<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1998
SUBJECT TO AMENDMENT
REGISTRATION NO. 333-50413
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
MICHIGAN 38-0533580
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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., ESQ.
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)
--------------
The Commission is requested to mail signed copies of all orders, notices and
communications to:
LAURENT ALPERT, ESQ. THOMAS A. COLE, ESQ.
CLEARY, GOTTLIEB, STEEN & HAMILTON SIDLEY & AUSTIN
ONE LIBERTY PLAZA ONE FIRST NATIONAL PLAZA
NEW YORK, NEW YORK 10006 CHICAGO, ILLINOIS 60603
(212) 225-2000 -------------- (312) 853-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
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 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(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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER UNIT(2)(3) PRICE(2)(3) FEE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without
par value offered by
Federal-Mogul
Corporation(4).........
- -----------------------------------------------------------------------------------
Debt Securities offered
by Federal-Mogul
Corporation............
- -----------------------------------------------------------------------------------
Preferred Stock offered
by Federal-Mogul
Corporation(4).........
- -----------------------------------------------------------------------------------
Total Securities offered
by Federal-Mogul
Corporation............
- -----------------------------------------------------------------------------------
Common Stock, without
par value offered by
Selling Shareholders...
- -----------------------------------------------------------------------------------
Total................... $2,500,000,000 100% $2,500,000,000 $737,500
- -----------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
<PAGE>
- --------
(1) Such indeterminate number or amount of Common Stock, Debt Securities and
Preferred Stock as may from time to time be issued at indeterminate
prices. The amount registered is in United States dollars or the
equivalent thereof in any other currency, currency unit or units, or
composite currency or currencies.
(2) The proposed maximum offering price per unit will be determined from time
to time by the Registrant or the Selling Shareholders in connection with
the issuance by the Registrant or the sale by the Selling Shareholders of
the securities registered hereunder.
(3) The proposed maximum aggregate offering price has been estimated solely
for the purpose of calculating the registration fee pursuant to Rule 457
under the Securities Act of 1933. The aggregate public offering price of
the Common Stock, Debt Securities and Preferred Stock offered by Federal-
Mogul Corporation and the Selling Shareholders will not exceed $2.5
billion or the equivalent thereof in one or more foreign currencies,
foreign currency units or composite currencies.
(4) Also includes such indeterminate number of shares of Preferred Stock and
Common Stock as may be issued upon conversion of or exchange for any Debt
Securities or Preferred Stock that provide for conversion or exchange into
other securities. No separate consideration will be received for the
Preferred Stock or Common Stock issuable upon conversion of or in exchange
for Debt Securities or Preferred Stock.
----------------
PURSUANT TO THE PROVISIONS OF RULE 429 UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, THE PROSPECTUS CONSTITUTING A PART OF THIS REGISTRATION STATEMENT
ALSO RELATES TO AN ADDITIONAL $77,343,750 PRINCIPAL AMOUNT OF COMMON STOCK,
DEBT SECURITIES AND PREFERRED STOCK REGISTERED BY THE REGISTRANT UNDER THE
SECURITIES ACT OF 1933 IN REGISTRATION STATEMENT NO. 33-54717 AND THIS
REGISTRATION STATEMENT ALSO CONSTITUTES POST-EFFECTIVE AMENDMENT NO. 1 WITH
RESPECT TO SUCH REGISTRATION STATEMENT.
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.
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- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
The securities registered hereby may be offered from time to time by means
of the base prospectus included herein and an applicable prospectus
supplement. If Common Stock registered hereby is offered or sold in reliance
upon the procedures contemplated by Rule 430A under the Securities Act of
1933, as amended, such Common Stock will be offered or sold by means of the
base prospectus included herein and a prospectus supplement in the form
included herein (including the financial statements paginated with numbers
preceded by "F-" reprinted after the base prospectus in this Registration
Statement). Securities registered hereby, including Common Stock, which are
not offered or sold in reliance upon the procedures contemplated by Rule 430A
may be offered or sold by means of the base prospectus included herein and a
prospectus supplement in a form other than the form of prospectus supplement
included herein.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS +
+SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY +
+NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH +
+OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR +
+QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED MAY 14, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
11,000,000 SHARES
LOGO
COMMON STOCK
-----------
Of the 11,000,000 shares of Common Stock, without par value (the "Common
Stock"), of Federal-Mogul Corporation (the "Company" or "Federal-Mogul") being
offered hereby, 9,712,093 shares are being offered by Federal-Mogul and
1,287,907 shares are being offered by certain shareholders of Federal-Mogul
(the "Selling Shareholders"). Federal-Mogul will not receive any of the
proceeds from the sale of shares of Common Stock by the Selling Shareholders.
See "Selling Shareholders" and "Underwriting."
Of the 11,000,000 shares of Common Stock offered hereby, 8,800,000 are being
offered initially in the United States and Canada (the "U.S. Offering") and
2,200,000 shares are being offered initially in a concurrent international
offering outside the United States and Canada (the "International Offering,"
and together with the U.S. Offering, the "Offerings"). The public offering
price and the underwriting discount per share are identical for both Offerings.
See "Underwriting."
The Common Stock is listed on the New York Stock Exchange, Inc. (the "NYSE")
under the trading symbol "FMO." On May 12, 1998, the last reported sale price
of Common Stock on the NYSE was $63 15/16 per share. See "Price Range of Common
Stock and Dividends."
SEE "RISK FACTORS" BEGINNING ON PAGE S-11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
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 SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO PROCEEDS TO
PRICE TO UNDERWRITING FEDERAL- SELLING
PUBLIC DISCOUNT(1) MOGUL(2) SHAREHOLDERS
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................
- ----------------------------------------------------------------------------------
Total(3).........................
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Federal-Mogul and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses of the Offerings payable by Federal-Mogul
estimated at $2,000,000.
(3) Federal-Mogul and the Selling Shareholders have granted options to the U.S.
Underwriters, exercisable within 30 days of the date hereof, to purchase up
to an aggregate of 1,320,000 additional shares of Common Stock and options
to the International Managers, exercisable within 30 days of the date
hereof, to purchase up to an aggregate of 330,000 additional shares of
Common Stock, solely to cover over-allotments, if any. If such options are
exercised in full, the total Price to Public, Underwriting Discounts,
Proceeds to Federal-Mogul and Proceeds to Selling Shareholders will be
$ , $ , $ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by them,
subject to approval of certain legal matters by counsel to the Underwriters and
to certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of Common Stock will be made in New York, New York on or
about , 1998.
-----------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SCHRODER & CO. INC.
-----------
The date of this Prospectus Supplement is , 1998.
<PAGE>
[PHOTOS]
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO
COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the consolidated Financial
Statements (as hereinafter defined) appearing elsewhere in this Prospectus
Supplement and the accompanying Prospectus or incorporated herein or therein by
reference. See "Presentation of Financial Information." Except as otherwise
indicated, all information in this Prospectus Supplement and the accompanying
Prospectus assumes no exercise of the Underwriters' over-allotment options.
Prospective investors should carefully consider the matters discussed under the
caption "Risk Factors."
FEDERAL-MOGUL CORPORATION
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 systems components (dynamic seals and gaskets) and general products
(primarily camshafts, friction products, sintered products and systems
protection products). Federal-Mogul markets its products to many of the world's
major original equipment ("OE") manufacturers. Federal-Mogul also manufactures
and supplies its products and related parts to the aftermarket relating to each
of these categories of equipment. Among Federal-Mogul's largest customers are
Caterpillar, Chrysler, Cummins, Ford, General Motors, Mercedes-Benz, NAPA,
Peugeot and Volkswagen/Audi (in alphabetical order).
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 plc ("T&N"), a U.K. based supplier of engine and transmission
products, for total consideration of approximately (Pounds)1.46 billion ($2.42
billion, converted at a blended exchange rate of 1 pound sterling to 1.6510
U.S. dollars). 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 Incorporated and certain
affiliated entities, which constitute the operating businesses of the Fel-Pro
group of companies ("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 OE heavy
duty market. See "T&N and Fel-Pro Acquisitions."
Federal-Mogul currently operates facilities at over 240 locations in 24
countries. On a pro forma basis adjusted for the acquisitions of T&N and Fel-
Pro, Federal-Mogul's total sales for 1997 were $4.8 billion. See "Unaudited Pro
Forma Financial Data."
S-3
<PAGE>
The following charts set forth Federal-Mogul's net sales by customer group,
geographic region and manufacturing division as a percentage of total net sales
for the year ended December 31, 1997, on a pro forma basis.
[Charts setting forth net sales by customer group, geographic region and
manufacturing division for the year ended December 31, 1997]
BUSINESS STRATEGY
The Company believes its recent restructuring program, which refocused the
Company on its core competency of manufacturing, and the acquisitions of T&N
and Fel-Pro, which expanded the Company's product base and geographic reach,
significantly enhanced its position within the automobile, truck and other
vehicular components markets. The Company believes that opportunities exist to
continue its growth and further enhance its market presence through the
following initiatives:
. Systems Approach. The breadth of the Company's manufacturing
capabilities and product offerings enable it to be one of a small number
of manufacturers with the ability to seal entire engine, transmission
and axle systems and to be a single source supplier of engine and
sealing components. In addition, Federal-Mogul is committed to becoming
a provider of complete engine and transmission modules for its OE
customers. The Company believes that OE manufacturers of automobiles,
trucks and other vehicles are increasingly seeking to reduce the number
of suppliers from which they source parts and to develop relationships
with suppliers that can offer integrated systems and modules in order to
lower production costs, increase quality, provide better technology and
shorten product development cycles. The T&N and Fel-Pro acquisitions,
which expanded the Company's gasket, cast aluminum piston, large bearing
and sealing product lines and added product lines for articulated
pistons, cylinder liners and piston rings, are major steps toward
Federal-Mogul's strategic goal of developing global engine and sealing
systems for its OE customers.
