As filed with the Securities and Exchange Commission
on July 9, 1998
Registration No. 333-53853
=================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
AMENDMENT NO. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
Federal-Mogul Corporation
Federal-Mogul Financing Trust
(Exact name of registrant as specified in its charter)
Michigan 38-0533580
Delaware 52-2103309
(State or other (I.R.S. employer
jurisdiction of identification
incorporation) number)
26555 Northwestern Highway
Southfield, Michigan 48034
(248) 354-7700
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
-----------
EDWARD W. GRAY, JR.
FEDERAL-MOGUL CORPORATION
26555 Northwestern Highway
Southfield, Michigan 48034
(248) 354-7700
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
Copies of correspondence to:
Laurent Alpert, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
(212) 225-2000
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Approximate date of commencement of proposed sale
to the public:
As soon as practicable after this
Registration Statement becomes effective.
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If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans,
please check the following box: |_|
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, other than the securities
offered only in connection with dividend or interest reinvestment
plans, check the following box. |x|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
|_|
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
=================================================================
PROPOSED
TITLE OF MAXIMUM PROPOSED AMOUNT
EACH CLASS OFFERING MAXIMUM OF
OF SECURITIES AMOUNT PRICE AGGREGATE REGIS-
TO BE TO BE REG- PER OFFERING TRATION
REGISTERED ISTERED(1) UNIT(4) PRICE(4) FEE(1)
- -----------------------------------------------------------------
Convertible
Preferred
Securities
of
Federal-
Mogul
Financing
Trust 11,500,000 $50(1) $575,000,000(1) $169,625
- -----------------------------------------------------------------
7% Convert-
ible Junior
Subordinated
Debentures
of Federal-
Mogul
Corporation (2) -- -- --
- -----------------------------------------------------------------
Common
Stock of
Federal-
Mogul
Corporation (3) -- -- --
- -----------------------------------------------------------------
Convertible
Preferred
Securities
Guarantee
of Federal-
Mogul
Corporation
and certain
back-up
under-
takings(5)
- -----------------------------------------------------------------
Total 11,500,000 100% $575,000,000(1) $169,625
=================================================================
(1) Estimated solely for the purpose of computing the
registration fee in accordance with Rule 457(c) of the
Securities Act.
(2) $575,000,000 in aggregate principal amount of 7% Convertible
Junior Subordinated Debentures (the "Convertible
Subordinated Debentures") of Federal-Mogul Corporation (the
"Company") were issued and sold to Federal-Mogul Financing
Trust (the "Trust") in connection with the issuance by the
Trust of 11,500,000 of its 7% Convertible Preferred
Securities (the "Convertible Preferred Securities"). The
Convertible Subordinated Debentures may be distributed,
under certain circumstances, to the holders of Convertible
Preferred Securities for no additional consideration.
(3) Such indeterminate number of shares of Federal-Mogul
Corporation Common Stock as may be issuable upon conversion
of the Convertible Preferred Securities registered
hereunder, including such shares as may be issuable pursuant
to anti-dilution adjustments.
(4) Exclusive of accrued interest and distributions, if any.
(5) No separate consideration will be received for the
Convertible Preferred Securities Guarantee or for certain
back-up undertakings of Federal-Mogul Corporation to pay
certain costs, expenses, debts and obligations of
Federal-Mogul Financing Trust, as described in the
Registration Statement.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
=================================================================
<PAGE>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
X Information contained herein is subject to completion X
X or amendment. A registration statement relating to these X
X securities has been filed with the Securities and Exchange X
X Commission. These securities may not be sold nor may offers to X
X buy be accepted prior to the time the registration statement X
X becomes effective. This prospectus shall not constitute an offer X
X to sell or the solicitation of an offer to buy nor shall there be X
X any sale of these securities in any State in which such offer, X
X solicitation or sale would be unlawful prior to registration or X
X qualification under the securities laws of any such State. X
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
PROSPECTUS
11,500,000 Trust Convertible Preferred Securities
Federal-Mogul Financing Trust
7% Trust Convertible Preferred Securities
(Liquidation Amount $50 per Convertible Preferred Security)
Guaranteed to the Extent Set Forth Herein by,
and convertible into Common Stock of,
Federal-Mogul Corporation
This Prospectus relates to the offering for resale of the
7% Trust Convertible Preferred Securities (the "Convertible
Preferred Securities"), liquidation amount $50 per Convertible
Preferred Security, which represent undivided beneficial
interests in the assets of Federal-Mogul Financing Trust, a
statutory business trust created under the laws of the State of
Delaware (the "Issuer" or the "Trust") and the shares of Common
Stock, without par value ("Common Stock" or "Federal-Mogul Common
Stock") of Federal-Mogul Corporation, a Michigan corporation
("Federal-Mogul" or the "Company"), issuable upon conversion of
the Convertible Preferred Securities. The Convertible Preferred
Securities were issued and sold (the "Original Offering") on
December 1, 1997 and December 10, 1997 to the Initial Purchaser
(as defined herein, see "Selling Holders") and were
simultaneously sold by the Initial Purchaser in transactions
exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Securities Act"), in the United States
to persons reasonably believed by the Initial Purchaser to be
qualified institutional buyers as defined in Rule 144A under the
Securities Act and outside the United States to non-U.S. persons
in offshore transactions in reliance on Regulation S under the
Securities Act. Federal-Mogul directly or indirectly owns all the
common securities (the "Common Securities" and, together with the
Convertible Preferred Securities, the "Trust Securities")
representing undivided beneficial interests in the assets of the
Issuer. The Issuer exists for the sole purpose of issuing the
Trust Securities and investing the proceeds of the sale thereof
in 7% Convertible Junior Subordinated Debentures due 2027 (the
"Convertible Subordinated Debentures") of Federal-Mogul in an
aggregate principal amount equal to the aggregate liquidation
amount of Trust Securities. The Convertible Subordinated
Debentures are unsecured, subordinated obligations of
Federal-Mogul as described herein. Upon an event of default under
the Declaration (as defined herein), the holders of Convertible
Preferred Securities will have a preference over the holders of
the Common Securities with respect to payments in respect of
distributions and payments upon redemption, liquidation and
otherwise.
The Convertible Preferred Securities and the Common Stock
issuable upon conversion of the Convertible Preferred Securities
(the "Offered Securities") may be offered and sold from time to
time by the holders named herein or by their transferees,
pledgees, donees or their successors (collectively, the "Selling
Holders") pursuant to this Prospectus. The Offered Securities may
be sold by the Selling Holders from time to time directly to
purchasers or through agents, underwriters or dealers. See "Plan
of Distribution" and "Selling Holders." If required, the names of
any such agents or underwriters involved in the sale of the
Offered Securities and the applicable agent's commission,
dealer's purchase price or underwriter's discount, if any, will
be set forth in an accompanying supplement to this Prospectus
(the "Prospectus Supplement"). The Selling Holders will receive
all of the net proceeds from the sale of the Offered Securities
and will pay all underwriting discounts and selling commissions,
if any, applicable to any such sale. The Company is responsible
for payment of all other expenses incident to the offer and sale
of the Offered Securities. The Selling Holders and any
broker-dealers, agents or underwriters which participate in the
distribution of the Offered Securities may be deemed to be
"underwriters" within the meaning of the Securities Act, and any
commission received by them and any profit on the resale of the
Offered Securities purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
See "Plan of Distribution" for a description of indemnification
arrangements.
(continued on following page)
Prospective investors should carefully consider the matters
discussed under the caption "Risk Factors" commencing on page 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is July 9, 1998.
<PAGE>
(continued from cover page)
Holders of the Convertible Preferred Securities are
entitled to receive cumulative cash distributions at an annual
rate of 7% of the liquidation amount of $50 per Convertible
Preferred Security, accruing from the first date that any
Convertible Preferred Securities are issued and payable quarterly
in arrears on March 1, June 1, September 1 and December 1 of each
year, commencing March 1, 1998 ("distributions"). The payment of
distributions out of monies held by the Trust, payments on
liquidation of the Trust and payments on or the redemption of
Convertible Preferred Securities, as set forth below, are
guaranteed by Federal-Mogul (the "Guarantee") on a subordinated
basis and to the extent described under "Description of the
Guarantee." The Guarantee covers payments of distributions and
other payments on the Convertible Preferred Securities only if
and to the extent that the Trust has funds available therefor,
which will not be the case unless Federal-Mogul has made
corresponding payments of interest or principal or other payments
on the Convertible Subordinated Debentures held by the Trust. The
Guarantee, when taken together with Federal-Mogul's obligations
under the Declaration (as defined herein), including its
liabilities to pay costs, expenses, debts and obligations of the
Trust (other than with respect to the Trust Securities), provides
a full and unconditional guarantee, on a subordinated basis, of
amounts due on the Convertible Preferred Securities in accordance
with their terms. See "Risk Factors--Risks Relating to the
Convertible Preferred Securities--Limitations of the Guarantee."
The obligations of Federal-Mogul under the Convertible
Subordinated Debentures are subordinate and junior in right of
payment to all present and future Senior Indebtedness (as defined
herein) of Federal-Mogul. The obligations of Federal-Mogul under
the Guarantee are subordinate and junior in rights of payment to
all other liabilities of Federal-Mogul and pari passu with the
most senior preferred stock of Federal-Mogul outstanding from
time to time, if any.
The Convertible Subordinated Debentures purchased by the
Trust may be subsequently distributed pro rata to holders of the
Trust Securities in connection with the dissolution of the Trust,
upon the occurrence of certain events.
Each Convertible Preferred Security is convertible in the
manner described herein at the option of the holder, at any time
through the Conversion Expiration Date (as defined herein), into
shares of Common Stock, at the rate of .9709 shares of
Federal-Mogul Common Stock for each Convertible Preferred
Security (equivalent to a conversion price (the "Conversion
Price") of $51.50 per share of Federal-Mogul Common Stock),
subject to adjustment in certain circumstances. On July 8, 1998,
the last reported sale price of Federal-Mogul Common Stock, which
is reported under the symbol "FMO" on the New York Stock Exchange
Composite Tape, was 70 7/16 per share.
The distribution rate and the distribution payment dates
and other payment dates for the Convertible Preferred Securities
will correspond to the interest rate and interest payment dates
and other payment dates of the Convertible Subordinated
Debentures, which will be the sole assets of the Trust. As a
result, if principal and interest are not paid on the Convertible
Subordinated Debentures, no amounts will be paid on the
Convertible Preferred Securities.
So long as Federal-Mogul shall not be in default in the
payment of interest on the Convertible Subordinated Debentures,
Federal-Mogul has the right to defer payments of interest on the
Convertible Subordinated Debentures by extending the interest
payment period on the Convertible Subordinated Debentures at any
time, and from time to time, for up to 20 consecutive quarters
(each, an "Extension Period"). If interest payments are so
deferred, distributions will continue to accumulate with interest
thereon (to the extent permitted by applicable law) at the
distribution rate, compounded quarterly. During any Extension
Period, holders of Convertible Preferred Securities will be
required to include deferred interest income in their gross
income for United States federal income tax purposes in advance
of receipt of the cash distributions with respect to such
deferred interest payments. There could be multiple Extension
Periods of varying lengths throughout the term of the Convertible
Subordinated Debentures. See "Risk Factors--Risks Relating to the
Convertible Preferred Securities--Delay of Interest Payments"
"Descriptions of the Convertible Subordinated Debentures--Option
to Extend Interest Payment Period," "Description of the
Convertible Preferred Securities--Distributions," and "United
States Federal Income Taxation--Interest Income and Original
Issue Discount."
The Convertible Subordinated Debentures are redeemable by
Federal-Mogul, in whole or in part, from time to time, on or
after December 6, 2000, at the prices set forth herein (the
"Redemption Price"), plus accrued and unpaid interest thereon to
the date fixed for redemption (the "Redemption Date"). In
addition, in certain circumstances upon the occurrence of a
Special Event (as defined herein) the Convertible Subordinated
Debentures may be redeemed by Federal-Mogul at 100% of the
principal amount thereof plus accrued and unpaid interest
thereon. If Federal-Mogul redeems the Convertible Subordinated
Debentures, the Trust must redeem Convertible Preferred
Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Convertible Subordinated
Debentures so redeemed. See "Description of the Convertible
Preferred Securities--Redemption." The outstanding Convertible
Preferred Securities will be redeemed when the Convertible
Subordinated Debentures mature on December 1, 2027.
Upon the occurrence of a Special Event arising from a
change in law or a change in legal interpretation, unless the
Convertible Subordinated Debentures are redeemed in the limited
circumstances described herein, the Trust may be dissolved, with
the result that the Convertible Subordinated Debentures would be
distributed, after satisfaction of liabilities to creditors of
the Trust as provided by applicable law, to the holders of the
Convertible Preferred Securities, on a pro rata basis, in lieu of
any cash distribution. If Federal-Mogul declines to consent to
such dissolution and distribution, Federal-Mogul may incur an
obligation to pay additional interest. See "Description of the
Convertible Preferred Securities--Special Event Distributions;
Tax Event Redemption" and "Description of the Convertible
Subordinated Debentures--Additional Interest."
In the event of the involuntary liquidation, dissolution or
winding up of the Trust, the holders of the Convertible Preferred
Securities will be entitled to receive, after satisfaction of
liabilities to creditors of the Trust as provided by applicable
law, for each Convertible Preferred
2
<PAGE>
Security a liquidation amount of $50 plus accrued and unpaid
distributions thereon (including interest thereon) to the date of
payment, unless, in connection with such dissolution, the
Convertible Subordinated Debentures are distributed to the
holders of the Convertible Preferred Securities. See "Description
of the Convertible Preferred Securities--Liquidation Distribution
Upon Dissolution."
The Convertible Preferred Securities are evidenced by one
or more global securities in fully registered form, without
coupons (collectively, the "Global Security"). The Global
Security has been deposited with a custodian for, and with title
to such security registered in the name of a nominee of, The
Depository Trust Company ("DTC") in New York, New York.
Beneficial interests in the Global Security will be shown on and
transfers thereof will be effected only through, records
maintained by DTC and its participants. See "Description of the
Convertible Preferred Securities--Form, Denomination and
Registration."
3
<PAGE>
AVAILABLE INFORMATION
Federal-Mogul is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports, proxy
statements and other information with the Securities and Exchange
Commission (the "Commission"). The Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act of which this
Prospectus forms a part, as well as such reports, proxy
statements and other information filed by Federal-Mogul with the
Commission, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices in Chicago, Citicorp Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60661-2511, and
in New York, 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can be obtained by mail from the
Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates and such material is contained on the
worldwide web site maintained by the Commission at
http://www.sec.gov. Reports, proxy statements and other
information concerning Federal-Mogul can be inspected at the
offices of the New York Stock Exchange, Inc. (the "NYSE"), 20
Broad Street, New York, New York 10005.
No separate financial statements of the Trust have been
included herein. Federal-Mogul does not consider that such
financial statements would be material to holders of Convertible
Preferred Securities because (i) all of the voting securities of
the Trust are owned, directly or indirectly, by Federal-Mogul, a
reporting company under the Exchange Act, (ii) the Trust has no
independent operations and exists for the sole purpose of issuing
securities representing undivided beneficial interests in the
assets of the Trust and investing the proceeds thereof in the
Convertible Subordinated Debentures issued by Federal-Mogul and
(iii) Federal-Mogul's obligations described herein under the
Declaration, the Guarantee, the Convertible Subordinated
Debentures and the Indenture (as defined herein), taken together
provide a full and unconditional guarantee, on a subordinated
basis, of amounts due on the Convertible Preferred Securities in
accordance with their terms. See "Description of the Guarantee"
and "Description of the Convertible Subordinated Debentures."
Federal-Mogul and the Trust have filed the Registration
Statement with the Commission in Washington D.C. with respect to
the Securities offered hereby. This Prospectus constitutes a part
of the Registration Statement and does not contain all the
information set forth therein, certain portions of which have
been omitted as permitted by the rules and regulations of the
Commission. Any statements contained herein concerning the
provisions of any contract or other document are not necessarily
complete and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such
reference. For further information regarding Federal-Mogul, the
Trust and the securities offered hereby, reference is made to the
Registration Statement and to the exhibits thereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Federal-Mogul has filed with the Commission, pursuant to
Section 13 of the Exchange Act:
1. Federal-Mogul's Annual Report on Form 10-K for the year
ended December 31, 1997;
2. Federal-Mogul's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998;
3. Federal-Mogul's Current Reports on Form 8-K filed on
January 13, 1998, March 11, 1998, March 23, 1998, April 7, 1998,
April 17, 1998, May 14, 1998 and June 11, 1998;
4. Federal-Mogul's Proxy Statement for the 1998 annual
meeting of stockholders, filed on April 21, 1998; and
4
<PAGE>
5. Federal-Mogul's Registration Statement on Form S-3
(Registration No. 333-56725), effective as of June 25, 1998.
All documents filed by Federal-Mogul with the Commission
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange
Act after the date of this Prospectus and prior to the
termination of the offering made hereby shall be deemed to be
incorporated by reference into this Prospectus and made a part
hereof from the date of filing of such documents, except that the
information required by Item 402 (i), (k) and (l) of Regulation
S-K under the Securities Act and included in any such document is
not incorporated herein. Any statement contained in this
Prospectus or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that
a statement contained herein or therein or in a subsequently
filed document, that also is or is deemed to be incorporated by
reference herein or therein, modifies or supersedes such
statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(NOT INCLUDING EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS
ARE SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS) ARE
AVAILABLE WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST DIRECTED
TO: EDWARD W. GRAY, JR., ESQ., SENIOR VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY, FEDERAL-MOGUL CORPORATION, 26555
NORTHWESTERN HIGHWAY, SOUTHFIELD, MICHIGAN 48034 (TELEPHONE:
(248) 354-7700).
FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated in this
Prospectus which are not statements of historical fact constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Act"). Such
statements are made in good faith by Federal-Mogul pursuant to
the "safe harbor" provisions of the Act.
Forward-looking statements include financial projections
and estimates and statements regarding plans, objectives and
expectations of Federal-Mogul and its management, including,
without limitation, plans to integrate the businesses of T&N plc
("T&N") and Fel-Pro Incorporated and certain affiliated entities
("Fel-Pro") into Federal-Mogul, plans to address computer
software issues related to the approach of the year 2000,
estimated proceeds of planned dispositions and the effects of
such dispositions on Federal-Mogul's balance sheet and statement
of operations, and the scope and effect of T&N's asbestos
liability. Such matters are discussed under the captions "Risk
Factors," and in the information incorporated by reference
herein.
Forward-looking statements may involve known and unknown
risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Federal-Mogul to differ
materially from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such
risks, uncertainties and other factors include, without
limitation, those relating to the combination of Federal-Mogul's
business with those of T&N and Fel-Pro and the anticipated
synergies and operating efficiencies and restructuring charges in
connection therewith, conditions in the automotive components
industry, certain global and regional economic conditions and
other factors detailed herein and from time to time in the
documents incorporated by reference herein. Moreover,
Federal-Mogul's plans, objectives and intentions are subject to
change based on these and other factors (some of which are beyond
Federal-Mogul's control). Some of the factors that may cause such
material differences are set forth herein under the caption "Risk
Factors."
5
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE OFFERED SECURITIES SHOULD
CAREFULLY REVIEW THE INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN AND SHOULD
PARTICULARLY CONSIDER THE FOLLOWING MATTERS.
Risks Relating to Federal-Mogul
Effect of Substantial Leverage
As a result of its acquisitions of T&N and Fel-Pro,
Federal-Mogul is substantially leveraged. As of March 31, 1998,
Federal-Mogul had total debt of $3,111.5 million (total long-term
debt of $2,273.7 million and total short-term debt of $837.8
million), $575 million in Convertible Preferred Securities and
shareholders' equity of $586.0 million, producing a total
capitalization of $4,272.5 million, so that total debt as a
percentage of total capitalization was 72.8% and total long-term
debt as a percentage of total capitalization was approximately
53.2%. In June 1998 Federal-Mogul repaid $500 million of short-term
debt and $92.3 million of long-term debt with the proceeds of an
offering of Federal-Mogul's Common Stock. Also, in June 1998,
Federal-Mogul refinanced $981.4 million of long-term bank debt with
an offering of $250 million 7 1/2% Notes due July 1, 2004, $400
million 7 3/4% Notes due July 1, 2006 and $350 million 7 7/8% Notes
due July 1, 2010. Federal-Mogul may also incur substantial additional
indebtedness in the future, including, without limitation, in
connection with any future acquisitions, although its ability to
do so is restricted by the $2.75 billion floating rate senior
credit agreement (the "Senior Credit Agreement") (consisting of a
$2.35 billion term loan facility, which was reduced to $2.275
billion effective as of March 11, 1998 and a $400 million
revolving loan facility).
Federal-Mogul's leverage may have important consequences to
holders of the Convertible Preferred Securities and the holders
of the Common Stock, including: (i) limiting Federal-Mogul's
ability to obtain additional financing to fund future working
capital requirements, capital expenditures, debt service
requirements, acquisitions or other general corporate
requirements; (ii) requiring a substantial portion of
Federal-Mogul's cash flow from operations to be dedicated to
payment of principal and interest on its indebtedness, thereby
reducing the funds available for operations and future business
opportunities; (iii) requiring all of the indebtedness incurred
under the Senior Credit Agreement or other indebtedness incurred
by Federal-Mogul to be repaid prior to the time any principal
payments are required on the Convertible Subordinated Debentures;
(iv) placing Federal-Mogul at a competitive disadvantage to
companies with which it competes that may be less leveraged; and
(v) increasing Federal-Mogul's vulnerability to adverse economic
and industry conditions. In addition, since certain of
Federal-Mogul's borrowings are at variable rates of interest,
Federal-Mogul will be vulnerable to increases in interest rates,
which could have a material adverse effect on Federal-Mogul's
results of operations, liquidity and financial condition.
Federal-Mogul's ability to make scheduled payments of the
principal of, to pay interest on or to refinance its indebtedness
depends on its future performance, which to a certain extent is
subject to economic, financial, competitive and other factors
beyond its control. There can be no assurance that
Federal-Mogul's business will continue to generate cash flow from
operations in the future sufficient to service its debt and make
necessary capital expenditures. If unable to generate such cash
flow, Federal-Mogul may be required to adopt one or more
alternatives, such as reducing or delaying planned expansion,
selling assets, restructuring debt or obtaining additional equity
capital. There can be no assurance that any of these strategies
could be effected on satisfactory terms or without substantial
additional expense for Federal-Mogul. These and other factors
could have a material adverse effect on the results of
operations, liquidity and financial condition of Federal-Mogul,
on Federal-Mogul's ability to make payments on the Convertible
Subordinated Debentures and the Trust's ability to make payments
on the Convertible Preferred Securities and on the marketability,
price and future value of the Convertible Preferred Securities
and Common Stock.
The Senior Credit Agreement imposes financial and other
restrictions on Federal-Mogul, including limitations on the
incurrence of debt and on Federal-Mogul's ability to dispose of
assets. The Senior Credit Agreement also requires Federal-Mogul
to make periodic payments in respect of interest and outstanding
principal, including from material disposals, "excess cash flow"
and the proceeds of certain issuances of capital stock or
indebtedness, and to maintain compliance with certain financial
ratios and minimum net worth tests. There can be
6
<PAGE>
no assurance that these requirements will be met in the future.
Failure to achieve compliance would result in a default under the
Senior Credit Agreement and could lead to acceleration of the
related debt and the acceleration of debt under other instruments
evidencing indebtedness that contain cross-acceleration or
cross-default provisions. In such a case, there can be no
assurance that Federal-Mogul would be able to refinance or
otherwise repay such indebtedness.
Integration of the Businesses of T&N and Fel-Pro
The acquisitions of T&N and Fel-Pro substantially increased
the size and complexity of Federal-Mogul's operations and have
created the need for Federal-Mogul to integrate three businesses
that have previously operated independently. There can be no
assurance that Federal-Mogul will not encounter difficulties in
integrating T&N's and Fel-Pro's operations with its own or that
the expected benefits will be realized from such integration. Any
material delays or unexpected costs incurred in connection with
such integration could have a material adverse effect on
Federal-Mogul and its results of operations, liquidity and
financial condition. Furthermore, there can be no assurance that
the operations, management and personnel of Federal-Mogul, T&N
and Fel-Pro will be compatible. Among the factors considered by
Federal-Mogul in connection with the acquisitions of T&N and
Fel-Pro were the opportunities for synergies expected to be
achieved. However, there can be no assurance that Federal-Mogul
will achieve the desired levels of synergies when anticipated or
at all. Failure to achieve the desired levels of synergies could
have a material adverse effect on the business, results of
operations, liquidity and financial condition of Federal-Mogul.
In addition, Federal-Mogul has announced that it intends,
in connection with its targeted synergies, to incur restructuring
charges and related costs of $205 million, which is moderately
less than the annual level of synergy benefits anticipated in the
year 2000. No assurance can be given that such costs will not be
substantially greater than this amount or that achieving such
synergies will be possible without additional cost or charges to
earnings in future periods. Any such charges could have a
material adverse effect on the business, results of operations,
liquidity and financial condition of Federal-Mogul.
In connection with securing regulatory approvals for the
acquisition of T&N, Federal-Mogul agreed with the U.S. Federal
Trade Commission (the "FTC") to divest T&N's thinwall and dry
bearings (polymer bearings) operations (the "T&N Bearings
Business"). The purchaser of the T&N Bearings Business will
become a direct competitor of Federal-Mogul.
T&N's Asbestos Liability
T&N and certain of its subsidiaries are among many
defendants named in a large number of court actions brought in
the United States, and a smaller number of claims brought in the
United Kingdom, relating to alleged asbestos-related diseases
resulting from exposure to asbestos or products containing
asbestos. T&N is also one of many defendants named in a small
number of U.S. property damage claims. T&N has incurred
significant charges to income in connection with settling claims
and the establishment of reserves for asbestos liabilities and
has obtained insurance coverage for certain asbestos liabilities.
No assurance can be given that T&N will not be subject to
material additional liabilities and significant additional
litigation relating to asbestos that would result in significant
additional charges not covered by reserves or insurance. Any such
liabilities or litigation could have a material adverse effect on
Federal-Mogul's results of operations, business, liquidity and
financial condition.
Acquisition Strategy
One of Federal-Mogul's principal business strategies is to
expand its core competencies in manufacturing and distribution
through acquisitions of companies that Federal-Mogul identifies
as complementary to its existing businesses and capable of
achieving satisfactory rates of return. Federal-Mogul is usually
engaged in various stages of evaluation of potential acquisition
candidates. Currently Federal-Mogul is in the preliminary stages
of pursuing one or more potential acquisitions, at least one of
which would be material if consummated. Any such acquisition
would be paid for through the incurrence of a significant amount
of additional debt, the issuance of a significant amount of
capital stock or both. If Federal-Mogul determines that any one
or more of these potential acquisitions or other transactions
would meet its criteria and may be accomplished on appropriate
terms, it expects to act to attempt to consummate them as quickly
as possible. There can be no assurance that any of the
discussions in which Federal-
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Mogul is currently engaged will result in the completion of any
acquisitions, that Federal-Mogul will in the future succeed in
locating or acquiring appropriate companies on attractive terms
or that Federal-Mogul will be successful in integrating acquired
companies or realizing desired benefits of such acquisitions.
Federal-Mogul believes that successful implementation of
this strategy will require significant capital expenditures which
it might not be able to fund from its cash from operations.
Therefore, Federal-Mogul may be required to borrow money or
otherwise obtain financing for future acquisitions. Increased
leverage of Federal-Mogul may have important consequences to
holders of the Convertible Preferred Securities or holders of
Common Stock. See "--Effect of Substantial Leverage." If
Federal-Mogul is unable to procure suitable financing, it may be
unable to complete desired acquisitions.
Cyclical Nature of Automotive Industry
Federal-Mogul's principal operations are directly related
to domestic and foreign automotive vehicle production. Automobile
sales and production are cyclical and can be affected by the
strength of a country's general economy. In addition, automobile
production and sales can be affected by labor relations issues,
regulatory requirements, trade agreements and other factors. A
decline in automotive sales and production would likely affect
not only sales to original equipment customers but also sales to
aftermarket customers and could result in a decline in
Federal-Mogul's results of operations or a deterioration in
Federal-Mogul's financial condition. If demand changes and
Federal-Mogul fails to respond accordingly, its results of
operations could be adversely affected in any given quarter. In
addition, technical improvements in automotive component designs
may adversely affect aftermarket demand.
International Operations
Federal-Mogul has manufacturing and distribution facilities
located in many countries, principally in North America, Europe
and Latin America. The acquisition of T&N significantly increased
the portion of Federal-Mogul's business located outside the
United States. International operations are subject to certain
risks inherent in doing business abroad, including exposure to
local economic conditions, 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 Federal-Mogul vary from
country to country and are unpredictable.
Foreign Currency Translation and Transaction Risk
The financial condition and results of operations of
certain Federal-Mogul operating entities are reported in various
foreign currencies (principally pounds sterling, German marks,
and to a lesser extent South African rand and French francs,
among others) and then translated into U.S. dollars at the
applicable exchange rate for inclusion in Federal-Mogul's
financial statements. As a result, the appreciation of the dollar
against these foreign currencies will have a negative impact on
the reported sales and operating margin of T&N and other
subsidiaries, as consolidated into Federal-Mogul (and conversely,
the depreciation of the dollar against these foreign currencies
will have a positive impact).
In addition, Federal-Mogul incurs currency transaction risk
whenever it or one of its foreign subsidiaries enters into either
a purchase or sales transaction using a different currency than
the relevant entity's functional currency. Currency transaction
risk is reduced by matching revenues and costs with the same
currency. Given the volatility of currency exchange rates, there
can be no assurance that Federal-Mogul will be able to
effectively manage its currency transaction risks or that any
volatility in currency exchange rates will not have a material
adverse effect on Federal-Mogul's financial condition or results
of operations.
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Competition
The global vehicular parts business is highly competitive.
Federal-Mogul competes with many of its customers that produce
their own components as well as with independent manufacturers
and distributors of components in the United States and abroad.
Certain of the Company's competitors have significantly greater
financial and other resources than the Company. The inability of
the Company to successfully respond to changing competitive
conditions could adversely affect demand for the Company's
products.
