "Holder" or "Noteholder": the Person in whose name a Loan (and any corresponding Note(s)) is registered. "Incur": issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary. "Indebtedness": with respect to any Person on any date of determination (without duplication): (i) the principal of and premium, if any, in respect of indebtedness of such Person for borrowed money, (ii) the principal of and premium, if any, in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), but excluding commercial letters of credit or letters of credit issued in connection with liabilities incurred in the ordinary course of business (including those issued to self-insure under applicable workers' compensation statutes), to the extent not drawn upon or reimbursed within three Business Days after drawing, (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services (except Trade Payables), which purchase price is due more than six months after the date of placing such property in final service or taking final delivery and title thereto or the completion of such services, (v) all Capitalized Lease Obligations and Attributable Debt of such Person, (vi) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of Disqualified Stock or, with respect to any Subsidiary of the Borrower, any Preferred Stock (but excluding, in each case, any accrued dividends), (vii) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of Indebtedness of such Person shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness of such other Persons, (viii) all Indebtedness of other Persons to the extent Guaranteed by such Person, and (ix) to the extent not otherwise included in this definition, net Hedging Obligations of such Person (such obligations to be equal at any time of determination to the termination value of such agreement or arrangement giving rise to such Hedging Obligation that would be payable by such Person at such time). 19 14 The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability at such date, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations described above at such date. With respect to any Indebtedness denominated in a foreign currency, for purposes of determining compliance with any Dollar-denominated restriction on the Incurrence of such Indebtedness under Section 6.1, the amount of such Indebtedness shall be calculated based on the currency exchange rate in effect on the date that such Indebtedness was Incurred, in the case of term debt, or first committed in the case of revolving debt, provided that any such Indebtedness outstanding on the Closing Date shall be calculated based on the currency exchange rate in effect on the Closing Date. "Initial Loan": as defined in Section 2.1(a). "Initial Loan Commitment Period": the period commencing on the Satisfaction Date (which date shall be a day no earlier than the Initial Revolving Credit Funding Date (as defined in the Senior Credit Agreement)) and ending on the earlier of (a) the day immediately following the date on which the Tender Offer lapses or is withdrawn by U.K. Acquisition II and (b) May 1, 1998. "Initial Maturity Date": the one-year anniversary of the Closing Date. "Initial Note": as defined in Section 2.4(e) "Insolvency": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. "Intellectual Property": as defined in Section 3.9. "Interest Payment Date": with respect to any Loan, the last day of the Interest Period applicable to the Loan, and in addition, the date of any prepayment of such Loan. "Interest Period": (i) prior to the Initial Maturity Date, (a) as to any Eurodollar Borrowing, the periods commencing on the date of such Eurodollar Borrowing and ending on the earlier of (A) the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is three months thereafter and (B) the Initial Maturity Date, and (b) as to any ABR Borrowing, the period commencing on the date of such ABR Borrowing and ending on the earlier of (A) the last day of each consecutive fiscal quarter of the Borrower following the Closing Date and (B) the Initial Maturity Date, and (ii) following the Initial Maturity Date, the period commencing on the Initial Maturity Date and ending on the last day of each consecutive fiscal quarter of the Borrower following the Initial Maturity Date, and the period ending on the Final Maturity Date; provided, however, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the 20 15 next preceding Business Day. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. "Interest Rate Agreement": with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary. "Investment": in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts payable on the balance sheet of such Person) or other extension of credit (including by way of Guarantee or similar arrangement, but excluding any debt or extension of credit represented by a bank deposit) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by, such Person. For purposes of the definition of "Unrestricted Subsidiary" and Section 6.2, (i) "Investment" shall include the portion (proportionate to the Borrower's equity interest in such Subsidiary) of the fair market value of the net assets of any Subsidiary of the Borrower at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Borrower shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Borrower's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Borrower's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors. "Lenders": as defined in the preamble to this Agreement. "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any Capitalized Lease Obligations having substantially the same economic effect as any of the foregoing). "Loans": as defined in Section 2.1. "Loan Documents": this Agreement, the Loan Notes and the Note Guarantees. "Loan Notes": the collective reference to the Term Notes and the Initial Notes. "Loan Participants": as defined in Section 10.6(b). "Loan Parties": the collective reference to the Borrower, and each of its Subsidiaries which from time to time is a party to any Loan Document. 21 16 "Material Adverse Effect": a material adverse effect on (a) the business, operations, property, condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole, (b) the ability of the Borrower to perform its obligations under this Agreement or any of the Notes or any of the other Loan Documents to which it is a party or (c) the validity or enforceability of this Agreement or any of the Notes or any of the other Loan Documents or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder. "Material Environmental Amount": an amount payable by the Borrower (net of the proceeds of any applicable insurance and amount reasonably expected to be paid by Persons that are not Affiliates of the Borrower and that are jointly liable with the Borrower in respect of such amount) and/or its Subsidiaries in excess of $20,000,000 in any year or $100,000,000 in the aggregate for remedial costs, compliance costs, compensatory damages, punitive damages, fines, penalties or any combination thereof. "Materials of Environmental Concern": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Moody's": Moody's Investors Service, Inc., and its successors. "Multiemployer Plan": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA or any successor statute. "Net Available Cash": from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other noncash form) therefrom, in each case net of (i) all legal, accounting, investment banking, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP (A) as a consequence of such Asset Disposition or (B) as a result of any repatriation to the United States of any proceeds of such Asset Disposition, (ii) all payments made on any Indebtedness that is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or that must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition, (iv) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Borrower or any Restricted Subsidiary after such Asset Disposition, (v) any portion of the purchase price from an Asset Disposition placed in escrow (whether as a reserve for adjustment of the purchase price, for satisfaction of indemnities in respect of such Asset Disposition or otherwise in 22 17 connection with such Asset Disposition); provided, however that upon the termination of such escrow, Net Available Cash shall be increased by any portion of funds therein released to the Borrower or any Restricted Subsidiary, and (vi) all payments required to be applied pursuant to any Senior Indebtedness. "Net Cash Proceeds": with respect to any issuance or sale of any securities of the Borrower or any Subsidiary by the Borrower or any Subsidiary, the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees and expenses actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result of such issuance or sale. "Nonconsenting Lender": as defined in Section 2.12. "Non-Excluded Taxes": as defined in Section 2.10(a). "Non-Funding Lender": as defined in Section 2.12. "Non-Recourse Debt": Indebtedness (i) as to which neither the Borrower nor any Restricted Subsidiary (a) provides any guarantee or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable (as a guarantor or otherwise) and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Borrower or any Restricted Subsidiary to declare a default under such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. "Note Guarantee": the collective reference to Domestic Subsidiary Guarantees and the U.K. Acquisition I Guarantee and any other guarantee by a Subsidiary of the Indebtedness and obligations of the Borrower hereunder substantially in the forms of Exhibits A1-4, and as each of the same may be amended, supplemented, waived or otherwise modified from time to time. "Note Guarantor": any Domestic Subsidiary or Foreign Subsidiary which has issued a Note Guarantee. "Notes": the Loan Notes and the Exchange Notes, as originally executed or as subsequently amended from time to time pursuant to the applicable provisions hereof. "Offer Documents": the Press Release and the Tender Offer documentation subsequently to be posted by U.K. Acquisition II setting out the detailed terms of the Tender Offer. "Optionholders": the holders of Options. "Options": options to purchase up to 25,000,000 Target Shares. "Original Initial Note": as defined in Section 2.4(e). 23 18 "Original Term Note": as defined in Section 2.4(f). "Panel": the Panel of Take-overs and Mergers in the City of London. "Payment Blockage Period": as defined in Section 8.3. "Payment Sharing Notice": a written notice from the Borrower or any Lender informing the Administrative Agent that an Event of Default has occurred and is continuing and directing the Administrative Agent to allocate payments thereafter received from or on behalf of the Borrower in accordance with the provisions of Section 2.8. "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor corporation. "Permitted Indebtedness": (i) Indebtedness of the Borrower owing to and held by any Restricted Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by the Borrower or any Restricted Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of any such Indebtedness (except to the Borrower in accordance with the foregoing) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (ii) Indebtedness represented by (x) the Take-Out Financing, (y) any Indebtedness (other than the Indebtedness described in clause (i) of Section 6.1(b) and other than Indebtedness Incurred pursuant to clause (i) above or clauses (iv), (v) or (vi) below) outstanding on the Closing Date and (z) any Refinancing Indebtedness Incurred in respect of any Indebtedness described in this clause (ii) or Incurred pursuant to Section 6.1(a); (iii) (A) Indebtedness of a Restricted Subsidiary Incurred and outstanding on the date on which such Restricted Subsidiary was acquired by the Borrower (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Subsidiary or was otherwise acquired by the Borrower), provided, however, that at the time such Restricted Subsidiary is acquired by the Borrower, the Borrower would have been able to Incur $1.00 of additional Indebtedness pursuant to Section 6.1(a) after giving effect to the Incurrence of such Indebtedness pursuant to this clause (iii) and (B) Refinancing Indebtedness Incurred by a Restricted Subsidiary in respect of Indebtedness Incurred by such Restricted Subsidiary pursuant to this clause (iii); (iv) Indebtedness (A) in respect of performance bonds, bankers' acceptances and surety or appeal bonds provided by the Borrower or any of its Restricted Subsidiaries to their customers in the ordinary course of their business, (B) in respect of performance bonds or similar obligations of the Borrower or any of its Restricted Subsidiaries for or in connection with pledges, deposits or payments made or given in the ordinary course of business in connection with or to secure statutory, regulatory or similar obligations, including obligations under health, safety or environmental obligations, (C) arising from Guarantees to suppliers, lessors, licensees, contractors, franchises or customers of obligations (other than Indebtedness) incurred in the ordinary course of business and (D) under Currency Agreements and Interest Rate Agreements; provided, however, that in the case of Currency Agreements and Interest Rate Agreements, such Currency Agreements and Interest Rate Agreements are entered into for bona fide hedging purposes of the Borrower or its 24 19 Restricted Subsidiaries (as determined in good faith by the Board of Directors or senior management of the Borrower) and correspond in terms of notional amount, currencies and interest rates, as applicable, to Indebtedness of the Borrower or its Restricted Subsidiaries Incurred without violation of this Agreement or to business transactions of the Borrower or its Restricted Subsidiaries on customary terms entered into in the ordinary course of business; (v) Indebtedness arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Borrower or any of its Restricted Subsidiaries pursuant to such agreements, in each case Incurred in connection with the disposition of any business assets or Restricted Subsidiary of the Borrower (other than Guarantees of Indebtedness or other obligations Incurred by any Person acquiring all or any portion of such business assets or Restricted Subsidiary of the Borrower for the purpose of financing such acquisition) in a principal amount not to exceed the gross proceeds actually received by the Borrower or any of its Restricted Subsidiaries in connection with such disposition, provided, however, that the principal amount of any Indebtedness Incurred pursuant to this clause (v), when taken together with all Indebtedness Incurred pursuant to this clause (v) and then outstanding, shall not exceed $35,000,000; (vi) Indebtedness consisting of (A) Guarantees by the Borrower or a Restricted Subsidiary of Indebtedness Incurred by a Wholly-Owned Subsidiary without violation of this Agreement and (B) Guarantees by a Restricted Subsidiary of Senior Indebtedness Incurred by the Borrower without violation of this Agreement; (vii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, provided that such Indebtedness is extinguished within two business days of its incurrence; and (viii) Indebtedness resulting from the endorsement of negotiable instruments in the ordinary course of business; (ix) Indebtedness of any Foreign Subsidiary for working capital purposes in an aggregate principal amount not to exceed $30,000,000 at one time outstanding; and (x) Indebtedness of any Domestic Subsidiary for working capital purposes in an aggregate principal amount not to exceed $30,000,000; provided that such Indebtedness is repaid within three Business Days of incurrence. "Permitted Investment": an Investment by the Borrower or any Restricted Subsidiary in (i) a Wholly-Owned Subsidiary, the Borrower or a Person that will, upon the making of such Investment, become a Wholly-Owned Subsidiary; provided, however, that the primary business of such Wholly-Owned Subsidiary is a Related Business; (ii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Borrower or a Wholly-Owned Subsidiary; provided, however, that such Person's primary business is a Related Business; (iii) Temporary Cash Investments or Cash Equivalents; (iv) receivables owing to the Borrower or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Borrower or any such Restricted Subsidiary deems reasonable under the circumstances; (v) securities received as consideration in sales of assets made in compliance with Section 6.4; (vi) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; (vii) loans or advances (or guarantees in respect thereof) to the officers or employees of the Borrower or any Restricted Subsidiary in accordance with the ordinary course practices of the Borrower and its Restricted Subsidiaries; (viii) stock, 25 20 obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Borrower or any Restricted Subsidiary or in satisfaction of judgments; (ix) Investments in connection with pledges, deposits, payments or performance bonds made or given in the ordinary course of business in connection with or to secure statutory, regulatory or similar obligations, including obligations under health, safety or environmental obligations; (x) extensions of trade credit in the ordinary course of business; (xi) guarantees of Indebtedness (including the Note Guarantees and the Guarantees entered into in connection with the Senior Credit Facility) permitted under Section 6.1; (xii) the Acquisition; (xiii) loans and advances among the Borrower and its Restricted Subsidiaries made in accordance with Section 6.1; (xiv) (A) Investments in a Related Business acquired in consideration for the issuance of common equity of the Borrower and (B) an Investment in a Related Business with the proceeds of the issuance of common equity to the extent such amounts have not been previously applied to make an Investment; provided that no Default or Event of Default shall have occurred and be continuing and such Permitted Investment shall not be an Investment which is, or after notice or lapse of time or both, would be an "event of default" under the terms of any Indebtedness of the Borrower or its Restricted Subsidiaries; and (xv) Investments in a Related Business previously disclosed to the Lenders in an aggregate amount, taken together with all other Investments made pursuant to this clause (xv) that are at that time outstanding, not to exceed $150,000,000. "Permitted Issuance": (a) the issuance by the Borrower of shares of Capital Stock as dividends on issued and outstanding Capital Stock of the same class of the Borrower or pursuant to any dividend reinvestment plan, (b) the issuance by the Borrower of options or other equity securities of the Borrower to outside directors, members of management or employees of the Borrower or any Subsidiary of the Borrower, (c) the issuance of securities as interest or dividends on pay-in-kind debt or preferred equity securities permitted hereunder and under the other Loan Documents, (d) the issuance to the Borrower or any Subsidiary (or any director, with respect to directors' qualifying shares) by any of their respective Subsidiaries of any Capital Stock, (e) the issuance by the Borrower of shares of its Capital Stock (other than Disqualified Stock) in connection with a Permitted Investment and (f) cash payments made in lieu of issuing fractional shares of Borrower's Capital Stock in an aggregate amount not to exceed $100,000. "Person": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "PIK Interest Amount": the aggregate amount equal to the amount of interest borne by an Initial Note or a Term Note in excess of 14% per annum. "Plan": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Preferred Stock", as applied to the Capital Stock of any corporation, Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation 26 21 or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "Press Release": the press announcement released by or on behalf of U.K. Acquisition II on October 16, 1997 publicly announcing a firm intention to make the Tender Offer. "Pro Forma Balance Sheet": as defined in Section 3.1(b). "Prohibited Transaction": any "prohibited transaction" as defined in Section 406 of ERISA or Section 4975 of the Code. "Properties": as defined in Section 3.16(a). "Qualified Capital Stock": any Capital Stock that is not Disqualified Stock. "Refinancing Indebtedness": Indebtedness that is Incurred to refund, refinance, replace, renew, repay or extend (including pursuant to any defeasance or discharge mechanism) (collectively, "refinances," and "refinanced" shall have a correlative meaning) any Indebtedness existing on the date of this Agreement or Incurred in compliance with this Agreement (including Indebtedness of the Borrower that refinances Indebtedness of any Restricted Subsidiary (to the extent permitted in this Agreement) and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness; provided, however, that (i) the Refinancing Indebtedness has a Stated Maturity no earlier than that of the Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than that of the Indebtedness being refinanced and (iii) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of (x) the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced, plus (y) fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such Refinancing Indebtedness; provided further, however, that Refinancing Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary that refinances Indebtedness of the Borrower or Indebtedness of a Note Guarantor that refinances Indebtedness of a Restricted Subsidiary that is not a Note Guarantor or (y) Indebtedness of the Borrower or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary. "Register": as defined in Section 10.6(d). "Regulation G": Regulation G of the Board of Governors as in effect from time to time. "Regulation U": Regulation U of the Board of Governors as in effect from time to time. "Regulation X": Regulation X of the Board of Governors as in effect from time to time. 27 22 "Related Business": any business which is the same as or related, ancillary or complementary to any of the businesses of the Borrower and its Restricted Subsidiaries on the date hereof, as reasonably determined by the Board. "Reorganization": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event": any of the events set forth in Section 4043(b) of ERISA or any regulation thereunder. "Representative": the trustee, agent or representative (if any) for an issue of Senior Indebtedness. "Required Lenders": at any time, Lenders holding 51% or more in principal amount of outstanding Loans (or, prior to the Closing Date, 51% or more of the Commitments). "Requirement of Law": as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer": as to any Person, the chief executive officer, the president, the chief financial officer, the treasurer, any assistant treasurer or the controller. "Restricted Payments": as defined in Section 6.2(a). "Restricted Subsidiary": any Subsidiary of the Borrower other than an Unrestricted Subsidiary. "Sale/Leaseback Transaction": an arrangement relating to property now owned or hereafter acquired by the Borrower or a Restricted Subsidiary whereby the Borrower or such Restricted Subsidiary transfers such property to a Person and the Borrower or such Restricted Subsidiary leases it from such Person, other than leases between the Borrower and a Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries. "Satisfaction Date": as defined in Section 4.2. "SEC": the Securities and Exchange Commission or any Governmental Authority which succeeds to the powers and functions thereof. "Secured Indebtedness": any Indebtedness of the Borrower secured by a Lien. "Securities": any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit sharing agreement or arrangement, bonds, debentures, options, warrants, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or 28 23 interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "Securities Act": the Securities Act of 1933, as amended from time to time. "Senior Credit Agreement": means (i) the Second Amended and Restated Credit Agreement dated as of December 18, 1997 among the Borrower, the Foreign Subsidiaries parties thereto, The Chase Manhattan Bank, as Administrative Agent and the lenders parties thereto from time to time, as the same may be amended, supplemented or otherwise modified from time to time and (ii) any renewal, extension, refunding, restructuring, replacement, or refinancing thereof (whether with the original administrative agent and lenders or another administrative agent or agents or other lenders and whether provided under the original Second Amended and Restated Credit Agreement or any other agreement or indenture.) "Senior Credit Documents": the "Loan Documents" as such term is defined in the Senior Credit Agreement. "Senior Credit Facility": the collective reference to the Senior Credit Agreement and the notes issued pursuant thereto and the guarantee agreements, the security agreements, the indemnity, subrogation and contribution agreements, the pledge agreements and each of the other security agreements and other instruments and documents executed and delivered pursuant to any of the foregoing. "Senior Credit Facility Loans": loans in an aggregate principal amount not to exceed $2,750,000,000 borrowed by the Borrower pursuant to the Senior Credit Facility. "Senior Indebtedness": the principal of, premium (if any), and interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization of the Borrower regardless of whether post-filing interest is allowed in such proceeding) on, and fees and other amounts owing in respect of, the Bank Indebtedness and all other Indebtedness and Hedging Obligations of the Borrower, whether outstanding on the Closing Date or thereafter issued, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that the obligations in respect of such Indebtedness are not superior in right of payment to the Loans; provided, however, that Senior Indebtedness will not include (1) any obligation of the Borrower to any Subsidiary, (2) any liability for Federal, state, foreign, local or other taxes owed or owing by the Borrower, (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including Guarantees thereof or instruments evidencing such liabilities), (4) any Indebtedness, Guarantee or obligation of the Borrower that is expressly subordinate or junior in right of payment to any other Indebtedness, Guarantee or obligation of the Borrower, including any Senior Subordinated Indebtedness and any Subordinated Obligations, or (5) any Capital Stock. "Senior Indebtedness" of a Note Guarantor has a correlative meaning (including interest accruing on or after the filing of a petition in bankruptcy or for reorganization of the Borrower or Note Guarantor, regardless of whether post-filing interest is allowed in such proceeding). "Senior Subordinated Credit Agreement": as defined in the recitals hereto. 