<PAGE> 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, 1996
Commission File Number: 1-1511
------------------------
FEDERAL-MOGUL CORPORATION
(Exact name of Registrant as specified in its charter)
Michigan 38-0533580
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
26555 Northwestern Highway, Southfield, Michigan 48034
(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code: (810) 354-7700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of Each Class which registered
------------------- ------------------------
Common Stock and Rights to Purchase New York Pacific Stock Exchange
Preferred Shares and Pacific Stock Exchange
7 1/2% Sinking Fund Debentures due
January 15, 1998 New York Stock Exchange
Securities registered pursuant to Section 12(b) 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. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $840,511,212 as of February 28, 1997 based
on the reported last sale price as published for the New York Stock
Exchange--Composite Transactions for such date.
The Registrant had 35,045,109 shares of common stock outstanding as of
February 28, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 1997
Annual Meeting of Shareholders dated March 19, 1997, and filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later
than 120 days after the end of the fiscal year, are incorporated by
reference in Part III (Items 10, 11, 12 and 13) of this Report.
<PAGE> 2
FORWARD-LOOKING STATEMENTS
INFORMATION CONTAINED OR INCORPORATED IN THIS ANNUAL REPORT ON FORM 10-K
CONTAINS FORWARD-LOOKING STATEMENTS WHICH ARE NOT HISTORICAL FACTS AND
WHICH INVOLVE RISKS AND UNCERTAINTIES SUCH AS THE COMPANY'S INTENT TO
IMPROVE ITS COST STRUCTURE, STREAMLINE ITS OPERATIONS AND DIVEST ITS
UNDERPERFORMING ASSETS. ACTUAL RESULTS, EVENTS AND PERFORMANCE COULD
DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF THESE RISKS AND UNCERTAINTIES, INCLUDING,
WITHOUT LIMITATION, THE COMPANY'S INABILITY TO DIVEST CERTAIN ASSETS,
INCREASES IN THE COST AND DELAYS IN THE TIMING OF IMPLEMENTING
RESTRUCTURING ACTIONS, DETERIORATION OF GLOBAL AND REGIONAL ECONOMIC
CONDITIONS AND OTHER FACTORS DISCUSSED HEREIN, IN MATERIALS INCORPORATED
HEREIN OR IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION.
<PAGE> 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 manufacturers ("OE" products),
principally the major automotive manufacturers in the United States and
Europe, and also provides these and related products to aftermarket
customers worldwide.
During the fourth quarter of 1996, the management of the company
undertook an intensive review of the company's business. On February 6,
1997, the company announced details of a restructuring plan and a
writedown of assets held for sale to fair value designed to improve the
company's cost structure, streamline its operations and divest its
underperforming assets, including its international retail operations.
The restructuring is intended to realign the company's growth strategy
behind its core competencies of manufacturing, engineering and
distribution.
The components of the restructuring and writedown of assets held for
sale to fair value include: (i) the planned sale of 132
international retail operations located in Australia, Chile, Ecuador,
Panama, Puerto Rico, South Africa and Venezuela; (ii) the planned sale
or restructuring of approximately 30 wholesale international replacement
operations in 10 countries; (iii) the rationalization of European
manufacturing operations involving the relocation of product lines and
workforce reductions; (iv) the consolidation of lighting products in
Juarez, Mexico, resulting in the closing of the company's Leiters Ford,
Indiana manufacturing facility; (v) the consolidation or closure of North
American warehouse facilities; (vi) the consolidation of customer support
functions now housed in Southfield, Michigan and Phoenix, Arizona; (vii)
the consolidation of European aftermarket management functions located
in Geneva, Switzerland into the Wiesbaden, Germany manufacturing
headquarters; and (viii) the streamlining of administrative and
operational staff functions worldwide.
In 1996, the company recorded a restructuring charge of $57.6 million,
comprised of $42.8 million for employee severance and $14.8 million
for exit costs and consolidation of certain facilities. To reduce
the carrying value of assets held for sale to fair value, the company
recorded an additional charge of $151.3 million related to impairment of
goodwill and certain other assets and costs associated with the
international retail operations held for sale. The company also recorded
special charges totaling $98.7 million in the third and fourth quarters
of 1996. In 1996, the international wholesale and retail businesses to be
sold or closed increased operating losses by approximately $9 million.
Management believes that in 1997, the operating results from these
businesses will not have a material impact on the company's operating
results. For further information respecting the charges taken by the
company in 1996, see "Item 7. Management's Discussion and Analysis of
<PAGE> 4
Financial Condition and Results of Operations-Restructuring and Adjustment
of Assets Held for Sale to Fair Value" and Notes 2, 3, 4 and 5 of
Notes to Consolidated Financial Statements filed under "Item 8. Financial
Statements and Supplementary Data".
The following table sets forth the company's net sales by market segment
and geographic region as a percentage of total net sales.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Original Equipment
Americas 22% 22% 22%
International 9% 9% 8%
Aftermarket
United States and Canada 37% 39% 43%
International 30% 27% 21%
Other <F1>
United States and Canada -- 1% 4%
International 2% 2% 2%
-- -- --
100% 100% 100%
</TABLE>
- -----------------------
[FN]
<F1> 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 division 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
<PAGE> 5
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), Bruss(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).
Fuel Systems - 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. Fuel systems are used
in automotive and light 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. They 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. They 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 and fuel systems.
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 1996, approximately 11% of the
company's net sales were to the three major automotive manufacturers in the
United States, with General Motors Corporation accounting for approximately
5% of the company's net sales, Ford Motor Company accounting for
approximately 4% 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 Glyco 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-Mexico, 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
<PAGE> 6
(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 1996, Aftermarket net
sales in the United States and Canada represented 56% of total
Aftermarket net sales, with net sales outside of the United States and
Canada representing 44% of such sales.
Domestic customers include industrial bearing distributors, distributors
of heavy duty vehicular parts, machine shops, retail parts stores and
independent warehouse distributors who redistribute products to local
parts suppliers called jobbers. 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.
Federal-Mogul's North American distribution centers in Jacksonville,
Alabama, LaGrange, Indiana, and Maysville, Kentucky (the "Distribution
Centers"), serve as the hubs 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 Fort Lauderdale,
Florida to 7 international regional distribution centers and 6
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 $14.4 million in 1996, $15.1 million in 1995 and $18.7
million in 1994. Expenditures for research and development have declined
due to headcount and other cost reductions, consolidation of the lighting,
electrical and fuel research centers, and the sale of the United States
ball bearings manufacturing operations.
<PAGE> 7
Recent Acquisitions and Divestitures
During 1996 and early 1997, the company sold its heavy-wall bearing
division in Germany and Brazil, its United States ball bearings manufacturing
operations and its electrical products business. For further information,
see Note 7 of Notes to Consolidated Financial Statements filed under "Item 8.
Financial Statements and Supplementary Data".
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 1996, no outside
supplier of the company provided products which accounted for more than
5% of the company's net sales.
In connection with the acquisition of the automotive aftermarket business
of TRW, Inc. 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 5 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 1-year periods and are terminable upon
1 year's notice by either party.
Employee Relations
On January 1, 1997, the company had approximately 15,700 full-time
employees of whom approximately 10,200 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 unionized manufacturing facility of
the company has its own contract with differing expiration dates so, in
general, no contract expiration date affects more than one facility. The
company believes its labor relations to be good.
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 1996 and are not expected to have a material impact on the
company's financial position or results of operations in 1997 or 1998.
<PAGE> 8
Raw Materials
The company does not normally experience supply shortages of raw
materials. Although shortages may occur occasionally, the company
generally buys from many reliable long-term suppliers and purchases most
raw materials, purchased parts, components and assemblies from multiple
sources.
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 1997 sales
volumes.
Patents and Licenses
The company holds a large number of patents which relate to a wide variety
of products and processes, and has pending a substantial number of patent
applications. While in the aggregate its patents are of material
importance to its business, the company does not consider that any patent
or group of patents relating to a particular product or process is 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.
<PAGE> 9
Original equipment and aftermarket sales by major geographical regions
were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Millions of Dollars)
<S> <C> <C> <C>
Original Equipment
Americas $ 449.1 $ 465.4 $ 523.7
International 219.5 222.7 175.6
Aftermarket
United States and Canada 757.3 776.9 804.0
International 604.3 530.9 392.6
-------- -------- --------
Total Sales $2,030.2 $1,995.9 $1,895.9
======== ======== ========
</TABLE>
Detailed results of operations and assets by geographic area for each of
the years ended December 31, 1996, 1995 and 1994 appear in Note 15 of Notes
to Consolidated Financial Statements contained in Item 8 of this Report.
Executive Officers of the Company
The executive officers of the company are its elected officers, other
than its assistant officers. Set forth below are the names, ages (at
March 1, 1997), positions and offices held, and a brief account of the
business experience during the past 5 years of each executive officer.
R.A. Snell (55). Mr. Snell has served as Chairman, Chief Executive
Officer and President and a director of the company 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
company. From 1989 to 1993, he served as Senior Vice President and
General Manager of Tenneco Automotive's Walker Manufacturing Company
operation. He first became an executive officer in 1996.
K.W. Baird (35). 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.
D.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.
<PAGE> 10
J.B. Carano (47). 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.
R.F. Egan (50). 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.
C.B. Grant (52). Vice President-Corporate Development since December
1992; Vice President and Controller, May 1988 to December 1992. He
first became an executive officer in 1985.
A.C. Johnson (48). 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 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.
D.L. Kaye (46). 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.
R.P. Randazzo (53). 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.
T.W. Ryan (50). 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 an executive
officer in 1997.
M.L. Schultz (49). 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.
<PAGE> 11
W.A. Schmelzer (56). Vice President and Group Executive-Engine
and Transmission Products since April 1995; Vice President and
Group Executive-E & T Products, 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.
K.P. Slaby (45). Vice President and Controller since April 1996. Prior
thereto, Manager-Financial Operation for the global silicones business
of General Electric Company, November 1990 to April 1996. He first
became an executive officer in 1996.
J.J. Zamoyski (50). Vice President and General Manager-Europe since
April 1996; Vice President and General Manager, 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.
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, 1996, are listed
below. All properties are owned in fee except where otherwise noted.
<TABLE>
<CAPTION>
A. Manufacturing Facilities.
No. of Sq. Ft.
North American Manufacturing Facilities Facilities at 12/31/96
<S> <C> <C>
Frankfort, Indiana 1 160,000
Leiters Ford, Indiana<F1> 1 116,900
Milan, Michigan 1 83,000
Van Wert, Ohio 1 222,800
Blacksburg, Virginia 1 190,400
Greenville, Michigan 1 197,100
Logansport, Indiana 2 284,000
Malden, Missouri<F2> 1 122,000
Mooresville, Indiana 1 65,900
St. Johns, Michigan 1 266,000
Puebla, Mexico 1 100,600
Mexico City, Mexico 2 157,300
Juarez, Mexico<F2> 1 102,885
Juarez, Mexico 1 67,736
Summerton, South Carolina 1 136,000
-- ---------
17 2,272,621
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
<S> No. of Sq. Ft.
International Manufacturing Facilities Facilities at 12/31/96
<C> <C>
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
Wiesbaden, Germany<F2> 1 43,600
Braunschweig, Germany<F3> 1 65,000
Cardiff, Wales 1 151,200
Merthyr, Wales<F2> 1 9,000
Cap. Fed Argentina 1 15,416
San Luis, Argentina 2 6,400
-- ---------
12 1,428,352
Total Manufacturing Facilities 29 3,700,973
== =========
</TABLE>
[FN]
<F1> To be closed in 1997.
<F2> 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.
<F3> Sold in January 1997.
B. Aftermarket Warehouses. The company operates 110 warehouses
and distribution centers of which 103 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 restructuring of the company.
C. Retail Properties. The company leases 8 retail facilities
in Australia, 15 facilities in Venezuela, 4 facilities in Chile, 58
facilities in South Africa, 7 facilities in Panama, 33 facilities in
Puerto Rico and 3 facilities in Ecuador. The company expects to dispose
of or close these facilities in connection with its planned sale 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.
ITEM 3. LEGAL PROCEEDINGS.
A. 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 Matters".
<PAGE> 13
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
counsel for the company, management believes that these matters 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
reasonably likely to have a material adverse effect on the company's
financial position.
B. There were no material legal proceedings which were terminated during
the fourth quarter of 1996.
ITEM 4. SUBMISSION OF MATTERS TO A 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 1996.
<PAGE> 14
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 Stock Exchange under the trading symbol FMO. The approximate
number of shareholders of record of the company's common stock at
February 28, 1997 was 10,072. The following table sets forth the high
and low sale prices of the company's common stock for each calendar
quarter as reported on the New York Stock Exchange-Composite Tape for the
last 2 years:
<TABLE>
<CAPTION>
1996 1995
------------------- --------------------
<S>
Quarter High Low High Low
<C> <C> <C> <C>
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
</TABLE>
The closing price of the company's common stock as reported on the New
York Stock Exchange-Composite Tape on March 25, 1997, was $25.
Quarterly dividends of $.12 per common share were declared during 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.
<PAGE> 15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
<TABLE>
FIVE-YEAR FINANCIAL SUMMARY
- ---------------------------
<CAPTION>
(Millions of Dollars,
Except Per Share Amounts) 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
- -------------------------
<S> <C> <C> <C> <C> <C>
Net sales $2,030.2 $1,995.9 $1,895.9 $1,575.5 $1,264.0
Costs and expenses <F1><F2><F3> (2,276.1) (1,995.7) (1,792.3) (1,521.9) (1,262.3)
Other income (expense) (3.4) (3.4) (1.5) 4.0 7.3
Income tax (expense) benefit 38.2 (6.5) (38.8) (17.5) (4.6)
------- ------- ------- ------- -------
Earnings (loss) before cumulative
effect of accounting change (211.1) (9.7) 63.3 40.1 4.4
Cumulative effect of
accounting change <F4> - - - - (88.1)
------- ------- ------- ------- -------
Net earnings (loss) (211.1) (9.7) 63.3 40.1 (83.7)
Preferred stock dividends,
net of related tax benefits (8.7) (8.9) (9.0) (9.1) (4.6)
------- ------- ------- ------- -------
Net earnings (loss) available
for common shares $ (219.8) $ (18.6) $ 54.3 $ 31.0 $ (88.3)
======= ======= ======= ======= =======
</TABLE>
<PAGE> 16
<TABLE>
FIVE-YEAR FINANCIAL SUMMARY (continued)
- ---------------------------
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
COMMON SHARE SUMMARY (PRIMARY)
- ------------------------------
Average shares and equivalents
outstanding (in thousands) 35,105 34,988 35,062 27,342 22,390
Earnings (loss) per share:
Before cumulative effect
of accounting change $(6.26) $ (.53) $ 1.55 $ 1.13 $ (.01)
Cumulative effect of
accounting change <F4> - - - - (3.93)
----- ----- ----- ----- -----
Net earnings (loss) per share (6.26) (.53) 1.55 1.13 (3.94)
===== ===== ===== ===== =====
Dividends paid per share $ .48 $ .48 $ .48 $ .48 $ .48
===== ===== ===== ===== =====
CONSOLIDATED BALANCE SHEET DATA
- -------------------------------
Total assets $1,455.2 $1,714.4 $1,496.1 $1,301.4 $1,110.6
Short-term debt <F5> 280.1 111.9 74.0 39.2 69.4
Long-term debt 209.6 481.5 319.4 382.5 350.6
Shareholders' equity 318.5 555.1 597.2 371.1 230.9
OTHER FINANCIAL INFORMATION
- ---------------------------
Net cash provided from (used
by) operating activities $ 149.0 $ (34.7) $ 24.3 $ 43.5 $ 57.2
Expenditures for property,
plant, equipment and other
long-term assets 54.2 78.5 74.9 60.0 40.2
Depreciation and
amortization expense 63.7 61.0 55.7 50.7 46.7
</TABLE>
[FN]
<F1> For 1996, includes $57.6 million for a restructuring charge,
$151.3 million for adjustment of assets held for sale to fair
value and $11.4 million relating to reengineering and other
related charges in 1996.
<F2> For 1995, includes $26.9 million for restructuring charges,
$51.8 million for adjustment of assets held for sale to fair
value and $13.9 million relating to reengineering and other
related charges in 1995.
<F3> Includes $19.2 million for restructuring charges in 1993 and a special
charge of $14.0 million in 1992.
<F4> The company changed its method of accounting for postretirement benefits
other than pensions effective in 1992.
<F5> Includes current maturities of long-term debt. (See Note 10 to the
consolidated financial statements.)
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESTRUCTURING AND ADJUSTMENT OF ASSETS HELD FOR SALE TO FAIR VALUE
- ------------------------------------------------------------------
As a result of the change in the company's strategy, to focus on
manufacturing as a core competency, management designed and implemented a
restructuring plan to aggressively improve the company's cost structure,
streamline operations and divest the company of underperforming assets.
The components of the restructuring plan and the adjustment of assets held
for sale to fair value include:
- - the planned sale of 132 international retail operations located in
Australia, Chile, Ecuador, Panama, Puerto Rico, South Africa and
Venezuela;
- - the planned sale or restructuring of approximately 30 wholesale
international aftermarket operations in 10 countries;
- - the rationalization of European manufacturing operations involving the
relocation of product lines and workforce reductions;
- - the consolidation of lighting products in Juarez, Mexico resulting in the
closing of the Leiters Ford, Indiana manufacturing facility;
- - the consolidation or closure of North American warehouse facilities;
- - the consolidation of customer support functions now housed in Southfield,
Michigan and Phoenix, Arizona;
- - the consolidation of European aftermarket management functions in Geneva,
Switzerland into the Wiesbaden, Germany manufacturing headquarters; and
- - the streamlining of administrative and operational staff functions worldwide.
The restructuring of Federal-Mogul focuses the company on organizational
excellence in manufacturing and distribution. The company expects to
record additional restructuring actions in the future to implement its
corporate strategy, specifically related to its North American distribution
network configuration and the European manufacturing rationalization. The
company recognizes manufacturing as core to the organization's ability to
deliver the highest quality products and services.
<PAGE> 18
RESULTS OF OPERATIONS
- ---------------------
<TABLE>
SALES
<CAPTION>
Original equipment and aftermarket sales were:
(Millions of Dollars) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
ORIGINAL EQUIPMENT:
Americas $ 449.1 $ 465.4 $ 523.7
International 219.5 222.7 175.6
AFTERMARKET:
United States and Canada 757.3 776.9 804.0
International 604.3 530.9 392.6
-------- -------- --------
TOTAL SALES $2,030.2 $1,995.9 $1,895.9
======== ======== ========
Original equipment business sales in the Americas decreased IN 1996 due to
the sale of the Precision Forged Products Division (PFPD) in April 1995, the
sale of the electrical products business in September 1996 and the sale of the
United States ball bearings manufacturing operations in November 1996, offset
slightly by the acquisition of Seal Technology Systems Limited in September
1995. Excluding the effect of these acquisitions and divestitures, sales
increased 2.6% in 1996. The company attributes this increase to new business
in its core product lines of engine bearings and seals. In 1995, sales
decreased from 1994 levels primarily due to the sale of PFPD in April 1995.
The international original equipment business sales decreased in 1996 due to
the company's decision to exit some conventional engine bearing business
that did not meet appropriate profitability levels. In 1995, international
original equipment sales increased significantly due to market penetration
of engine bearings and appreciating European currencies.
In 1996, North American replacement business sales decreased primarily due
to the elimination of special extended payment terms. In 1995, the sales
decrease was primarily due to a decrease in the sale of engine parts due
to brand consolidation at the customer level of the company's
Federal-Mogul(R), TRW(R) and Sealed Power(R) branded engine parts that the
company acquired.
The international replacement business sales increased due to significant
volume and pricing increases in Mexico, the full year impact of the
acquisitions of Bertolotti and Centropiezas in 1995, increased sales volume
in Australia and new local operations in Brazil. This was partially offset
by decreased sales in Venezuela due to a recession and the devaluation of
the South African rand. In 1995, the international replacement business
sales increase was largely attributable to the acquisitions of Varex,
Bertolotti and Centropiezas.
<PAGE> 19
OPERATING MARGIN
The company's margin decreased in 1996 due to the special charges in the third
and fourth quarters. The company made certain changes in accounting estimates
totaling $64 million ($43 million after tax, $1.23 per share) principally due
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 $24 million resulted from 1996 contractual changes 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, causing a build up of certain inventories beyond
anticipated demand. As a result, the company recorded an additional
$13 million provision for excess and obsolete inventory to reflect current
business conditions.
Bad debts: The increase in the bad debt provision of $8 million was
principally attributable to the deterioration of account balances of
numerous low volume customers.
Environmental and legal matters: The environmental and legal provision was
increased by $9 million in 1996 due to completed environmental studies, new
issues arising and changes in the status of other legal matters.
In 1995, the company's operating margin decreased primarily due to a change
in sales mix and additional expenses incurred in conjunction with the
expansion of the company's retail operations in South Africa and Puerto Rico.
GAINS ON SALES OF BUSINESSES
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
Federal-Mogul recorded a restructuring charge of $57.6 million in the fourth
quarter of 1996 for costs associated with employee severance and exit and
consolidation costs for 132 international retail operations and 30 wholesale
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 is comprised of
$42.8 million for employee severance and $14.8 million for exit costs and
consolidation of certain facilities. The after-tax cash impact of the
restructuring actions is approximately $40 million and the actions are
anticipated to be substantially complete by the end of 1997.
<PAGE> 20
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 complete as of
December 31, 1996.
REENGINEERING AND OTHER RELATED CHARGES
In 1996, Federal-Mogul 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 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
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 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. 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 of 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.
<PAGE> 21
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.
OTHER INCOME AND EXPENSE
Although the company decreased its debt by $104 million as of December 31,
1996, interest expense increased $5.3 million in 1996 due to a higher average
debt level than 1995, and a slight increase in interest rates. In 1995,
interest expense increased from 1994 due to higher levels of debt necessary
to finance acquisitions, a stock repurchase program and increased levels of
working capital.
INCOME TAXES
At December 31, 1996, the company had deferred tax assets, net of a $89.4
million valuation allowance, of $139.8 million and deferred tax liabilities
of $67.4 million.
The net deferred tax asset of $72.4 million included the tax benefits of
$57.2 million related to the company's postretirement benefit obligation at
December 31, 1996. The company expects to realize the benefits associated
with this obligation over a period of 35 to 40 years.
The difference between the 1996 effective income tax rate and the statutory
tax rate is principally due to international losses that do not provide a
tax benefit. (See Note 14 to the consolidated financial statements).
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash flow from operations increased significantly during 1996 primarily due
to working capital improvements. Accounts receivable decreased due to sales
policy changes in the North American replacement business combined with a
concerted effort to reduce accounts receivable days outstanding. In addition,
inventories in the North American aftermarket decreased significantly due to
operational improvements in inventory management.
Cash flow from investing activities increased due to the sale of the United
States ball bearings manufacturing operations and the sale of the electrical
products manufacturing operations during 1996. Capital expenditures are
anticipated to be approximately $60 million in 1997, primarily for enhanced
manufacturing capabilities and process improvements.
<PAGE> 22
Cash flow from financing activities decreased in 1996 as the company paid
down its borrowings with cash generated from operations and the sales of the
operations noted above. The covenants contained in the company's lending
agreements have been amended to accommodate the restructuring charges and
adjustment of assets held for sale to fair value.
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 company believes that cash flow from operations, together with borrowings
available under the company's revolving credit facility, 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. 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 these accruals will be adequate to
cover the company's estimated liability for these exposures.
FOREIGN CURRENCY AND COMMODITY CONTRACTS
- ----------------------------------------
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 has foreign exchange contracts totaling $6.6 million with no
related deferred gain or loss at December 31, 1996. The company has
entered into contracts to purchase 4.7 million pounds of copper 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.