Risks Relating to the Convertible Preferred Securities
Subordinate Ranking of Obligations Under the Guarantee and
Convertible Subordinated Debentures
Federal-Mogul's obligations under the Guarantee are
subordinate and junior in right of payment to all liabilities of
Federal-Mogul and pari passu in right of payment with the most
senior preferred stock issued, from time to time, if any, by
Federal-Mogul. The obligations of Federal-Mogul under the
Convertible Subordinated Debentures are subordinate and junior in
right of payment to all present and future Senior Indebtedness
(as defined herein) of Federal-Mogul, including indebtedness
under the Senior Credit Agreement. No payment of principal
(including redemption payments, if any), premium, if any, or
interest on the Convertible Subordinated Debentures may be made
if (i) any Senior Indebtedness of Federal-Mogul is not paid when
due and any applicable grace period with respect to such default
has ended with such default not having been cured or waived or
ceasing to exist or (ii) the maturity of any Senior Indebtedness
has been accelerated because of a default. Federal-Mogul also may
not make any payment upon or in respect of the Convertible
Subordinated Debentures if a default in the payment of the
principal, premium, if any, interest or other obligations in
respect of Senior Indebtedness occurs and is continuing beyond
any applicable period of grace. There are no terms in the
Convertible Preferred Securities, the Convertible Subordinated
Debentures or the Guarantee that limit Federal-Mogul's ability to
incur additional indebtedness, including indebtedness that ranks
senior to the Convertible Subordinated Debentures and the
Guarantee, or to grant security interests to secure outstanding
or new indebtedness. See "Description of the Guarantee--Status of
the Guarantee" and "Description of the Convertible Subordinated
Debentures--Subordination."
Limitations of the Guarantee
The Guarantee Trustee (as defined herein) will hold the
Guarantee for the benefit of the holders of the Convertible
Preferred Securities. Under the Guarantee, Federal-Mogul
guarantees payments to the holders of the Convertible Preferred
Securities to the extent of the lesser of (a) the aggregate of
the liquidation amount and all accrued and unpaid distributions
on the Convertible Preferred Securities to the date of the
payment to the extent the Trust has funds available therefor or
(b) the amount of assets of the Trust remaining available for
distribution, after satisfaction of liabilities to creditors of
the Trust as provided by applicable law, to holders of the
Convertible Preferred Securities in liquidation of the Trust.
Because the Guarantee is limited by the amount of the funds in
the Trust, if Federal-Mogul were to default on its obligation to
pay amounts payable on the Convertible Subordinated Debentures,
the Trust would lack available funds for the payment of
distributions or amounts payable on redemption of the Convertible
Preferred Securities or otherwise, and, in such event, holders of
the Convertible Preferred Securities would not be able to rely
upon the Guarantee for payment of such amounts. Instead, holders
of the Convertible Preferred Securities would rely on the
enforcement (1) by the Institutional Trustee of its rights as
registered holder of the Convertible Subordinated Debentures
against Federal-Mogul pursuant to the terms of the Convertible
Subordinated Debentures or (2) by such holder of its right of
Direct Action (as defined herein) against Federal-Mogul as
described below to enforce payments on the Convertible
Subordinated Debentures. See "Description of the
Guarantee--Events of Default." The Declaration provides that each
holder of Convertible Preferred Securities, by acceptance thereof
agrees to the provisions of the Guarantee, including the
subordination provisions thereof, and the Indenture.
Limitation of Enforcement of Certain Rights by Holders of
Convertible Preferred Securities
If (i) the Trust fails to pay distributions in full on the
Convertible Preferred Securities (other than pursuant to a
deferral) or (ii) a Declaration Event of Default (as defined
herein) occurred and was continuing, then the holders of
Convertible Preferred Securities would rely on the enforcement by
the Institutional Trustee of its rights as a holder of the
Convertible Subordinated Debentures against Federal-Mogul. In
addition, the holders of a majority
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<PAGE>
in liquidation amount of the Convertible Preferred Securities
will have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to the
Institutional Trustee or to direct the exercise of any trust or
power conferred upon the Institutional Trustee under the
Declaration, including the right to direct the Institutional
Trustee to exercise the remedies available to it as a holder of
the Convertible Subordinated Debentures. If the Institutional
Trustee fails to enforce its rights under the Convertible
Subordinated Debentures, a holder of Convertible Preferred
Securities may institute a legal proceeding directly against
Federal-Mogul to enforce the Institutional Trustee's rights under
the Convertible Subordinated Debentures without first instituting
any legal proceeding against the Institutional Trustee or any
other person or entity. Notwithstanding the foregoing, if a
Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of Federal-Mogul to pay
interest or principal on the Convertible Subordinated Debentures
on the date such interest or principal is otherwise payable (or
in the case of redemption, on the redemption date), then a holder
of Convertible Preferred Securities may directly institute a
proceeding for enforcement of payment to such holder of the
principal of or interest on the Convertible Subordinated
Debentures having a principal amount equal to the aggregate
liquidation amount of the Convertible Preferred Securities of
such holder (a "Direct Action") on or after the respective due
date specified in the Convertible Subordinated Debentures. In
connection with such Direct Action, Federal-Mogul will be
subrogated to the rights of such holders of Convertible Preferred
Securities under the Declaration to the extent of any payment
made by Federal-Mogul to such holder of Convertible Preferred
Securities in such Direct Action. The holders of Convertible
Preferred Securities will not be able to exercise directly any
other remedy available to the holders of Convertible Subordinated
Debentures. See "Description of the Convertible Preferred
Securities--Declaration Events of Default."
Delay of Interest Payments
So long as Federal-Mogul shall not be in default in the
payment of interest on the Convertible Subordinated Debentures,
Federal-Mogul has the right under the Indenture to defer payments
of interest on the Convertible Subordinated Debentures by
extending the interest payment period at any time, and from time
to time, on the Convertible Subordinated Debentures. As a
consequence of such an extension, quarterly distributions on the
Convertible Preferred Securities would be deferred by the Trust
during any such Extension Period. Prior to the termination of any
such Extension Period, Federal-Mogul may further extend such
Extension Period; provided, that any such Extension Period,
together with all such previous and further extensions thereof
may not exceed 20 consecutive quarters or extend beyond the
maturity of the Convertible Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all
amounts then due, Federal-Mogul may commence a new Extension
Period, subject to the above requirements. See "Description of
the Convertible Preferred Securities--Distributions" and
"Description of the Convertible Subordinated Debentures--Option
to Extend Interest Payment Period."
Should Federal-Mogul exercise its right to defer payments
of interest by extending the interest payment period, each holder
of Convertible Preferred Securities will continue to accrue
income (as original issue discount ("OID")) in respect of the
deferred and compounded interest allocable to its Convertible
Preferred Securities for United States federal income tax
purposes, which will be allocated but not distributed, to holders
of record of Convertible Preferred Securities. As a result, each
such holder of Convertible Preferred Securities will recognize
income for United States federal income tax purposes in advance
of the receipt of cash and will not receive the cash from
Federal-Mogul Financing Trust related to such income if such
holder disposes of its Convertible Preferred Securities prior to
the record date for the date on which distributions of such
amounts are made. Federal-Mogul has no current intention of
exercising its right to defer payments of interest by extending
the interest payment period of the Convertible Subordinated
Debentures. However, should Federal-Mogul determine to exercise
such right in the future. the market price of the Convertible
Preferred Securities is likely to be materially adversely
affected. A holder that disposes of its Convertible Preferred
Securities during an Extension Period, therefore, might not
receive the same return on its investment as a holder that
continues to hold its Convertible Preferred Securities. In
addition, as a result of the existence of Federal-Mogul's right
to defer interest payments, the market price of the Convertible
Preferred Securities (which represent an undivided beneficial
interests in the Convertible Subordinated Debentures) may be more
volatile than other OID securities that do not have such interest
deferral rights. See "United States Federal Income
Taxation--Interest Income and Original Issue Discount."
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Special Event Distribution; Tax Redemption
Upon the occurrence of a Special Event, the Trust could be
dissolved (with the consent of Federal-Mogul), except in the
limited circumstances described below, with the result that the
Convertible Subordinated Debentures would be distributed, after
satisfaction of liabilities to creditors of the Trust as provided
by applicable law, to the holders of the Trust Securities in
connection with the liquidation of the Trust. See "United States
Federal Income Taxation--Possible Tax Law Changes." In certain
circumstances, Federal-Mogul would have the right to redeem the
Convertible Subordinated Debentures, in whole or in part, in lieu
of a distribution of the Convertible Subordinated Debentures by
the Trust, in which event the Trust would redeem the Trust
Securities on a pro rata basis to the same extent as the
Convertible Subordinated Debentures are redeemed by
Federal-Mogul. See "Description of the Convertible Preferred
Securities--Special Event Distribution; Tax Event Redemption."
Under current United States federal income tax law, a
distribution of Convertible Subordinated Debentures upon the
dissolution of Federal-Mogul Financing Trust would not be a
taxable event to holders of the Convertible Preferred Securities.
Upon occurrence of a Special Event, however, a dissolution of
Federal-Mogul Financing Trust in which holders of the Convertible
Preferred Securities receive cash would be a taxable event to
such holders. See "United States Federal Income Taxation--Receipt
of Convertible Subordinated Debentures or Cash Upon Liquidation
of the Trust."
There can be no assurance as to the market prices for the
Convertible Preferred Securities or the Convertible Subordinated
Debentures that may be distributed in exchange for Convertible
Preferred Securities if a dissolution or liquidation of the Trust
were to occur. Accordingly, the Convertible Preferred Securities
that an investor may purchase, whether pursuant to the offer made
hereby or in the secondary market, or the Convertible
Subordinated Debentures that a holder of Convertible Preferred
Securities may receive on dissolution and liquidation of the
Trust, may trade at a discount to the price that the investor
paid to purchase the Convertible Preferred Securities offered
hereby. Because holders of Convertible Preferred Securities may
receive Convertible Subordinated Debentures upon the occurrence
of a Special Event, prospective purchasers of Convertible
Preferred Securities are also making an investment decision with
regard to the Convertible Subordinated Debentures and should
carefully review all the information regarding the Convertible
Subordinated Debentures contained herein. See "Description of the
Convertible Preferred Securities--Special Event Distribution; Tax
Event Redemption" and "Description of the Convertible
Subordinated Debentures--General."
Absence of Voting Rights
Except for limited rights regarding replacement of the
Institutional Trustee, holders of the Convertible Preferred
Securities will not have any voting rights with respect to
Federal-Mogul's governance, nor will they be entitled to vote to
appoint, remove or replace, or to increase or decrease the number
of, FMFT Trustees or Administrators (as defined herein), which
voting rights are vested exclusively in the holder of the Common
Securities. See "Description of the Convertible Preferred
Securities--Voting Rights."
Absence of Public Market for the Convertible Preferred
Securities on Resale
There is no existing trading market for the Convertible
Preferred Securities and there can be no assurance as to the
liquidity of any such market that may develop, the ability of the
holders of Convertible Preferred Securities to sell such
securities, the price at which the holders of Convertible
Preferred Securities would be able to sell such securities or
whether a trading market, if it develops, will continue. The
Trust does not intend to list the Convertible Preferred
Securities on any securities exchange. If such a market were to
exist, the Convertible Preferred Securities could trade at prices
higher or lower than their liquidation amount, depending on many
factors, including prevailing interest rates, the market for
similar securities and the operating results of the Company. In
the event that the Convertible Subordinated Debentures are
distributed by the Trust to the holders of the Convertible
Preferred Securities, the preceding considerations would be
equally applicable to the Convertible Subordinated Debentures.
The Trust has been advised by the Initial Purchaser that it
intends to make a market in them as permitted by applicable laws
and regulations. The Initial Purchaser is not obligated, however,
to make a market in the Convertible Preferred Securities and any
such market-making may be discontinued at any time at the sole
discretion of the Initial Purchaser.
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FEDERAL-MOGUL FINANCING TRUST
The Trust is a statutory business trust created under
Delaware law pursuant to (i) the Declaration of Trust, dated as
of November 21, 1997, and governed by the Amended and Restated
Declaration of Trust dated as of December 1, 1997 (the
"Declaration"), executed by Federal-Mogul, as sponsor (the
"Sponsor"), the trustees of the Trust (the "FMFT Trustees") and
the administrators of the Trust (the "Administrators") and (ii)
the filing of a certificate of trust with the Secretary of State
of the State of Delaware on November 21, 1997. Upon issuance of
the Convertible Preferred Securities, the purchasers thereof
owned all of the Convertible Preferred Securities. Federal-Mogul
directly or indirectly acquired all of the Common Securities,
which have an aggregate liquidation amount equal to 3% of the
total capital of Federal-Mogul Financing Trust. Federal-Mogul
Financing Trust exists for the exclusive purposes of (i) issuing
the Trust Securities representing undivided beneficial interests
in the assets of the Trust, (ii) investing the gross proceeds of
the Trust Securities in the Convertible Subordinated Debentures
and (iii) engaging in only those other activities necessary or
incidental thereto.
The Trust's business and affairs are conducted by the FMFT
Trustees and the Administrators, as set forth in the Declaration.
Pursuant to the Declaration, the number of FMFT Trustees is
initially two. One Trustee is a financial institution that
maintains its principal place of business in the state of
Delaware (the "Delaware Trustee"). The other Trustee (the
"Institutional Trustee") is a financial institution that is
unaffiliated with Federal-Mogul and serves as institutional
trustee under the Declaration and as indenture trustee for the
purposes of compliance with the provisions of the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The Bank of
New York, a New York banking corporation, is the Institutional
Trustee until removed or replaced by the holder of the Common
Securities. The Bank of New York acts as trustee (the "Guarantee
Trustee") under the Guarantee and as Debt Trustee (as defined
herein) under the Indenture. The Bank of New York (Delaware), an
affiliate of the Institutional Trustee, acts as Delaware Trustee.
See "Description of the Convertible Preferred Securities--Voting
Rights." The Administrators are three individuals who are
employees or officers of or affiliated with Federal-Mogul and
will act as administrators with respect to the Trust. The
Administrators are selected by the holders of a majority in
liquidation amount of the Common Securities. The Administrators
have only those ministerial duties set forth in the Declaration
with respect to accomplishing the purposes of the Trust and are
not intended to be trustees or fiduciaries with respect to the
Trust or the holders of Convertible Preferred Securities.
The Institutional Trustee holds title to the Convertible
Subordinated Debentures for the benefit of the holders of the
Trust Securities, and the Institutional Trustee has the power to
exercise all rights, powers and privileges under the Indenture as
the holder of the Convertible Subordinated Debentures. In
addition, the Institutional Trustee maintains exclusive control
of a segregated non-interest bearing bank account (the "Property
Account") to hold all payments made in respect of the Convertible
Subordinated Debentures for the benefit of the holders of the
Trust Securities. The Institutional Trustee will make payments of
distributions and payments on liquidation, redemption and
otherwise to the holders of the Trust Securities out of funds
from the Property Account. The Guarantee Trustee holds the
Guarantee for the benefit of the holders of the Convertible
Preferred Securities. Federal-Mogul, as the direct or indirect
holder of all the Common Securities, has the right to appoint,
remove or replace any Administrator and to increase or decrease
the number of Administrators. Holders of a majority in
liquidation preference of Convertible Preferred Securities have
the right to replace the Institutional Trustee, provided that the
successor Institutional Trustee shall be a corporation with trust
powers organized under the laws of the United States or any State
thereof with a combined capital and surplus of at least $500
million. Federal-Mogul will pay all fees and expenses related to
Federal-Mogul Financing Trust and the offering of the Trust
Securities. See "Description of the Convertible Subordinated
Debentures--Miscellaneous."
The rights of the holders of the Convertible Preferred
Securities, including economic rights, rights to information and
voting rights, are set forth in the Declaration, the Delaware
Business Trust Act (the "Trust Act") and the Trust Indenture Act.
The financial statements of the Trust will be consolidated
with Federal-Mogul's financial statements and, in the event that
the Trust obtains an exemption from the periodic reporting
requirements of the Exchange Act pursuant to the Commission's
Staff Accounting Bulletin 53, the Trust will not file separate
financial statements under the Exchange Act and the Company's
future filings under the Exchange Act will (i) present the
Trust's securities as a separate line item on the balance sheet
entitled "Company-Obligated Minority Interest-preferred
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<PAGE>
securities in Trust," (ii) include on the face of its balance
sheet a footnote stating that as described in the footnotes to the
financial statements, the sole asset of the Trust are the
Convertible Subordinated Debentures of Federal-Mogul with an
aggregate principal amount of $592,783,550, which bear interest
at the rate of 7% per annum and mature on December 1, 2027
and (iii) include in an audited footnote to the financial
statements disclosure that (A) the Trust is wholly-owned; (B) the
sole assets of the Trust are the Convertible Subordinated
Debentures with an aggregate principal amount of $592,783,550,
which bear interest at the rate of 7% per annum and mature on
December 1, 2027; and (C) the Guarantee, when taken together with
the Company's obligations under the Convertible Subordinated
Debentures and the Indenture and its obligations under the
Declaration, including its liabilities to pay costs, expenses,
debts and obligations of the Trust (other than with respect to
the Trust Securities), provides a full and unconditional
guarantee, on a subordinated basis, of amounts due on the
Convertible Preferred Securities in accordance with their terms.
The place of business and the telephone number of the Trust
are the principal executive offices and telephone number of
Federal-Mogul. See "The Company."
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THE COMPANY
Federal-Mogul is a leading global manufacturer and
distributor of a broad range of vehicular components for
automobiles and light trucks, heavy duty trucks, farm and
construction vehicles and industrial products. Such components
include powertrain systems components (primarily bearings, rings
and pistons), sealing system components (dynamic seals and
gaskets) and general products (primarily friction products,
sintered products, camshafts and systems protection products).
Federal-Mogul markets its products to many of the world's major
original equipment manufacturers. Federal-Mogul also manufactures
and supplies its products and related parts to the aftermarket
relating to each of these categories of equipment.
Founded in 1899, Federal-Mogul traditionally focused on the
manufacture and distribution of engine bearings and sealing
systems. From 1990 through 1996, Federal-Mogul pursued a strategy
of opening retail auto stores in various domestic and
international locations. These geographically-dispersed stores
proved burdensome to manage and resulted in substantial operating
losses. In the fourth quarter of 1996, Federal-Mogul initiated a
change of management, following which the Company initiated a
significant restructuring program designed to refocus the Company
on its core competency of manufacturing. As part of its
restructuring, Federal-Mogul closed or sold substantially all of
its retail operations. Federal-Mogul also began to pursue a
growth strategy of acquiring complementary manufacturing
companies that enhance the Company's product base, expand its
global manufacturing operations and provide opportunities to
capitalize on the Company's aftermarket distribution network and
technological resources.
In connection with its growth strategy, on March 6, 1998
Federal-Mogul acquired T&N, a U.K. based supplier of engine and
transmission products, for total consideration of approximately
(pound)1.46 billion ($2.42 billion, converted at a blended
exchange rate of 1.6510 U.S. dollars to 1 pound sterling). T&N
manufactures and supplies high technology engineered automotive
components and industrial materials including pistons, friction
products, bearings, systems protection, camshafts and sealing
products. On February 24, 1998, Federal-Mogul acquired Fel-Pro, a
privately-owned automotive parts manufacturer, for total
consideration of approximately $717 million. Fel-Pro is a premier
gasket manufacturer for the North American aftermarket and
original equipment heavy duty market.
Federal-Mogul operates facilities at over 240 manufacturing
locations in 24 countries. On a pro forma basis (giving effect to
the acquisitions of T&N and Fel-Pro and the disposition of the
T&N Bearings Business as if they had occurred on January 1,
1997), Federal-Mogul's total sales for 1997 were $4.8 billion.
Federal-Mogul is a Michigan corporation with its principal
executive offices located at 26555 Northwestern Highway,
Southfield, Michigan 48034. The telephone number of those offices
is (248) 354-7700.
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RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth Federal-Mogul's ratios of
earnings to fixed charges and earnings to combined fixed charges
and preferred stock dividends for each year in the five-year
period ended December 31, 1997 and the three-month period ended
March 31, 1998.
Year Ended December 31,
Three Months -------------------------------
Ended March 31, 1998 1997 1996 1995 1994 1993
-------------------- ---- ---- ---- ---- ----
Ratio of Earnings to 1.1x 3.3x N/A(2) N/A(3) 4.3x 2.7x
Fixed Charges(1):
Year Ended December 31,
Three Months -------------------------------
Ended March 31, 1998 1997 1996 1995 1994 1993
-------------------- ---- ---- ---- ---- ----
Ratio of Earnings to 1.1x 2.9x N/A(2) N/A(3) 3.1x 2.2x
Combined Fixed Charges
and Preferred Stock
Dividends(1):
- ---------------
(1) Federal-Mogul guarantees the debt of the Federal-Mogul
Employee Stock Ownership Plan ("ESOP"); the fixed charges of
the ESOP are not included in the above calculations.
(2) Not applicable as 1996 earnings were inadequate to cover
fixed charges by $173.0 million.
(3) Not applicable as 1995 earnings were inadequate to cover
fixed charges by $53.4 million.
The ratio of earnings to fixed charges has been computed by
dividing earnings by fixed charges. The ratio of earnings to
combined fixed charges and preferred stock dividends has been
computed by dividing earnings by the sum of fixed charges and
preferred stock dividend requirements. Earnings consist of income
before income taxes plus fixed charges excluding capitalized
interest. Fixed charges consist of interest on all indebtedness,
amortization of debt issuance costs and the portion of rental
expense representative of interest.
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from
the sale of the Offered Securities. Neither Federal-Mogul nor the
Trust will receive any proceeds from the sale of the Offered
Securities.
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DESCRIPTION OF THE CONVERTIBLE PREFERRED SECURITIES
The Convertible Preferred Securities were issued pursuant
to the terms of the Declaration. The Declaration incorporates by
reference terms of the Trust Indenture Act. The Declaration will
be qualified under the Trust Indenture Act. The Institutional
Trustee, The Bank of New York, acts as indenture trustee for the
Convertible Preferred Securities under the Declaration for
purposes of compliance with the provisions of the Trust Indenture
Act. The terms of the Convertible Preferred Securities include
those stated in the Declaration and those made part of the
Declaration by the Trust Indenture Act. The following summary of
the material terms and provisions of the Convertible Preferred
Securities is subject to, and qualified in its entirety by
reference to, the Declaration, filed as an Exhibit to the
Registration Statement, the Trust Act and the Trust Indenture
Act.
General
The Declaration authorizes the Trust to issue, the Trust
Securities, which represent undivided beneficial interests in the
assets of the Trust. All of the Common Securities are owned,
directly or indirectly, by Federal-Mogul. The Common Securities
rank pari passu, and payments will be made thereon on a pro rata
basis, with the Convertible Preferred Securities, except that
upon the occurrence and during the continuance of Declaration
Event of Default, the rights of the holders of the Common
Securities to receive payment of periodic distributions and
payments upon liquidation, redemption and otherwise are
subordinated to the rights of the holders of the Convertible
Preferred Securities. The Declaration does not permit the
issuance by the Trust of any securities other than the Trust
Securities or the incurrence of any indebtedness by the Trust.
Pursuant to the Declaration, the Institutional Trustee will hold
the Convertible Subordinated Debentures purchased by the Trust
for the benefit of the holders of the Trust Securities. The
payment of distributions out of money held by the Trust, and
payments upon redemption of the Convertible Preferred Securities
or liquidation of the Trust out of money held by the Trust, are
guaranteed by Federal-Mogul to the extent described under
"Description of the Guarantee." The Guarantee is held by The Bank
of New York, the Guarantee Trustee, for the benefit of the
holders of the Convertible Preferred Securities. The Guarantee
does not cover payment of distributions when the Trust does not
have sufficient available funds to pay such distributions. In
such event, the remedy of a holder of Convertible Preferred
Securities is to vote to direct the Institutional Trustee to
enforce the Institutional Trustee's rights under the Convertible
Subordinated Debentures or, in certain limited circumstances, to
take Direct Action. See "--Voting Rights" and "--Declaration
Events of Default."
Distributions
Distributions on the Convertible Preferred Securities are
fixed at a rate per annum of 7% of the stated liquidation amount
of $50 per Convertible Preferred Security. Distributions in
arrears for more than one quarter will accrue interest thereon at
the distribution rate, compounded quarterly. The term
"distribution" as used herein includes any such interest payable
unless otherwise stated. The amount of distributions payable for
any period will be computed on the basis of a 360-day year of
twelve 30-day months.
Distributions on the Convertible Preferred Securities will
be cumulative, will accrue from December 1, 1997, and will be
payable quarterly in arrears on March 1, June 1, September 1 and
December 1 of each year, commencing March 1, 1998, when, as and
if available for payment. Distributions will be made by the
Institutional Trustee, except as otherwise described below.
So long as Federal-Mogul shall not be in default in the
payment of interest on the Convertible Subordinated Debentures,
Federal-Mogul has the right under the Indenture to defer payments
of interest on the Convertible Subordinated Debentures by
extending the interest payment period from time to time on the
Convertible Subordinated Debentures, which, if exercised, would
defer quarterly distributions on the Convertible Preferred
Securities (though such distributions would continue to
accumulate with interest thereon at the distribution rate,
compounded quarterly, since interest would continue to accrue on
the Convertible Subordinated Debentures) during any such
Extension Period. Such right to extend the interest payment
period for the Convertible Subordinated Debentures is limited, in
the case of any extension, to a period not exceeding 20
consecutive quarters and such period may not extend beyond the
maturity of the Convertible Subordinated Debentures. In the event
that Federal-Mogul exercises this right, then (a) Federal-Mogul
shall not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation
payment with respect to, any of its capital stock
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<PAGE>
(other than (i) purchases or acquisitions of shares of
Federal-Mogul Common Stock in connection with satisfaction by
Federal-Mogul or any of its subsidiaries of their respective
obligations under any employee benefit plans, (ii) as a result of
a reclassification of Federal-Mogul's capital stock or the
exchange or conversion of one class or series of Federal-Mogul's
capital stock for another class or series of capital stock or
(iii) the purchase of fractional interests in shares of
Federal-Mogul's capital stock pursuant to the conversion or
exchange provisions of such Federal-Mogul capital stock or the
security being converted or exchanged for Federal-Mogul capital
stock) or make any guarantee payments with respect to the
foregoing and (b) Federal-Mogul shall not make any payment of
interest, principal or premium, if any, on, or repay, repurchase
or redeem, any debt securities (including guarantees) issued by
Federal-Mogul that rank pari passu with or junior to the
Convertible Subordinated Debentures. Prior to the termination of
any such Extension Period, Federal-Mogul may further extend the
interest payment period; provided, that any such Extension
Period, together with all such previous and further extensions,
may not exceed 20 consecutive quarters or extend beyond the
maturity of the Convertible Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all
amounts then due, Federal-Mogul may commence a new Extension
Period, subject to the above requirements. See "Description of
the Convertible Subordinated Debentures--Option to Extend
Interest Payment Period" and "--Certain Covenants." If
distributions are deferred, the deferred distributions and
accrued interest thereon shall be paid to holders of record of
the Convertible Preferred Securities as they appear on the books
and records of the Trust on the record date next following the
termination of such deferral period.
Distributions on the Convertible Preferred Securities must
be paid on the dates payable to the extent that the Trust has
funds available for the payment of such distributions. The
Trust's funds available for distribution to the holders of the
Convertible Preferred Securities will be limited to payments
received from Federal-Mogul on the Convertible Subordinated
Debentures. Distributions on the Convertible Preferred Securities
will not be made to the extent that payments are not made in
respect of the Convertible Subordinated Debentures. See
"Description of the Convertible Subordinated Debentures." The
payment of distributions out of monies held by the Trust is
guaranteed by Federal-Mogul to the extent set forth under
"Description of the Guarantee."
Distributions on the Convertible Preferred Securities will
be payable to the holders thereof as they appear on the books and
records of the Trust on relevant record dates, which will be one
Business Day prior to the relevant payment dates. Such
distributions will be paid through the Institutional Trustee who
will hold amounts received in respect of the Convertible
Subordinated Debentures for the benefit of the holders of the
Trust Securities. Subject to any applicable laws and regulations
and the provisions of the Declaration, each such payment will be
made as described under "--Form, Denomination and Registration."
In the event that the Preferred Securities do not continue to
remain in book-entry-only form, the record date for each
distribution shall be 15 days prior to the relevant payment date.
In the event that any date on which distributions are to be made
on the Convertible Preferred Securities is not a Business Day,
then payment of the distributions payable on such date will be
made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same
force and effect as if made on such record date. A "Business Day"
shall mean any day other than Saturday, Sunday or any other day
on which banking institutions in New York City are permitted or
required by any applicable law to close.
Conversion Rights
General
The Convertible Preferred Securities are convertible at any
time through the close of business on the Business Day prior to
the maturity date of the Convertible Subordinated Debentures (or,
in the case of Convertible Preferred Securities called for
redemption, prior to the close of business on the Business Day
prior to the Redemption Date) (the "Conversion Expiration Date"),
at the option of the holders thereof and in the manner described
below, into shares of Federal-Mogul Common Stock at an initial
conversion rate of .9709 shares of Federal-Mogul Common Stock for
each Convertible Preferred Security (equivalent to a Conversion
Price of $51.50 per share of Federal-Mogul Common Stock), subject
to adjustment as described under "--Conversion Price
Adjustments--General" below.
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<PAGE>
The terms of the Convertible Preferred Securities provide
that a holder of a Convertible Preferred Security wishing to
exercise its conversion right shall surrender such Convertible
Preferred Security, together with an irrevocable conversion
notice, to the Institutional Trustee, as conversion agent (the
"Conversion Agent"), which shall, on behalf of such holder,
exchange such Convertible Preferred Security for a portion of the
Convertible Subordinated Debentures and immediately convert an
equivalent amount of Convertible Subordinated Debentures into
Federal-Mogul Common Stock. Holders may obtain copies of the
required form of the conversion notice from the Conversion Agent.
Additional procedures for converting book-entry Convertible
Preferred Securities into shares of Federal-Mogul Common Stock
are described below under "--Form, Denomination and
Registration."