29 24 "Senior Subordinated Indebtedness": the Loans, the Exchange Notes, and any other Indebtedness of the Borrower that specifically provides that such Indebtedness is to rank pari passu with the Loans and is not expressly subordinated in right of payment by its terms to any Indebtedness or other obligation of the Borrower that is not Senior Indebtedness. "Senior Subordinated Indenture": the Senior Subordinated Indenture, substantially in the form of Exhibit B hereto (with such changes therein as the Borrower may request and Administrative Agent may approve, such approval not to be unreasonably withheld), if and when executed and delivered by the Borrower and a trustee thereunder, as amended, waived, supplemented or otherwise modified from time to time. "Single Employer Plan": any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "Solvent" and "Solvency": when used with respect to any Person, means that, as of any date of determination, (a) the amount of the "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount of all "liabilities of such Person, contingent or otherwise", as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) "debt" means liability on a "claim", and (ii) "claim" means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured. "S&P": Standard & Poor's Ratings Service, a division of The McGraw-Hill Companies, Inc., and its successors. "Stated Maturity": with respect to any Security, the date specified in such Security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred). "Subordinated Obligation": any Indebtedness of the Borrower (whether outstanding on the date of this Agreement or thereafter Incurred) which is subordinate or junior in right of payment to the Loans pursuant to a written agreement. "Subsequent Initial Note": as defined in Section 2.4(e). "Subsequent Term Note": as defined in Section 2.4(f). 30 25 "Subsidiary": as to any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person or (ii) one or more Subsidiaries of such Person. "Successor Company": as defined in Section 6.8. "Take-Out Banks": as defined in Section 4.2. "Takeover Code": the City Code on Takeovers and Mergers in effect in England. "Take-Out Financing": any offering of unsecured notes, debentures or Capital Stock of the Borrower or any Restricted Subsidiary, whether or not such securities are designated by the Borrower or any of its Restricted Subsidiaries as Take-Out Financing. "Target": as defined in the recitals hereto. "Target Shareholders": the holders of the Target Shares. "Target Shares": as defined in the recitals hereto. "Temporary Cash Investments": has the meaning given to "Cash Equivalents" in the Senior Credit Agreement. "Tender Offer": as defined in the recitals hereto. "Term Note": as defined in Section 2.4(f). "Term Loan": as defined in Section 2.1(b). "Trade Payables": with respect to any Person, any accounts payable or any indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person arising in the ordinary course of business in connection with the acquisition of goods or services. "Transaction Documents": the collective reference to the Acquisition Documents, the Senior Credit Documents, the Loan Documents, the Senior Subordinated Indenture and the Exchange Notes. "Transactions": the collective reference to the Tender Offer, the Compulsory Acquisition, the issuances of Indebtedness under this Agreement, the Senior Subordinated Indenture, the Take-Out Financing and the Senior Credit Facility. "Transferee": as defined in Section 10.6(f). "Trustee": as defined in Section 2.5(d). 31 26 "Type", when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or Borrowing is determined. For purposes hereof, the term "Rate" shall include the Adjusted LIBO Rate and the Alternate Base Rate. "U.K. Acquisition I": a Wholly Owned Subsidiary of the Borrower to be organized under the laws of England prior to the Closing Date. "U.K. Acquisition I Guarantee": the U.K. Acquisition I Guarantee in form and substance reasonably satisfactory to the Administrative Agent, as the same may be amended, supplemented or otherwise modified from time to time, to be executed and delivered by U.K. Acquisition I pursuant to Section 5.15, guaranteeing all of the obligations of the Borrower hereunder. "U.K. Acquisition II": as defined in the recitals hereto. "Unrestricted Subsidiary": (i) any Subsidiary (other than a Note Guarantor) of the Borrower that at the time of determination shall be designated an Unrestricted Subsidiary in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. At any time after the Initial Maturity Date, the Borrower may designate any of its Subsidiaries (including any newly acquired or newly formed Subsidiary of the Borrower) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any property of, the Borrower or any other Subsidiary of the Borrower that is not an Unrestricted Subsidiary or a Subsidiary of the Subsidiary to be so designated; provided, however, that either (A) the Subsidiary to be so designated has total consolidated assets of $10,000 or less or (B) if such Subsidiary has consolidated assets greater than $10,000, then such designation would be permitted under Section 6.2. The Borrower may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (x) the Borrower could incur at least $1.00 of additional Indebtedness under Section 6.1(a) and (y) no Default shall have occurred and be continuing. Any such designation shall be evidenced to the Administrative Agent by promptly filing with the Administrative Agent an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Finance Subsidiary I": a special purpose corporation to be organized as a direct or indirect Subsidiary of the Borrower under the laws of a state of the United States prior to the Closing Date. "U.S. Finance Subsidiary II": a special purpose corporation to be organized as a direct or indirect Subsidiary of the Borrower under the laws of a state of the United States prior to the Closing Date. "U.S. Finance Subsidiary III": a special purpose corporation to be organized as a direct or indirect Subsidiary of the Borrower under the laws of a state of the United States prior to the Closing Date. 32 27 "Voting Stock": all classes of Capital Stock of an entity then outstanding and normally entitled to vote in the election of directors or all interests in such entity with the ability to control the management or actions of such entity. "Wholly-Owned Subsidiary": a Restricted Subsidiary of the Borrower all the Capital Stock of which (other than directors' qualifying shares) is owned by the Borrower or another Wholly-Owned Subsidiary, provided that if on the Closing Date the Borrower shall, directly or indirectly, own greater than 90% of the Capital Stock of Target then Target shall constitute a Wholly-Owned Subsidiary, however, Target shall cease to be a Wholly-Owned Subsidiary if the Borrower has failed to acquire 100% of the Capital Stock of Target by May 1, 1998. 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in any Notes, any other Loan Document or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in any Notes and any other Loan Document, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms relating to the Borrower and its Subsidiaries not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule, Annex and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. AMOUNT AND TERMS OF LOANS 2.1 Loans. (a) Subject to the terms and conditions hereof, each Lender severally agrees to make a loan (individually, an "Initial Loan" and collectively, the "Initial Loans") to the Borrower on the Closing Date, in an aggregate principal amount equal to such Lender's Commitment. Any Commitments not drawn on the Closing Date shall terminate. (b) Subject to the terms and conditions hereof, each Lender severally agrees, if the Initial Loans have not been repaid or exchanged for Exchange Notes on the Initial Maturity Date, to convert the then outstanding principal amount of its Initial Loans into a loan (individually, a "Term Loan" and collectively, the "Term Loans"; the Initial Loans and the Term Loans, collectively, the "Loans") to the Borrower, on the Initial Maturity Date, in an aggregate principal amount equal to then outstanding principal amount of the Initial Loans held by such Lender. Upon the making by such Lender of such Term Loan, each Lender shall cancel on its records a principal amount of the Initial Loans and the Initial Loans held by such Lender corresponding to the principal amount of Term Loans made by such Lender, which corresponding principal amount of the Initial Loans shall be satisfied by the conversion thereof into Term Loans in accordance with Section 2.2(b). 33 28 (c) Subject to Section 2.6(c), prior to the Initial Maturity Date, the Borrowing shall be comprised entirely of Eurodollar Loans. Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement; provided further that, the Borrower shall not incur any additional expense or fees as a result of any exercise of such option. Borrowings of more than one Type may be outstanding at the same time in the event that the Administrative Agent gives notice as provided in Section 2.6(c). For purposes of the foregoing, Borrowings having different Interest Periods shall be considered separate Borrowings. (d) Unless the Administrative Agent shall have received notice from a Lender prior to the Closing Date that such Lender will not make available to the Administrative Agent such Lender's portion of the Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with Section 2.1(c) and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If the Administrative Agent shall have so made funds available then, to the extent that such Lender shall not have made such portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent at (i) in the case of the Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, a rate determined by the Administrative Agent to represent its cost of overnight or short-term funds (which determination shall be conclusive absent manifest error). If such Lender shall repay to the Administrative Agent such corresponding amount, (a) such amount shall constitute such Lender's Loan as part of such Borrowing for purposes of this Agreement and (b) the Administrative Agent will promptly remit to the Borrower any such corresponding amount repaid to the Administrative Agent by the Borrower. Nothing contained in this Section 2.1(d) shall relieve any Lender that has failed to make available its ratable portion of any borrowing hereunder from its obligation to do so in accordance with the terms hereof. (e) The failure of any Lender to make the Initial Loan to be made by it shall not relieve any other Lender of its obligation, if any, hereunder to make its Initial Loan on the Closing Date, but no Lender shall be responsible for the failure of any other Lender to make the Initial Loan to be made by such other Lender on the Closing Date. 2.2 Procedure for Borrowing and Conversion. (a) Subject to the provisions of Section 2.6(c), in order to request a Borrowing under the Commitments on the Closing Date, the Borrower shall deliver by hand or by telecopy to the Administrative Agent a notice (or telephonic notice promptly confirmed in writing) (the "Borrowing Request") which notice must be received by the Administrative Agent not later than 12:00 noon, New York City time, three (3) days before the Closing Date. The Borrowing Request shall be duly completed, irrevocable, signed by or on behalf of the Borrower and shall specify the following information: (i) the date of such Borrowing (which shall be the Closing Date and a Business Day); (ii) the number and location of the account to which funds are to be disbursed (which shall be an account that complies with the requirements of this Section 2.2(a)); and (iii) the amount of the Borrowing. Upon receipt of such notice the Administrative Agent shall promptly notify each Lender. Not later than 11:00 a.m., New York City time, on the Closing Date, each Lender shall make available to the Administrative Agent at the office of the Administrative Agent specified in Section 10.2 (or at such other location as the 34 29 Administrative Agent may direct) an amount in immediately available funds equal to the amount of the Initial Loan to be made by such Lender. Initial Loan proceeds received by the Administrative Agent hereunder shall promptly be made available to the Borrower by the Administrative Agent's crediting the account of the Borrower, at the office of the Administrative Agent specified in Section 10.2, with the aggregate amount actually received by the Administrative Agent from the Lenders and in like funds as received by the Administrative Agent. (b) If the Borrower has not repaid the Initial Loan in full on or prior to the Initial Maturity Date, then, subject to the right of any Lender to convert its Initial Loans into Exchange Notes on the Initial Loan Maturity Date pursuant to Section 2.3(c), each Lender shall convert the then outstanding principal amount of the Initial Notes into Term Loans under this Section 2.2. 2.3 Maturity and Exchange Notes. (a) All the Initial Loans will mature on the Initial Maturity Date. (b) All the Term Loans will mature on the Final Maturity Date. (c) Each Lender will have the option on or after the Initial Maturity Date at any time or from time to time to receive Exchange Notes in exchange for the Term Notes or, on the Initial Maturity Date, the Initial Loans, of such Lender then outstanding in accordance with Section 5.10 of this Agreement. The principal amount of the Exchange Notes will equal 100.0% of the aggregate principal amount (including any accrued and unpaid interest not required to be paid in cash) of the Loans for which they are exchanged. If a Default (but not an Event of Default) shall have occurred and be continuing on the date of such exchange, any notices given or cure periods commenced while the Loan was outstanding shall be deemed given or commenced (as of the actual dates thereof) for all purposes with respect to the Exchange Note (with the same effect as if the Exchange Note had been outstanding as of the actual dates thereof). 2.4 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan in accordance with the terms hereof and of the Loan Notes. The Borrower hereby further agrees to pay to the Administrative Agent for the account of each Lender interest on the unpaid principal amount of the Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in Section 2.6. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrower to such Lender resulting from the Loans (including the PIK Interest Amounts) made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain the Register pursuant to Section 10.6(d), with separate subaccounts therein for each Lender, in which shall be recorded (i) the amount of each Loan (including the PIK Interest Amounts) made hereunder, (ii) the amount of any principal or accrued and unpaid interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof, if any. 35 30 (d) The entries made in the Register and the accounts of each Lender maintained pursuant to Section 2.4(b) shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Lender to maintain any account pursuant to Section 2.4(b) or the Administrative Agent to make recordings in the Register pursuant to Section 2.4(c), or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loans made to the Borrower by such Lender in accordance with the terms of this Agreement. (e) To the extent requested by any Lender, the Borrower shall execute and deliver to such Lender an Initial Note dated the Closing Date substantially in the form of Exhibit C-1 hereto to evidence the portion of the Initial Loan made by such Lender and with appropriate insertions ("Original Initial Notes"). On each Interest Payment Date prior to the Initial Maturity Date on which the Borrower elects to pay a PIK Interest Amount pursuant to Section 2.6, to the extent requested by any Lender, the Borrower shall execute and deliver to such Lender on such Interest Payment Date a note dated such Interest Payment Date substantially in the form of Exhibit C-1 hereto in a principal amount equal to such Lender's pro rata portion of such PIK Interest Amount and with other appropriate insertions (each a "Subsequent Initial Note" and, together with the Original Initial Notes, the "Initial Notes"). A Subsequent Initial Note shall bear interest from the date of its issuance at the same rate borne by all Initial Notes at the date of issuance and from time to time thereafter. (f) Unless converted to an Exchange Note and, to the extent requested by any Lender, the Borrower shall execute and deliver to such Lender a Term Note dated the Initial Maturity Date substantially in the form of Exhibit C-2 hereto to evidence the Term Loan made on such date, in the principal amount of the Initial Notes held by such Lender on such date and with other appropriate insertions (collectively, the "Original Term Notes"), in exchange for the return to the Borrower of the Initial Notes held by such Lender. On or after the Initial Maturity Date, on each Interest Payment Date on which the Borrower elects to pay a PIK Interest Amount pursuant to Section 2.6(c), to the extent requested by any Lender, the Borrower shall execute and deliver to such Lender on such Interest Payment Date a Term Note dated such Interest Payment Date substantially in the form of Exhibit C-2 hereto in a principal amount equal to such Lender's pro rata portion of such PIK Interest Amount and with other appropriate insertions (each a "Subsequent Term Note" and, together with the Original Term Notes, the "Term Notes"). A Subsequent Term Note shall bear interest from the date of its issuance at the same rate borne by all Term Notes at the date of issuance and from time to time thereafter. 2.5 Optional and Mandatory Prepayments. (a) The Borrower may at any time and from time to time prepay the Loans and Exchange Notes, in whole or in part, subject to reimbursement of the Lenders' redeployment costs, provided, however, that on or after the Initial Maturity Date, any prepayment shall be applied pro rata among the Loans and Exchange Notes as provided in Section 2.5(d) below. Upon receipt of such notice the Administrative Agent shall promptly notify each Lender thereof. If such notice is given, the amount specified in such notice shall be due and payable, and the Borrower shall make such prepayment, on the date specified therein. Partial prepayments of the Loans and Exchange Notes shall be in an aggregate principal amount equal to the lesser of (A) $1,000,000, or a whole multiple of $500,000 in excess thereof and (B) the aggregate unpaid principal amount of the Loans and Exchange Notes, as the case may be. Prepayments of the Loans and Exchange Notes pursuant to this Section 2.5(a) shall be applied to the outstanding principal amounts of the Loans and Exchange Notes ratably according to the 36 31 outstanding principal amounts of such Loans and Exchange Notes as provided in Section 2.5(d) below. (b) (i) If, subsequent to the Closing Date, the Borrower or any of its Subsidiaries shall issue Take-Out Financing (other than Permitted Issuances), an amount equal to 100% of the Net Cash Proceeds thereof shall be promptly applied toward the prepayment of the Loans and the Exchange Notes as provided in Section 2.5(d) below; provided, however, that such Net Cash Proceeds need not be applied to the prepayment of the Loans and the Exchange Notes to the extent that such Net Cash Proceeds are required to be and are applied pursuant to the Senior Credit Agreement in satisfaction of obligations thereunder. (ii) If, subsequent to the Closing Date, the Borrower or any of its Subsidiaries shall be required to apply any Net Available Cash pursuant to Section 6.4(a)(iii)(C), such Net Available Cash shall be promptly applied toward the prepayment of the Loans and the Exchange Notes as provided in Section 2.5(d) below. (iii) The Borrower shall give the Administrative Agent (which shall promptly notify each Lender) at least three (3) Business Days' prior notice or, telephone notice promptly confirmed in writing of each prepayment in whole or in part pursuant to this Agreement setting forth the date and amount thereof. (c) Accrued and unpaid interest on the amount of any principal of the Loans prepaid under this Section 2.5 shall be paid to and on the date of such prepayment. (d) As promptly as practicable after the Administrative Agent, pursuant to Section 2.5(b)(iii), receives notice of a prepayment pursuant to Sections 2.5(b)(i) or (b)(ii), the Administrative Agent, in cooperation with any trustee under the Senior Subordinated Indenture (the "Trustee"), shall give notice to each holder of an Exchange Note of the pro rata amount that would be payable to such holder in respect of such holder's Exchange Note and the expected date of such prepayment. Any holder of noncallable Exchange Notes that wishes to accept such prepayment (each, an "Accepting Holder") shall promptly notify the Trustee and the Administrative Agent in writing. Offers to prepay the Loans and Exchange Notes shall be made ratably among the Loans and Exchange Notes. After the Administrative Agent receives the prepayment amount, such prepayment amount shall be distributed by the Administrative Agent, in cooperation with the Trustee, subject to Section 2.8(b), in the following order, with appropriate adjustments being made to account for the receipt by the Trustee of any prepayment in respect of the Exchange Notes: First, to the payment of all amounts described in clauses "First" and "Second" of Section 2.8(b)(i); Second, to the payment of interest then due and payable on the Loans, Exchange Notes of Accepting Holders and callable Exchange Notes, ratably among the Lenders, the Accepting Holders and Holders of callable Exchange Notes in accordance with the aggregate amount of interest owed to each such Lender, Accepting Holder and Holder; and Third, to the payment of the principal amount of the Loans, the Exchange Notes of Accepting Holders and the callable Exchange Notes that is then due and payable, ratably among the Lenders, the Accepting Holders and Holders of callable Exchange Notes in accordance with the aggregate principal amount owed to each such Lender, Accepting Holder and Holder. Amounts offered to and rejected by any Exchange Note holder shall be ratably applied to prepay the Loans, the Exchange Notes held by Accepting Holders and callable Exchange Notes. Any offers to prepay non-callable Exchange Notes shall be made in accordance with the provisions relating thereto in the Senior Subordinated 37 32 Indenture, and with applicable law, and the distribution of the relevant prepayment amount hereunder shall be made promptly after the expiration of such offer. 2.6 Interest Rates and Payment Dates. (a) Subject to the provisions of Section 2.6(c), Initial Loans comprising any Eurodollar Borrowing shall bear interest for the period from and including the Closing Date to, but excluding, the Initial Maturity Date on the unpaid principal thereof at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin; provided that, in the event of conditions described in clause (c) below, affected Initial Loans shall accrue interest from and including the date of such event to, but excluding, the Initial Maturity Date on the unpaid principal thereof at a rate per annum equal to the Alternate Base Rate from time to time in effect. (b) Term Loans shall bear interest for the period from and including the Initial Maturity Date to, but excluding, the Final Maturity Date or date of exchange for an Exchange Note on the unpaid principal thereof at a rate per annum equal to the Adjusted Rate plus the Adjusted Margin. (c) In the event, and on each occasion, that on the day two (2) Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing the Administrative Agent shall have reasonably determined that (i) Dollar deposits in the principal amounts of the Loans comprising such Borrowing are not generally available in the London interbank market, (ii) the rates at which such Dollar deposits are being offered will not adequately and fairly reflect the cost to any Lender of making or maintaining its Eurodollar Loan during such Interest Period, or (iii) that reasonable means do not exist for ascertaining the Adjusted LIBO Rate, the Administrative Agent shall, as soon as practicable thereafter, give written or telecopy notice of such determination to the Borrower and the Lenders. In the event of any such determination, until the Administrative Agent shall have advised the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, the Borrowing shall, on the last day of the current Interest Period therefor shall be converted to an ABR Borrowing. Each determination by the Administrative Agent hereunder shall be conclusive absent manifest error. (d) Notwithstanding the foregoing clauses (a), (b), and (c), the interest rate borne by the Loans and Exchange Notes shall not exceed 16% per annum. To the extent the interest on any Loan exceeds a rate of 14% per annum, the Borrower may elect to pay such excess interest (or portion thereof) by (i) paying the appropriate PIK Interest Amount through the increase in the principal amount of the applicable Loans and (ii) if requested by any Lenders, the issuance of Subsequent Initial Notes or Subsequent Term Notes, as the case may be, in an aggregate principal amount equal to all or a portion of such excess interest to be paid. (e) If all or a portion of (i) the principal amount of any of the Loans, (ii) any interest payable thereon, or (iii) any commitment fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise, but taking into account any applicable grace period under Section 7(a)), such overdue amount shall, without limiting the rights of the Lenders under Section 7, bear interest at a rate per annum which is (x) in the case of overdue principal, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this subsection plus 2% or (y) in the case of overdue interest, commitment fees or other amounts due and payable hereunder, the applicable rate hereunder for any Loan (but without giving effect to the foregoing clause (x)) plus 2%. 