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------
<CAPTION>
(Millions of Dollars, Except Per Share Amounts)
YEAR ENDED DECEMBER 31 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales $2,030.2 $1,995.9 $1,895.9
Cost of products sold 1,661.8 1,599.2 1,508.1
Selling, general and administrative expenses 350.6 297.3 265.1
------- ------- -------
Operating margin 17.8 99.4 122.7
Gain on sales of businesses - 24.0 -
Restructuring charges (57.6) (26.9) -
Reengineering and other related charges (11.4) (13.9) -
Adjustment of assets held for sale to fair value (151.3) (51.8) -
------- ------- -------
Operating earnings (loss) (202.5) 30.8 122.7
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 expense (3.4) (3.4) (1.5)
------- ------- -------
Earnings (loss) before income taxes (249.3) (3.2) 102.1
Income tax expense (benefit) (38.2) 6.5 38.8
------- ------- -------
NET EARNINGS (LOSS) (211.1) (9.7) 63.3
------- ------- -------
Preferred dividends 8.7 8.9 9.0
NET EARNINGS (LOSS) AVAILABLE
TO COMMON SHAREHOLDERS $ (219.8) $ (18.6) $ 54.3
======= ======= =======
EARNINGS (LOSS) PER COMMON AND EQUIVALENT SHARE
Primary $ (6.26) $ (.53) $ 1.55
======= ======= =======
Fully Diluted $ (6.26) $ (.53) $ 1.46
======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 24
<TABLE>
CONSOLIDATED BALANCE SHEETS
- ---------------------------
<CAPTION>
(Millions of Dollars)
DECEMBER 31 1996 1995
-------- --------
ASSETS
- ------
<S> <C> <C>
Cash and equivalents $ 33.1 $ 19.4
Accounts receivable 231.3 303.4
Inventories 417.0 507.1
Prepaid expenses and income tax benefits 81.5 55.8
------- -------
Total current assets 762.9 885.7
Property, plant and equipment 350.3 426.6
Goodwill 154.0 226.5
Other intangible assets 63.1 66.6
Business investments and other assets 124.9 109.0
------- -------
TOTAL ASSETS $1,455.2 $1,714.4
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Short-term debt $ 280.1 $ 111.9
Accounts payable 142.7 172.7
Accrued compensation 37.6 32.3
Other accrued liabilities 203.4 101.9
------- -------
Total current liabilities 663.8 418.8
Long-term debt 209.6 481.5
Postemployment benefits 207.1 213.0
Other accrued liabilities 56.2 46.0
------- -------
TOTAL LIABILITIES 1,136.7 1,159.3
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) 45.0
Currency translation and other (49.0) (45.0)
------- -------
TOTAL SHAREHOLDERS' EQUITY 318.5 555.1
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,455.2 $1,714.4
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 25
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
<CAPTION>
(Millions of Dollars)
YEAR ENDED DECEMBER 31 1996 1995 1994
-------- -------- --------
<S>
CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES
- -------------------------------------------------
<C> <C> <C>
Net earnings (loss) $(211.1) $ (9.7) $ 63.3
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 -
Reengineering and other related charges 11.4 13.9 -
Adjustment of assets held for
sale to fair value 151.3 51.8 -
Deferred income taxes (35.6) (16.2) 8.1
Postemployment benefits (3.5) 4.2 4.0
Decrease (increase) in accounts receivable 56.5 (3.7) (61.7)
Decrease (increase) in inventories 55.8 (106.9) (33.0)
Increase (decrease) in accounts payable (25.5) 7.2 (15.5)
Payments against restructuring
and reengineering reserves (17.6) (19.4) (14.0)
Increase (decrease) in current
liabilities and other 46.0 (19.8) 17.4
------ ------ ------
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 .6 .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
====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 26
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -----------------------------------------------
<CAPTION>
(Millions of Dollars)
Series C Unearned Currency
Series D ESOP ESOP Additional Retained Transla-
Preferred Preferred Compen- Common Paid-In Earnings tion and
Stock Stock sation Stock Capital (Deficit) Other Total
--------- --------- -------- ------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1994 $ 76.6 $ 60.2 $(44.6) $147.5 $117.2 $ 46.4 $(32.2) $371.1
Net earnings 63.3 63.3
Issuance of
common stock 28.8 162.5 191.3
Exercise of
stock options 1.6 6.1 7.7
Repurchase of
common stock (3.0) (9.6) (12.6)
Retirement of
preferred stock (1.1) (1.1)
Amortization of
unearned ESOP
compensation 4.8 .2 5.0
Dividends (27.7) (27.7)
Preferred dividend
tax benefits 1.6 1.6
Currency translation (6.3) (6.3)
Pension adjustment 4.9 4.9
----- ----- ----- ----- ----- ------ ----- -----
BALANCE AT
DECEMBER 31, 1994 76.6 59.1 (39.8) 174.9 277.8 82.0 (33.4) 597.2
- -------------------
Net loss (9.7) (9.7)
Net issuance of
restricted shares 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
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 (34.3) 175.2 280.8 45.0 (45.0) 555.1
- -------------------
Net loss (211.1) (211.1)
Net issuance of
restricted shares .3 .9 (1.2) -
Exercise of
stock options .2 .4 .6
Retirement of
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 20.1
Currency translation (24.4) (24.4)
Pension adjustment 1.5 1.5
----- ----- ----- ----- ----- ------ ----- -----
BALANCE AT
DECEMBER 31, 1996 $ 76.6 $ 53.1 $(28.4) $175.7 $283.5 $(193.0) $(49.0) $318.5
- ------------------- ===== ===== ===== ===== ===== ====== ===== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. ACCOUNTING POLICIES
-------------------
Organization - Federal-Mogul Corporation'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 aftermarket.
Principles of Consolidation - The consolidated financial statements
include the accounts of Federal-Mogul Corporation 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:
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995
------ ------
<S> <C> <C>
Finished products $417.0 $469.6
Work-in-process 28.0 34.1
Raw materials 20.0 28.6
----- -----
465.0 532.3
Reserve for inventory valuation (48.0) (25.2)
----- -----
$417.0 $507.1
===== =====
</TABLE>
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.
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
$18.6 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.
<PAGE> 28
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 11) 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 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
<PAGE> 29
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.
2. 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 aftermarket and related facilities
consolidated after the acquisition of SPX Corporation's Sealed Power
Replacement aftermarket business.
3. 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
<PAGE> 30
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. 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.
4. 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(R), TRW(R) and Sealed Power(R) branded
engine parts.
<PAGE> 31
5. CHANGES IN ACCOUNTING ESTIMATES
-------------------------------
During the third and fourth quarters of 1996, the company made certain changes
in accounting estimates totaling $64 million ($43 million after tax, $1.23
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 $24 million, increasing
the provision for excess and obsolete inventory by $13 million, increasing the
provision for bad debts by $8 million, increasing the provision for
environmental and legal matters by $9 million and increasing various other
provisions by approximately $9 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
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.
7. 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 3 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
<PAGE> 32
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.
8. 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:
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995
------------------------ ------------------------
Contract Deferred Contract Deferred
Amount Gain (Loss) Amount (Loss)
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Forwards $ 6.6 $ - $ 23.5 $ (.3)
Options Purchased - - 8.0 -
----- ---- ----- ----
$ 6.6 $ - $ 31.5 $ (.3)
===== ==== ===== ====
</TABLE>
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.
<PAGE> 33
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
$13.4 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.
9. 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.
<PAGE> 34
At December 31, property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
Estimated
(Millions of Dollars) Useful Life 1996 1995
----------- -------- --------
<S> <C> <C> <C>
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
====== ======
</TABLE>
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 $24.9 million in 1994, exclusive of property
taxes, insurance and other occupancy costs generally payable by the company.
10. 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 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.
<PAGE> 35
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995
-------- --------
<S> <C> <C>
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
===== =====
</TABLE>
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.
<PAGE> 36
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 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.
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.
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.
<PAGE> 37
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.
12. 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.
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.
<PAGE> 38
The following table summarizes activity relating to the company's
incentive stock plans:
<TABLE>
<CAPTION>
(In Millions) Weighted-Average
Number of Shares Price
---------------- ----------------
<S> <C> <C>
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
===
</TABLE>
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.
13. 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.
As of December 31, 1996, plan assets included 309,000 shares of
the company's common stock valued at approximately $6.8 million.
<PAGE> 39
Net periodic pension cost for the company's defined benefit plans
in 1996, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
UNITED STATES PLANS
- -------------------
(Millions of Dollars) 1996 1995 1994
-------- -------- --------
<S>
(Income)/Expense
<C> <C> <C>
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
- -------------------
(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
======== ======== ========
</TABLE>
<PAGE> 40
The following table sets forth the funded status for the company's defined
benefit plans at December 31:
<TABLE>
<CAPTION>
UNITED STATES PLANS
- -------------------
Assets Exceed Accumulated
Accumulated Benefits
Benefits Exceed Assets
------------------ ------------------
(Millions of Dollars) 1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL PLANS
- -------------------
Accumulated
Benefits
Exceed Assets
------------------
(Millions of Dollars) 1996 1995
-------- --------
<S> <C> <C>
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)
======== ========
</TABLE>
<PAGE> 41
The assumptions used in computing the above information are as follows:
<TABLE>
<CAPTION>
UNITED STATES PLANS
- -------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
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%
INTERNATIONAL PLANS
- -------------------
1996 1995 1994
-------- -------- --------
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%
</TABLE>
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:
<TABLE>
<CAPTION>
(Millions of Dollars)
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
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
==== ==== ====
</TABLE>
<PAGE> 42
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:
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995
-------- --------
<S> <C> <C>
Accumulated postretirement
benefit obligations (APBO):
Retirees $103.9 $ 95.8
Active plan participants 46.9 48.7
----- -----
150.8 144.5
Unrecognized net gain (loss) (1.4) 7.6
Unrecognized prior service cost 4.1 4.5
----- -----
Accrued postretirement benefits liability $153.5 $156.6
===== =====
</TABLE>
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.
14. 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:
<PAGE> 43
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Domestic $(108.9) $ 9.0 $ 100.1
International (140.4) (12.2) 2.0
-------- -------- --------
$(249.3) $ (3.2) $ 102.1
======== ======== ========
</TABLE>
Significant components of the provision for income taxes (tax benefit)
are as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $(12.0) $ 16.7 $ 18.4
State and local 2.3 1.2 2.1
International 6.3 9.3 5.2
----- ----- -----
Total current (3.4) 27.2 25.7
Deferred:
Federal (32.6) (9.0) 18.5
State and local (2.2) (.9) 1.0
International - (10.8) (6.4)
----- ----- -----
Total deferred (34.8) (20.7) 13.1
----- ----- -----
$(38.2) $ 6.5 $ 38.8
===== ===== =====
</TABLE>
The reconciliation of income taxes (tax benefits) computed at the United
States federal statutory tax rate to income tax expense (benefit) is:
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income taxes (tax benefits) at
United States statutory rate $(87.3) $ (1.1) $ 35.7
Tax effect from:
Tax credits, state income
taxes and other (6.8) 1.7 .9
Losses on international
operations without tax
benefits and foreign
tax rate differences 55.9 5.9 2.2
----- ----- -----
$(38.2) $ 6.5 $ 38.8
===== ===== =====
</TABLE>
<PAGE> 44
The following table summarizes the company's total provision for income taxes/
(tax benefits):
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income tax expense (benefit) $(38.2) $ 6.5 $ 38.8
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
----- ----- -----
$(43.1) $ 11.0 $ 41.4
===== ===== =====
</TABLE>
Significant components of the company's deferred tax assets and liabilities
as of December 31 are as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995
-------- --------
<S> <C> <C>
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 2.3
Other temporary differences 27.6 10.3
----- -----
Total deferred tax assets 229.2 132.4
Valuation allowance for
deferred tax assets (89.4) (23.7)
----- -----
Net deferred tax assets 139.8 108.7
----- -----
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 $ 32.7
===== =====
</TABLE>
Deferred tax assets and liabilities are recorded in the consolidated balance
sheets as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995
-------- --------
<S> <C> <C>
Assets:
Prepaid expenses and income tax benefits $ 54.6 $ 27.1
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 $ 32.7
===== =====
</TABLE>
<PAGE> 45
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.
15. 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 aftermarket. All of
these activities constitute a single business segment.
Financial information, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales:
United States and Canada $1,222.2 $1,276.7 $1,340.9
Europe 436.0 382.8 285.3
Other international 372.0 336.4 269.7
------- ------- -------
$2,030.2 $1,995.9 $1,895.9
======= ======= =======
Operating earnings (loss):
United States and Canada $ (72.4) $ 58.0 $ 128.4
Europe 11.0 (13.2) (4.2)
Other international (113.4) 13.8 25.1
------- ------- -------
(174.8) 58.6 149.3
Corporate expenses and other (27.7) (27.8) (26.6)
------- ------- -------
Operating earnings $ (202.5) $ 30.8 $ 122.7
======= ======= =======
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Identifiable assets:
United States and Canada $ 775.5 $ 897.8 $ 899.9
Europe 451.0 493.9 342.5
Other international 228.7 322.7 253.7
------- ------- -------
$1,455.2 $1,714.4 $1,496.1
======= ======= =======
</TABLE>
Transfers between geographic areas are not significant, and when made, are
recorded at prices comparable to normal unaffiliated customer sales.
16. 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 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. 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.
<PAGE> 47
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
------------------------------------
<TABLE>
<CAPTION>
(Millions of Dollars,
Except Per Share Amounts) FIRST SECOND THIRD<F1> FOURTH<F2> YEAR
----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Net sales $521.9 $536.4 $491.6 $480.3 $2,030.2
Net sales less cost
of products sold 112.2 117.3 80.1 58.8 368.4
Operating margin 29.2 36.3 (4.0) (43.7) 17.8
Net earnings (loss) 10.6 15.8 (17.3) (220.2) (211.1)
Fully diluted earnings
(loss) per share .23 .36 (.56) (6.32) (6.26)
(Millions of Dollars,
Except Per Share Amounts) FIRST SECOND<F3> THIRD FOURTH<F4> YEAR
----- ------ ----- ------ ----
Year ended December 31, 1995:
Net sales $524.3 $506.3 $480.2 $485.1 $1,995.9
Net sales less cost
of products sold 104.4 104.9 88.0 99.4 396.7
Operating margin 32.1 30.0 25.9 11.4 99.4
Net earnings (loss) 14.2 14.2 11.0 (49.1) (9.7)
Fully diluted earnings
(loss) per share .33 .33 .25 (1.44) (.53)
</TABLE>
[FN]
<F1> 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.
<F2> 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.
<F3> Net earnings includes pretax charges for restructuring of $6.1 million
and reengineering and other charges of $1.7 million.
<F4> 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.
<PAGE> 48
High and low prices for the company's common stock for each quarter in the
past 2 years were as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ---------------------
Quarter High Low High Low
- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
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
</TABLE>
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.
<PAGE> 49
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
- ---------------------------------------------------
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 controls 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 and by our independent auditors. 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 the company'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)
Dick Snell
Chairman and Chief Executive Officer
(Tom Ryan)
Tom Ryan
Senior Vice President and
Chief Financial Officer
<PAGE> 50
REPORT OF INDEPENDENT AUDITORS
- ------------------------------
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, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. Our audit
also included the financial statement schedule listed in Item 14(a). These
financial statements and schedule are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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
presents fairly, in all material respects, the consolidated financial
position of Federal-Mogul Corporation and subsidiaries at December 31, 1996
and 1995, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, 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.
(Ernst & Young LLP)
Ernst & Young LLP
Detroit, Michigan
January 27, 1997
<PAGE> 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE> 52
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item appears (a) under the caption
"Nominees for Election as Directors" on pages 1 through 5 of the
company's definitive Proxy Statement dated March 19, 1997, relating to
its 1997 Annual Meeting of Shareholders (the "1997 Proxy
Statement")(except for the information appearing on page 5 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" on page 21
of the 1997 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 appears under the caption
"Information on Executive Compensation" on pages 11 through 18 of the 1997
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"
on page 5 of the 1997 Proxy Statement, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item appears under the caption "Information
on Securities-Stock Ownership of Management" and "-Other Beneficial Owners"
on pages 19 and 20 of the 1997 Proxy Statement and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item appears under the caption "Certain
Related Transactions" on pages 14 and 15 of the 1997 Proxy Statement and
is incorporated herein by reference.
<PAGE> 53
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.
<PAGE> 54
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
- ------------------------------------------
(In Millions)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------- --------- ------------------------ ------------ ---------
Additions
------------------------
Balance Charged to
at Charged Other Balance
Beginning to Costs Accounts - Deductions - at End
Description of Period and Expenses Describe Describe of Period
- ----------------------------- --------- ------------ ---------- ------------ ---------
Year Ended December 31, 1996:
- ----------------------------
<S> <C> <C> <C> <C> <C>
Valuation allowance
for trade receivable $13.7 $15.9 $ - $13.3 <F1> $16.3
Valuation allowance
for notes receivable .5 - - - .5
Reserve for
inventory valuation 25.2 22.8 <F8> - - 48.0
Valuation allowance
for deferred tax assets 23.7 65.7 <F7> - - 89.4
Year Ended December 31, 1995:
- ----------------------------
Valuation allowance
for trade receivable 14.1 4.7 .4 <F2> 5.5 <F1> 13.7
Valuation allowance
for notes receivable .7 - - .2 <F3> .5
Reserve for
inventory valuation 25.7 .7 5.3 <F2> 6.5 <F5> 25.2
Valuation allowance
for deferred tax assets 20.9 2.8 - - 23.7
Year Ended December 31, 1994:
- ----------------------------
Valuation allowance
for trade receivable 15.5 2.0 3.2 <F2> 6.6 <F1> 14.1
Valuation allowance for
notes receivable .7 - - - .7
Reserve for
inventory valuation 28.9 - 6.3 <F2> 3.4 <F4> 25.7
6.1 <F5>
Valuation allowance
for deferred tax assets 21.0 - - (.1)<F6> 20.9
</TABLE>
[FN]
<F1> Uncollectible accounts charged off net of recoveries.
<F2> Increase to reserve due to acquisition of automotive aftermarket
businesses.
<F3> Decrease to reserve due to change in market value of note.
<F4> Reduction of automotive aftermarket businesses' reserves to current
requirements.
<F5> Reduction in inventory reserves for inventory disposed of during the
year.
<F6> Decrease due to utilization of excess foreign tax credit carryforwards.
<F7> Increase due to additional foreign net operating loss carryforwards.
<F8> Increase due to change in current reserve requirements and impairment
of certain foreign subsidiaries.
<PAGE> 55
3. Exhibits:
3.1 The company's Second Restated Articles of Incorporation,
as amended. (Filed as Exhibit 3.1 to the company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992, and incorporated herein by
reference.)
3.2 The company's Bylaws, as amended. (Filed as Exhibit 3.2 to
the company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, and incorporated herein by
reference.)
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. (Filed
as Exhibit 1 to the company's Registration Statement on
Form 8-A, dated November 7, 1988, and incorporated herein
by reference.)
4.2 Amendment, dated July 25, 1990, to the Rights Agreement.
(Filed as Exhibit 4.5 to the company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1990, and
incorporated herein by reference.)
4.3 Amendment, dated January 1, 1993, to the Rights Agreement.
(Filed as Exhibit 10.30 to the company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1993, and
incorporated herein by reference.)
4.4 Amendment, dated September 23, 1992, to the Rights
Agreement. (Filed as Exhibit 4.4 to the company's Annual
Report on Form 10-K for the year ended December 31, 1992
(the "1992 10-K"), and incorporated herein by reference.)
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.
10.1* The company's 1976 Stock Option Plan, as last amended.
(Filed as Exhibit 10.1 to the company's Annual Report on
Form 10-K for the year ended December 31, 1994 (the "1994
10-K"), and incorporated herein by reference.)
10.2* The company's 1984 Stock Option Plan, as last amended.
(Filed as Exhibit 10.2 to the 1994 10-K.)
<PAGE> 56
10.3* The company's 1977 Supplemental Compensation Plan, as
amended and restated. (Filed as Exhibit 10.27 to the
company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, and incorporated herein by reference.)
10.4* The company's Supplemental Compensation Retirement Trust
Agreement. (Filed as Exhibit 10.4 to the 1994 10-K, and
incorporated herein by reference.)
10.5* Form of Executive Severance Agreement between the company
and certain executive officers. (Filed herewith.)
10.6* Amended and Restated Deferred Compensation Plan for Corporate
Directors. (Filed as Exhibit 10.7 to the company's Annual
Report on Form 10-K for the year ended December 31, 1990
(the "1990 10-K") and incorporated herein by reference.)
10.7* Supplemental Executive Retirement Plan, as amended. (Filed
as Exhibit 10.10 to the 1992 10-K, and incorporated herein
by reference.)
10.8* Description of Umbrella Excess Liability Insurance for the
Senior Management Team. (Filed as Exhibit 10.11 to the 1990
10-K, and incorporated herein by reference.)
10.9* Federal-Mogul Corporation 1989 Performance Incentive Stock
Plan, as amended. (Filed as Exhibit 10.14 to the 1994 10-K,
and incorporated herein by reference.)
10.10 Supply Agreement, dated as of October 20, 1992, between the
company, TRW Inc. and the TRW Subsidiaries (as defined
therein). (Filed as Exhibit 10.15 to the 1992 10-K, and
incorporated herein by reference.)
10.11 Note Agreement, dated December 1, 1990, between the company
and various financial institutions listed therein (the
"Note Agreement"). (Filed as Exhibit 10.17 to the company's
Annual Report Form 10-K for the year ended December 31, 1991,
and incorporated herein by reference.)
10.12 First Amendment dated as of December 11, 1992, to the Note
Agreement. (Filed as Exhibit 10.27 to the 1992 10-K, and
incorporated herein by reference.)
10.13 Second Amendment, dated as of July 14, 1995, to the Note
Agreement. (Filed as Exhibit 10.29 to the company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995, and incorporated herein by reference.)
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 (Filed as
Exhibit 10.21 to the company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1993, and incorporated
herein by reference.)
<PAGE> 57
10.15 Series 1992-1 Supplement, dated as of June 1, 1992, to
the Pooling and Servicing Agreement. (Filed as Exhibit
10.22 to the company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1992, and incorporated
herein by reference.)
10.16 Series 1993-1 Supplement, dated as of March 1, 1993, to
the Pooling and Servicing Agreement. (Filed as Exhibit
10.29 to the company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1993, and incorporated herein
by reference.)
10.17 Receivables Purchase Agreement, dated as of June 1, 1992,
between the company and FMFC. (Filed as Exhibit 10.23
to the 1992 10-K, and incorporated herein by reference.)
10.18* Federal-Mogul Corporation Executive Loan Program. (Filed
as Exhibit 10.26 to the company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994, and
incorporated herein by reference.)
10.19* Federal-Mogul Corporation Non-Employee Director Stock
Plan. (Filed as Exhibit 4 to the company's Registration
Statement on Form S-8 (Registration No. 33-54301), and
incorporated herein by reference.)
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"). (Filed as Exhibit 4.11 to Pre-Effective
Amendment No. 1 to Registration Statement on Form S-3
(Registration No. 33-54717), and incorporated herein by
reference.)
10.21 First Amendment, dated as of December 18, 1995, to the
Revolving Credit Agreement. (Filed as Exhibit 10.28 to the
company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and incorporated herein by
reference.)
10.22 Second Amendment, dated as of October 21, 1996, to the
Revolving Credit Agreement. (Filed as Exhibit 10.29 to
the company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and incorporated herein by
reference.)
10.23* Employment Agreement, dated as of December 1, 1996,
between the company and R.A. Snell. (Filed herewith.)
10.24* Severance Agreement, dated as of December 27, 1996,
between the company and D.J. Gormley. (Filed herewith.)
10.25* Severance Agreement, dated as of December 1, 1996,
between the company and W.G. Smith. (Filed herewith.)
<PAGE> 58
11 Statement Re Computation of Per Share Earnings. (Filed
herewith.)
21 Subsidiaries. (Filed herewith.)
23 Consent of Ernst & Young LLP. (Filed herewith.)
24 Power of Attorney. (Filed herewith.)
27 Financial Data Schedule. (Filed herewith.)
* Denotes management contract or compensatory plan or arrangement.
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:
During the fourth quarter of 1996, the company filed two Current Reports
on Form 8-K, as follows:
1. Current Report on Form 8-K, dated as of October 29, 1996,
reporting, under Item 5 thereof, a Press Release of the company
on October 25, 1996, relating to the company's results for the
third quarter of 1996 and a special charge taken for such
quarter, together with (i) unaudited earnings statements
setting forth the company's earnings for the 3 months ended
September 30, 1996 and 1995, and for the 9 months ended September
30, 1996 and 1995, (ii) unaudited balance sheet setting forth the
company's financial position at September 30, 1996 and 1995, and
(iii) unaudited statements of cash flows for the 9 months ended
September 30, 1996 and 1995.
2. Current Report on Form 8-K, dated as of November 8, 1996,
reporting, under Item 5 thereof, a Press Release of the company
on November 8, 1996, setting forth the election of Mr. Richard A.
Snell as Chairman, Chief Executive Officer and President of the
company.