Accrued distributions will not be paid on the Convertible
Preferred Securities that are converted, provided, that if any
Convertible Preferred Security is converted on or after a record
date for payment of distributions thereon and prior to the
opening of business on the related distribution payment date, the
distributions payable on such payment date with respect to such
Convertible Preferred Security shall be distributed to the holder
of record at the close of business on such record date, despite
such conversion, and when surrendered for conversion, such
Convertible Preferred Security (other than a Convertible
Preferred Security or a portion of a Convertible Preferred
Security called for redemption on a redemption date occurring
after such record date and on or prior to such distribution
payment date) must be accompanied by payment of an amount equal
to the distribution payable on such distribution date; provided
further, that if a Redemption Date falls between such record date
and the related distribution payment date, the amount of such
payment shall include distributions accrued to, but excluding,
such Redemption Date. Except as provided in the immediately
preceding sentence, neither the Trust nor Federal-Mogul shall
make any payment, allowance or adjustment for accumulated and
unpaid distributions, whether or not in arrears, on converted
Convertible Preferred Securities. Federal-Mogul will make no
payment or allowance for distributions on the shares of
Federal-Mogul Common Stock issued upon such conversion, except to
the extent that such shares of Federal-Mogul Common Stock are
held of record on the record date for any such distributions.
Federal-Mogul will pay any and all taxes that may be
payable in respect of the issue or delivery of shares of
Federal-Mogul Common Stock on conversion of Convertible
Subordinated Debentures and the delivery of the shares of
Federal-Mogul Common Stock by the Trust upon conversion of the
Convertible Preferred Securities. Federal-Mogul shall not,
however, be required to pay any tax that may be payable in
respect of any transfer involved in the issue and delivery of
shares of Federal-Mogul Common Stock in a name other than that in
which the Convertible Preferred Securities so converted were
registered, and no such issue or delivery shall be made unless
and until the person requesting such issue has paid to the Trust
the amount of any such tax, or has established to the
satisfaction of the Trust that such tax has been paid.
No fractional shares of Federal-Mogul Common Stock will be
issued as a result of conversion, but in lieu thereof such
fractional interest will be paid by Federal-Mogul in cash based
on the current market price of Federal-Mogul Common Stock on the
date such Convertible Preferred Securities are surrendered for
conversion.
Conversion Price Adjustments--General
The Conversion Price per share of Federal-Mogul Common
Stock is subject to adjustment (under formulae set forth in the
Indenture) in certain events, including without duplication (i)
the issuance of shares of Federal-Mogul Common Stock as a
dividend or a distribution with respect to Federal-Mogul Common
Stock, (ii) certain subdivisions and combinations of Federal-
Mogul Common Stock, (iii) the issuance to all holders of Federal-
Mogul Common Stock of certain rights or warrants entitling them
(within a 45-day period) to subscribe for or purchase shares of
Federal-Mogul Common Stock at less than the Current Market Price
(as defined in the Indenture) (determined as of the record date
for stockholders entitled to receive such rights or warrants),
(iv) the distribution to all holders of Federal-Mogul Common
Stock of shares of capital stock (other than Federal-Mogul Common
Stock) or evidences of indebtedness of Federal-Mogul or of assets
(including securities, but excluding those rights, warrants,
dividends and distributions referred to above or paid in cash),
(v) distributions consisting solely of cash, excluding any such
distribution that constitutes a fundamental change (as defined
below) and any quarterly cash dividend on Federal-Mogul Common
Stock to the extent that the aggregate cash dividend per share of
Federal-Mogul Common Stock in any quarter does not exceed the
greater of (x) the amount per share of Federal-Mogul Common Stock
of the next preceding quarterly dividend on Federal-Mogul Common
Stock to the extent that such preceding quarterly dividend did
not require an adjustment of the conversion rate pursuant to this
clause (v) (as
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adjusted to reflect subdivisions or combinations of Federal-Mogul
Common Stock ) and (y) 3.75% of the average of the daily Closing
Prices of the Federal-Mogul Common Stock during the ten
consecutive Trading Days immediately prior to the date of
declaration of such dividend, and excluding any dividend or
distribution in connection with the liquidation, dissolution or
winding-up of Federal-Mogul, (vi) payment to holders of
Federal-Mogul Common Stock in respect of a tender or exchange
offer by Federal-Mogul or any subsidiary of Federal-Mogul for
Federal-Mogul Common Stock to the extent that the cash and value
of any other consideration included in such payment per share of
Federal-Mogul Common Stock exceeds the Current Market Price (as
defined in the Indenture) per share of Federal-Mogul Common Stock
on the Trading Day next succeeding the last date on which tenders
or exchanges may be made pursuant to such tender or exchange
offer; and (vii) payment in respect of a tender offer or exchange
offer by a person other than Federal-Mogul or any subsidiary of
Federal-Mogul in which, as of the closing date of the offer, the
Federal-Mogul board of directors is not recommending rejection of
the offer. If an adjustment is required to be made as set forth
in clause (v) above as a result of a distribution that is
quarterly dividend, such adjustment would be based upon the
amount by which such distribution exceeds the amount of the
quarterly cash dividend permitted to be excluded pursuant to such
clause (v). If an adjustment is required to be made based upon
the full amount of the distribution that is not a quarterly
divided, such adjustment would be based upon the full amount of
the distribution. The adjustment referred to in clause (vii)
above will only be made if (A) the tender offer or exchange offer
is for an amount that increases that person's ownership of
Federal-Mogul Common Stock to more than 25% of the total shares
of Federal-Mogul Common Stock outstanding and (B) the cash and
value of any other consideration included in such payment per
share of the Federal-Mogul Common Stock exceeds the Current
Market Price per share of Federal-Mogul Common Stock on the
Business Day next succeeding the last date on which tenders or
exchanges may be made pursuant to such tender or exchange offer.
The adjustment referred to in clause (vii) above will not be
made, however, if, as of the closing of the offer, the offering
documents with respect to such offer disclose a plan or an
intention to cause Federal-Mogul to engage in a consolidation or
merger of Federal-Mogul or sale of all or substantially all of
Federal-Mogul's assets.
In the event that the Rights (as defined herein) are
separated from the Federal-Mogul Common Stock in accordance with
the provisions of Federal-Mogul's preferred share purchase rights
plan (or any successor plan) such that the holders of Convertible
Preferred Securities would thereafter not be entitled to receive
any such Rights in respect of the Federal-Mogul Common Stock
issuable upon conversion of such Convertible Preferred
Securities, the Conversion Price will be adjusted as provided in
clause (iv) of the preceding paragraph (subject to readjustment
in the event of the expiration, termination or redemption of the
Rights). In lieu of any such adjustment, Federal-Mogul may amend
its preferred share purchase rights plan to provide that upon
conversion of the Convertible Preferred Securities the holders
will receive, in addition to the Federal-Mogul Common Stock
issuable upon such conversion, the Rights that would have
attached to such shares of Federal-Mogul Common Stock if the
Rights had not become separated from the Federal-Mogul Common
Stock pursuant to the provisions of such plan. See "Description
of Capital Stock--Preferred Share Purchase Rights."
Federal-Mogul from time to time may to the extent permitted
by law reduce the Conversion Price by any amount for any period
of at least 20 days, in which case Federal-Mogul shall give at
least 15 days' notice of such reduction, if the Federal-Mogul
Board of Directors has made a determination that such reduction
would be in the best interests of Federal-Mogul, which
determination shall be conclusive. Federal-Mogul may, at its
option, make such reductions in the Conversion Price, in addition
to those set forth above, as the Federal-Mogul Board of Directors
deems advisable to avoid or diminish any income tax to holders of
Federal-Mogul Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes. See "United States
Federal Income Taxation--Adjustment of Conversion Price."
No adjustment in the Conversion Price will be required
unless such adjustment would require a change of at least one
percent (1%) in the Conversion Price then in effect; provided,
that any adjustment that would not be required to be made shall
be carried forward and taken into account in any subsequent
adjustment. If any action would require adjustment of the
Conversion Price pursuant to more than one of the provisions
described above, only one adjustment shall be made and such
adjustment shall be the amount of adjustment that has the highest
absolute value to the holder of the Convertible Preferred
Securities. Except as stated above, the Conversion Price will not
be adjusted for the issuance of Federal-Mogul Common Stock or any
securities convertible into or exchangeable for Federal-Mogul
Common Stock or carrying the right to purchase any of the
foregoing.
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In addition, no adjustment of the Conversion Price will be
made upon the issuance of any Federal-Mogul Common Stock pursuant
to any present or future plan obligations of Federal-Mogul or any
of its affiliates providing for the reinvestment of dividends or
interest payable on securities of Federal-Mogul and the
investment of additional optional amounts in Federal-Mogul Common
Stock under any such plan or the issuance of Federal-Mogul Common
Stock or options or rights to purchase Federal-Mogul Common Stock
pursuant to any present or future employee, director or
consultant benefit plan or program of Federal-Mogul or any of its
subsidiaries or pursuant to any option, warrant, right or
exercisable, exchangeable or convertible security outstanding as
of the date the Convertible Preferred Securities are first
issued.
Conversion Price Adjustments -- Merger, Consolidation or
Sale of Assets of Federal-Mogul
If any transaction shall occur (including without
limitation (i) any recapitalization or reclassification of shares
of Federal-Mogul Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination of
Federal-Mogul Common Stock), (ii) any consolidation or merger of
Federal-Mogul with or into another person or any merger of
another person into Federal-Mogul (other than a merger that does
not result in a reclassification, conversion, exchange or
cancellation of Federal-Mogul Common Stock), (iii) any sale or
transfer of all or substantially all of the assets of
Federal-Mogul, or (iv) any compulsory share exchange) pursuant to
which either shares of Federal-Mogul Common Stock shall be
converted into the right to receive other securities, cash or
other property, or, in the case of a sale or transfer or all or
substantially all of the assets of Federal-Mogul, the holders of
Federal-Mogul Common Stock shall be entitled to receive other
securities, cash or other property, then appropriate provision
shall be made so that the holder of each Convertible Preferred
Security then outstanding shall have the right thereafter to
convert such Convertible Preferred Security only into:
(x) in the case of any such transaction that does not
constitute a Common Stock Fundamental Change (as defined
below) and subject to funds being legally available for
such purpose under applicable law at the time of such
conversion, the kind and amount of the securities, cash or
other property that would have been receivable upon such
recapitalization, reclassification, consolidation, merger,
sale, transfer or share exchange by a holder of the number
of shares of Federal-Mogul Common Stock issuable upon
conversion of such Convertible Preferred Security
immediately prior to such recapitalization,
reclassification, consolidation, merger, sale, transfer or
share exchange, after giving effect, in the case of any
Non-Stock Fundamental Change (as defined below), to any
adjustment in the Conversion Price in accordance with
clause (i) of the following paragraph, and
(y) in the case of any such transaction that constitutes
a Common Stock Fundamental Change, common stock of the kind
received by holders of Federal-Mogul Common Stock as a
result of such Common Stock Fundamental Change in an amount
determined in accordance with clause (ii) of the following
paragraph.
The company formed by such consolidation or resulting from such
merger or that acquires assets or that acquires Federal-Mogul's
shares, as the case may be, shall enter into a supplemental
indenture with the Debt Trustee (as defined herein), satisfactory
in form to the Debt Trustee and executed and delivered to the
Debt Trustee, the provisions of which shall establish such right.
Such supplemental indenture shall provide for adjustments that,
for events subsequent to the effective date of such supplemental
indenture, shall be as nearly equivalent as may be practicable to
the relevant adjustments provided for in the preceding paragraphs
and in this paragraph.
Notwithstanding any other provision in the preceding
paragraphs to the contrary, if any Fundamental Change (as defined
below) occurs, then the Conversion Price in effect will be
adjusted immediately after such Fundamental Change as follows:
(i) in the case of a Non-Stock Fundamental Change, the
Conversion Price immediately following such Non-Stock
Fundamental Change shall be the lower of (A) the Conversion
Price in effect immediately prior to such Non-Stock
Fundamental Change, but after giving effect to any other
prior adjustments effected pursuant to the preceding
paragraphs, and (B) the product of (1) the greater of the
Applicable Price (as defined below) and the then applicable
Reference Market Price (as defined below) and (2) a
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<PAGE>
fraction, the numerator of which is $50 and the denominator
of which is (x) the amount of the redemption price for one
Convertible Preferred Security if the redemption date were
the date of such Non-Stock Fundamental Change (or, for the
twelve-month periods commencing December 1, 1997 and
December 1, 1998 and the period beginning December 1, 1999
and ending December 5, 2000, the product of 107%, 106.3%
and 105.6%, respectively), times $50 plus (y) any
then-accrued and unpaid distributions on one Convertible
Preferred Security; and
(ii) in the case of a Common Stock Fundamental Change,
the Conversion Price of Convertible Preferred Securities,
immediately following such Common Stock Fundamental Change
shall be the Conversion Price in effect immediately prior
to such Common Stock Fundamental Change, but after giving
effect to any other prior adjustments effected pursuant to
the preceding paragraphs, multiplied by a fraction, the
numerator of which is the Purchaser Stock Price (as defined
below) and the denominator of which is the Applicable
Price; provided, that in the event of a Common Stock
Fundamental Change in which (A) 100% of the value of the
consideration received by a holder of Federal-Mogul Common
Stock is common stock of the successor, acquirer or other
third party (and cash, if any, paid with respect to any
fractional interest in such common stock resulting from
such Common Stock Fundamental Change) and (B) all of the
Federal-Mogul Common Stock shall have been exchanged for,
converted into or acquired for common stock of the
successor, acquirer or other third party (and cash, if any,
paid with respect to any fractional interests in such
common stock resulting from such Common Stock Fundamental
Change), the Conversion Price immediately following such
Common Stock Fundamental Change shall be the Conversion
Price in effect immediately prior to such Common Stock
Fundamental Change multiplied by a fraction, the numerator
of which is one (1) and the denominator of which is the
number of shares of common stock of the successor, acquirer
or other third party received by a holder of one share of
Federal-Mogul Common Stock as a result of such Common Stock
Fundamental Change.
Depending upon whether a Fundamental Change is a Non-Stock
Fundamental Change or a Common Stock Fundamental Change, a holder
may receive significantly different consideration upon
conversion. In the event of a Non-Stock Fundamental Change, the
holder has the right to convert Convertible Preferred Securities
into the kind and amount of the shares of stock and other
securities or property or assets (including cash), except as
otherwise provided above, that would have been receivable upon
such Non-Stock Fundamental Change by a holder of the number of
shares of Federal-Mogul Common Stock issuable upon conversion of
such Convertible Preferred Securities immediately prior to such
Non-Stock Fundamental Change, after giving effect to any
adjustment in the Conversion Price in accordance with clause (i)
of the preceding paragraph. However, in the event of a Common
Stock Fundamental Change in which less than 100% of the value of
the consideration received by a holder of Federal-Mogul Common
Stock is common stock of the successor, acquirer or other third
party, a holder of a Convertible Preferred Security who converts
such share following the Common Stock Fundamental Change will
receive consideration in the form of such common stock only,
whereas a holder who converted such share prior to the Common
Stock Fundamental Change would have received consideration in the
form of such common stock as well as any other securities or
assets (which may include cash) issuable upon conversion of such
Convertible Preferred Security immediately prior to such Common
Stock Fundamental Change.
The term "Applicable Price" means (i) in the event of a
Non-Stock Fundamental Change in which the holders of
Federal-Mogul Common Stock receive only cash, the amount of cash
received by a holder of one share of Federal-Mogul Common Stock
and (ii) in the event of any other Fundamental Change, the
average of the daily Closing Prices of the Federal-Mogul Common
Stock during the 10 Trading Days immediately prior to the record
date for the determination of the holders of Federal-Mogul Common
Stock entitled to receive cash, securities, property or other
assets in connection with such Fundamental Changes or, if there
is no such record date, prior to the date upon which the holders
of Federal-Mogul Common Stock shall have the right to receive
such cash, securities, property or other assets, but the
adjustment shall be based upon the consideration that the holders
of Federal-Mogul Common Stock received in the transaction or
event as a result of which more than 50% of the Federal-Mogul
Common Stock shall have been exchanged for, converted into or
acquired for, or shall constitute solely the right to receive
such cash, securities, property or other assets.
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<PAGE>
The term "Common Stock Fundamental Change" means any
Fundamental Change in which more than 50% of the value (as
determined in good faith by the Federal-Mogul Board of Directors)
of the consideration received by holders of Federal-Mogul Common
Stock consists of common stock that, for the 10 Trading Days
immediately prior to such Fundamental Change, has been admitted
for listing or admitted for listing subject to notice of issuance
on a national securities exchange or quoted on The NASDAQ
National Market; provided, that a Fundamental Change shall not be
a Common Stock Fundamental Change unless either (i) Federal-Mogul
continues to exist after the occurrence of such Fundamental
Change and the outstanding Convertible Preferred Securities
continue to exist as outstanding Convertible Preferred Securities
or (ii) the outstanding Convertible Preferred Securities continue
to exist as Convertible Preferred Securities and are convertible
into shares of the common stock of the corporation succeeding to
the business of Federal-Mogul.
The term "Fundamental Change" means the occurrence of any
transaction or event or series of transactions or events pursuant
to which all or substantially all of the Federal-Mogul Common
Stock shall be exchanged for, converted into, acquired for or
shall constitute solely the right to receive cash, securities,
property or other assets (whether by means of an exchange offer,
liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise); provided, in
the case of any such series of transactions or events, for
purposes of adjustment of the Conversion Price, such Fundamental
Change shall be deemed to have occurred when substantially all of
the Federal-Mogul Common Stock shall have been exchanged for,
converted into or acquired for, or shall constitute solely the
right to receive, such cash, securities, property or other
assets.
The term "Non-Stock Fundamental Change" means any
Fundamental Change other than a Common Stock Fundamental Change.
The term "Purchaser Stock Price" means, with respect to any
Common Stock Fundamental Change, the average of the daily Closing
Price for one share of the common stock received by holders of
Federal-Mogul Common Stock in such Common Stock Fundamental
Change during the 10 Trading Days immediately prior to the date
fixed for the determination of the holders of Federal-Mogul
Common Stock entitled to receive such common stock or, if there
is no such date, prior to the date upon which the holders of
Federal-Mogul Common Stock shall have the right to receive such
common stock.
The term "Reference Market Price" shall initially mean
$27.43 (which is an amount equal to 66% of the reported last sale
price of Federal-Mogul Common Stock on the New York Stock
Exchange on November 24, 1997) and, in the event of any
adjustment to the Conversion Price other than as a result of a
Fundamental Change, the Reference Market Price shall also be
adjusted so that the ratio of the Reference Market Price to the
Conversion Price after giving effect to any such adjustment shall
always be the same as the ratio of the initial Reference Market
Price to the initial Conversion Price of $51.50 per share.
Redemption
The Convertible Subordinated Debentures will mature on
December 1, 2027 and may be redeemed, in whole or in part, at any
time on or after December 6, 2000 (subject to certain
exceptions), or at any time in certain circumstances upon the
occurrence of a Special Event (as defined below). The Convertible
Preferred Securities will not have a stated maturity date,
although they will be subject to mandatory redemption upon the
repayment of the Convertible Subordinated Debentures at their
stated maturity, upon acceleration, earlier redemption or
otherwise. Upon the repayment of the Convertible Subordinated
Debentures, whether at maturity or upon redemption, the proceeds
from such repayment or payment shall simultaneously be applied to
redeem Trust Securities having an aggregate liquidation amount
equal to the aggregate principal amount of the Convertible
Subordinated Debentures so repaid or redeemed at the appropriate
Redemption Price (expressed as a percentage of the principal
amount of the Convertible Subordinated Debentures) set forth
below, together with accrued and unpaid interest on the
Convertible Subordinated Debentures to, but excluding, the
redemption date; provided, that holders of the Trust Securities
shall be given not less than 30 nor more than 60 days' notice of
such redemption. See "Description of the Convertible Subordinated
Debentures--Redemption at the Option of Federal-Mogul." In the
event that fewer than all of the outstanding Convertible
Preferred Securities are to be redeemed, the Convertible
Preferred Securities will be redeemed pro rata as described under
"--Form, Denomination and Registration."
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If the Convertible Subordinated Debentures are redeemed
during the period beginning December 6, 2000 and ending November
30, 2001, the Redemption Price shall be 104.9%. The table below
shows Redemption Prices for Convertible Subordinated Debentures
redeemed during the 12-month period beginning December 1:
Year Redemption Price
- ---- ----------------
2001...................................... 104.2%
2002...................................... 103.5
2003...................................... 102.8
2004...................................... 102.1
2005...................................... 101.4
2006...................................... 100.7
2007 and thereafter....................... 100.0
Special Event Distribution; Tax Event Redemption
"Tax Event" means that the Administrators shall have
received an opinion of nationally recognized independent tax
counsel experienced in such matters (a "Dissolution Tax Opinion")
to the effect that as a result of (a) any amendment to,
clarification of, or change (including any announced prospective
change) in the laws, or any regulations thereunder, of the United
States or any political subdivision or taxing authority thereof
or therein, (b) any judicial decision, official administrative
pronouncement, ruling, regulatory procedure, notice or
announcement, including any notice or announcement of intent to
adopt such procedures or regulations (an "Administrative
Action"), or (c) any amendment to, clarification of, or change in
the official position or the interpretation of such
Administrative Action or judicial decision that differs from the
theretofore generally accepted position, in each case, by any
legislative body, court, governmental authority or regulatory
body, irrespective of the manner in which such amendment,
clarification or change is made known, which amendment,
clarification, or change is effective or such pronouncement or
decision is announced, in each case, on or after November 24,
1997, there is the creation by such change in tax law of more
than an insubstantial risk that (i) the Trust is or will be
subject to United States federal income tax with respect to
income accrued or received on the Convertible Subordinated
Debentures, (ii) the Trust is, or will be subject to more than a
de minimis amount of taxes (other than withholding taxes), duties
or other governmental charges or (iii) interest paid in cash by
Federal-Mogul to the Trust on the Convertible Subordinated
Debentures is not, or will not be, deductible, in whole or in
part, by Federal-Mogul for United States federal income tax
purposes. Notwithstanding the foregoing, a Tax Event shall not
include any change in tax law that requires Federal-Mogul for
United States federal income tax purposes to defer taking a
deduction for any original issue discount ("OID") that accrues
with respect to the Convertible Subordinated Debentures until the
interest payment related to such OID is paid by Federal-Mogul in
cash; provided, that such change in tax law does not create more
than an insubstantial risk that Federal-Mogul will be prevented
from taking a deduction for OID accruing with respect to the
Convertible Subordinated Debentures at a date that is no later
than the date the interest payment related to such OID is
actually paid by Federal-Mogul in cash.
"Investment Company Event" means that the Administrators
shall have received an opinion of nationally recognized
independent counsel experienced in such matters to the effect
that, as a result of the occurrence of a change in law or
regulation or a written change in interpretation or application
of law or regulation by any legislative body, court, governmental
agency or regulatory authority on or after November 24, 1997 (a
"Change in 1940 Act Law"), there is more than an insubstantial
risk that the Trust is or will be considered an "investment
company" that is required to be registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), which change
became effective on or after November 24, 1997.
If, at any time, a Tax Event or an Investment Company Event
(each, a "Special Event") shall occur and be continuing, the
Trust shall, except in the limited circumstances described below,
be dissolved with the result that Convertible Subordinated
Debentures with an aggregate principal amount equal to the
aggregate stated liquidation amount of, with an interest rate
identical to the distribution rate of, and accrued and unpaid
interest equal to accrued and unpaid distributions on, the Trust
Securities, would be distributed, after satisfaction of
liabilities to creditors of the Trust as provided by applicable
law, to the holders of the Trust Securities in liquidation of
such holders' interest in the Trust on a pro rata basis within 90
days following the occurrence of the Special Event; provided,
that in the
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case of a Tax Event such dissolution and distribution shall be
conditioned on (i) the Administrators' receipt of an opinion of
nationally recognized independent tax counsel experienced in such
matters (a "No Recognition Opinion"), which opinion may rely on
published revenue rulings of the Internal Revenue Service, to the
effect that the holders of the Trust Securities will not
recognize any gain or loss for United States federal income tax
purposes as a result of such dissolution and distribution of
Convertible Subordinated Debentures, (ii) Federal-Mogul or the
Trust being unable to avoid such Tax Event within such 90-day
period by taking some ministerial action or pursuing some other
reasonable measure that will have no adverse effect on the Trust,
Federal-Mogul or the holders of the Trust Securities and will
involve no material cost and (iii) Federal-Mogul's prior written
consent to such dissolution and distribution. If, in the case of
a Tax Event, Federal-Mogul declines to consent to the dissolution
and distribution, Federal-Mogul may incur an obligation to pay
Additional Interest. See "Description of the Convertible
Subordinated Debentures--Additional Interest." Furthermore, if
after receipt of a Dissolution Tax Opinion by the Administrators
(i) Federal-Mogul has received an opinion (a "Redemption Tax
Opinion") of nationally recognized independent tax counsel
experienced in such matters that, as a result of a Tax Event,
there is more than an insubstantial risk that Federal-Mogul would
be precluded from deducting the interest on the Convertible
Subordinated Debentures for United States federal income tax
purposes even after the Convertible Subordinated Debentures were
distributed to the holders of Trust Securities in liquidation of
such holders' interests in the Trust as described above, or (ii)
the Administrators shall have been informed by such tax counsel
that it cannot deliver a No Recognition Opinion to the Trust,
Federal-Mogul shall have the right, upon not less than 30 nor
more than 60 days' notice, to redeem the Convertible Subordinated
Debentures, in whole or in part, at 100% of the principal amount
thereof plus accrued and unpaid interest (including Compound
Interest (as defined herein)) thereon for cash within 90 days
following the occurrence of such Tax Event. Following such
redemption, Trust Securities with an aggregate liquidation amount
equal to the aggregate principal amount of the Convertible
Subordinated Debentures so redeemed shall be redeemed by the
Trust at the liquidation amount thereof plus accrued and unpaid
distributions thereon to the redemption date on a pro rata basis
(except that if a Declaration Event of Default shall have
occurred and be continuing, the Convertible Preferred Securities
will have a priority over the Common Securities); provided, that
if at the time there is available to Federal-Mogul or the Trust
the opportunity to eliminate, within such 90-day period, the Tax
Event by taking some ministerial action, such as filing a form or
making an election or pursuing some other similar reasonable
measure in each case that will have no adverse effect on the
Trust, Federal-Mogul or the holders of the Trust Securities and
will involve no material cost, Federal-Mogul or the Trust will
pursue such measure in lieu of redemption.
After the date for any distribution of Convertible
Subordinated Debentures upon dissolution of the Trust, (i) the
Trust Securities will no longer be deemed to be outstanding, (ii)
DTC or its nominee, as the record holder of the Global
Certificates, will receive a registered global certificate or
certificates representing the Convertible Subordinated Debentures
to be delivered upon such distribution and (iii) any certificates
representing Trust Securities not held by DTC or its nominee will
be deemed to represent Convertible Subordinated Debentures having
an aggregate principal amount equal to the aggregate stated
liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest (including
Compound Interest) equal to accrued and unpaid distributions on,
such Trust Securities until such certificates are presented to
Federal-Mogul or its agent for transfer or reissuance.
There can be no assurance as to the market price for the
Convertible Subordinated Debentures that may be distributed in
exchange for Trust Securities if a dissolution and liquidation of
the Trust were to occur. Accordingly, the Convertible
Subordinated Debentures that the investor may subsequently
receive on dissolution and liquidation of the Trust may trade at
a discount to the price of the Trust Securities exchanged.
Redemption Procedures for Redemption by the Trust
In the event of any redemption in part, the Trust shall not
be required to (i) issue, register the transfer of or exchange
any Convertible Preferred Securities during a period beginning at
the opening of business 15 days before any selection for
redemption of Convertible Preferred Securities and ending at the
close of business on the earliest date on which the relevant
notice of redemption is deemed to have been given to all holders
of Convertible Preferred Securities to be so redeemed or (ii)
register the transfer of or exchange any Convertible Preferred
Securities so selected for redemption, in whole or in part,
except for the unredeemed portion of any Convertible Preferred
Securities being redeemed in part.
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If the Trust gives a notice of redemption in respect of
Convertible Preferred Securities (which notice will be
irrevocable), then, by 12:00 noon, New York City time, on the
redemption date, provided that Federal-Mogul has paid to the
Institutional Trustee a sufficient amount of cash in connection
with the related redemption of the Convertible Subordinated
Debentures, the Trust will irrevocably deposit with DTC funds
sufficient to pay the amount payable on redemption of all
book-entry certificates and will give DTC irrevocable
instructions and authority to pay such amount in respect of
Convertible Preferred Securities represented by the Global
Certificates (as defined herein) and will irrevocably deposit
with the paying agent for the Convertible Preferred Securities
funds sufficient to pay such amount in respect of any
certificated Convertible Preferred Securities and will give such
paying agent irrevocable instructions and authority to pay such
amount to the holders of certificated Convertible Preferred
Securities upon surrender of their certificates. If notice of
redemption shall have been given and funds deposited as required,
then, immediately prior to the close of business on the
redemption date, distributions will cease to accrue and all
rights of holders of such Convertible Preferred Securities so
called for redemption will cease, except the right of the holders
of such Convertible Preferred Securities to receive the
Redemption Price plus accrued and unpaid distributions on the
Convertible Preferred Securities to be redeemed, but without
interest on such Redemption Price. In the event that any date
fixed for redemption of Convertible Preferred Securities is not a
Business Day, then payment of the Redemption Price payable on
such date will be made on the next succeeding day that is a
Business Day (without any interest or other payment in respect of
any such delay), except that, if such Business Day falls in the
next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the
Redemption Price in respect of Convertible Preferred Securities
is improperly withheld or refused and not paid either by the
Trust, or by Federal-Mogul pursuant to the Guarantee,
distributions on such Convertible Preferred Securities will
continue to accrue at the then applicable rate from the original
redemption date to the date of payment, in which case the actual
payment date will be considered the date fixed for redemption for
purposes of calculating the Redemption Price.
In the event that fewer than all of the outstanding
Convertible Preferred Securities are to be redeemed, the
Convertible Preferred Securities will be redeemed pro rata.
Subject to the foregoing and applicable law (including,
without limitation, United States federal securities laws),
Federal-Mogul or its subsidiaries may at any time, and from time
to time, purchase outstanding Convertible Preferred Securities by
tender, in the open market or by private agreement.