. Continue Focus on New Product Innovation. The Company's expertise in
engineering and research and development has made Federal-Mogul a leader
in virtually all of the product segments in which it competes. The
Company utilizes the latest technologies, processes and materials to
solve problems for customers and to bring new, innovative products to
market. The Company has special competencies in alloy development,
customized materials formulations, surface technology, advanced modeling
and testing and systems engineering. These capabilities allow the
Company to reduce production costs and to develop products that are more
durable and exhibit better interaction with surrounding components.
These innovative products better serve OE customers and aid brand
development, resulting in a higher margin product mix.
S-4
<PAGE>
. Extend Global Manufacturing Reach. The Company is committed to extending
its manufacturing capabilities worldwide in response to the global
expansion of its OE manufacturing customers. The acquisitions of T&N and
Fel-Pro have substantially increased the Company's manufacturing
presence, particularly in North America and Europe. Management believes
expansion of manufacturing operations to follow the expansion of OE
manufacturers into Latin America, Eastern Europe and Asia provides
significant growth opportunities for the Company in the future.
. Pursue Strategic Acquisitions. The vehicular engine and sealing
component industry is large and highly fragmented. The Company believes
that as OE manufacturers continue to outsource and reduce the number of
suppliers, opportunities will exist for further consolidation within
this industry. The Company believes that, through its established
presence in these markets and its strong relationships with OE
manufacturers worldwide, the Company is in a favorable position to
capitalize on future industry consolidation. The Company's management
has substantial experience in completing and integrating acquisitions
within the automobile parts industry and believes that this experience
will help it select and pursue acquisition opportunities that can
enhance the Company's product base, expand its global manufacturing
operations and further capitalize on the Company's aftermarket
distribution network and technological resources.
. Expand Aftermarket Presence. Approximately 48% of the Company's 1997
sales, on a pro forma basis, were generated from the aftermarket. The
Company believes that opportunities exist to further leverage its broad
product offerings, reputation for new product innovation and presence
within the OE market to increase its penetration of the worldwide
aftermarket. In addition, the Company believes that its ability to sell
products developed for the OE market to aftermarket customers reduces
the impact of adverse changes in demand for new vehicles.
. EVA Focus. In 1997, the Company adopted Economic Value Added (EVA(R)) as
its primary financial measurement and incentive compensation metric. EVA
is equal to net operating profits after economic taxes and a charge for
capital invested in the Company, which is equal to the product of the
total capital invested in the Company and the weighted average cost of
capital for the Company's target blend of debt and equity. The Company's
management has placed significant emphasis on improving the Company's
financial performance and achieving various operating efficiencies
through technical development, manufacturing, marketing and
administrative rationalization in connection with this effort. The
Company's EVA improved significantly in 1997 due primarily to improved
operating margins (4.9% in 1996 and 7.7% in 1997) combined with $166
million of cash flow from continuing operations (net of expenditures for
property, plant and equipment) in 1997. EVA is also being applied to the
integration of T&N and Fel-Pro to optimize synergies and cost savings.
As the Company continues to expand both its product base and its
geographic scope, management will evaluate investments and acquisitions
based on both EVA and strategic importance. In addition, the Company
currently determines compensation for certain top managers using an EVA
based system and expects to increase the number of managers
participating in its EVA based compensation system to over 200 in 1999.
* * *
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.
S-5
<PAGE>
THE OFFERINGS
<TABLE>
<C> <S>
Common Stock offered by (1):
Federal-Mogul (2).......................... 9,712,093 shares
Selling Shareholders (3)................... 1,287,907 shares
Common Stock to be Outstanding
after the Offerings (4)..................... 55,470,160 shares
Use of Proceeds.............................. To prepay certain indebtedness
of Federal-Mogul, which was
incurred to finance the
acquisitions of T&N and Fel-
Pro. Federal-Mogul will not
receive any of the proceeds
from the sale of Common Stock
offered by the Selling
Shareholders. See "Use
of Proceeds" and "Selling
Shareholders."
NYSE Symbol.................................. FMO
Risk Factors................................. For a discussion of certain
risks that should be considered
by prospective investors before
investing in the Common Stock
offered hereby, see "Risk
Factors."
</TABLE>
- --------
(1) Assumes no exercise of the Underwriters' over-allotment options granted by
the Company to the U.S. Underwriters for up to an additional 660,000 shares
and to the International Underwriters for an additional 165,000 shares or
the Underwriters' over-allotment options granted by the Selling
Shareholders to the U.S. Underwriters of up to an additional 660,000 shares
and to the International Underwriters of up to an additional 165,000
shares. See "Underwriters."
(2) Of the 9,712,093 shares of Common Stock to be sold in the Offerings by
Federal-Mogul, 7,769,674 shares are being offered initially in the United
States and Canada by the U.S. Underwriters and 1,942,419 shares are being
offered initially in a concurrent international offering outside the United
States and Canada by the International Managers. See "Underwriting."
(3) Of the 1,287,907 shares of Common Stock to be sold in the Offerings by the
Selling Shareholders, 1,030,326 shares are being offered initially in the
United States and Canada by the U.S. Underwriters and 257,581 shares are
being offered initially in a concurrent international offering outside the
United States and Canada by the International Managers. See "Underwriting."
(4) Includes 5,151,628 shares issuable upon the conversion of the Series E
Mandatory Exchangeable Preferred Stock ("Series E Stock") (including Series
E Stock to be converted in connection with the Offerings). Does not
include: (i) 1,882,383 shares issuable upon exercise of outstanding options
under Federal-Mogul's various stock option and incentive stock plans as of
May 12, 1998 and (ii) 826,207 additional shares reserved for issuance upon
exercise of options not yet granted under those plans.
S-6
<PAGE>
SUMMARY FINANCIAL DATA
The following summary historical financial information is derived from, and
should be read in conjunction with, the Federal-Mogul Financial Statements (as
hereinafter defined), T&N Financial Statements (as hereinafter defined) and
Fel-Pro Financial Statements (as hereinafter defined), and the summary
unaudited pro forma financial information is derived from, and should be read
in conjunction with, the "Unaudited Pro Forma Financial Data," all of which are
included elsewhere in this Prospectus Supplement. See "Presentation of
Financial Information." The Federal-Mogul Audited Financial Statements (as
hereinafter defined) were audited by Ernst & Young LLP. The T&N Financial
Statements were audited by KPMG Audit Plc. The Fel-Pro Financial Statements
were audited by Ernst & Young LLP. The Federal-Mogul Unaudited Interim
Financial Statements (as hereinafter defined) are unaudited but, in the opinion
of management, reflect all adjustments necessary for a fair presentation of
such information.
FEDERAL-MOGUL
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
YEAR ENDED DECEMBER 31, (UNAUDITED)
------------------------------------- ---------------------
1997 1996 1995 1998(1) 1997
--------- --------- --------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 1,806.6 $2 ,032.7 $ 1,999.8 $ 658.0 $ 485.6
Costs and expenses...... (1,703.7)(2) (2,258.0)(3) (2,000.7)(4) (650.6)(5) (461.1)
Other expense........... (3.4) (3.4) (2.4) (5.8) (2.0)
Income tax (expense)
benefit................ (27.5) 22.4 (2.5) (8.8) (8.6)
--------- --------- --------- -------- --------
Net earnings (loss)
before extraordinary
item................... 72.0 (206.3) (5.8) (7.2) 13.9
Extraordinary item --
loss on early
retirement of debt, net
of applicable income
tax benefit............ (2.6) -- -- -- --
--------- --------- --------- -------- --------
Net earnings (loss)..... $ 69.4 $ (206.3) $ (5.8) $ (7.2) $ 13.9
========= ========= ========= ======== ========
COMMON SHARE SUMMARY
(DILUTED):
Average shares and
equivalents outstanding
(in thousands)......... 41,854 34,659 34,642 40,114 37,159
Earnings (loss) per
share:
Before extraordinary
item................. $ 1.67 $ (6.20) $ (0.42) $ (0.20) $ 0.32
Extraordinary item --
loss on early
retirement of debt,
net of applicable
income tax benefit... (0.06) -- -- -- --
--------- --------- --------- -------- --------
Net earnings (loss) per
share.................. $ 1.61 $ (6.20) $ (0.42) $ (0.20) $ 0.32
========= ========= ========= ======== ========
Dividends declared per
share.................. $ 0.48 $ 0.48 $ 0.48 $ 0.12 $ 0.12
========= ========= ========= ======== ========
CONSOLIDATED BALANCE
SHEET DATA:
Total assets............ $ 1,802.1 $ 1,455.2 $ 1,701.1 $7,398.7 $1,419.7
Short-term debt(6)...... 28.6 280.1 111.9 837.8 258.7
Long-term debt.......... 273.1 209.6 481.5 2,273.7 206.9
Shareholder's equity.... 369.3 318.5 550.3 586.0 310.2
OTHER FINANCIAL
INFORMATION:
EBITDA(7)............... $ 194.5 $ 97.9 $ 163.6 $ 82.7 $ 46.3
Expenditures for
property, plant,
equipment and other
long term assets....... 49.7 54.2 78.5 19.5 8.4
Depreciation and
amortization expense... 52.8 63.7 61.0 29.8 14.0
</TABLE>
- --------
(1) Reflects first time consolidation of T&N and Fel-Pro as of March 6, 1998
and February 24, 1998, respectively.