<PAGE> 59
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: (Thomas W. Ryan)
-------------------------------
Thomas W. Ryan
Senior Vice President and
Chief Financial Officer
Dated: March 27, 1997
Pursuant to the required of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the Registrant and in the capacities and as of March 27, 1997.
Signature Title
(Richard A. Snell)
- --------------------- Chairman of the Board, Chief
Richard A. Snell Executive Officer and President
(Thomas W. Ryan)
- --------------------- Senior Vice President and Chief
Thomas W. Ryan Financial Officer (Principal
Financial Officer)
(Kenneth P. Slaby)
- --------------------- Vice President and Controller
Kenneth P. Slaby (Principal Accounting Officer)
*
- ---------------------
Roderick M. Hills Director
*
- ---------------------
John J. Fannon Director
<PAGE> 60
*
- ---------------------
Antonio Madero Director
*
- ---------------------
Robert S. Miller, Jr. Director
*
- ---------------------
John C. Pope Director
*
- ---------------------
Dr. H. Michael Sekyra Director
(Diane L. Kaye)
- ---------------------
*By: Diane L. Kaye
Attorney-in-Fact
<PAGE> 1
EXHIBIT 10.5
Date
Name
Title
FEDERAL-MOGUL CORPORATION
EMPLOYMENT AGREEMENT
AGREEMENT by and between Federal-Mogul Corporation, a Michigan
corporation (the "Company") and (the "Executive"), dated as of
the day of , 1997.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control
(as defined below) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
I. Certain Definitions.
A. The "Effective Date" shall mean the first date during the Change of
Control Period (as defined in Section 1(b)) on which a Change of Control (as
defined in Section 2) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's
employment with the Company is terminated prior to the date on which the
Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or anticipation of a
Change of Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such termination
of employment.
<PAGE> 2
B. The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each
annual anniversary thereof shall be hereinafter referred to as the "Renewal
Date"), unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give
notice to the Executive that the Change of Control Period shall not be so
extended.
II. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
A. The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (i) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a Change of
Control: (i) any acquisition directly from the Company, (ii) any acquisition
by the Company, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any corporation
pursuant to a transaction which complies with clauses (i), (ii) and (iii)
of subsection (c) of this Section 2; or
B. Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect
to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
the Board; or
C. Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company
<PAGE> 3
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company
or such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board
at the time of the execution of the initial agreement, or of the action of
the Board, providing for such Business Combination; or
D. Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
III. Employment Period. The Company hereby agrees to continue the Executive
in its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
IV. Terms of Employment.
A. Position and Duties.
a. During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at
any time during the 120-day period immediately preceding the Effective Date
and (B) the Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Effective Date or any office
or location less than 35 miles from such location.
b. During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with
the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement.
It is expressly understood and agreed that to the extent that any such
activities have been conducted by the Executive prior to the Effective Date,
the continued conduct of such activities (or the conduct of activities similar
in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
<PAGE> 4
B. Compensation.
a. Base Salary. During the Employment Period, the Executive shall
receive an annual base salary ("Annual Base Salary"), which shall be paid at a
monthly rate, at least equal to twelve times the highest monthly base salary
paid or payable, including any base salary which has been earned but deferred,
to the Executive by the Company and its affiliated companies in respect of the
twelve-month period immediately preceding the month in which the Effective
Date occurs. During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase awarded to the
Executive prior to the Effective Date and thereafter at least annually. Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall
not be reduced after any such increase and the term Annual Base Salary as
utilized in this Agreement shall refer to Annual Base Salary as so increased.
As used in this Agreement, the term "affiliated companies" shall include any
company controlled by, controlling or under common control with the Company.
b. Annual Bonus. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment Period, an
annual bonus (the "Annual Bonus") in cash at least equal to the Executive's
highest bonus under the Company's 1977 Supplemental Compensation Plan, as
amended and restated, or any comparable bonus under any predecessor or
successor plan, for the last three full fiscal years prior to the Effective
Date (annualized in the event that the Executive was not employed by the
Company for the whole of such fiscal year) (the "Recent Annual Bonus").
Each such Annual Bonus shall be paid no later than the end of the third month
of the fiscal year next following the fiscal year for which the Annual Bonus
is awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus.
c. Incentive, Savings and Retirement Plans. During the Employment
Period, the Executive shall be entitled to participate in all incentive,
savings and retirement plans, practices, policies and programs applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its affiliated companies for
the Executive under such plans, practices, policies and programs as in effect
at any time during the 120-day period immediately preceding the Effective Date
or if more favorable to the Executive, those provided generally at any time
after the Effective Date to other peer executives of the Company and its
affiliated companies.
d. Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit
plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided
generally at any time after the Effective Date to other peer executives of
the Company and its affiliated companies.
<PAGE> 5
e. Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in accordance with the most favorable policies, practices
and procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
f. Fringe Benefits. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation, tax and
financial planning services, payment of club dues, and, if applicable, use of
an automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the
120-day period immediately preceding the Effective Date or, if more favorable
to the Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
g. Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing
provided to the Executive by the Company and its affiliated companies at any
time during the 120-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
h. Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies
as in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
V. Termination of Employment.
A. Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If
the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Executive written notice in
accordance with Section 12(b) of this Agreement of its intention to terminate
the Executive's employment. In such event, the Executive's employment with
the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that,
within the 30 days after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or physical illness
which is determined to be total and permanent by a physician selected by the
Company or its insurers and acceptable to the Executive or the Executive's
legal representative.
B. Cause. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
<PAGE> 6
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel,
to be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i)
or (ii) above, and specifying the particulars thereof in detail.
C. Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
a. the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
b. any failure by the Company to comply with any of the provisions
of Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
c. the Company's requiring the Executive to be based at any office
or location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
d. any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
e. any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
<PAGE> 7
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
D. Notice of Termination. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b)
of this Agreement. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific termination provision
in this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date shall be
not more than thirty days after the giving of such notice). The failure by
the Executive or the Company to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive or the Company, respectively,
hereunder or preclude the Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
E. Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
VI. Obligations of the Company upon Termination.
A. Good Reason; Other Than for Cause, Death or Disability. If, during
the Employment Period, the Company shall terminate the Executive's employment
other than for Cause or Disability or the Executive shall terminate employment
for Good Reason:
a. the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
(1) the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid, (2) the product of
(x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the Employment
Period, if any (such higher amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the number of days in
the current fiscal year through the Date of Termination, and the denominator
of which is 365 and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2), and (3) shall be hereinafter referred
to as the "Accrued Obligations"); and
<PAGE> 8
(2) the amount equal to the product of (1) three and (2) the
sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual
Bonus; and
(3) an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's qualified defined benefit
retirement plan (the "Retirement Plan") (utilizing actuarial assumptions no
less favorable to the Executive than those in effect under the Company's
Retirement Plan immediately prior to the Effective Date), and any excess or
supplemental retirement plan in which the Executive participates (together,
the "SERP") which the Executive would receive if the Executive's employment
continued for three years after the Date of Termination assuming for this
purpose that all accrued benefits are fully vested, and, assuming that the
Executive's compensation in each of the three years is that required by
Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of
the Executive's actual benefit (paid or payable), if any, under the Retirement
Plan and the SERP as of the Date of Termination;
b. for three years after the Executive's Date of Termination,
or such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs, practices
and policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies and their
families, provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and policies,
the Executive shall be considered to have remained employed until three years
after the Date of Termination and to have retired on the last day of such
period;
c. the Company shall, at its sole expense as incurred, provide
the Executive with outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion; and
d. to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
B. Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under
this Agreement, other than for payment of Accrued Obligations and the timely
payment or provision of Other Benefits. Accrued Obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
<PAGE> 9
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
C. Disability. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective
Date to receive, disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with
such plans, programs, practices and policies relating to disability, if any,
as in effect generally with respect to other peer executives and their
families at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive and/or the Executive's
family, as in effect at any time thereafter generally with respect to other
peer executives of the Company and its affiliated companies and their
families.
D. Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay to the Executive (x) his Annual Base Salary through the
Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent
theretofore unpaid.
If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall
terminate without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other Benefits.
In such case, all Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination.
VII. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
<PAGE> 10
VIII. Full Settlement. The Company's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and such amounts shall
not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result
of any contest (regardless of the outcome thereof) by the Company, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable Federal rate provided for in Section 7872(f)(2)(A)
of the Internal Revenue Code of 1986, as amended (the "Code").
IX. Certain Additional Payments by the Company.
A. Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional
payments required under this Section 9) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties
are incurred by the Executive with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Executive, after taking into account the
Payments and the Gross-Up Payment, would not receive a net after-tax benefit
of at least $50,000 (taking into account both income taxes and any Excise Tax)
as compared to the net after-tax proceeds to the Executive resulting from an
elimination of the Gross-Up Payment and a reduction of the Payments, in the
aggregate, to an amount (the "Reduced Amount") such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall
be made to the Executive and the Payments, in the aggregate, shall be reduced
to the Reduced Amount.
B. Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
Ernst & Young or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and the Executive within
15 business days of the receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by the Company. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change
<PAGE> 11
of Control, the Executive shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section 9,
shall be paid by the Company to the Executive within five days of the receipt
of the Accounting Firm's determination.
Any determination by the Accounting Firm shall be binding upon the Company and
the Executive. As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Gross-Up Payments which will not have been
made by the Company should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
the Executive.
C. The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
a. give the Company any information reasonably requested by the
Company relating to such claim,
b. take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
c. cooperate with the Company in good faith in order effectively to
contest such claim, and
d. permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest
the claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in a court
of initial
<PAGE> 12
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount of
such payment to the Executive, on an interest-free basis and shall indemnify
and hold the Executive harmless, on an after-tax basis, from any Excise Tax
or income tax (including interest or penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised
by the Internal Revenue Service or any other taxing authority.
D. If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section 9(c),
a determination is made that the Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
X. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without
the prior written consent of the Company or as may otherwise be required by
law or legal process, communicate or divulge any such information, knowledge
or data to anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this Section 10
constitute a basis for deferring or withholding any amounts otherwise payable
to the Executive under this Agreement.
XI. Successors.
A. This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
B. This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
<PAGE> 13
C. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
XII. Miscellaneous.
A. This Agreement shall be governed by and construed in accordance with
the laws of the State of Michigan, without reference to principles of conflict
of laws. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto
or their respective successors and legal representatives.
B. All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: If to the Company:
Name Attention: General Counsel
Residence address Federal-Mogul Corporation
26555 Northwestern Highway
Southfield, MI 48034
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
C. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
D. The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
E. The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
F. The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which
case the Executive shall have no further rights under this Agreement. From
and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof.
<PAGE> 14
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
Very truly yours,
FEDERAL-MOGUL CORPORATION
Name
Vice President - Human Resources
Executed and effective this
day of , 199 .
Signature
(Typed Name)
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and
entered into as of the 1st day of December, 1996 (the "Effective
Date") by and between Richard A. Snell (the "Executive"), and
Federal-Mogul Corporation, a Michigan corporation, having its
principal executive offices in Southfield, Michigan (the
"Company").
WHEREAS, the Company is engaged in the business of
distributing and manufacturing a broad range of non-discretionary
parts for automobiles, trucks and other vehicles;
WHEREAS, in order to achieve its corporate and business
objectives, the Company desires to hire an experienced and
knowledgeable Chairman, Chief Executive Officer, and President of
the Company, who will be principally responsible for the overall
conduct of the Company's business;
WHEREAS, the Executive has substantial experience and
expertise in connection with the Company's business;
WHEREAS, the Company and the Executive mutually desire to
agree upon the terms of the Executive's employment as the Chairman,
Chief Executive Officer, and President of the Company and, in
addition, to agree as to certain benefits of said employment; and
WHEREAS, while this Agreement sets forth the terms of the
Executive's compensation and benefits, the Company understands that
the Executive will from time to time during the term of his
employment present compensation and benefit plans to the Board for
approval, and nothing contained in this Agreement will prevent the
Executive from including himself in any such proposal for
additional compensation and benefits, including any plans for
additional grants of restricted shares and stock options.
NOW, THEREFORE, in consideration of the mutual agreements
set forth below, the Executive and the Company hereby agree as
follows:
1. TERM OF EMPLOYMENT: Subject to the terms of this
Agreement, the Company hereby employs the Executive, and the
Executive hereby accepts such employment, for the five (5) year
period beginning on the Effective Date and ending at the close of
business on November 30, 2001 (the "Term").
<PAGE> 2
2. POSITION AND DUTIES:
a. During the Term, the Executive shall serve as Chairman,
Chief Executive Officer, and President of the Company and shall
have such duties and responsibilities as are customarily required
of a Chairman, Chief Executive Officer, and President and as the
Board of Directors of the Company (the "Board") shall determine
from time to time. Such duties and responsibilities shall include,
without limitation, responsibility for the management, operation
and overall conduct of the business of the Company. For purposes
of this Agreement, the term "employment" shall include the
Executive's service to the Company in any capacity during the Term.
b. The Executive shall serve as Chairman of the Board,
subject to the continuing approval of shareholders.
c. During the Term, the Executive shall diligently and
conscientiously devote his full and exclusive business time, energy
and ability to the business of the Company. The Executive shall
report directly to the Board and shall perform his duties
faithfully and efficiently, subject to the overall policies and
directions of the Board.
d. The Executive may (i) upon approval of the Board, serve
as a director or trustee of other corporations or businesses which
are not in competition with the business of the Company or in
competition with any present or future affiliate of the Company,
(ii) serve on civic or charitable boards or committees, (iii)
deliver lectures, fulfill speaking engagements or teach at
educational institutions; and (iv) manage personal investments;
provided, however, that the Executive may not engage in any of the
activities described in this Paragraph 2(d) to the extent such
activities significantly interfere with the performance of the
Executive's responsibilities to the Company. As used in this
Agreement, the term "affiliate" of the Company means any company
controlled by, controlling, or under common control with the
Company. It is expressly understood and agreed that the activities
of the Executive described on Schedule 2.d annexed hereto shall be
permitted and shall not be deemed to interfere with the performance
of the Executive's responsibilities to the Company.
e. Without the prior express authorization of the Board, the
Executive shall not, directly or indirectly, during the Term (i)
render services of a business, professional or commercial nature to
any other person or firm, whether for compensation or otherwise, or
(ii) engage in any activity competitive with the Company's
business, whether alone, as a partner, or as an officer, director,
employee, member or holder (directly or indirectly, such as by
means of a trust or option arrangement). The Executive may be an
investor, shareholder, joint venturer or partner (hereinafter
referred to as "Investor"); provided, however, that such Investment
does not (i) pose a clear conflict of interest, (ii) require the
<PAGE> 3
Executive's involvement in the management or operation of such
Investment (recognizing that the Executive shall be permitted to
monitor and oversee the Investment), or (iii) interfere with the
performance of the Executive's duties and obligations hereunder.
The foregoing prohibition does not extend to ownership of less than
one percent (1%) of the outstanding stock of any entity whose stock
is traded on an established stock exchange or quoted on NASDAQ.
f. The Executive represents and warrants that he has the
full right and authority to enter into this Agreement and to render
the services as required under this Agreement, and that by signing
this Agreement he is not breaching any contract or legal obligation
he owes to any third party, including without limitation his former
employer. The Executive agrees that, in the event the Executive
breaches this Paragraph 2(f), the Executive will indemnify and hold
harmless the Company and its officers, directors, shareholders,
affiliates, subsidiaries, successors, licensees and assigns from
and against any claims, losses, damages and expenses (including
without limitation reasonable attorneys' fees and disbursements)
arising out of such breach.
3. COMPENSATION AND BENEFITS: During the Term, while the
Executive is employed by the Company, the Company shall compensate
the Executive for his services as set forth in this Paragraph 3.
The Executive recognizes that during the Term of the Agreement, the
Company reserves the right to change from time to time the terms
and benefits of any welfare, pension, or fringe benefit plan of the
Company, including the right to change any service provider, so
long as such changes are also generally applicable to all
executives of the Company; provided, however, that the Executive's
minimum level of compensation and benefits as set forth in this
Paragraph 3 will be preserved in the event of any such change.
a. Salary: The Company shall pay the Executive a base
salary at an annual rate of Six Hundred Thousand Dollars and No
Cents ($600,000.00). Such salary shall be earned and shall be
payable in periodic installments no less frequently than semi-monthly
in accordance with the Company's payroll practices.
Amounts payable shall be reduced by standard withholding and other
authorized deductions. The Board will review the Executive's
salary at least annually and may increase (but not reduce) the
Executive's annual base salary in its discretion.
b. Bonus: The Executive shall be paid the sum of Three
Hundred Fifty Thousand Dollars and No Cents ($350,000.00) to
compensate the Executive for the loss of any bonus he would have
received had he remained with his former employer, such payment to
be made in January 1997. In addition, beginning with the 1997
calendar year, the Executive shall be entitled to participate in
the Company's 1977 Supplemental Compensation Plan, as amended and
restated (the "Bonus Plan"), and any additional or successor bonus
plans applicable generally to other senior executives of the
<PAGE> 4
Company, in accordance with the terms of such plans and this
Paragraph 3(b). The target bonus for the Executive for the 1997
calendar year will be Four Hundred Fifty Thousand Dollars and No
Cents ($450,000.00) with a maximum bonus opportunity of Six Hundred
Seventy-Five Thousand Dollars and No Cents ($675,000.00). The
actual bonus paid for 1997 and for any subsequent year shall be
based on objective criteria established by the Executive
and approved by the Board's Compensation Committee, subject to final
approval of the Board. For the 1997 calendar year only, the
Executive shall receive a minimum guaranteed bonus of Two Hundred
Seventy-Five Thousand Dollars and No Cents ($275,000.00), payable
in 1998 at or around the time other senior executives receive a
bonus.
c. Savings and Retirement Plans: The Executive shall be
entitled to participate in all savings and retirement plans
applicable generally to other senior executives of the Company,
except that he shall not be entitled to participate in the
Supplemental Executive Retirement Program ("SERP") or any successor
plan. Without limiting the foregoing, the Executive shall be
entitled to participate in the Personal Retirement Account Plan for
Salaried Executives ("PRA"), the Supplemental Executive Incentive
Plan ("SEIP"), the Thrift Plan and any successor plans, in
accordance with the terms of such plans.
d. Supplemental Retirement Benefits: In order to make the
Executive whole for any loss of pension benefits caused by the
Executive's termination of employment with his former employer, and
in lieu of the Executive's participation in the SERP, the Company
will pay the Executive following his separation from the Company a
supplemental retirement benefit equal to the difference between:
(i) the retirement benefits the Executive would have received from
his former employer's tax-qualified defined benefit pension plan
and supplemental executive retirement plan if he had continued
employment with his former employer until the date of his
separation from the Company, with the amount of such benefits
calculated under the former employer's plans as in existence on the
Effective Date and based on the Executive's combined employment and
salary history at his former employer and at the Company, and (ii)
the sum of (A) the retirement benefits the Executive actually
receives or is entitled to receive from his former employer's
tax-qualified defined benefit pension plan and supplemental executive
retirement plan, and (B) the retirement benefit the Executive
receives or is entitled to receive under the PRA and any successor
thereto, each addend calculated as of the date the Executive
separates from the Company. For purposes of calculating this
supplemental retirement benefit, the benefit amounts under each
such plan and the resulting difference shall be calculated as
monthly payments under immediate single life annuities, regardless
<PAGE> 5
of the forms in which the Executive actually receives distributions
from any of the plans. The Executive may elect to receive the
supplemental retirement benefit in any distribution form available
under the PRA having an actuarially equivalent value to the
calculated single life annuity, with actuarial equivalence
determined on the basis of actuarial assumptions used under the
PRA.
e. Supplemental Death Benefits: In order to make the
Executive's beneficiaries whole for any loss of death benefits
caused by the Executive's termination of employment with his former
employer, the Company will pay the Executive's beneficiaries, if
the Executive dies during his employment by the Company, a
supplemental death benefit equal to the difference between: (i)
the death benefits the Executive's beneficiaries would have
received from his former employer's tax-qualified defined benefit
pension plan and any supplemental plan if he had continued
employment with his former employer until the date of his death,
with the amount of such benefits calculated under the former
employer's plans as in existence on the Effective Date and based on
the Executive's combined employment and salary history at his
former employer and at the Company, and (ii) the sum of (A) the
death benefits the Executive's beneficiaries actually receive or
are entitled to receive from his former employer's tax-qualified
defined benefit pension plan and any supplemental plan, and (B) the
death benefit the Executive's beneficiaries receive or are entitled
to receive under the PRA and any successor thereto, each addend
calculated as of the date of the Executive's death. For purposes
of calculating this supplemental death benefit, the benefit amounts
under each such plan and the resulting difference shall be
calculated as lump sum payments equal to the full value of the
Executive's death benefit available from the plans, regardless of
the forms in which the Executive's beneficiaries actually receive
distributions from any of the plans. The Executive's beneficiaries
may elect to receive the supplemental death benefit in any
distribution form available under the PRA having an actuarially
equivalent value to the calculated lump sum, with actuarial
equivalence determined on the basis of actuarial assumptions under
the PRA.
f. Supplemental Disability Benefits: In order to make the
Executive whole for any loss of disability benefits caused by the
Executive's termination of employment with his former employer, the
Company will pay the Executive, if the Executive becomes disabled
during his employment by the Company, a supplemental disability
benefit equal to the difference between: (i) the disability
benefits the Executive would have received from his former
employer's disability plans if he had continued employment with his
former employer until the date of his disability, with the amount
of such benefits calculated under the former employer's plans as in
existence on the Effective Date and based on the Executive's
combined employment and salary history at his former employer and
<PAGE> 6
at the Company, and (ii) the sum of (A) the disability benefits the
Executive actually receives or is entitled to receive from his
former employer's disability plans, and (B) the disability benefit
the Executive receives or is entitled to receive from the Company
and its plans, each addend calculated as of the date of the
Executive's disability. For purposes of this provision, in
determining whether there has been a disability, the terms of the
Executive's former employer's plan shall be utilized.
g. Welfare Benefit Plans: The Executive and/or his family,
as the case may be, shall be eligible to participate in and shall
receive all benefits under the Company's welfare benefit plans and
programs (including without limitation medical, dental, life,
vision, disability, and liability plans and programs) applicable
generally to other senior executives of the Company, in accordance
with the terms of such plans and programs. In addition, the
Company shall provide the Executive with an annual credit under the
Company's Executive (Supplemental) Medical Plan in the amount of up
to Three Thousand Dollars and No Cents ($3,000.00), in accordance
with the terms of such plan.
h. Split Dollar Life Insurance: The Company shall provide
the Executive with a split dollar life insurance policy in
accordance with the terms of the Company's Split Dollar Plan. The
Executive may also participate in the Company's group life
insurance program in accordance with the terms of the plan.
i. Vacation: The Executive shall be entitled to four (4)
weeks paid vacation in accordance with the plans, policies and
programs as in effect generally with respect to other senior
executives of the Company.
j. Vehicles: The Company shall lease up to two (2) vehicles
for the Executive's use, in accordance with the terms of the
Company's Executive Lease Car Program.
k. Office and Support Staff: The Executive shall be
entitled to an office of a size and with furnishings and other
appointments, and to exclusive personal secretarial and other
assistance, to the extent generally provided to other senior
executives of the Company.
l. Other Fringe Benefits: In addition to the foregoing, the
Executive shall be entitled to fringe benefits, including without
limitation the following:
(1) The Company shall provide the Executive with
financial planning services in accordance with the plans and
programs of the Company, as may be changed from time to time;
(2) The Company shall provide annual tax planning
<PAGE> 7
assistance in accordance with the plans and programs of the
Company, as may be changed from time to time;
(3) The Company shall pay for the monthly cost of a
home security system for the Executive, to the extent generally
provided to other senior executives of the Company;
(4) The Company shall pay club initiation fees and club
membership dues for the Executive to the extent generally provided
to other senior executives of the Company;
(5) The Company shall provide for the Executive's use a
home personal computer, home facsimile machine, and home printer;
(6) The Company shall provide for the Executive's use a
cellular telephone and reimburse the Executive for monthly charges
and any business telephone calls;
(7) The Executive shall be entitled to fly first-class
or business class for any business travel, or to use the Company's
aircraft for business and reasonable personal travel when
available.
m. Expenses: The Company shall reimburse the Executive for
reasonable expenses for entertainment, travel, meals, lodging and
similar items in the conduct of the Company's business. Such
expenses shall be reimbursed in accordance with the Company's
expense reimbursement policies and guidelines upon receipt of
proper billing statements. The Company shall also reimburse the
Executive for the fees and expenses of his attorney and accountant
in connection with the preparation of this Agreement upon receipt
of proper billing statements.
n. Relocation: The Company shall pay all reasonable costs
and expenses related to the Executive's relocation (including the
costs related to the sale of the Executive's present home, the sale
of the Executive's vacant residential lot in Lake Forest, and the
purchase of a new home) actually incurred or paid as approved by
Robert S. Miller, Jr., and upon the Executive's presentation to the
Company of supporting information as the Company may require. Said
costs shall include brokers' commissions. The Company also agrees
to reimburse the Executive up to $30,420 for architect fees he has
incurred relating to the preparation of plans for the vacant lot,
but only to the extent that some or all of such plans are not used
in connection with the Executive's purchase of a new home in
Michigan.