Liquidation Distribution Upon Dissolution
In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Trust (each a "Liquidation"),
the then holders of the Convertible Preferred Securities will be
entitled to receive out of the assets of the Trust, after
satisfaction of liabilities to creditors of the Trust as provided
by applicable law, distributions in an amount equal to the
aggregate of the stated liquidation amount of $50 per Convertible
Preferred Security plus accrued and unpaid distributions thereon
to the date of payment (the "Liquidation Distribution"), unless,
and to the extent that, in connection with such Liquidation,
Convertible Subordinated Debentures in an aggregate stated
principal amount equal to the aggregate stated liquidation amount
of, with an interest rate identical to the distribution rate of,
and accrued and unpaid interest equal to accrued and unpaid
distributions on, the Convertible Preferred Securities have been
distributed on a pro rata basis to the holders of the Convertible
Preferred Securities.
If, upon any such Liquidation, the Liquidation Distribution
can be paid only in part because the Trust has insufficient
assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Trust on
the Convertible Preferred Securities shall be paid on a pro rata
basis. The holders of the Common Securities will be entitled to
receive distributions upon any such dissolution pro rata with the
holders of the Convertible Preferred Securities, except that if a
Declaration Event of Default has occurred and is continuing, the
Convertible Preferred Securities shall have a preference over the
Common Securities with regard to such distributions.
Pursuant to the Declaration, the Trust shall dissolve, and
its affairs shall be wound up, (i) on December 1, 2037, the
expiration of the term of the Trust, (ii) upon the bankruptcy of
Federal-Mogul or the holder of the Common Securities, (iii)
(other than in connection with a merger, consolidation or similar
transaction not prohibited by the Indenture, the Declaration or
the Guarantee) upon the filing of a certificate of dissolution or
its equivalent
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with respect to the holder of the Common Securities or
Federal-Mogul, after obtaining the consent of the holders of at
least a majority in liquidation amount of the Trust Securities
affected thereby voting together as a single class to dissolve,
or the revocation of the charter of the holder of the Common
Securities or Federal-Mogul and the expiration of 90 days after
the date of revocation without a reinstatement thereof, (iv) upon
the distribution of Convertible Subordinated Debentures upon the
occurrence of a Special Event, (v) upon the entry of a decree of
a judicial dissolution of Federal-Mogul or the Trust, (vi) upon
the redemption of all the Trust Securities or (vii) upon the
distribution of Federal-Mogul Common Stock to all holders of
Convertible Preferred Securities upon conversion of all
outstanding Convertible Preferred Securities.
Declaration Events of Default
An event of default under the Indenture (an "Indenture
Event of Default") constitutes an event of default under the
Declaration with respect to the Trust Securities (a "Declaration
Event of Default"); provided, that pursuant to the Declaration,
the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common
Securities until all Declaration Events of Default with respect
to the Convertible Preferred Securities have been cured, waived,
or otherwise eliminated. Until such Declaration Events of Default
with respect to the Convertible Preferred Securities have been so
cured, waived or otherwise eliminated, the Institutional Trustee
will be deemed to be acting solely on behalf of the holders of
the Convertible Preferred Securities and only the holders of the
Convertible Preferred Securities will have the right to direct
the Institutional Trustee with respect to certain matters under
the Declaration, and therefore the Indenture.
If the Institutional Trustee fails to enforce its rights
under the Convertible Subordinated Debentures, any holder of
Convertible Preferred Securities may, to the fullest extent
permitted by law, institute a legal proceeding against
Federal-Mogul to enforce the Institutional Trustee's rights under
the Convertible Subordinated Debentures. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is
continuing and such event is attributable to the failure of
Federal-Mogul to pay interest or principal on the Convertible
Subordinated Debentures on the date such interest or principal is
otherwise payable (or in the case of redemption, the redemption
date), then a holder of Convertible Preferred Securities may
institute a Direct Action for payment on or after the respective
due date specified in the Convertible Subordinated Debentures. In
connection with such Direct Action, Federal-Mogul will be
subrogated to the rights of such holders of Convertible Preferred
Securities under the Declaration to the extent of any payment
made by Federal-Mogul to such holder of Convertible Preferred
Securities in such Direct Action. The holders of Convertible
Preferred Securities will not be able to exercise directly any
other remedy available to the holders of the Convertible
Subordinated Debentures.
Upon the occurrence of a Declaration Event of Default, the
Institutional Trustee as the sole holder of the Convertible
Subordinated Debentures will have the right under the Indenture
to declare the principal of and accrued and unpaid interest on
the Convertible Subordinated Debentures to be immediately due and
payable. Federal-Mogul and the Trust are each required to file
annually with the Institutional Trustee an officer's certificate
as to it compliance with all conditions and covenants under the
Declaration.
Voting Rights
Except as described herein, under the Trust Act and under
the Trust Indenture Act, and as otherwise required by law and the
Declaration, the holders of the Convertible Preferred Securities
will have no voting rights.
Subject to the requirement of the Institutional Trustee
obtaining a tax opinion in certain circumstances set forth in the
last sentence of the next paragraph, the holders of a majority in
aggregate liquidation amount of the Convertible Preferred
Securities will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to
the Institutional Trustee, or direct the exercise of any trust or
power conferred upon the Institutional Trustee under the
Declaration, including the right to direct the Institutional
Trustee, as holder of the Convertible Subordinated Debentures, to
(i) exercise the remedies available under the Indenture with
respect to the Convertible Subordinated Debentures, (ii) waive
any past Indenture Event of Default that is waivable under the
Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Convertible
Subordinated Debentures shall be due and payable or (iv) consent
to any amendment, modification or termination of the Indenture or
the Convertible Subordinated Debentures where such consent shall
be required;
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provided, that if an Indenture Event of Default has occurred and
is continuing, the holders of 25% of the aggregate liquidation
amount of the Convertible Preferred Securities may direct the
Institutional Trustee to declare the principal of and interest on
the Convertible Subordinated Debentures immediately due and
payable; provided, further, that, where a consent or action under
the Indenture would require the consent or action of holders of
more than a majority in principal amount of the Convertible
Subordinated Debentures (a "Super-Majority") affected thereby,
only the holders of at least such Super-Majority in aggregate
liquidation amount of the Convertible Preferred Securities may
direct the Institutional Trustee to give such consent or take
such action. The Institutional Trustee shall not revoke any
action previously authorized or approved by a vote of the holders
of the Convertible Preferred Security.
The Institutional Trustee shall notify all holders of the
Convertible Preferred Securities of any notice of default
received from the Debt Trustee with respect to the Convertible
Subordinated Debentures. Such notice shall state that such
Indenture Event of Default also constitutes a Declaration Event
of Default. Except with respect to directing the time, method and
place of conducting a proceeding for a remedy, the Institutional
Trustee shall not take any of the actions described in clauses
(i), (ii), (iii) or (iv) above unless the Institutional Trustee
has obtained an opinion of independent tax counsel to the effect
that, as a result of such action, the Trust will not fail to be
classified as a grantor trust for United States federal income
tax purposes and each holder of Trust Securities will not fail to
be treated as owning undivided beneficial interests in the
Convertible Subordinated Debentures.
In the event the consent of the Institutional Trustee, as
the holder of the Convertible Subordinated Debentures, is
required under the Indenture with respect to any amendment,
modification or termination of the Indenture, the Institutional
Trustee shall request the direction of the holders of the Trust
Securities with respect to such amendment, modification or
termination and shall vote with respect to such amendment,
modification or termination as directed by a majority in
liquidation amount of the Trust Securities voting together as a
single class; provided, that where a consent under the Indenture
would require the consent of a Super-Majority, the Institutional
Trustee may only give such consent at the direction of the
holders of at least the proportion in liquidation amount of the
Trust Securities that the relevant Super-Majority represents of
the aggregate principal amount of the Convertible Subordinated
Debentures outstanding. The Institutional Trustee shall be under
no obligation to take any such action in accordance with the
directions of the holders of the Trust Securities unless the
Institutional Trustee has obtained an opinion of independent tax
counsel experienced in such matters to the effect that for
purposes of United States federal income tax the Trust will not
be classified as other than a grantor trust.
A waiver of an Indenture Event of Default will constitute a
waiver of the corresponding Declaration Event of Default.
Any required approval or direction of holders of
Convertible Preferred Securities may be given at a separate
meeting of holders of Convertible Preferred Securities convened
for such purpose, at a meeting of all of the holders of Trust
Securities or pursuant to written consent. The Administrators
will cause a notice of any meeting at which holders of
Convertible Preferred Securities are entitled to vote, or of any
matter upon which action by written consent of such holders is to
be taken, to be mailed to each holder of record of Convertible
Preferred Securities. Each such notice will include a statement
setting forth the following information: (i) the date of such
meeting or the date by which such action is to be taken; (ii) a
description of any resolution proposed for adoption at such
meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought; and (iii)
instructions for the delivery of proxies or consents. No vote or
consent of the holders of Convertible Preferred Securities will
be required for the Trust to redeem and cancel Convertible
Preferred Securities or distribute Convertible Subordinated
Debentures in accordance with the Declaration.
Notwithstanding that holders of Convertible Preferred
Securities are entitled to vote or consent under any of the
circumstances described above, any of the Convertible Preferred
Securities that are owned at such time by Federal-Mogul or any
entity directly controlling or controlled by, or under direct or
indirect common control with, Federal-Mogul shall not be entitled
to vote or consent and shall, for purposes of such vote or
consent, be treated as if such Convertible Preferred Securities
were not outstanding.
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The procedures by which holders of Convertible Preferred
Securities may exercise their voting rights are described below.
See "--Form, Denomination and Registration."
Holders of the Convertible Preferred Securities will have
no rights to appoint or remove the Administrators, who may be
appointed, removed or replaced solely by Federal-Mogul as the
indirect or direct holder of all of the Common Securities.
Modification of the Declaration
The Declaration may be modified and amended if approved by
the Administrators (and in certain circumstances the
Institutional Trustee); provided, that, if any proposed amendment
provides for, or the Administrators otherwise propose to effect,
(i) any action that would adversely affect the powers,
preferences or special rights of the Trust Securities, whether by
way of amendment to the Declaration or otherwise or (ii) the
liquidation, dissolution, winding-up or termination of the Trust
other than pursuant to the terms of the Declaration, then the
holders of the Trust Securities voting together as a single class
will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the
approval of at least a majority in liquidation amount of the
Trust Securities affected thereby; provided further, that, if any
amendment or proposal referred to in clause (i) above would
adversely affect only the Convertible Preferred Securities or the
Common Securities, then only the affected class will be entitled
to vote on such amendment or proposal and such amendment or
proposal shall not be effective except with the approval of a
majority in liquidation amount of such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification
may be made to the Declaration if such amendment or modification
would (i) cause the Trust to be classified for purposes of United
States federal income taxation as other than a grantor trust,
(ii) reduce or otherwise adversely affect the powers of the
Institutional Trustee or (iii) cause the Trust to be deemed an
"investment company" that is required to be registered under the
1940 Act.
Mergers, Consolidations or Amalgamation of the Trust
The Trust may not consolidate, amalgamate, merge with or
into, or be replaced by, or convey, transfer or lease its
properties and assets substantially as an entirety to, any
corporation or other body except as described below or otherwise
described in "--Liquidation Distribution upon Dissolution." The
Trust may, with the consent of the Administrators and without the
consent of the holders of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by a Trust
organized as such under the laws of any State; provided, that (i)
such successor entity either (x) expressly assumes all of the
obligations of the Trust under the Trust Securities or (y)
substitutes for the Convertible Preferred Securities other
securities having substantially the same terms as the Trust
Securities (the "Successor Securities"), so long as the Successor
Securities rank the same as the Trust Securities rank with
respect to distributions and payments upon liquidation,
redemption and otherwise, (ii) Federal-Mogul expressly
acknowledges a trustee of such successor entity possessing the
same powers and duties as the Institutional Trustee as the holder
of the Convertible Debentures, (iii) such merger, consolidation,
amalgamation or replacement does not cause the Convertible
Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating
organization, (iv) such merger, consolidation, amalgamation or
replacement does not adversely affect the holders of the Trust
Securities (including any Successor Securities) in any material
respect, (v) such successor entity has a purpose substantially
identical to that of the Trust, (vi) prior to such merger,
consolidation, amalgamation or replacement, Federal-Mogul has
received an opinion of independent counsel to the Trust
experienced in such matters to the effect that: (A) such merger,
consolidation, amalgamation or replacement does not adversely
affect the holders of the Trust Securities (including any
Successor Securities) in any material respect, (B) following such
merger, consolidation, amalgamation or replacement, neither the
Trust nor such successor entity will be required to register as
an investment company under the 1940 Act and (C) following such
merger, consolidation, amalgamation or replacement, the Trust (or
such successor entity) will continue to be classified as a
grantor trust for United States federal income tax purposes and
(vii) Federal-Mogul guarantees the obligations of such successor
entity under the Successor Securities at least to the extent
provided by the Guarantee. Notwithstanding the foregoing, the
Trust shall not, except with the consent of holders of 100% in
liquidation amount of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by any other
entity or permit any other entity to consolidate, amalgamate,
merge with or into, or replace it, if such consolidation,
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amalgamation, merger or replacement would cause the Trust or the
successor entity to be classified as other than a grantor trust
for United States federal income tax purposes.
Registration Rights
In connection with the Original Offering, Federal-Mogul and
the Trust (together, the "Registrants") entered into a
registration rights agreement with the Initial Purchaser dated
December 1, 1997 (the "Registration Rights Agreement") pursuant
to which the Registrants, at Federal-Mogul's expense, agreed, for
the benefit of the holders, to file with the Commission the Shelf
Registration Statement covering resale of the Registrable
Securities as soon as practicable but in any event within 180
days after December 1, 1997. The Registrants will use their best
efforts to cause the Shelf Registration Statement to become
effective as promptly as is practicable but in any event within
270 days of December 1, 1997 and to keep the Shelf Registration
Statement effective until the earlier of (i) the sale pursuant to
the Shelf Registration Statement of all the securities registered
thereunder and (ii) the expiration of the holding period
applicable to such securities held by persons that are not
affiliates of Federal-Mogul or the Trust under Rule 144(k) under
the Securities Act, or any successor provision. The Registrants
will be permitted to suspend the use of the prospectus that is a
part of the Shelf Registration Statement under certain
circumstances relating to pending corporate developments, public
filings with the Commission and similar events for a period not
to exceed 30 days in any three-month period, or not to exceed an
aggregate of 90 days in any 12-month period: provided, however,
that the Registrants will be permitted to suspend the use of such
prospectus for a period not to exceed 60 days in any three-month
period under certain circumstances relating to acquisitions and
similar transactions involving Federal-Mogul. Federal-Mogul has
agreed to pay predetermined liquidated damages as described
herein ("Liquidated Damages") to holders of Convertible Preferred
Securities and holders of Federal-Mogul Common Stock issued upon
conversion of the Convertible Preferred Securities if the Shelf
Registration Statement is not timely filed or made effective or
if the prospectus is unavailable for periods in excess of those
permitted above. Such Liquidated Damages shall accrue until such
failure to file or become effective or unavailability is cured,
(i) in respect of any Convertible Preferred Security, at a rate
per annum equal to .5% of the liquidation amount thereof and,
(ii) in respect of any shares of Federal-Mogul Common Stock, at a
rate per annum equal to .5% of the then applicable Conversion
Price. A holder who sells Convertible Preferred Securities and
Federal-Mogul Common Stock issued upon conversion of the
Convertible Preferred Securities pursuant to the Shelf
Registration Statement generally will be required to be named as
a selling stockholder in the related prospectus, deliver a
prospectus to purchasers and be bound by those provisions of the
Registration Rights Agreement that are applicable to such holder
(including certain indemnification provisions). Federal-Mogul
will pay all expenses of the Shelf Registration Statement,
provide to each registered holder copies of such prospectus,
notify each registered holder, when the Shelf Registration
Statement has become effective and take certain other actions as
are required to permit, subject to the foregoing, unrestricted
resales of the Convertible Preferred Securities and the
Federal-Mogul Common Stock issued upon conversion of the
Convertible Preferred Securities. The plan of distribution of the
Shelf Registration Statement permits resales of Registrable
Securities by selling security holders through brokers and
dealers.
The Registrants have agreed in the Registration Rights
Agreement to give notice to all holders of the filing and
effectiveness of the Shelf Registration Statement by release made
to Reuters Economic Services and Bloomberg Business News. A
holder of Convertible Preferred Securities must complete and
deliver a form of notice and questionnaire (the "Questionnaire")
at least three business days prior to any intended distribution
of Registrable Securities pursuant to the Shelf Registration
Statement. Holders are encouraged to complete and deliver the
Questionnaire prior to the effectiveness of the Shelf
Registration Statement so that such holders may be named as
selling stockholders in the related prospectus at the time of
effectiveness. Upon receipt of such a completed Questionnaire,
together with such other information as may be reasonably
requested by the Registrants, from a holder following the
effectiveness of the Shelf Registration Statement, the
Registrants will, as promptly as practicable but in any event
within five business days of such receipt, file such amendments
to the Shelf Registration Statement or supplements to the related
prospectus as are necessary to permit such holder to deliver such
prospectus to purchasers of Registrable Securities (subject to
the Registrants' right to suspend the use of the prospectus as
described above). Federal-Mogul has agreed to pay Liquidated
Damages in the amount set forth above to such holder if the
Registrants fail to make such filing in the time required or, if
such filing is a post-effective amendment to the Shelf
Registration Statement required to be declared effective under
the Securities Act, if such amendment is not declared effective
within 45 days of the filing thereof. Any holder that does not
complete and
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deliver a Questionnaire or provide such other information will
not be named as a selling stockholder in the prospectus and
therefore will not be permitted to sell any Registrable
Securities pursuant to the Shelf Registration Statement.
The summary herein of certain provisions of the
Registration Rights Agreement is subject to, and is qualified in
its entirety by reference to, all the provisions of the
Registration Rights Agreement filed as an exhibit to the
Registration Statement.
Notices
Notices to holders under the Declaration shall be given by
first class mail to the address of each holder as it appears on
the books and records of the Trust, provided that any notice of
redemption required to be given to all holders shall also be
given by release made to Reuters Economic Services and Bloomberg
Business News.
Form, Denomination and Registration
The Convertible Preferred Securities were issued in fully
registered form, without coupons.
Global Convertible Preferred Security; Book-Entry Form
The Convertible Preferred Securities are evidenced by one
or more global Convertible Preferred Securities (collectively,
the "Global Security"), which were deposited with DTC and
registered in the name of Cede & Co. ("Cede") as DTC's nominee.
Except as set forth below, the Global Security may be
transferred, in whole or in part, only to another nominee of DTC
or to a successor of DTC or its nominee.
Holders of Convertible Preferred Securities may hold their
interests in the Global Security directly through DTC if such
holders are participants in DTC, or indirectly through
organizations that are participants in DTC ( "Participants").
Transfers between Participants will be effected in the ordinary
way in accordance with DTC rules and will be settled in
immediately available funds. The laws of some jurisdictions may
require that certain persons take physical delivery of securities
in definitive form. Consequently, the ability to transfer
beneficial interests in the Global Security to such persons may
be limited.
Holders of Convertible Preferred Securities who are not
Participants may beneficially own interests in the Global
Security held by DTC only through Participants or certain banks,
brokers, dealers, trust companies and other parties that clear
through or maintain a custodial relationship with a Participant,
either directly or indirectly ("Indirect Participants"). So long
as Cede, as the nominee of DTC, is the registered owner of the
Global Security, Cede for all purposes will be considered the
sole holder of the Global Security. Except as provided below,
owners of beneficial interests in the Global Security will not be
entitled to have certificates registered in their names, will not
receive or be entitled to receive physical delivery of
certificates in definitive registered form, and will not be
considered the holders hereof.
Distributions on the Global Security will be made to Cede,
the nominee for DTC, as the registered owner of the Global
Security by wire transfer of immediately available funds. None of
Federal-Mogul, the Trust or any FMFT Trustee will have any
responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership
interests in the Global Security or for maintaining, supervising
or reviewing any records relating to such beneficial ownership
interests.
Federal-Mogul has been informed by DTC that DTC's practice
is to credit Participant's accounts on the relevant payment date
with payments in amounts proportionate to their respective
beneficial interests in the Convertible Preferred Securities
represented by the Global Security as shown on the records of DTC
(adjusted as necessary so that such payments are made with
respect to whole Convertible Preferred Securities only), unless
DTC has reason to believe that it will not receive payment on
such payment date. Payments by Participants to owners of
beneficial interests in Convertible Preferred Securities
represented by the Global Security held through such Participants
will be the responsibility of such Participants, as is now the
case with securities held for the accounts of customers
registered in "street name."
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Beneficial holders of Convertible Preferred Securities who
desire to convert them into Federal-Mogul Common Stock should
contact their brokers or other Participants or Indirect
Participants, to obtain information on procedures, including
proper forms and cut-off times, for submitting such request.
Because DTC can only act on behalf of Participants, who in turn
act on behalf of Indirect Participants and certain banks, the
ability of a person having a beneficial interest in the
Convertible Preferred Securities represented by the Global
Security to pledge such interest to persons or entities that do
not participate in the DTC system, or otherwise take actions in
respect of such interest, may be affected by the lack of a
physical certificate evidencing such interest.
None of Federal-Mogul, the Trust or any FMFT Trustee (or
any registrar, paying agent or conversion agent) will have any
responsibility for the performance by DTC or its Participants or
Indirect Participants of their respective obligations under the
rules and procedures governing their operations. DTC has advised
Federal-Mogul that it will take any action permitted to be taken
by a holder of Convertible Preferred Securities (including,
without limitation, the presentation of Convertible Preferred
Securities for conversion), only at the direction of one or more
Participants to whose account with DTC interests in the Global
Security are credited, and only in respect of the Convertible
Preferred Securities represented by the Global Security as to
which such Participant or Participants has or have given such
direction.
DTC has advised Federal-Mogul and the Trust as follows: DTC
is a limited purpose trust company organized under the laws of
the State of New York, a member of the Federal Reserve system, a
"clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Exchange Act. DTC was
created to hold securities for its Participants and to facilitate
the clearance and settlement of securities transactions between
Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations
such as the Initial Purchaser. Certain of such Participants (or
their representatives), together with other entities, own DTC.
Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through,
or maintain a custodial relationship with, a Participant, either
directly or indirectly.
Conveyance of notices and other communications by DTC to
Participants, by Participants to Indirect Participants and
Indirect Participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory
requirements that may be in effect from time to time. Redemption
notices shall be sent to Cede. If less than all of the
Convertible Preferred Securities are being redeemed, DTC will
reduce the amount of the interest of each Participant in such
Convertible Preferred Securities in accordance with its
procedures.
Although voting with respect to the Convertible Preferred
Securities is limited, those cases where a vote is required,
neither DTC nor Cede will itself consent or vote with respect to
Convertible Preferred Securities. Under its usual procedures, DTC
would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede consenting
or voting rights to those Participants to whose accounts the
Convertible Preferred Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Federal-Mogul and the Trust believe that the arrangements among
DTC, the Participants and Indirect Participants, and beneficial
owners will enable the beneficial owners to exercise rights
equivalent in substance to the rights that can be directly
exercised by a holder of a beneficial interest in the Trust.
DTC may discontinue providing its services as securities
depositary with respect to the Convertible Preferred Securities
at any time by giving reasonable notice to the Trust. Under such
circumstances, in the event that a successor securities
depositary is not obtained, certificates for the Convertible
Preferred Securities are required to be printed and delivered.
Additionally, the Administrators (after the consultation with
Federal-Mogul) may decide to discontinue use of the system of
book-entry transfers through DTC (or any successor depositary)
with respect to the Convertible Preferred Securities. In that
event, certificates for the Convertible Preferred Securities will
be printed and delivered.
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Certificated Convertible Preferred Securities
Certificated Convertible Preferred Securities may be issued
in exchange for Convertible Preferred Securities represented by
the Global Security if a depositary is unwilling or unable to
continue as depositary for the Global Security as set forth under
"--Global Convertible Preferred Security; Book-Entry Form."
The information set forth above concerning DTC and DTC's
book-entry system has been obtained from sources that
Federal-Mogul and the Trust believe to be reliable, but neither
Federal-Mogul nor the Trust takes responsibility for the accuracy
thereof.
Information Concerning the Institutional Trustee
The Institutional Trustee, prior to the occurrence of a
default with respect to the Trust Securities and after the curing
of any defaults that may have occurred, has undertaken to perform
only such duties as are specifically set forth in the Declaration
and, after default, shall exercise the same degree of care as a
prudent individual would exercise in the conduct of his or her
own affairs. Subject to such provisions, the Institutional
Trustee is under no obligation to exercise any of the powers
vested in it by the Declaration at the request of any holder of
Convertible Preferred Securities, unless offered reasonable
indemnity by such holder against the costs, expenses and
liabilities that might be incurred thereby. The holders of
Convertible Preferred Securities will not be required to offer
such indemnity in the event such holders, by exercising their
voting rights, direct the Institutional Trustee to take any
action it is empowered to take under the Declaration following a
Declaration Event of Default. The Institutional Trustee also
serves as trustee under the Guarantee and the Indenture.
Conversion Agent, Paying Agent, Registrar and Transfer Agent
The Institutional Trustee will act as Registrar, Transfer
Agent, Conversion Agent and Paying Agent for the Convertible
Preferred Securities.
Registration of transfers of Convertible Preferred
Securities will be effected without charge by or on behalf of the
Trust, but upon payment (with the giving of such indemnity as the
Trust or Federal-Mogul may require) in respect of any tax or
other government charges that may be imposed in relation to it.
The Trust will not be required to register or cause to be
registered the transfer of Convertible Preferred Securities after
such Convertible Preferred Securities have been called for
redemption.
Governing Law
The Declaration and the Convertible Preferred Securities
are governed by, and construed in accordance with, the laws of
the State of Delaware.
Miscellaneous
The Administrators are authorized and directed to operate
the Trust in such a way so that the Trust will not be required to
register as an "investment company" under the 1940 Act or
characterize as other than a grantor trust for United States
federal income tax purposes. Federal-Mogul is authorized and
directed to conduct its affairs so that the Convertible
Subordinated Debentures will be treated as indebtedness of
Federal-Mogul for United States federal income tax purposes. In
this connection, Federal-Mogul and the Administrators are
authorized to take any action, not inconsistent with applicable
law, the certificate of trust of the Trust or the certificate of
incorporation of Federal-Mogul, that each of Federal-Mogul and
the Administrators determine in their discretion to be necessary
or desirable to achieve such end, as long as such action does not
adversely affect the interests of the holders of the Convertible
Preferred Securities or vary the terms thereof.
Holders of the Convertible Preferred Securities have no
preemptive rights.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the
Guarantee, which was executed and delivered by Federal-Mogul for
the benefit of the holders from time to time of Convertible
Preferred Securities. The summary does not purport to be complete
and is subject in all respects to the provisions of, and is
qualified in its entirety by reference to, the Guarantee. The
Guarantee incorporates by reference the terms of the Trust
Indenture Act. The Guarantee will be qualified under the Trust
Indenture Act. The Bank of New York, as the Guarantee Trustee,
holds the Guarantee for the benefit of the holders of the
Convertible Preferred Securities.
General
Pursuant to and to the extent set forth in the Guarantee,
Federal-Mogul agreed to pay in full to the holders of the
Convertible Preferred Securities (except to the extent paid by
the Trust), as and when due, regardless of any defense, right of
set off or counterclaim that the Trust may have or assert, the
following payments (the "Guarantee Payments"), without
duplication: (i) any accrued and unpaid distributions that are
required to be paid on the Convertible Preferred Securities to
the extent the Trust has funds available therefor, (ii) the
Redemption Price, plus accrued and unpaid distributions, with
respect to any Convertible Preferred Securities called for
redemption by the Trust, to the extent the Trust has funds
available therefor and (iii) upon a voluntary or involuntary
liquidation, dissolution, winding-up or termination of the Trust
(other than in connection with the distribution of Convertible
Subordinated Debentures to the holders of Convertible Preferred
Securities or the redemption of all the Convertible Preferred
Securities), the lesser of (a) the aggregate of the liquidation
amount and all accrued and unpaid distributions on the
Convertible Preferred Securities to the date of payment to the
extent the Trust has funds available therefor and (b) the amount
of assets of the Trust remaining available for distribution to
holders of Convertible Preferred Securities upon the liquidation
of the Trust. The holders of a majority in liquidation amount of
the Convertible Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any
remedy available to the Guarantee Trustee or to direct the
exercise of any trust or power conferred upon the Guarantee
Trustee under the Guarantee. Any holder of Convertible Preferred
Securities may directly institute a legal proceeding against
Federal-Mogul to enforce the obligations of Federal-Mogul under
the Guarantee without first instituting a legal proceeding
against the Trust, the Guarantee Trustee or any other person or
entity. If Federal-Mogul were to default on its obligation to pay
amounts payable on the Convertible Subordinated Debentures, the
Trust would lack available funds for the payment of distributions
or amounts payable on redemption of the Convertible Preferred
Securities or otherwise, and in such event holders of the
Convertible Preferred Securities would not be able to rely upon
the Guarantee for payment of such amounts. Instead, a holder of
the Convertible Preferred Securities would be required to rely on
the enforcement (1) by the Institutional Trustee of its rights,
as registered holder of the Convertible Subordinated Debentures,
against Federal-Mogul pursuant to the terms of the Convertible
Subordinated Debentures or (2) by such holder of Convertible
Preferred Securities of its right against Federal-Mogul to
enforce payment on Convertible Subordinated Debentures. See
"Description of the Convertible Subordinated Debentures." The
Declaration provides that each holder of Convertible Preferred
Securities, by acceptance thereof, agrees to the provisions of
the Guarantee, including the subordination provisions thereof,
and the Indenture.
The Guarantee will not apply to any payment of
distributions or Redemption Price, or to payments upon the
dissolution, winding-up or termination of the Trust, except to
the extent the Trust shall have funds available therefor. If
Federal-Mogul does not make interest payments on the Convertible
Subordinated Debentures, the Trust will not pay distributions on
the Convertible Preferred Securities and will not have funds
available therefor. See "Risk Factors--Risks Relating to the
Convertible Preferred Securities--Limitations of the Guarantee"
and "Description of the Convertible Subordinated Debentures." The
Guarantee, when taken together with Federal-Mogul's obligations
under the Convertible Subordinated Debentures, the Indenture and
the Declaration, including its obligations to pay costs,
expenses, debts and liabilities of the Trust (other than with
respect to the Trust Securities) will provide a full and
unconditional guarantee on a subordinated basis by Federal-Mogul
of payments due on the Convertible Preferred Securities.