38 33 (f) Interest shall be payable in arrears on each Interest Payment Date and upon the maturity date of the Loan in respect of which any such interest is accruing, provided that interest accruing pursuant to Section 2.6(e) shall be payable from time to time on demand. 2.7 Computation of Interest and Fees. (a) Interest in respect of ABR Loans comprising each ABR Borrowing, (A) at any time that the Alternate Base Rate is determined by reference to the Prime Rate shall be calculated on the basis of a 365 day year (or 366 day year as the case may be) for the actual days elapsed and (B) at any time that the Alternate Base Rate is determined by reference to the Federal Funds Effective Rate, shall be calculated on the basis of a 360-day year for the actual days elapsed. (b) Eurodollar Loans comprising a Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin. (c) Any change in the interest rate on a Loan resulting from a change in the Alternate Base Rate or the Adjusted LIBO Rate, as the case may be, shall become effective as of the opening of business on the day on which such change is announced; provided, however, that no change (other than a change resulting from a change in Statutory Reserve) in the Adjusted LIBO Rate during an Interest Period shall affect the interest rate borne by the outstanding Borrowing during such Interest Period. The Administrative Agent shall, as soon as practicable, notify the Borrower and the Lenders of the effective date and the amount of each such change in interest rate. (d) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. 2.8 Pro Rata Treatment and Payments. (a) Except to the extent otherwise provided herein, each borrowing of Loans by the Borrower from the Lenders and any reduction of the Commitments of the Lenders hereunder shall be made pro rata according to the relevant Commitment Percentages of the Lenders with respect to the Loans borrowed or the Commitments to be reduced. (b) Whenever any payment received by the Administrative Agent under this Agreement or any Note or any Loan Document is insufficient to pay in full all amounts then due and payable to the Administrative Agent and the Lenders under this Agreement: (i) if the Administrative Agent has not received a Payment Sharing Notice (or, if the Administrative Agent has received a Payment Sharing Notice but the Event of Default specified in such Payment Sharing Notice has been cured or waived in accordance with the provisions of this Agreement), subject to Section 8, such payment shall be distributed by the Administrative Agent, in cooperation with the Trustee, and applied by the Administrative Agent and the Lenders in the following order, with appropriate adjustment being made to account for any payment received by the Trustee in respect of the Exchange Notes: First, to the payment of reasonable fees and expenses due and payable to the Administrative Agent under and in connection with this Agreement or any Note Guarantee or due and payable to the Trustee under the Senior Subordinated Indenture; Second, to the payment of all reasonable expenses due and payable under Section 10.5 and any equivalent section of the 39 34 Senior Subordinated Indenture, ratably among the Lenders and the Exchange Note Holders in accordance with the aggregate amount of such payments owed to each such Lender or Holder; Third, to the payment of accrued and unpaid interest then due and payable on the Loans and the Exchange Notes ratably among the Lenders and the Exchange Note Holders in accordance with the aggregate amount of interest owed to each Lender and Exchange Note Holder; and Fourth, to the payment of the principal amount of the Loans and the Exchange Notes that is then due and payable, ratably among the Lenders and the Exchange Note Holders in accordance with the aggregate principal amount owed to each such Lender and Exchange Note Holder (and in the case of any Exchange Notes that are not prepayable, subject to the provisions of Section 2.5(d)); or (ii) if the Administrative Agent has received a Payment Sharing Notice that remains in effect, subject to Section 8, all payments received by the Administrative Agent under this Agreement or any Note shall be distributed by the Administrative Agent and applied by the Administrative Agent, in cooperation with the Trustee, and the Lenders in the following order, with appropriate adjustment being made to account for any payment received by the Trustee in respect of the Exchange Notes: First, to the payment of all amounts described in clauses "First" and "Second" of the foregoing clause (i), in the order set forth therein; Second, to the payment of the interest accrued and unpaid on all Loans and Exchange Notes, regardless of whether any such amount is then due and payable, ratably among the Lenders and the Exchange Note Holders in accordance with the aggregate accrued interest plus the aggregate principal amount owed to such Lender and the Exchange Note Holders; and Third, to the payment of the principal amount of all Loans and Exchange Notes, regardless of whether any such amount is then due and payable, ratably among the Lenders and the Exchange Note Holders in accordance with the aggregate principal amount owed to each Lender and Exchange Note Holder (and in the case of any Exchange Notes that are not prepayable, subject to the provisions of Section 2.5(d)). (c) All payments (including prepayments) to be made by the Borrower on account of principal, interest and fees shall be made without setoff or counterclaim and shall be made to the Administrative Agent, for the account of the Lenders at the Administrative Agent's office located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds. The Administrative Agent shall promptly distribute such payments in accordance with the provisions of Section 2.8(b) promptly upon receipt in like funds as received. If any payment hereunder would become due and payable on a day other than a Business Day, such payment shall become due and payable on the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. 2.9 Requirements of Law. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement or any other Loan Document or change the basis of taxation of payments to such Lender in respect thereof (except for taxes covered by Section 2.10 below and the establishment of a tax based on the net income of such Lender or changes in the rate of tax on the net income of such Lender); 40 35 (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit (including, without limitation, letters of credit) by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurodollar Base Rate hereunder, including, without limitation, the imposition of any reserves with respect to Eurodollar liabilities under Regulation D of the Board of Governors; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, continuing, or maintaining Eurodollar Loans or to reduce any amount receivable hereunder in respect thereof, then, in either case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable, provided that before making any such demand, each Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions and so long as such efforts would not be disadvantageous to it, in its reasonable discretion, in any legal, economic or regulatory manner) to designate a different Eurodollar lending office if the making of such designation would allow the Lender or its Eurodollar lending office to continue to perform its obligations to make Eurodollar Loans or to continue to fund or maintain Eurodollar Loans and avoid the need for, or materially reduce the amount of, such increased cost. If any Lender becomes entitled to claim any additional amounts pursuant to this subsection, it shall promptly notify (in any event no later than ninety (90) days after such Lender becomes entitled to make such claim) the Borrower, through the Administrative Agent, of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this subsection submitted by such Lender, through the Administrative Agent, to the Borrower shall be conclusive in the absence of manifest error. If the Borrower so notifies the Administrative Agent within five Business Days after any Lender notifies the Borrower of any increased cost pursuant to the foregoing provisions of this Section 2.9, the Borrower may convert all Eurodollar Loans of such Lender then outstanding into Alternate Base Rate Loans and, additionally, reimburse such Lender for any cost in accordance with Section 2.11. No Lender shall be entitled to compensation under this subsection 2.9 for any costs incurred or reductions suffered with respect to any date that it has such costs unless it shall have notified the Company that it will demand compensation for such costs or reductions not more than 120 days after the later of (i) such date and (ii) the date on which it shall have become aware of such costs or reductions; provided that the foregoing shall in no way operate in derogation of the undertaking contained in the penultimate sentence of this paragraph (a). Notwithstanding any other provision of subsection 2.9, no Lender shall demand compensation for any increased cost or reduction referred to above if it shall not at the time be the general policy or practice of such Lender to demand such compensation in similar circumstances under comparable provisions of other credit agreements. In the event that any Lender determines that any event or circumstances that will lead to a claim under this subsection 2.9 has occurred or will occur, such Lender will use its reasonable best efforts to so notify the Borrower; provided, that any failure to provide such notice shall in no way impair the rights of any Lender to demand and receive compensation under this subsection 2.9, but without prejudice to any claims of the Borrower for compensation for actual damages sustained as a result of any failure to observe this undertaking. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 41 36 (b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof does or shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrower (with a copy to the Administrative Agent) of a prompt written request therefor, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.10 Taxes. (a) Except as provided below in this Section, all payments made by the Borrower under this Agreement and any Notes shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes imposed in lieu of net income taxes. If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts payable to the Administrative Agent or any Lender hereunder or under any Notes, the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and any Notes, provided, however, that the Borrower shall be entitled to deduct and withhold any Non-Excluded Taxes and shall not be required to increase any such amounts payable to any Lender if such Lender fails or is unable to comply with the requirements of paragraph (b) of this Section or if such Lender fails to comply with the requirements of paragraph (c) of this Section 2.10. Whenever any Non-Excluded Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. The agreements in this subsection shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (b) Each Lender that is not incorporated under the laws of the United States of America or a state thereof shall: (i) (x) at least five Business Days before the date of any payment by the Borrower under this Agreement or any Notes to such Lender, deliver to the Borrower and the Administrative Agent (A) two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, or successor applicable form, 42 37 as the case may be, certifying that it is entitled to receive payments under this Agreement and any Notes without any deduction or withholding of any United States federal income taxes and (B) a duly completed Internal Revenue Service Form W-8 or W-9, or successor applicable form, as the case may be, certifying that it is entitled to an exemption from United States backup withholding tax; (y) deliver to the Borrower and the Administrative Agent two further copies of any such form or certification at least five Business Days before the date that any such form or certification expires or becomes obsolete and after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower; and (z) obtain such extensions of time for filing and complete such forms or certifications as may reasonably be requested by the Borrower or the Administrative Agent; or (ii) in the case of any such Lender that is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and that does not comply with sub-paragraph (i) of this paragraph (b), (x) represent to the Borrower (for the benefit of the Borrower and the Administrative Agent) that it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (y) deliver to the Borrower on or before the date of any payment by the Borrower, with a copy to the Administrative Agent, (A) a certificate stating that such Lender (1) is not a "bank" under Section 881(c)(3)(A) of the Code, is not subject to regulatory or other legal requirements as a bank in any jurisdiction, and has not been treated as a bank for purposes of any tax, securities law or other filing or submission made to any Governmental Authority, any application made to a rating agency or qualification for any exemption from tax, securities law or other legal requirements, (2) is not a 10-percent shareholder within the meaning of Section 881(c)(3)(B) of the Code and (3) is not a controlled foreign corporation receiving interest from a related person within the meaning of Section 881(c)(3)(C) of the Code (any such certificate a "U.S. Tax Compliance Certificate") and (B) two duly completed copies of Internal Revenue Service Form W-8, or successor applicable form, certifying to such Lender's legal entitlement at the date of such certificate to an exemption from U.S. withholding tax under the provisions of Section 881(c) of the Code with respect to payments to be made under this Agreement and any Notes (and to deliver to the Borrower and the Administrative Agent two further copies of Form W-8 on or before the date it expires or becomes obsolete and after the occurrence of any event requiring a change in the most recently provided form and, if necessary, obtain any extensions of time reasonably requested by the Borrower or the Administrative Agent for filing and completing such forms), and (z) agree, to the extent legally entitled to do so, upon reasonable request by the Borrower, to provide to the Borrower (for the benefit of the Borrower and the Administrative Agent) such other forms as may be reasonably required in order to establish the legal entitlement of such Lender to an exemption from withholding with respect to payments under this Agreement and any Notes; or unless in any such case any change in treaty, law or regulation has occurred after the date such Person becomes a Lender hereunder which renders all such forms and certificates inapplicable or which would prevent such Lender from duly completing and delivering any such form or certificate 43 38 with respect to it and such Lender so advises the Borrower and the Administrative Agent. Each Person that shall become a Lender or a Participant pursuant to Section 10.6 shall, upon the effectiveness of the related transfer, be required to provide all of the forms, certifications and statements required pursuant to this Section; provided that in the case of a Participant the obligations of such Participant pursuant to this paragraph (b) shall be determined as if such Participant were a Lender except that such Participant shall furnish all such required forms, certifications and statements to the Lender from which the related participation shall have been purchased. (c) Each Lender shall, upon request by the Borrower, deliver to the Borrower or the applicable Governmental Authority, as the case may be, any form or certificate required in order that any payment by the Borrower under this Agreement or any Notes may be made free and clear of, and without deduction or withholding for or on account of any Non-Excluded Taxes (or to allow any such deduction or withholding to be at a reduced rate) imposed on such payment under the laws of any jurisdiction, provided that such Lender is legally entitled to complete, execute and deliver such form or certificate and such completion, execution or submission would not materially prejudice the legal position of such Lender; 2.11 Indemnity. The Borrower agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (a) default by the Borrower in payment when due of the principal amount of or interest on any Eurodollar Loan, (b) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (c) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (d) the making of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto, including, without limitation, in each case, any such loss or expense (but excluding loss of margin) arising from the reemployment of funds obtained by it or from fees payable to terminate the deposits from which such funds were obtained. Calculation of all amounts payable to a Lender under this Section 2.11 shall be made as though such Lender had actually funded its relevant Eurodollar Loan through the purchase of a deposit bearing interest at the Eurodollar Rate in an amount equal to the amount of such Eurodollar Loan and having a maturity comparable to the relevant Interest Period; provided, however, that each Lender may fund each of its Eurodollar Loans in any manner it sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this Section 2.11. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.12 Replacement Lenders. If at any time (a) the Borrower becomes obligated to pay additional amounts described in Sections 2.9 or 2.10 as a result of any condition described in such Sections, (b) any Lender becomes insolvent and its assets become subject to a receiver, liquidator, trustee, custodian or other Person having similar powers, (c) any Lender becomes a "Nonconsenting Lender" (as defined below in this Section 2.12) or (d) any Lender becomes a "Non-Funding Lender", then the Borrower may, on ten (10) Business Days' prior written notice to the Administrative Agent and such Lender, replace such Lender by causing such Lender to (and such Lender shall) assign pursuant to Section 10.6(c) all of its rights and obligations under this Agreement to a Lender or other entity selected by the Borrower and acceptable to the Administrative Agent for a purchase price equal to the outstanding principal amount of such Lender's Loans and all accrued and unpaid interest and fees and other amounts payable hereunder; 44 39 provided that (i) the Borrower shall have no right to replace the Administrative Agent, (ii) neither the Administrative Agent nor any Lender shall have any obligation to the Borrower to find a replacement Lender or other such entity, (iii) in the event of a replacement of a Nonconsenting Lender or a Lender to which the Borrower becomes obligated to pay additional amounts pursuant to clause (a) of this Section 2.12, in order for the Borrower to be entitled to replace such a Lender, such replacement must take place no later than 180 days after (A) the date the Nonconsenting Lender shall have notified the Borrower and the Administrative Agent of its failure to agree to any requested consent, waiver or amendment or (B) the Lender shall have demanded payment of additional amounts under one of the subsections described in clause (a) of this Section 2.12, as the case may be, and (iv) in no event shall the Lender hereby replaced be required to pay or surrender to such replacement Lender or other entity any of the fees received by such Lender hereby replaced pursuant to this Agreement. In the case of a replacement of a Lender to which the Borrower becomes obligated to pay additional amounts pursuant to clause (a) of this Section 2.12, the Borrower shall pay such additional amounts to such Lender prior to such Lender being replaced and the payment of such additional amounts shall be a condition to the replacement of such Lender. In the event that (x) the Borrower or the Administrative Agent has requested the Lenders to consent to a departure or waiver of any provisions of the Loan Documents or to agree to any amendment thereto, (y) the consent, waiver or amendment in question requires the agreement of all Lenders in accordance with the terms of Section 10.1 and (z) Required Lenders have agreed to such consent, waiver or amendment, then any Lender who does not agree to such consent, waiver or amendment shall be deemed a "Nonconsenting Lender." The Borrower's right to replace a Non-Funding Lender pursuant to this Section 2.12 is, and shall be, in addition to, and not in lieu of, all other rights and remedies available to the Borrower against such Non-Funding Lender under this Agreement, at law, in equity, or by statute. SECTION 3. REPRESENTATIONS AND WARRANTIES To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans, the Borrower hereby represents and warrants to the Administrative Agent and each Lender that: 3.1 Financial Condition. (a) The consolidated balance sheets of the Borrower and its consolidated Subsidiaries as at December 31, 1995 and December 31, 1996, respectively, and the related consolidated statements of earnings, cash flows and shareholders' equity for the fiscal years ended on such dates, reported on by Ernst & Young LLP, copies of which have heretofore been furnished to each Lender, are complete and correct in all material respects and present fairly the consolidated financial condition of the Borrower and its consolidated Subsidiaries as at such dates, and the consolidated results of their operations and their consolidated cash flows for the fiscal years then ended. The unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at June 30, 1997 and the related unaudited consolidated statements of earnings and of cash flows for the six-month period ended on such date, certified by a Responsible Officer, copies of which have heretofore been furnished to each Lender, are complete and correct and present fairly the consolidated financial condition of the Borrower and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the six-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or Responsible Officer, as the case may be, and as disclosed therein). Neither the 45 40 Borrower nor any of its consolidated Subsidiaries (taken as a whole) had, at the date of the most recent balance sheet referred to above, any material Guarantee, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto. During the period from December 31, 1996 to and including the date hereof there has been no sale, transfer or other disposition by the Borrower or any of its consolidated Subsidiaries of any material part of its business or property and no purchase or other acquisition of any business or property (including any capital stock of any other Person) material in relation to the consolidated financial condition of the Borrower and its consolidated Subsidiaries at December 31, 1996, other than any such sale, transfer or other disposition or purchase or acquisition that would have been permitted by this Agreement if this Agreement had been in effect at all times during such period. (b) The unaudited pro forma consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at June 30, 1997 (including the notes thereto) (the "Pro Forma Balance Sheet"), copies of which have heretofore been furnished to each Lender, has been prepared giving effect (as if such events had occurred on such date) to (i) the consummation of the Acquisition, (ii) the Loans to be made hereunder and under the Senior Credit Facility and the use of proceeds thereof and (iii) the payment of fees and expenses in connection with the foregoing. The Pro Forma Balance Sheet has been prepared based on the best information available to the Borrower as of the date of delivery thereof, and presents fairly on a pro forma basis the estimated financial position of the Borrower and its consolidated Subsidiaries as at June 30, 1997, assuming that the events specified in the preceding sentence had actually occurred at such date. (c) The consolidated balance sheets of the Target and its consolidated Subsidiaries as at December 31, 1995 and December 31, 1996, respectively, and the related consolidated statements of earnings, cash flows and shareholders' equity for the fiscal years ended on such dates, reported on by KPMG Audit plc, copies of which have heretofore been furnished to each Lender, are, to the best of the Borrower's knowledge, complete and correct in all material respects and, to the best of the Borrower's knowledge, present fairly the consolidated financial condition of the Target and its consolidated Subsidiaries as at such dates, and the consolidated results of their operations and their consolidated cash flows for the fiscal years then ended. The unaudited consolidated balance sheet of the Target and its consolidated Subsidiaries as at June 30, 1997 and the related unaudited consolidated statements of earnings and of cash flows for the six-month period ended on such date, copies of which have heretofore been furnished to each Lender, are, to the best of the Borrower's knowledge, complete and correct and, to the best of the Borrower's knowledge, present fairly the consolidated financial condition of the Target and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the six-month period then ended (subject to normal year-end audit adjustments). 3.2 No Change. Since December 31, 1996, (a) there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect, except as disclosed in the Borrower's Annual Report on Form 10-K/A for fiscal year 1996 and (b) to the best of the Borrower's knowledge, there has been no development or event which has had or could reasonably be expected to have a material adverse effect on the business, operations, property, condition (material or otherwise) or prospects of the Target and its Subsidiaries taken as a whole. 