4. STOCK INCENTIVE PLAN: Upon approval of this Agreement by
the Board the Executive shall receive a grant of an option to
purchase 300,000 shares of common stock of the Company, at a price
of $22.625 per share (closing price on November 1, 1996), as well
<PAGE> 8
as a grant of 115,000 restricted shares of common stock of the
Company, in accordance with and subject to the terms and conditions
of the 1989 Plan, the Stock Option Agreement attached hereto as
Exhibit A, and the Restricted Shares Agreement attached hereto
as Exhibit B. Notwithstanding anything to the contrary in this
Paragraph 4, the Executive recognizes that he is receiving the
stock options and restricted shares described in this Paragraph 4
as an incentive to enter into this Agreement. The Company
understands that the Executive will from time to time during the
term of his employment present compensation and benefit plans to
the Board for approval, and nothing contained in this Agreement
will prevent the Executive from including himself in any such
proposal for additional compensation and benefits, including any
plans for additional grants of restricted shares and stock options;
the Executive also understands, however, that the Company is not
obligated to award the Executive additional grants of restricted
shares and stock options even if other senior executives receive
awards.
5. CERTAIN ADDITIONAL STOCK RIGHTS: The Executive
anticipates realizing the full value of 24,000 restricted shares of
his current employer ("Restricted Shares") and of 65,000 options to
purchase the common stock of his current employer ("Stock
Options"), which common stock will be split into the stock of three
businesses in a corporate spinout (the date of such spinout being
the "Spinout Date"). One consequence of the Executive's leaving
his current employer to work for the Company may be that the
Executive will not receive the full value (i.e., either in stock,
options or cash) of the Restricted Shares and Stock Options
(approximately One Million Five Hundred Thousand Dollars
($1,500,000.00)). In the event that the Executive does not receive
full value of the Restricted Shares and Stock Options from his
current employer (measured by the closing price of the common stock
of the Executive's current employer, as traded on the New York
Stock Exchange composite tape, as of the Spinout Date), the Company
will pay to the Executive (or advance to the Executive, as the case
may be) in cash on December 31, 1996 the amount by which the value
received, if any, by the Executive from the Restricted Shares and
Stock Options is less than full value. The Company will make such
payment (or such advance, as the case may be) to the Executive in
a calendar year only to the extent that the payment will be
deductible by the Company under Internal Revenue Code Section 162(m);
any portion of the lump sum that is not paid in a given calendar year
will be carried forward to the next calendar year, plus interest
accrued at the prime rate, and paid to the Executive to the extent
then deductible by the Company, and the balance (if any) again
carried forward to the succeeding calendar year.
6. TERMINATION: The Executive's employment with the
<PAGE> 9
Company during the Term may be terminated by the Company or the
Executive only under the circumstances described in this Paragraph
6, and subject to the provisions of Paragraph 7:
a. Death or Disability: The Executive's employment
hereunder shall terminate automatically upon the Executive's death.
If the Company determines in good faith that the Disability of the
Executive has occurred (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in
accordance with Paragraph 19 of this Agreement of its intention
to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective
on the 30th day after receipt of such notice by the Executive (the
"Disability Effective Date"), provided that, within the 30-day
period after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" shall mean the absence of the
Executive from his duties with the Company on a full-time basis for
180 consecutive business days as a result of incapacity due to
mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers
and acceptable to the Executive or his legal representative (such
agreement as to acceptability not to be withheld unreasonably).
"Incapacity" as used herein shall be limited only to such
Disability which substantially prevents the Company from availing
itself of the services of the Executive.
b. Cause: The Company may terminate the Executive's
employment for Cause. For purposes of this Agreement, "Cause"
shall mean:
(1) the willful and continued failure of the Executive
to perform substantially the Executive's duties with the Company or
one of its affiliates (other than any such failure resulting from
incapacity due to physical or mental illness), after a written
demand for substantial performance of such duties is delivered to
the Executive by the Board and a reasonable opportunity to cure has
transpired, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially
performed his duties; or
(2) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this Paragraph 6(b), no act or failure to
act, on the part of the Executive, shall be considered "willful"
unless it is done, or omitted to be done, by the Executive in bad
faith or without reasonable belief that the Executive's action or
omission was in the best interests of the Company. Any act, or
failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or based upon the advice of counsel for
<PAGE> 10
the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best
interests of the Company. The cessation of employment of the
Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of the
resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable
notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive
is guilty of the conduct described in subparagraph (1) or (2)
above, and specifying the particulars thereof in detail.
c. Other than Death or Disability or Cause: The Company may
terminate the Executive's employment for any reason other than
Death, Disability or Cause, subject to the provisions of
Paragraph 7(c).
d. Voluntary Termination by Executive: The Executive may
terminate his employment upon sixty (60) days written notice to the
Company; the Company may waive some or all of the notice period at
its sole discretion. The Executive may also terminate his
employment for Good Reason, and in such event, said employment
termination shall be treated as termination by the Company for
reason other than Death, Disability or Cause under Paragraph 6(c)
and shall not be deemed to be a voluntary termination by the
Executive. For purposes hereof, Good Reason shall mean:
(1) the assignment to the Executive of any
duties inconsistent with the Executive's position (including
status, offices, titles and reporting requirements), authority,
significant duties or responsibilities, excluding for this purpose
an action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
(2) the failure by the Company to comply with
any of the material provisions of this Agreement, other than a
failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive; or
(3) a "Change of Control" occurs (as defined in
the Employment Agreement attached hereto as Exhibit C) and the
Executive voluntarily elects to terminate his employment within
ninety (90) days of said Change of Control.
e. Notice of Termination: Any termination by the Company
for Cause shall be communicated by Notice of Termination to the
other party hereto given in accordance with Paragraph 19 of this
Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice that (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the
<PAGE> 11
extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, and
(iii) if the Date of Termination (as defined in Paragraph 6(f)
below) is other than the date of receipt of such notice, specifies
the termination date. The failure by the Company to set forth in
the Notice of Termination any fact or circumstance which
contributes to a showing of Cause shall not waive any right of the
Company hereunder or preclude the Company from asserting such fact
or circumstance in enforcing the Company's rights hereunder.
f. Date of Termination: For purposes of this Agreement,
"Date of Termination" means (i) if the Executive's employment is
terminated by the Company for Cause, the date of receipt of the
Notice of Termination or any later date specified therein, as the
case may be, (ii) if the Executive's employment is terminated by
the Company other than for Cause or for Disability or Death, the
Date of Termination shall be the date specified in the Notice of
Termination, (iii) if the Executive's employment is terminated by
reason of Death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as
the case may be, or (iv) if the Executive terminates his
employment, the Date of Termination shall be the earlier of the
date specified in the Notice of Termination, which in no event
shall be less than sixty (60) days from the date of such notice, or
such earlier date specified by the Company.
7. OBLIGATIONS OF THE COMPANY UPON TERMINATION:
a. Death or Disability: If the Executive's employment is
terminated by reason of the Executive's Death or Disability, this
Agreement shall terminate without further obligations to the
Executive or his legal representatives under this Agreement, other
than for (A) payment of the sum of (i) any base salary and bonus
(earned but remaining unpaid from the prior calendar year) owed to
the Executive through the Date of Termination, (ii) reasonable
employment expenses, vehicle expenses, and club membership dues and
other fringe benefits as provided herein, and (iii) any other
compensation earned hereunder but not yet paid or delivered to the
Executive, through the Date of Termination to the extent not
theretofore paid (the sum of the amounts described in clauses (i),
(ii), and (iii) shall be hereinafter referred to as the "Accrued
Obligations"), which amounts shall be paid to the Executive or his
estate or beneficiary, as applicable, in a lump sum in cash within
thirty (30) days of the Date of Termination and (B) payment to the
Executive or his estate or beneficiary, as applicable, of any
amounts due pursuant to the terms of any applicable welfare or
pension benefit plans of the Company, and (C) for the purposes of
this Paragraph 7(a) only, a pro-rated bonus for the calendar year
in which Death or Disability occurs (calculated based on the number
of days in the current calendar year through the Date of
Termination).
<PAGE> 12
b. Cause or Voluntary Termination: If the Executive's
employment is terminated by the Company for Cause or the Executive
voluntarily terminates his employment, this Agreement shall
terminate without further obligations to the Executive other than
for the timely payment of Accrued Obligations and any amounts due
pursuant to the terms of any applicable welfare or pension benefit
plans of the Company. If it is subsequently determined that the
Company did not have Cause for termination under this Paragraph
7(b), then the Company's decision to terminate shall be deemed to
have been made under Paragraphs 6(c) and 7(c) and the amounts
payable under Paragraph 7(c) shall be the only amounts the
Executive may receive for his termination; provided, however, that
in such event and notwithstanding Paragraph 11 hereof, the Company
shall reimburse the Executive for his costs (including reasonable
attorneys' fees) actually incurred in connection with said
determination.
c. Other than Death or Disability or Cause: If the Company
terminates the Executive's employment during the Term for other
than Cause or Death or Disability, or the Executive terminates his
employment for "Good Reason" (as such term is defined in
Paragraph 6(d) hereof), this Agreement shall terminate without
further obligations to the Executive other than (A) the timely
payment of Accrued Obligations, (B) payment of any amounts due
pursuant to the terms of any applicable welfare or pension benefit
plans of the Company, (C) payment to the Executive, within thirty
(30) days of the Date of Termination, of a lump sum equal to the
product of two times the sum of (i) the Executive's then current
base salary, and (ii) the average of the annual bonuses paid to the
Executive, as described in Paragraph 3(b) of this Agreement, in the
three years immediately preceding the Date of Termination (or, in
the event the termination occurs prior to December 31, 1998, the
bonus paid or payable to the Executive for 1997 or, in the event
the termination occurs prior to December 31, 1999, the average of
the annual bonuses paid or payable to the Executive in 1997 and
1998), and (D) subject to the terms of the applicable plans (or an
equivalent substitute if the plan(s) prohibit participation by
ex-employees), continuation of the benefits provided in Paragraphs
3(e), 3(f), 3(h), and 3(j) of this Agreement for two (2) years
following the Date of Termination. The Executive shall also be
entitled to certain additional rights under the Stock Option
Agreement and the Restricted Shares Agreement attached hereto as
Exhibits A and B. The Company shall be obligated to make the
foregoing payments and to provide the foregoing benefits upon the
Executive signing a release of all claims, in substantially the
form of Exhibit D attached hereto; such release shall not affect
the Executive's rights under the Consolidated Omnibus Budget
Reconciliation Act of 1986 ("COBRA"), any conversion rights under
the life insurance policies, and the Executive's rights under the
annexed Stock Option Agreement and the Restricted Shares Agreement.
d. Non-Renewal of Agreement: If the parties do not renew
this Agreement following the expiration of the Term, this Agreement
<PAGE> 13
shall terminate without further obligations to the Executive other
than (A) the timely payment of Accrued Obligations, (B) payment of
any amounts due pursuant to the terms of any applicable welfare or
pension benefit plans of the Company, and (C) payment of any
amounts due pursuant to the Company's Severance Plan for Salaried
Executives. The Company shall be obligated to make the foregoing
payments and to provide the foregoing benefits upon the Executive
signing a release of all claims, in substantially the form of
Exhibit D attached hereto; such release shall not affect the
Executive's rights under COBRA, any conversion rights under the
life insurance policies, and the Executive's rights under the
annexed Stock Option Agreement and the Restricted Shares Agreement.
e. Exclusive Remedy: Except for the payments and benefits
provided in this Paragraph 7, the Executive acknowledges and agrees
that upon termination of this Agreement, he shall have no other
claims against, and be entitled to no other payments or benefits
from, the Company, including without limitation any other payments
or benefits under the Company's policies and plans, such as the
Company's Severance Plan for Salaried Employees (except as
otherwise provided in Paragraph 7(d)), and that the Company's
discharge of its obligations under this Agreement shall constitute
full satisfaction of any and all claims of any nature whatsoever
that the Executive might otherwise possess against the Company and
its affiliates. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation
of the amounts payable to the Executive under any of the provisions
of this Agreement and such amounts shall not be reduced whether or
not the Executive obtains other employment.
8. CONFIDENTIAL INFORMATION: The Executive shall hold in
a fiduciary capacity for the benefit of the Company all secret,
confidential, and/or proprietary information, knowledge or data
relating to the Company or any of its affiliated companies, and
their respective businesses, which shall have been obtained by the
Executive during his employment by the Company or any of its
affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or his
representatives in violation of this Agreement). After termination
of the Executive's employment with the Company, he shall not,
without the prior written consent of the Company, or as may
otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. The Executive also
agrees to sign the Company's Patent Assignment and Confidentiality
Agreement and Code of Conduct, to the same extent that other senior
executives are required to sign and comply with such agreements.
9. CHANGE OF CONTROL: Simultaneously with the execution of
this Agreement, the parties also agree to sign an Employment
Agreement in the form attached hereto as Exhibit C. In the event
of a "Change of Control" as defined in the Employment Agreement
attached hereto as Exhibit C, and except as otherwise provided
<PAGE> 14
below in this Paragraph 9, the annexed Employment Agreement shall
exclusively govern the employment relationship between the Company
and the Executive and this Agreement shall immediately terminate
without any further obligations by either party; provided, however,
that the annexed Stock Option Agreement and Restricted Shares
Agreement shall remain in full force and effect and
Paragraph 6(d)(3) of this Agreement shall remain in full force and
effect for ninety (90) days following said Change of Control; and
provided, further, that if the Executive elects to terminate this
Agreement pursuant to Paragraph 6(d)(3) within ninety (90) days of
said Change of Control, the terms of this Agreement shall not
terminate by reason of said Change of Control and the Employment
Agreement attached hereto as Exhibit C shall terminate without
further force or effect, except that in that event Article IX of
such Employment Agreement shall be incorporated herein by
reference.
10. SUCCESSORSHIP: Except as otherwise provided in
Paragraph 9, this Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns and any
such successor or assignee shall be deemed substituted for the
Company under the terms of this Agreement for all purposes. As
used herein, "successor" and "assignee" shall include any person,
firm, corporation or other business entity which at any time,
whether by purchase, merger or otherwise, directly or indirectly
acquires the stock of the Company or to which the Company assigns
this Agreement by operation of law or otherwise.
11. ARBITRATION: Any and all controversies, claims or
disputes arising out of or in any way relating to this Agreement
shall be resolved by final and binding arbitration in Detroit,
Michigan before a single arbitrator licensed to practice law and in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA"). The arbitration shall be
commenced by filing a demand for arbitration with the AAA within
sixty (60) days after the occurrence of the facts giving rise to
any such controversy, claim or dispute. The arbitrator shall
decide all issues relating to arbitrability. The costs of such
arbitration, including the arbitrator's fees, shall be split evenly
between the parties to the arbitration. Each party to the
arbitration shall be responsible to pay its own attorneys' fees.
12. GOVERNING LAW: The provisions of this Agreement shall
be construed in accordance with, and governed by, the laws of the
State of Michigan without regard to principles of conflict of laws.
13. SAVINGS CLAUSE: If any provision of this Agreement or
the application thereof is held invalid, the invalidity shall not
affect other provisions or applications of the Agreement which can
be given effect without the invalid provisions or applications and
to this end the provisions of this Agreement are declared to be
severable.
14. WAIVER OF BREACH: No waiver of any breach of any term
<PAGE> 15
or provision of this Agreement shall be construed to be, nor shall
be, a waiver of any other breach of this Agreement. No waiver
shall be binding unless in writing and signed by the party waiving
the breach.
15. MODIFICATION: No provision of this Agreement may be
amended, modified or waived except by written agreement signed by
the parties hereto.
16. ASSIGNMENT OF AGREEMENT: The Executive acknowledges
that his services are unique and personal. Accordingly, the
Executive may not assign his rights or delegate his duties or
obligations under this Agreement to any person or entity; provided,
however,that payments may be made to the Executive's estate or
beneficiaries as expressly set forth herein.
17. ENTIRE AGREEMENT: This Agreement (including the
exhibits annexed hereto) is an integrated document and constitutes
and contains the complete understanding and agreement of the
parties with respect to the subject matter addressed herein, and
supersedes and replaces all prior negotiations and agreements,
whether written or oral, concerning the subject matter hereof.
18. CONSTRUCTION: Each party has cooperated in the
drafting and preparation of this Agreement. Hence, in any
construction to be made of this Agreement, the same shall not be
construed against any party on the basis that the party was the
drafter. The captions of this Agreement are not part of the
provisions and shall have no force or effect.
19. NOTICES: Notices and all other communications provided
for in this Agreement shall be in writing and shall be delivered
personally or sent by registered or certified mail, return receipt
requested, postage prepaid, or sent by facsimile or prepaid
overnight courier to the parties at the addresses set forth below
(or at such other addresses as shall be specified by the parties by
like notice). Such notices, demands, claims and other
communications shall be deemed given:
a. in the case of delivery by overnight service with
guaranteed next day delivery, such next day or the day designated
for delivery;
b. in the case of certified or registered United States
mail, five days after deposit in the United States mail; or
c. in the case of facsimile, the date upon which the
transmitting party received confirmation of receipt by facsimile,
telephone or otherwise;
provided, however, that in no event shall any such
communications be deemed to be given later than the date they are
actually received. Communications that are to be delivered by the
<PAGE> 16
United States mail or by overnight service are to be delivered to
the addresses set forth below:
(1) To the Company:
Attention: General Counsel
Federal-Mogul Corporation
26555 Northwestern Highway
Southfield, Michigan 48034
(2) To the Executive:
Richard A. Snell
(at his residence address)
Each party, by written notice furnished to the other party,
may modify the acceptable delivery address, except that notice of
change of address shall be effective only upon receipt.
20. TAX WITHHOLDING: The Company may withhold from any
amounts payable under this Agreement such federal, state, or local
taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
21. ENFORCEABILITY: Except as to the provisions of
Paragraph 2 (which will cease to apply upon termination of
employment) and as otherwise noted herein, the enforceability of
this Agreement shall not cease or otherwise be adversely affected
by the termination of the Executive's employment with the Company.
22. REPRESENTATION: The Executive represents that he is
knowledgeable and sophisticated as to business matters, including
the subject matter of this Agreement, that he has read this
Agreement and that he understands its terms. The Executive
acknowledges that, prior to assenting to the terms of this
Agreement, he has been given a reasonable time to review it, to
consult with counsel of his choice, and to negotiate at arm's-length
with the Company as to its contents. The Executive and the
Company agree that the language used in this Agreement is the
language chosen by the parties to express their mutual intent, and
that he has entered into this Agreement freely and voluntarily and
without pressure or coercion from anyone.
IN WITNESS WHEREOF, the Company and the Executive,
intending to be legally bound, have executed this Agreement on the
day and year first above written.
FEDERAL-MOGUL CORPORATION
By
RICHARD A. SNELL
<PAGE> 17
SCHEDULE 2.d
1. Board member of Schneider National
2. Board member of Motor Equipment Manufacturers Association
3. Board member of Big Brothers/Big Sisters of America
<PAGE> 18
EXHIBIT A
STOCK OPTION AGREEMENT
UNDER THE FEDERAL-MOGUL CORPORATION
1989 PERFORMANCE INCENTIVE STOCK PLAN
THIS STOCK OPTION AGREEMENT (the "Agreement") is made and
entered into as of the 1st day of December, 1996, by and between
Richard A. Snell (the "Executive"), and Federal-Mogul Corporation,
a Michigan corporation, having its principal executive offices in
Southfield, Michigan (the "Company").
WHEREAS, the Company and the Executive have entered into
an agreement for the Executive's employment as Chairman, Chief
Executive Officer, and President, dated as of the 1st day of
December, 1996 (the "Employment Agreement");
WHEREAS, pursuant to Paragraph 4 of the Employment
Agreement, the Company has agreed to grant to the Executive
effective as of the 1st day of November, 1996 (the "Award Date") an
option to purchase up to 300,000 shares of common stock of the
Company ("Common Stock"), upon the terms and conditions set forth
herein;
WHEREAS, the Company has adopted the 1989 Performance
Incentive Stock Plan, a copy of which has been delivered to the
Executive (the "Plan"), providing for the grant to directors,
officers, and key employees of options to purchase Common Stock of
the Company, to retain the services of such qualified persons, to
provide them additional incentive to promote the success of the
Company, and to increase their proprietary interest in the Company;
and
WHEREAS, as Chairman, Chief Executive Officer, and
President, the Executive will be eligible to receive this option
pursuant to the Plan.
NOW, THEREFORE, in consideration of services rendered and
to be rendered by the Executive and of the promises and mutual
covenants contained herein and to evidence such option and
restricted shares, the parties agree as follows:
1. GRANT OF TIME BASED OPTION: The Company hereby grants
to the Executive the right and option to purchase up to 150,000
shares of Common Stock at an exercise price equal to Twenty Two
Dollars and Sixty Two and One Half Cents ($22.625) per share (the
"Time-Based Option"), subject to the terms and conditions of this
<PAGE> 19
Agreement and the Plan.
a. Termination of Time-Based Option: The Time-Based Option
shall terminate on November 1, 2006, except and to the extent that
such termination date may be modified pursuant to the Plan.
b. Exercisability of Time-Based Option: Except as
otherwise provided herein or in the Plan, the Time-Based Option
shall become vested and exercisable in accordance with the
following schedule:
(1) One-fifth of the Time-Based Option shall become
fully vested and exercisable on November 1, 1997, provided that the
Executive remains continuously employed with the Company through
such date.
(2) Two fifths of the Time-Based Option shall become
fully vested and exercisable on November 1, 1998, provided that the
Executive remains continuously employed with the Company through
such date.
(3) Three Fifths of the Time-Based Option shall become
fully vested and exercisable on November 1, 1999, provided that the
Executive remains continuously employed with the Company through
such date.
(4) Four Fifths of the Time-Based Option shall become
fully vested and exercisable on November 1, 2000, provided that the
Executive remains continuously employed with the Company through
such date.
(5) 100% of the Time-Based Option shall become fully
vested and exercisable on November 1, 2001, provided that the
Executive remains continuously employed with the Company through
such date.
c. Method of Exercise of Time-Based Option: The Time-Based
Option shall be exercisable, from time to time within the time
limits specified herein and in the Plan, in accordance with the
procedures specified in the Plan and the procedures generally
adopted for the exercise of stock options under the Plan by other
employees or directors of the Company. To such extent vested, the
Time-Based Option may be exercised, in whole or in part, from time
to time, until its expiration or earlier termination in accordance
with the terms of this Agreement and the Plan.
2. GRANT OF PERFORMANCE-BASED OPTION: In addition to the
<PAGE> 20
Time-Based Option, the Company hereby grants to the Executive the
right and option to purchase up to 150,000 shares of Common Stock
at an exercise price equal to Twenty- Two Dollars and Sixty- Two and
One Half- Cents ($22.625) per share (the "Performance Based
Option"), exercisable from time to time, subject to the terms and
conditions of this Agreement and the Plan.
a. Termination of Performance-Based Option: The
Performance Based Option shall terminate on November 1, 2006 except
and to the extent that such termination date may be modified
pursuant to the Plan.
b. Exercisability of Performance-Based Option: Except as
otherwise provided herein or in the Plan, the Performance-Based
Option shall become 100% vested and exercisable if any one of the
following conditions is satisfied:
(1) If, for a period of sixty (60) consecutive trading
days during the period beginning on November 1, 1996 and ending on
November 1, 1997, the closing price for the Company's Common Stock,
as traded on the New York Stock Exchange composite tape, averages
at least $30.00 per share; provided, however, that the Executive
has remained continuously employed with the Company from the Award
Date through such periods;
(2) If, for a period of twenty (20) consecutive trading
days during the period beginning on November 1, 1997 and ending on
November 1, 1999, the closing price for the Company's Common Stock,
as traded on the New York Stock Exchange composite tape, averages
at least $30.00 per share; provided, however, that the Executive
has remained continuously employed with the Company from the Award
Date through such periods;
(3) If, for a period of twenty (20) consecutive trading
days during the period beginning on November 1, 1999 and ending on
November 1, 2000, the closing price for the Company's Common Stock,
as traded on the New York Stock Exchange composite tape, averages
at least $35.00 per share; provided, however, that the Executive
has remained continuously employed with the Company from the Award
Date through such periods;
(4) If, for a period of twenty (20) consecutive trading
days during the period beginning on November 1, 2000 and ending on
November 1, 2001, the closing price for the Company's Common Stock,
as traded on the New York Stock Exchange composite tape, averages
at least $40.00 per share; provided, however, that the Executive
has remained continuously employed with the Company from the Award
Date through such periods; or
<PAGE> 21
(5) November 1, 2005, provided that the Executive
remains continuously employed with the Company through such date.
c. Method of Exercise of Performance-Based Option: The
Performance-Based Option shall be exercisable, from time to time
within the time limits specified herein and in the Plan, in
accordance with the procedures specified in the Plan and the
procedures generally adopted for the exercise of stock options
under the Plan by other employees or directors of the Company. To
such extent vested, the Performance-Based Option may be exercised,
in whole or in part, from time to time, until its expiration or
earlier termination in accordance with the terms of this Agreement
and the Plan.