(2) Includes $1.1 million for a net restructuring credit, a $2.4 million charge
for an adjustment of assets held for sale to fair value and other long
lived assets, a $1.6 million credit for reengineering and other related
charges, and a $10.5 million net charge related to the British pound
currency option.
(3) Includes $57.6 million for a restructuring charge, $151.3 million for
adjustment of assets held for sale to fair value and other long lived
assets and $11.4 million relating to reengineering and other related
charges.
(4) Includes $26.9 million for restructuring charges, $51.8 million for
adjustment of assets held for sale to fair value and other long lived
assets and $13.9 million relating to reengineering and other related
charges.
S-7
<PAGE>
(5) Includes $18.6 million for a purchased in-process research and development
charge, $10.5 million for restructuring charges, $20.0 million for
adjustment of assets held for sale to fair value and other long-lived
assets, and a $13.3 million net gain on British pound currency option and
forward contract.
(6) Includes current maturities of long-term debt.
(7) "EBITDA" represents the sum of income before interest expense and income
taxes, plus depreciation and amortization as well as nonrecurring charges
including gains on the sale of businesses, restructuring and reengineering
charges, adjustments of assets held for sale to fair value and other long
lived assets, the net effect of British pound currency options and forward
contracts, and purchased in-process research and development charge. EBITDA
should not be construed as a substitute for income from operations, net
income or cash flow from operating activities, for the purpose of analyzing
Federal-Mogul's operating performance, financial position and cash flows.
The Company has presented EBITDA because it is commonly used by investors
to analyze and compare companies on the basis of operating performance and
to determine a company's ability to service debt.
T&N
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------
1997 1996
T&N HISTORICAL IN U.K. GAAP --------------- ---------------
(POUNDS STERLING IN MILLIONS)
<S> <C> <C>
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
DATA:
Total turnover excluding associated
undertakings............................. (Pounds)1,799.1 (Pounds)1,956.0
Cost of sales............................. (1,293.5) (1,418.3)
Other operating expenses.................. (331.6) (370.3)
Other, net................................ 11.2 (560.2)(1)
Tax on profit (loss) on ordinary
activities............................... (62.8) (8.0)
--------------- ---------------
Profit/(loss) attributable to
shareholders............................. (Pounds) 122.4 (Pounds) (400.8)
=============== ===============
CONSOLIDATED BALANCE SHEET DATA:
Total assets.............................. (Pounds)1,576.2 (Pounds)1,558.3
Borrowings due within one year............ 103.7 77.2
Borrowings due after more than one year... 285.4 260.2
Equity shareholders' funds at end of year. 191.4 118.3
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------
1997 1996
T&N UNAUDITED PRO FORMA IN U.S. GAAP(1)(2) --------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 2,948.4 $ 3,055.4
Costs and expenses........................ (2,698.7) (4,058.6)(3)
Income tax (expense) benefit.............. (159.3) 278.5
--------------- ---------------
Net earnings (loss)....................... $ 90.4 $ (724.7)
=============== ===============
CONSOLIDATED BALANCE SHEET DATA:
Total assets.............................. $ 3,120.1 $ 3,299.5
Short-term debt........................... 125.4 68.1
Long-term debt............................ 469.5 445.2
Shareholders' equity...................... 466.5 456.1
OTHER FINANCIAL INFORMATION:
EBITDA(4)................................. $ 426.9 $ 373.1
Expenditures for property, plant,
equipment and other long term assets..... 167.7 167.6
Depreciation and amortization expense..... 164.6 151.4
</TABLE>
(see footnotes on the following page)
S-8
<PAGE>
- --------
(1) The T&N historical financial statements were prepared in accordance with
U.K. GAAP, which differs in certain significant respects from U.S. GAAP
(see Note 29 to the T&N Financial Statements). The following table
reconciles the T&N profit/(loss) attributable to shareholders as reported
under U.K. GAAP to net earnings/(loss) as stated under U.S. GAAP:
<TABLE>
<CAPTION>
1997 1996
------------- --------------
(IN MILLIONS)
<S> <C> <C>
Profit/(loss) attributable to shareholders as
reported under U.K. GAAP--stated in pound
sterling.................................... (Pounds)122.4 (Pounds)(400.8)
Converted to U.S. dollars.................... $ 201.4 $ (628.4)
U.S. GAAP adjustments (in U.S. dollars):
Amortization of goodwill................... (11.2) (5.3)
Amortization of patents.................... (2.6) (2.5)
Deferred taxation--full provision.......... (67.1) 158.7
Tax effect of other U.S. GAAP reconciling
items..................................... 3.0 121.8
Pension costs.............................. (11.5) (23.7)
Asbestos provision discount................ (0.8) (355.9)
Depreciation on fixed asset revaluations... 9.5 9.7
Carrying value of investments.............. (31.6) --
Other...................................... 2.1 2.0
Minority interests......................... (0.8) (1.1)
------------- --------------
Net earnings (loss) under U.S. GAAP.......... $ 90.4 $ (724.7)
============= ==============
</TABLE>
(2) Operating results and balance sheet data for 1997 have been translated at a
rate of 1.6453 U.S. dollars to 1 pound sterling and 1.6488 U.S. dollars to
1 pound sterling, respectively. Operating results and balance sheet data
for 1996 have been translated at a rate of 1.5680 U.S. dollars to 1 pound
sterling and 1.7110 U.S. dollars to 1 pound sterling, respectively.
(3) Includes charge for asbestos-related costs of (Pounds)515 million under
U.K. GAAP and $1.244 billion under U.S. GAAP.
(4) "EBITDA" represents the sum of income before interest expense and income
taxes, plus depreciation and amortization as well as nonrecurring charges
including gains on the sale of businesses, the cost and gains associated
with options over shares of Kolbenschmidt AG, asbestos related costs and
bid costs. EBITDA should not be construed as a substitute for income from
operations, net income or cash flow from operating activities, for the
purpose of analyzing T&N's operating performance, financial position and
cash flows. The Company has presented EBITDA because it is commonly used by
investors to analyze and compare companies on the basis of operating
performance and to determine a company's ability to service debt.
FEL-PRO
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 28, DECEMBER 29,
1997 1996
------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 489.3 $ 448.0
Costs and expenses................................... (442.3) (408.7)
Income tax expense................................... (25.5) (6.9)
------- -------
Net earnings......................................... $ 21.5 $ 32.4
======= =======
CONSOLIDATED BALANCE SHEET DATA:
Total assets......................................... $ 270.1 $ 261.8
Short-term debt...................................... -- --
Long-term debt....................................... -- --
Shareholder's equity................................. 139.9 151.8
OTHER FINANCIAL INFORMATION:
EBITDA(1)............................................ $ 58.4 $ 50.5
Expenditures for property, plant, equipment and other
long term assets.................................... 18.3 14.1
Depreciation and amortization expense................ 11.5 11.3
</TABLE>
- --------
(1) "EBITDA" represents the sum of income before income taxes, plus
depreciation and amortization. EBITDA should not be construed as a
substitute for income from operations, net income or cash flow from
operating activities, for the purpose of analyzing Fel-Pro's operating
performance, financial position and cash flows. The Company has presented
EBITDA because it is commonly used by investors to analyze and compare
companies on the basis of operating performance and to determine a
company's ability to service debt.
S-9
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following table sets forth certain unaudited pro forma financial data for
Federal-Mogul for the year ended December 31, 1997 and for the three-month
period ended March 31, 1998, which are presented to reflect the pro forma
effect of the T&N and Fel-Pro acquisitions as if they had occurred at the
beginning of each period presented. The unaudited pro forma balance sheet as of
December 31, 1997 has been prepared to illustrate the effect of the
acquisitions of T&N and Fel-Pro as if it had occurred on such date. The
unaudited pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the financial position or
results of operations which may occur in the future or that would have occurred
had the acquisitions of T&N and Fel-Pro been consummated on the dates
indicated, nor are they necessarily indicative of Federal-Mogul's future
results of operations or financial position. The summary unaudited pro forma
financial information below should be read in conjunction with the information
set forth under the caption "Unaudited Pro Forma Financial Data," the Federal-
Mogul Audited Financial Statements, the T&N Financial Statements and the Fel-
Pro Financial Statements included elsewhere in this Prospectus Supplement.
<TABLE>
<CAPTION>
PRO FORMA
COMBINED YEAR PRO FORMA COMBINED
ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- ------------------
(DOLLARS IN MILLIONS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $4,824.0 $1,193.6
Costs and expenses........................ 4,791.8 1,208.6
Income tax expense........................ 93.5 1.5
-------- --------
Net loss before extraordinary items and
nonrecurring charges(1)(2)............... $ (61.3) $ (16.5)
======== ========
COMMON SHARE SUMMARY (DILUTED):
Average shares and equivalents outstanding
(in thousands)........................... 36,647 40,104
Loss per share before extraordinary item
and nonrecurring charges(2)(3)........... $ (2.16) $ (0.44)
BALANCE SHEET DATA:
Total assets.............................. $6,885.6 $7,398.7 (4)
Total debt................................ 2,606.2 3,111.5 (4)
Shareholders' equity...................... 549.2 576.4
OTHER FINANCIAL INFORMATION:
EBITDA(5)................................. $ 537.0 $ 108.5
Expenditures for property, plant,
equipment and other long term assets..... 238.9 49.5
Depreciation and amortization expense..... 296.8 62.8
</TABLE>
- --------
(1) As a result of the use of proceeds from the Offerings, Federal-Mogul will
recognize an extraordinary loss (net of tax) of approximately $5.1 million
from the early extinguishment of debt.