Federal-Mogul has also agreed separately to irrevocably and
unconditionally guarantee the obligations of the Trust with
respect to the Common Securities (the "Common Securities
Guarantee") to the same extent as the Guarantee, except that upon
the occurrence and during the continuation of a Declaration Event
of Default, holders
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of Convertible Preferred Securities shall have priority over
holders of Common Securities with respect to distributions and
payments on liquidation, redemption or otherwise.
Certain Covenants of Federal-Mogul
In the Guarantee, Federal-Mogul has covenanted that, so
long as any Convertible Preferred Securities remain outstanding,
if (i) Federal-Mogul has exercised its option to defer interest
payments on the Convertible Subordinated Debentures by extending
the interest payment period and such extension shall be
continuing, (ii) Federal Mogul shall be in default with respect
to its payment or other obligations under the Guarantee or (iii)
there shall have occurred and be continuing any event that, with
the giving of notice, would constitute a Declaration Event of
Default, then Federal-Mogul (a) shall not declare or pay
dividends on, make distributions with respect to, or redeem,
purchase or acquire, or make a liquidation payment with respect
to, any of its capital stock (other than (1) purchases or
acquisitions of shares of Federal-Mogul Common Stock in
connection with satisfaction by Federal-Mogul or any of its
subsidiaries of their respective obligations under any employee
benefit plans, (2) as a result of a reclassification of
Federal-Mogul's capital stock or the exchange or conversion of
one class or series of Federal-Mogul's capital stock for another
class or series of capital stock, or (3) the purchase of
fractional interests in shares of Federal-Mogul's capital stock
pursuant to the conversion or exchange provisions of such
Federal-Mogul capital stock or the security being converted or
exchanged for Federal-Mogul capital stock) or make any guarantee
payments with respect to the foregoing and (b) shall not make any
payment of interest, principal or premium, if any, on, or repay,
repurchase or redeem, any debt securities (including guarantees)
issued by Federal-Mogul that rank pari passu with or junior to
the Convertible Subordinated Debentures.
Amendments and Assignment
Except with respect to any changes that do not materially
adversely affect the rights of holders of Convertible Preferred
Securities (in which case no vote will be required), the
Guarantee may be amended only with the prior approval of the
holders of at least a majority in liquidation amount of all the
outstanding Convertible Preferred Securities. The manner of
obtaining any such approval of holders of the Convertible
Preferred Securities will be as set forth under "Description of
the Convertible Preferred Securities--Voting Rights." All
guarantees and agreements contained in the Guarantee shall bind
the successors, assigns, receivers, trustees and representatives
of Federal-Mogul and shall inure to the benefit of the holders of
the Convertible Preferred Securities then outstanding. Except in
connection with any permitted merger or consolidation of
Federal-Mogul with or into another entity or any permitted sale,
transfer or lease of Federal-Mogul's assets to another entity as
described under "Description of the Convertible Subordinated
Debentures--Certain Covenants," Federal-Mogul may not assign its
rights or delegate its obligations under the Guarantee without
the prior approval of the holders of at least a majority of the
aggregate stated liquidation amount of the Convertible Preferred
Securities then outstanding.
Termination of the Guarantee
The Guarantee will terminate as to each holder of
Convertible Preferred Securities upon (i) full payment of the
Redemption Price and accrued and unpaid distributions with
respect to all Convertible Preferred Securities, (ii) upon
distribution of the Convertible Subordinated Debentures held by
the Trust to the holders of the Convertible Preferred Securities,
(iii) upon liquidation of the Trust or (iv) upon the distribution
of Federal-Mogul Common Stock to such holder in respect of the
conversion of such holder's Convertible Securities into
Federal-Mogul Common Stock and will terminate completely upon
full payment of the amounts payable in accordance with the
Declaration.
Events of Default
An event of default under the Guarantee will occur upon (a)
the failure of Federal-Mogul to perform any of its payment or
other obligations thereunder or (b) if applicable, the failure by
Federal-Mogul to deliver Federal-Mogul Common Stock upon an
appropriate election by the holder or holders of Convertible
Preferred Securities to convert the Convertible Preferred
Securities into shares of the Federal-Mogul Common Stock.
The holders of a majority in liquidation amount of
Convertible Preferred Securities relating to the Guarantee have
the right to direct the time, method and place of conducting any
proceeding for any remedy
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available to the Guarantee Trustee in respect of the Guarantee or
to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under the Convertible Preferred Securities. If
the Guarantee Trustee fails to enforce the Guarantee, any holder
of Convertible Preferred Securities relating to such Guarantee
may institute a legal proceeding directly against Federal-Mogul
to enforce the Guarantee Trustee's rights under the Guarantee,
without first instituting a legal proceeding against the Trust,
the Guarantee Trustee or any other person or entity.
Notwithstanding the foregoing, if Federal-Mogul has failed to
make a guarantee payment, a holder of Convertible Preferred
Securities may directly institute a proceeding against
Federal-Mogul for enforcement of the Guarantee for such payment.
Federal-Mogul waives any right or remedy to require that any
action be brought first against the Trust or any other person or
entity before proceeding directly against Federal-Mogul.
Status of the Guarantee
The Guarantee constitutes an unsecured obligation of
Federal-Mogul and ranks (i) subordinate and junior in right of
payment to all other liabilities of Federal-Mogul, (ii) pari
passu with the most senior preferred or preference stock now or
hereafter issued by Federal-Mogul and with any guarantee now or
hereafter entered into by Federal-Mogul in respect of any
preferred or preference stock of any affiliate of Federal-Mogul,
and (iii) senior to Federal-Mogul Common Stock. The terms of the
Convertible Preferred Securities provide that each holder of
Convertible Preferred Securities issued by the Trust by
acceptance thereof agrees to the subordination provisions and
other terms of the Guarantee relating thereto.
The Guarantee will constitute a guarantee of payment and
not of collection (that is, the guaranteed party may institute a
legal proceeding directly against the guarantor to enforce its
rights under the guarantee without instituting a legal proceeding
against any other person or entity).
Information Concerning the Guarantee Trustee
The Guarantee Trustee, prior to the occurrence of a default
with respect to the Guarantee, has undertaken to perform only
such duties as are specifically set forth in the Guarantee and,
after default with respect to the Guarantee, shall exercise the
same degree of care as a prudent man would exercise in the
conduct of his own affairs. Subject to such provision, the
Guarantee Trustee is under no obligation to exercise any of the
powers vested in it by the Guarantee at the request of any holder
of Convertible Preferred Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities
that might be incurred thereby.
Governing Law
The Guarantee is governed by, and construed in accordance
with, the laws of the State of New York.
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DESCRIPTION OF THE CONVERTIBLE SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of
the Convertible Subordinated Debentures in which the Trust
invested the proceeds from the issuance and sale of the Trust
Securities. The following description does not purport to be
complete and is subject to, and is qualified in its entirety by
reference to, the Indenture, dated as of December 1, 1997, as
supplemented by the First Supplemental Indenture dated as of
December 1, 1997 (together, the "Indenture"), between
Federal-Mogul and The Bank of New York, as Trustee (the "Debt
Trustee"), which has been filed as an Exhibit to the Registration
Statement. Certain capitalized terms used herein are defined in
the Indenture. The Indenture will be qualified under the Trust
Indenture Act.
Under certain circumstances involving the dissolution of
the Trust following the occurrence of a Special Event,
Convertible Subordinated Debentures may be distributed, after
satisfaction of liabilities to creditors of the Trust as provided
by applicable law, to the holders of the Trust Securities in
liquidation of the Trust. See "Description of the Convertible
Preferred Securities--Special Event Distribution; Tax Event
Redemption."
General
The Convertible Subordinated Debentures have been issued as
unsecured debt under the Indenture. The Convertible Subordinated
Debentures were limited in aggregate principal amount to
$592,783,550, such amount being the sum of the aggregate stated
liquidation of the Convertible Preferred Securities and the
capital contributed by Federal-Mogul in exchange for the Common
Securities (the "Federal-Mogul Payment").
The Convertible Subordinated Debentures are not subject to
a sinking fund provision. The entire principal amount of the
Convertible Subordinated Debentures will mature and become due
and payable, together with any accrued and unpaid interest
thereon including compound interest and Additional Interest (as
defined herein), if any, on December 1, 2027.
If Convertible Subordinated Debentures are distributed to
holders of Convertible Preferred Securities in liquidation of
such holders' interests in the Trust, such Convertible
Subordinated Debentures will initially be issued in the same form
as the Convertible Preferred Securities that such Convertible
Subordinated Debentures replace. Under certain limited
circumstances, Convertible Subordinated Debentures may be issued
in certificated form in exchange for the Global Security. See
"--Book-Entry and Settlement." In the event that Convertible
Subordinated Debentures are issued in certificated form, such
Convertible Subordinated Debentures will be in denominations of
$50 and integral multiples thereof and may be transferred or
exchanged at the offices described below. Payments on Convertible
Subordinated Debentures represented by the Global Security will
be made to DTC, a successor depositary or, in the event that no
depositary is used, to a Paying Agent for the Convertible
Subordinated Debentures. With respect to Convertible Subordinated
Debentures issued in certificated form, principal and interest
will be payable, the transfer of the Convertible Subordinated
Debentures will be registrable and Convertible Subordinated
Debentures will be exchangeable for Convertible Subordinated
Debentures of other denominations of a like aggregate principal
amount at the corporate trust office of the Institutional Trustee
at 101 Barclay Street, 21st floor, New York, New York, 10286;
provided, that payment of interest may be made at the option of
Federal-Mogul by check mailed to the address of the holder
entitled thereto or by wire transfer to an account appropriately
designated by the holder entitled thereto. Notwithstanding the
foregoing, so long as the holder of any Convertible Subordinated
Debenture is the Institutional Trustee, the payment of principal
and interest on such Convertible Subordinated Debenture will be
made at such place and to such account as may be designated by
the Institutional Trustee.
The Indenture does not contain provisions that afford
holders of the Convertible Subordinated Debentures protection in
the event of a highly leveraged transaction involving
Federal-Mogul that would adversely affect such holders.
Interest
Each Convertible Subordinated Debenture bears interest at
the rate of 7% per annum from the first date of original
issuance, payable quarterly in arrears on March 1, June 1,
September 1 and December 1 of each year (each an "Interest
Payment Date"), commencing March 1, 1998 to the person in whose
name such Convertible
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Subordinated Debenture is registered, subject to certain
exceptions, on the Business Day next preceding such Interest
Payment Date. At any time when Convertible Subordinated
Debentures are not held solely in book-entry form, the record
date for each Interest Payment Date shall be 15 days prior to
such Interest Payment Date.
The amount of interest payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months.
The amount of interest payable for any period shorter than a full
quarterly period for which interest is computed will be computed
on the basis of the actual number of days elapsed per 30-day
month. In the event that any date on which interest is payable on
the Convertible Subordinated Debentures is not a Business Day,
then payment of the interest payable on such date will be made on
the next succeeding day that is a Business Day (and without any
interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar
year, then such payment shall be made on the immediately
preceding Business Day, in each case with the same force and
effect as if made on such date.
Option to Extend Interest Payment Period
So long as Federal-Mogul shall not be in default in the
payment of interest on the Convertible Subordinated Debentures,
Federal-Mogul shall have the right at any time, and from time to
time, during the term of the Convertible Subordinated Debentures
to defer payments of interest by extending the interest payment
period for a period not exceeding 20 consecutive quarters, at the
end of which Extension Period, Federal-Mogul shall pay all
interest then accrued and unpaid (including any Additional
Interest, as herein defined) together with interest thereon
compounded quarterly at the rate specified for the Convertible
Subordinated Debentures to the extent permitted by applicable law
("Compound Interest"); provided, that during any such Extension
Period, (a) Federal-Mogul shall not declare or pay dividends on,
make any distribution with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to any of its
capital stock (other than (i) purchases or acquisitions of shares
of Federal-Mogul Common Stock in connection with satisfaction by
Federal-Mogul or any of its subsidiaries of their respective
obligations under any employee benefit plans, (ii) as a result of
a reclassification of Federal-Mogul's capital stock or the
exchange or conversion of one class or series of Federal-Mogul's
capital stock for another class or series of capital stock or
(iii) the purchase of fractional interests in shares of
Federal-Mogul's capital stock pursuant to the conversion or
exchange provisions of such capital stock or the security being
converted or exchanged for Federal-Mogul capital stock) or make
any guarantee payments with respect to the foregoing and
(b) Federal-Mogul shall not make any payment of interest,
principal or premium, if any, on, or repay, repurchase or redeem,
any debt securities (including guarantees) issued by
Federal-Mogul that rank pari passu with or junior to the
Convertible Subordinated Debentures. Prior to the termination of
any such Extension Period, Federal-Mogul may further extend the
interest payment period; provided, that any such Extension
Period, together with all such previous and further extensions,
may not exceed 20 consecutive quarters or extend beyond the
maturity of the Convertible Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all
amounts then due, Federal-Mogul may commence a new Extension
Period, subject to the terms set forth in this section. No
interest during an Extension Period, except at the end thereof,
shall be due and payable. Federal-Mogul has no present intention
of exercising its right to defer payments of interest by
extending the interest payment period on the Convertible
Subordinated Debentures. If the Institutional Trustee shall be
the sole holder of the Convertible Subordinated Debentures,
Federal-Mogul shall give the Administrators and the Institutional
Trustee notice of its selection of such Extension Period one
Business Day prior to the earlier of (i) the date distributions
on the Convertible Preferred Securities are payable or (ii) if
applicable, the date the Administrators are required to give
notice to any applicable self-regulatory organization or to
holders of the Convertible Preferred Securities of the record
date or the date such distribution is payable.
Additional Interest
If at any time the Trust shall be required to pay any
taxes, duties, assessments or governmental charges of whatever
nature (other than withholding taxes) imposed by the United
States or any other taxing authority then, in any such case,
Federal-Mogul will pay as additional interest ("Additional
Interest") such additional amounts as shall be required so that
the net amounts received and retained by the Trust after paying
any such taxes, duties, assessments or other governmental charges
will be not less than the amounts the Trust would have received
had no such taxes, duties, assessments or other governmental
charges been imposed.
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Subordination
The Indenture provides that the Convertible Subordinated
Debentures are subordinated and junior in right of payment to all
Senior Indebtedness of Federal-Mogul. No payment of principal
(including redemption payments, if any), premium, if any, or
interest on the Convertible Subordinated Debentures may be made
(i) if any Senior Indebtedness of Federal-Mogul is not paid when
due and any applicable grace period with respect to such default
has ended and such default has not been cured or waived or ceased
to exist or (ii) if the maturity of any Senior Indebtedness of
Federal-Mogul has been accelerated because of a default.
Federal-Mogul also may not make any payment upon or in respect of
the Convertible Debentures if a default in the payment of the
principal of, premium, if any, interest or other obligations in
respect of Senior Indebtedness occurs and is continuing beyond
any applicable period of grace.
Upon any distribution of assets of Federal-Mogul to
creditors upon any dissolution, winding-up, liquidation or
reorganization, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceedings, all
principal, premium, if any, and interest due or to become due on
all Senior Indebtedness of Federal-Mogul must be paid in full
before the holders of Convertible Subordinated Debentures are
entitled to receive or retain any payment. Upon satisfaction of
all claims of all Senior Indebtedness then outstanding, the
rights of the holders of the Convertible Subordinated Debentures
will be subrogated to the rights of the holders of Senior
Indebtedness of Federal-Mogul to receive payments or
distributions applicable to Senior Indebtedness until all amounts
owing on the Convertible Subordinated Debentures are paid in
full.
The term "Senior Indebtedness" means, with respect to
Federal-Mogul, (i) the principal, premium, if any, and interest
in respect of (A) indebtedness of such obligor for money borrowed
under any credit agreements, notes, guarantees or similar
documents and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such
obligor, (ii) all capital lease obligations of such obligor,
(iii) all obligations of such obligor issued or assumed as the
deferred purchase price of property, all conditional sale
obligations of such obligor and all obligations of such obligor
under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business), (iv) all
obligations of such obligor for the reimbursement on any letter
of credit, bankers' acceptance, security purchase facility or
similar credit transaction, (v) all obligations of such obligor
(contingent or otherwise) with respect to an interest rate or
other swap, cap or collar agreements, oil or gas commodity hedge
transactions or other similar instruments or agreements or
foreign currency hedge, exchange, purchase or similar instruments
or agreements, (vi) all obligations of the types referred to in
clauses (i) through (v) above of other persons for the payment of
which such obligor is responsible or liable as obligor, guarantor
or otherwise and (vii) all obligations of the types referred to
in clauses (i) through (vi) above of other persons secured by any
lien on any property or asset of such obligor (whether or not
such obligation is assumed by such obligor), whether outstanding
on the date of the Indenture or thereafter created, incurred,
assumed, guaranteed or in effect guaranteed by such obligor,
except for (1) any such indebtedness that is by its terms
expressly subordinated to or pari passu with the Convertible
Subordinated Debentures and (2) any indebtedness between or among
such obligor or its affiliates, including all other debt
securities and guarantees in respect of those debt securities,
issued to any trust, or a trustee of such trust, partnership or
other entity affiliated with Federal-Mogul that is a financing
vehicle of Federal-Mogul (a "financing entity") in connection
with the issuance by such financing entity of preferred
securities or other securities that rank pari passu with, or
junior to, the Convertible Preferred Securities. Such Senior
Indebtedness shall continue to be Senior Indebtedness and be
entitled to the benefits of the subordination provisions
irrespective of any deferrals, renewals, extensions or refunding
of, or amendments, modifications, supplements or waivers of any
term of such Senior Indebtedness.
There are no terms in the Convertible Preferred Securities,
the Convertible Subordinated Debentures, the Indenture or the
Guarantee that limit Federal-Mogul's ability to incur additional
indebtedness, including Senior Indebtedness, or to grant security
interests to secure outstanding or new indebtedness.
Certain Covenants
In the Indenture, Federal-Mogul has covenanted that, so
long as any Convertible Subordinated Debentures are outstanding,
if (i) there shall have occurred any event that would constitute
an Event of Default, (ii) Federal-Mogul shall be in default with
respect to its payment of any obligations under the Guarantee, or
(iii) Federal-Mogul
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shall have given notice of its election to defer interest
payments on the Convertible Subordinated Debentures by extending
the interest payment period and such period, or any extension
thereof, shall be continuing, then Federal-Mogul (a) shall not
declare or pay dividends on, make distributions with respect to,
or redeem, purchase or acquire, or make a liquidation payment
with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of Federal-Mogul Common Stock
in connection with satisfaction by Federal-Mogul or any of its
subsidiaries of their respective obligations under any employee
benefit plans, (ii) as a result of a reclassification of
Federal-Mogul's capital stock or the exchange or conversion of
one class or series of Federal-Mogul's capital stock for another
class or series of capital stock, or (iii) the purchase of
fractional interests in shares of Federal-Mogul's capital stock
pursuant to the conversion or exchange provisions of
Federal-Mogul's capital stock or the security being converted or
exchanged for Federal-Mogul capital stock) or make any guarantee
payments with respect to the foregoing, and (b) shall not make
any payment of interest, principal or premium, if any, on, or
repay, repurchase or redeem, any debt securities (including
guarantees) issued by Federal-Mogul that rank pari passu with or
junior to the Convertible Subordinated Debentures.
Federal-Mogul covenants (i) to directly or indirectly
maintain 100% ownership of the Common Securities; provided, that
any permitted successor of Federal-Mogul under the Indenture may
succeed to Federal-Mogul's ownership of such Common Securities,
(ii) to use its reasonable efforts to cause the Trust (x) to
remain a statutory business trust, except in connection with the
distribution of Convertible Subordinated Debentures to the
holders of Trust Securities in liquidation of the Trust, the
redemption of all of the Trust Securities, or certain mergers,
consolidations or amalgamations, each as permitted by the
Declaration, and (y) to continue to be classified as a grantor
trust for United States federal income tax purposes and (iii) to
use its reasonable efforts to cause each holder of Trust
Securities to be treated as owning an undivided beneficial
interest in the Convertible Subordinated Debentures.
Federal-Mogul may not merge or consolidate or sell or
convey all or substantially all of its assets to any other
corporation or person unless the continuing corporation (if other
than Federal-Mogul) is a domestic corporation and assumes
Federal-Mogul's obligations on the Convertible Subordinated
Debentures and under the Indenture, and unless after giving
effect to such transaction Federal-Mogul or such continuing
corporation would not be in default under the Indenture.
Redemption at the Option of Federal-Mogul
Federal-Mogul shall have the right to redeem the
Convertible Subordinated Debentures, in whole or in part, from
time to time, on or after December 6, 2000 upon not less than 30
nor more than 60 days' notice, at the following prices (expressed
as percentages of the principal amount of the Convertible
Subordinated Debentures) together with accrued and unpaid
interest, including Compound Interest (as defined herein) to, but
excluding, the redemption date. If the Convertible Subordinated
Debentures are redeemed during the period beginning December 6,
2000 and ending November 30, 2001, the Redemption Price shall be
104.9%. The table below shows Redemption Prices for Convertible
Subordinated Debentures redeemed during the 12-month period
beginning December 1:
Year Redemption Price
- ---- ----------------
2001...................................... 104.2%
2002...................................... 103.5
2003...................................... 102.8
2004...................................... 102.1
2005...................................... 101.4
2006...................................... 100.7
2007 and thereafter....................... 100.0
If Convertible Subordinated Debentures are redeemed on any
March 1, June 1, September 1 or December 1 accrued and unpaid
interest shall be payable to holders of record on the relevant
record date.
Federal-Mogul shall also have the right to redeem the
Convertible Subordinated Debentures at any time in certain
circumstances upon the occurrence of a Special Event as described
under "Description of the Convertible
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Preferred Securities--Special Event Distribution; Tax Event
Redemption" at 100% of the principal amount thereof together with
accrued and unpaid interest (including Compound Interest) to the
redemption date.
Federal-Mogul may not redeem any Convertible Subordinated
Debentures unless all accrued and unpaid interest thereon
(including Compound Interest) has been paid for all quarterly
periods terminating on or prior to the date of notice of
redemption.
So long as the corresponding Convertible Preferred
Securities are outstanding, the proceeds from the redemption of
the Convertible Subordinated Debentures will be used to redeem
Convertible Preferred Securities.
Conversion of the Convertible Subordinated Debentures
The Convertible Subordinated Debentures are convertible
into Federal-Mogul Common Stock at the option of the holders of
the Convertible Subordinated Debentures at any time beginning 90
days following the latest date of original issuance of any
Convertible Preferred Securities through the close of business on
the Business Day prior to the maturity date of the Convertible
Subordinated Debentures (or, in the case of Convertible
Subordinated Debentures called for redemption, the close of
business on the Business Day prior to the Redemption Date) at an
initial conversion rate of .9709 shares of Federal-Mogul Common
Stock for each Convertible Subordinated Debenture (equivalent to
a Conversion Price of $51.50 per share of Federal-Mogul Common
Stock), subject to adjustment as described under "Description of
the Convertible Preferred Securities--Conversion Rights." The
Trust has agreed not to convert Convertible Subordinated
Debentures held by it except pursuant to a notice of conversion
delivered to the Conversion Agent by a holder of Convertible
Preferred Securities. Upon surrender of a Convertible Preferred
Security to the Conversion Agent for conversion, the Trust will
distribute Convertible Subordinated Debentures to the Conversion
Agent on behalf of the holder of the Convertible Preferred
Securities so converted, whereupon the Conversion Agent will
convert such Convertible Subordinated Debentures to Federal-Mogul
Common Stock on behalf of such holder. Federal-Mogul's delivery
to the holders of the Convertible Subordinated Debentures
(through the Conversion Agent) of the fixed whole number of
shares of Federal-Mogul Common Stock into which the Convertible
Subordinated Debentures are convertible (together with the cash
payment, if any, in lieu of fractional shares) will be deemed to
satisfy Federal-Mogul's obligation to pay the principal amount of
the Convertible Subordinated Debentures so converted, and the
accrued and unpaid interest thereon attributable to the period
from the last date to which interest has been paid or duly
provided for; provided, that if any Convertible Subordinated
Debenture is converted after the close of business on a record
date for payment of interest and on or prior to the related
Interest Payment Date, the interest payable on such Interest
Payment Date with respect to such Convertible Subordinated
Debenture will be paid to the Trust (which will distribute such
interest to the converting holder) or other holder of Convertible
Subordinated Debentures, as the case may be, despite such
conversion, and when surrendered for conversion, such Convertible
Subordinated Debenture (other than a Convertible Subordinated
Debenture or a portion of a Convertible Subordinated Debenture
called for redemption on a redemption date occurring after such
record date and on or prior to such distribution date) must be
accompanied by payment of an amount equal to the distribution
payable on such distribution date; provided further, that if a
Redemption Date falls between such record date and the related
Interest Payment Date, the amount of such payment shall include
interest accrued to, but excluding, such Redemption Date. Each
conversion shall be deemed to have been effected immediately
prior to the close of business on the day on which the related
conversion notice was received by the Conversion Agent.
Indenture Events of Default
The Indenture provides that any one or more of the
following described events, which has occurred and is continuing,
constitutes an "Event of Default" with respect to the Convertible
Subordinated Debentures: (i) failure for 30 days to pay interest
on the Convertible Subordinated Debentures, including any
Additional Interest or compound Interest, in respect thereof, or
any Liquidated Damages, when due; provided, that a valid
extension of an interest payment period will not constitute a
default in the payment of interest for this purpose; (ii) failure
to pay principal of or premium, if any, on the Convertible
Subordinated Debentures when due whether at maturity, upon
redemption, by declaration or otherwise; (iii) failure by
Federal-Mogul to deliver shares of Federal-Mogul Common Stock
upon an election by a holder of Convertible Preferred Securities
to convert such Convertible Preferred Securities; (iv) failure to
observe or perform any other covenant contained in the Indenture
for 90 days after notice
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to Federal-Mogul by the Debt Trustee or by the holders of not
less than 25% in aggregate outstanding principal amount of the
Convertible Subordinated Debentures; (v) the dissolution, winding
up or termination of the Trust, except in connection with the
distribution of Convertible Subordinated Debentures to the
holders of Convertible Preferred Securities in liquidation of the
Trust upon the redemption of all outstanding Convertible
Preferred Securities or in connection with certain mergers,
consolidation or amalgamations permitted by the Declaration; or
(vi) certain events in bankruptcy, insolvency or reorganization
of Federal-Mogul.
If any Indenture Event of Default shall occur and be
continuing, the Debt Trustee or the holders of not less than 25%
in aggregate principal amount of the outstanding Convertible
Subordinated Debentures may declare the principal of and interest
on the Convertible Subordinated Debentures due and payable
immediately; provided, that, after such acceleration, but before
a judgment or decree based on acceleration, the holders of a
majority in aggregate principal amount of outstanding Convertible
Subordinated Debentures may, under certain circumstances, rescind
and annul such acceleration if all Indenture Events of Default,
other than the nonpayment of accelerated principal, have been
cured or waived as provided in the Indenture.
A default under any other indebtedness of Federal-Mogul or
the Trust would not constitute an Indenture Event of Default
under the Convertible Subordinated Debentures.
Subject to the provisions of the Indenture relating to the
duties of the Debt Trustee in case an Indenture Event of Default
occurs and is continuing, the Debt Trustee will be under no
obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any holders of
Convertible Subordinated Debentures, unless such holders shall
have offered to the Debt Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the
holders of a majority in aggregate principal amount of the
outstanding Convertible Subordinated Debentures will have the
right to direct the time, method and place of conducting any
proceeding for any remedy available to the Debt Trustee, or
exercising any trust or power conferred on the Debt Trustee.
No holder of any Convertible Subordinated Debenture will
have any right to institute any proceeding with respect to the
Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Debt Trustee written notice of a
continuing Indenture Event of Default and, if the Institutional
Trustee is not the sole holder of Convertible Subordinated
Debentures, unless the holders of at least 25% in aggregate
principal amount of the outstanding Convertible Subordinated
Debentures shall also have made written request, and offered
reasonable indemnity, to the Debt Trustee to institute such
proceeding as Debt Trustee, and the Debt Trustee shall not have
received from the holders of a majority in aggregate principal
amount of the outstanding Convertible Subordinated Debentures a
direction inconsistent with such request. However, such
limitations do not apply to a suit instituted by a holder of a
Convertible Subordinated Debenture for enforcement of payment of
the principal of or interest on such Convertible Subordinated
Debenture on or after the respective due dates expressed in such
Convertible Subordinated Debenture.
An Indenture Event of Default also constitutes a
Declaration Event of Default. The holders of Convertible
Preferred Securities in certain circumstances have the right to
direct the Institutional Trustee to exercise its rights as the
holder of the Convertible Subordinated Debentures. See
"Description of the Convertible Preferred Securities--Declaration
Events of Default" and "--Voting Rights." Notwithstanding the
foregoing, if an Event of Default has occurred and is continuing
and such event is attributable to the failure of Federal-Mogul to
pay interest or principal on the Convertible Subordinated
Debentures on the date such interest or principal is otherwise
payable (or in the case of redemption, the redemption date), then
a holder of Convertible Preferred Securities may institute a
Direct Action for payment on or after the respective due date
specified in the Convertible Subordinated Debentures directly of
the principal or interest on the Convertible Subordinated
Debentures having an aggregate principal amount equal to the
aggregate liquidation amount of the Convertible Preferred
Securities of such holder. Notwithstanding any payments made to
such holder of Convertible Preferred Securities by Federal-Mogul
in connection with a Direct Action, Federal-Mogul shall remain
obligated to pay the principal of or interest on the Convertible
Subordinated Debentures held by the Trust or the Institutional
Trustee of the Trust, and Federal-Mogul shall be subrogated to
the rights of the holder of such Convertible Preferred Securities
with respect to payments on the Convertible Preferred Securities
to the extent of any payments made by Federal-Mogul to such
holder in any Direct Action. The holders
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of Convertible Preferred Securities will not be able to exercise
directly any other remedy available to the holders of the
Convertible Subordinated Debentures.
The Indenture contains provisions permitting the holders of
a majority in aggregate principal amount of the Convertible
Subordinated Debentures, on behalf of all of the holders of the
Convertible Subordinated Debentures, to waive any past default in
the performance of any of the covenants contained in the
Indenture, except a default in the payment of principal or
interest on any of the Convertible Subordinated Debentures.