3. INCORPORATION OF PLAN: The Plan is incorporated herein
by reference, and made a part of this Agreement as if fully set
forth herein. This Agreement, including without limitation the
grant to the Executive of the Time-Based Option and Performance-Based
Option, shall be subject to all terms of the Plan. The
Committee (as defined in the Plan) shall administer the Plan and
have the power to construe the Plan, to determine all questions
thereunder, and to adopt and amend such rules and regulations for
the administration of the Plan as it may deem desirable; provided,
however, that shareholder approval shall be required for any
amendment to the Plan if, in the judgment of the Committee, such
approval is necessary to satisfy the requirements of Rule 16b 3 of
the Securities Exchange Act of 1934 (the "1934 Act"), any successor
rule under the 1934 Act as in effect on the date of such amendment,
or any other applicable law. Termination, modification or
amendment of the Plan shall not, without the consent of the
Executive, affect his rights under the Time-Based Option and
Performance-Based Option.
4. TERMINATION OF EMPLOYMENT: Notwithstanding the
provisions of Paragraphs 1 and 2 hereof, if the Company terminates
the Executive's employment other than for Cause (as such term is
defined in the Employment Agreement), including termination for
Death or Disability (as such terms are defined in the Employment
Agreement), within three (3) years after the Effective Date (as
defined in the Employment Agreement), the Vesting Date (as defined
in the Plan) for the Performance-Based Option shall be the day
before the Date of Termination (as defined in the Employment
Agreement), whether or not the Performance-Based Option is
otherwise vested and exercisable as of the Date of Termination, and
the Vesting Date for three fifths of the Time-Based Option shall be
the day before the Date of Termination, whether or not three fifths
of the Time-Based Option is otherwise vested and exercisable as of
the Date of Termination. The options described above shall become
<PAGE> 22
fully exercisable in accordance with the above, and the total
number of shares subject thereto shall be purchasable immediately,
effective on the day before the Date of Termination; provided,
however, that the Executive shall be subject to a period of thirty-six
(36) months after the Date of Termination within which he may
exercise such options. If the employment of the Executive is
terminated for any other reason, whether by the Company or by the
Executive, the vesting and exercise rights of the Executive shall
be determined in accordance with the terms of the Plan.
5. NONTRANSFERABILITY OF OPTION: The Time-Based Option and
Performance-Based Option granted under this Agreement shall, during
the lifetime of the Executive, be exercisable only in accordance
with the terms of this Agreement and of the Plan, by the Executive
or the Executive's guardian or legal representative and shall not
be assignable or transferable except by will or by the laws of
descent and distribution.
6. NO RIGHT TO CONTINUED EMPLOYMENT: Neither this
Agreement nor the Plan shall be construed as in any way modifying
the Employment Agreement or giving the Executive any right to be
retained in the employ, or as a director, of the Company or of a
subsidiary or affiliated company of the Company, or affect or limit
in any way the right of the Company to terminate the employment of
the Executive in accordance with the terms of the Employment
Agreement.
7. REPRESENTATION OF THE EXECUTIVE: The Executive agrees
to comply with and be bound by all of the terms and conditions
contained in this Agreement and in the Plan.
8. COMPLIANCE WITH LAWS: The Time-Based Option and
Performance-Based Option, and the issuance and delivery of shares
of Common Stock pursuant to the Time-Based Option and Performance-Based
Option, are subject to compliance with all applicable federal
and state laws, rules and regulations (including but not limited to
state and federal tax and securities laws) and to such approvals by
any listing, regulatory or governmental authority as may, in the
opinion of counsel for the Company, be necessary or advisable in
connection therewith. Any securities delivered under the Time-Based
Option or Performance-Based Option shall be subject to such
restrictions, and the Executive shall, if requested by the Company,
provide such assurances and representations to the Company as the
Company may deem necessary or desirable to assure such compliance.
9. CHANGE OF CONTROL: In the event of a "Change of
Control" (as defined in the Employment Agreement between the
Company and the Executive, dated as of December 1, 1996 and
attached as Exhibit D to the Employment Agreement (the "Change of
Control Agreement")),the vesting and exercise rights of the
<PAGE> 23
Executive with respect to the Time-Based Option and Performance-Based
Option shall be determined in accordance with the terms of
the Change of Control Agreement and the Plan.
10. ADJUSTMENT AND TERMINATION OF OPTION UNDER CERTAIN
CIRCUMSTANCES: If the outstanding shares of Common Stock are
changed into or exchanged for cash, other property or a different
number or kind of shares or securities of the Company, or if
additional shares or new or different securities are distributed
with respect to the outstanding shares of Common Stock, through a
reorganization or merger in which the Company is the surviving
entity, or through a combination, consolidation, recapitalization,
reclassification, stock split, stock dividend, reverse stock split,
stock consolidation, dividend or distribution of cash or property
to the shareholders of the Company, or if there shall occur any
other extraordinary corporate transaction or event in respect of
the Common Stock or a sale of substantially all the assets of the
Company as an entirety which in the judgment of the Committee
materially affects the Common Stock, then the Committee shall, in
such manner and to such extent (if any) as it deems appropriate and
equitable (1) proportionately adjust any or all of (A) the number
and kind of shares of Common Stock that may be delivered under this
Agreement or (B) the exercise price per share under this Agreement.
11. NOTICES: Any notice relating to this Agreement shall
be in writing and delivered in person or by certified or registered
mail to the Company at its principal office at 26555 Northwestern
Highway, Southfield, Michigan, 48034, Attention: General Counsel,
or to such other address as may hereafter be specified by the
Company. All notices to the Executive or other person or persons
then entitled to the Time-Based Option or Performance-Based Option
shall be delivered in person or by certified or registered mail
addressed to the Executive or such other person or persons at his
residence or at such other address as may be specified by such
person in writing by notice given in accordance herewith.
IN WITNESS WHEREOF, the Company has caused this Agreement
to be executed on its behalf by a duly authorized officer and the
Executive has executed this Agreement on the date first written
above.
FEDERAL-MOGUL CORPORATION
By:
RICHARD A. SNELL
<PAGE> 24
EXHIBIT B
RESTRICTED SHARES AGREEMENT
UNDER THE FEDERAL-MOGUL CORPORATION
1989 PERFORMANCE INCENTIVE STOCK PLAN
THIS RESTRICTED SHARES AGREEMENT (the "Agreement") is
made and entered into as of the 1st day of December, 1996, by and
between Richard A. Snell (the "Executive"), and Federal-Mogul
Corporation, a Michigan corporation, having its principal executive
offices in Southfield, Michigan (the "Company").
WHEREAS, the Company and the Executive have entered into
an agreement for the Executive's employment as Chairman, Chief
Executive Officer, and President, dated as of the 1st day of
December, 1996 (the "Employment Agreement");
WHEREAS, pursuant to Paragraph 4 of the Employment
Agreement, the Company has agreed to grant to the Executive
effective as of the 1st day of November, 1996 (the "Award Date")
115,000 restricted shares of common stock of the Company ("Common
Stock"), upon the terms and conditions set forth herein;
WHEREAS, the Company has adopted the 1989 Performance
Incentive Stock Plan, a copy of which has been delivered to the
Executive (the "Plan"), providing for the grant to directors,
officers, and key employees of restricted shares of Common Stock of
the Company, to retain the services of such qualified persons, to
provide them additional incentive to promote the success of the
Company, and to increase their proprietary interest in the Company;
and
WHEREAS, as Chairman, Chief Executive Officer, and
President, the Executive will be eligible to receive these
restricted shares pursuant to the Plan.
NOW, THEREFORE, in consideration of services rendered and
to be rendered by the Executive and of the promises and mutual
covenants contained herein and to evidence such restricted shares,
the parties agree as follows:
1. GRANT OF TIME-BASED RESTRICTED SHARES: The Company
hereby grants to the Executive 57,500 shares of Common Stock (the
"Time-Based Restricted Shares"), subject to the restrictions and
other terms and conditions of this Agreement and the Plan. The
Time-Based Restricted Shares shall remain the property of the
Company, held in escrow, and the Executive shall have no vested
interest in such shares (except as otherwise provided herein or in
the Plan), unless and until the restriction(s) on the Time-Based
Restricted Shares lapse, as follows:
<PAGE> 25
(1) The restrictions with respect to one-fifth of the
Time-Based Restricted Shares shall lapse on November 1, 1997,
provided that the Executive remains continuously employed with the
Company through such date.
(2) The restrictions with respect to two-fifths of the
Time-Based Restricted Shares shall lapse on November 1, 1998,
provided that the Executive remains continuously employed with the
Company through such date.
(3) The restrictions with respect to three-fifths of
the Time-Based Restricted Shares shall lapse on November 1, 1999,
provided that the Executive remains continuously employed with the
Company through such date.
(4) The restrictions with respect to four-fifths of the
Time-Based Restricted Shares shall lapse on November 1, 2000,
provided that the Executive remains continuously employed with the
Company through such date.
(5) The restrictions with respect to 100% of the Time-Based
Restricted Shares shall lapse on November 1, 2001, provided
that the Executive remains continuously employed with the Company
through such date.
Notwithstanding the foregoing, the Executive may elect, on or
before December 31, 1996, at his option, an alternative vesting
schedule with respect to the Time-Based Restricted Shares (the
"Alternative Vesting Schedule"). Under the Alternative Vesting
Schedule, no portion of the Time-Based Restricted Shares shall vest
until November 1, 2001, on which date 100% of the Time-Based
Restricted Shares shall vest, provided that the Executive remains
continuously employed with the Company through such date.
2. GRANT OF PERFORMANCE-BASED RESTRICTED SHARES: The
Company hereby grants to the Executive 57,500 restricted shares of
Common Stock (the "Performance-Based Restricted Shares"), subject
to the restrictions and other terms and conditions of this
Agreement and the Plan. The Performance-Based Restricted Shares
shall remain the property of the Company, held in escrow, and the
Executive shall have no vested interest in such shares (except as
provided herein or in the Plan) unless and until any one of the
following condition(s) has been met by the Executive, at which time
any restrictions on the Performance-Based Restricted Shares shall
lapse in full:
(a) If, for a period of sixty (60) consecutive trading days
during the period beginning on November 1, 1996 and ending on
November 1, 1997, the closing price for the Company's Common Stock,
as traded on the New York Stock Exchange composite tape, averages
at least $30.00 per share; provided, however, that the Executive
has remained continuously employed with the Company from the Award
Date through such periods;
<PAGE> 26
b. If, for a period of twenty (20) consecutive trading days
during the period beginning on November 1, 1997 and ending on
November 1, 1999, the closing price for the Company's Common Stock,
as traded on the New York Stock Exchange composite tape, averages
at least $30.00 per share; provided, however, that the Executive
has remained continuously employed with the Company from the Award
Date through such periods;
c. If, for a period of twenty (20) consecutive trading days
during the period beginning on November 1, 1999 and ending on
November 1, 2000, the closing price for the Company's Common Stock,
as traded on the New York Stock Exchange composite tape, averages
at least $35.00 per share; provided, however, that the Executive
has remained continuously employed with the Company from the Award
Date through such periods;
d. If, for a period of twenty (20) consecutive trading days
during the period beginning on November 1, 2000 and ending on
November 1, 2001, the closing price for the Company's Common Stock,
as traded on the New York Stock Exchange composite tape, averages
at least $40.00 per share; provided, however, that the Executive
has remained continuously employed with the Company from the Award
Date through such periods; or
e. November 1, 2005, provided that the Executive remains
continuously employed with the Company from the Award Date though
such date.
3. VESTING DATE: Upon fulfilling the above condition(s),
the Executive shall be vested in the Time-Based Restricted Shares
and Performance-Based Restricted Shares granted under this
Agreement. The date with respect to the shares so vested on which
these restrictions have been lifted will be termed the Executive's
"Vesting Date."
4. INCORPORATION OF PLAN: The Plan is incorporated herein
by reference, and made a part of this Agreement as if fully set
forth herein. This Agreement, including without limitation the
grant to the Executive of the Time-Based Restricted Shares and
Performance-Based Restricted Shares, shall be subject to all terms
of the Plan. The Committee (as defined in the Plan) shall
administer the Plan and have the power to construe the Plan, to
determine all questions thereunder, and to adopt and amend such
rules and regulations for the administration of the Plan as it may
deem desirable; provided, however, that shareholder approval shall
be required for any amendment to the Plan if, in the judgment of
the Committee, such approval is necessary to satisfy the
requirements of Rule 16b 3 of the Securities Exchange Act of 1934
(the "1934 Act"), any successor rule under the 1934 Act as in
effect on the date of such amendment, or any other applicable law.
Termination, modification or amendment of the Plan shall not,
without the consent of the Executive, affect his rights with
<PAGE> 27
respect to the Time-Based Restricted Shares and Performance-Based
Restricted Shares
5. TERMINATION OF EMPLOYMENT: Notwithstanding the
provisions of Paragraphs 1, 2 and 3, if the Company terminates the
Executive's employment other than for Cause (as such term is
defined in the Employment Agreement), including termination for
Death or Disability (as such terms are defined in the Employment
Agreement), within three (3) years after the Effective Date (as
defined in the Employment Agreement), the Vesting Date (as defined
in the Plan) for the Performance-Based Restricted Shares shall be
the day before the Date of Termination (as defined in the
Employment Agreement), whether or not all restrictions have
otherwise lapsed on the Performance-Based Restricted Shares as of
the Date of Termination, and the Vesting Date for three-fifths of
the Time-Based Restricted Shares shall be the day before the Date
of Termination, whether or not any restrictions have otherwise
lapsed on three-fifths of the Time-Based Restricted Shares as of
the Date of Termination. All restrictions on the restricted shares
described above shall lapse, in accordance with the above,
effective on the day before the Date of Termination. If the
employment of the Executive is terminated for any other reason,
whether by the Company or by the Executive, the vesting rights of
the Executive shall be determined in accordance with the terms of
the Plan.
6. NONTRANSFERABILITY OF RESTRICTED STOCK: The restricted
stock awarded under this Agreement shall remain the property of the
Company until the Vesting Date(s), and the Executive shall not
transfer, assign, encumber or exercise any degree of ownership over
such shares until the Vesting Date(s), except with respect to
dividends and voting rights as described in Paragraphs 7 and 8 of
this Agreement.
7. DIVIDENDS: The Executive shall be entitled to receive
any dividends declared on the Time-Based Restricted Shares and
Performance-Based Restricted Shares (both vested and not yet
vested). For purposes of federal income taxes, these dividends
shall be treated as compensation to the Executive for the taxable
year in which the dividend income is paid. This income will also
be subject to withholding of taxes, and the Company will include
this amount on the Executive's Form W 2, Wage and Tax Statement.
The Executive should list these dividends as ordinary income on
Form 1040, and not include them in total dividends reported on Form
1040 or Schedule B. If the Executive elects to be taxed currently
on the restricted shares granted under this Agreement, he will have
dividends treated as dividends and not as compensation for tax
purposes.
8. VOTING: The Executive shall be entitled to vote the
Time-Based Restricted Shares and Performance-Based Restricted
Shares in the same manner as an owner of such shares.
<PAGE> 28
9. ELECTION TO BE TAXED CURRENTLY: The Executive may make
an election to be taxed on the restricted stock as of the
Award Date. This election must be made no later than thirty (30)
days after the date on which the Time-Based Restricted Shares and
Performance-Based Restricted Shares are granted, on a form provided
by the Committee. This election must be made by filing the form
with both the Committee and the Cincinnati, Ohio office of the
Internal Revenue Service. If the Executive makes this election and
the Time-Based Restricted Shares and/or Performance-Based
Restricted Shares are later forfeited due to a failure to meet the
restrictions imposed under this Agreement and/or the Plan, no tax
refund or tax deduction will be allowed as a result of such
forfeiture.
10. NO RIGHT TO CONTINUED EMPLOYMENT: Neither this
Agreement nor the Plan shall be construed as in any way modifying
the Employment Agreement or giving the Executive any right to be
retained in the employ, or as a director, of the Company or of a
subsidiary or affiliated company of the Company, or affect or limit
in any way the right of the Company to terminate the employment of
the Executive in accordance with the terms of the Employment
Agreement.
11. REPRESENTATION OF THE EXECUTIVE: The Executive agrees
to comply with and be bound by all of the terms and conditions
contained in this Agreement and in the Plan.
12. COMPLIANCE WITH LAWS: The Time-Based Restricted Shares
and Performance-Based Restricted Shares, and the issuance and
delivery of shares of Common Stock pursuant to the Time-Based
Restricted Shares and Performance-Based Restricted Shares, are
subject to compliance with all applicable federal and state laws,
rules and regulations (including but not limited to state and
federal tax and securities laws) and to such approvals by any
listing, regulatory or governmental authority as may, in the
opinion of counsel for the Company, be necessary or advisable in
connection therewith. Any securities delivered under the Time-Based
Restricted Shares and Performance-Based Restricted Shares
shall be subject to such restrictions, and the Executive shall, if
requested by the Company, provide such assurances and
representations to the Company as the Company may deem necessary or
desirable to assure such compliance.
13. CHANGE OF CONTROL: In the event of a "Change of
Control" (as defined in the Employment Agreement between the
Company and the Executive, dated as of December 1, 1996 and
attached as Exhibit D to the Employment Agreement (the "Change of
Control Agreement")), the vesting rights of the Executive with
respect to the Time-Based Restricted Shares and Performance-Based
Restricted Shares shall be determined in accordance with the terms
of the Change of Control Agreement and the Plan.
14. NOTICES: Any notice relating to this Agreement shall
<PAGE> 29
be in writing and delivered in person or by certified or registered
mail to the Company at its principal office at 26555 Northwestern
Highway, Southfield, Michigan, 48034, Attention: General Counsel,
or to such other address as may hereafter be specified by the
Company. All notices to the Executive or other person or persons
then entitled to the Time-Based Restricted Shares or Performance-Based
Restricted Shares shall be delivered in person or by
certified or registered mail addressed to the Executive or such
other person or persons at his residence or at such other address
as may be specified by such person in writing by notice given in
accordance herewith.
IN WITNESS WHEREOF, the Company has caused this Agreement
to be executed on its behalf by a duly authorized officer and the
Executive has executed this Agreement on the date first written
above.
FEDERAL-MOGUL CORPORATION
By:
RICHARD A. SNELL
<PAGE> 30
EXHIBIT C
EMPLOYMENT AGREEMENT
AGREEMENT by and between Federal-Mogul Corporation, a
Michigan corporation (the "Company") and Richard A. Snell (the
"Executive"), dated as of the 1st day of December, 1996.
The Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change
of Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order
to accomplish these objectives, the Board has caused the Company to
enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
I. Certain Definitions. A. The "Effective Date"
shall mean the first date during the Change of Control Period (as
defined in Section 1(b)) on which a Change of Control (as
defined in Section (2) occurs. Anything in this Agreement to the
contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to the
date on which the Change of Control occurs, and if it is reasonably
demonstrated by the Executive that such termination of employment
(i) was at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control o(ii)otherwise
arose in connection with or anticipation of a Change of
Control, then for all purposes of this Agreement the "Effective
Date" shall mean the date immediately prior to the date of such
termination of employment.
B. The "Change of Control Period" shall mean the
period commencing on the date hereof and ending on the third
anniversary of the date hereof; provided, however, that commencing
on the date one year after the date hereof, and on each annual
anniversary of such date (such date and each annual anniversary
thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such
Renewal Date, unless at least 60 days prior to the Renewal Date the
Company shall give notice to the Executive that the Change of
<PAGE> 31
Control Period shall not be so extended.
II. Change of Control. For the purpose of this
Agreement, a "Change of Control" shall mean:
A. The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"))
(a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of either
(i) the then outstanding shares of common stock of the Company (the
Outstanding Company Common Stock) or (ii) the combined voting power
of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes
of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from
the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
B. Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however,
that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered
as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
C. Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially
all of the assets of the Company (a "Business Combination"), in
each case, unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding
shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's
<PAGE> 32
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case
may be, (ii) no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan (or related
trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly,
20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination
or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (iii) at
least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members
of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such
Business Combination; or
D. Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
III. Employment Period. The Company hereby agrees to
continue the Executive in its employ, and the Executive hereby
agrees to remain in the employ of the Company subject to the terms
and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the third anniversary of such date
(the "Employment Period").
IV. Terms of Employment. A. Position and Duties.
a. During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day
period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Effective Date or
any office or location less than 35 miles from such location.
b. During the Employment Period, and excluding
any periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote reasonable attention and
time during normal business hours to the business and affairs of
the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it
shall not be a violation of this Agreement for the Executive to
(A) serve on corporate, civic or charitable boards or committees,
(B) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal
investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities
<PAGE> 33
as an employee of the Company in accordance with this Agreement.
It is expressly understood and agreed that to the extent that any
such activities have been conducted by the Executive prior to the
Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto)
subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's responsibilities
to the Company.
B. Compensation. a. Base Salary. During the
Employment Period, the Executive shall receive an annual base
salary ("Annual Base Salary"), which shall be paid at a monthly
rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its
affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs.
During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase
awarded to the Executive prior to the Effective Date and thereafter
at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall no be reduced after
any such increase and the term Annual Base Salary as utilized in
this Agreement shall refer to Annual Base Salary as so increased.
As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common
control with the Company.
b. Annual Bonus. In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending
during the Employment Period, an annual bonus (the "Annual Bonus")
in cash at least equal to the Executive's highest bonus under the
Company's 1977 Supplemental Compensation Plan, as amended and
restated, or any comparable bonus under any predecessor or
successor plan, for the last three full fiscal years prior to the
Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year) (the
"Recent Annual Bonus"). Each such Annual Bonus shall be paid no
later than the end of the third month of the fiscal year next
following the fiscal year for which the Annual Bonus is awarded,
unless the Executive shall elect to defer the receipt of such
Annual Bonus.
c. Incentive, Savings and Retirement Plans.
During the Employment Period, the Executive shall be entitled to
participate in all incentive, savings and retirement plans,
practices, policies and programs applicable generally to other peer
executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide
the Executive with incentive opportunities (measured with respect
to both regular and special incentive opportunities, to the extent,
if any, that such distinction is applicable), savings opportunities
<PAGE> 34
and retirement benefit opportunities, in each case, less favorable,
in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such
plans, practices, policies and programs as in effect at any time
during the 120-day period immediately preceding the Effective Date
or if more favorable to the Executive, those provided generally at
any time after the Effective Date to other peer executives of the
Company and its affiliated companies.
d. Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case
may be, shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its
affiliated companies, but in no event shall such plans, practices,
policies and programs provide the Executive with benefits which are
less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive
at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to other
peer executives of the Company and its affiliated companies.
e. Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with
the most favorable policies, practices and procedures of the
Company and its affiliated companies in effect for the Executive at
any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
f. Fringe Benefits. During the Employment
Period, the Executive shall be entitled to fringe benefits,
including,without limitation, tax and financial planning services,
payment of club dues, and, if applicable, use of an automobile and
payment or related expenses, in accordance with the most favorable
plans practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during
the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
<PAGE> 35
g. Office and Support Staff. During the
Employment Period, the Executive shall be entitled to an office or
offices of a size and with furnishings and other appointments, and
to exclusive personal secretarial and other assistance, at least
equal to the most favorable of the foregoing provided to the
Executive by the Company and its affiliated companies at any time
during the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as provided generally at
any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
h. Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the
Company and its affiliated companies as in effect for the Executive
at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
V. Termination of Employment. A. Death or
Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below),
it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the
Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability"
shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business
days as a result of incapacity due to mental or physical illness
which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative.
B. Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of
this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the
Company or one of its affiliates (other than any such failure
resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board
<PAGE> 36
or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably
injurious to the Company.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive's action or omission
was in the best interests of the Company. Any act, or failure to
act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief
Executive Officer or a senior officer of the Company or based upon
the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive
a copy of a resolution duly adopted by the affirmative vote of not
less than three quarters of the entire membership of the Board at
a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is
given an opportunity, together with counsel to be heard before the
Board), finding that, in the good faith opinion of the Board, the
Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
C. Good Reason. The Executive's employment may be
terminated by the Executive for Good Reason. For purposes of this
Agreement, Good Reason shall mean:
a. the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by
Section 4(a) of this Agreement, or any other action by the Company
which results in a diminution in such position, authority, duties
or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
b. any failure by the Company to comply with any of
the provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
c. the Company's requiring the Executive to be based
at any office or location other than as provided in Section 4 (a)
(i)(B) hereof or the Company's requiring the Executive
to travel on Company business to a substantially greater extent
<PAGE> 37
than required immediately prior to the Effective Date;
d. any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by
this Agreement; or
e. any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive.
D. Notice of Termination. Any termination by the
Company for Cause, or by the Executive for Good Reason, shall be
communicated by Notice of Termination to the other party hereto
given in accordance with Section 12(b) of this Agreement. For
purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other than
the date of receipt of such notice, specifies the termination date
(which date shall be not more than thirty days after the giving of
such notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive
any right of the Executive or the Company, respectively, hereunder
or preclude the Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing the Executive's or
the Company's rights hereunder.
E. Date of Termination. "Date of Termination" means
(i) if the Executive's employment is terminated by the Company for
Cause, or by the Executive for Good Reason, the date of receipt of
the Notice of Termination or any later date specified therein, as
the case may be, (ii) if the Executive's employment is terminated
by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date
of Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be.
VI. Obligations of the Company upon Termination.
A. Good Reason: Other Than for Cause, Death or Disability. If,
during the Employment Period, the Company shall terminate the
Executive's employment other than for Cause or Disability or the
Executive shall terminate employment for Good Reason:
a. the Company shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination the
<PAGE> 38
aggregate of the following amounts:
(1) the sum of (1) the Executive's Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I) the
Recent Annual Bonus and (II) the Annual Bonus paid or payable,
including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less
than twelve full months or during which the Executive was employed
for less than twelve full months), for the most recently completed
fiscal year during the Employment Period, if any (such higher
amount being referred to as the "Highest Annual Bonus") and
(y) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the
denominator of which is 365 and (3) any compensation previously
deferred by the Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid (the sum of the amounts described in
clauses (1), (2), and (3) shall be hereinafter referred to as the
"Accrued Obligations"); and
(2) the amount equal to the product of
(1) three and (2) the sum of (x) the Executive's Annual Base Salary
and (y) the Highest Annual Bonus; and
(3) an amount equal to the excess of (a) the
actuarial equivalent of the benefit under the Company's qualified
defined benefit retirement plan (the "Retirement Plan") (utilizing
actuarial assumptions no less favorable to the Executive than those
in effect under the Company's Retirement Plan immediately prior to
the Effective Date), and any excess or supplemental retirement plan
in which the Executive participates (together, the "SERP") which
the Executive would receive if the Executive's employment continued
for three years after the Date of Termination assuming for this
purpose that all accrued benefits are fully vested, and, assuming
that the Executive's compensation in each of the three years is
that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the
actuarial equivalent of the Executive's actual benefit (paid or
payable), if any, under the Retirement Plan and the SERP as of the
Date of Termination;
b. for three years after the Executive's Date of
Termination, or such longer period as may be provided by the terms
of the appropriate plan, program, practice or policy, the Company
shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to
them in accordance with the plans, programs, practices and policies
described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies and their families; provided, however, that if the
Executive becomes reemployed with another employer and is eligible
to receive medical or other welfare benefits under another employer
<PAGE> 39
provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of
determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be
considered to have remained employed until three years after the
Date of Termination and to have retired on the last day of such
period;
c. the Company shall, at its sole expense as
incurred, provide the Executive with outplacement services the
scope and provider of which shall be selected by the Executive in
his sole discretion; and
d. to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any other
amounts or benefits required to be paid or provided or which the
Executive is eligible to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
B. Death. If the Executive's employment is
terminated by reason of the Executive's death during the Employment
Period, this Agreement shall terminate without further obligations
to the Executive's legal representatives under this Agreement,
other than for payment of Accrued Obligations and the timely
payment or provision of Other Benefits. Accrued Obligations shall
be paid to the executive's estate or beneficiary, as applicable, in
a lump sum in cash within 30 days of the Date of Termination. With
respect to the provision of Other Benefits, the term Other Benefits
as utilized in this Section 6(b) shall include, without limitation,
and the Executive's estate and/or beneficiaries shall be entitled
to receive, benefits at least equal to the most favorable benefits
provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated
companies under such plans, programs, practices and policies
relating to death benefits, if any, as in effect with respect to
other peer executives and their beneficiaries at any time during
the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive's estate and/or the Executive's
beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its
affiliated companies and their beneficiaries.
C. Disability. If the Executive's employment is
terminated by reason of the Executive's Disability during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination With respect to the
<PAGE> 40
provision of Other Benefits, the term Other Benefits as utilized in
this Section 6(c) shall include, and the Executive shall be
entitled after the Disability Effective Date to receive, disability
and other benefits at least equal to the most favorable of those
generally provided by the Company and its affiliated companies to
disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if
any, as in effect generally with respect to other peer executives
and their families at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to
the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of
the Company and its affiliated companies and their families.
D. Cause: Other than for Good Reason. If the
Executive's employment shall be terminated for Cause during the
Employment Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to
the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the
extent theretofore unpaid. If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination
for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such
case, all Accrued Obligations shall be paid to the Executive in a
lump sum in cash within 30 days of the Date of Termination.
VII. Non-exclusivity of Rights. Nothing in this
Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for
which the Executive may qualify, nor, subject to Section 12(f),
shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company
or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract
or agreement except as explicitly modified by this Agreement.
VIII. Full Settlement. The Company's obligation to make
the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or
action which the Company may have against the Executive or others.
In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of
this Agreement and such amounts shall not be reduced whether or not
<PAGE> 41
the Executive obtains other employment. The Company agrees to pay
as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result
of any contest (regardless of the outcome thereof) by the Company,
the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee
of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at
the applicable Federal rate provided for in Section 7872(f)(2)(A)
of the Internal Revenue Code of 1986, as amended (the "Code").
IX. Certain Additional Payments by the Company.
A. Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event it
shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any
additional payments required under this Section 9) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the
Code or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including
any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest
and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 9(a), if
it shall be determined that the Executive is entitled to a Gross-Up
Payment, but that the Executive, after taking into account the
Payments and the Gross-Up Payment, would not receive a net
after-tax benefit of at least $550,000 (taking into account both
income taxes and any Excise Tax) as compared to the net after-tax
proceeds to the Executive resulting from an elimination of the
Gross-Up Payment and a reduction of the Payments, in the aggregate,
to an amount (the "Reduced Amount") such that the receipt of
Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
B. Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including
whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by Ernst & Young or
such other certified public accounting firm as may be designated by
the Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive
<PAGE> 42
within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested
by the Company. In the event that the Accounting Firm is serving
as accountant or auditor for the individual entity or group
effecting the Change of Control the Executive shall appoint another
nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to
as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 9, shall be paid by
the Company to the Executive within five days of the receipt of the
Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have
been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment shall be promptly paid by
the Company to or for the benefit of the Executive.
C. The Executive shall notify the Company in writing
of any claim by the Internal Revenue Service that, if successful
would require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no
later than ten business days after the Executive is informed in
writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the
expiration of the 30 day period following the date on which it
gives such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such
claim, the Executive shall:
a. give the Company any information reasonably
requested by the Company relating to such claim,
b. take such action in connection with contesting
such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably
selected by the Company,
c. cooperate with the Company in good faith in order
effectively to contest such claim, and
d. permit the Company to participate in any
proceedings relating to such claim;
<PAGE> 43
provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and
hold the Executive harmless, on an after-tax basis, for any Excise
Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of
costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive
to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if
the Company directs the Executive to pay such claim and sue for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax
or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
D. If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 9(c), the
Executive becomes entitled to receive any refund with respect to
such claim, the Executive shall (subject to the Company's complying
with the requirements of Section 9(c)) promptly pay to the Company
the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company
pursuant to Section 9(c), a determination is made that the
Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of
its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of
such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
X. Confidential Information. The Executive shall
<PAGE> 44
hold in a fiduciary capacity for the benefit of the Company
all secret or confidential information, knowledge or data relating
to the Company or any of its affiliated companies,and the
irrespective businesses, which shall have been obtained by the
Executive during the Executive's employment by the Company or any
of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives
of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the
Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process,
communicate or divulge any such information knowledge or data to
anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this Section
10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
XI. Successors. A. This Agreement is personal to
the Executive and without the prior written consent of the Company
shall not be assignable by the Executive otherwise than by will or
the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Executive's legal
representatives.
B. This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns.
C. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
XII. Miscellaneous. A. This Agreement shall be
governed by and construed in accordance with the laws of the State
of Michigan, without reference to principles of conflict of laws.
The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and
legal representatives.
B. All notices and other communications hereunder
shall be in writing and shall be given by hand delivery to the
other party or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
<PAGE> 45
If to the Executive:
Richard A. Snell
(at his residence address)
If to the Company:
Attention: General Counsel
Federal-Mogul Corporation
26555 Northwestern Highway
Southfield, Michigan 48034
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
C. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
D. The Company may withhold from any amounts payable
under this Agreement such Federal, state, local or foreign taxes as
shall be required to be withheld pursuant to any applicable law or
regulation.
E. The Executive's or the Company's failure to insist
upon strict compliance with any provision of this Agreement or the
failure to assert any right the Executive or the Company may have
hereunder, including, without limitation the right of the Executive
to terminate employment for Good Reason pursuant to Section
5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right
of this Agreement.
F. The Executive and the Company acknowledge that,
except as may otherwise be provided under any other written
agreement between the Executive and the Company, the employment of
the Executive by the Company is "at will" and, subject to
Section 1(a) hereof, prior to the Effective Date, the Executive's
employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date,
in which case the Executive shall have no other rights under this
Agreement. From and after the Effective Date this Agreement shall
supersede any other agreement between the parties with respect to
the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board
of Directors, the Company has caused these presents to be executed
in its name on its behalf, all as of the day and year first above
written.
<PAGE> 46
FEDERAL-MOGUL CORPORATION
By:
RICHARD A. SNELL
<PAGE> 47
EXHIBIT D
SEPARATION AND GENERAL RELEASE AGREEMENT
THIS SEPARATION AND GENERAL RELEASE AGREEMENT (the
"Agreement") is made as of this day of , , by
and between Richard A. Snell, an individual residing at
("Mr. Snell"), and Federal-Mogul
Corporation, a Michigan corporation, having its principal executive
offices in ("Federal-Mogul"). In
consideration of the mutual agreements set forth below, Mr. Snell
and Federal-Mogul hereby agree as follows:
1. Separation as an Officer, Director, and Employee:
Mr. Snell hereby acknowledges that, effective at the close of
business on , he no longer holds the positions of
Chairman, Chief Executive Officer, and President of Federal-Mogul,
nor will he hold as of such date any other positions as an employee
or officer of Federal-Mogul or any of its subsidiaries, related, or
affiliated companies. In addition, effective at the close of
business on , Mr. Snell shall resign from his position
as a Director of Federal-Mogul, and from any other positions he
holds as a director of Federal-Mogul's subsidiaries, related, or
affiliated companies.
2. Release of Claims: For good and valuable
consideration, including the payments and benefits set forth in
either Paragraphs 7(c) or 7(d) (as applicable) of the Employment
Agreement between Mr. Snell and Federal-Mogul, dated as of
December 1, 1996 (the "Employment Agreement"), which includes
special enhancements to which Mr. Snell would not otherwise be
entitled under current company policies, plans, and guidelines, Mr.
Snell hereby knowingly, voluntarily, and willingly releases,
discharges, and covenants not to sue Federal-Mogul and its direct
and indirect parents, subsidiaries, affiliates, and related
companies, past and present, as well as each of its and their
former directors, officers, employees, Board of Directors and
agents thereof, representatives, attorneys, trustees, insurers,
assigns, successors, and agents, past and present (collectively
hereinafter referred to as the "RELEASEES"), from and with respect
to any and all actions, claims, or lawsuits, whether known or
unknown, suspected or unsuspected, in law or in equity, which
against the RELEASEES, Mr. Snell, and his heirs, executors,
administrators, successors, assigns, dependents, descendants, and
attorneys ever had, now have, or hereafter can, shall or may have
arising out of or in any way relating to Mr. Snell's employment by
Federal-Mogul, his separation from that employment, his separation
from Federal-Mogul, or his participation on the Board of Directors
of Federal-Mogul, including without limitation the following:
i. any and all claims arising out of or in any way relating
to breach of oral or written employment contracts (whether such
contracts were express or implied), or any and all tort claims;
<PAGE> 48
ii. any and all claims arising out of or in any way relating
to age, race, sex, religion, national origin, disability, or other
form of employment discrimination, including without limitation any
claims under Title VII of the Civil Rights Act of 1964, as amended,
the Age Discrimination in Employment Act of 1967, as amended, the
Americans with Disabilities Act of 1990, the Employee Retirement
Income Security Act of 1974, as amended, the Michigan Civil Rights
Act, or any other federal, state or local law, ordinance, or
administrative regulation; or
iii. any and all claims for salary, bonus, severance pay,
pension, vacation pay, life insurance, health or medical insurance,
or any other fringe benefits, workers' compensation or disability,
other than the payments and benefits provided for in this
Agreement; provided, however, that Mr. Snell is not releasing any
claims he may have under any pension plan of Federal-Mogul in which
he participated during his employment with Federal-Mogul.
It is the express intention of Mr. Snell and Federal-Mogul that
this Agreement constitutes a full and comprehensive release of all
claims and potential claims, to the fullest extent permitted by
law. Mr. Snell acknowledges that he may hereafter discover claims
or facts in addition to or different from those which he now knows
or believes to exist with respect to the subject matter of this
Agreement and which, if known or suspected at the time of executing
this Agreement, may have materially affected this Agreement or his
decision to enter into it. Nevertheless, Mr. Snell hereby waives
any right, claim, or cause of action that might arise as a result
of such different or additional claims or facts.
3. ADEA Waiver of Claims: Mr. Snell expressly
acknowledges and agrees that his release and waiver of rights and
claims is knowing and voluntary, that by this Agreement he will
receive compensation beyond that which he was already entitled to
receive before entering into this Agreement, that he has been given
a period of twenty-one (21) days within which to consider this
Agreement, and that he elects to execute this Agreement on this
date. Mr. Snell shall have seven (7) days following the execution
of this Agreement within which he may revoke this Agreement, and
this Agreement shall not become effective or enforceable until such
seven-day revocation period has expired. To be effective, such
revocation must be in writing and delivered to counsel for Federal-Mogul
on or before the last day of the seven-day revocation period.
Mr. Snell certifies that he understands and agrees to all of the
terms of this Agreement, and has had an opportunity to discuss
these terms with an attorney of his own choosing. Mr. Snell
further acknowledges that he has been advised previously by
Federal-Mogul, and by this writing is again advised by
Federal-Mogul, to consult with an attorney prior to executing this
Agreement and regarding his release of claims herein, including
without limitation the release of claims under the Age
<PAGE> 49
Discrimination in Employment Act of 1967, as amended.
4. No Other Payments or Benefits: Except for the
applicable payments made and benefits provided pursuant to the
Employment Agreement, Mr. Snell acknowledges and agrees that he is
entitled to no other benefits, compensation, or payments from
Federal-Mogul, including without limitation salary, bonus,
incentive compensation, severance pay, pension, vacation pay, life
insurance, or any other fringe benefits of Federal-Mogul.
5. Continuing Obligations of Mr. Snell: This
Agreement shall not supersede any continuing obligations Mr. Snell
has under the terms of the Employment Agreement, the Patent
Assignment and Confidentiality Agreement between Mr. Snell and
Federal-Mogul, or any other agreement between Mr. Snell and
Federal-Mogul, including without limitation the confidentiality
provisions of Paragraph 8 of the Employment Agreement.
6. Choice of Law: This Agreement and the rights and
obligations of the parties hereunder shall be governed by and
construed and enforced in accordance with the laws of the State of
Michigan, without regard to principles of conflict of laws.
IN WITNESS WHEREOF, Federal-Mogul and Mr. Snell,
intending to be legally bound, have executed this Agreement on the
day and year first above written.
FEDERAL-MOGUL CORPORATION
By
RICHARD A. SNELL
<PAGE> 1
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made as of this
day of December, 1996, by and between Dennis J. Gormley ("Mr.
Gormley"), an individual, and Federal-Mogul Corporation ("Federal-Mogul"),
a corporation.
WHEREAS, Mr. Gormley was serving as the Chairman, Chief
Executive Officer and President of Federal-Mogul, and is currently
a member of the Board of Directors of Federal-Mogul; and
WHEREAS, Mr. Gormley and Federal-Mogul have entered into
this Agreement for the purpose of providing an orderly transition
of Mr. Gormley's duties and responsibilities, to provide for a
severance arrangement for Mr. Gormley, and to resolve any and all
outstanding issues between them.
NOW THEREFORE, in consideration of the covenants
undertaken in this Agreement, and for other good and valuable
consideration, Mr. Gormley and Federal-Mogul hereby agree as
follows:
1. RESIGNATION AS AN OFFICER, DIRECTOR, AND EMPLOYEE:
Mr. Gormley hereby acknowledges that he resigned from his positions
as Chairman, Chief Executive Officer, and President of Federal-Mogul.
Such resignation was effective at the close of business on
September 17, 1996. Mr. Gormley also hereby resigns from his
position as a Director of Federal-Mogul, such resignation to
be effective on the earlier of the date he signs this Agreement or
October 21, 1996. Mr. Gormley also hereby resigns from any and all
other positions he holds as an employee, director, or officer of
Federal-Mogul or any of its subsidiaries, related, or affiliated
companies, such resignation to be effective at the close of
business on October 31, 1996 (the "Separation Date"). Federal-Mogul
will pay to Mr. Gormley his base salary at the annual rate of
Five Hundred Eighty Thousand Dollars and No Cents ($580,000.00),
less applicable income tax withholdings and other normal payroll
deductions, through the Separation Date, in accordance with
Federal-Mogul's regular payroll practices. Federal-Mogul will also
continue to provide employment benefits generally available to
senior executives, including medical and dental insurance, life
insurance, pension and other benefits, through the Separation Date.
2. SEVERANCE PAY AND BENEFITS: Federal-Mogul hereby
agrees that, upon approval of the entire Board of Directors of
Federal-Mogul, the following compensation and benefits will be
provided to Mr. Gormley in accordance with the terms of this
Agreement:
A. Severance Payments: Federal-Mogul will make a
payment to Mr. Gormley in the sum of One Million Six Hundred
<PAGE> 2
Thousand Dollars and No Cents ($1,600,000.00), less applicable
income tax withholdings, representing severance pay, including any
amounts Mr. Gormley would normally have been granted under the
Severance Pay Plan for Salaried Employees, such payment to be made
on January 2, 1997 following the effective date of this Agreement
(the last day of the seven-day revocation period as set forth in
Paragraph 5 of this Agreement). Federal-Mogul will also make a
separate payment to Mr. Gormley of Two Hundred Thousand Dollars and
No Cents ($200,000.00), less applicable income tax withholdings in
lieu of any and all amounts that may be owed to Mr. Gormley for
accrued, unused and deferred vacation, as well as in lieu of any
and all other benefits which Mr. Gormley might otherwise be
eligible to receive (except as otherwise provided in this
Paragraph 2), including without limitation tax preparation
assistance and financial estate planning assistance for 1996, any
remaining credit for the executive supplemental medical plan,
payments for home security, and costs of his office and secretarial
support for October 1996. Such payment will be made on January 2,
1997 following the last day of the seven-day revocation period as
set forth in Paragraph 5 of this Agreement.
B. Supplemental Compensation Award: If Federal-Mogul
pays bonuses under the terms and conditions of the
Supplemental Compensation Plan for 1996 in effect as of the
Separation Date (the"SCP"), Mr. Gormley will be eligible for a
pro-rated award (calculated by taking the award he would have received
had he remained employed through December 31, 1996, based on the
terms and conditions of the SCP in effect on the Separation Date,
and multiplying it by a fraction, the numerator of which is 10 and
the denominator of which is 12). Except as otherwise provided in
this subparagraph, Mr. Gormley's participation in the SCP shall
terminate effective on the Separation Date.
C. Executive Loan Program: Mr. Gormley hereby
agrees to repay to Federal-Mogul the sum of One Hundred Fifty
Nine Thousand Three Hundred Ninety One Dollars and No Cents
($159,391.00) in full and final settlement of his outstanding loan
under Federal-Mogul's Executive Loan Program, in accordance with
the terms of such program. Such payment shall be deducted from the
severance payment set forth in Paragraph 2(A).
D. Medical And Dental Coverage: Effective on the
Separation Date, Mr. Gormley will be eligible to participate in
Federal-Mogul's CHOICE retiree insurance coverage for medical,
dental, life, and vision, in accordance with the terms of such
plan.
E. Split Dollar Life Insurance Plan: Mr. Gormley
will continue to participate in Federal-Mogul's Split Dollar Life
Insurance Plan (the "SDLIP"), in accordance with the terms of such
plan. Federal-Mogul will pay the applicable premiums, until 2005,
for the life insurance policy presently in effect for Mr. Gormley.
Mr. Gormley will continue to pay the federal taxes and/or other
costs for which he was responsible prior to the Separation Date.
The benefit available under the plan may be reduced in accordance
<PAGE> 3
with the terms of the SDLIP.
F. Retired Officers' Lease Car Program: Effective
on the Separation Date, Mr. Gormley will be eligible to
participate in Federal-Mogul's Retired Officers' Lease Car
Program, in accordance with the terms of such program.
G. Ocean Reef Condominium: Mr. Gormley will be
eligible to use Federal-Mogul's Ocean Reef condominium from
December 21, 1996 through January 4, 1997.
H. Country Club Memberships: Federal-Mogul will
continue to pay the monthly dues of Mr. Gormley's memberships,
through December 31, 1996, in the Oakland Hills Country Club and
Bloomfield Hills Country Club (individually and collectively the
"Country Clubs"). Effective January 1, 1997, Federal-Mogul will
award to Mr. Gormley the stock certificates applicable to the
Country Clubs. On and after January 1, 1997, Federal-Mogul will no
longer be responsible for any membership or other costs in
connection with Mr. Gormley's memberships in the Country Clubs.
I. Retirement Plans: At Mr. Gormley's election and
in accordance with the terms of the plans, Federal-Mogul shall
distribute to Mr. Gormley amounts due to Mr. Gormley through the
Separation Date from the Personal Retirement Account ("PRA"), the
Supplemental Executive Retirement Program (the "SERP"), and the
Thrift Plan (including the 401(k) Plan, the Salaried Employees'
Investment Program (the "SEIP"), and the Employee Stock Ownership
Plan (the "ESOP")). Except for any vested benefits in such plans,
Mr. Gormley's participation in all such plans shall terminate
effective on the Separation Date.
J. 1984 Stock Option Plan: Federal-Mogul
acknowledges that Mr. Gormley is entitled to receive the benefit
of all awards under Federal-Mogul's 1984 Stock Option Plan
(the "1984 Plan") to which he was entitled to immediate exercise
as of the Separation Date. Mr. Gormley acknowledges that he has no
claim to any stock options under the 1984 Plan, except as follows:
i. An option for 8,000 shares of common
stock, granted on February 3, 1987, with
an exercise price of $21.7500 per share.
ii. An option for 26,500 shares of common
stock, granted on February 9, 1988, with
an exercise price of $19.0000 per share.
iii. An option for 33,000 shares of common
stock, granted on February 8, 1989, with
an exercise price of $26.1875 per share.
iv. An option for 40,000 shares of common
stock, granted on February 7, 1990, with
an exercise price of $19.6250 per share.