3.3 Corporate Existence; Compliance with Law. Each of the Borrower and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the 46 41 jurisdiction of its organization except to the extent that, with respect to those Subsidiaries that are not borrowers under the Senior Credit Agreement, the lack of such organization, existence or good standing could not, in the aggregate, reasonably be expected to have a Material Adverse Effect, (b) has the corporate or other power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged except to the extent that, with respect to those Subsidiaries that are not borrowers under the Senior Credit Agreement, the lack of such power, authority or legal right could not, in the aggregate, reasonably be expected to have a Material Adverse Effect, (c) is duly qualified as a foreign corporation or other entity and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except to the extent that the failure to qualify or be in good standing could not, in the aggregate, reasonably be expected to have a Material Adverse Effect and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 3.4 Corporate Power; Authorization; Enforceable Obligations. Each Loan Party has the corporate or other power and authority, and the legal right, to execute, deliver and perform the Loan Documents to which it is a party and, in the case of the Borrower, to borrow hereunder and has taken all necessary corporate or other action to authorize the borrowings on the terms and conditions of this Agreement and the Notes to which it is a party and to authorize the execution, delivery and performance of the Loan Documents to which it is a party. Each of the Borrower and U.K. Acquisition II has the corporate power and authority, and the legal right, to consummate the Transactions. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required with respect to the Borrower or any of its Subsidiaries in connection with the borrowings hereunder or the consummation of the Transactions or, with the execution, delivery, performance, validity or enforceability of the Loan Documents to which it is a party, except for consents, filings, authorizations or approvals which have been obtained and are in full force and effect, and except for (i) any such approvals which will be set forth in the Offer Documents as conditions to the Tender Offer and (ii) other approvals the failure to obtain which could not reasonably be expected to have a Material Adverse Effect. This Agreement has been, and each other Loan Document has been or when executed pursuant hereto will be, duly executed and delivered on behalf of each of the applicable Loan Parties. This Agreement and each other Loan Document to which a Loan Party is a party constitutes a legal, valid and binding obligation of such Person enforceable against such Person in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law) and by an implied covenant of good faith and fair dealing. 3.5 No Legal Bar. The execution, delivery and performance of the Loan Documents, the borrowings hereunder, the use of the proceeds thereof and the consummation of the Transactions will not violate any Requirement of Law or Contractual Obligation of the Borrower or of any of its Subsidiaries, other than any such violation which could not reasonably be expected to have a Material Adverse Effect, and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation, except Liens created pursuant to the Loan Documents and any Lien which could not reasonably be expected to have a Material Adverse Effect. 47 42 3.6 No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against the Borrower or any of its Subsidiaries or against any of its or their respective properties or revenues (a) with respect to any of the Loan Documents, the Transactions or any of the transactions contemplated hereby, or (b) which could reasonably be expected to have a Material Adverse Effect. 3.7 No Default. Neither the Borrower nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 3.8 Ownership of Property; Liens. Each of the Borrower and its Subsidiaries has good record and marketable title in fee simple to, or a valid leasehold interest in, all its material real property, and good title to, or a valid leasehold interest in, all its other material property, and none of such property is subject to any Lien except as permitted by the Senior Credit Agreement. 3.9 Intellectual Property. Each of the Borrower and its Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted except for those the failure to own or license which could not reasonably be expected to have a Material Adverse Effect (the "Intellectual Property"). No claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does the Borrower know of any valid basis for any such claim which, in the aggregate, could reasonably be expected to have a Material Adverse Effect. The use of such Intellectual Property by the Borrower and its Subsidiaries does not infringe on the rights of any Person, except for such claims and infringements that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 3.10 No Burdensome Restrictions. No Requirement of Law or Contractual Obligation of the Borrower or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect. 3.11 Taxes. Each of the Borrower and its Subsidiaries has filed or caused to be filed all U.S. tax returns and all other material tax returns which, to the knowledge of the Borrower, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any (i) with respect to which the failure to pay, in the aggregate, would not reasonably be expected to have a Material Adverse Effect or (ii) the amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrower or its Subsidiaries, as the case may be); no tax Lien has been filed, and, to the knowledge of the Borrower, no claim is being asserted, with respect to any such tax, fee or other charge. 3.12 Federal Regulations. No part of the proceeds of any Loan Notes will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation G and Regulation U of the Board of Governors of the United States Federal Reserve System as now and from time to time hereafter in effect or for any purpose which 48 43 violates the provisions of the Regulations of such Board of Governors (including but not limited to the provisions of Regulation G, Regulation U and Regulation X) or any similar rule of any other Governmental Authority. If the Borrower is requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of Form FR U-1 or FR G-3 referred to in said Regulation U and Regulation G, respectively. 3.13 ERISA. Neither a Reportable Event nor an Accumulated Funding Deficiency has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by an amount which could reasonably be expected to have a Material Adverse Effect, either individually or in the aggregate with all other Single Employer Plans under which such accrued benefits exceed such assets. Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan during the five-year period prior to the date on which this representation is made or deemed made which could, in the aggregate with other such withdrawals during such period, reasonably be expected to have a Material Adverse Effect, and neither the Borrower nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or is Insolvent. 3.14 Investment Company Act; Other Regulations. The Borrower is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. The Borrower is not subject to any law or regulation which limits its ability to incur the Indebtedness to be incurred by it under the Loan Documents. 3.15 Subsidiaries. As of the date hereof, the Borrower has no Subsidiaries except those Subsidiaries identified on Schedule 2 to this Agreement. 3.16 Environmental Matters. (a) The facilities and properties owned, leased or operated by the Borrower and/or any of its Subsidiaries (the "Properties") do not contain, and have not previously contained, any Materials of Environmental Concern in amounts or concentrations which (i) constitute or constituted a violation of, or (ii) could reasonably be expected to give rise to liability under, any Environmental Law except in either case insofar as such violation or liability, or any aggregation thereof, is not reasonably likely to result in the payment of a Material Environmental Amount. 49 44 (b) The Properties and all operations at the Properties are in compliance, and have in the last five years been in compliance, in all material respects with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the business operated by the Borrower or any of its Subsidiaries (the "Business") which could materially interfere with the continued operation of the Properties or materially impair the aggregate fair saleable value of the Properties. (c) Neither the Borrower nor any of its Subsidiaries has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Business, nor does the Borrower or any of its Subsidiaries have knowledge or reason to believe that any such notice will be received or is being threatened except insofar as such notice or threatened notice, or any aggregation thereof, does not involve a matter or matters that is or are reasonably likely to result in the payment of a Material Environmental Amount. (d) Materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to a location which could reasonably be expected to give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that could reasonably be expected to give rise to liability on the part of the Borrower or any Subsidiary under, any applicable Environmental Law except insofar as any such violation or liability referred to in this paragraph, or any aggregation thereof, is not reasonably likely to result in the payment of a Material Environmental Amount. (e) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Borrower, threatened, under any Environmental Law to which the Borrower or any Subsidiary is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business except insofar as such proceeding, action, decree, order or other requirement, or any aggregation thereof, is not reasonably likely to result in the payment of a Material Environmental Amount. (f) There has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of the Borrower or any Subsidiary in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could reasonably give rise to liability under Environmental Laws except insofar as any such violation or liability referred to in this paragraph, or any aggregation thereof, is not reasonably likely to result in the payment of a Material Environmental Amount. 3.17 Accuracy and Completeness of Information. All information heretofore furnished by each Loan Party to the Lenders for purposes of or in connection with this Agreement does not, and all such information hereafter furnished by such Loan Party to any Lender for purposes of this Agreement will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made or to be made, in the light of the circumstances under which they were or will be made, not misleading. Prior to the date hereof, the Borrower has disclosed to the Lenders in writing any and all facts which materially and adversely affect (to the extent the Borrower can as of the date hereof reasonably foresee), the business, 50 45 operations or financial condition of the Borrower and its Subsidiaries, taken as a whole, or the ability of any Loan Party to perform its obligations under the Loan Documents. It is understood that no representation or warranty is made concerning the forecasts, estimates, pro forma information, projections and statements as to anticipated future performance or conditions, and the assumptions on which they were based, contained in any such information, reports, financial statements, exhibits or schedules, except that as of the date such forecasts, estimates, pro forma information, projections and statements were generated, (a) such forecasts, estimates, pro forma information, projections and statements were based on the good faith assumptions of the management of the Borrower and (b) such assumptions were believed by such management to be reasonable. It is further understood that the foregoing statements in this subsection 3.17, to the extent they refer to information in respect of the Target, are made to the best of the Borrower's knowledge. 3.18 Other Unsecured Indebtedness. The obligations of each of the Loan Parties under this Agreement and the Notes and the other Loan Documents rank at least pari passu in right of payment with all other subordinated Indebtedness of such Loan Parties. 3.19 Foreign Subsidiaries. Each Foreign Subsidiary will have full right and authority to enter into the Loan Documents to which it is a party and each Loan Document to which it is a party will constitute a valid and legally binding obligation of such Foreign Subsidiary enforceable in accordance with their respective terms except as such terms may be limited by the application of bankruptcy, moratorium, insolvency and similar laws affecting the rights of creditors generally and by general equitable principles affecting the availability of specific performance and other remedies. 3.20 Solvency. Each Loan Party is, and after giving effect to the Transactions and the incurrence of all Indebtedness and obligations being incurred in connection herewith and therewith will be and will continue to be, Solvent. 3.21 Purpose of Loans. The proceeds of the Loans shall be used to (i) finance a portion of the Acquisition and (ii) pay certain transactions costs, fees and expenses related to the Acquisition and the financing thereof. 3.22 Delivery of the Transaction Documents. The Administrative Agent has received for itself and for each Lender a complete photocopy of each of the Transaction Documents (including all exhibits, schedules and disclosure letters referred to therein or delivered pursuant thereto, if any) and all amendments thereto, waivers relating thereto and other side letters or agreements affecting the terms thereof in any material respect. 3.23 Representations and Warranties Contained in the Transaction Documents. Each of the other Transaction Documents have been duly executed and delivered by the Loan Parties party thereto and, to the best knowledge of the Borrower have been duly executed and are in full effect. The representations and warranties of the Borrower and to the best of knowledge of Borrower, the representations and warranties with respect to the Target, are accurate and correct with respect to each of the Transaction Documents. SECTION 4. CONDITIONS PRECEDENT 51 46 4.1 Conditions to Effective Date. This Agreement shall become effective on the date of the satisfaction of the conditions precedent set forth in this subsection 4.1 (the date on which such conditions are satisfied, the "Effective Date"): (a) Credit Agreement. The Administrative Agent shall have received this Agreement, executed and delivered by a duly authorized officer (or a duly authorized representative) of the Borrower, with a counterpart or copy for each Lender. (b) Corporate Proceedings. The Administrative Agent shall have received, with a counterpart or copy for each Lender, a copy of the resolutions, in form and substance satisfactory to the Administrative Agent, of the Board of Directors of the Borrower and each other Loan Party, authorizing (i) the execution, delivery and performance by it of this Agreement and the Loan Documents to which it is a party and (ii) the borrowings by it contemplated hereunder, certified by the Secretary or an Assistant Secretary of the Loan Party or such other Loan Party, as the case may be, as of the Effective Date, which certificate shall be in form and substance satisfactory to the Administrative Agent and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. (c) Incumbency Certificate. The Administrative Agent shall have received, with a counterpart or copy for each Lender, a certificate of the Borrower, dated the Effective Date, as to the incumbency and signature of the officers or representatives of each Loan Party executing any Loan Document on the Effective Date, satisfactory in form and substance to the Administrative Agent, executed by any of the Chief Executive Officer, the President, the Chief Financial Officer, the Treasurer or the Controller of the Borrower and the Secretary or any Assistant Secretary (or a duly authorized representative, if such representative is also a duly authorized officer of the Borrower or otherwise authorized by the Borrower) of the Borrower. (d) Corporate Documents. The Administrative Agent shall have received, with a counterpart or copy for each Lender, true and complete copies of the certificate of incorporation and by-laws of the Borrower and each other Loan Party that is a party hereto on the Effective Date, certified as of the Effective Date as complete and correct copies thereof by the Secretary or an Assistant Secretary or a duly authorized representative of the Borrower or such other Loan Party, as the case may be. (e) Approvals. All governmental and third party approvals necessary in connection with the transactions contemplated hereby shall have been obtained and be in full force and effect (other than (i) any such approvals which will be set forth in the Offer Documents as conditions to the Tender Offer and (ii) other approvals the failure to obtain which could not reasonably be expected to have a Material Adverse Effect). The Administrative Agent shall have received a certificate of a Responsible Officer of the Borrower to the foregoing effect, to which shall be attached copies of any such approvals theretofore obtained. (f) Fees. The Administrative Agent shall have received all fees to be received by the Administrative Agent or Chase on or prior to the Effective Date in connection with this Agreement. 52 47 (g) Legal Opinions. The Administrative Agent shall have received the executed legal opinion of (i) Diane L. Kaye, Esq., General Counsel of the Borrower and (ii) Cleary Gottlieb Steen & Hamilton, counsel to the Borrower, each given upon the express instructions of the Borrower, substantially in the forms of Exhibits F-1 and F-2, respectively. After the document delivery conditions set forth above in this subsection have been satisfied, the Administrative Agent will, at the request of the Borrower, provide to the Borrower written confirmation that such conditions have been satisfied. 4.2 Conditions to Closing Date. The obligation of each Lender to make its Initial Loan is subject to the satisfaction of the following conditions precedent on the date of such Initial Loans, which date shall in any event be on or after the Effective Date and on or prior to the last day of the Initial Loan Commitment Period (the date on which such conditions are satisfied, the "Satisfaction Date"): (a) Senior Credit Agreement. (i) the Borrower shall have received net cash proceeds from the issuance of term loans under the Senior Credit Facility and (ii) the Administrative Agent shall have received, with a copy for each Lender, true and correct copies, certified as to authenticity by the Borrower of the Senior Credit Documents. (b) Existing Credit Agreement. All loans, accrued interest, fees and any other amounts owing to the respective lenders and agents under the Existing Credit Agreement shall have been paid in full, and the commitments to make loans thereunder shall have been cancelled. (c) Note Guarantee. The Administrative Agent shall have received each Note Guarantee executed and delivered by a duly authorized officer of each Note Guarantor. (d) Offer Documents; Terms of Tender Offer. The terms of the Tender Offer as set forth in the Press Release shall have been approved by the Administrative Agent prior to the public announcement thereof by U.K. Acquisition II. The Administrative Agent shall have received copies of the Offer Documents, and of all other documents and materials filed or released publicly by the Borrower or U.K. Acquisition II in connection with the Tender Offer, certified as true and correct copies thereof as of the Closing Date by a Responsible Officer of the Borrower, and the conditions set forth in such documents shall conform to the conditions set forth in the Press Release as approved by the Administrative Agent prior to the release thereof. (e) The Tender Offer. The Tender Offer shall have been declared fully unconditional on behalf of U.K. Acquisition II, without any amendment, supplement, modification or waiver of the terms thereof contained in the Press Release not consented to by the Required Lenders, other than (i) any amendments, supplements, modifications or waivers which in the aggregate are not material and (ii) any waiver of the conditions contained in the Press Release, relating to matters other than aggregate purchase price and minimum acceptance conditions, that is required by the Panel. (f) Illegality. (i) The borrowings hereunder and the use of proceeds thereof shall not violate any Requirement of Law of the United States or the United Kingdom applicable 53 48 to the Borrower and (ii) the making of the Initial Loans shall not violate any Requirement of Law of the United States or the United Kingdom applicable to the Lenders. (g) Representation and Warranties. The representations and warranties contained in subsections 3.3, 3.4, 3.5, 3.12, and 3.14 shall be true and correct in all material respects as if made on and as of such date. (h) No Injunction, etc. There shall not be in effect any injunction or restraining order of any Governmental Authority having jurisdiction to issue such injunction or restraining order prohibiting the making of the Initial Loans made on such date, the use of the proceeds thereof or the consummation of the Tender Offer or the Acquisition. (i) No Default. No Default or Event of Default shall have occurred or be continuing under (i) paragraph (a) of Article XII of the Senior Credit Agreement or (ii) paragraph (f) of Section 7 of this Agreement (only to the extent such paragraph (f) relates to the Borrower or U.K. Acquisition II). (j) Certificate. The Administrative Agent shall have received a certificate of a Responsible Officer to the effect set forth in paragraphs (f)(i), (g), (h) and (i) above substantially in the form of Exhibit D. (k) Legal Opinions. The Administrative Agent shall have received the executed legal opinion of (i) Diane L. Kaye, Esq., General Counsel of the Borrower, substantially in the form of Exhibit F-3 and (ii) Cleary Gottlieb Steen & Hamilton, counsel to the Borrower, substantially in the form of Exhibit F-4. (l) Related Agreements. The Administrative Agent shall have received, with a copy for each Lender, true and correct copies, certified as to authenticity by the Borrower of (i) a Loan Note conforming to the requirements hereof and executed by a duly authorized officer of the Borrower, pursuant to subsection 2.04(e) and (ii) each Note Guarantee, if any, to be entered into on the Closing Date, executed and delivered by a duly authorized officer of the relevant Note Guarantor. SECTION 5. AFFIRMATIVE COVENANTS From and after the Closing Date, the Borrower hereby covenants and agrees that so long as any of the Commitments remain in effect, any Loan or Loan Note remains outstanding and unpaid or any other amount is owing to any Lender or the Administrative Agent hereunder, the Borrower will comply with the covenants set forth below in this Section 5: 54 49 5.1 Financial Statements. The Borrower will furnish to each Lender: (a) as soon as available, but in any event within 120 days after the end of each fiscal year of the Borrower, a copy of the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such year and the related consolidated statements of income and cash flows for such year, setting forth in each case in comparative form the figures for the previous year, certified without qualification or exception by independent public accountants of nationally recognized standing selected by the Borrower, it being understood and agreed that the delivery of the Borrower's Annual Report on Form 10-K for such fiscal year signed by a Responsible Officer will satisfy the requirement set forth in this clause; and (b) as soon as available, but in any event within 60 days after the end of each of the first three quarterly periods of each fiscal year of the Borrower, a copy of the unaudited consolidated condensed balance sheet of the Borrower and its Subsidiaries as at the end of each such quarter and the related unaudited consolidated condensed statements of income and cash flows of the Borrower and its Subsidiaries for the portion of the fiscal year through such date, setting forth in each case in comparative form such figures for the previous year, certified by a Responsible Officer, it being understood and agreed that the delivery of the Borrower's Quarterly Report on Form 10-Q for the relevant fiscal quarter signed by a Responsible Officer will satisfy the requirement set forth in this clause; all such financial statements to be complete and correct in all material respects and prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except for such changes in accounting principles as may be approved by such Responsible Officer and concurred in by the Borrower's independent public accountants and disclosed therein). 