Book-Entry and Settlement
If distributed to holders of Convertible Preferred
Securities in connection with the involuntary or voluntary
dissolution, winding-up or liquidation of the Trust as a result
of the occurrence of a Special Event, the Convertible
Subordinated Debentures will be issued in the same form as the
Convertible Preferred Securities that such Convertible
Subordinated Debentures replace. Except under the limited
circumstances described below, Convertible Subordinated
Debentures represented by the Global Security will not be
exchangeable for, and will not otherwise be issuable as,
Convertible Subordinated Debentures in definitive form. The
Global Security may not be transferred except by DTC to a nominee
of DTC or by a nominee of DTC to DTC or another nominee of DTC or
to successor depositary or its nominee. The laws of some
jurisdictions may require that certain purchasers of securities
take physical delivery of such securities in definitive form.
Such laws may impair the ability to transfer beneficial interests
in the Global Security.
Except as provided below, owners of beneficial interests in
the Global Security will not be entitled to receive physical
delivery of Convertible Subordinated Debentures in definitive
form and will not be considered the holders (as defined in the
Indenture) thereof for any purpose under the Indenture, and the
Global Security representing Convertible Subordinated Debentures
shall not be exchangeable, except for another Global Security of
like denomination and tenor to be registered in the name of DTC
or its nominee or to a successor depositary or its nominee.
Accordingly, each beneficial owner must rely on the procedures of
DTC or if such person is not a Participant, on the procedures of
the Participant through which such person owns its interest to
exercise any rights of a holder under the Indenture.
If Convertible Subordinated Debentures are distributed to
holders of Convertible Preferred Securities in liquidation of
such holders' interests in the Trust and such Convertible
Subordinated Debentures are represented by the Global Security,
DTC will act as securities depositary for the Convertible
Subordinated Debentures represented by such Global Security. For
a description of DTC and the specific terms of the depositary
arrangements, see "Description of the Convertible Preferred
Securities--Form, Denomination and Registration--Global
Convertible Preferred Security; Book-Entry Form." As of November
24, 1997, the description therein of DTC's book-entry system and
DTC's practices as they relate to purchases, transfers, notices
and payments with respect to the Convertible Preferred Securities
apply in all material respects to any debt obligations
represented by one or more global securities held by DTC.
Federal-Mogul may appoint a successor to DTC or any successor
depositary in the event DTC or such successor depositary is
unable or unwilling to continue as a depositary for such global
securities.
None of Federal-Mogul, the Trust, the Institutional
Trustee, any paying agent and any other agent of Federal-Mogul or
the Debt Trustee will have any responsibility or liability for
any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Security
representing Convertible Subordinated Debentures or for
maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Global Security shall be exchangeable for Convertible
Subordinated Debentures registered in the names of persons other
than DTC or its nominee only if (i) DTC notifies Federal-Mogul
that it is unwilling or unable to continue as a depositary for
the Global Security and no successor depositary shall have been
appointed, (ii) DTC, at any time, ceases to be a clearing agency
registered under the Exchange Act when DTC is required to be so
registered to act as such depositary and no successor depositary
shall have been appointed, (iii) Federal-Mogul, in its sole
discretion, determines that the Global Security shall be so
exchangeable or (iv) there shall have occurred an Indenture Event
of Default with respect to such Convertible Subordinated
Debentures. If the Global Security is exchangeable pursuant to
the preceding sentence, it shall be exchangeable for Convertible
Subordinated Debentures
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registered in such names as DTC shall direct. It is expected that
such instructions will be based upon directions received by DTC
from its Participants with respect to ownership of beneficial
interests in the Global Security.
Classification of the Convertible Subordinated Debentures
Federal-Mogul, the Trust and the holders of the Convertible
Preferred Securities (by the acceptance of a beneficial interest
in a Convertible Preferred Security) have agreed to treat the
Convertible Subordinated Debentures as indebtedness for all
United States tax purposes and the Convertible Preferred
Securities as evidence of an indirect beneficial ownership
interest in the Convertible Subordinated Debentures. Under
certain circumstances the deduction for the interest on the
Convertible Subordinated Debentures may be limited for United
States federal income tax purposes.
Modifications and Amendments of the Indenture
The Indenture contains provisions permitting Federal-Mogul
and the Debt Trustee, with the consent of the holders of not less
than a majority in aggregate principal amount of the outstanding
Convertible Subordinated Debentures, to modify the Indenture or
the rights of the holders of Convertible Subordinated Debentures;
provided, however, that no such modification may, without the
consent of the holder of each outstanding Convertible
Subordinated Debenture affected thereby, (i) extend the stated
maturity of the Convertible Subordinated Debentures or reduce the
principal amount thereof, or reduce the rate or extend the time
for payment of interest thereon, or reduce any premium payable
upon the redemption thereof, or adversely affect the right to
convert Convertible Subordinated Debentures or the subordination
provisions of the Indenture, or (ii) reduce the percentage in
aggregate principal amount of outstanding Convertible
Subordinated Debentures, the holders of which are required to
consent to any such supplemental indenture.
In addition, Federal-Mogul and the Debt Trustee may
execute, without the consent of any holder of Convertible
Subordinated Debentures, any supplemental indenture to cure any
ambiguities, to comply with the Trust Indenture Act of 1939 and
for certain other customary purposes.
Information Concerning the Debt Trustee
The Debt Trustee, prior to default, undertakes to perform
only such duties as are specifically set forth in the Indenture
and, after default, shall exercise the same degree of care as a
prudent individual would exercise in the conduct of his or her
own affairs. Subject to such provision, the Debt Trustee is under
no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Convertible
Subordinated Debentures, unless offered reasonable indemnity by
such holder against the costs, expenses and liabilities that
might be incurred thereby. The Debt Trustee is not required to
expend or risk its own funds or otherwise incur personal
financial liability in the performance of its duties if the Debt
Trustee reasonably believes that repayment or adequate indemnity
is not reasonably assured to it.
The Indenture also contains limitations on the right of the
Debt Trustee, as a creditor of Federal-Mogul, to obtain payment
of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise.
In addition, the Debt Trustee may be deemed to have a conflicting
interest and may be required to resign as Debt Trustee if at the
time of a default under the Indenture it is a creditor of
Federal-Mogul. Federal-Mogul may from time to time maintain
deposit accounts and conduct its banking transactions with the
Debt Trustee in the ordinary course of business.
Governing Law
The Indenture and the Convertible Subordinated Debentures
are governed by, and construed in accordance with, the laws of
the State of New York.
Miscellaneous
The Indenture provides that Federal-Mogul will pay all fees
and expenses related to (i) the offering of the Trust Securities
and the Convertible Subordinated Debentures, (ii) the
organization, maintenance and dissolution of
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the Trust, (iii) the retention of the FMFT Trustees and
Administrators and (iv) the enforcement by the Institutional
Trustee of the rights of the holders of the Convertible Preferred
Securities.
Federal-Mogul will have the right at all times to assign
any of its respective rights or obligations under the Indenture
to a direct or indirect wholly-owned subsidiary of Federal-Mogul;
provided, that, in the event of any such assignment,
Federal-Mogul will remain liable for all of their respective
obligations. Subject to the foregoing, the Indenture will be
binding upon and inure to the benefit of the parties thereto and
their respective successors and assigns. The Indenture provides
that it may not otherwise be assigned by the parties thereto.
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EFFECT OF OBLIGATIONS UNDER THE
CONVERTIBLE SUBORDINATED DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the
Trust is to issue the Trust Securities evidencing undivided
beneficial interests in the assets of the Trust, and to invest
the proceeds from such issuance and sale in the Convertible
Subordinated Debentures.
As long as payments of interest and other payments are made
when due on the Convertible Subordinated Debentures, such
payments will be sufficient to cover distributions and payments
due on the Trust Securities because of the following factors: (i)
the aggregate principal amount of Convertible Subordinated
Debentures will be equal to the sum of the aggregate stated
liquidation amount of the Trust Securities; (ii) the interest
rate and the interest and other payment date on the Convertible
Subordinated Debentures will match the distribution rate and
distribution and other payment dates for the Convertible
Preferred Securities; (iii) Federal-Mogul shall pay, and the
Trust shall not be obligated to pay, directly or indirectly, all
costs, expenses, debt, and obligations of the Trust (other than
with respect to the Trust Securities); and (iv) the Declaration
further provides that the FMFT Trustees shall not take or cause
or permit the Trust to, among other things, engage in any
activity that is not consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are
available) and other payments due on the Convertible Preferred
Securities (to the extent funds therefor are available) are
guaranteed by Federal-Mogul as and to the extent set forth under
"Description of the Guarantee." If Federal-Mogul does not make
interest payments on the Convertible Subordinated Debentures
purchased by the Trust, it is expected that the Trust will not
have sufficient funds to pay distributions on the Convertible
Preferred Securities. The Guarantee is a full guarantee on a
subordinated basis with respect to the Convertible Preferred
Securities issued by the Trust from the time of its issuance but
does not apply to any payment of distributions unless and until
the Trust has sufficient funds for the payment of such
distributions. The Guarantee covers the payment of distributions
and other payments on the Convertible Preferred Securities only
if and to the extent that Federal-Mogul has made a payment of
interest or principal on the Convertible Subordinated Debentures
held by the Trust as its sole asset. See "Risk Factors--Risks
Relating to the Convertible Preferred Securities--Limitations of
the Guarantee." The Guarantee, when taken together with
Federal-Mogul's obligations under the Convertible Subordinated
Debentures, the Indenture and the Declaration, including its
obligations to pay costs, expenses, debts and liabilities of the
Trust (other than with respect to the Trust Securities), provides
a full and unconditional guarantee on a subordinated basis of
amounts on the Convertible Preferred Securities.
If Federal-Mogul fails to make interest or other payments
on the Convertible Subordinated Debentures when due (after giving
effect to any Extension Period), the Declaration provides a
mechanism whereby a holder of the Convertible Preferred
Securities, using the procedures described in "Description of the
Convertible Preferred Securities--Voting Rights," may direct the
Institutional Trustee to enforce its rights under the Convertible
Subordinated Debentures. Notwithstanding the foregoing, if a
Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of Federal-Mogul to pay
principal or interest on the Convertible Subordinated Debentures
on the respective dates such principal or interest is payable
(or, in the case of redemption, on the redemption date), then a
holder of Convertible Preferred Securities may institute a Direct
Action for payment on or after the respective due date specified
in the Convertible Subordinated Debentures. In connection with
such Direct Action, Federal-Mogul will be subrogated to the
rights of such holder of Convertible Preferred Securities under
the Declaration to the extent of any payment made by
Federal-Mogul to such holder of Convertible Preferred Securities
in such Direct Action. Federal-Mogul, under the Guarantee,
acknowledges that the Guarantee Trustee shall enforce the
Guarantee on behalf of the holders of the Convertible Preferred
Securities. If Federal-Mogul fails to make payments under the
Guarantee, the Guarantee provides a mechanism whereby the holders
of the Convertible Preferred Securities may direct the Guarantee
Trustee to enforce its rights thereunder. Any holder of
Convertible Preferred Securities may institute a legal proceeding
directly against Federal-Mogul to enforce such holder's right to
receive payment under the Guarantee without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any
other person or entity.
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DESCRIPTION OF CAPITAL STOCK
The following statements are summaries of certain
provisions of Federal-Mogul's Restated Articles of Incorporation
(the "Articles of Incorporation") and Bylaws and of the Rights
Agreement, dated as of November 3, 1988, as amended, between
Federal-Mogul and The Bank of New York, as Rights Agent (the
"Rights Agreement"). Such summaries do not purport to be complete
and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the Restated Articles of
Incorporation, the Bylaws and the Rights Agreement, including
definitions therein of certain terms.
Authorized Capital Stock
Federal-Mogul's authorized capital stock consists of
5,000,000 shares of preferred stock, which is issuable in series,
and 260,000,000 shares of Common Stock. At May 12, 1998,
Federal-Mogul had outstanding 762,939 shares of Series C ESOP
Convertible Preferred Stock and 40,606,439 shares of Common
Stock. At May 12, 1998, of 1,500,000 shares of Common Stock
authorized in 1984 under Federal-Mogul's incentive stock plans,
no shares remained issuable; of 2,300,000 shares authorized in
1989, an aggregate of 357,548 shares remained issuable; and of
1,300,000 shares authorized in 1997, an aggregate of 468,659
shares remained issuable. See "--Incentive Stock Plans."
Common Stock
The holders of Common Stock are entitled to receive such
dividends as may be declared from time to time by the Board of
Directors out of funds legally available therefor. The holders of
Common Stock are entitled to one vote per share on all matters
submitted to a vote of shareholders and do not have cumulative
voting rights. Holders of Common Stock are entitled to receive,
upon any liquidation of Federal-Mogul, all remaining assets
available for distribution to shareholders after satisfaction of
Federal-Mogul's liabilities and the preferential rights of any
preferred stock that may then be issued and outstanding. The
outstanding shares of Common Stock are, and the shares of Common
Stock obtained upon conversion of the Convertible Preferred
Securities will be, fully paid and nonassessable. The Common
Stock is listed on the NYSE. The holders of Common Stock have no
preemptive, conversion or redemption rights. The registrar and
transfer agent for the Common Stock is The Bank of New York.
Preferred Share Purchase Rights
In 1988, Federal-Mogul's Board of Directors authorized the
distribution of one Preferred Share Purchase Right (a "Right")
for each outstanding share of Common Stock. Each Right entitles
the holder thereof to buy one-half of one one-hundredth of a
share of Series B Junior Participating Preferred Stock at a price
of $70.00. The Rights are governed by the Rights Agreement.
As distributed, the Rights trade together with the Common
Stock. 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 (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 outstanding Common Stock. If the acquiring
person or group of persons acquires 10% or more of the Common
Stock, each Right (other than those held by the acquirer) will
entitle its holder to purchase, at the Right's exercise price,
shares of Common Stock having a market value of twice the Right's
exercise price. Additionally, if Federal-Mogul is acquired in a
merger or other business combination, each Right (other than
those held by the surviving or acquiring company) will entitle
its holder to purchase, at the Right's exercise price, shares of
the acquiring company's stock (or Common Stock of Federal-Mogul
if it is the surviving corporation) having a market value of
twice the Right's exercise price.
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Rights may be redeemed at the option of the Board of
Directors for $0.005 per Right at any time before a person or
group of persons acquires 10% or more of Federal-Mogul'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.
The Rights have certain anti-takeover effects. The Rights
will cause substantial dilution to a person or group that
attempts to acquire Federal-Mogul in a manner that causes the
Rights to become exercisable. Federal-Mogul believes, however,
that the Rights would neither affect any prospective offeror
willing to negotiate with the Board of Directors of Federal-Mogul
nor interfere with any merger or other business combination
approved by the Board of Directors.
Series C ESOP Convertible Preferred Stock
In February, 1989, Federal-Mogul established an Employee
Stock Ownership Plan (the "ESOP") and issued 1,000,000 shares of
Series C ESOP Convertible Preferred Stock ("Series C Stock") to
the ESOP, of which 762,939 shares were outstanding at March 31,
1998. Such shares bear a dividend of $4.78125 per share per
annum, subject to certain adjustments. The share of Series C ESOP
Convertible Preferred Stock are convertible into shares of Common
Stock at a rate of two shares of Common Stock per share, subject
to adjustment. The Series C Stock may be issued only to a trustee
acting on behalf of an employee stock ownership plan or other
employee benefit plan of Federal-Mogul and will be automatically
converted into shares of Common Stock in the event of any
transfer to a person other than such trustee. Such Series C Stock
shares provide for a liquidation preference of $63.75 per share
plus accrued and unpaid dividends. The Series C Stock is
redeemable, in whole or in part, at the option of Federal-Mogul
at a redemption price per share currently equal to 100.75% of the
liquidation preference, declining to 100% of the liquidation
preference on and after January 1, 1999, plus, in each case,
accrued and unpaid dividends. Holders of the Series C Stock have
full voting rights and generally vote together with the Common
Stock as one class, each share of the Series C Stock having such
number of votes as equals the number of shares of Common Stock
into which such share could be converted on the record date for
determining the shareholders entitled to vote, or currently two
votes per share; the shares of the Series C Stock are entitled to
vote separately on certain matters. The shares of the Series C
Stock are not subject to any sinking fund provisions and have no
preemptive rights. The shares of the Series C Stock rank senior
to Common Stock as to the payment of dividends and distribution
of assets on liquidation, dissolution and winding up of
Federal-Mogul.
In the event that Federal-Mogul is unable to pay dividends
on the Series C Stock, Federal-Mogul is required, pursuant to the
terms of the ESOP, to make a contribution to the ESOP to satisfy
the then current debt service requirements of the ESOP Note
(which obligation is fully reflected in long-term debt on
Federal-Mogul's balance sheet).
Series E Mandatory Exchangeable Preferred Stock
On February 24, 1998, Federal-Mogul issued 1,030,325.6
shares of Series E Stock to holders of equity interests in the
Fel-Pro entities as partial compensation for the acquisition
thereof. 257,581.4 shares of Series E Stock have been
converted into Common Stock, resulting in a reduction in the
number of Series E Stock outstanding to 772,774.2 shares.
The shares of Series E Stock are mandatorily exchangeable
into shares of Common Stock at a rate of five shares of Common
Stock for each share of Series E Stock (representing an aggregate
of 5,151,628 shares of Common Stock), subject to adjustment, upon
the earlier of (i) the fifteenth day after holders of two-thirds
of the outstanding Series E Stock have requested such exchange,
(ii) the effective date of a registration statement filed at the
request of holders of a majority of the Series E Stock pursuant
to the registration rights agreement Federal-Mogul executed for
the benefit of holders of Series E Stock and (iii) February 24,
1999.
Shares of Series E Stock bear a fully cumulative dividend
of $2.40 per share per annum, payable quarterly in arrears,
subject to increase to $14.35 per share per annum if shares of
Series E Stock remain outstanding after February 24, 1999,
increasing by $2.05 each month thereafter to $26.65 per share per
annum as of August 24, 1999, subject to certain adjustments. The
first scheduled quarterly dividend, due March 31, 1998, was paid
to the holders
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of Series E Stock. Holders of the Series E Stock have no voting
rights through February 24, 1999, after which they have full
voting rights and generally vote together with the Common Stock
as one class, each share of the Series E Stock having such number
of votes as equals the number of shares of Common Stock into
which such share could be converted on the record date for
determining the shareholders entitled to vote, currently five
votes per share. The shares of the Series E Stock are not subject
to any sinking fund or redemptive provisions and have no
preemptive rights. The shares of the Series E Stock rank senior
to Common Stock as to the payment of dividends and in parity to
Common Stock as to distribution of assets on liquidation,
dissolution and winding up of Federal-Mogul.
The holders of a majority of the Common Shares into which
the Series E Stock is convertible or has been converted may, upon
no more than three occasions, request registration of all or part
of such shares of Common Stock at any time after January 1, 1999,
provided that the Restated Articles of Incorporation have been
amended to authorize additional shares of Common Stock for
issuance. Such rights terminate at any point at which there are
fewer than 3,000,000 shares of Common Stock eligible for such
registration and such shares may be sold without restriction
pursuant to Rule 144(k) under the Securities Act of 1933. The
holders initiating the demand registration may elect whether the
offering of the relevant shares upon registration shall be in the
form of a firm commitment underwritten offering or otherwise
(subject to certain restrictions, such as a determination by the
underwriter of an offering that inclusion of the requested shares
would adversely affect the marketability of the Common Stock).
Certain Provisions
The Articles of Incorporation and Bylaws of Federal-Mogul
and the Rights Agreement contain provisions, summarized below,
that could have the effect of delaying, deterring or preventing a
change of control of Federal-Mogul. This summary does not purport
to be complete and is subject to, and qualified in its entirety
by, the provisions of the Restated Articles of Incorporation and
Bylaws and the Rights Agreement.
Federal-Mogul's Articles of Incorporation
Federal-Mogul's Articles of Incorporation provide that the
approval of a business combination (as hereinafter defined)
requires (in addition to any other vote that may be required) the
affirmative vote of at least a majority of the outstanding shares
of preferred stock entitled to vote thereon and Common Stock,
voting as a single class. In addition, (a) where the Articles of
Incorporation require the approval of the holder of the preferred
stock or one or more series thereof considered as a separate
class, such business combination shall also require the
affirmative vote of at least a majority of the outstanding shares
of the preferred stock of such series thereof considered as a
separate class that are not owned by an Interested Shareholder
(as hereinafter defined) and (b) where applicable law requires
that a transaction be approved by any class or series of
Federal-Mogul's stock or any combination thereof considered as a
single class, such transaction shall also require the affirmative
vote of at least a majority of the shares of each such class or
series or combination considered as a single class that are not
owned by the Interested Shareholder.
The voting requirements set forth in the previous paragraph
shall not apply to any business combination if (a)
Federal-Mogul's Board of Directors includes at least one member
who was a duly elected and acting member of the Board of
Directors (each being a "Disinterested Director") prior to the
time the Interested Shareholder involved became an Interested
Shareholder and such business combination has been approved by a
majority of the Disinterested Directors and by a majority of the
entire Board of Directors, (b) the aggregate amount of the cash
and the fair market value of consideration other than cash to be
received per share by holders of Common Stock in such business
combination shall be at least equal to the Specified Price (as
hereinafter defined) or (c) such business combination has been
unanimously approved by the Board of Directors and the Board has,
in the faithful exercise of its fiduciary duties to the holders
of Common Stock, unanimously and expressly determined that the
aggregate amount of the cash and the fair market value of the
consideration other than cash to be received per share by holders
of Common Stock in such business combination, although less than
the Specified Price, is nonetheless fair to all holders of Common
Stock.
As used above:
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"business combination" means (a) any merger or
consolidation of Federal-Mogul and any subsidiary with or
into any Interested Shareholder or any corporation which
after such merger or consolidation would be an affiliate of
an Interested Shareholder, (b) any sale lease exchange,
mortgage, pledge, transfer or other disposition to any
Interested Shareholder or its affiliate of assets of
Federal-Mogul or any subsidiary having a fair market value
of $1 million or more (except in the ordinary course of
business and on an arm's-length basis), (c) the issuance or
transfer by Federal-Mogul or any subsidiary (in one
transaction or a series of related transactions) of any
securities of Federal-Mogul or a subsidiary to any
Interested Shareholder or its affiliate for cash,
securities or property having a fair market value of $1
million or more, (d) the adoption of any plan or proposal
for the liquidation or dissolution of Federal-Mogul as a
result of which any Interested Shareholder or its affiliate
would receive any assets of Federal-Mogul other than cash
or (e) any reclassification of securities (including any
reverse stock split) or recapitalization of Federal-Mogul
or merger or consolidation of Federal-Mogul with any
subsidiary or any similar transaction (whether or not with
an Interested Shareholder) which has the effect, directly
or indirectly, of increasing the proportion of outstanding
shares of any equity security of Federal-Mogul or a
subsidiary directly owned by an Interested Shareholder or
its affiliate.
"Interested Shareholder" means a person who on the
record date for determining the shareholders entitled to
vote on a business combination is (a) the beneficial owner
of 10% or more of the outstanding shares of Common Stock,
(b) an affiliate of Federal-Mogul and within two years
prior to such record date beneficially owned 10% or more of
the then outstanding shares of Common Stock or (c) an
assignee or other successor to any shares of capital stock
of Federal-Mogul which were within two years prior thereto
beneficially owned by an Interested Shareholder and such
assignment or succession shall have occurred in one or more
transactions not involving a public offering.
"Specified Price" means the highest of (a) the highest
per share price paid or agreed to be paid by such
Interested Shareholder to acquire beneficial ownership of
any shares of Common Stock within the two-year period prior
to the consummation of the business combination; (b) the
per share book value of the Common Stock at the end of the
fiscal month immediately preceding the consummation of such
business combination; and (c) if the Common Stock of the
Interested Shareholder is publicly traded, the price per
share equal to the earnings per share of Common Stock for
the four full consecutive fiscal quarters immediately
preceding the record date for solicitation of votes on such
business combination (or, if votes are not solicited on
such business combination, immediately preceding the
consummation of such business combination) multiplied by
the ratio (if any) of the highest published sale price of
the Interested Shareholder's common stock during its four
fiscal quarters immediately preceding such date, to the
earnings per share of common stock of the Interested
Shareholder for such four fiscal quarters.
Federal-Mogul's Bylaws
Federal-Mogul's Bylaws contain provisions that govern
nominations of directors by shareholders and presentation of
business by shareholders for consideration at the annual meeting
of shareholders. Generally, a shareholder must give notice of
such nomination or business within 60 to 90 days prior to such
meeting, giving specified information as to the shareholder and
as to the person nominated and the business proposed to be
brought before the meeting.
Incentive Stock Plans
Federal-Mogul's shareholders adopted Stock Option Plans in
1976 and 1984 and a Performance Incentive Stock Plan in 1989, and
the holders of Common Stock and Series C Stock adopted a Long
Term Incentive Plan in 1997. These plans provide generally for
granting options to purchase shares of the Common Stock.
Restricted shares may be awarded under the 1989 Plan and entitle
employees to all the rights of Common Stock shareholders, subject
to certain transfer restrictions or forfeitures. Options entitle
employees to purchase shares at an exercise price not less than
100% of the fair market value of the shares on the grant date.
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The 1989 Performance Incentive Stock Plan and the 1997 Long
Term Incentive Plan additionally provide for the granting of
performance unit awards ("PUA's") to eligible employees. These
awards may be granted in the form of Common Stock or units, the
value of which are based on the market value of the Common Stock.
PUA's must relate to certain performance criteria established by
the Compensation Committee of the Board of Directors and are
awarded on terms and conditions fixed by the Committee on the
date of grant. At April 29, 1998, 91,500 PUA's had been granted.
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UNITED STATES FEDERAL INCOME TAXATION
General
The following summary accurately describes certain United
States federal income tax consequences pertaining to the
purchase, ownership, disposition, and conversion of Convertible
Preferred Securities. Unless otherwise stated, this summary deals
only with Convertible Preferred Securities held as capital assets
by United States holders (defined below) who purchased the
securities upon original issuance at their original offering
price. As used herein, a "United States holder" means a person
that is a citizen or resident of the United States or a U.S.
domestic corporation or that otherwise will be subject to United
States federal income taxation on a net income basis in respect
of the Convertible Preferred Securities. This summary does not
deal with special classes of holders such as banks, thrifts, real
estate investment trusts, regulated investment companies,
insurance companies, dealers in securities or currencies,
securities or commodities traders who elect to account for their
investment on a market-to-market basis, tax-exempt investors, or
persons who hold the Convertible Preferred Securities as part of
an integrated investment (including a "straddle") or as other
than a capital asset. This summary does not address the tax
consequences to persons which have a functional currency other
than the U.S. Dollar or the tax consequences to shareholders,
partners, or beneficiaries of a holder of Convertible Preferred
Securities. Further, this summary does not include any
description of any alternative minimum tax consequences or the
tax laws of any state or local government or of any foreign
government which may be applicable to the Convertible Preferred
Securities. This summary is based on the Internal Revenue Code of
1986, as amended (the "Code"), Treasury regulations promulgated
thereunder, and administrative and judicial interpretations
thereof, as of the date hereof, all of which are subject to
change, possibly on a retroactive basis.
Classification of the Convertible Subordinated Debentures
Federal-Mogul, the Trust and the holders of the Convertible
Preferred Securities (by the acceptance of a beneficial interest
in a Convertible Preferred Security) have agreed to treat the
Convertible Subordinated Debentures as indebtedness for all
United States tax purposes and the Convertible Preferred
Securities as evidence of an indirect beneficial ownership
interest in the Convertible Subordinated Debentures. In
connection with the Original Offering of the Convertible
Subordinated Debentures, Cleary, Gottlieb, Steen & Hamilton,
Special Counsel to the Company and the Trust ("Counsel"), has
rendered its opinion that, under then current law, and based on
certain representations, facts and assumptions set forth in such
opinion, the Convertible Subordinated Debentures will be
classified as indebtedness for United States federal income tax
purposes.
Classification of the Trust
In connection with the Original Offering of the Convertible
Preferred Securities, Counsel has rendered its opinion generally
to the effect that, under then current law and assuming full
compliance with the terms of the Declaration and the Indenture
(and certain other documents), and based on certain facts and
assumptions contained in such opinion, the Trust will be
classified for United States federal income tax purposes as a
grantor trust and not as an association taxable as a corporation.
Accordingly, for United States federal income tax purposes, each
holder of Convertible Preferred Securities generally will be
considered the owner of an undivided interest in the Convertible
Subordinated Debentures, and each holder will be required to
include in its gross income the interest income paid or accrued
with respect to its allocable share of the Convertible
Subordinated Debentures in accordance with the holder's regular
method of tax accounting.
Interest Income and Original Issue Discount
Under the applicable Treasury regulations and based upon
certain representations, facts and assumptions provided by
Federal-Mogul in connection with the Original Offering, the
Convertible Preferred Securities will not be treated as issued
with OID within the meaning of section 1273(a) of the Code.
Recently issued Treasury regulations under Section 1273 of the
Code provide that debt instruments like the Convertible
Subordinated Debentures will not be considered issued with OID by
reason of Federal-Mogul's option to defer payments of interest if
the likelihood of such deferral is "remote." Federal-Mogul has
concluded, and this discussion assumes, that, as of November 24,
1997, the likelihood of exercise of that option is "remote"
within the meaning of the applicable regulations, in part because
exercising that option would prevent Federal-Mogul from declaring
dividends on its stock and would prevent Federal-Mogul from
making any payments with respect to debt securities
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that rank pari passu or junior to the Convertible Subordinated
Debentures. Accordingly, as set forth below, stated interest on
the Convertible Subordinated Debentures generally will be taxable
to a holder as ordinary income at the time it is paid or accrued
in accordance with such holder's regular method of tax
accounting.
If, however, Federal-Mogul exercises its right to defer
payments of stated interest on the Convertible Subordinated
Debentures, the Convertible Subordinated Debentures will become
OID instruments at such time and all holders of Convertible
Subordinated Debentures and, consequently, holders of the
Convertible Preferred Securities will be required to accrue their
pro rata share of OID (which will include both the stated
interest and the de minimis OID, if any, on the Convertible
Subordinated Debentures) on a daily economic accrual basis during
the Extension Period even though Federal-Mogul will not pay such
stated interest until the end of the Extension Period, and even
though some holders may use the cash method of tax accounting.