<PAGE> 4
The parties acknowledge and agree that Mr. Gormley may exercise the
stock options described in subparagraphs i, ii, iii, and iv of this
Paragraph 2(J) at any time before the earlier of (i) the expiration
of an option under the terms of the 1984 Plan or award agreement
applicable to such option, or (ii) five (5) years from the date of
this Agreement.
K. 1989 Performance Incentive Stock Plan: Federal-Mogul
acknowledges that Mr. Gormley is entitled to receive the
benefit of all awards under Federal-Mogul's 1989 Performance
Incentive Stock Plan (the "1989 Plan") to which he was entitled to
immediate exercise or receipt as of the Separation Date. Mr.
Gormley acknowledges that he has no claim to any restricted shares
or stock options under the 1989 Plan, except as follows:
i. An award of 24,000 restricted shares,
granted on May 24, 1989.
ii. An option for 150,000 shares of common
stock, granted on February 6, 1991, with
an exercise price of $22.00 per share;
Mr. Gormley will not receive any
proceeds with respect to the option for
the remaining 150,000 shares payable
under terms of the February 6, 1991
grant in the form of restricted shares,
the restrictions of which will not lapse
after the termination of Mr. Gormley's
employment with Federal-Mogul.
iii. An award of 20,000 restricted shares,
granted on February 8, 1995 as a long-
term incentive grant.
iv. An award of 5,479 restricted shares,
granted on February 8, 1995.
The parties acknowledge and agree that Mr. Gormley may
exercise the stock option described in subparagraph ii of
this Paragraph 2(K) at any time before the earlier of (i)
the expiration of such option under Section 6.4(a) of the
1989 Plan or the agreement applicable to such award, or
(ii) five (5) years from the date of this Agreement. The
parties further acknowledge and agree that Mr. Gormley
will receive the restricted shares described
in subparagraphs i, iii, and iv of this Paragraph 2(K)
(but not any restricted shares from the exercise of the
options described in subparagraph ii of this Paragraph
2(K)), and the restrictions on such shares will lapse on
the Separation Date. The parties further acknowledge
and agree that Mr. Gormley is not eligible for additional
time-based or performance-based vesting of any unvested
restricted shares or stock options. The parties further
acknowledge and agree that, except as otherwise provided
<PAGE> 5
above, no other restrictions on restricted shares under
the 1989 Plan will lapse.
3. NO OTHER PAYMENTS OR BENEFITS: Except for the
payments made and benefits provided in this Agreement, Mr. Gormley
acknowledges and agrees that he is entitled to no other benefits,
compensation, or payments from Federal-Mogul, including without
limitation salary, bonus, incentive compensation, severance pay,
pension, vacation pay, life insurance or any other fringe benefits
of Federal-Mogul.
4. RELEASE OF FEDERAL-MOGUL: In consideration for the
compensation and benefits provided in this Agreement, and for all
other good and valuable consideration, Mr. Gormley hereby
knowingly, voluntarily, and willingly releases, discharges, and
covenants not to sue Federal-Mogul and its direct and indirect
parents, subsidiaries, affiliates, and related companies, past and
present, as well as each of their directors, officers, employees,
the Board of Directors and agents thereof, representatives,
attorneys, trustees, insurers, assigns, successors, and agents,
past and present (collectively hereinafter referred to as the
"RELEASEES"), from and with respect to any and all actions,
claims, or lawsuits, whether known or unknown, suspected or
unsuspected, in law or in equity, which against the RELEASEES, Mr.
Gormley and his heirs, executors, administrators, successors,
assigns, dependents, descendants, and attorneys ever had, now have,
or hereafter can, shall, or may have arising out of or in any way
relating to Mr. Gormley's employment by Federal-Mogul, his
separation from that employment, his separation from Federal-Mogul,
or his participation on the Board of Directors of Federal-Mogul,
including without limitation the following:
i. any and all claims arising out of or in any way
relating to breach of oral or written employment
contracts (whether such contracts were express or
implied), or any and all tort claims;
ii. any and all claims arising out of or in any way
relating to age, race, sex, religion, national
origin, disability, or other form of employment
discrimination, including without limitation any
claims under Title VII of the Civil Rights Act of
1964, as amended, the Age Discrimination in
Employment Act of 1967, as amended, the Americans
with Disabilities Act of 1990, the Employee
Retirement Income Security Act of 1974, as
amended, the Michigan Civil Rights Act, or any
other federal, state or local law, statute,
ordinance, or administrative regulation; or
iii. any and all claims for salary, bonus, severance
pay, pension, vacation pay, life insurance, health
or medical insurance, or any other fringe
benefits, workers' compensation or disability,
other than the payments and benefits provided for
in this Agreement; provided, however, that Mr.
<PAGE> 6
Gormley is not releasing any claims he may have
under any pension plan of Federal-Mogul in which
he participated during his employment with
Federal-Mogul.
It is the express intention of Mr. Gormley and Federal-Mogul that
this Agreement constitutes a full and comprehensive release of all
claims and potential claims, to the fullest extent permitted by
law. Mr. Gormley acknowledges that he may hereafter discover
claims or facts in addition to or different from those which he now
knows or believes to exist with respect to the subject matter of
this Agreement and which, if known or suspected at the time of
executing this Agreement, may have materially affected this
Agreement or his decision to enter into it. Nevertheless,
Mr. Gormley hereby waives any right, claim or cause of action
that might arise as a result of such different or additional claims
or facts.
5. ADEA WAIVER OF CLAIMS: Mr. Gormley expressly
acknowledges and agrees that his release and waiver of rights
and claims is knowing and voluntary, that by this Agreement he will
receive compensation beyond that which he was already entitled to
receive before entering into this Agreement, that he has been given
a period of twenty-one (21) days within which to consider this
Agreement, and that he elects to execute this Agreement on this
date. Mr. Gormley shall have seven (7) days following the
execution of this Agreement within which he may revoke this
Agreement, and this Agreement shall not become effective or
enforceable until such seven-day revocation period has expired.
To be effective, such revocation must be in writing and delivered
to counsel for Federal-Mogul on or before the last day of the
seven-day revocation period. Mr. Gormley certifies that he
understands and agrees to all of the terms of this Agreement, and
has had an opportunity to discuss these terms with an attorney of
his own choosing. Mr. Gormley further acknowledges that he has
been advised previously by Federal-Mogul, and by this writing is
again advised by Federal-Mogul, to consult with an attorney prior
to executing this Agreement and regarding his release of claims
herein, including without limitation the release of claims under
the Age Discrimination in Employment Act of 1967, as amended.
6. ORDERLY TRANSFER OF DUTIES: Mr. Gormley agrees to
assist Federal-Mogul in an orderly transfer of his duties, and to
that end shall make himself available by telephone from time to
time until December 31, 1996, to provide, upon request by the Board
of Directors of Federal-Mogul, information and reasonable
assistance to Federal-Mogul with respect to transition issues.
Federal-Mogul agrees that it will give Mr. Gormley reasonable
prior notice of its need for his assistance or provision of
information, and will make a reasonable effort to set all telephone
calls at times convenient to Mr. Gormley's schedule.
7. CONFIDENTIALITY: Mr. Gormley agrees that he shall
keep this Agreement, and the terms and conditions of this
Agreement, confidential. Mr. Gormley shall not in any manner or
for any reason disclose this Agreement, or the terms hereof,
<PAGE> 7
without the express prior written consent of Federal-Mogul, except
(i) to members of his family, his attorneys, and his accountants on
a "need to know" basis, (ii) to the Internal Revenue Service, and
(iii) as otherwise required by law.
8. ADDITIONAL PROVISIONS: The following additional
terms and conditions shall apply to this Agreement:
A. No Claim Filed And No Assignment of Claims:
Mr. Gormley represents and warrants that neither he nor any of his
representatives have filed, or will file, any complaints, charges
or lawsuits with any court or government agency arising out of or
relating to any claims being released by Mr. Gormley in this
Agreement. Mr. Gormley further represents and warrants that
neither he nor any of his representatives have assigned or
transferred, or will assign or transfer, to any other person other
than Federal-Mogul any of the released matters set forth in this
Agreement, and that he shall defend, indemnify and hold harmless
Federal-Mogul from and against any claim (including the payment of
attorneys' fees and costs actually incurred whether or
not litigation is commenced) based on or in connection with or
arising out of any such assignment or transfer.
B. Severability of Provisions: If any of the
provisions, terms, or clauses of this Agreement are held invalid,
illegal, unenforceable or ineffective, such provisions, terms and
clauses shall be deemed severable such that all other provisions,
terms, and clauses of this Agreement shall remain valid and binding
upon the parties.
C. Choice of Law: This Agreement and the rights
and obligations of the parties hereunder shall be governed by and
construed and enforced in accordance with the laws of the State of
Michigan, without regard to principles of conflict of laws.
D. Arbitration: Any and all controversies, claims
or disputes arising out of or in any way relating to this Agreement
shall be resolved by final and binding arbitration in Detroit,
Michigan before a single arbitrator licensed to practice law and
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA"). The arbitration shall be
commenced by filing a demand for arbitration with the AAA within
sixty (60) days after the occurrence of the facts giving rise to
any such controversy, claim or dispute. The arbitrator shall
decide all issues relating to arbitrability. The costs of
such arbitration, including the arbitrator's fees, shall be split
between the parties to the arbitration. Each party shall be
responsible to pay its own attorneys' fees.
E. Entire Agreement: This Agreement is an
integrated document and constitutes and contains the complete
understanding and agreement of the parties with respect to the
subject matter addressed herein, and supersedes and replaces all
<PAGE> 8
prior negotiations and agreements, whether written or oral,
including without limitation the Employment Agreement dated as of
August 1, 1995, concerning the subject matter hereof. No provision
of this Agreement may be amended or waived except by written
agreement signed by the parties hereto.
F. No Waiver of Breach: No waiver of any breach
of any term or provision of this Agreement shall be construed to
be, or shall be, a waiver of any other breach of this Agreement.
No waiver shall be binding unless in writing and signed by the
party waiving the breach.
G. Representation: Mr. Gormley and Federal-Mogul
each represent and agree that they have carefully read and
understand this Agreement, and agree that neither they nor any of
Federal-Mogul's officers, agents, directors, or employees have made
any representations other than those contained herein. Further,
the parties each expressly agree that they have entered into this
Agreement freely and voluntarily and without pressure or coercion
from anyone.
H. Captions: The captions of this Agreement are
for descriptive purposes only and are not part of the provisions
hereof and shall have no force or effect.
I. Counterparts: This Agreement may be executed
in counterparts, and each counterpart, when executed, shall have
the effect of a signed original. Photographic copies of such
signed counterparts may be used in lieu of the original for any
purpose.
IN WITNESS WHEREOF, Mr. Gormley and Federal-Mogul,
intending to be legally bound, have executed this Agreement as
of the date first written above.
DENNIS J. GORMLEY
-----------------------------
Date:------------------------
FEDERAL-MOGUL CORPORATION
By:--------------------------
Date:------------------------
<PAGE> 1
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made as of this
1st day of December, 1996, by and between Wayne G. Smith ("Mr.
Smith"), an individual, and Federal-Mogul Corporation ("Federal-Mogul"),
a Michigan corporation.
WHEREAS, Mr. Smith was serving as a President of Federal-Mogul;
WHEREAS, Federal-Mogul has decided to undertake certain
changes in its management structure; and
WHEREAS, in light of these changes, Mr. Smith and Federal-Mogul
desire an orderly separation of Mr. Smith's employment with Federal-Mogul.
NOW, THEREFORE, in consideration of the covenants
undertaken in this Agreement, and for other good and valuable
consideration, Mr. Smith and Federal-Mogul hereby agree as follows:
1. RESIGNATION AS AN OFFICER AND EMPLOYEE: Mr. Smith
hereby acknowledges that he was terminated from his position as a
President of Federal-Mogul effective at the close of business on
October 4, 1996. Mr. Smith also hereby resigns from any and all
other positions he holds as an employee, director or officer of
Federal-Mogul or any of its subsidiaries, related, or affiliated
companies, such resignation to be effective at the close of business
on October 31, 1996 (the "Termination Date"). Mr. Smith shall
deliver to Federal-Mogul a letter confirming his resignation in the
form attached hereto as Exhibit A. Federal-Mogul will pay to
Mr. Smith his base salary at the annual rate of Three Hundred
Seventy Thousand Dollars and No Cents ($370,000.00), less applicable
income tax withholdings and other normal payroll deductions, through
November 30, 1996, in accordance with Federal-Mogul's regular
payroll practices. Federal-Mogul will also continue to provide
employment benefits generally available to senior executives,
including medical and dental insurance, life insurance, pension and
other benefits, through the Termination Date.
2. SEVERANCE PAY AND BENEFITS: Federal-Mogul hereby
agrees that, upon approval of the entire Board of Directors of
Federal-Mogul, the following compensation and benefits will be
provided to Mr. Smith in accordance with the terms of this
Agreement:
<PAGE> 2
A. Severance Payment: Federal-Mogul will make a
payment to Mr. Smith in the sum of Two Hundred Thirty Five Thousand
Dollars and No Cents ($235,000.00) (constituting thirty-three (33)
weeks of Mr. Smith's annual base salary), less applicable income tax
withholdings, representing severance pay, including any amounts Mr.
Smith would normally have been granted under Federal-Mogul's
Severance Plan for Salaried Employees. Such payment will be made
following the effective date of this Agreement (the last day of the
seven-day revocation period as set forth in Paragraph 5 of this
Agreement), unless Mr. Smith revokes this Agreement in accordance
with Paragraph 5. Federal-Mogul will also make a separate payment
to Mr. Smith of One Hundred Fifty Thousand Dollars and No Cents
($150,000.00), less applicable income tax withholdings, in lieu of
any and all amounts that may be owed to Mr. Smith for unused and
deferred vacation, as well as in lieu of any and all other benefits
which Mr. Smith might otherwise be eligible to receive (except as
otherwise provided in this Paragraph 2), including without
limitation tax preparation assistance and financial estate planning
assistance for 1996, any remaining credit for the executive
supplemental medical plan, payments for home security, costs of his
office and secretarial support for October 1996, and legal fees.
Such payment will be made following the last day of the seven-day
revocation period as set forth in Paragraph 5 of this Agreement,
unless Mr. Smith revokes this Agreement in accordance with
Paragraph 5.
B. Supplemental Compensation Award: If Federal-Mogul
pays bonuses under the terms and conditions of the Supplemental
Compensation Plan for 1996 in effect as of the Termination Date (the
"SCP"), Mr. Smith will be eligible for a pro-rated award (calculated
by taking the award he would have received had he remained employed
through December 31, 1996, based on the terms and conditions of the
SCP in effect on the Termination Date, and multiplying it by a
fraction, the numerator of which is 10 and the denominator of which
is 12). Except as otherwise provided in this subparagraph, Mr.
Smith's participation in the SCP shall terminate effective on the
Termination Date.
C. Medical And Dental Coverage: Effective on the
Termination Date, Mr. Smith will be eligible to continue to
participate in Federal-Mogul's CHOICE plan for hospital-surgical-medical,
dental, life and vision insurance coverage (the "CHOICE
Plan") for a period of up to six (6) months after November 1, 1996,
at Federal-Mogul's expense, in accordance with the terms of such
plans. During such period, Mr. Smith shall continue to pay the cost
of his share of such coverage, if any. After such period, Mr. Smith
may elect to continue coverage under the CHOICE Plan for an
additional period of twelve (12) months, at Mr. Smith's expense, in
accordance with and subject to the Consolidated Omnibus Budget
Reconciliation Act ("COBRA").
D. Split Dollar Life Insurance Plan: Effective on
the Termination Date, Mr. Smith's participation in Federal-Mogul's
Split Dollar Life Insurance Plan (the "SDLIP") will terminate in
<PAGE> 3
accordance with the terms of the SDLIP. At such time, Federal-Mogul
may withdraw the sum of all premium payments Federal-Mogul has made
in connection with such policy. Mr. Smith hereby agrees that
Federal-Mogul may withdraw the sum of all such premium payments,
that he will sign an insurance form entitled "Life Policy Service
Request -- Surrender, Tax Withholding Options, Release of
Interest," and that he shall submit such form to Federal-Mogul on
or before the date of execution of this Agreement.
E. Executive Loan Program: Mr. Smith delivered to
Federal-Mogul that certain Secured Promissory Note dated March 29,
1996 by Mr. Smith in favor of Federal-Mogul in the amount of
$88,188.41 and that certain Secured Promissory Note dated March 31,
1995 by Mr. Smith in favor of Federal-Mogul in the amount of
$323,566.95 (collectively, the "Notes"). In connection with the
Notes, Mr. Smith and Federal-Mogul entered into that certain
Assignment and Security Agreement dated as of March 29, 1996 and
that certain Assignment and Security Agreement dated as of March
31, 1995 (collectively, the "Security Agreements"). Mr. Smith and
Federal-Mogul agree that simultaneously with the execution of this
Agreement (i) Mr. Smith, in substitution for the Notes, shall
execute an amended and restated secured promissory note in the form
of Exhibit B attached hereto (the "New Note") and (ii) Mr. Smith
and Federal-Mogul, in substitution for the Security Agreements,
shall execute an amended and restated assignment and security
agreement in the form of Exhibit C attached hereto (the "New
Security Agreement"). Upon the effectiveness of the New Note and
the New Security Agreement, the Notes shall be cancelled and
returned to Mr. Smith and the Security Agreements shall be
terminated.
F. Executive Lease Car Program: Effective on
January 1, 1997, Mr. Smith's participation in Federal-Mogul's
Executive Lease Car Program (the "Lease Car Program") will
terminate, in accordance with the terms of such program. On and
after January 1, 1997, to the extent the lease on his executive
lease car has not yet expired, Federal-Mogul agrees to continue the
leases, through the end of the current lease term, for each
executive lease car currently in Mr. Smith's possession; provided,
however, that, except as provided below, Mr. Smith must pay all
lease payments and other costs in connection with such cars;
provided, further, that Federal-Mogul agrees to continue the lease
and insurance on the Mercedes E 420 vehicle through March 31, 1997.
G. Country Club Membership: Federal-Mogul will
continue to pay the monthly dues of Mr. Smith's membership, through
December 31, 1996, in Plum Hollow Country Club (the "Country Club").
Effective on January 1, 1997, Federal-Mogul will award to Mr. Smith
the stock certificate applicable to the Country Club. On and after
January 1, 1997, Federal-Mogul will no longer be responsible for any
membership or other costs in connection with Mr. Smith's membership
in the Country Club.
H. Retirement Plans: Federal-Mogul shall distribute
to Mr. Smith amounts due to Mr. Smith through the Termination Date
<PAGE> 4
from the Personal Retirement Account ("PRA"), the Supplemental
Executive Retirement Program (the "SERP"), and the Thrift Plan
(including the 401(k) Plan, the Salaried Employees' Investment
Program (the "SEIP"), and the Employee Stock Ownership Plan (the
"ESOP")), in accordance with the terms of such plans. Except for
any vested benefits in such plans, Mr. Smith's participation in all
such plans shall terminate effective on the Termination Date.
I. Home Computer Equipment: Effective on January 1,
1997, Mr. Smith shall become the owner of the Pentium personal
computer and other home computer equipment provided to him by
Federal-Mogul during his employment with Federal-Mogul (the "Home
Computer Equipment"). Mr. Smith shall be exclusively liable for any
maintenance and other costs in connection with the Home Computer
Equipment. Mr. Smith shall return the ISDN modem.
J. 1984 Stock Option Plan: Federal-Mogul
acknowledges that Mr. Smith is entitled to receive the benefit of
all awards under Federal-Mogul's 1984 Stock Option Plan (the
"1984 Plan") to which he was entitled to immediate exercise as of
the Termination Date. Mr. Smith acknowledges that he has no claim
to any stock options under the 1984 Plan, except as follows:
i. An option for 8,250 shares of common
stock, granted on February 9, 1988, with
an exercise price of $19.00 per share.
ii. An option for 13,200 shares of common
stock, granted on February 8, 1989, with
an exercise price of $26.1875 per share.
iii. An option for 15,000 shares of common
stock, granted on February 7, 1990, with
an exercise price of $19.625 per share.
The parties acknowledge and agree that Mr. Smith may
exercise the stock options described in subparagraphs
i,ii, and iii of this Paragraph 2(J) at any time before
the earlier of (i) the expiration of an option under the
terms of the 1984 Plan or award agreement applicable to
such option, or (ii) thirty-six (36) months from the date
of this Agreement.
K. 1989 Performance Incentive Stock Plan: Federal-Mogul
acknowledges that Mr. Smith is entitled to receive the
benefit of all awards under Federal-Mogul's 1989 Performance
Incentive Stock Plan (the "1989 Plan") to which he was entitled
to immediate exercise or receipt as of the Termination Date. Mr.
Smith acknowledges that he has no claim to any restricted shares or
stock options under the 1989 Plan, except as follows:
<PAGE> 5
i. An option for 56,250 shares of common
stock, granted on February 6, 1991, with
an exercise price of $22.00 per share;
Mr. Smith will not receive any proceeds
with respect to the option for the
remaining 56,250 of those shares payable
under the terms of the February 6, 1991
grant in the form of restricted shares,
the restrictions of which will not lapse
after the termination of Mr. Smith's
employment with Federal-Mogul.
ii. An award of 3,000 restricted shares,
granted on February 8, 1995 as a long-
term incentive grant.
iii. An award of 1,808 restricted shares,
granted on February 8, 1995.
The parties acknowledge and agree that Mr. Smith may
exercise the stock option described in subparagraph i of
this Paragraph 2(K) at any time before the earlier of (i)
the expiration of such options under Section 6.4(a) of
the 1989 Plan or the agreement applicable to such award,
or (ii) thirty six (36) months from the date of this
Agreement. The parties acknowledge and agree that Mr.
Smith has or will receive the restricted shares described
in subparagraphs ii and iii of this Paragraph 2(K) (but
not any restricted shares from the exercise of the
options described in subparagraph i of this Paragraph
2(K)), and the restrictions on such shares have or will
lapse no later than January 1, 1997. The parties further
acknowledge and agree that Mr. Smith is not eligible for
additional time-based or performance-based vesting of any
unvested restricted shares or stock options. The parties
further acknowledge and agree that, except as otherwise
provided above, no other restrictions on restricted
shares under the 1989 Plan will lapse.
3. NO OTHER PAYMENTS OR BENEFITS: Except for the
payments made and benefits provided in this Agreement, Mr. Smith
acknowledges and agrees that he is entitled to no other benefits,
compensation, or payments from Federal-Mogul, including without
limitation salary, bonus, incentive compensation, severance pay,
pension, vacation pay, life insurance or any other fringe benefits
of Federal-Mogul.
4. RELEASE OF FEDERAL-MOGUL: In consideration for the
compensation and benefits provided in this Agreement, and for all
other good and valuable consideration, Mr. Smith hereby knowingly,
voluntarily, and willingly releases, discharges, and covenants not
to sue Federal-Mogul and its direct and indirect parents,
subsidiaries, affiliates, and related companies, past and present,
as well as each of their directors, officers, employees,
<PAGE> 6
representatives, attorneys, agents, trustees, insurers, assigns, and
successors, past and present (collectively hereinafter referred to
as the "RELEASEES"), from and with respect to any and all actions,
claims, or lawsuits, whether known or unknown, suspected or
unsuspected, in law or in equity, which against the RELEASEES,
Mr.Smith, and his heirs, executors, administrators, successors,
assigns, dependents, descendants, and attorneys ever had, now have,
or hereafter can, shall, or may have arising out of or in any way
relating to Mr. Smith's employment by Federal-Mogul or his
separation from that employment, including without limitation the
following:
i. any and all claims arising out of or in any way
relating to breach of oral or written employment
contracts (whether such contracts were express
or implied), or any and all tort claims;
ii. any and all claims arising out of or in any way
relating to age, race, sex, religion, national
origin, disability, or other form of employment
discrimination, including without limitation any
claims under Title VII of the Civil Rights Act
of 1964, as amended, the Age Discrimination in
Employment Act of 1967, as amended, the Americans
with Disabilities Act of 1990, the Employee
Retirement Income Security Act of 1974, as amended,
the Michigan Civil Rights Act, or any other
federal, state or local law, statute, ordinance,
or administrative regulation; or
iii. any and all claims for salary, bonus, severance
pay, pension, vacation pay, life insurance, health
or medical insurance, or any other fringe benefits
(including any claims under the Executive Loan
Program), workers' compensation or disability,
other than the payments and benefits provided for
in this Agreement; provided, however, that the
foregoing is not intended to waive any defense
Mr. Smith may have against any claim brought by
Federal-Mogul against Mr. Smith arising out of
Mr. Smith's failure to comply with any of his
obligations under this Agreement including the
exhibits hereto; and provided further, that Mr.