5.2 Certificates; Other Information. The Borrower will furnish to each Lender: (a) concurrently with each delivery of the financial statements referred to in subsections 5.1(a) and (b), a certificate of a Responsible Officer in the form of Exhibit D (i) stating that such officer has no knowledge of any Default or Event of Default except as specified in such certificate and (ii) showing in reasonable detail the calculations supporting such statement in respect of subsections 6.1 and 6.2; (b) on or prior to February 28 of each year, a copy of the projections by the Borrower of the operating budget and cash flow budget of the Borrower and its Subsidiaries for the succeeding fiscal year, such projections to be accompanied by a certificate of a Responsible Officer to the effect that such projections have been prepared on a reasonable basis and in good faith, it being understood that no representation or warranty shall be deemed to be made concerning the projections and budgets and the assumptions on which they were based, except that as of the date on which such projections and budgets were generated, (a) they were based on the good faith assumptions of the management of the Borrower and (b) such assumptions were believed by such management to be reasonable; (c) promptly after the same are sent, copies of all financial statements and reports which the Borrower sends to its common or preferred stockholders as a class, and promptly after the same are filed, copies of all regular, periodic and special reports which the Borrower may file 55 50 with the Securities and Exchange Commission or any successor or analogous Governmental Authority; (d) if requested by the Administrative Agent or by any Lender through the Administrative Agent, promptly after the same is furnished to PBGC, copies of all information furnished by the Borrower, any Subsidiary or any Commonly Controlled Entity to PBGC, except, in each case, information furnished as to ordinary operational aspects of the business of the Borrower or any Subsidiary and not relating to any deviation by the Borrower or any Subsidiary from rules and regulations of PBGC; and (e) promptly, such additional financial and other information as any Lender may from time to time reasonably request. 5.3 Accrual of Liabilities; Payment of Obligations. The Borrower will maintain, and cause each of its Subsidiaries to maintain, in accordance with GAAP, appropriate reserves for the accrual of taxes and all other obligations, liabilities and claims and pay, discharge or otherwise satisfy, and cause each of its Subsidiaries to pay, discharge or otherwise satisfy, at or before their maturity or before they become delinquent, as the case may be, all obligations except (a) where the same are being contested in good faith by appropriate proceedings diligently pursued or (b) where the failure so to pay, discharge or otherwise satisfy obligations would not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.4 Maintenance of Corporate Existence; Maintenance of Properties. The Borrower will (a) maintain its corporate existence, rights and franchises necessary to continue its business and the corporate existence, rights and franchises necessary to continue the business of each of its Subsidiaries, provided that the foregoing shall not be a limitation (i) on the right of the Borrower to discontinue any operations if in the opinion of the Borrower such discontinuance is in the best interest of the Borrower and would not materially affect the ability of the Borrower to pay its debts as they become due, (ii) on asset sales permitted under subsection 6.4 and (iii) on the right of any Subsidiary of the Borrower to merge with or be liquidated into the Borrower or another Subsidiary of the Borrower if a Default does not then exist and would not result therefrom; and (b) maintain, and cause each Subsidiary to maintain, the properties which are used or useful in its respective operations in good working order and condition. 5.5 Insurance. The Borrower will maintain, and cause each of its Subsidiaries to maintain, insurance with financially sound and reputable companies in such form and upon such terms and in such amounts and against such risks (including liability for bodily injury and property damage) and subject to such deductibles or retentions as in the reasonable opinion of the Borrower is available on commercially reasonable terms and will provide sound and reasonable protection for the Borrower's or such Subsidiary's assets and operations. At the Administrative Agent's request, the Borrower will furnish to the Administrative Agent (with copies for each Lender) certificates of insurance or other evidence that such insurance is being maintained. 5.6 Notices. The Borrower will (a) promptly give notice in writing to the Administrative Agent (which shall promptly notify each Lender) of the occurrence of any Default or Event of Default under this Agreement, or of the commencement of (i) any material litigation or proceedings affecting the Borrower or any Subsidiary or (ii) any dispute between the Borrower or any Subsidiary and any Governmental Authority or any other party if such litigation, proceedings or dispute could reasonably be expected to result in a Material Adverse Effect; and (b) as soon as 56 51 possible and in any event within 45 days after the Borrower knows or has reason to know that any Reportable Event (other than a Reportable Event not subject to the provision for 30-day notice to PBGC pursuant to the regulations issued under ERISA) has occurred with respect to any Single Employer Plan or that PBGC or any Loan Party or any Commonly Controlled Entity has instituted or will institute proceedings under Title IV of ERISA to terminate any Single Employer Plan, deliver to the Administrative Agent (which shall promptly notify each Lender) a certificate of a Responsible Officer of the Borrower setting forth details as to such Reportable Event and the action that the Borrower proposes to take with respect thereto, together with a copy of any notice of such Reportable Event that may be required to be filed with PBGC, or any notice delivered by PBGC evidencing its intent to institute such proceedings or any notice to PBGC that such Plan is to be terminated, as the case may be. For all purposes of clause (b) of this subsection 5.6, the Borrower shall be deemed to have all knowledge or knowledge of all facts attributable to the administrator of a Single Employer Plan. 5.7 Compliance with Contractual Obligations and Laws. The Borrower will, and will cause each of its Subsidiaries to, comply with all provisions of any Contractual Obligation, applicable law, rule, regulation, order, writ, judgment, injunction, decree, award or ordinance to which it is subject, except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 5.8 Access to Books and Inspection. The Borrower shall keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and give the Administrative Agent and any reasonable number of representatives of the Lenders access, at the Borrower's principal office, upon reasonable notice during normal business hours to, and permit any such representatives to examine, copy or make excerpts from, any and all books, records and documents in the possession of the Borrower relating to its affairs and the affairs of the Subsidiaries, and to inspect any of the properties of the Borrower or the Subsidiaries. Notwithstanding any provision in this subsection, the Borrower (i) shall be given a reasonable opportunity upon reasonable notice to have an officer or officers of the Borrower accompany any such representative during any such visit, and (ii) shall not be responsible for any expenses incurred by any such representative. 57 52 5.9 Environmental Laws. The Borrower will, and will cause each Subsidiary to, (a) comply with, and ensure compliance by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws except to the extent that the failure to do so, or any aggregation thereof, is not reasonably likely to result in the payment of a Material Environmental Amount, (b) conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings is not reasonably likely to result in the payment of a Material Environmental Amount and (c) defend, indemnify and hold harmless the Administrative Agent and the Lenders, and their respective employees, agents, officers and directors, from and against any and all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Borrower, any of its Subsidiaries or the Properties, or any orders, requirements or demands of Governmental Authorities related thereto, including, without limitation, investigation and laboratory fees, response costs, court costs, litigation expenses and reasonable attorneys' and consultants' fees, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. The agreements in clause (c) of this subsection shall survive repayment of the Loans and Loan Notes and all other amounts payable hereunder. 5.10 Additional Guarantees. With respect to any new Subsidiary (other than an Excluded Foreign Subsidiary) created or acquired after the Closing Date by the Borrower or any Domestic Subsidiary (which new Subsidiary, for purposes of this Section 5.10, shall include any existing Subsidiary that ceases to be an Excluded Foreign Subsidiary and, at the request of the Administrative Agent, shall also include any Foreign Subsidiary (other than any Excluded Foreign Subsidiary) of the Borrower or any Domestic Subsidiary which is in existence on the Closing Date but does not execute a Note Guarantee on the Closing Date), the Borrower or its Subsidiaries, as applicable, shall promptly cause such new Subsidiary to become a party to the relevant Note Guarantee, and if reasonably requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. 5.11 Interest Rate Protection. The Borrower shall, within six months after the Closing Date, obtain interest rate protection in respect of the amount, if any, of the floating rate indebtedness of the Borrower and it Subsidiaries in excess of $1,000,000,000, for periods and pursuant to terms and conditions reasonably acceptable to the Administrative Agent. 5.12 Consummation of Compulsory Acquisition. As promptly as reasonably practicable after the Closing Date, the Borrower shall cause U.K. Acquisition II to consummate the Compulsory Acquisition in respect of the Target Shares, and related Options, not already owned by U.K. Acquisition II. 5.13 Take-Out Financing. (a) Use its best efforts to cause to be declared effective a registration statement with respect to the Take-Out Financing or to effect a private placement 58 53 thereof pursuant to Rule 144A of the Securities Act as soon as reasonably practicable after the Closing Date. The Borrower will give the Administrative Agent prior notice of its intention to file the registration statement or to effect a private placement of the Take-Out Financing. The Borrower will notify the Administrative Agent promptly upon the receipt of any comments from the SEC in connection with the registration statement, will furnish the Administrative Agent with a copy of any written comments from the SEC, will respond in a reasonably prompt manner and appropriately to any such comments and will furnish a copy to the Administrative Agent of any such response to the SEC. (b) In connection with the Borrower's covenants with respect to this Section 5.13 the Borrower shall deliver to the Administrative Agent, by the date that is 90 days after the acquisition of 90% of the ordinary shares of the Target, a substantially complete initial draft of a Registration Statement or a Rule 144A Offering Memorandum relating to the Take-Out Financing (including audited financial statements or draft audited financial statements for the three preceding years, pro forma financial information and such other financial information as may be required by applicable law). 5.14 Exchange Notes. (a) The Borrower shall, as promptly as practicable after being requested to do so by the Administrative Agent at any time after the nine month anniversary of the Closing Date and in any event prior to the Initial Maturity Date, select a trustee meeting the requirements of Section 5.14(c) and enter into the Senior Subordinated Indenture. The Borrower shall cause the Note Guarantors in respect of the Note Guarantees then in effect to execute and deliver senior subordinated guarantees of the Exchange Notes on terms similar to those contained in such Note Guarantees. (b) On or prior to the Initial Maturity Date the Borrower shall: (i) execute and deliver, and cause a bank or trust company acting as trustee thereunder to execute and deliver, the Senior Subordinated Indenture if such Senior Subordinated Indenture has not previously been executed and delivered; and (ii) execute and deliver to each requesting Lender in accordance with the Senior Subordinated Indenture an Exchange Note bearing interest as set forth therein in exchange for the relevant Initial Loan or Term Note dated the date of the issuance of such Exchange Note, payable to the order of such holder or owner, as the case may be, in the same principal amount as such Initial Loan or Term Note (or portion thereof) being exchanged. The exchange request ("Exchange Request") shall specify the principal amount of the Term Notes to be exchanged pursuant to this Section 5.14, which shall be at least $1,000,000 and integral multiples of $100,000 in excess thereof. Initial Loans and Term Notes delivered to Borrower under this Section 5.14 in exchange for Exchange Notes shall be canceled by the Borrower and the corresponding amount of the Initial Loan or Term Loan deemed repaid and the Exchange Notes shall be governed by and construed in accordance with the terms of the Senior Subordinated Indenture. (c) The bank or trust company acting as trustee under the Senior Subordinated Indenture shall at all times be a corporation organized and doing business under the laws of the United States of America or any state thereof, in good standing, which is authorized under such 59 54 laws to exercise corporate trust powers and is subject to supervision or examination by Federal or state authority and which has a combined capital and surplus of not less than $500,000,000. (d) If Exchange Notes are issued pursuant to the terms hereof, then the holders of such Exchange Notes shall have the registration rights, as set forth in an exhibit to the Senior Subordinated Indenture. 5.15 U.K. Acquisition I Corporate Documents. (a) As soon as practicable after the Closing Date, the Borrower shall deliver to the Administrative Agent, with a counterpart or copy for each Lender, the following documents, certified as complete and correct copies thereof by the Secretary or an Assistant Secretary or a duly authorized representative of U.K Acquisition I, in each case in form and substance satisfactory to the Administrative Agent: (i) the statutory declaration of each member of the Board of Directors of U.K. Acquisition I; (ii) the auditor's report in respect of U.K. Acquisition I; (iii) the resolutions of the Board of Directors of U.K. Acquisition I authorizing the execution, delivery and performance of the Loan Documents to which it is a party (including a U.K. Acquisition I Guarantee in respect of all obligations of the Borrower hereunder without limitation as to amount), certified by the Secretary or an Assistant Secretary of U.K. Acquisition I, which certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded; and (iv) such other documents as shall be required to effect and evidence an exemption from the financial assistance requirements of Section 151 of the Companies Act. (b) Promptly upon the completion of steps set forth in paragraph (a) above, the Borrower shall cause U.K. Acquisition I to (i) execute and deliver to the Administrative Agent the U.K. Acquisition I Guarantee and (ii) deliver to the Administrative Agent a legal opinion relating to the U.K. Acquisition I Guarantee, which opinion shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. 5.16 Further Assurances. Upon reasonable request of the Administrative Agent, execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Agreement. SECTION 6. NEGATIVE COVENANTS From and after the Closing Date, so long as any Loan or Loan Note remains outstanding and unpaid, or any other amount is owing to any Lender or the Administrative Agent hereunder or under any other Loan Document: 6.1 Limitation on Indebtedness. (a) The Borrower shall not, and shall not permit any of its Restricted Subsidiaries to, Incur any Indebtedness; provided, however, that on or after the 60 55 Initial Maturity Date the Borrower may Incur Indebtedness if on the date of Incurrence the Consolidated Coverage Ratio would be greater than 2.50 : 1.00, if such Indebtedness is Incurred on or prior to the first anniversary of the Initial Maturity Date, and 2.75 : 1.00, if such Indebtedness is Incurred thereafter. (b) Notwithstanding Section 6.1(a), the Borrower and its Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness Incurred pursuant to (A) the Senior Credit Agreement (including, without limitation, any renewal, extension, refunding, restructuring, replacement or refinancing thereof) or (B) any other agreements or indentures governing, guaranteeing or securing the Senior Credit Facility; provided, however, that the aggregate principal amount of the Indebtedness Incurred pursuant to this clause (i) does not exceed $2,750,000,000 at any time outstanding, less repayments of term loans and reductions in term loan commitments to the extent made in accordance with the Senior Credit Agreement (and to the extent, in the case of a repayment of revolving credit Indebtedness, the commitment to advance the loans repaid has been terminated); (ii) Indebtedness represented by Capitalized Lease Obligations, mortgage financings or purchase money obligations, in each case Incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property used in a Related Business, in each case Incurred no later than 365 days after the date of such acquisition or the date of completion of such construction or improvement and Refinancing Indebtedness in respect of such Capitalized Lease Obligations, mortgage financings or purchase money obligations; provided, however, that the principal amount of any Indebtedness Incurred pursuant to this Section 6.1(b)(ii) shall not exceed $50,000,000 at any time outstanding; (iii) Permitted Indebtedness; (iv) Indebtedness (other than Indebtedness described in clauses (i)-(iii)) in a principal amount which, when taken together with the principal amount of all other Indebtedness Incurred pursuant to this Section 6.1(b)(iv) and then outstanding, will not exceed $150,000,000; and (v) Indebtedness in respect of Guarantees by any Subsidiary which is a party to a Note Guarantee, in respect of the obligations of the Borrower under the ESOP Guaranty or the obligations of Federal-Mogul Corporation Salaried Employees' Ownership Trust under the ESOP Loan Agreement, provided that each such Guaranty shall provide that when any Note Guarantor party to such Guaranty is released from its obligations under the Note Guaranty to which it is a party, such Note Guarantor shall be released from its obligations under such Guaranty. (c) Notwithstanding the foregoing, the Borrower shall not Incur any Indebtedness under Section 6.1(b) if the proceeds thereof are used, directly or indirectly, to refinance any Subordinated Obligations of the Borrower unless such Indebtedness shall be subordinated to the Notes to at least the same extent as such Subordinated Obligations. Restricted Subsidiaries of the Borrower shall not incur any Indebtedness, the proceeds of which are used, 61 56 directly or indirectly, to refinance Indebtedness of the Borrower. No Note Guarantor shall Incur any Indebtedness under Section 6.1(b) if the proceeds thereof are used, directly or indirectly, to refinance any Guarantor Subordinated Obligation of such Note Guarantor unless such Indebtedness shall be subordinated to the obligations of such Guarantor under the Note Guarantee to at least the same extent as such Guarantor Subordinated Obligation. (d) In addition, the Borrower shall not Incur any Secured Indebtedness which is not Senior Indebtedness unless contemporaneously therewith effective provision is made to secure the Notes equally and ratably with such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. No Note Guarantor shall Incur any Secured Indebtedness which is not Senior Indebtedness unless contemporaneously therewith effective provision is made to secure such Note Guarantor's obligations under the Note Guarantee equally and ratably with such Secured Indebtedness for so long as such Secured Indebtedness is secured by a Lien. (e) The Borrower will not permit any Unrestricted Subsidiary to incur any Indebtedness other than Non-Recourse Debt; provided, however, if any such Indebtedness ceases to be Non-Recourse Debt, such event shall be deemed to constitute an incurrence of Indebtedness by the Borrower or a Restricted Subsidiary. (f) The Borrower shall not Incur any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is contractually subordinated in right of payment to Senior Subordinated Indebtedness. No Note Guarantor shall Incur any Indebtedness if such Indebtedness is contractually subordinate or junior in ranking in any respect to any Senior Indebtedness of such Note Guarantor unless such Indebtedness is Senior Subordinated Indebtedness of such Note Guarantor or is contractually subordinated in right of payment to Senior Subordinated Indebtedness of such Note Guarantor. (g) Notwithstanding the foregoing, no Restricted Subsidiary of the Borrower shall issue any Preferred Stock to any Person other than the Borrower or a Restricted Subsidiary. 6.2 Limitation on Restricted Payments. (a) On or prior to the Initial Maturity Date, the Borrower shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving the Borrower) except dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) or in options, warrants or rights to purchase such Capital Stock and except dividends or distributions payable to the Borrower or any Restricted Subsidiary (and if such Restricted Subsidiary is not a Wholly-Owned Subsidiary, its other holders of Capital Stock on a pro rata basis), (ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Borrower or any Restricted Subsidiary held by Persons other than the Borrower or another Subsidiary, in any case other than in exchange for its Capital Stock (other than Disqualified Stock) or to the extent that after giving effect to such purchase, redemption, retirement or other acquisition, such Restricted Subsidiary would become a Wholly-Owned Subsidiary, (iii) purchase, repurchase, redeem, prepay interest, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment any Subordinated Obligation (other than the purchase, repurchase or other acquisition of Subordinated Obligation purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition) or (iv) make any Investment (other than a 62 57 Permitted Investment) in any Person (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment being herein referred to as a "Restricted Payment"); provided, however, that the Borrower or any Restricted Subsidiary may make Restricted Payments so long as no Default or Event of Default has occurred and is continuing or would be continuing after giving effect to such Restricted Payment in respect of (A) the repurchase of Capital Stock of the Borrower or any Subsidiary from an employee of the Borrower or any Subsidiary or their assigns, estates or heirs upon the death, retirement or termination of such employee, (B) payments to permit the Borrower to purchase its Capital Stock in order to fulfill the Borrower's and/or its Restricted Subsidiaries' obligations under any employee stock purchase plan, (C) loans or advances to employees of the Borrower or any Subsidiary made in the ordinary course of business and (D) dividends in respect of (1) the Borrower's preferred stock at the stated rate, (2) the Borrower's common stock at a rate not exceeding $.48 per share per year, as adjusted for stock splits and similar events and (3) Take-Out Financing to the extent the proceeds thereof are actually applied to the prepayment of Senior Credit Facility Loans or Loans under this Agreement and the related commitments are terminated; provided, further, that (i) the aggregate amount of Restricted Payments permitted in clauses (A), (B) and (C) above (such Restricted Payments, "Permitted Employee Payments"), shall not exceed $15,000,000 in the aggregate at any time (giving effect to any repayments); provided, however, that Permitted Employee Payments shall be included in the calculation of the amount of Restricted Payments made pursuant to Section 6.2(b) and (ii) the Restricted Payments permitted by clause (D) shall be included in the calculation of the amount of Restricted Payments made pursuant to clause 6.2(b). (b) After the Initial Maturity Date, the Borrower shall not, and shall not permit any of its Restricted Subsidiaries, directly or indirectly, to make any Restricted Payment if at the time the Borrower or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); or (2) the Borrower is not able to incur an additional $1.00 of Indebtedness pursuant to Section 6.1(a); or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made on or after the Initial Maturity Date would exceed 25% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the Initial Maturity Date to the end of the most recent fiscal quarter ending prior to the date of such Restricted Payment as to which financial results are available (but in no event ending more than 135 days prior to the date of such Restricted Payment) (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (c) The provisions of Section 6.2(b) shall not prohibit: (i) any purchase or redemption of Capital Stock or Subordinated Obligations of the Borrower made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Borrower (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan or similar trust); provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (ii) any purchase or redemption of Subordinated Obligations of the Borrower made by exchange for, or out of the proceeds of the substantially concurrent sale of, Subordinated Obligations of the Borrower; provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; 63 58 (iii) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted under Section 6.4; provided, however, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (iv) dividends paid within sixty (60) days after the date of declaration if at such date of declaration such dividend would have complied with this provision; provided, however, that such dividend shall be included in the calculation of the amount of Restricted Payments; (v) payments to enable the Borrower to make cash payments to holders of its Capital Stock in lieu of the issuance of fractional shares of its Capital Stock; provided, however, that such amount shall be included in the calculation of the amount of Restricted Payments; (vi) Restricted Payments of the type permitted by Section 6.2(a); and (vii) Restricted Payments to permit the Borrower to purchase its Capital Stock in order to fulfill the Borrower's and/or its Subsidiaries' obligations under any employee stock purchase plan in an aggregate net amount not to exceed $15,000,000; provided, however, that such amount shall be included in the calculation of the amount of Restricted Payments. 