Moreover, thereafter the Convertible Subordinated Debentures will
be taxed as OID instruments for as long as they remain
outstanding. Thus, even after the end of an Extension Period, all
holders would be required to continue to include the stated
interest (and de minimis OID, if any) on the Convertible
Subordinated Debentures in income on a daily economic accrual
basis, regardless of their method of tax accounting and in
advance of receipt of the cash attributable to such income. Under
the OID economic accrual rules, a holder would accrue an amount
of interest income each year that approximates that stated
interest payments called for under the terms of the Convertible
Subordinated Debentures, and actual cash payments of stated
interest on the Convertible Subordinated Debentures would not be
reported separately as taxable income. Any amount of OID included
in a holder's gross income (whether or not during an Extension
Period) with respect to a Convertible Preferred Security will
increase such holder's tax basis in such Convertible Preferred
Security, and the amount of distributions received by a holder in
respect of such accrued OID will reduce the tax basis of such
Convertible Preferred Security. Upon conversion of Convertible
Preferred Securities into Federal-Mogul Common Stock, a holder
will no longer be required to accrue OID.
The Treasury regulations described above have not yet been
addressed in any rulings or other interpretations by the Internal
Revenue Service ("IRS"), and it is possible that the IRS could
take a contrary position. If the IRS were to assert successfully
that the stated interest on the Convertible Subordinated
Debentures was OID regardless of whether Federal-Mogul exercises
its option to defer payments of interest on such Convertible
Subordinated Debentures, all holders of Convertible Preferred
Securities would be required to include such stated interest in
income on a daily economic accrual basis as described above.
Corporate holders of Convertible Preferred Securities will
not be entitled to a dividends-received deduction with respect to
any income recognized by such holders with respect to the
Convertible Preferred Securities.
Market Discount and Bond Premium
Holders of Convertible Preferred Securities other than a
holder who purchased the Convertible Preferred Securities upon
original issuance may be considered to have acquired their
undivided interests in the Convertible Subordinated Debentures
with "market discount" or "acquisition premium" as such terms are
defined for United States federal income tax purposes. Such
holders are advised to consult their tax advisors as to the
income tax consequences of the acquisition, ownership and
disposition of the Convertible Preferred Securities.
Receipt of the Convertible Subordinated Debentures or Cash Upon
Liquidation of the Trust
Under certain circumstances, as described under
"Description of the Convertible Preferred Securities--Special
Event Distribution; Tax Redemption," Convertible Subordinated
Debentures may be distributed to holders in exchange for the
Convertible Preferred Securities and in liquidation of the Trust.
Under current United States federal income tax law, such a
distribution to holders would be treated as a nontaxable event to
each holder, and would result in such holder having an aggregate
tax basis in the Convertible Subordinated Debentures equal to
such holder's aggregate tax basis in the Convertible Preferred
Securities immediately before the distribution. A holder's
holding period in the Convertible Subordinated Debentures so
received in liquidation of the Trust would include the period for
which such holder held the Convertible Preferred Securities. If,
however, the related Special Event is a Tax Event which results
in the Trust being treated as an association taxable as a
corporation, the distribution would likely constitute a taxable
event to holders of the Convertible Preferred Securities, in
which event Federal-Mogul
52
<PAGE>
could, at its option, redeem the Convertible Subordinated
Debentures and distribute the resulting cash in liquidation of
the Trust.
Under certain circumstances described herein (see
"Description of the Convertible Preferred Securities"), the
Convertible Subordinated Debentures may be redeemed for cash and
the proceeds of such redemption distributed to holders in
redemption of their Convertible Preferred Securities. Under
current law, such a redemption would, for United States federal
income tax purposes, constitute a taxable disposition of the
redeemed Convertible Preferred Securities, and a holder would
recognize gain or loss as if it had sold such redeemed
Convertible Preferred Securities for cash. See "--Sales of
Convertible Preferred Securities" below.
Sales of Convertible Preferred Securities
A holder that sells Convertible Preferred Securities will
recognize gain or loss equal to the difference between the amount
realized on the sale of the Convertible Preferred Securities and
the holder's adjusted tax basis in such Convertible Preferred
Securities. A holder's adjusted tax basis in the Convertible
Preferred Securities generally will be its initial purchase price
increased by OID (if any) previously includible in such holder's
gross income to the date of disposition and decreased by payments
(if any) received on the Convertible Preferred Securities (in
respect of OID) to the date of disposition. Such gain or loss
will be a capital gain or loss and will be a long-term capital
gain or loss if the Convertible Preferred Securities have been
held for more than one year at the time of sale. Long-term
capital gain recognized by an individual United States holder
generally will be subject to a maximum tax rate of 28 percent in
respect of Convertible Preferred Securities held for more than
one year and to a maximum rate of 20 percent in respect of
Convertible Preferred Securities held for more than 18 months.
Legislation currently pending in Congress generally would,
if enacted in its current form, subject long-term capital gain
recognized by an individual holder to a maximum rate of 20 percent
in respect of property held for more than one year, effective for
amounts properly taken into account on or after January 1, 1998.
The Convertible Preferred Securities may trade at a price
that does not accurately reflect the value of accrued but unpaid
interest with respect to the underlying Convertible Subordinated
Debentures. A holder that uses the accrual method of tax
accounting (and a cash method holder, if the Convertible
Subordinated Debentures are treated as issued with OID) that
disposes of or converts its Convertible Preferred Securities
between record dates for payments of distributions thereon will
be required to include in its income, as ordinary income, the
accrued but unpaid interest on the Convertible Subordinated
Debentures through the date of disposition or conversion, and to
add such amount to its adjusted tax basis in its pro rata share
of the underlying Convertible Subordinated Debentures which will
be deemed disposed of or converted. To the extent the selling
price is less than the holder's adjusted tax basis (which basis
will include all accrued but unpaid interest), a holder will
recognize a capital loss. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
Possible Tax Law Changes
Prospective investors should be aware that Enron
Corporation has filed a petition in U.S. Tax Court challenging
the proposed disallowance by the Internal Revenue Service of the
deduction of interest on securities issued by Enron Corporation
in 1993 and 1994 that are similar to, although different in a
number of respects from, the Convertible Subordinated Debentures.
It is possible that a decision in that case could give rise to a
Special Event, which would permit Federal-Mogul to cause a
redemption of the Convertible Subordinated Debentures, as
described more fully under "Description of the Convertible
Preferred Securities--Special Event Distribution; Tax Event
Redemption."
Certain Non-U.S. Holders
As used herein, the term "Non-United States holder" means a
holder of Convertible Preferred Securities that is a nonresident
alien individual or a foreign corporation for United States
federal income tax purposes.
Under current United States federal income tax law,
interest on the Convertible Subordinated Debentures and the
Convertible Preferred Securities, including OID, will generally
be classified as "portfolio interest" to a Non-
53
<PAGE>
United States holder of a Convertible Preferred Security provided
such interest is not effectively connected with the conduct of a
trade or business within the United States by the holder. As a
result, payments by the Trust or any of its paying agents to any
holder of a Convertible Preferred Security that is a Non-United
States holder will not be subject to withholding of United States
federal income tax provided:
(a) the beneficial owner of the Convertible Preferred
Security does not actually or constructively (including by
virtue of its interest in the underlying Convertible
Subordinated Debentures) own 10% or more of the total
combined voting power of all classes of stock of
Federal-Mogul entitled to vote, which ownership is
determined after the application of certain attribution
rules;
(b) the beneficial owner of the Convertible Preferred
Security is not a controlled foreign corporation that is
related to Federal-Mogul through stock ownership; and
(c) either (i) the beneficial owner of the Convertible
Preferred Security certifies to the Trust or its agent,
under penalties of perjury, that it is not a United States
person, and provides its name and address to the Trust or
its agent or (ii) a securities clearing organization, a
bank, or other financial institution which holds customers'
securities in the ordinary course of its trade or business
and which holds the Convertible Preferred Security in such
capacity certifies to the Trust or its agent, under
penalties of perjury, that such statement has been received
from the beneficial owner by it or by a qualifying
intermediary and furnishes the copy of the statement to the
Trust or its agent.
A Non-United States holder of Convertible Preferred
Securities who is an individual generally should not be subject
to United States federal withholding tax on any gain realized on
the sale or exchange of Convertible referred Securities unless
such holder is (i) an individual and is present in the United
States for 183 days or more in the taxable year of sale and
either has a "tax home" in the United States or certain other
requirements are met; or (ii) the gain is effectively connected
with a trade or business conducted by the Non-United States
holder within the United States (in which case the branch profits
tax may also apply if the holder is a foreign corporation).
If a Non-United States holder is treated as receiving a
deemed dividend as a result of an adjustment of the conversion
price of the Convertible Subordinated Debentures, as described
below under "--Adjustment of the Conversion Price," such deemed
dividend will be subject to United States federal withholding tax
at a 30% (or a lower treaty) rate. Should the Trust be classified
as an association taxable as a corporation for United States
federal income tax purposes, distributions made in liquidation of
the Trust would also be subject to various withholding
requirements.
Conversion of Convertible Preferred Securities into Common Stock
A holder will not recognize gain or loss upon the
conversion, through the Conversion Agent, of Convertible
Preferred Securities for a proportionate share of the Convertible
Subordinated Debentures held by the Trust.
A holder will not recognize gain or loss upon the
conversion, through the Conversion Agent, of Convertible
Subordinated Debentures into Federal-Mogul Common Stock. A holder
will, however, recognize gain upon the receipt of cash in lieu of
a fractional share of Federal-Mogul Common Stock equal to the
amount of cash received less such holder's tax basis in such
fractional share. A holder's tax basis in Federal-Mogul Common
Stock received upon exchange and conversion should generally be
equal to the holder's tax basis in the Convertible Preferred
Securities delivered to the Conversion Agent for exchange less
the basis allocated to any fractional share for which cash is
received, and a holder's holding period in Federal-Mogul Common
Stock received upon exchange and conversion should generally
begin on the date the holder acquired the Convertible Preferred
Securities delivered to the Conversion Agent for exchange.
Adjustment of the Conversion Price
Treasury regulations promulgated under Section 305 of the
Code would treat holders of Convertible Preferred Securities as
having received a constructive distribution from Federal-Mogul in
the event the conversion
54
<PAGE>
ratio of the Convertible Subordinated Debentures is adjusted if
(i) as a result of such adjustment, the proportionate interest
(measured by the quantum of Federal-Mogul Common Stock into or
for which the Convertible Subordinated Debentures is convertible
or exchangeable) of the holder's Convertible Preferred Securities
in the assets or earnings and profits of Federal-Mogul is
increased, and (ii) the adjustment was not made pursuant to a
bona fide, reasonable antidilution formula. An adjustment in the
conversion ratio would not be considered made pursuant to such
formula if the adjustment is made to compensate for certain
taxable distributions with respect to Federal-Mogul Common Stock.
Thus, under certain circumstances, a reduction in the conversion
price of the holders may result in deemed dividend income to such
holders to the extent of the current or accumulated earnings and
profits of Federal-Mogul. Holders of the Convertible Preferred
Securities would be required to include their allocable share of
such deemed dividend income in gross income but would not receive
any cash related thereto.
Information Reporting and Backup Withholding
Generally, income on the Convertible Preferred Securities
will be reported to holders on Forms 1099, which forms should be
mailed to holders of Convertible Preferred Securities by January
31 following each calendar year.
Payments made on, and proceeds from the sale of, the
Convertible Preferred Securities may be subject to a "backup"
withholding of 31% unless the holder complies with certain
identification requirements. Any withheld amounts will be allowed
as a credit against the holder's United States federal income
tax, provided the required information is provided to the
Internal Revenue Service.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH
ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE
APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION.
HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE CONVERTIBLE PREFERRED SECURITIES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS AND
THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER
TAX LAWS.
55
<PAGE>
ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other
employee benefit plan subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") (a "Plan"), should
consider the fiduciary standards of ERISA in the context of the
Plan's particular circumstances before authorizing an investment
in the Convertible Preferred Securities. Accordingly, among other
factors, the fiduciary should consider whether the investment
would satisfy the prudence and diversification requirements of
ERISA and would be consistent with the documents and instruments
governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit
Plans, as well as individual retirement accounts and Keogh plans
subject to Section 4975 of the Code (also "Plans"), from engaging
in certain transactions involving "plan assets" with persons who
are "parties in interest" under ERISA or "disqualified persons"
under the Code ("Parties in Interest") with respect to such Plan.
A violation of these "prohibited transaction" rules may result in
an excise tax or other liabilities under ERISA and/or Section
4975 of the Code for such persons, unless exemptive relief is
available under an applicable statutory or administrative
exemption. Employee benefit plans that are governmental plans (as
defined in Section 3(32) of ERISA), certain church plans (as
defined in Section 3(33) of ERISA) and foreign plans (as
described in Section 4(b)(5) of ERISA) are not subject to the
requirements of ERISA or Section 4975 of the Code.
Under a regulation (the "Plan Assets Regulation") issued by
the U.S. Department of Labor (the "DOL"), the assets of an entity
would be deemed to be "plan assets" of a Plan for purposes of
ERISA and Section 4975 of the Code if "plan assets" of the Plan
were used to acquire an equity interest in such entity and no
exception were applicable under the Plan Assets Regulation. An
"equity interest" is defined under the Plan Assets Regulation as
any interest in an entity other than an instrument which is
treated as indebtedness under applicable local law and which has
no substantial equity features and specifically includes a
beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets
Regulation, the assets of an entity would not be deemed to be
"plan assets" of investing Plans if, immediately after the most
recent acquisition of any equity interest in such entity, less
than 25% of the value of each class of equity interests in such
entity were held by Plans, other employee benefit plans not
subject to ERISA or Section 4975 of the Code (such as
governmental, church and foreign plans), and entities holding
assets deemed to be "plan assets" of any Plan (collectively,
"Benefit Plan Investors"). No assurance can be given that the
value of the Convertible Preferred Securities of the Trust held
by Benefit Plan investors will be less than 25% of the total
value of such Convertible Preferred Securities at the completion
of the Original Offering or thereafter, and no monitoring or
other measures will be taken with respect to the satisfaction of
the conditions to this exception. All of the Common Securities
will be purchased and held by Federal-Mogul. The Plan Assets
Regulation also contains an exception for "publicly-offered
securities," which are securities offered pursuant to an
effective registration statement under the Securities Act and
which are "widely-held" and "freely transferable." A class of
securities is considered to be "widely-held" for purposes of the
Plan Assets Regulation only if it is a class of securities that
is owned by 100 or more investors independent of the issuer and
of one another. While the Convertible Preferred Securities will
be offered pursuant to an effective registration statement under
the Securities Act, no assurance can be given that the
Convertible Preferred Securities will be owned by 100 or more
investors independent of the issuer and of one another, and no
monitoring or other measures will be taken with respect to the
satisfaction of the conditions to this exception.
Certain transactions involving the Trust could be deemed to
constitute direct or indirect prohibited transactions under ERISA
and Section 4975 of the Code with respect to a Plan if the
Convertible Preferred Securities of the Trust were acquired with
"plan assets" of such Plan and assets of the Trust were deemed to
be "plan assets" of Plans investing in the Trust. For example, if
Federal-Mogul is a Party in Interest with respect to an investing
Plan (either directly or by reason of its ownership of its
subsidiaries), extensions of credit between Federal-Mogul and the
Trust (as represented by the Convertible Subordinated Debentures
and the Guarantees) would likely be prohibited by Section
406(a)(l)(B) of ERISA and Section 4975(c)(l)(B) of the Code,
unless exemptive relief were available under an applicable
administrative exemption (see below). In addition, if a holder of
Convertible Preferred Securities is a Party in Interest to a
Plan, such Plan may not purchase the Convertible
56
<PAGE>
Preferred Securities from such holder unless exemptive relief, as
discussed below, is available with respect to such purchase or
the Holder otherwise determines that no prohibited transaction is
involved.
The DOL has issued five prohibited transaction class
exemptions ("PTCEs") that may provide exemptive relief for direct
or indirect prohibited transactions resulting from the purchase
or holding of the Convertible Preferred Securities, assuming that
assets of the Trust were deemed to be "plan assets" of Plans
investing in the Trust (see above). Those class exemptions are
PTCE 96-23 (for certain transactions determined by in-house asset
managers), PTCE 95-60 (for certain transactions involving
insurance company general accounts). PTCE 91-38 (for certain
transactions involving bank collective investment funds), PTCE
90-1 (for certain transactions involving insurance company
separate accounts), and PTCE 84-14 (for certain transactions
determined by independent qualified asset managers).
Because the Convertible Preferred Securities may be deemed
to be equity interests in the Trust for purposes of applying
ERISA and Section 4975 of the Code, the Convertible Preferred
Securities may not be purchased or held by any Plan, any entity
whose underlying assets include "plan assets" by reason of any
Plan's investment in the entity (a "Plan Asset Entity") or any
person investing "plan assets" of any Plan, unless such purchaser
or holder is eligible for the exemptive relief available under
PTCE 96-23, 95-60, 91-38, 90-1, or 84-14. Any purchaser or holder
of the Convertible Preferred Securities or any interest therein
will be deemed to have represented by its purchase, holding or
disposition thereof that it either (a) is not a Plan or a Plan
Asset Entity and is not purchasing such securities on behalf of
or with "plan assets" of any Plan or (b) is exempt under PTCE
96-23, 95-60, 91-38, 90-1 or 84-14 with respect to such purchase,
holding or disposition or otherwise is not engaging in a
prohibited transaction. Such representation shall be deemed made
on each day from and including the date on which such purchaser
or holder acquires its interest in the Convertible Preferred
Securities through and including the date on which such purchaser
or holder disposes of its interest in the Convertible Preferred
Securities. In addition, any purchaser or holder of the
Convertible Preferred Securities will be deemed to have approved
the appointment of the Institutional Trustee and the purchase and
holding of the Convertible Subordinated Debentures by the Trust.
Due to the complexity of these rules and the penalties that
may be imposed upon persons involved in non-exempt prohibited
transactions, it is particularly important that fiduciaries or
other persons considering purchasing Convertible Preferred
Securities on behalf of or with "plan assets" of any Plan consult
with their counsel regarding the potential consequences if the
assets of the Trust were deemed to be "plan assets" and the
availability of exemptive relief under the PTCE 96-23, 95-60,
91-38, 90-1 or 84-14.
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<PAGE>
SELLING HOLDERS
The Convertible Preferred Securities were originally issued
by the Trust and sold by Morgan Stanley Dean Witter (the "Initial
Purchaser"), in transactions exempt from the registration
requirements of the Securities Act, to persons reasonably
believed by such Initial Purchaser to be "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act) or
outside the United States to non-U.S. persons in offshore
transactions in reliance on Regulation S under the Securities
Act. The Selling Holders may from time to time offer and sell
pursuant to this Prospectus any or all of the Convertible
Preferred Securities, any Convertible Subordinated Debentures and
Federal-Mogul Common Stock issued upon conversion of the
Convertible Preferred Securities. The term Selling Holder
includes the holders listed below and the beneficial owners of
the Convertible Preferred Securities and their transferees,
pledgees, donees or other successors.
The following table sets forth information with respect to
the Selling Holders and the respective number of Convertible
Preferred Securities beneficially owned by each Selling Holder
that may be offered pursuant to this Prospectus. Such information
has been obtained from the Selling Holders and the Institutional
Trustee. Bear Stearns Securities Corp., Merrill Lynch, Pierce,
Fenner and Smith, Inc. and Merrill Lynch International Ltd. have
in the past provided to Federal-Mogul and/or its affiliates
investment banking and/or investment advisory services for which
they have received customary fees, and may in the future provide
such services. As of June 15, 1998, Janus Capital Corporation held
approximately 15.9% of Federal-Mogul's outstanding Common Stock and
Merrill Lynch Asset Management, an affiliate of Merrill Lynch, Pierce,
Fenner and Smith, Inc., held approximately 5.4% of Federal-Mogul's
outstanding Common Stock.
Number of
Preferred
Selling Holder Securities
-------------- ----------
Alexandra Global Investment Fund 1 Ltd. ................. 250,000
Allegheny Teledyne Inc. Pension Fund .................... 24,800
Alpine Associates ....................................... 326,200
Alpine Partners, L.P. ................................... 22,100
American Mutual Fund, Inc. .............................. 500,000
Argent Classic Convertible Arbitrage Fund
(Bermuda) L.P. ......................................... 260,900
Argent Classic Convertible Arbitrage Fund L.P. .......... 19,500
Baptist Health .......................................... 50,000
Bear Stearns Securities Corp. ........................... 40,000
Black Diamond, Ltd. ..................................... 19,725
Black Diamond Partners, L.P. ............................ 17,555
Boston Museum of Fine Art ............................... 24,000
BZW Securities Limited .................................. 225,000
Collins Fixed Income .................................... 18,000
Common Fund ............................................. 26,300
Delta Airlines Inc. Retirement Plan ..................... 137,600
Denver Art Museum Foundation ............................ 3,800
Deutsche Bank A.G. ...................................... 1,763,150
Double Black Diamond Offshore LDC ....................... 8,320
Dunham & Assoc. Fund II ................................. 16,000
Dunham & Assoc. Fund III ................................ 38,000
El Pomar Foundation ..................................... 4,800
Engineers Joint Pension Fund ............................ 86,000
Equity Portfolio ........................................ 270,000
Forest Alternative Strategies Fund II LP
Series A-5M ............................................ 4,000
Forest Alternative Strategies Fund II LP
Series A-5 ............................................. 90,800
Forest Alternative Strategies Fund II LP
Series A-5T ............................................ 8,000
Forest Global Convertible Fund Series A-5 ............... 91,000
58
<PAGE>
Golden Rule Insurance Company ........................... 66,000
Goldman, Sachs & Co. .................................... 79,100
Grace Brothers, Ltd. .................................... 30,000
Highbridge Capital Corp. ................................ 1,335
Highbridge Capital Corporation .......................... 150,000
IDS Life Aggressive Growth Fund ......................... 69,000
Income Fund of America, Inc. ............................ 1,000,000
Janus Capital Corporation ............................... 567,000
JMG Convertible Investments, L.P. ....................... 107,300
L.A. Fire and Police Pension Fund ....................... 46,600
Lipper Convertibles, L.P. ............................... 230,000
LLT Limited ............................................. 10,200
Merrill Lynch, Pierce, Fenner and Smith, Inc. ........... 175,000
Merrill Lynch International Ltd. ........................ 102,000
Mitchell Hutchins Series Trust, Balanced Portfolio ...... 3,000
Mitchell Hutchins Series Trust, Growth and
Income Portfolio ....................................... 3,000
Mt. Sinai School of Medicine ............................ 7,300
National Union Fire Insurance Company ................... 36,400
New Vernon Advisors Inc. ................................ 4,600
New York Life Insurance Company ......................... 300,000
New York Life Insurance & Annuity Corporation ........... 25,000
Nicholas Applegate Global Growth & Income ............... 32,000
Nicholas Applegate Income & Growth ...................... 874,000
Olin Foundation ......................................... 3,700
PaineWebber Balanced Fund, a series of
Master Series, Inc. .................................... 34,000
PaineWebber Growth & Income Fund, a series of
PaineWebber America Fund ............................... 158,000
Paloma Securities L.L.C ................................. 175,000
Q Investments, L.P. ..................................... 75,000
R2 Investments, LDC ..................................... 239,300
San Diego County Convertible ............................ 746,000
San Diego City Retirement ............................... 242,000
SBC Warburg Dillon Read Inc. for Swiuss Bank
Corporation London Branch .............................. 190,000
Scudder Kemper Investments .............................. 82,000
Shepherd Investments International Ltd. ................. 471,550
Southport Management Partners L.P. ...................... 10,000
Southport Partners International Ltd. ................... 20,000
State of Oregon/SAIF Corporation ........................ 70,000
The Travelers Indemnity Company ......................... 116,668
The Travelers Insurance Company ......................... 74,999
The Travelers Life and Annuity Company .................. 8,333
Triton Capital Investments, Ltd. ........................ 209,300
Wake Forest University .................................. 192,000
Worldwide Transactions Ltd. ............................. 3,065
Xerox Corporation Profit Sharing Plan ................... 81,800
Any other holder of Convertible Preferred
Securities or future transferee
from any such holder.................................... 32,900
----------
Total ................................................... 11,500,000
==========
None of the other Selling Holders has, or within the past
three years has had, any position, office or other material
relationship with the Trust or the Company or any of their
predecessors or affiliates, except as noted above. Because the
Selling Holders may, pursuant to this Prospectus, offer all or
some portion of the Convertible Preferred Securities, the
Convertible Subordinated Debentures or the Federal-Mogul Common
Stock issuable upon conversion
59
<PAGE>
of the Convertible Preferred Securities, no estimate can be given
as to the amount of the Convertible Preferred Securities, the
Convertible Subordinated Debentures or the Federal-Mogul Common
Stock issuable upon conversion of the Convertible Preferred
Securities that will be held by the Selling Holders upon
termination of any such sales. In addition, the Selling Holders
identified above may have sold, transferred or otherwise disposed
of all or a portion of their Convertible Preferred Securities,
since the date on which they provided the information regarding
their Convertible Preferred Securities, in transactions exempt
from the registration requirements of the Securities Act. See
"Plan of Distribution."
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to
purchasers directly by the Selling Holders. Alternatively, the
Selling Holders may from time to time offer the Offered
Securities to or through underwriters, broker/dealers or agents,
who may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Holders or
the purchasers of such securities for whom they may act as
agents. The Selling Holders and any underwriters, broker/dealers
or agents that participate in the distribution of Offered
Securities may be deemed to be "underwriters" within the meaning
of the Securities Act and any profit on the sale of such
securities and any discounts, commissions, concessions or other
compensation received by any such underwriter, broker/ dealer or
agent may be deemed to be underwriting discounts and commissions
under the Securities Act.
The Offered Securities may be sold from time to time in one
or more transactions at fixed prices, at prevailing market prices
at the time of sale, at varying prices determined at the time of
sale or at negotiated prices. The sale of the Offered Securities
may be effected in transactions (which may involve crosses or
block transactions) (i) on any national securities exchange or
quotation service on which the Offered Securities may be listed
or quoted at the time of sale, (ii) in the over-the-counter
market, (iii) in transactions otherwise than on such exchanges or
services or in the over-the-counter market or (iv) through the
writing of options. At the time a particular offering of the
Offered Securities is made, a Prospectus Supplement, if required,
will be distributed which will set forth the aggregate amount and
type of Offered Securities being offered and the terms of the
offering, including the name or names of any underwriters,
broker/dealers or agents, any discounts, commissions and other
terms constituting compensation from the Selling Holders and any
discounts, commissions or concessions allowed or reallowed or
paid to broker/dealers.
To comply with the securities laws of certain
jurisdictions, if applicable, the Offered Securities will be
offered or sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold
unless they have been registered or qualified for sale in such
jurisdictions or any exemption from registration or qualification
is available and is complied with.
The Selling Holders will be subject to applicable
provisions of the Exchange Act and the rules and regulations
thereunder, which provisions may limit the timing of purchases
and sales of any of the Offered Securities by the Selling
Holders. The foregoing may affect the marketability of such
securities.
Pursuant to the Registration Rights Agreement, all expenses
of the registration of the Offered Securities will be paid by the
Company, including, without limitation, all registration and
filing fees (including, without limitation, (x) with respect to
filings required to be made with the National Association of
Securities Dealers, Inc. and (y) of compliance with federal and
state securities or Blue Sky laws); provided, however, that the
Selling Holders will pay all registration expenses to the extent
Federal-Mogul is prohibited by applicable Blue Sky laws from
paying for or on behalf of such Selling Holders. Federal-Mogul
and the Trust shall register or qualify or cooperate with the
Selling Holders in connection with the registration or
qualification (or exemption from such registration or
qualification) of the Offered Securities for offer and sale under
securities or Blue Sky laws of such jurisdictions within the
United States as any Selling Holder reasonably requests in
writing (which request may be included in the Questionnaire). The
Selling Holders will be indemnified by the Company and the Trust,
jointly and severally, against certain civil liabilities,
including certain liabilities under the Securities Act, or will
be entitled to contribution in connection therewith. The Company
and the Trust will be indemnified by the Selling Holders
severally against certain civil liabilities, including certain
liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.
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LEGAL MATTERS
The validity of the Convertible Preferred Securities will
be passed upon on behalf of Federal-Mogul and the Trust by
Richards, Layton & Finger, P.A., special Delaware counsel to
Federal-Mogul and the Trust. The validity of the Convertible
Subordinated Debentures and the Guarantee and certain matters
relating thereto will be passed upon for Federal-Mogul and the
Trust by Cleary, Gottlieb, Steen & Hamilton, New York New York.
Certain legal matters will be passed upon for Federal-Mogul and
the Trust by David M. Sherbin, Associate General Counsel of
Federal-Mogul. Mr. Sherbin owns and holds options to purchase
approximately 1,550 shares of Common Stock of Federal-Mogul.
EXPERTS
The consolidated financial statements and related schedules
of Federal-Mogul as of December 31, 1997 and for each of the
three years in the period ended December 31, 1997 incorporated by
reference herein have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference. Such
consolidated financial statements and schedules audited by Ernst
& Young LLP are incorporated herein by reference in reliance on
such reports given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of T&N as of December
31, 1997 and for each of the three years in the period ended
December 31, 1997 incorporated by reference herein have been
audited by KPMG Audit Plc, independent auditors, as set forth in
their reports thereon incorporated herein by reference. Such
consolidated financial statements audited by KPMG Audit Plc are
incorporated herein by reference in reliance on their report
given on their authority as experts in accounting and auditing.
The financial statements of Fel-Pro as of December 28, 1997
and December 29, 1996 for each of the three years in the period
ended December 28, 1997 incorporated by reference herein have
been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon included therein and incorporated
herein by reference. Such financial statements audited by Ernst &
Young LLP are incorporated herein by reference in reliance on
such report given on upon the authority of such firm as experts
in accounting and auditing.
61
<PAGE>
=================================================================
No dealer, salesperson or other person has been authorized to
give any information or to make any representations not contained
in this prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized
by Federal-Mogul Corporation or Federal-Mogul Financing Trust or
any of their agents. This prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to
whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this prospectus nor any
sale made hereunder shall, under any circumstances, create any
implication that the information contained herein is correct as
of any time subsequent to the date hereof or that there has been
no change in the affairs of Federal-Mogul Corporation or
Federal-Mogul Financing Trust since such date.