Smith is not releasing any claims he may have
under any pension plan of Federal-Mogul in which
he participated during his employment with
Federal-Mogul.
It is the express intention of Mr. Smith and Federal-Mogul that this
Agreement constitutes a full and comprehensive release of all claims
and potential claims, to the fullest extent permitted by law. Mr.
Smith acknowledges that he may hereafter discover claims or facts in
addition to or different from those which he now knows or believes
to exist with respect to the subject matter of this Agreement and
<PAGE> 7
which, if known or suspected at the time of executing this
Agreement, may have materially affected this Agreement or his
decision to enter into it. Nevertheless, Mr. Smith hereby waives
any right, claim or cause of action that might arise as a result of
such different or additional claims or facts.
5. ADEA WAIVER OF CLAIMS: Mr. Smith expressly
acknowledges and agrees that his release and waiver of rights and
claims is knowing and voluntary, that by this Agreement he will
receive compensation beyond that which he was already entitled to
receive before entering into this Agreement, that he has been given
a period of twenty-one (21) days within which to consider this
Agreement, and that he elects to execute this Agreement on this
date. Mr. Smith shall have seven (7) days following the execution
of this Agreement by both parties within which he may revoke this
Agreement, and this Agreement shall not become effective or
enforceable until such seven day revocation period has expired and
Mr. Smith has not revoked this Agreement. To be effective, such
revocation must be in writing and delivered to counsel for Federal-Mogul
on or before the last day of the seven-day revocation period.
Mr. Smith certifies that he understands and agrees to all of the
terms of this Agreement, and has had an opportunity to discuss these
terms with an attorney of his own choosing. Mr. Smith further
acknowledges that he has been advised previously by Federal-Mogul,
and by this writing is again advised by Federal-Mogul, to consult
with an attorney prior to executing this Agreement and regarding his
release of claims herein, including without limitation the release
of claims under the Age Discrimination in Employment Act of 1967, as
amended.
6. CONFIDENTIALITY:
A. Confidentiality of Agreement: Mr. Smith
agrees that he shall keep this Agreement, and the terms and
conditions of this Agreement, confidential. Mr. Smith shall not in
any manner or for any reason disclose this Agreement, or the terms
hereof, without the express prior written consent of Federal-Mogul,
except (i) to members of his family, his attorneys, and his
accountants on a "need to know" basis, (ii) to the Internal Revenue
Service, and (iii) as otherwise required by law.
B. Confidential Information: Mr. Smith
acknowledges that by reason of his employment with Federal-Mogul,
and particularly in his capacity as a President of Federal-Mogul, he
has been given access to corporate information (including without
limitation contractual arrangements, plans, strategies, tactics, and
intellectual property), marketing information (including without
limitation sales or business plans, strategies, methods, customer
lists, and market research data), financial information, technical
information, personnel information, and similar confidential and
proprietary materials and information respecting Federal-Mogul's
business. Mr. Smith represents and warrants that he has kept and
will continue to keep all such materials and information
<PAGE> 8
confidential, and that he will not use such information for any
purpose without the prior written consent of Federal-Mogul.
Mr.Smith further agrees that, on and after the Separation Date,
Federal-Mogul's Patent Assignment and Confidentiality Agreement (the
"Confidentiality Agreement") shall remain in full force and effect
and Mr. Smith shall remain bound by the terms and conditions of such
Confidentiality Agreement.
7. NON-SOLICITATION: In consideration of the payments
and benefits conferred on Mr. Smith by Federal-Mogul under Paragraph
2 of this Agreement, Mr. Smith agrees that he will not, for a period
of one (1) year following the date of execution of this Agreement,
solicit any employees of Federal-Mogul to work for any business,
individual, partnership, firm, corporation, or other entity.
8. NON-DISPARAGEMENT: In consideration of the payments
and benefits conferred on Mr. Smith by Federal-Mogul under Paragraph
2 of this Agreement, Mr. Smith agrees that he will not make or cause
to be made any statements to any person, firm, corporation, or
governmental or other entity which reflect negatively on Federal-Mogul
or on its directors, officers, employees, affiliates, and
related companies.
9. INDEMNIFICATION: Mr. Smith acknowledges and agrees
that he shall indemnify and hold harmless Federal-Mogul fully from
payment of any federal, state or local withholding or similar taxes,
and from payment of Mr. Smith's share of any FICA, FUTA, Medicare or
similar payroll taxes, including any interest, or penalties with
respect thereto, that are imposed on or assessed against Federal-Mogul
by any government agency. Federal-Mogul agrees that it shall
not treat for any tax purposes the issuance or extension of the
Notes referred to herein as compensation income to Mr. Smith.
10. ADDITIONAL PROVISIONS: The following additional
terms and conditions shall apply to this Agreement:
A. No Claim Filed And No Assignment of Claims:
Mr. Smith represents and warrants that neither he nor any of his
representatives have filed, or will file, any complaints, charges or
lawsuits with any court or government agency arising out of or
relating to any claims being released by Mr. Smith in this Agreement
Mr. Smith further represents and warrants that neither he nor any of
his representatives have assigned or transferred, or will assign or
transfer, to any other person other than Federal-Mogul any of the
released matters set forth in this Agreement, and that he shall
defend, indemnify and hold harmless Federal-Mogul from
and against any claim (including the payment of attorneys' fees and
costs actually incurred whether or not litigation is commenced)
based on or in connection with or arising out of any such assignment
or transfer.
B. Severability of Provisions: If any of the
provisions, terms, or clauses of this Agreement are held invalid,
illegal, unenforceable or ineffective, such provisions, terms and
<PAGE> 9
clauses shall be deemed severable such that all other provisions,
terms, and clauses of this Agreement shall remain valid and binding
upon the parties.
C. Choice of Law: This Agreement and the rights
and obligations of the parties hereunder shall be governed by and
construed and enforced in accordance with the laws of the State of
Michigan, without regard to principles of conflict of laws.
D. Arbitration: Any and all controversies, claims
or disputes arising out of or in any way relating to this Agreement
shall be resolved by final and binding arbitration in Detroit,
Michigan before a single arbitrator licensed to practice law and in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA"). The arbitration shall be
commenced by filing a demand for arbitration with the AAA within
sixty (60) days after the occurrence of the facts giving rise to any
such controversy, claim or dispute. The arbitrator shall decide all
issues relating to arbitrability. The costs of such arbitration,
including the arbitrator's fees, shall be split between the parties
to the arbitration. Each party shall be responsible to pay its own
attorneys' fees.
E. Entire Agreement: This Agreement is an
integrated document and constitutes and contains the complete
understanding and agreement of the parties with respect to the
subject matter addressed herein, and supersedes and replaces all
prior negotiations and agreements, whether written or oral,
concerning the subject matter hereof. No provision of this
Agreement may be amended or waived except by written agreement
signed by the parties hereto.
F. No Waiver of Breach: No waiver of any breach
of any term or provision of this Agreement shall be construed to be,
or shall be, a waiver of any other breach of this Agreement. No
waiver shall be binding unless in writing and signed by the party
waiving the breach.
G. Representation: Mr. Smith and Federal-Mogul
each represent and agree that they have carefully read and
understand this Agreement, and agree that neither they nor any of
Federal-Mogul's officers, agents, directors, or employees have made
any representations other than those contained herein. Further, the
parties each expressly agree that they have entered into this
Agreement freely and voluntarily and without pressure or coercion
from anyone.
H. Captions: The captions of this Agreement are
for descriptive purposes only and are not part of the provisions
hereof and shall have no force or effect.
I. Counterparts: This Agreement may be executed
in counterparts, and each counterpart, when executed, shall have the
effect of a signed original. Photographic copies of such signed
<PAGE> 10
counterparts may be used in lieu of the original for any purpose.
IN WITNESS WHEREOF, Mr. Smith and Federal-Mogul, intending
to be legally bound, have executed this Agreement as of the date
first written above.
WAYNE G. SMITH
-----------------------------
Date:------------------------
FEDERAL-MOGUL CORPORATION
By:------------------------
Date:------------------------
<PAGE> 11
EXHIBIT A
RESIGNATION AS OFFICER AND DIRECTOR
To: Shareholders and Directors of:
Federal-Mogul Corporation
Federal-Mogul World Trade, Inc.
Federal-Mogul Canada Limited
Federal-Mogul Japan Kabushiki Kaisha
This will confirm that I have resigned effective October 4, 1996
from my positions as officer of Federal-Mogul Corporation and
Federal-Mogul Canada Limited and as a director of Federal-Mogul
World Trade, Inc. and Federal-Mogul Japan Kabushiki Kaisha.
- ------------------------
Wayne G. Smith
<PAGE> 12
AMENDED AND RESTATED
ASSIGNMENT AND SECURITY AGREEMENT
This Amended and Restated Assignment and Security
Agreement (this "Agreement") is made and entered into as of the 31st
day of January 1997, by and between Wayne G. Smith ("Borrower") and
Federal-Mogul Corporation, a Michigan corporation ("Lender").
Pursuant to the terms of that certain Severance Agreement
dated as of December 1, 1996 between Borrower and Lender, this
Agreement is being entered into in substitution for that certain
Assignment and Security Agreement dated as of March 29, 1996 between
Borrower and Lender and that certain Assignment and Security
Agreement dated as of March 31, 1995 between Borrower and Lender.
1. Grant of Security Interest. For value received,
Borrower hereby assigns and hereby grants a continuing security
interest in all right, title and interest of Borrower in and to the
following, in each case whether now or hereafter existing or in
which Borrower now has or hereafter acquires an interest and
wherever the same may be located (the "Collateral"): (a) all options
to acquire shares of Lender's Common Stock granted to Borrower by
Lender (the "Options"), (b) any shares of Lender's Common Stock
acquired upon exercise of any Options (the "Option Shares"), (c) the
proceeds from any sale of all or any portion of the shares of Common
Stock of Lender held by Borrower that were originally restricted
shares granted to Borrower by Lender pursuant to Lender's 1989
Performance Incentive Stock Plan, (d) the proceeds from any sale of
any Option Shares, and (e) any amounts owing to Borrower by Lender
to the extent permitted by law.
The foregoing assignment and security interest is granted
to secure all amounts owing by Borrower to Lender under the Amended
and Restated Secured Promissory Note, of even date herewith,
executed by Borrower and given to Lender in the principal amount of
$441,069.75 (the "Note").
2. Perfection of Security Interest. In order that the
security interest granted herein may be perfected, Borrower agrees
from time to time to execute promptly and cause to be filed such
financing statements or other necessary documents and to take such
action as Lender may reasonably request in order to create, preserve
and perfect the security interest of Lender in the Collateral.
3. Remedies. In the event Borrower does not make
payment in full under the Note when due, Lender may to the fullest
extent permitted by applicable law (a) offset any amounts owing by
<PAGE> 13
Lender to Borrower against amounts due and payable under the Note
until all amounts due and payable under the Note are paid in full
and (b) exercise any and all rights and remedies of a secured party
under the Uniform Commercial Code, exercise and enjoy all rights of
Borrower in respect of the Collateral (provided, that any funds so
received shall be applied to payment of the Note), retain all or any
portion of the Collateral as payment or partial payment for the
Note, and whether or not Lender exercises any remedies with respect
to the Collateral, proceed, concurrently or successively, against
Borrower, for payment of the Note, subject, however, to applicable
provisions of the Uniform Commercial Code which may not have been
waived or altered by Borrower.
4. Severability. The invalidity or unenforceability
of any term or provision of this Agreement shall not affect the
validity or enforceability of the remaining terms or provisions
hereof, which shall remain in full force and effect.
5. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Michigan.
6. Entire Agreement. This Agreement constitutes the
entire agreement among Borrower and Lender with respect to the
subject matter hereof and cannot be waived, modified or terminated
without the written consent of Lender.
IN WITNESS WHEREOF, Borrower has executed this Agreement
as of the date set forth above.
--------------------------
Wayne G. Smith
FEDERAL-MOGUL CORPORATION
--------------------------
Name:
Title:
<PAGE> 14
AMENDED AND RESTATED
SECURED PROMISSORY NOTE
January 31, 1997
$441,069.75 Southfield, Michigan
FOR VALUE RECEIVED, Wayne G. Smith ("Debtor") promises to
pay to the order of FEDERAL-MOGUL CORPORATION, a Michigan corporation
("Lender"), the principal amount of $441,069.75 (the "Principal
Amount") in accordance with the terms hereof.
Pursuant to that certain Severance Agreement dated as of
December 1, 1996 between Debtor and Lender, this Note is being issued
in substitution for that certain Secured Promissory Note dated March
29, 1996 by Debtor in favor of Lender in the amount of $88,188.41 and
that certain Secured Promissory Note dated March 31, 1995 by Debtor
in favor of Lender in the amount of $323,566.95.
The entire Principal Amount and any accrued interest shall
be due and payable, without any setoff or deduction, at the earlier
date (the "Maturity Date") of (a) January 30, 2000, (b) the date of
Debtor's exercise of all stock options to acquire shares of the
common stock of Lender ("Common Stock") held by Debtor on the date of
such exercise ("Debtor's Stock Options"), and (c) the date of
Debtor's sale or disposition of all shares of Common Stock held by
Debtor on the date of such sale or disposition that were originally
restricted shares granted to Debtor by Lender pursuant to Lender's
1989 Performance Incentive Stock Plan ("Debtor's Shares"). Debtor
may prepay this Note in whole or in part at any time without penalty
or premium by repaying the outstanding Principal Amount and all
accrued interest thereon. If Debtor exercises any but not all of
Debtor's Stock Options, Debtor shall prepay this Note within 5
business days of such exercise in an amount equal to the excess of
(i) the product of (x) the closing price on the New York Stock
Exchange of one share of Common Stock on the date of such exercise
and (y) the number of shares of Common Stock acquired by Debtor upon
such exercise over (ii) the sum of (x) the product of (A) the
exercise price of such Debtor's Stock Options and (B) the number of
shares of Common Stock acquired by Debtor upon such exercise, (y) the
amount of all taxes payable in connection with such exercise and (z)
any broker's or similar fees paid by Debtor in connection with the
sale of any shares of Common Stock acquired upon such exercise. If
Debtor sells or otherwise disposes of any but not all of Debtor's
Shares, Debtor shall prepay this Note within 5 business days of such
in an amount equal to the excess of (i) the proceeds from such sale
or disposition over (ii) any broker's or similar fees paid by Debtor
in connection with such sale or disposition.
<PAGE> 15
On and after February 1, 1997, the unpaid balance of the
Principal Amount shall bear interest at an annual rate of 5.63%,
computed on the basis of an annual payment. At the end of each
quarter unpaid interest shall be added to the Principal Amount and
shall bear interest at the same rate as the Principal Amount. As of
the date hereof, the amount of accrued and unpaid interest is
$29,314.39.
Payments of the Principal Amount and accrued interest
thereon shall be paid by check (payable in U.S. funds) made payable
to Lender and delivered to Treasurer, Federal-Mogul Corporation,
26555 Northwestern Highway, Southfield, Michigan 48034, or at such
other place designated in a writing signed by Lender.
This Note is secured by an Assignment and Security
Agreement of even date herewith.
Each of the following shall constitute a default under this
Note:
(1) Debtor's failure to make payment when due
of any amounts owing under this Note;
(2) Any assignment by Debtor for the benefit of
his creditors; and
(3) Any admission by Debtor of his inability to
meet his payment obligations when due.
Upon the occurrence of any default under this Note, the
entire unpaid Principal Amount of this Note together with the accrued
interest shall become immediately due and payable. Debtor agrees to
pay any costs of collection, including, without limitation,
reasonable attorneys' fees.
Upon the occurrence of any default under this Note, Lender
shall have the right to offset any amounts owing by Lender to Debtor
for whatever reason against any outstanding Principal Amount and
accrued interest.
Acceptance by Lender of any payment in an amount less than
the amount then due shall be deemed an acceptance on account only,
and the failure to pay the entire amount then due shall be and
continue to be an event of default. Upon any default, the failure of
Lender to promptly exercise its right to accelerate outstanding
principal and accrued unpaid interest shall not constitute a waiver
of any such rights, nor a waiver of such rights in connection with
any future default on the part of Debtor or any other person who may
be liable under this Note.
<PAGE> 16
Debtor hereby waives presentment for payment, demand,
notice of dishonor, notice of protest and all other notices and
demands in connection with any delivery, acceptance, performance or
default of this Note and agrees that this Note may be modified only
by an agreement in writing signed by Debtor and Lender.
This Note shall be governed by and interpreted in
accordance with the laws of the State of Michigan.
------------------------
Wayne G. Smith
<PAGE> 1
<TABLE>
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
- -------------------------------------------------------------
FEDERAL-MOGUL CORPORATION AND SUBSIDIARIES
- ------------------------------------------
<CAPTION>
Primary Earnings (Loss) Per Share Fully Diluted Earnings (Loss) Per Share
---------------------------------- ---------------------------------------
1996 1995 1994 1996 1995 1994
-------- -------- -------- -------- -------- --------
EARNINGS (LOSS):
(In Millions)
- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net Earnings (loss) $(211.1) $ (9.7) $ 63.3 $(211.1) $ (9.7) $ 63.3
Series C preferred
dividend requirements (2.5) (2.7) (2.8) (2.5) (2.7)
Series D preferred
dividend requirements (6.2) (6.2) (6.2) (6.2) (6.2)
Additional required
ESOP contribution <F1> (2.1)
------ ----- ----- ------ ----- -----
Net earnings (loss)
available for common
and equivalent shares $(219.8) $(18.6) $ 54.3 $(219.8) $(18.6) $ 61.2
====== ===== ===== ====== ===== =====
WEIGHTED AVERAGE SHARES:
(In Millions)
- -----------------------
Common shares outstanding 35.1 35.0 34.8 35.1 35.0 34.8
Dilutive stock
options outstanding .3 .3
Conversion of Series C
preferred stock <F3> 1.9
Contingent issuance of
common stock to satisfy
the redemption price
guarantee <F2><F4> .4
Conversion of Series D
preferred stock <F3> 4.4
------ ----- ----- ------ ----- -----
Common and equivalent
shares outstanding 35.1 35.0 35.1 35.1 35.0 41.8
===== ===== ===== ===== ===== =====
EARNINGS (LOSS)
PER COMMON AND
EQUIVALENT SHARE: $(6.26) $ (.53) $ 1.55 $(6.26) $ (.53) $ 1.46
===== ===== ===== ===== ===== =====
</TABLE>
[FN]
<F1> Amount represents the additional after-tax contribution that would be
necessary to meet the ESOP debt service requirements under an assumed
conversion of the Series C preferred stock.
<F2> Calculations consider the December 31 common stock market price in
accordance with the Emerging Issues Task Force Abstract No. 89-12.
<F3> Amount represents the weighted average number of common shares issued
assuming conversion of preferred stock outstanding when their effect
is dilutive.
<F4> Amount represents the additional number of common shares that would
be issued in order to satisfy the preferred stock redemption price
guarantee. This calculation considers only the number of preferred
shares held by the ESOP that have been allocated to participants'
accounts as of December 31 of the respective year.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
The company has no parent. The direct and indirect subsidiaries of the
company and their respective States or other jurisdictions of incorporation
as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Percentage of
Voting Stock
Owned by
Company and
Jurisdiction Each Other
Name of Subsidiary of Incorporation Subsidiary
<S> <C> <C>
Carter Automotive Company, Inc. Delaware, U.S.A. 100%
Mather Seal Company Michigan, U.S.A. 100%
Federal-Mogul Bruss Sealing Systems
(Partnership) South Carolina, U.S.A. 74%
Federal-Mogul Funding Corp. Michigan, U.S.A. 100%
Federal-Mogul Venture Corporation Nevada, U.S.A. 100%
Federal-Mogul World Wide, Inc. Michigan, U.S.A. 100%
Federal-Mogul World Trade, Inc. Nevada, U.S.A. 100%
Bromley Inversora, S.A. Argentina 96%
DeCaroli & CIA, S.A.I.C. Argentina 97%
In-De-Co. H. Minoli, S.A.I.C. Argentina 96%
Neoprint, S.A. Argentina 96%
Plasticos Puntanos, S.A. Argentina 96%
Federal-Mogul Pty. Ltd. Australia 100%
Huck Manufacturing Australia 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%
Glyco do Brasil Industria Metalurgica Ltd. Brazil 100%
Federal-Mogul Canada Investment Co. ("NRO") Canada 100%
Federal-Mogul Canada Limited Canada 100%
Federal-Mogul World Trade Chile Ltda. Chile 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%
Braunschweiger Huttenwerke GmbH Germany 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%
(Partnership)
Glyco Antriebstechnik GmbH Germany 100%
</TABLE>
<PAGE> 2
SUBSIDIARIES (cont)
<TABLE>
<CAPTION>
Percentage of
Voting Stock
Owned by
Company and
Jurisdiction Each Other
Name of Subsidiary of Incorporation Subsidiary
<S> <C> <C>
Federal-Mogul de Guatemala, S.A. Guatemala 100%
Federal-Mogul World Trade Hong Kong, Ltd. Hong Kong 100%
AFM India Ltd. India 50%
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 90%
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%
Eddies Holdings South Africa 100%
Federal-Mogul Auto Parts Ltd. South Africa 100%
Federal-Mogul Distributors (Pty) Ltd. South Africa 100%
Federal-Mogul South Africa Limited South Africa 100%
Germax Spares & Accessories (Pty) Ltd. South Africa 100%
Parts Centre Holdings (Pty) Ltd. South Africa 100%
Federal-Mogul Distribucion, S.A. Spain 51%
Federal-Mogul S.A. Switzerland 100%
Federal-Mogul Acquisition Corp. United Kingdom 100%
Federal-Mogul Holding U.K., Limited United Kingdom 100%
Federal-Mogul, Limited United Kingdom 100%
Seal Technology Systems Limited United Kingdom 100%
Federal-Mogul de Uruguay Uruguay 100%
Federal-Mogul de Venezuela C.A. Venezuela 100%
La Font Repuestos C.A. Venezuela 100%
</TABLE>
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in 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 27, 1997, 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, 1996.
(Ernst & Young LLP)
ERNST & YOUNG LLP
Detroit, Michigan
March 26, 1997
<PAGE> 1
EXHIBIT 24.1
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,
1996, hereby nominates, constitutes and appoints Thomas W. VanHimbergen
and Diane L. Kaye, or either of them, his true and lawful attorney-in-fact,
with full power to act and with full power of substitution, with the
other, 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 5th day of February 1997.
(RICHARD A. SNELL)
--------------------------------
RICHARD A. SNELL
Chairman of the Board, Chief Executive Officer
and President
(JOHN J. FANNON) (ROBERT S. MILLER)
- ---------------------------- ------------------------------------
JOHN J. FANNON ROBERT S. MILLER, JR.
Director Director
(RODERICK M. HILLS) (JOHN C. POPE)
- ---------------------------- ------------------------------------
RODERICK M. HILLS JOHN C. POPE
Director Director
(ANTONIO MADERO) (DR. H. MICHAEL SEKYRA)
- ---------------------------- ------------------------------------
ANTONIO MADERO DR. H. MICHAEL SEKYRA
Director Director
<TABLE> <S> <C>
<ARTICLE> 5
<CAPTION>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 33,100,000
<SECURITIES> 0
<RECEIVABLES> 247,600,000
<ALLOWANCES> 16,300,000
<INVENTORY> 417,000,000
<CURRENT-ASSETS> 762,900,000
<PP&E> 555,000,000
<DEPRECIATION> 204,700,000
<TOTAL-ASSETS> 1,455,200,000
<CURRENT-LIABILITIES> 663,800,000
<BONDS> 209,600,000
<COMMON> 175,700,000
0
129,700,000
<OTHER-SE> 13,100,000
<TOTAL-LIABILITY-AND-EQUITY> 1,455,200,000
<SALES> 2,030,200,000
<TOTAL-REVENUES> 2,030,200,000
<CGS> 1,661,800,000
<TOTAL-COSTS> 570,900,000
<OTHER-EXPENSES> 4,200,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,600,000
<INCOME-PRETAX> (249,300,000)
<INCOME-TAX> ( 38,200,000)
<INCOME-CONTINUING> (211,100,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (211,100,000)
<EPS-PRIMARY> (6.26)
<EPS-DILUTED> (6.26)
</TABLE>