6.3 Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Borrower shall not, and shall not permit any of its Restricted Subsidiaries to, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any such Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligation owed to the Borrower, (ii) make any loans or advances to the Borrower or (iii) transfer any of its property or assets to the Borrower; except: (a) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Closing Date, including the Senior Credit Documents; (b) any encumbrance or restriction with respect to such a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness issued by such Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by the Borrower and outstanding on such date (other than Indebtedness issued as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary of the Borrower or was acquired by the Borrower); (c) any encumbrance or restriction with respect to such a Restricted Subsidiary pursuant to an agreement effecting a refinancing of Indebtedness issued pursuant to an agreement referred to in clauses (a) or (b) or this clause (c) or contained in any amendment to an agreement referred to in clauses (a) or (b) or this clause (c); provided, however, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such refinancing agreement or amendment, taken as a whole, are no less favorable to the Lenders in any material respect, as determined in good faith by the senior management 64 59 of the Borrower or Board of Directors of the Borrower, than encumbrances and restrictions with respect to such Restricted Subsidiary contained in agreements in effect at, or entered into on, the Closing Date; (d) in the case of clause (iii) of this Section 6.3, any encumbrance or restriction (A) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset, (B) by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Borrower or any Restricted Subsidiary not otherwise prohibited by this Agreement, (C) that is included in a licensing agreement to the extent such restrictions limit the transfer of the property subject to such licensing agreement or (D) arising or agreed to in the ordinary course of business and that does not, individually or in the aggregate, detract from the value of property or assets of the Borrower or any of its Subsidiaries in any manner material to the Borrower or any such Restricted Subsidiary; (e) in the case of clause (iii) of this Section 6.3, restrictions contained in security agreements, mortgages or similar documents securing Indebtedness of a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements; (f) any restriction with respect to such a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition; and (g) encumbrances or restrictions arising or existing by reason of applicable law. 6.4 Limitation on Sales of Assets and Subsidiary Stock. (a) The Borrower shall not, and shall not permit any of its Restricted Subsidiaries to, make any Asset Disposition unless: (i) the Borrower or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value, as determined in good faith by the Borrower's senior management or the Board of Directors (including as to the value of all non-cash consideration), of the shares and assets subject to such Asset Disposition; (ii) at least (A) prior to the Initial Maturity Date, 90% and (B) on or after the Initial Maturity Date, 80% of the consideration thereof received by the Borrower or such Restricted Subsidiary is in the form of cash or cash equivalents; and (iii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Borrower (or such Restricted Subsidiary, as the case may be): (A) first, to the extent the Borrower or any Restricted Subsidiary elects (or is required by the terms of any Senior Indebtedness), to prepay, repay or purchase (x) Senior Indebtedness or (y) Indebtedness (other than Preferred Stock) of a Wholly-Owned Subsidiary (in each case other than Indebtedness owed to the Borrower) within (I) sixty (60) days for the period 65 60 prior to the Initial Maturity Date and (II) 365 days, for Asset Dispositions occurring on or after the Initial Maturity Date, from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) second, for any Asset Disposition which occurs on or after the Initial Maturity Date, within 365 days from the receipt of such Net Available Cash, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), at the Borrower's election either (x) to the investment in or acquisition of Additional Assets or (y) to prepay, repay or purchase (1) Senior Indebtedness or (2) Indebtedness (other than Preferred Stock) of a Wholly-Owned Subsidiary (in each case other than Indebtedness owed to the Borrower); (C) third, (I) for any Asset Disposition which occurs prior to the Initial Maturity Date, within sixty (60) days after the application of Net Available Cash in accordance with clause (A) or (II) for any Asset Disposition which occurs on or after the Initial Maturity Date, after the later of the application of Net Available Cash in accordance with clauses (A) and (B) and the date that is 365 days from the receipt of such Net Available Cash, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B), to redeem the Loans and Exchange Notes at par plus accrued and unpaid interest, if any, thereon in accordance with Section 2.5(d); and (D) fourth, for any Asset Disposition which occurs on or after the Initial Maturity Date, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), to (w) the investment in or acquisition of Additional Assets, (x) the making of Temporary Cash Investments, (y) the prepayment, repayment or purchase of Indebtedness of the Borrower or Indebtedness of any Restricted Subsidiary (other than Indebtedness owed to the Borrower) or (z) any other purpose otherwise permitted under this Agreement. provided, however, that, in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A), (B), (C) or (D), the Borrower or such Restricted Subsidiary shall retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions, the Borrower and its Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance herewith except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this covenant exceeds (1) $2,500,000 prior to the Initial Maturity Date and (2) $5,000,000 thereafter. For the purposes of this covenant, the following will be deemed to be cash: (x) the assumption by the transferee of Senior Indebtedness of the Borrower or Indebtedness of any Restricted Subsidiary of the Borrower and the release of the Borrower or such Restricted Subsidiary from all liability on such Senior Indebtedness or Indebtedness in connection with such Asset Disposition (in which case the Borrower shall, without further action, be deemed to have applied 66 61 such assumed Indebtedness in accordance with clause (A) of the preceding paragraph) and (y) securities received by the Borrower or any Restricted Subsidiary of the Borrower from the transferee that are promptly converted by the Borrower or such Restricted Subsidiary into cash. 6.5 Limitation on Affiliate Transactions. (a) The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into or conduct any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Borrower other than a Wholly-Owned Subsidiary (an "Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction are no less favorable to the Borrower or such Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate; and (ii) in the event such Affiliate Transaction involves an aggregate amount in excess of $2,500,000, the terms of such transaction have been approved by a majority of the members of the Board of Directors of the Borrower and by a majority of the disinterested members of such Board, if any (and such majority or majorities, as the case may be, determines that such Affiliate Transaction satisfies the criteria in (i) above). (b) The foregoing provisions of Section 6.5(a) shall not apply to (i) any Restricted Payment permitted to be made pursuant to Section 6.2, (ii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors of the Borrower, (iii) loans or advances to employees in the ordinary course of business of the Borrower or any of its Restricted Subsidiaries, (iv) any transaction between Wholly-Owned Subsidiaries or between the Borrower and Wholly Owned Subsidiaries, (v) indemnification agreements with, and the payment of fees and indemnities to, directors, officers and employees of the Borrower and its Restricted Subsidiaries, in each case in the ordinary course of business, (vi) transactions pursuant to agreements as in existence on the Closing Date and amendments to such agreements that would not materially increase the amount payable under such agreements, (vii) any employment, non-competition or confidentiality agreements entered into by the Borrower or any of its Restricted Subsidiaries with its employees in the ordinary course of business, (viii) payments made in connection with the Acquisition, (ix) the issuance of Capital Stock of the Borrower (other than Disqualified Stock) and (x) any transactions between (A) Borrower and any of its Restricted Subsidiaries or (B) between Restricted Subsidiaries of Borrower, as otherwise permitted under this Agreement. 6.6 Change of Control. (a) Upon a Change of Control on or after the Initial Maturity Date, each Holder shall have the right to require that the Borrower repurchase all or any part of such Holder's Loans at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date), such repurchase to be made in accordance with Section 6.6(b). (b) Within thirty (30) days following any Change of Control on or after the Initial Maturity Date, unless the Borrower has mailed a redemption notice with respect to all the outstanding Loans in connection with such Change of Control, the Borrower shall mail a notice to each Holder with a copy to the Trustee stating: (i) that a Change of Control has occurred and that such Holder has the right to require the Borrower to purchase such Holder's Loans at a purchase price in cash equal to 67 62 100% (or in the case of Exchange Notes at a fixed rate of interest, 101%) of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on a record date to receive interest on the relevant interest payment date); (ii) the repurchase date (which shall be no earlier than thirty (30) days nor later than sixty (60) days from the date such notice is mailed); (iii) the procedures determined by the Borrower, consistent with this Section, that a Holder must follow in order to have its Loans purchased; and (iv) the circumstances, facts and relevant financial information related thereto. (c) Holders electing to have a Loan or Loan Note purchased will be required to surrender the Loan Note, with an appropriate form duly completed, to the Borrower at the address specified in the notice at least three (3) Business Days prior to the purchase date. Each Holder will be entitled to withdraw its election if the Borrower receives, not later than the close of business (5:00 p.m. New York City time) on one (1) Business Day prior to the purchase date, a telegram, telex, facsimile transmission or letter from such Holder setting forth the name of such Holder, the principal amount of the Loans which were delivered for purchase by such Holder and a statement that such Holder is withdrawing his election to have such Loans and Loan Notes purchased. (d) On the purchase date, all Notes purchased by the Borrower under this Section shall be delivered to the Trustee for cancellation, and the Borrower shall pay the purchase price plus accrued and unpaid interest, if any, to the Holders entitled thereto. 6.7 Limitation on Capital Stock of Subsidiaries. The Borrower shall not permit any of its Restricted Subsidiaries to issue any Capital Stock to any Person (other than to the Borrower or a Wholly-Owned Subsidiary of the Borrower) or permit any Person (other than the Borrower or a Wholly-Owned Subsidiary of the Borrower) to own any Capital Stock of a Restricted Subsidiary of the Borrower, if in either case as a result thereof such Restricted Subsidiary would no longer be a Restricted Subsidiary of the Borrower; provided, however, that this Section 6.7 shall not prohibit (x) the Borrower or any of its Restricted Subsidiaries from selling, leasing or otherwise disposing of all of the Capital Stock of any Restricted Subsidiary or (y) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary in compliance with this Agreement. 6.8 Merger, Consolidation, etc. The Borrower and Note Guarantors shall not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person, unless: (i) the resulting, surviving or transferee Person (the "Successor Company", or "Successor Guarantor", as the case may be) shall be a corporation, partnership, trust, or limited liability company organized and existing under the laws of the United States of America, any State thereof or the District of Columbia (except that a Successor Guarantor may remain a Foreign Subsidiary in the event of a consolidation, merger or conveyance, transfer or lease of all or substantially all of the assets of a Foreign Subsidiary that is a Note Guarantor) and the Successor Company (if not the Borrower) or Successor Guarantor shall expressly assume, by an assumption agreement supplemental hereto, executed by the Successor Company or Successor Guarantor and delivered to the Administrative Agent, in 68 63 form and substance satisfactory to the Administrative Agent, all the obligations of the Borrower under the Notes, the Loans and this Agreement or such Note Guarantor under the Loan Documents; (ii) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company, the Successor Guarantor or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Company, the Successor Guarantor or such Restricted Subsidiary at the time of such transaction), no Default or Event of Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction, the Successor Company would be able to incur an additional $1.00 of Indebtedness pursuant to Section 6.1(a); and (iv) the Borrower shall have delivered to the Administrative Agent a certificate of a Responsible Officer and an opinion of counsel to Borrower, each stating that such consolidation, merger, transfer or lease and such assumption agreement (if any) comply with this Agreement. The Successor Company shall succeed to, and be substituted for, and may exercise every right and power of, the Borrower under this Agreement, but in the case of a lease of all or substantially all its assets, the Borrower shall not be released from the obligation to pay the principal of and interest on the Loans and the Notes. Notwithstanding clauses (ii) and (iii) of the first sentence of this Section 6.8: (1) any Restricted Subsidiary of the Borrower may consolidate with, merge into or transfer all or part of its properties and assets to the Borrower; (2) any Restricted Subsidiary of the Borrower may consolidate with, merge into or transfer all or part of its properties and assets (the "Merging Restricted Subsidiary") to another Restricted Subsidiary of the Borrower (the "Resulting Restricted Subsidiary"); provided that the Borrower's and/or its Wholly-Owned Subsidiaries' economic and voting ownership interests in the Resulting Restricted Subsidiary is equal to or greater than the economic and voting ownership interests of the Borrower and its Wholly-Owned Subsidiaries' in the Merging Restricted Subsidiary; and (3) the Borrower may merge with an Affiliate incorporated solely for the purpose of reincorporating the Borrower in another jurisdiction to realize tax or other benefits. 6.9 Limitation on Lines of Business. Borrower shall not, and shall not permit any Restricted Subsidiary to, engage in any business other than a Related Business. 69 64 SECTION 7. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) the Borrower shall fail to pay any principal of any Loan when due in accordance with the terms thereof or hereof, or shall fail to redeem or purchase Loans when required pursuant to this Agreement or any Note, in each case whether or not such payment, redemption or purchase shall be prohibited by Section 8; or the Borrower shall fail to pay any interest on any Loan, or any other amount payable hereunder, within ten (10) (or following the Initial Maturity Date, thirty (30)) Business Days after any such interest or other amount becomes due in accordance with the terms thereof or hereof, in each case, whether or not such payment shall be prohibited by Section 8; or (b) Prior to the Initial Maturity Date, any representation or warranty made or deemed made by the Borrower or any other Loan Party herein or in any other Loan Document or which is contained in any certificate, document, or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) the Borrower or any other Loan Party shall default in the observance or performance of any agreement contained in Section 5.13 or 5.14 or Section 6; or (d) the Borrower or any other Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section 7), and such default shall continue unremedied for a period of 30 days after receipt by the Borrower of notice of such default from the Administrative Agent or any Lender; or (e) The Borrower or any of its Subsidiaries shall (i) default in any payment or payments of principal or interest in an aggregate amount for the Borrower and its Subsidiaries of more than $10,000,000 (or its equivalent in another currency) at any one time on any Indebtedness (other than the Loans) or in the payment of more than $10,000,000 in the aggregate under any Guarantees, beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness or Guarantee was created; or (ii) default in the observance or performance of any other agreement or condition relating to any Indebtedness (other than the Loans) the principal amount of which exceeds $10,000,000 in the aggregate for the Borrower and its Subsidiaries or any Guarantee guaranteeing Indebtedness the principal amount of which exceeds $10,000,000 in the aggregate for the Borrower and its Subsidiaries or contained in any instrument or agreement evidencing, securing or relating to any such Indebtedness or Guarantee, beyond any applicable period of grace (not to exceed 30 days), or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Guarantee to become payable; or 70 65 (f) (i) The Borrower or any of its Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Borrower or any of its Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Borrower or any of its Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Borrower or any of its material Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Borrower or any of its Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any of its Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) Prior to the Initial Maturity Date (i) Any Person shall engage in any Prohibited Transaction involving any Plan, (ii) any Accumulated Funding Deficiency, whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could reasonably be expected to have a Material Adverse Effect; or (h) One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance as to which the insurance carrier has admitted liability) of $30,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or (i) The validity or enforceability of this Agreement, any Loan Document or any of the other documents required to be delivered in connection herewith shall be challenged by 71 66 the Borrower or any of its Subsidiaries or shall fail to remain in full force and effect for any reason other than in accordance with its express terms; or (j) A Change of Control shall occur prior to the Initial Maturity Date; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Loan Notes shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the Loan Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable, provided, that, notwithstanding the foregoing, during the Initial Loan Commitment Period (x) if the applicable conditions precedent to any Initial Loan set forth in Section 4 are satisfied, no such declaration under clause (B)(i) or (B)(ii) above shall relieve the Lenders of their obligations to make such Initial Loan, (y) no acceleration of the Loans under clause (B)(i) or (B)(ii) above shall apply to any outstanding Initial Loans until the end of the Initial Loan Commitment Period and, in any event, no acceleration of the Loans under clause (B)(i) or (B)(ii) above shall apply to any amount of outstanding Loans (whether such Loans were made before or after such acceleration) to the extent that the proceeds thereof have not been disbursed to pay Target Shareholders or Optionholders for the purchase of Target Shares or Options pursuant to the Tender Offer (such undisbursed proceeds, "Acquisition Funds") and (z) neither the Administrative Agent nor any Lender will take any enforcement action against any Acquisition Funds or otherwise seek to prevent the disbursement of any Acquisition Funds to pay Target Shareholders or Optionholders for the purchase of Target Shares or Options pursuant to the Tender Offer. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. SECTION 8. SUBORDINATION 8.1 Agreement To Subordinate. The Borrower agrees, and each Lender agrees, that the Loans and Indebtedness evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this Section 8, to the prior payment in full in cash or Cash Equivalents of all Senior Indebtedness and that the subordination is for the benefit of and enforceable by the holders of Senior Indebtedness. The Loans shall in all respects rank pari passu with all other Senior Subordinated Indebtedness of the Borrower and only indebtedness of the Borrower that is Senior Indebtedness shall rank senior to the Loans in accordance with the provisions set forth herein. 8.2 Liquidation; Dissolution; Bankruptcy. Upon any payment or distribution of the assets of the Borrower to creditors upon a total or partial liquidation or a total or partial dissolution 72 67 of the Borrower or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Borrower or its property: (1) holders of Senior Indebtedness shall be entitled to receive payment in full in cash or Cash Equivalents of the Senior Indebtedness before Lenders shall be entitled to receive any payment of principal of, or premium, if any, or interest on the Loans; and (2) until the Senior Indebtedness is paid in full in cash or Cash Equivalents, any payment or distribution to which Lenders would be entitled but for this Section 8 shall be made to holders of Senior Indebtedness as their interests may appear. 8.3 Default on Senior Indebtedness. The Borrower may not pay the principal of, premium, if any, or interest on, the Loans or make any deposit pursuant to any defeasance provision or otherwise purchase or retire any Loans (collectively, "pay the Loans") if (i) any Senior Indebtedness is not paid when due or (ii) any other default on Senior Indebtedness occurs and the maturity of such Senior Indebtedness is accelerated in accordance with its terms unless, in either case, (x) the default has been cured or waived in writing and any such acceleration has been rescinded in writing or (y) such Senior Indebtedness has been paid in full in cash or Cash Equivalents; provided, however, that the Borrower may pay the Loans without regard to the foregoing if the Borrower and the Administrative Agent receive written notice approving such payment from the Representative of the Designated Senior Indebtedness with respect to which either of the events set forth in (i) or (ii) above has occurred and is continuing. During the continuance of any default (other than a default described in clause (i) or (ii) of the preceding sentence) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Borrower may not pay the Loans for a period (a "Payment Blockage Period") commencing upon the receipt by the Borrower and the Administrative Agent of written notice (a "Blockage Notice") of such default from the Representative of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Administrative Agent and the Borrower from the Person or Persons who gave such Blockage Notice, (ii) by repayment in full of such Designated Senior Indebtedness or (iii) because the default giving rise to such Blockage Notice is no longer continuing). Notwithstanding the provisions described in the immediately preceding sentence (but subject to the provisions contained in the first sentence of this Section), unless the holders of such Designated Senior Indebtedness or the Representative of such holders shall have accelerated the maturity of such Designated Senior Indebtedness, the Borrower may resume payments on the Loans after such Payment Blockage Period. Not more than one Blockage Notice may be given in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period; provided, however, that if any Blockage Notice within such 360-day period is given by or on behalf of any holders of Designated Senior Indebtedness (other than the Bank Indebtedness), the Representative of the Bank Indebtedness may give another Blockage Notice within such period; provided further, however, that in no event may the total number of days during which any Payment Blockage Period or Periods is in effect exceed 179 days in the aggregate during any 360 consecutive day period. 8.4 Acceleration of Payment of Loans. If payment of the Loans is accelerated because of an Event of Default, the Borrower and the Administrative Agent shall promptly notify the holders of the Designated Senior Indebtedness of the acceleration. If any Designated Senior 73 68 Indebtedness is outstanding, the Borrower may not pay the Loans until five (5) Business Days after the Representative of the Designated Senior Indebtedness receives notice of such acceleration and, thereafter, may pay the Loans only if this Section 8 otherwise permits the payment at that time. 8.5 When Distribution Must Be Paid Over. If a distribution is made to the Lenders that because of this Section 8 should not have been made to them, the Lenders who receive the distribution shall hold it in trust for holders of Senior Indebtedness and pay it over to them as their interests may appear. 