---------------
TABLE OF CONTENTS
Page
----
Available Information............................. 4
Incorporation of Certain Documents
by Reference.................................... 4
Forward-Looking Statements........................ 5
Risk Factors...................................... 6
Federal-Mogul Financing Trust..................... 12
The Company....................................... 14
Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and
Preferred Stock Dividends....................... 15
Use of Proceeds................................... 15
Description of the Convertible Preferred
Securities...................................... 16
Description of the Guarantee...................... 33
Description of the Convertible
Subordinated Debentures......................... 36
Effect of Obligations Under the Convertible
Subordinated Debentures and the
Guarantee....................................... 45
Description of Capital Stock...................... 46
United States Federal Income Taxation............. 51
ERISA Considerations.............................. 56
Selling Holders................................... 58
Plan of Distribution.............................. 60
Legal Matters..................................... 61
Experts........................................... 61
=================================================================
=================================================================
FEDERAL-MOGUL
FINANCING TRUST
11,500,000
7% Trust Convertible
Preferred Securities
Guaranteed to the Extent Set Forth Herein
by,
and convertible into
Common Stock of,
Federal-Mogul Corporation
PROSPECTUS
Dated July 9, 1998
=================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of issuance and distribution, other
than underwriting discounts and commissions, expected to be
incurred by the Registrant are as follows:
Filing fee of Securities and Exchange
Commission relating to registration
statement......................................... $169,625
Blue Sky qualification fees and
expenses, including legal fee..................... 3,000
Printing and engraving expenses..................... 5,000
Transfer agent and trustee fees and expenses........ 5,000
Fees and expenses of counsel for the Registrant..... 150,000
Total............................................... $332,625
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY.
Sections 561 through 571 of the Michigan Business
Corporation Act (the "Act"), and Article XI of Federal-Mogul's
Bylaws relate to the indemnification of Federal-Mogul's directors
and officers, among others, in a variety of circumstances against
liabilities arising in connection with the performance of their
duties.
The Act permits indemnification of directors and officers
acting in good faith and in a manner they reasonably believe to
be in or not opposed to the best interests of Federal-Mogul or
its shareholders (and, with respect to a criminal proceeding, if
they have no reasonable cause to believe their conduct to be
unlawful) against (i) expenses (including attorney's fees),
judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred in connection with any
threatened, pending, or completed action, suit, or proceeding
(other than an action by or in the right of Federal-Mogul)
arising by reason of the fact that such person is or was a
director or officer of Federal-Mogul (or with some other entity
at Federal-Mogul's request) and (ii) expenses (including
attorneys' fees) and amounts paid in settlement actually and
reasonably incurred in connection with a threatened, pending or
completed action or suit by or in the right of Federal-Mogul,
unless the director or officer is found liable to Federal-Mogul
and an appropriate court does not determine that he or she is
nevertheless fairly and reasonably entitled to indemnification.
The Act requires indemnification for expenses to the extent
that a director or officer is successful on the merits in
defending against any such action, suit or proceeding, and
otherwise requires in general that the indemnification provided
for in (i) and (ii) above be made only on a determination by (a)
a majority vote of a quorum of the Board of Directors who were
not parties or threatened to be made parties to the action, suit
or proceeding, (b) if a quorum cannot be obtained, by a majority
vote of a committee duly designated by the Board and consisting
solely of two or more directors not at the time parties or
threatened to be made parties to the action, suit or proceeding,
(c) by independent legal counsel, (d) by all independent
directors who are not parties or threatened to be made parties to
the action, suit or proceeding, or (e) by the shareholders (but
shares held by directors or officers who are parties or are
threatened to be made parties may not be voted). In certain
circumstances, the Act further permits advances to cover such
expenses before a final determination that indemnification is
permissible, upon receipt of a written affirmation by the
director or officer of their good-faith belief that they have met
the applicable standard of conduct set forth in Sections 561 and
562 of the Act, receipt of a written undertaking by or on behalf
of
II-1
<PAGE>
the director or officer to repay such amounts unless it shall
ultimately be determined that they are entitled to
indemnification and a determination that the facts then known to
those making the advance would not preclude indemnification.
Indemnification under the Act is not exclusive of other
rights to indemnification to which a person may be entitled under
Federal-Mogul's Articles of Incorporation, Bylaws, or a
contractual agreement. The Act permits Federal-Mogul to purchase
insurance on behalf of its directors and officers against
liabilities arising out of their positions with Federal-Mogul
whether or not such liabilities would be within the foregoing
indemnification provisions.
BYLAWS
Under Federal-Mogul's Bylaws, Federal-Mogul is required to
indemnify any person who was or is a party or is threatened to be
made a party to or called as a witness in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (whether formal or informal) and
any appeal thereof (other than an action by or in the right of
Federal-Mogul, a "derivative action") by reason of the fact that
such person is, was or agreed to become a director or officer of
Federal-Mogul, against expenses (including attorneys' fees),
judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection
with such action, suit or proceeding if such person was
successful in defending such action, suit or proceeding, or
otherwise if such person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best
interests of Federal-Mogul or its shareholders, and, with respect
to any criminal action or proceeding, if the person had no
reasonable cause to believe his or her conduct was unlawful. A
similar standard of care is applicable in the case of derivative
actions, except the indemnification extends only to expenses
(including actual and reasonable attorneys' fees) and amounts
paid in settlement incurred by the person in connection with such
action and, where the person is found to be liable to
Federal-Mogul, only if and to the extent that the court in which
such action was brought determines that such person is fairly and
reasonably entitled to such indemnification for the expenses
which the court considers proper.
Federal-Mogul's Bylaws provide that Federal-Mogul shall pay
for the expenses incurred by an indemnified director or officer
in defending the proceedings specified above, in advance of their
final disposition, provided that if required by the Act, the
person furnishes Federal-Mogul with an undertaking to reimburse
Federal-Mogul if it is ultimately determined that such person is
not entitled to indemnification. Federal-Mogul shall provide
indemnification to any person who is or was serving at the
request of Federal-Mogul as a director, officer, partner,
trustee, employee or agent of another corporation, partnership,
joint venture, trust, or other enterprise, whether for profit or
not, to the same degree as the foregoing indemnification of
directors and officers. In addition, Federal-Mogul may purchase
and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of Federal-Mogul (or is
serving or was serving at the request of Federal-Mogul in a
position and at an entity listed in the preceding sentence)
against any liability asserted against and incurred by such
person in such capacity, or arising out of the person's status as
such whether or not Federal-Mogul would have the power to
indemnify the person against such liability under the provisions
of Federal-Mogul's Bylaws.
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE TRUST
The Declaration of the Trust provides that Federal-Mogul
shall indemnify any officer, employee or agent of the Trust or
its affiliates (each a "Company Indemnified Person") who was or
is a party or is threatened to be a party to any threatened,
pending or completed action, suit or proceeding, by reason of the
fact that such person is or was a Company Indemnified Person,
against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by such Person and in a manner
that the Company Indemnified Person reasonably believed to be in
or not opposed to the best interests of the Trust. The
Declaration also provides that expenses (including reasonable
attorneys' fees) incurred by a Company Indemnified Person in
defending a civil, criminal, administrative or investigative
action, suit or proceeding shall be paid in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Company Indemnified Person to
repay such
II-2
<PAGE>
amount if it shall ultimately be determined that such Person is
not entitled to be indemnified for the underlying cause of action
as authorized by the Declaration.
ITEM 16. EXHIBITS.
Exhibit No. Exhibit Description
4.1** Declaration of Trust of Federal-Mogul Financing
Trust, dated as of November 21, 1997
4.2* Amended and Restated Declaration of Trust of
Federal-Mogul Financing Trust, dated as of
December 1, 1997 among Federal-Mogul Corporation,
as Sponsor, The Bank of New York, as
Institutional Trustee and Delaware Trustee and
Thomas W. Ryan, David A. Bozynski and Diane L.
Kaye, as Administrators
4.3* Indenture for the 7% Convertible Junior
Subordinated Debentures, dated as of December 1,
1997 among Federal-Mogul Corporation and The Bank
of New York, as Trustee
4.4* Form of 7% Convertible Preferred Securities
(included in Exhibit 4.2 above)
4.5* Form of 7% Convertible Junior Subordinated
Debentures (included in Exhibit 4.3 above)
4.6* Purchase Agreement for 10,000,000 Trust
Convertible Preferred Securities of Federal-Mogul
Financing Trust, dated November 24, 1997
4.7* Registration Rights Agreement, dated as of
December 1, 1997 by and among Federal-Mogul
Corporation, Federal-Mogul Financing Trust and
Morgan Stanley & Co. Inc. as Initial Purchaser
4.8** Federal-Mogul Corporation Preferred Securities
Guarantee, dated as of December 1, 1997, between
Federal-Mogul Corporation, as Guarantor, and The
Bank of New York, as Preferred Securities
Guarantee Trustee
4.9* Federal-Mogul Corporation Common Securities
Guarantee, dated as of December 1, 1997, between
Federal-Mogul Corporation as Guarantor, and The
Bank of New York, as Common Securities Guarantee
Trustee
4.10* First Supplemental Indenture to Indenture for the
7% Convertible Junior Subordinated Debentures
dated December 1, 1997 between Federal-Mogul
Corporation and The Bank of New York
5.1*** Opinion of Richards, Layton & Finger, P.A. as to
the validity of the Convertible Preferred
Securities registered hereby
5.2*** Opinion of Cleary, Gottlieb, Steen & Hamilton as
to the validity of the Convertible Junior
Subordinated Debentures and Convertible Preferred
Securities Guarantee registered hereby
5.3*** Opinion of David M. Sherbin, Associate General
Counsel of Federal-Mogul Corporation, as to the
validity of the Common Stock being registered
hereby
23.1** Consent of Ernst & Young LLP
23.2** Consent of KPMG Audit Plc
23.3*** Consent of Richards, Layton & Finger, P.A.
(included in its opinion filed as Exhibit 5.1)
23.4*** Consent of Cleary, Gottlieb, Steen & Hamilton
(included in its opinion filed as Exhibit 5.2)
23.5*** Consent of David M. Sherbin, Associate General
Counsel of Federal-Mogul Corporation (included in
his opinion filed as Exhibit 5.3)
24.1** Powers of Attorney (included as page II-9 in the
Registration Statement)
25.1** Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of
New York, as Trustee under the 7% Convertible
Junior Subordinated Debentures Indenture
II-3
<PAGE>
25.2** Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of
New York, as Institutional Trustee under the
Amended and Restated Declaration of Trust
25.3** Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of
New York, as Preferred Securities Guarantee
Trustee under the Preferred Securities Guarantee
- -------------
* Previously filed
** Filed herewith
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
A. to file, during any period in which offers or
sales are being made of the securities registered hereby, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in
the information set forth in the registration
statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high and of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the
maximum aggregate offering price set forth in
"Calculation of Registration Fee" table in the
effective registration statement;
(iii) to include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any
material change to such information in the
registration statement;
provided, however, that the undertakings set forth in paragraphs
(i) and (ii) do not apply if the information required to be
included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in this registration
statement.
B. that, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and
the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
C. to remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of the
offering.
D. that, for purposes of determining any liability
under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
E. insofar as the indemnification for liabilities
arising under the Securities Act of 1933 may be permitted
to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of
its
II-5
<PAGE>
counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
F. to file an application for the purpose of
determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in
accordance with the rules and regulations prescribed by the
Commission under Section 305(b)(2) of such Act.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
S-3 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in
the City of Southfield, State of Michigan, on July 9, 1998.
FEDERAL-MOGUL FINANCING TRUST
By: /s/ Thomas W. Ryan
----------------------
Administrator
By: /s/ David A. Bozynski
----------------------
Administrator
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
S-3 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in
the City of Southfield, State of Michigan, on July 9, 1998.
FEDERAL-MOGUL CORPORATION
By: /s/ David M. Sherbin
-------------------------
David M. Sherbin
Associate General Counsel
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following
persons in the capacities indicated on the 9th day of July, 1998.
II-8
<PAGE>
Signature Title
--------- -----
* Chairman of the Board, President,
- --------------------------- Chief Executive Officer and
Richard A. Snell Director (Principal Executive
Officer)
* Executive Vice President and Chief
- --------------------------- Financial Officer (Principal
Thomas W. Ryan Financial Officer)
* Vice President and Controller
- --------------------------- (Principal Accounting Officer)
Kenneth P. Slaby
* Director
- ---------------------------
John J. Fannon
* Director
- ---------------------------
Roderick M. Hills
* Director
- ---------------------------
Paul S. Lewis
* Director
- ---------------------------
Antonio Madero
* Director
- ---------------------------
Robert S. Miller, Jr.
* Director
- ---------------------------
John C. Pope
* Director
- ---------------------------
Dr. Hugo Michael Sekyra
* Director
- ---------------------------
Sir Geoffrey Whalen
*By: /s/ David M. Sherbin
- ---------------------------
David M. Sherbin
Attorney-in-fact
II-9
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Description
- ----------- -------------------
4.1 Declaration of Trust of Federal-Mogul Financing
Trust, dated as of November 21, 1997
4.2 Amended and Restated Declaration of Trust of
Federal-Mogul Financing Trust, dated as of
December 1, 1997 among Federal-Mogul Corporation,
as Sponsor, The Bank of New York Company, as
Institutional Trustee and Delaware Trustee and
Thomas W. Ryan, David A Bozynski and Diane L.
Kaye, as Administrators
4.3 Indenture for the 7% Convertible Junior
Subordinated Debentures, dated as of December 1,
1997 among Federal-Mogul Corporation and The Bank
of New York, as Trustee
4.4 Form of 7% Convertible Preferred Securities
(included in Exhibit 4.2 above)
4.5 Form of 7% Convertible Junior Subordinated
Debentures (included in Exhibit 4.3 above)
4.6 Purchase Agreement for 10,000,000 Trust
Convertible Preferred Securities of Federal-Mogul
Financing Trust, dated November 24, 1997
4.7 Registration Rights Agreement, dated as of
December 1, 1997 by and among Federal-Mogul
Corporation, Federal-Mogul Financing Trust and
Morgan Stanley & Co. Inc. as Initial Purchaser
4.8 Federal-Mogul Corporation Preferred Securities
Guarantee, dated as of December 1, 1997, between
Federal-Mogul Corporation, as Guarantor, and The
Bank of New York, as Preferred Securities
Guarantee Trustee
4.9 Federal-Mogul Corporation Common Securities
Guarantee, dated as of December 1,1997, between
Federal-Mogul Corporation as Guarantor, and The
Bank of New York, as Common Securities Guarantee
Trustee
4.10 First Supplemental Indenture to Indenture for the
7% Convertible Junior Subordinated Debentures
dated December 1,1997 between Federal-Mogul
Corporation and The Bank of New York
5.1 Opinion of Richards, Layton & Finger, P.A. as to
the validity of the Convertible Preferred
Securities registered hereby
5.2 Opinion of Cleary, Gottlieb, Steen & Hamilton as
to the validity of the Convertible Junior
Subordinated Debentures and Convertible Preferred
Securities Guarantee registered hereby
5.3 Opinion of David M. Sherbin, Associate General
Counsel of Federal-Mogul Corporation, as to the
validity of the Common Stock being registered
hereby
23.1 Consent of Ernst & Young LLP
23.2 Consent of KPMG Audit Plc
23.3 Consent of Richards, Layton & Finger, P.A.
(included in its opinion filed as Exhibit 5.1)
23.4 Consent of Cleary, Gottlieb, Steen & Hamilton
(included in its opinion filed as Exhibit 5.2)
23.5 Consent of David M. Sherbin, Associate General
Counsel of Federal-Mogul Corporation (included
in his opinion filed as Exhibit 5.3)
24.1 Powers of Attorney (included as page II-9 in the
Registration Statement)
<PAGE>
25.1 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of
New York, as Trustee under the 7% Convertible
Junior Subordinated Debentures Indenture
25.2 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of
New York, as Institutional Trustee under the
Amended and Restated Declaration of Trust
25.3 Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of The Bank of
New York, as Preferred Securities Guarantee
Trustee under the Preferred Securities Guarantee
Exhibit 5.1
[Letterhead of Richards, Layton & Finger]
July 9, 1998
Federal-Mogul Financing Trust
c/o Federal-Mogul Corporation
26555 Northwestern Highway
Southfield, Michigan 48034
Re: Federal-Mogul Financing Trust
Ladies and Gentlemen:
We have acted as special Delaware counsel for
Federal-Mogul Corporation, a Michigan corporation (the
"Company"), and Federal-Mogul Financing Trust, a Delaware
business Trust (the "Trust"), in connection with the matters set
forth herein. At your request, this opinion is being furnished to
you.
For purposes of giving the opinions hereinafter set
forth, our examination of documents has been limited to the
examination of originals or copies of the following:
(a) The Certificate of Trust of the Trust, dated as of
November 21, 1997 (the "Certificate"), as filed in the office of
the Secretary of State of the State of Delaware (the "Secretary
of State") on November 21, 1997;
(b) The Declaration of Trust of the Trust, dated as of
November 21, 1997, by and between the Company and the trustee of
the Trust named therein;
(c) The Amended and Restated Declaration of Trust of
the Trust, dated as of December 1, 1997 (including Annex I and
Exhibits A-1 and A-2 thereto) (the "Declaration"), among the
Company, as sponsor, the administrators of the Trust named
therein, the trustees of the Trust named therein, and the
holders, from time to time, of undivided beneficial interests in
the assets of the Trust;
(d) Amendment No. 1 to the Registration Statement on
Form S-3 (the "Registration Statement"), including a preliminary
prospectus (the "Prospectus"), relating to the 7% Trust
Convertible Preferred Securities of the Trust representing
undivided beneficial
<PAGE>
Federal-Mogul Financing Trust
July 9, 1998
Page 2
interests in the assets of the Trust (each, a "Preferred
Security" and collectively, the "Preferred Securities"), as
proposed to be filed by the Company and the Trust with the
Securities and Exchange Commission on or about July 9, 1998; and
(e) A Certificate of Good Standing for the Trust,
dated July 9, 1998, obtained from the Secretary of State.
Initially capitalized terms used herein and not
otherwise defined are used as defined in the Declaration.
For purposes of this opinion, we have not reviewed any
documents other than the documents listed in paragraphs (a)
through (e) above. In particular, we have not reviewed any
document (other than the documents listed in paragraphs (a)
through (e) above) that is referred to in or incorporated by
reference into the documents reviewed by us. We have assumed that
there exists no provision in any document that we have not
reviewed that is inconsistent with the opinions stated herein. We
have conducted no independent factual investigation of our own
but rather have relied solely upon the foregoing documents, the
statements and information set forth therein and the additional
matters recited or assumed herein, all of which we have assumed
to be true, complete and accurate in all material respects.
With respect to all documents examined by us, we have
assumed (i) the authenticity of all documents submitted to us as
authentic originals, (ii) the conformity with the originals of
all documents submitted to us as copies or forms, and (iii) the
genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that
the Declaration constitutes the entire agreement among the
parties thereto with respect to the subject matter thereof,
including with respect to the creation, operation and termination
of the Trust, and that the Declaration and the Certificate are in
full force and effect and have not been amended, (ii) except to
the extent provided in paragraph 1 below, the due creation or due
organization or due formation, as the case may be, and valid
existence in good standing of each party to the documents
examined by us under the laws of the jurisdiction governing its
creation, organization or formation, (iii) the legal capacity of
natural persons who are parties to the documents examined by us,
(iv) that each of the parties to the documents examined by us has
the power and authority to execute and deliver, and to perform
its obligations under, such documents, (v) the due authorization,
execution and delivery by all parties thereto of all documents
examined by us, (vi) the receipt by each Person to whom a
Preferred Security was issued by the Trust (collectively, the
"Preferred Security Holders") of a Convertible Preferred Security
Certificate, in accordance with the Declaration, and as described
in the Registration Statement, and (vii) that the Preferred
Securities were issued to the Preferred Security Holders in
accordance with the Declaration, and as described in the
Registration Statement. We have not participated in the
preparation of the Registration Statement and assume no
responsibility for its contents.
<PAGE>
Federal-Mogul Financing Trust
July 9, 1998
Page 3
This opinion is limited to the laws of the State of
Delaware (excluding the securities laws of the State of
Delaware), and we have not considered and express no opinion on
the laws of any other jurisdiction, including federal laws and
rules and regulations relating thereto. Our opinions are rendered
only with respect to Delaware laws and rules, regulations and
orders thereunder that are currently in effect.
Based upon the foregoing, and upon our examination of
such questions of law and statutes of the State of Delaware as we
have considered necessary or appropriate, and subject to the
assumptions, qualifications, limitations and exceptions set forth
herein, we are of the opinion that:
1. The Trust has been duly created and is validly
existing in good standing as a business trust under the Business
Trust Act.
2. The Preferred Securities have been duly authorized
and are validly issued and, subject to the qualifications set
forth in paragraph 3 below, fully paid and nonassessable
undivided beneficial interests in the assets of the Trust.
3. The Preferred Security Holders, as beneficial
owners of the Trust, are entitled to the same limitation of
personal liability extended to stockholders of private
corporations for profit organized under the General Corporation
Law of the State of Delaware. We note that the Preferred Security
Holders may be obligated to make payments as set forth in the
Declaration.
We consent to the filing of this opinion with the
Securities and Exchange Commission as an exhibit to the
Registration Statement. In addition, we hereby consent to the use
of our name under the heading "Legal Matters" in the Prospectus.
In giving the foregoing consents, we do not thereby admit that we
come within the category of Persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission
thereunder. Except as stated above, without our prior written
consent, this opinion may not be furnished or quoted to, or
relied upon by, any other Person for any purpose.
Very truly yours,
BJK/BJ
Exhibit 5.2
[Letterhead of Cleary, Gottlieb, Steen & Hamilton]
Writer's Direct Dial: (212) 225-2632
E-Mail: [email protected]
July 9, 1998
Federal-Mogul Corporation
26555 Northwestern Highway
Southfield, Michigan 48034
Federal-Mogul Financing Trust
26555 Northwestern Highway
Southfield, Michigan 48034
Ladies and Gentlemen:
We have acted as counsel to Federal-Mogul Corporation,
a Michigan corporation (the "Company"), and Federal-Mogul
Financing Trust, a statutory business trust formed under the laws
of the State of Delaware (the "Trust"), in connection with the
registration under the Securities Act of 1933, as amended (the
"Act"), of resales of (i) the 7% Trust Convertible Preferred
Securities (the "Convertible Preferred Securities") representing
undivided beneficial interests in the assets of the Trust issued
pursuant to an amended and restated declaration of trust dated as
of December 1, 1997 (the "Declaration") by the trustees and
administrators of the Trust, the Company, as trust sponsor, and
the holders from time to time of undivided beneficial interests
in the Trust, (ii) the 7% Convertible Junior Subordinated
Debentures due 2027 (the "Convertible Subordinated Debentures")
of the Company issued under an indenture dated as of December 1,
1997, as supplemented by a supplemental indenture dated as of
December 1, 1997 (as such indenture is so supplemented, the
"Indenture") between the Company and The Bank of New York, as
trustee, (iii) the Convertible Preferred Securities Guarantee
Agreement dated as of
<PAGE>
p. 2
December 1, 1997 (the "Guarantee") executed by the Company and
The Bank of New York, as trustee for the benefit of the holders
from time to time of the Convertible Preferred Securities, and
(iv) the shares of the Company's common stock without par value
(the "Common Stock"), into which the Convertible Subordinated
Debentures are convertible. The Convertible Preferred Securities,
the Convertible Subordinated Debentures, the Guarantee and the
Common Stock are being registered under a registration statement
of the Company and the Trust (File No. 333-53853) on Form S-3
(the "Registration Statement") under the Act which has been filed
with the Securities and Exchange Commission.
We have participated in the preparation of the
Registration Statement and have reviewed originals or copies
certified or otherwise identified to our satisfaction of all such
documents and corporate records of the Company and such other
instruments and other certificates of public officials, officers
and representatives of the Company and such other persons, and we
have made such investigations of law, as we have deemed
appropriate as a basis for the opinions expressed below.
In rendering the opinions expressed below, we have
assumed the authenticity of all documents submitted to us as
originals and the conformity to the originals of all documents
submitted to us as copies. In addition, we have assumed and have
not verified (i) the accuracy as to factual matters of each
document we have reviewed and (ii) that the Convertible
Subordinated Debentures in global form have been duly
authenticated in accordance with the terms of the Indenture.
Based on the foregoing, and subject to the further
assumptions and qualifications set forth below, it is our opinion
that:
1. The Convertible Subordinated Debentures are the
valid, binding and enforceable obligations of the Company,
entitled to the benefits of the Indenture.
2. The Guarantee is a valid, binding and enforceable
agreement of the Company.
Insofar as the foregoing opinions related to the
validity, binding effect or enforceability of any agreement or
obligation of the Company or the Trust, (a) we have assumed that
the Company and the Trust and each other party to such agreement
or obligation has satisfied those legal requirements that are
applicable to it to the extent necessary to make such agreement
or obligation enforceable against it (except that no such
assumption is made as to the Company or the Trust regarding
matters of the laws of the State of New York), and (b) such
opinions are subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to general
principles of equity.
The foregoing opinions are limited to the federal law
of the United States of America and the law of the State of New
York.
<PAGE>
p. 3
We are furnishing this opinion letter to the Company
and the Trust solely for your benefit in connection with the
filing of the Registration Statement. This opinion letter is not
to be used, circulated, quoted or otherwise referred to for any
other purpose, except that we hereby consent to the filing of
this opinion as an exhibit to the Registration Statement and to
the reference to this firm under the heading "Legal Matters" in
the Prospectus included in the Registration Statement. In giving
such consent, we do not thereby admit that we are "experts"
within the meaning of the Act or the rules and regulations of the
Securities and Exchange Commission issued thereunder with respect
to any part of the Registration Statement, including this
exhibit.
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By /s/ David Lopez
---------------------------------
David Lopez, a Partner
Exhibit 5.3
Federal-Mogul Corporation
July 9, 1998
Federal-Mogul Corporation
26555 Northwestern Highway
Southfield, Michigan 48034
Federal-Mogul Financing Trust
26555 Northwestern Highway
Southfield, Michigan 48034
Ladies and Gentlemen:
I am Associate General Counsel of Federal-Mogul
Corporation, a Michigan corporation (the "Company"). In such
capacity, I have acted as counsel to the Company in connection
with the registration under the Securities Act of 1933, as
amended (the "Act"), of resales of (i) the 7% Trust Convertible
Preferred Securities (the "Convertible Preferred Securities")
representing undivided beneficial interests in the assets of the
Trust issued pursuant to an amended and restated declaration of
trust dated as of December 1, 1997 (the "Declaration") by the
trustees and administrators of the Trust, the Company, as trust
sponsor, and the holders from time to time of undivided
beneficial interests in the Trust, (ii) the 7% Convertible Junior
Subordinated Debentures due 2027 (the "Convertible Subordinated
Debentures") of the Company issued under an indenture dated as of
December 1, 1997, as supplemented by a supplemental indenture
dated as of December 1, 1997 (as such indenture is so
supplemented, the "Indenture") between the Company and The Bank
of New York, as trustee, (iii) the Convertible Preferred
Securities Guarantee Agreement dated as of December 1, 1997 (the
"Guarantee") executed by the Company and The Bank of New York, as
trustee for the benefit of the holders from time to time of the
Convertible Preferred Securities, and (iv) the shares of the
Company's common stock without par value (the "Common Stock"),
into which the Convertible Subordinated Debentures are
convertible. The Convertible Preferred Securities, the
Convertible Subordinated Debentures, the Guarantee and the Common
Stock are being registered under a registration statement of the
Company and the Trust (File No. 333-53853) on Form S-3 (the
"Registration Statement") under the Act which has been filed with
the Securities and Exchange Commission.
<PAGE>
p. 2
I have participated in the preparation of the
Registration Statement and have reviewed originals or copies
certified or otherwise identified to my satisfaction of all such
corporate records of the Company and such other instruments and
other certificates of public officials, officers and
representatives of the Company and such other persons, and I have
made such investigations of law, as I have deemed appropriate as
a basis for the opinions expressed below.
In rendering the opinions expressed below, I have
assumed the authenticity of all documents submitted to me as
originals and the conformity to the originals of all documents
submitted to me as copies. In addition, I have assumed and have
not verified (i) the accuracy as to factual matters of each
document I have reviewed and (ii) that the certificates
representing the Common Stock issuable upon conversion of the
Convertible Subordinated Debentures (the "Conversion Shares")
conform to the specimens thereof that I have reviewed.
Based on the foregoing, and subject to the further
assumptions and qualifications set forth below, it is my opinion
that:
1. The Conversion Shares reserved for issuance upon
the conversion of the Convertible Subordinated Debentures and the
Convertible Preferred Securities have been duly authorized and
reserved and, when issued upon such conversion of the Convertible
Subordinated Debentures or the Convertible Preferred Securities
in accordance with the terms thereof, will be validly issued,
fully paid and nonassessable, and the issuance of such Conversion
Shares will not be subject to any preemptive or similar rights.
2. The execution and delivery of the Convertible
Subordinated Debentures have been duly authorized by all
necessary corporate action of the Company, and the Convertible
Subordinated Debentures in global form have been duly executed
and delivered by the Company.
3. The execution and delivery of the Guarantee has
been duly authorized by all necessary corporate action of the
Company and the Guarantee has been duly executed and delivered by
the Company.
The foregoing opinions are limited to the federal law
of the United States of America and the law of the State of
Michigan.
<PAGE>
p. 3
The opinion expressed herein is rendered solely for
the benefit of the Company and the Trust in connection with the
filing of the Registration Statement. This opinion letter is not
to be used, circulated, quoted or otherwise referred to for any
other purpose, except that I hereby consent to the filing of this
opinion as an exhibit to the Registration Statement and to the
reference to me under the caption "Legal Matters" therein. In so
doing, I do not admit that I am in the category of persons whose
consent is required under Section 7 of the Act or the rules and
regulations thereunder.
Very truly yours,
FEDERAL-MOGUL CORPORATION
By /s/ David M. Sherbin
-------------------------------------------
David M. Sherbin, Associate General Counsel