(2) The unaudited pro forma statements of operations include only the results
of ongoing operations and exclude such impacts as extraordinary items,
items relating to the acquisitions and synergies and expected cost savings
associated with the integration of the acquisitions. See Note m to the
"Unaudited Pro Forma Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(3) Loss per share as calculated for the pro forma combined entity includes an
increase to the net loss of $17.8 million and $1.2 million in preferred
dividend requirements for the years ended December 31, 1997 and March 31,
1998, respectively.
(4) Amounts represent actual balances at March 31, 1998.
(5) "EBITDA" represents the sum of income before interest expense and income
taxes, plus depreciation and amortization as well as nonrecurring charges
including gains on the sale of businesses, restructuring and reengineering
charges, adjustments of assets held for sale to fair value and other long
lived assets, the net effect of British pound currency options and forward
contracts, gains associated with options over shares in Kolbenschmidt AG,
asbestos related costs and bid costs. EBITDA should not be construed as a
substitute for income from operations, net income or cash flow operating
activities, for the purpose of analyzing Federal-Mogul's operating
performance, financial position and cash flows. The Company has presented
EBITDA because it is commonly used by investors to analyze and compare
companies on the basis of operating performance and to determine a
company's ability to service debt.
S-10
<PAGE>
RISK FACTORS
Prospective purchasers of Common Stock offered hereby should carefully
review the information contained elsewhere in this Prospectus Supplement and
the accompanying Prospectus or incorporated by reference herein and therein
and should particularly consider the following matters.
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 preferred securities of
affiliates 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%. 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 Credit Agreements (as hereinafter defined). See
"Description of Certain Indebtedness." Federal-Mogul intends to use the
proceeds to it of the Offerings to repay existing debt, resulting in a
reduction of debt by approximately $601.9 million. See "Use of Proceeds."
Federal-Mogul's leverage may have important consequences to 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) placing Federal-Mogul at a
competitive disadvantage to companies with which it competes that may be less
leveraged; and (iv) 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 and on the marketability, price and future value of the Common
Stock.
The Credit Agreements impose 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 Credit Agreements also require 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. See "Description of
Certain Indebtedness." There can be no assurance that these requirements will
be met in the future. Failure to achieve compliance would result in a default
under the Credit Agreements 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.
The information set forth under the caption "Unaudited Pro Forma Financial
Data" has been based on certain assumptions as to the estimated proceeds of
the divestitures of the T&N Bearings Business (as hereinafter defined). Such
proceeds will be used to reduce Federal-Mogul's indebtedness. There can be no
assurance that the actual proceeds received from the divestitures will fall
within the range utilized in making the pro forma calculations.
S-11
<PAGE>
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. See "T&N and Fel-Pro Acquisitions." 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"). See "Business--Reorganization" and "Unaudited Pro Forma
Financial Data." 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. See "Business--Legal Proceedings," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Federal-Mogul--
Three Months Ended March 31, 1998 Compared with Three Months Ended March 31,
1997--Asbestos Liability and Legal Proceedings" and "--T&N--Asbestos." 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-Mogul is currently
engaged will result in the completion of any acquisitions, that
S-12
<PAGE>
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
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 OE 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). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Federal-Mogul--Year Ended
December 31, 1997 Compared with Year Ended December 31, 1996 and Year Ended
December 31, 1996 Compared with Year Ended December 31, 1995--Foreign Currency
and Commodity Contracts."
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.
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.
S-13
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated in this Prospectus Supplement
and the accompanying 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 and 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," "T&N and Fel-Pro Acquisitions," "Business," "Summary Unaudited Pro
Forma Financial Information," "Unaudited Pro Forma Financial Data" and
elsewhere in this Prospectus Supplement, the accompanying Prospectus or in the
information incorporated by reference herein or therein.
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."
S-14
<PAGE>
USE OF PROCEEDS
The net proceeds to Federal-Mogul from the sale of the 9,712,093 shares of
Common Stock offered by Federal-Mogul hereby are estimated to be $601.9
million, assuming a public offering price of $63 15/16 per share, after
deducting the estimated underwriting discounts and offering expenses,
estimated at $19.1 million.
Federal-Mogul intends (i) to apply net proceeds to it of the Offerings to
prepay the entire outstanding $500 million principal amount of the Senior
Subordinated Loans (as hereinafter defined), and (ii) to apply any remaining
balance of the net proceeds to repay a portion of the Interim Loans (as
hereinafter defined), the outstanding principal amount of which was $925
million at May 12, 1998. However, if the net proceeds to Federal-Mogul of the
Offerings are less than $500 million, the proceeds will be applied solely to
prepay the Interim Loans. The Senior Subordinated Loans currently bear
interest at a floating rate which is the offering rate of The Chase Manhattan
Bank, N.A. ("Chase") in the London interbank eurodollar market for U.S. dollar
deposits, plus an initial margin of 4.5% (which will increase to 5.5% on
September 12, 1998 and to 6.0% on December 12, 1998). The Interim Loans bear
interest at a floating rate based upon either, at Federal-Mogul's option, (i)
the higher of the prime rate of Chase and 0.5% in excess of the overnight
federal funds rate, plus a margin of 1.0% or (ii) the average of the offering
rates of banks in the London interbank eurodollar market for U.S. dollar
deposits plus a margin of 2.0%. The Senior Subordinated Loans are scheduled to
mature on March 12, 1999. If such loans have not been repaid on or prior to
such date, they will be converted to loans maturing on March 12, 2008 and
bearing interest at variable rates but in no event less than 0.5% above the
rate in effect on March 12, 1999. The Interim Loans are scheduled to mature on
September 12, 1999. Amounts borrowed under the Senior Subordinated Loans and
the Interim Loans were used as part of the financing of the acquisition of T&N
and the refinancing of the acquisition of Fel-Pro. See "T&N and Fel-Pro
Acquisitions--Financing of the Acquisitions" and "Description of Certain
Indebtedness."
Federal-Mogul will not receive any proceeds from the sale of shares of
Common Stock by the Selling Shareholders.
EXCHANGE RATES
The following table sets forth, for the periods and dates indicated, certain
information concerning the noon buying rate in New York City for cable
transfers in pounds sterling, as certified for customs purposes by the Federal
Reserve Bank of New York (the "Noon Buying Rate") for pounds sterling
expressed in U.S. dollars per (Pounds)1.00. On May 12, 1998, the Noon Buying
Rate was (Pounds)1.00=$1.6347.
<TABLE>
<CAPTION>
CALENDAR PERIOD HIGH LOW AVERAGE(1) PERIOD END
- --------------- ------ ------ ---------- ----------
<S> <C> <C> <C> <C>
1998, through May 12........................ $1.691 $1.611 $1.657 $1.635
1997........................................ $ 1.71 $ 1.49 $ 1.60 $ 1.64
1996........................................ $ 1.62 $ 1.50 $ 1.57 $ 1.53
1995........................................ $ 1.64 $ 1.46 $ 1.57 $ 1.62
1994........................................ $ 1.59 $ 1.46 $ 1.50 $ 1.49
1993........................................ $ 2.00 $ 1.42 $ 1.68 $ 1.51
</TABLE>
- --------
(1)The average of the Noon Buying Rates on the last business day of each month
during the relevant period.
S-15
<PAGE>
T&N AND FEL-PRO ACQUISITIONS
As part of its strategy to expand its core competencies in manufacturing and
distribution, Federal-Mogul acquired T&N and Fel-Pro, two other significant
automotive parts manufacturers and distributors, in March and February 1998,
respectively.
THE T&N ACQUISITION
On March 6, 1998, Federal-Mogul acquired T&N for total consideration of
approximately (Pounds)1.46 billion ($2.42 billion, converted at a blended
exchange rate of 1 pound sterling to 1.6510 U.S. dollars). T&N, headquartered
in Manchester, England, manufactures and supplies high technology engineered
automotive components and industrial materials. In 1997, T&N had sales of
approximately (Pounds)1.80 billion ($2.95 billion) with about 80% of such
sales relating to the world automotive industry. At the time of its
acquisition, T&N's major product lines consisted of piston products, bearings,
friction products, composites and camshafts (incorporating sintered products)
and sealing products and it was active in both the original equipment and the
aftermarket markets. T&N operated in approximately 200 locations in 24
countries, employed over 28,000 people worldwide and served customers in more
than 150 countries. T&N's assets included technical centers in the U.K. and
Germany and North America.
In connection with securing regulatory approvals for the acquisition of T&N,
Federal-Mogul agreed with the FTC to divest the T&N Bearings Business. See
"Business--Reorganization" and "Unaudited Pro Forma Financial Data." The T&N
Bearings Business accounted for approximately $393.1 million of T&N's 1997
revenues and employed approximately 4,000 people.
THE FEL-PRO ACQUISITION
On February 24, 1998, Federal-Mogul acquired Fel-Pro, a group of privately-
owned automotive parts manufacturers headquartered in Skokie, Illinois. The
total consideration paid for Fel-Pro was approximately $717 million, which
included 1,030,325.6 shares of Federal-Mogul Series E Mandatory Exchangeable
Preferred Stock with an imputed value of $225 million and approximately $492
million in cash.