8.6 Subrogation. After all Senior Indebtedness is paid in full and until the Loans are paid in full, the Lenders shall be subrogated to the rights of holders of Senior Indebtedness to receive distributions applicable to Senior Indebtedness. A distribution made under this Section 8 to holders of Senior Indebtedness that otherwise would have been made to the Lenders is not, as between the Borrower and the Lenders, a payment by the Borrower on Senior Indebtedness. 8.7 Relative Rights. This Section 8 defines the relative rights of the Lenders and holders of Senior Indebtedness. Nothing in this Agreement shall: (1) impair, as between the Borrower and the Lenders, the obligation of the Borrower, which is absolute and unconditional, to pay principal of, premium, if any, and interest on the Loans in accordance with their terms; or (2) prevent the Administrative Agent or any Lender from exercising its available remedies upon a Default, subject to the rights of holders of Senior Indebtedness to receive distributions otherwise payable to Lenders. 8.8 Subordination May Not Be Impaired By the Borrower. No right of any holder of Senior Indebtedness to enforce the subordination of the Loans and the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Borrower or by its failure to comply with this Agreement. 8.9 Rights of Administrative Agent. Notwithstanding Section 8.3, the Administrative Agent may continue to make payments on the Loans and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless, not less than two (2) Business Days prior to the date of such payment, a Responsible Officer of the Administrative Agent receives notice to it that payments may not be made under this Section 8. The Borrower, a Representative or a holder of Senior Indebtedness may give the notice; provided, however, that, if an issue of Senior Indebtedness has a Representative, only the Representative may give the notice. The Administrative Agent in its individual or any other capacity may hold Senior Indebtedness with the same rights it would have if it were not the Administrative Agent. The Administrative Agent shall be entitled to all the rights set forth in this Section 8 with respect to any Senior Indebtedness that may at any time be held by it, to the same extent as any other holder of Senior Indebtedness; and nothing in Section 9 shall deprive the Administrative Agent of any of its rights as such holder. Nothing in this Section 8 shall apply to claims of, or payments to, the Administrative Agent under or pursuant to Section 9.7. 74 69 8.10 Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness, the distribution may be made and the notice given to their Representative (if any). 8.11 Section 8 Not To Prevent Events of Default or Limit Right To Accelerate. The failure to make a payment pursuant to the Loans by reason of any provision in this Section 8 shall not be construed as preventing the occurrence of a Default. Nothing in this Section 8 shall have any effect on the right of the Lenders or the Administrative Agent to accelerate the maturity of the Loans subject to Section 8.4. 8.12 Administrative Agent Entitled to Rely. Upon any payment or distribution pursuant to this Section 8, the Administrative Agent and the Lenders shall be entitled to rely (i) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 8.2 are pending, (ii) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Administrative Agent or to the Lenders or (iii) upon the Representatives for the holders of Senior Indebtedness for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Indebtedness and other Indebtedness of the Borrower, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 8. In the event that the Administrative Agent determines, in good faith, that evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Section 8, the Administrative Agent may request such Person to furnish evidence to the reasonable satisfaction of the Administrative Agent as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Section 8, and, if such evidence is not furnished, the Administrative Agent may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. The provisions of Section 9 shall be applicable to all actions or omissions of actions by the Administrative Agent pursuant to this Section 8. 8.13 Administrative Agent to Effectuate Subordination. Each Lender hereby authorizes and directs the Administrative Agent on such Lender's behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Lenders and the holders of Senior Indebtedness as provided in this Section 8 and appoints the Administrative Agent as attorney-in-fact for any and all such purposes. 8.14 Administrative Agent Not Fiduciary for Lenders of Senior Indebtedness. The Administrative Agent shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall mistakenly pay over or distribute to the Lenders or the Borrower or any other Person, money or assets to which any holders of Senior Indebtedness shall be entitled by virtue of this Section 8 or otherwise. 8.15 Reliance by Lenders of Senior Indebtedness on Subordination Provisions. Each Lender acknowledges and agrees, that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the issuance of the Loans, to acquire and continue to hold, or to continue to hold, such Senior Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Indebtedness. 75 70 8.16 Certain Amendments Prohibited. This Agreement may not be amended to make any changes that may adversely affect the rights hereto of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or any group or representative thereof authorized to give a consent on behalf of such holders) consent to such change. SECTION 9. THE ADMINISTRATIVE AGENT 9.1 Appointment. Each Lender hereby irrevocably designates and appoints the Administrative Agent as the administrative agent of such Lender under the Loan Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of the Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of the Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. 9.2 Delegation of Duties. The Administrative Agent may execute any of its duties under the Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 9.3 Exculpatory Provisions. Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower. 9.4 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the 76 71 Administrative Agent. The Administrative Agent may deem and treat the payee of any Loans as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 9.5 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Borrower or Holdings referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 9.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrower which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 9.7 Indemnification. The Lenders agree to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by the Borrower and without limiting the 77 72 obligation of the Borrower to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with their Commitment Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Loans and all other amounts payable hereunder. 9.8 Administrative Agent in Its Individual Capacity. The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Administrative Agent were not the Administrative Agent hereunder. With respect to the Loans made by it, the Administrative Agent shall have the same rights and powers under the Loan Documents as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 9.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon thirty (30) days notice to the Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent under this Agreement and any Note Guarantee, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be subject to the approval of the Borrower (which approval shall not be unreasonably withheld), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and any Note Guarantee. 78 73 SECTION 10. MISCELLANEOUS 10.1 Amendments and Waivers. Neither this Agreement nor any Loan Note, nor any Note Guarantee, nor any terms hereof or thereof, may be amended, supplemented, waived or modified except in accordance with the provisions of this subsection. The Required Lenders may, or, with the written consent of the Required Lenders, the Administrative Agent may, from time to time, (a) enter into with the Borrower and each Loan Party which is a party to the relevant Loan Documents written amendments, supplements, waivers or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights or obligations of the Lenders or of the Borrower hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement, or modification shall (i) (A) reduce the amount or extend the scheduled date of maturity of any Loan or of any scheduled installment or mandatory prepayment thereof, (B) reduce the stated rate of any interest thereon or fee payable hereunder or extend the scheduled date of any payment thereof or increase the aggregate amount or extend the expiration date of any Lender's Commitment, (C) restrict on the right of each Lender to exchange Term Loans, or Initial Loans on the Initial Maturity Date, for Exchange Notes or amend the rate of such exchange, or (D) change the pro rata provisions contained in Section 2.8, in each case without the written consent of each Lender directly affected thereby, (ii) (A) amend, modify, or waive any provision of this subsection, (B) reduce the percentage specified in the definition of Required Lenders, (C) consent to the assignment or transfer by the Borrower of any of its rights and obligations under the Loan Documents except as expressly permitted hereby, (D) amend, modify or waive any provision in the Exchange Notes that requires (or would, if any Exchange Notes were outstanding, require) the approval of all holders of Exchange Notes, or (E) release all or substantially all of the guarantors under the Note Guarantees, in each case without the consent of all of the Lenders, or (iii) amend, modify or waive any provision of Section 9 without the written consent of the then Administrative Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Borrower and the other Loan Parties, the Lenders, the Administrative Agent, and all future holders of the Loans. In the case of any waiver, the Borrower and the other Loan Parties, the Lenders and the Administrative Agent shall be restored to their former positions and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. No amendment of Section 8 may be made in violation of Section 8.16. 10.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile transmission), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or three (3) days after being deposited in the mail, postage prepaid (or, if later, the first Business Day after being so deposited), or, in the case of telecopy notice, when received (or if received on a day that is not a Business Day or if received after 5:00 p.m. local time at the place of reception on a Business Day, on the next succeeding Business Day), addressed as follows in the case of the Borrower and the Administrative Agent, and as set forth on its signature pages hereto in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto and any future holders of the Notes: 79 74 the Borrower: Federal-Mogul Corporation World Headquarters 26555 Northwestern Highway Southfield, Michigan 48034 Attention: Sandra W. Galac Telephone: 248-354-2653 Telecopy: 248-354-8103 The Administrative Agent: The Chase Manhattan Bank One Chase Manhattan Plaza 8th Floor New York, New York 10081 Attention: James Tabois Telephone: 212-552-7952 Telecopy: 212-552-5650
provided that any notice, request or demand to or upon the Administrative Agent or the Lenders pursuant to Section 2.2 or 2.5 shall not be effective until received. 10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the Loan Notes and Note Guarantees shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 10.4 Survival of Representations and Warranties. All representations and warranties made hereunder, in the Loan Notes and Note Guarantees and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans hereunder. 10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or reimburse the Administrative Agent for all reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, the Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent (and any special or local counsel retained by such counsel to assist it), (b) to pay or reimburse each Lender and the Administrative Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the enforcement or preservation of any rights under the Loan Documents and any such other documents, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent and, at any time after and during the continuance of an Event of Default, of one counsel to all the Lenders, and (c) to pay, indemnify, and hold each Lender and the Administrative Agent (and their respective directors, officers, employees and agents) harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar 80 75 taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, the Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender and the Administrative Agent (and their respective directors, officers, employees, agents, affiliates and successors) harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of the Transaction Documents or the use of the proceeds of the Loans in connection with the Transactions and any such other documents, including, without limitation, any of the foregoing relating to the use of proceeds of the Loans and Term Notes (all the foregoing in this clause (d), collectively, the "indemnified liabilities"), provided that the Borrower shall have no obligation hereunder to the Administrative Agent, or any Lender (or their respective directors, officers, employees and agents) with respect to indemnified liabilities arising from the gross negligence or wilful misconduct of the party seeking indemnification or expenses incurred by the Administrative Agent or any Lender in connection with the assignment of Loans to an assignee (except pursuant to Section 10.6(e) for any assignment pursuant to Section 2.12). The agreements in this subsection shall survive repayment of the Loans and all other amounts payable hereunder. 10.6 Successors and Assigns; Participations and Assignments. (a) This Agreement shall be binding upon and inure to the benefit of the Borrower the Lenders, the Administrative Agent and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender and any assignment or transfer by any Lender of its rights or obligations under the Loan Documents must be made in compliance with this Section 10.6 (and any purported assignment in violation of this subsection shall be null and void). (b) Any Lender may, in accordance with applicable law, at any time sell to one or more financial institutions or other entities ("Loan Participants") participating interests in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of a participating interest to a Loan Participant, (i) such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible for the performance thereof, (iii) such Lender shall remain the holder of any such Loan (and any Note evidencing such Loan) for all purposes under the Loan Documents, (iv) the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents, and (v) no Loan Participant under any participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except with respect to the matters described in clauses (i) and (ii) of the proviso to the second sentence of Section 10.1. The Borrower agrees that each Loan Participant shall be entitled to the benefits of Sections 2.9 and 2.10 with respect to its participation in the Commitments and the Loans outstanding from time to time as if it was a Lender; provided that, in the case of Section 2.10 such Loan Participant shall have complied with the requirements of said Section and provided, further, that no Loan Participant shall be entitled to receive any greater amount pursuant to any such Section than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Loan Participant had no such transfer occurred. 81 76 (c) Any Lender may, in accordance with applicable law, at any time and from time to time assign to (i) any Lender or any Affiliate thereof and (ii) with the prior written consent of the Administrative Agent (such consent not to be unreasonably withheld, and, prior to the occurrence and continuance of an Event of Default after consultation with the Borrower) to an additional bank, financial institution or other entity that is regularly engaged in making or purchasing loans (an "Assignee"), all or any part of its rights and obligations under the Loan Documents pursuant to an Assignment and Acceptance, substantially in the form of Exhibit E, executed by such Assignee, such assigning Lender (and, in the case of an Assignee that is not then a Lender or an Affiliate thereof, by the Administrative Agent, and, prior to the occurrence and continuance of an Event of Default, by the Borrower) and delivered to the Administrative Agent for its acceptance and recording in the Register, provided that if such assignment is of less than all of the rights and obligations of the assigning Lender, the sum of the aggregate principal amount of the Loans and the unused Commitments remaining with the assigning Lender are not, in each case, less than $5,000,000 (or such lesser amount as may be agreed to by the Borrower and the Administrative Agent). Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment as set forth therein, and (y) the assigning Lender thereunder shall be released from its obligations under this Agreement to the extent that such obligations shall have been assumed by the Assignee pursuant to such Assignment and Acceptance (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto). (d) The Administrative Agent, which for purposes of this Section 10.6(d) only shall be deemed an agent of the Borrower, shall maintain at the address of the Administrative Agent referred to in Section 10.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amounts of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Lenders, shall treat each Person whose name is recorded in the Register as the owner of a Loan or other obligation hereunder as the owner thereof for all purposes of the Loan Documents, notwithstanding any notice to the contrary. Any assignment of any Loan or other obligation hereunder (whether or not evidenced by a Note) shall be effective only upon appropriate entries with respect thereto being made in the Register. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an Assignee (and, in the case of an Assignee that is not then a Lender or an Affiliate thereof, executed by the Borrower and the Administrative Agent), together with payment to the Administrative Agent of a registration and processing fee of $4,000, the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Borrower. On or prior to such effective date, the assigning Lender shall surrender any outstanding Loan Notes held by it all or a portion of which are being assigned, and the Borrower, at its own expense, shall, upon a request to the Administrative Agent by the assigning Lender or the Assignee, as applicable, execute and deliver to the Administrative Agent (in exchange for outstanding Loan Notes of the assigning Lender, if any) a 82 77 new Loan Note to the order of such Assignee in an amount equal to the amount of such Assignee's Loans after giving effect to such Assignment and Acceptance and, if the assigning Lender has retained a Loan hereunder, a new Loan Note, to the order of the assigning Lender in an amount equal to the amount of such Lender's Loans after giving effect to such Assignment and Acceptance. Any such new Loan Notes shall be dated the Closing Date and shall otherwise be in the form of the Loan Note replaced thereby. Any Loan Notes surrendered by the assigning Lender shall be returned by the Administrative Agent to the Borrower marked "cancelled." (f) the Borrower authorizes each Lender to disclose to any Loan Participant or Assignee (each, a "Transferee") and any prospective Transferee any and all financial information in such Lender's possession concerning the Borrower and its Affiliates which has been delivered to such Lender by or on behalf of the Borrower pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Borrower in connection with such Lender's credit evaluation of the Borrower and its Affiliates prior to becoming a party to this Agreement. (g) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this subsection concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including, without limitation, any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law, provided that no such assignment, whether to a Federal Reserve Bank or other entity, shall release a Lender from any of its obligations hereunder or substitute any such Federal Reserve Bank or other entity for such Lender as a party hereto or permit an absolute assignment to occur other than in accordance with such provisions of this subsection. (h) If, pursuant to this subsection, any interest in this Agreement or any Loan is transferred to any Transferee (which is not a Lender) which is organized under the laws of any jurisdiction other than the United States or any state thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to agree (for the benefit of the transferor Lender, the Administrative Agent and the Borrower) to provide the transferor Lender (and, in the case of any Transferee registered in the Register, the Administrative Agent and the Borrower) the tax forms and other documents required to be delivered pursuant to subsection 2.10(b) and to comply from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption. 10.7 Adjustments; Set-off. (a) If any Lender (a "Benefitted Lender") shall at any time receive any payment of all or part of its Loans or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 7(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans or interest thereon, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loan, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. 83 78 (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by the Borrower hereunder to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Borrower. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. 10.8 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent. 10.9 Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without, to the extent permitted by law, invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not, to the extent permitted by law, invalidate or render unenforceable such provision in any other jurisdiction. 10.10 Integration. This Agreement and the other Loan Documents represent the agreement of the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. 10.12 Submission To Jurisdiction; Waivers. The Borrower hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgement in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court or forum and agrees not to plead or claim the same; 84 79 (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower, at the address specified in Section 10.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this subsection any special, exemplary, punitive or consequential damages. 10.13 Acknowledgements. The Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of the Loan Documents; (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Borrower arising out of or in connection with the Loan Documents, and the relationship between Administrative Agent and Lenders, on one hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of creditor and debtor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrower and the Lenders. 10.14 Confidentiality. Each Lender shall hold all non-public information obtained pursuant to the requirements of this Agreement which has been identified as confidential by the Borrower in accordance with such Lender's customary procedures for handling confidential information of this nature, it being understood and agreed by the Borrower that in any event a Lender may make disclosures reasonably required by any bona fide assignee, transferee or participant in connection with the contemplated assignment or transfer by such Lender of any Loans or any participation therein or as required or requested by any governmental agency or representative thereof or pursuant to legal process or by the National Association of Insurance Commissioners or in connection with the exercise of any remedy under the Loan Documents; provided that, unless specifically prohibited by applicable law or court order, each Lender shall notify the Borrower of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information; and provided, further that in no event shall any Lender be obligated or required to return any materials furnished by the Borrower or any of its Subsidiaries. 10.15 WAIVERS OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR 85 80 PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 10.16 No Guarantee of Domestic Obligations by Foreign Subsidiary of Borrower. Notwithstanding anything to the contrary provided herein, no Foreign Subsidiary of Borrower shall be required to Guarantee the Indebtedness hereunder and no assets of any Foreign Subsidiary shall be used to secure any Indebtedness hereunder. 86 SCHEDULE 1.1 TO CREDIT AGREEMENT COMMITMENTS
LENDERS COMMITMENT The Chase Manhattan Bank $130,000,000.00** Senior High Income Portfolio, Inc. 5,000,000.00 Debt Strategies Fund, Inc. 5,000,000.00 PIMCO High Yield Fund 20,000,000.00 Protective Asset Management 15,000,000.00** Oak Hill Securities Fund, L.P. 10,000,000.00 Trust Company of the West 20,000,000.00** Imperial Credit Industries 10,000,000.00** First Dominion Capital, L.L.C. 5,000,000.00 KZH Holding Corporation III 10,000,000.00 Ares Leveraged Investment Fund, L.P. 20,000,000.00 Franklin Principal Maturity Trust 5,000,000.00 Bank of America National Trust and Savings Association 25,000,000.00 Bayerische Vereinsbank AG, New York Branch 15,000,000.00 Credit Lyonnais (Chicago Branch) 25,000,000.00 Fleet National Bank 25,000,000.00 Royal Bank of Canada 25,000,000.00 The Fuji Bank, Limited 25,000,000.00 Union Bank of Switzerland, New York Branch 75,000,000.00 BHF Bank, Aktiengesellschaft 15,000,000.00 Compagnie Financiere de CIC et de l'Union Europeene 15,000,000.00 ---------------- Total $500,000,000.00 ===============
- -------- ** This amount reflects assignments anticipated to occur after the Closing Date. EX-10.38 15 EX-10.38 1 EXHIBIT 10.38 FIRST AMENDMENT, dated as of January 20, 1998 (this "Amendment"), to the Second Amended and Restated Credit Agreement, dated as of December 18, 1997 the ("Credit Agreement"), among FEDERAL-MOGUL CORPORATION, a Michigan corporation (the "Company"), each Foreign Subsidiary Borrower named therein (together with the Company, the "Borrowers"), the several banks and other financial institutions from time to time parties thereto (the "Lenders") and THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Lenders thereunder (in such capacity, the "Administrative Agent"). W I T N E S S E T H: WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make certain loans and other extensions of credit to the Borrowers; and WHEREAS, the Borrowers have requested, and, upon this Amendment becoming effective, the Required Prepayment Lenders and the Required Lenders have agreed, that certain provisions of the Credit Agreement be amended in the manner provided for in this Amendment; NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Defined Terms. Terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. 2. Amendment to Recitals to the Credit Agreement. The first recital to the Credit Agreement is hereby amended to read in its entirety as follows: "WHEREAS, the Company is party to the Revolving Credit, Competitive Advance and Multicurrency Facility Agreement, dated as of June 16, 1997 (as hereinafter defined, the "Existing Credit Agreement"), with the several banks and other financial institutions party thereto and The Chase Manhattan Bank, as the administrative agent;" 3. Amendments to Section 1.01 of the Credit Agreement. (a) The definition of "Net Cash Proceeds" contained in Section 1.01 of the Credit Agreement is hereby amended by adding the following sentence immediately at the end of such definition: "It is understood that the issuance by the Company of Capital Stock as a part of the consideration for the Fel- Pro Acquisition will not be deemed to generate Net Cash Proceeds." (b) Section 1.01 of the Credit Agreement is hereby amended by adding thereto the following new definitions in their appropriate alphabetical order: "`Existing Credit Agreement': the Revolving Credit, Competitive Advance and Multicurrency Facility Agreement, dated as of June 16, 1997, as amended from time to time. 2 2 `Fel-Pro Acquisition Agreement': the Equity Purchase Agreement, dated as of January 9, 1998, by and among the Company, as Buyer, and Fel-Pro Realty Corporation, McCormick Investments L.P. and the other Sellers listed therein, as sellers. `Fel-Pro Acquisition': the acquisition by the Company pursuant to the Fel-Pro Acquisition Agreement of (i) the Equity Interests (as defined in the Fel-Pro Acquisition Agreement), consisting of all the partnership interests in Fel-Pro Master General Partnership, an Illinois general partnership, and all of the issued and outstanding capital stock of Felt Products Mfg. Co., a Delaware corporation, Fel-Pro Management Co., a Delaware corporation, Meridian Parts Corporation, a California corporation, and Fel-Pro Mexico S. de R.L. de C. V., a Mexican limited liability partnership and (ii) certain real property owned by Fel-Pro Realty Corporation, for consideration consisting of (a) approximately $495,000,000 in cash (which may include repayment of existing indebtedness of up to $10,000,000) and (b) Capital Stock of the Company having an aggregate market value of at least $225,000,000. `Threshold Amount': $1,075,000,000; provided, that if a reduction of the Term Loan Commitments is required to be made pursuant to Section 6.04(d)(iv), the Threshold Amount shall be reduced to $875,000,000 upon the making of such reduction." 4. Amendment to Section 3.01 of the Credit Agreement. The second sentence of Section 3.01 of the Credit Agreement is hereby amended to read in its entirety as follows: "The Term Loans shall be made (i) on the Initial Term Loan Funding Date, in an aggregate principal amount not to exceed the aggregate purchase price of Target Shares purchased on such date and the amount applied to repay existing indebtedness of the Target on such date and to pay fees and expenses in respect of the transactions contemplated hereby (less the amount applied for such purposes from the proceeds of the Senior Subordinated Bridge Loans and of the 7% Trust Convertible Preferred Securities issued by Federal-Mogul Financing Trust on December 1, 1997 and December 10, 1997), (ii) on the later of (A) the Initial Term Loan Funding Date and (B) the closing date of the Fel-Pro Acquisition, in an aggregate principal amount of up to $500,000,000 and (iii) following the Initial Term Loan Funding Date, until the last day of the Term Loan Commitment Period, on up to ten Borrowing Dates, in a minimum aggregate principal amount of $75,000,000 on each such Borrowing Date unless otherwise agreed by the Administrative Agent and Borrower." 5. Amendment to Section 6.04(d) of the Credit Agreement. Section 6.04(d) of the Credit Agreement is hereby amended to read in its entirety as follows: "(d) Unless the Required Prepayment Lenders and the Required Lenders shall otherwise agree, if any Capital Stock or Indebtedness (other than Indebtedness permitted by paragraphs (a) through (c), paragraphs (e) through (g) and paragraph (i) of Section 10.05 as in effect prior to the Covenant Transition Date) shall be issued or incurred by the Company or any of its Subsidiaries at any time after November 30, 1997, an amount equal to 100% of the Net Cash Proceeds thereof shall be applied on the date of such issuance or Incurrence toward the prepayment of the Term Loans as set forth in Section 6.08(b); provided, that, notwithstanding the foregoing: 3 3 (i) on the Business Day immediately preceding the Initial Revolving Credit Funding Date (or on such earlier date as the Company shall elect), the Company shall reduce the Term Loan Commitments (in the same order as prepayments of the Term Loans are to be applied pursuant to Section 6.08(b)) by an amount equal to (A) $75,000,000 and (B) the Net Cash Proceeds of any issuance after December 10, 1997 and prior to the Initial Revolving Credit Funding Date of the Company's Capital Stock yielding Gross Cash Proceeds in an amount which, together with the Gross Cash Proceeds of all prior issuances of the Company's Capital Stock during the Reduction Period (including the 7% Trust Convertible Securities issued by Federal-Mogul Financing Trust), aggregates less than the Threshold Amount; (ii) if subsequent to December 10, 1997 and prior to the Initial Term Loan Funding Date the Company receives Gross Cash Proceeds from the issuance of its Capital Stock in an amount which, together with the amount of Gross Cash Proceeds received in all prior Capital Stock issuance transactions consummated during the Reduction Period, aggregates the Threshold Amount or more, the Company may, on the Business Day immediately preceding the Initial Revolving Credit Funding Date (or on such earlier date as the Company shall elect), reduce the Senior Subordinated Bridge Loan Commitments by an aggregate amount up to the amount of the Net Cash Proceeds of such subsequent issuance, and the Term Loan Commitments shall be reduced, in the same order as prepayments of the Term Loans are to be applied pursuant to Section 6.08(b), by an amount equal to the excess of such Net Cash Proceeds over the amount by which the Company has reduced the Senior Subordinated Bridge Loan Commitments pursuant to this clause) (such reduction of the Term Loan Commitments to occur simultaneously with any reduction of the Senior Subordinated Bridge Loan Commitments and in any event not later than the Business Day immediately preceding the Initial Revolving Credit Funding Date); (iii) if on or after the Initial Term Loan Funding Date the Company receives Gross Cash Proceeds from the issuance of its Capital Stock in an amount which, together with the amount of Gross Cash Proceeds received in the prior Capital Stock issuance transactions consummated during the Reduction Period, aggregates the Threshold Amount or more, the Company may apply the Net Cash Proceeds of such issuance to prepay the Senior Subordinated Debt, and the remainder of such Net Cash Proceeds not so applied shall be applied on the date of receipt thereof to prepay the Term Loans as set forth in Section 6.08(b); (iv) unless on or before May 1, 1998 the Company shall have (A) consummated the Fel-Pro Acquisition and (B) as a portion of the consideration for the Fel-Pro Acquisition, issued at least $225,000,000 in aggregate market value of the Company's Capital Stock, the Company shall, on such date, reduce the Term Loan Commitments, in the same order as prepayments are required to be applied pursuant to Section 6.08(b), by $500,000,000; 4 4 (v) Net Cash Proceeds of Subordinated Debt (other than Senior Subordinated Debt) issued prior to the date of repayment in full of the Interim Term Loans and the Senior Subordinated Debt shall be applied on the date of receipt thereof toward the prepayment of the Interim Term Loans or, at the Company's option (if no Default or Event of Default is in existence), the Senior Subordinated Debt, and after the repayment in full of the Interim Term Loans, the Company shall not be required to apply proceeds of Subordinated Debt toward prepayment of the Loans; (vi) the Company shall not be required to make mandatory prepayments with the proceeds of Capital Stock issued to employees pursuant to stock option plans or similar arrangements, or Capital Stock issued as consideration for acquisitions made by the Company and its Subsidiaries; (vii) after the Interim Term Loans have been repaid in full, the Company shall not be required to make mandatory prepayments with proceeds of issuances by the Company of Capital Stock or Subordinated Debt, and the Company may use such Net Cash Proceeds to prepay the Senior Subordinated Debt or for other corporate purposes to the extent not prohibited hereunder; and (viii) after the Collateral Release Date, the Company shall not be required to make mandatory prepayments with the proceeds of Indebtedness." 6. Amendment to Section 6.13 of the Credit Agreement. The second sentence of Section 6.13 of the Credit Agreement is hereby amended to read in its entirety as follows: "Up to $500,000,000 of the proceeds of the Term Loans may be used to finance the Fel-Pro Acquisition and related fees and expenses (or, as the case may be, to refinance loans made under the Existing Credit Agreement whose proceeds were used to finance the Fel-Pro Acquisition and related fees and expenses), and the remaining proceeds of the Term Loans shall be used in accordance with Schedule 6.13 (a) to finance the acquisition of the Target Shares, (b) to refinance existing indebtedness of the Target and (c) to pay fees and expenses incurred in connection with the Tender Offer and this Agreement." 7. Amendments to Section 8.05 of the Credit Agreement. (a) The initial paragraph of Section 8.05 of the Credit Agreement is hereby amended to read in its entirety as follows: "SECTION (a) Conditions to each Revolving Credit and Multicurrency Loan after Initial Revolving Credit Funding Date and Term Loans used to Finance or Refinance Fel-Pro Acquisition. The obligation of each Lender to make (i) any Revolving Credit Loan and Multicurrency Loan requested to be made by it on any date (other than the Revolving Credit Loans and Multicurrency Loans made on the Initial Revolving Credit Funding Date in an amount sufficient to repay all amounts outstanding under the Existing Credit Agreement), and (ii) the Term Loans whose proceeds will be used to finance the Fel-Pro Acquisition (or, as the case may be, to refinance loans made under the Existing Credit Agreement whose proceeds were used to finance the Fel-Pro Acquisition), is in each case subject to the satisfaction of the following conditions precedent:" 5 5 (b) The last paragraph of Section 8.05 of the Credit Agreement is hereby amended to read in its entirety as follows: "Each borrowing by a Borrower of Revolving Credit Loans or Multicurrency Loans (other than any such Loans made on the Initial Revolving Credit Funding Date, to the extent the proceeds thereof are used solely to repay amounts outstanding under the Existing Credit Agreement), or of Term Loans whose proceeds are used to fund the Fel-Pro Acquisition, shall in each case constitute a representation and warranty by the Company and such Borrower as of the date of such Loan that the applicable conditions contained in this Section 8.05 have been satisfied." 8. Amendment to Section 9.11 of the Credit Agreement. Section 9.11 of the Credit Agreement is hereby amended to add thereto the following new paragraph (d): "(d) Without limiting the generality of the foregoing provisions of this Section 9.11, and subject to the provisions of the foregoing paragraph (c), the Company agrees that it shall comply with the provisions of the foregoing paragraphs (a) and (b) in respect of Subsidiaries and assets acquired in connection with the Fel-Pro Acquisition, promptly following consummation of the Fel-Pro Acquisition." 9. Amendment to Section 10.04 of the Credit Agreement. Paragraph (b) of Section 10.04 of the Credit Agreement is hereby amended to read in its entirety as follows: "(i) Liens on property or assets of any entity existing at the time such entity becomes a Subsidiary and not created in contemplation thereof;". 10. Amendment to Section 10.05 of the Credit Agreement. Paragraph (g) of Section 10.05 of the Credit Agreement is hereby amended to read in its entirety as follows: "(g) (i) Indebtedness outstanding on the date hereof and listed on Schedule IV and any refinancings, refundings, renewals or extensions thereof (without any increase in the principal amount thereof), (ii) Indebtedness of the Target and its Subsidiaries outstanding on the date of consummation of the Acquisition, but not any refinancings, refundings, renewals or extensions thereof, (iii) Indebtedness of the entities acquired in the Fel-Pro Acquisition outstanding on the date of consummation of the Fel-Pro Acquisition and listed on Schedule IV-A, but not any refinancings, refundings, renewals or extensions thereof and (iv) other Indebtedness of the entities acquired in the Fel-Pro Acquisition outstanding on the date of consummation of the Fel-Pro Acquisition in an aggregate principal amount not exceeding $10,000,000 (provided, that the cash portion of the consideration for the Fel-Pro Acquisition shall be reduced by an equal amount), but not any refinancings, refundings, renewals or extensions thereof; 11. Amendments to Section 10.11 of the Credit Agreement. (a) Paragraph (e) of Section 10.11 of the Credit Agreement is hereby amended to read in its entirety as follows: "(e) the Acquisition and the Fel-Pro Acquisition;". 6 6 (b) Paragraph (j) of Section 10.11 of the Credit Agreement is hereby amended to read in its entirety as follows: "(j) Investments to the extent that the consideration paid by the Company and its Subsidiaries is Capital Stock of the Company (provided that if such Investment is the acquisition of, in a single transaction or in a series of related transactions, all or substantially all of the equity interests of any Person, such acquisition is approved by the board of directors or analogous governing body of such Person); and". 12. Amendments to Schedules to the Credit Agreement. Schedule IV to the Credit Agreement is hereby amended to add thereto Schedule IV-A, in the form of Annex I to this Amendment, and Schedule 10.08 to the Credit Agreement is hereby amended to read in its entirety as set forth in Annex II to this Amendment. 13. Conditions to Effectiveness. This Amendment shall become effective on the date (the "Amendment Effective Date") on which (i) the Borrowers shall have executed and delivered to the Administrative Agent this Amendment and each of the Required Prepayment Lenders and the Required Lenders shall have delivered to the Administrative Agent its written consent to the execution and delivery hereof by the Administrative Agent and (ii) the Company shall have delivered to the Administrative Agent a copy of the Fel-Pro Acquisition Agreement. 14. Representation and Warranties. To induce the Administrative Agent and the Lenders to enter into this Amendment, each Borrower hereby represents and warrants to the Administrative Agent and each Lender as of the Amendment Effective Date that: (a) Corporate Power; Authorization; Enforceable Obligations. Each Loan Party has the corporate or other power and authority, and the legal right, to execute, deliver and perform this Amendment and has taken all necessary corporate or other action to authorize the execution, delivery and performance of this Amendment. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required with respect to the Company or any of its Subsidiaries in connection with the execution, delivery, performance, validity or enforceability of this Amendment, except for consents, filings, authorizations or approvals which have been obtained and are in full force and effect, and except for other approvals the failure to obtain which could not reasonably be expected to have a Material Adverse Effect. This Amendment has been duly executed and delivered on behalf of each of the applicable Loan Parties. This Amendment constitutes a legal, valid and binding obligation of such Person enforceable against such Person in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law) and by an implied covenant of good faith and fair dealing. (b) No Legal Bar. The execution, delivery and performance of this Amendment will not violate any Requirement of Law or Contractual Obligation of the Company or of any of its Subsidiaries, other than any such violation which could not reasonably be expected to have a Material Adverse Effect, and will not result in, or require, the creation 7 7 or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation, except Liens created pursuant to the Loan Documents and any Lien which could not reasonably be expected to have a Material Adverse Effect. (c) Representations and Warranties in Credit Agreement. Each of the representations and warranties set forth in Article VII of the Credit Agreement is true and correct in all material respects as of the Amendment Effective Date as if made on and as of the Amendment Effective Date (after giving effect to the amendments effected hereby), except if such representation or warranty relates to an earlier date, in which case such representation and warranty is true and correct in all material respects on such earlier date. 15. General. (a) Payment of Expenses. The Company agrees to pay or reimburse the Administrative Agent for all of its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation, execution and delivery of, and any amendment, supplement or modification to, this Amendment and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby, including, without limitation, the reasonable fees and disbursements of counsel (and any special or local counsel retained by such counsel to assist it) to the Administrative Agent. (b) No Other Amendments; Confirmation. Except as expressly amended, modified and supplemented hereby, the provisions of the Credit Agreement and the Notes are and shall remain in full force and effect. (C) GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. (d) Counterparts. This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts (including by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Amendment signed by all the parties shall be delivered to the Borrowers and the Administrative Agent. 8 8 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers and delivered in New York, New York as of the day and year first above written. FEDERAL-MOGUL CORPORATION By: --------------------------------- Name: Title: THE CHASE MANHATTAN BANK, as Administrative Agent and as a Lender By: -------------------------------- Name: Title: 9 9 Annex I [To be completed] 10 10 Annex II [To be completed] EX-21 16 EX-21 1 EXHIBIT 21 FEDERAL-MOGUL CORPORATION SUBSIDIARIES The Company has no parent. The direct and indirect subsidiaires of the Company and their respective States or other jurisdictions of incorporation as of December 31, 1997, are as follows: Percentage of Voting Stock Jurisdiction Owned by FM Name of Subsidiary of Incorporation & Other Subs ------------------ ---------------- -------------- Carter Automotive Company, Inc. Delaware, U.S.A. 100% Mather Seal Company Michigan, U.S.A. 100% *Federal-Mogul Bruss Sealing Systems South Carolina, U.S.A. 49% Federal-Mogul Funding Corp. Michigan, U.S.A. 100% Federal-Mogul Global Properties, Inc. Michigan, U.S.A. 100% Federal-Mogul Venture Corporation Nevada, U.S.A. 100% Federal-Mogul World Wide, Inc. Michigan, U.S.A. 100% DeCaroli & CIA, S.A.I.C. Argentina 100% In-De-Co. H. Minoli, S.A.I.C. Argentina 96% Neoprint, S.A. Argentina 96% Plasticos Puntanos, S.A. Argentina 100% Federal-Mogul Pty. Ltd. Australia 100% Federal-Mogul World Trade Ltd. ("FSC") Barbados 100% Coventry Assurance Ltd. Bermuda 100% Federal-Mogul Boliviana, S.A. Bolivia 100% Federal-Mogul Comercio Internacional, S.A. Brazil 100% Federal-Mogul Canada Investment Co. ("NRO") Canada 100% Federal-Mogul Canada Limited Canada 100% Federal-Mogul de Costa Rica, S.A. Costa Rica 100% Federal-Mogul Dominicana, S.A. Dominican Republic 100% Federal-Mogul del Ecuador, S.A. Ecuador 100% Federal-Mogul S.A. France 100% Federal-Mogul Karosserieteile GmbH Germany 100% F-M Motorentiele Holding GmbH Germany 100% Glyco GmbH Germany 100% Glyco-Metall-Werke Glyco B.V. & Co. KG Germany 100% Federal-Mogul de Guatemala, S.A. Guatemala 100% Federal-Mogul World Trade Hong Kong, Ltd. Hong Kong 100% AFM India Ltd. India 50% ____________________ *remaining 51% owned by Dichtungstechnik G. Bruss GmbH & Co. KG of which FM subsidiary owns 49%. Page 1 of 2 2 FEDERAL-MOGUL CORPORATION SUBSIDIARIES (CONT.) Percentage of Voting Stock Jurisdiction Owned by FM Name of Subsidiary of Incorporation & Other Subs ------------------ ---------------- ------------- Bertolotti Pietro e Figli, S.r.l. Italy 100% Federal-Mogul S.p.A. Italy 100% Federal-Mogul Japan K.K. Japan 100% Federal-Mogul World Trade SDN, BHD Malaysia 100% Federal-Mogul S.A. de C.V. ("PUEBLA") Mexico 61% Femosa Mexico, S.A. Mexico 100% Manufacturas Metalicas Linan S.A. ("LINAN") Mexico 100% Raimsa S.A. de C.V. ("RAIMSA") Mexico 100% Servicios Administrativos Industriales, S.A. ("SAISA") Mexico 100% Servicios de Components Automotrices, S.A. ("SEDECA") Mexico 100% Subensambles Internacionales S.A. de C.V. Mexico 100% Glyco B.V. Netherlands 100% Federal-Mogul New Zealand Limited New Zealand 100% Federal-Mogul Panama, S.A. Panama 100% Federal-Mogul Puerto Rico, Inc. Puerto Rico 100% Federal-Mogul World Trade Pte. Ltd. Singapore 100% Federal-Mogul Distribucion, S.A. Spain 51% Federal-Mogul S.A. Switzerland 100% Federal-Mogul Acquisition Corp. United Kingdom 100% Federal-Mogul Global Growth Limited United Kingdom 100% Federal-Mogul Holding U.K., Limited United Kingdom 100% Federal-Mogul U.K., Limited United Kingdom 100% Federal-Mogul U.K. Holding Limited United Kingdom 100% Seal Technology Systems Limited United Kingdom 100% Bromley Inversora, S.A. Uruguay 100% Federal-Mogul de Uruguay Uruguay 100% Federal-Mogul de Venezuela C.A. Venezuela 100% La Font Repuestos C.A. Venezuela 100% Page 2 of 2 EX-23.1 17 EX-23.1 1 EXHIBIT 23.1 Consent of Independent Auditors We consent to the incorporation by reference in Form S-8 Registration Statement No. 333-38961, effective October 29, 1997, Form S-3 Registration Statement No. 33-55135, effective September 2, 1994, Form S-3 Registration Statement No. 33-54717, effective August 5, 1994, Form S-3 Registration Statement No. 33-54301, effective June 24, 1994, Form S-3 Registration Statement No. 33-51265, effective January 13, 1994, Form S-8 Registration Statement No. 33-51403, effective December 10, 1993, Form S-8 Registration Statement No. 33-32429, effective December 31, 1989, Form S-8 Registration Statement No. 33-32323, effective December 22, 1989, Form S-8 Registration Statement No. 33-30172, effective August 21, 1989, and Form S-8 Registration Statement No. 2-93179, effective October 1, 1984, of our report dated January 30, 1998, except for Note 20, as to which the date is February 24, 1998, with respect to the consolidated financial statements and schedule of Federal-Mogul Corporation included in the Annual Report on Form 10-K for the year ended December 31, 1997. March 2, 1998 EX-24 18 EX-24 1 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of FEDERAL-MOGUL CORPORATION, a Michigan corporation, which is about to file with the Securities and Exchange Commission, Washington D. C. under the provisions of the Securities Exchange Act of 1934, as amended, the Corporation's Annual Report on Form 10-K for the year ended December 31, 1997, hereby nominates, constitutes and appoints Thomas W. Ryan and Diane L. Kaye, or either of them, as his true and lawful attorney-in-fact, with full power to act and with full power of substitution, for him and in his name, place and stead, to sign such Report and any and all amendments thereto, and to file said Report and each Amendment so signed, with all Exhibits thereto, with the Securities and Exchange Commission. IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney this 4th day of February, 1998. /s/RICHARD A. SNELL ----------------------------------- RICHARD A. SNELL Chairman of the Board and Chief Executive Officer; Director /s/JOHN J. FANNON /s/ROBERT S. MILLER, JR. - --------------------- ------------------------- JOHN J. FANNON ROBERT S. MILLER, JR. Director Director /s/RODERICK M. HILLS /s/JOHN C. POPE - --------------------- ------------------------- RODERICK M. HILLS JOHN C. POPE Director Director /s/ANTONIO MADERO /s/H. MICHAEL SEKYRA - --------------------- ------------------------- ANTONIO MADERO H. MICHAEL SEKYRA Director Director EX-27 19 EX-27
5 1,000,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 541 0 178 19 277 1139 517 203 1802 330 273 0 49 201 119 1802 1807 1807 1382 282 1 4 32 100 28 72 0 (3) 0 69 1.74 1.61
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