Fel-Pro is a leading gaskets manufacturer for the North American aftermarket
and OE heavy duty market. In 1997, Fel-Pro had sales of approximately $500
million. At the time of its acquisition, Fel-Pro's primary product lines
consisted of gaskets, heavy duty diesel engine products, diesel products, high
performance gaskets and other equipment and chemical products. Fel-Pro's
gasket sales for 1997 were approximately $350 million and included a full
range of automotive, heavy duty, marine and performance gaskets. Fel-Pro had
more than 2,700 employees in 16 locations. Its gasket facilities are located
in Illinois, Michigan, Canada and Mexico. Federal-Mogul is in the process of
reselling Fel-Pro's chemical manufacturing operations (representing
approximately $32.8 million of Fel-Pro's 1997 net sales and $2.6 million of
Fel-Pro's 1997 net income). Excluding intercompany items, net assets of Fel-
Pro Chemical were $12.2 million as of December 31, 1997.
STRATEGIC RATIONALE FOR THE ACQUISITIONS
The principal benefits to Federal-Mogul from the acquisitions of T&N and
Fel-Pro are as follows:
. Establishing Federal-Mogul as a highly competitive first tier worldwide
automotive supplier.
. Expanding Federal-Mogul's manufactured product portfolio to offer
complete systems and modules.
. Enhancing Federal-Mogul's position as a global supplier of engine and
transmission parts.
. Reinforcing Federal-Mogul's ability to provide high quality service to
both its original equipment and aftermarket customers.
. Extending Federal-Mogul's international presence and accelerating its
worldwide aftermarket growth.
S-16
<PAGE>
Federal-Mogul expects significant synergies and operating efficiencies to be
achieved as a result of the acquisitions of T&N and Fel-Pro. 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.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
FINANCING OF THE ACQUISITIONS
The acquisition of T&N was funded primarily through a $2.75 billion floating
rate Senior Credit Agreement (as hereinafter defined) (consisting of a $2.35
billion term loan facility and a $400 million revolving loan facility) and a
$500 million floating rate Senior Subordinated Credit Agreement (as
hereinafter defined). The senior term loan facility was reduced to $2.275
billion effective as of March 11, 1998. The entire amount of the senior term
loan facility, as well as the entire amount of the senior subordinated credit
facility, have been drawn down. These credit facilities also refinanced
Federal-Mogul's $350 million indebtedness under a revolving credit facility
(which had been used to finance the acquisition of Fel-Pro) and $150 million
of other indebtedness incurred in the acquisition of Fel-Pro. It is
anticipated that the net proceeds to Federal-Mogul from the Offerings will be
used to prepay the entire outstanding principal amount of the Senior
Subordinated Loans ($500 million), with the balance of the net proceeds used
to repay a portion of the Interim Loans (the outstanding principal balance of
which is $925 million at May 12, 1998). See "Use of Proceeds" and "Description
of Certain Indebtedness."
Additional funds for the acquisition of T&N were obtained through the sale
in December 1997 of 11,500,000 7% Trust Convertible Preferred Securities
(generating gross proceeds of $575 million) by Federal-Mogul Financing Trust,
a subsidiary of Federal-Mogul which invested the net proceeds of that offering
in 7% Convertible Junior Subordinated Debentures of Federal-Mogul. See
"Description of Capital Stock--Trust Preferred Securities." Federal-Mogul also
issued 1,030,325.6 shares of Series E Mandatory Exchangeable Preferred Stock,
with an imputed value of $225 million, as partial consideration for the
acquisition of Fel-Pro. See "Description of Capital Stock--Series E Mandatory
Exchangeable Preferred Stock."
S-17
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Federal-Mogul Common Stock is listed on the NYSE under the symbol "FMO."
The following table sets forth the reported high and low sale prices per
share for the Common Stock on the New York Stock Exchange Composite Tape and
the cash dividends declared on the Common Stock for such periods:
<TABLE>
<CAPTION>
PRICE RANGE
------------------- DIVIDENDS PER
HIGH LOW COMMON SHARE
--------- --------- -------------
<S> <C> <C> <C>
1996
First Quarter............................... $20 7/8 $17 3/8 $.12
Second Quarter.............................. 19 7/8 17 7/8 .12
Third Quarter............................... 22 1/2 16 1/4 .12
Fourth Quarter.............................. 24 1/2 20 3/8 .12
1997
First Quarter............................... 26 3/4 21 5/8 .12
Second Quarter.............................. 35 3/8 24 1/2 .12
Third Quarter............................... 39 15/16 32 3/4 .12
Fourth Quarter.............................. 47 5/8 36 3/4 .12
1998
First Quarter............................... 54 3/8 39 .12
Second Quarter (through May 12, 1998)....... 66 7/8 53 15/16 .0025(1)
</TABLE>
- --------
(1) Declared but not yet paid.
On May 12, 1998, the reported last sale price of the Common Stock on the
NYSE was $63 15/16 per share. On that date, there were approximately 9,100
shareholders of record of Common Stock.
Dividends on the Common Stock of Federal-Mogul are payable at the discretion
of Federal-Mogul's Board of Directors out of funds legally available therefor.
The Board of Directors has declared a cash dividend payable in the second
quarter of 1998 in the amount of one-quarter cent per share of Common Stock.
The record date for this dividend will be May 29, 1998, and thus Common Stock
sold in the Offerings will not entitle holders to receive such dividend.
Management presently intends to retain future earnings for working capital, in
accordance with Federal-Mogul's growth strategy, and therefore anticipates
paying dividends at a comparable level in the foreseeable future. In addition,
the Credit Agreements contain certain limits upon dividends. See "Description
of Certain Indebtedness."
S-18
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of Federal-
Mogul at March 31, 1998, and as adjusted to reflect the Offerings by Federal-
Mogul.
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------
AS
ACTUAL ADJUSTED
-------- --------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Short-term debt:
Subordinated notes........................................ $ 500.0 $ --
Other short-term debt(1).................................. 337.8 337.8
-------- --------
Total short-term debt................................... 837.8 337.8
-------- --------
Long-term debt:
Revolving credit facility................................. $ 55.0 $ 55.0
Medium-term notes......................................... 125.0 125.0
Senior notes.............................................. 125.0 125.0
ESOP obligation........................................... 15.2 15.2
Senior loans.............................................. 1,879.7 1,777.8
Other..................................................... 73.8 73.8
-------- --------
Total long-term debt(2)................................. 2,273.7 2,171.8
Minority interest-preferred securities of affiliate(3)...... 575.0 575.0
Shareholders' equity:
Series C ESOP Convertible Preferred Stock................. 48.1 48.1
Series E Mandatory Exchangeable Preferred Stock........... 225.0 168.1
Common stock.............................................. 202.4 202.5
Additional paid-in capital................................ 327.3 986.0
Accumulated deficit(4)(5)................................. (130.8) (130.8)
Unearned ESOP compensation................................ (21.7) (21.7)
Accumulated other comprehensive income.................... (61.5) (61.5)
Other..................................................... (2.8) (2.8)
-------- --------
Total shareholders' equity.............................. 586.0 1,187.9
-------- --------
Total capitalization........................................ $4,272.5 $4,272.5
======== ========
</TABLE>
- --------
(1) Other short-term debt includes current maturities of long-term debt.
(2) Less current maturities included in short-term debt.
(3) This consists of Federal-Mogul-obligated 7% Trust Convertible Preferred
Securities of Federal-Mogul Financing Trust. Substantially all of the
assets of Federal-Mogul Financing Trust consist of the 7% Convertible
Junior Subordinated Debentures of Federal-Mogul.
(4) Does not include an extraordinary loss (net of tax) of approximately $19
million resulting from a contractual penalty incurred in April 1998 in
connection with the prepayment of T&N private placement debt.
(5) Excludes the extraordinary loss (net of tax) from the early retirement of
debt of approximately $5.1 million resulting from the use of proceeds of
the Offerings.
S-19
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
Federal-Mogul completed its cash offer to acquire T&N on March 6, 1998. The
acquisition has been accounted for using the purchase method of accounting.
The total consideration paid of approximately (Pounds)1.46 billion ($2.42
billion, converted at a blended exchange rate of 1 pound sterling to 1.6510
U.S. dollars) was funded primarily through a $2.75 billion floating rate
Senior Credit Agreement (consisting of a $2.35 billion (reduced to $2.275
billion effective as of March 11, 1998) term loan facility, $1.8 billion of
which was drawn down, and a $400 million revolving loan facility) and a $500
million floating rate Senior Subordinated Credit Agreement (the full amount of
which was drawn down), each from a syndicate led by Chase. These credit
facilities also refinanced the borrowings used to finance the cash portion of
the purchase price for Fel-Pro. Additional funds for the acquisition of T&N
were obtained through the December 1997 sale of 7% Trust Convertible Preferred
Securities (generating gross proceeds of $575 million) by Federal-Mogul
Financing Trust, a subsidiary of the Company. The Company intends to put into
place a permanent capital structure with an appropriate combination of debt
and equity which will partially replace the Senior Credit Agreement and Senior
Subordinated Credit Agreement debt.
Federal-Mogul completed the acquisition of Fel-Pro, for approximately $717
million, on February 24, 1998. The acquisition has been accounted for using
the purchase method of accounting. The purchase price consists of 1,030,325.6
shares of newly issued Series E Stock (exchangeable into 5,151,628 shares of
Common Stock) with an imputed value of $225 million and $492 million in cash.
The cash was provided through an existing revolving credit facility provided
by a syndicate led by Chase and three short-term loans, each in the amount of
$50 million, from Chase, ABN Amro Bank NV and First Chicago NBD Bank,
respectively.
The estimated cost of the acquisitions of Fel-Pro and T&N are computed as
follows:
<TABLE>
<CAPTION>
FEL-
PRO T&N
------ --------
(DOLLARS
IN MILLIONS)
<S> <C> <C> <C>
Cash................................................. $491.8 $2,434.2
Series E Mandatory Exchangeable Preferred Stock...... 225.0 --
Expected proceeds from exercisable options........... -- (52.6)
Direct transaction costs............................. .9 29.3
------ --------
Estimated acquisition cost........................... $717.7 $2,410.9
====== ========
</TABLE>
The pro forma preliminary allocations of the purchase price of the
acquisitions of Fel-Pro and T&N are expected to be as follows:
<TABLE>
<CAPTION>
FEL-
PRO T&N
------ --------
(DOLLARS
IN MILLIONS)
<S> <C> <C> <C>
Current assets..................................... $173.1 $1,087.6
Liabilities assumed(1)............................. (133.1) (3,143.9)
Property, plant and equipment...................... 110.2 1,055.4
Identifiable intangible assets..................... 16.7 315.7
Other noncurrent assets............................ 31.4 525.9
Purchased research and development................. -- 18.6
Goodwill........................................... 519.4 1,990.7
Estimated fair value of T&N Bearings Business (see
below)............................................ -- 560.9
------ --------
Total.......................................... $717.7 $2,410.9
====== ========
</TABLE>
- --------
(1) Includes an increase of $329 million to adjust the acquired asbestos
liability to estimated fair value and an increase of $124 million to
adjust the acquired income tax liability in relation to the anticipated
gain on the sale of the T&N Bearings Business.
S-20
<PAGE>
In connection with securing regulatory approvals for the acquisition of T&N,
Federal-Mogul executed an Agreement Containing Consent Order with the FTC on
February 27, 1998. Pursuant to this agreement Federal-Mogul must divest the
T&N Bearings Business within six months after the FTC declares the consent
order final and must provide for independent management of the T&N Bearings
Business pending such divestiture. The assets to be divested consist
principally of T&N's thinwall and dry bearings (polymer bearings) operations.
The agreement stipulates that the T&N Bearings Business is to be maintained as
a viable, independent competitor of Federal-Mogul and that Federal-Mogul shall
not attempt to direct the activities of, or exercise control over, the T&N
Bearings Business or have contact with the T&N Bearings Business outside of
normal business activities.
Federal-Mogul has separately identified the estimated effect of the
divestiture of the T&N Bearings Business in the unaudited pro forma statement
of operations and balance sheet. The estimated net cash flows from operations
of the T&N Bearings Business from March 6, 1998 to the date of sale, the
interest expense on debt incurred during this period and the proceeds from the
sale will be accounted for as adjustments to the purchase price of T&N.
Proceeds are estimated to be between $500 and $650 million, calculated using
multiples of earnings similar to recent automotive industry transactions. An
amount within the low end of this range has been used in the pro forma
financial information. There can be no assurance that the actual proceeds
received from the disposition will fall within the estimated range.
The unaudited pro forma statement of operations for the year ended December
31, 1997, has been prepared to illustrate the effect of the acquisitions of
T&N and Fel-Pro as if they had occurred on January 1, 1997. The unaudited pro
forma statement of operations includes only the results of ongoing operations
and excludes such impacts as extraordinary items, items relating to the
acquisitions and synergies and expected cost savings associated with the
integration of the acquisitions. The unaudited pro forma balance sheet as of
December 31, 1997, has been prepared to illustrate the effect of the
acquisitions of T&N and Fel-Pro as if they had occurred on that date. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
The unaudited pro forma financial information gives effect to the
acquisition transactions using the purchase method of accounting. The pro
forma adjustments are described in the accompanying notes to the unaudited pro
forma financial information and are based upon preliminary available
information and upon certain assumptions made by management of Federal-Mogul.
Accordingly, the pro forma adjustments reflected in the unaudited pro forma
financial information are preliminary and subject to revision. Such revision
could be material.
The unaudited pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the financial position or
results of operations which may occur in the future or that would have
occurred had the acquisitions of T&N and Fel-Pro been consummated on the dates
indicated, nor are they necessarily indicative of Federal-Mogul's future
results of operations or financial position. The unaudited pro forma financial
information should be read in conjunction with the audited consolidated
financial statements of Federal-Mogul, as well as the audited financial
statements of the acquired companies.
S-21
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(YEAR ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
FEDERAL- DISPOSITION OF T&N FEL-PRO
MOGUL T&N FEL-PRO T&N BEARINGS PRO FORMA PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL BUSINESS ADJUSTMENTS ADJUSTMENTS COMBINED
---------- ---------- ---------- -------------- ----------- ----------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................... $1,806.6 $2,948.4 $489.3 $(393.1)(a) $ (15.3)(b) $(11.9)(i) $4,824.0
Cost of products sold... 1,381.8 2,187.6 268.5 (295.4)(a) (0.9)(c) (6.9)(j) 3,534.7
-------- -------- ------ ------- ------- ------ --------
Gross margin............ 424.8 760.8 220.8 (97.7) (14.4) (5.0) 1,289.3
Selling general and
administrative
expenses............... 286.2 500.3 173.8 (46.1)(a) 58.9 (d) 13.0 (k) 986.1
Restructuring charges
(credits).............. (1.1) -- -- -- -- -- (1.1)
Reengineering and other
related charges
(benefits)............. (1.6) -- -- -- -- -- (1.6)
Adjustment of assets
held for sale to fair
value.................. 2.4 -- -- -- -- -- 2.4
Interest expense........ 32.0 60.5 -- (16.9)(a) 148.5 (e) 38.2 (l) 262.3
Interest income......... (7.1) (17.9) -- 2.3 (a) 13.7 (f) -- (9.0)
International currency
exchange losses........ 0.6 4.4 -- (0.3)(a) -- -- 4.7
British pound currency
option, net............ 10.5 -- -- -- -- -- 10.5
Gain on sale of
Kolbenschmidt AG share
purchase options....... -- (21.7) -- -- -- -- (21.7)
Other (income) expense,
net.................... 3.4 (14.5) -- (1.3)(a) 36.9 (g) -- 24.5
-------- -------- ------ ------- ------- ------ --------
Earnings before income
taxes, extraordinary
item and nonrecurring
charges.............. 99.5 249.7 47.0 (35.4) (272.4) (56.2) 32.2
Income tax expense
(benefit).............. 27.5 159.3 25.5 (9.4)(a) (85.2)(h) (24.2)(m) 93.5
-------- -------- ------ ------- ------- ------ --------
Net earnings (loss)
before extraordinary
item and nonrecurring
charges.............. $ 72.0 $ 90.4 $ 21.5 $ (26.0) $(187.2) $(32.0) $ (61.3)
======== ======== ====== ======= ======= ====== ========
Earnings (loss) per com-
mon share:
Basic................. $ 1.81 $ (2.16)
Diluted............... $ 1.67 $ (2.16)
Weighted average shares
outstanding (thou-
sands):
Basic................. 36,647 36,647
======== ========
Diluted............... 41,854 36,647
======== ========
</TABLE>
NOTES TO THE UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS UNLESS OTHERWISE NOTED)
RELATING TO THE DIVESTITURE OF THE T&N BEARINGS BUSINESS:
(a) To eliminate the historical statement of operations of the T&N Bearings
Business.
RELATING TO THE PURCHASE OF T&N:
(b) To eliminate intercompany sales between Federal-Mogul and T&N.
(c) To reflect the net effect of the following adjustments:
<TABLE>
<S> <C>
Increase in depreciation expense relating to the adjustment of
property, plant and equipment acquired to estimated fair value
(to be depreciated over an average period of 14 years)........... $ 5.4
Elimination of intercompany cost of products sold between Federal-
Mogul and T&N.................................................... (15.3)
Elimination of profit in ending inventory on intercompany sales
between Federal-Mogul and T&N.................................... 0.8
Increase in pension expense--elimination of amortization of de-
ferred gain...................................................... 8.7
Decrease in postretirement benefits expense--elimination of
amortization of deferred loss.................................... (0.5)
-----
$(0.9)
=====
</TABLE>
S-22
<PAGE>
(d) To reflect the net effect of the following adjustments:
<TABLE>
<S> <C>
Amortization of additional goodwill resulting from the purchase
of T&N (to be amortized over a period of 40 years)............. $ 43.0
Amortization of other identifiable intangible assets acquired to
estimated fair value (to be amortized over periods from 10 to
24 years)...................................................... 15.9
-------
$ 58.9
=======
(e) To reflect the net effect of the following adjustments:
Increase in interest expense relating to the net debt incurred
for the net purchase of T&N (see unaudited pro forma balance
sheet footnote 1).............................................. $ 148.2
Reduction in historical interest expense of T&N relating to the
elimination of historical outstanding debt..................... (23.4)
Amortization of debt issuance costs (to be amortized over a
period of 12 to 96 months)..................................... 23.7
-------
$ 148.5
=======
(f) To reflect the net effect of the following adjustments:
Reduction in interest income as a result of the use of existing
cash balances of Federal-Mogul to finance a portion of the T&N
transaction.................................................... $ 2.2
Reduction in interest income as a result of the use of existing
cash balances of T&N........................................... 11.5
-------
$ 13.7
=======
(g) To record an additional eleven months of minority interest-preferred
securities of affiliates expense.
(h) To record the income tax effects of the statement of operations adjustments.
RELATING TO THE PURCHASE OF FEL-PRO:
(i) To eliminate intercompany sales between Federal-Mogul and Fel-Pro
(j) To reflect the net effect of the following adjustments:
Increase in depreciation expense relating to the adjustment of
property, plant and equipment acquired to estimated fair value
(to be depreciated over an average period of 10 years)......... $ 3.0
Elimination of intercompany cost of products sold between
Federal-Mogul and Fel-Pro...................................... (11.9)
Elimination of profit in ending inventory on intercompany sales
between Federal-Mogul and
Fel-Pro........................................................ 0.6
Increase in postretirement benefits expense--elimination of
amortization of deferred loss.................................. 1.4
-------
$ (6.9)
=======
(k) To record the amortization of goodwill resulting from the purchase of Fel-
Pro (to be amortized over a period of 40 years)
(l) To record interest expense relating to the debt incurred for the purchase of
Fel-Pro
(m) To record the income tax effects of the statement of operations adjustments
The unaudited pro forma statement of operations discloses the income (loss)
from continuing operations before nonrecurring charges directly attributable to
the transactions. The following nonrecurring charges were not considered in the
unaudited pro forma statement of operations:
Penalty for early retirement of private placement debt of T&N. $ 25.0
Estimated purchased research and development costs............ 18.6
Adjustment of inventory to estimated fair value............... 11.0
-------
$ 54.6
=======
Net earnings before extraordinary item and non-recurring
charges...................................................... $ (61.3)
Less: Series C preferred dividend requirement................. (2.4)
Less: Series D preferred dividend requirement................. (3.1)
Less: Series E preferred dividend requirement................. (12.3)
-------
Net earnings available to common shareholders before
extraordinary item and non-recurring charges................... $ (79.1)
=======
Weighted average common shares outstanding...................... 36,647
=======
Loss per share--basic and diluted............................... $ (2.16)
=======
</TABLE>
Loss per share as calculated for the pro forma combined entity:
S-23
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
(DECEMBER 31, 1997)
<TABLE>
<CAPTION>
DISPOSITION
FEDERAL- OF T&N FEL-PRO
MOGUL T&N FEL-PRO T&N BEARINGS PRO FORMA PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL BUSINESS ADJUSTMENTS ADJUSTMENTS COMBINED
---------- ---------- ---------- ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and equivalents.... $ 541.4 $ 319.2 $ -- $ (38.0)(28) $ (765.3)(1) $ (0.9)(15) $ 56.4
Accounts receivable..... 158.9 458.8 83.4 (49.4)(28) (2.6)(2) (4.2)(16) 645.0
Investment in accounts
receivable
securitization......... 48.7 -- -- -- -- -- 48.7
Inventories............. 277.0 365.1 61.0 (42.3)(28) 10.2 (3) 23.4 (17) 694.4
Prepaid expenses and
income tax benefits.... 113.2 58.2 4.7 (5.8)(28) 10.7 (4) 2.2 (18) 183.1
-------- -------- ------ -------- -------- ------ --------
Total current
assets............. 1,139.2 1,201.3 149.1 (135.5) (747.0) 20.5 1,627.6
Property, plant and
equipment.............. 313.9 1,089.5 80.6 (109.4)(28) 75.4 (5) 29.6 (19) 1,479.6
Goodwill................ 143.8 342.2 -- (66.8)(28) 1,715.0 (6) 519.4 (20) 2,653.6
Other intangible assets. 48.4 17.9 16.7 -- 297.8 (7) -- 380.8
Business investments and
other assets........... 156.8 469.2 23.7 (74.9)(28) 161.5 (8) 7.7 (21) 744.0
-------- -------- ------ -------- -------- ------ --------
Total assets........ $1,802.1 $3,120.1 $270.1 $ (386.6) $1,502.7 $577.2 $6,885.6
======== ======== ====== ======== ======== ====== ========
Short-term debt......... $ 28.6 $ 125.4 $ -- $ (0.5)(28) $ -- $ -- $ 153.5
Accounts payable........ 102.3 326.3 22.7 (38.5)(28) (2.6)(2) (2.0)(22) 408.2
Accrued compensation.... 36.8 57.6 24.1 (10.9)(28) -- -- 107.6
Accrued customer
incentives............. 22.4 -- 10.5 -- -- -- 32.9
Restructuring reserves.. 31.5 -- -- -- 150.0 (9) 15.0 (23) 196.5
Current portion of
asbestos liability..... -- 101.3 -- -- -- -- 101.3
Other accrued
liabilities............ 108.0 305.3 19.4 (22.0)(28) -- -- 410.7
-------- -------- ------ -------- -------- ------ --------
Total current
liabilities........ 329.6 915.9 76.7 (71.9) 147.4 13.0 1,410.7
Long-term debt.......... 273.1 469.5 -- (2.1)(28) 1,220.4 (1) 491.8 (15) 2,452.7
Postemployment benefits. 190.9 223.7 46.8 (12.3)(28) 6.4 (10) (18.0)(24) 437.5
Noncurrent portion of
asbestos liability..... -- 948.7 -- 329.0 (11) -- 1,277.7
Other accrued
liabilities............ 64.2 53.8 6.6 (43.5)(28) 53.7 (12) 6.0 (25) 140.8
-------- -------- ------ -------- -------- ------ --------
Total liabilities... 857.8 2,611.6 130.1 (129.8) 1,756.9 492.8 5,719.4
Minority interest-
preferred securities of
affiliates............. 575.0 -- -- -- -- -- 575.0
Minority interest,
other.................. -- 42.0 -- -- -- -- 42.0
Series C ESOP preferred
stock.................. 49.0 -- -- -- -- -- 49.0
Series E preferred
stock.................. -- -- -- 225.0 (26) 225.0
Common stock............ 201.0 361.1 -- -- (361.1)(13) -- 201.0
Additional paid-in
capital................ 332.6 4.4 -- -- (4.4)(13) -- 332.6
Retained earnings
(Accumulated deficit),
currency translation
and other.............. (191.5) 101.0 140.0 (256.8)(28) 111.3 (14) (140.6)(27) (236.6)
Unearned ESOP
compensation........... (21.8) -- -- -- -- -- (21.8)
-------- -------- ------ -------- -------- ------ --------
Total equity........ 369.3 466.5 140.0 (256.8) (254.2) 84.4 549.2
-------- -------- ------ -------- -------- ------ --------
$1,802.1 $3,120.1 $270.1 $ (386.6) $1,502.7 $577.2 $6,885.6
======== ======== ====== ======== ======== ====== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Balance Sheet.
S-24
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA BALANCE SHEET
(DOLLARS IN MILLIONS UNLESS OTHERWISE NOTED)
RELATING TO THE PURCHASE OF T&N:
(1) To reflect the net effect of the following adjustments:
<TABLE>
<CAPTION>
CASH DEBT
-------- --------
<S> <C> <C>
Proceeds from the issuance of debt................... $2,300.0 $2,300.0
Acquisition of T&N shares............................ (2,434.2) --
Payoff of existing T&N debt.......................... (469.5) (469.5)
Cash used from T&N asbestos fund to pay down debt.... (130.0) (130.0)
Proceeds from the exercise of T&N stock options at
close............................................... 52.6 --
Estimated proceeds from sale of the T&N Bearings
Business............................................ 560.9 --
Pay down debt and other liabilities using proceeds
from sale of the T&N Bearings Business.............. (560.9) (436.6)
Proceeds from sale of Kolbenschmidt AG share purchase
options............................................. 43.5 --
Pay down debt using proceeds from sale of
Kolbenschmidt AG share purchase options............. (43.5) (43.5)
Debt issuance costs.................................. (32.2)
Other fees........................................... (27.0)
Penalty for early retirement of private placement
debt of T&N......................................... (25.0)
-------- --------
$ (765.3) $1,220.4
======== ========
</TABLE>
(2) To eliminate intercompany accounts receivable and accounts payable
between Federal-Mogul and T&N
(3) To reflect the net effect of the following adjustments:
<TABLE>
<S> <C>
Adjustment of inventories acquired to estimated fair value......... $11.0
Elimination of intercompany profit in ending inventory............. (0.8)
-----
$10.2
=====
</TABLE>
(4) To record the current deferred income tax effects of the balance sheet
adjustments
(5) To adjust property, plant and equipment acquired to estimated fair value
(6) To record estimated acquired goodwill as the excess of the preliminary
purchase price paid and estimated costs incurred relating to the
acquisition over the estimated fair value of identifiable net assets
acquired
(7) To adjust other identifiable intangible assets acquired to estimated fair
value
(8) To reflect the net effect of the following adjustments:
<TABLE>
<S> <C>
Adjustment of pension assets acquired to estimated fair value.... $131.6
Debt issuance costs.............................................. 32.2
Other............................................................ (2.3)
------
$161.5
======
</TABLE>
(9) To provide for estimated severance and exit costs relating to T&N
(10) To adjust postemployment benefit liabilities acquired to estimated fair
value
(11) To record estimated fair value of the acquired asbestos liability
(12) To reflect the net effect of the following adjustments:
<TABLE>
<S> <C>
Estimated fair value of reserves for returns, allowances and
environmental..................................................... $41.3
Adjustment of the noncurrent deferred income tax asset for pro
forma balance sheet adjustments................................... 12.4
-----
$53.7
=====
</TABLE>
(13) To eliminate the historical common stock and additional paid in capital
of T&N
(14) To reflect the net effect of the following adjustments:
<TABLE>
<S> <C>
Elimination of historical retained earnings of T&N, net of the
T&N Bearings Business........................................... $155.6
Penalty for early retirement of private placement debt of T&N.... (25.0)
Estimated purchased research and development costs............... (18.6)
Elimination of the profit in ending inventory on intercompany
sales between Federal-Mogul and T&N............................. (0.7)
------
$111.3
======
</TABLE>
S-25
<PAGE>
RELATING TO THE PURCHASE OF FEL-PRO:
(15) To reflect the net effect of the following adjustments:
<TABLE>
<CAPTION>
CASH DEBT
------ ------
<S> <C> <C>
Proceeds from the issuance of debt........................ $491.8 $491.8
Acquisition of Fel-Pro.................................... (491.8) --
Other fees................................................ (.9) --
------ ------
$ (.9) $491.8
====== ======
</TABLE>
(16) To reflect the net effect of the following adjustments:
<TABLE>
<S> <C>
Elimination of intercompany accounts receivable.................... $(2.0)
Increase in allowance for doubtful accounts........................ (2.2)
-----
$(4.2)
=====
</TABLE>
(17) To reflect the net effect of the following adjustments:
<TABLE>
<S> <C>
Adjustment of inventories acquired to estimated fair value......... $24.0
Elimination of intercompany profit in ending inventory............. (0.6)
-----
$23.4
=====
</TABLE>
(18) To record the current deferred income tax effects of the balance sheet
adjustments
(19) To adjust property, plant and equipment acquired to estimated fair value
(20) To record estimated acquired goodwill as the excess of the preliminary
purchase price paid and estimated costs incurred relating to the
acquisition over the estimated fair value of identifiable net assets
acquired
(21) To record the noncurrent deferred income tax effects of the balance sheet
adjustments
(22) To eliminate intercompany accounts payable between Federal-Mogul and Fel-
Pro
(23) To provide for estimated severance and exit costs relating to Fel-Pro
(24) To adjust postemployment benefits acquired to estimated fair value
(25) To record the estimated fair value reserves for returns, allowances and
environmental
(26) To record the issuance of Series E Mandatory Exchangeable Preferred
Stock, exchangeable into Common Stock, to the former owners of Fel-Pro
(27) To reflect the net effect of the following adjustments:
<TABLE>
<S> <C>
Elimination of the historical equity of Fel-Pro................. $(140.0)
Elimination of intercompany profit in ending inventory.......... (.6)
-------
$(140.6)
=======
</TABLE>
RELATING TO THE DIVESTITURE OF THE T&N BEARINGS BUSINESS:
(28) To eliminate the historical balance sheet of the T&N Bearings Business.
The estimated effects of the sale of the T&N Bearings Business are
located in the T&N pro forma adjustments.
S-26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA--FEDERAL-MOGUL
The following selected historical consolidated financial information of
Federal-Mogul with respect to each year in the three-year period ended
December 31, 1997 is derived from the Federal-Mogul Audited Financial
Statements. Such consolidated financial statements have been audited by Ernst
& Young LLP, independent certified public accountants. The unaudited financial
information for the three-month periods ended March 31, 1998 and 1997 have
been derived from the Federal-Mogul Unaudited Financial Statements. The
Federal-Mogul Unaudited Financial Statements are unaudited, but in the opinion
of management, reflect all adjustments necessary for a fair presentation of
such information. The selected consolidated financial information provided
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Federal-Mogul" and the
consolidated financial statements of Federal-Mogul and the notes thereto
included elsewhere in this Prospectus Supplement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, (UNAUDITED)
---------------------------- -------------------
1997 1996 1995 1998(1) 1997
-------- -------- -------- --------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Net sales............... $1,806.6 $2,032.7 $1,999.8 $ 658.0 $ 485.6
Costs of products sold.. 1,381.8 1,660.5 1,602.2 496.7 373.5
-------- -------- -------- --------- --------
Gross margin............ 424.8 372.2 397.6 161.3 112.1
Selling, general and
administrative
expenses............... (286.2) (333.8) (299.3) (108.2) (78.4)
Purchased in-process
research and
development charge..... -- -- -- (18.6) --
Gain on sales of
businesses............. -- -- 24.0 -- --
Restructuring (charges)
credits................ 1.1 (57.6) (26.9) (10.5) --
Reengineering and other
related (charges)
credits................ 1.6 (11.4) (13.9) -- --
Adjustment of assets
held for sale to fair
value and
other long lived
assets................. (2.4) (151.3) (51.8) (20.0) --
Interest expense........ (32.0) (42.6) (37.3) (15.5) (9.8)
Interest income......... 7.1 2.9 9.6 6.7 0.7
International currency
exchange losses........ (0.6) (3.7) (2.9) (1.1) (0.1)
British pound currency
option and foreign
contract, net.......... (10.5) -- -- 13.3 --
Other expense, net...... (3.4) (3.4) (2.4) (5.8) (2.0)
-------- -------- -------- --------- --------
Earnings (Loss)
before income taxes
and extraordinary
item................ 99.5 (228.7) (3.3) 1.6 22.5
Income tax expense
(benefit).............. 27.5 (22.4) 2.5 8.8 8.6
-------- -------- -------- --------- --------
Net Earnings (Loss)
before extraordinary
item................ 72.0 (206.3) (5.8) (7.2) 13.9
======== ======== ======== ========= ========
Extraordinary item--loss
on early retirement of
debt, net of applicable
income tax benefit..... (2.6) -- -- -- --
-------- -------- -------- --------- --------
Net Earnings (Loss).. 69.4 (206.3) (5.8) (7.2) 13.9
Preferred dividends..... 5.5 8.7 8.9 0.8 2.1
-------- -------- -------- --------- --------
Net Earnings (Loss)
Available to Common
Shareholders........ $ 63.9 $ (215.0) $ (14.7) $ (8.0) $ 11.8
======== ======== ======== ========= ========
Dividends declared per
share.................. $ 0.48 $ 0.48 $ 0.48 $ 0.12 $ 0.12
======== ======== ======== ========= ========
COMMON SHARE SUMMARY
(DILUTED):
Income (loss) before
extraordinary item..... $ 1.67 $ (6.20) $ (.42) $ (.20) $ .32
Extraordinary item...... (0.6) -- -- -- --
-------- -------- -------- --------- --------
Net Earnings (Loss)
Per Common Share.... $ 1.61 $ (6.20) $ (.42) $ (.20) $ .32
======== ======== ======== ========= ========
CONSOLIDATED BALANCE
SHEET DATA:
Total assets............ $1,802.1 $1,455.2 $1,701.1 $ 7,398.7 $1,419.7
Short-term debt (2)..... 28.6 280.1 111.9 837.8 258.7
Long-term debt.......... 273.1 209.6 481.5 2,273.7 206.9
Shareholders' equity.... 369.3 318.5 550.3 586.0 310.2
OTHER FINANCIAL
INFORMATION:
EBITDA(3)............... $ 194.5 $ 97.9 $ 163.6 $ 82.7 $ 46.3
Expenditures for
property, plant,
equipment and other
long term assets....... 49.7 54.2 78.5 19.5 8.4
Depreciation and
amortization expense... 52.8 63.7 61.0 29.8 14.0
</TABLE>
- -------
(1) Reflects first time consolidation of T&N and Fel-Pro as of March 6, 1998
and February 24, 1998, respectively.
(2) Includes current maturities of long-term debt.
(3) "EBITDA" represents the sum of income before interest expense and income
taxes, plus depreciation and amortization as well as nonrecurring charges
including gains on the sale of businesses, restructuring and reengineering
charges, adjustments of assets held for sale to fair value and other long
lived assets, the net effect of British pound currency options and forward
contract, and purchased in-process research and development charge. EBITDA
should not be construed as a substitute for income from operations, net
income or cash flow from operating activities, for the purpose of
analyzing Federal-Mogul's operating performance, financial position and
cash flows. The Company has presented EBITDA because it is commonly used
by investors to analyze and compare companies on the basis of operating
performance and to determine a company's ability to service debt.
S-27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA--T&N
The following selected historical consolidated financial information of T&N
with respect to each year in the two-year period ended December 31, 1997 is
derived from the T&N Financial Statements. The T&N Financial Statements have
been audited by KPMG Audit Plc, independent certified public accountants, and
are stated in accordance with U.K. GAAP. The selected consolidated financial
information provided below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations--T&N"
and the T&N Financial Statements included elsewhere in this Prospectus
Supplement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996
T&N HISTORICAL IN U.K. GAAP --------------- ---------------
(POUNDS STERLING IN MILLIONS)
<S> <C> <C>
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
DATA:
Total turnover excluding associated
undertakings............................. (Pounds)1,799.1 (Pounds)1,956.0
Cost of sales............................. (1,293.5) (1,418.3)
Other operating expenses.................. (331.6) (370.3)
Other, net................................ 11.2 (560.2)(1)
Tax on profit (loss) on ordinary
activities............................... (62.8) (8.0)
--------------- ---------------
Profit/(loss) attributable to
shareholders............................. (Pounds) 122.4 (Pounds) (400.8)
=============== ===============
CONSOLIDATED BALANCE SHEET DATA:
Total assets.............................. (Pounds)1,576.2 (Pounds)1,558.3
Borrowings due within one year............ 103.7 77.2
Borrowings due after more than one year... 285.4 260.2
Equity shareholders' funds at end of year. 191.4 118.3
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996
T&N PRO FORMA IN U.S. GAAP(2)(3) --------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 2,948.4 $ 3,055.4
Costs and expenses........................ (2,698.7) (4,058.6)(1)
Income tax (expense) benefit.............. (159.3) 278.5
--------------- ---------------
Net earnings (loss)....................... $ 90.4 $ (724.7)
=============== ===============
CONSOLIDATED BALANCE SHEET DATA:
Total assets.............................. $ 3,120.1 $ 3,299.5
Short-term debt........................... 125.4 68.1
Long-term debt............................ 469.5 445.2
Shareholders' equity...................... 466.5 456.1
OTHER FINANCIAL INFORMATION:
EBITDA(4)................................. 426.9 373.1
Expenditures for property, plant,
equipment and other long term assets..... 167.7 167.6
Depreciation and amortization expense..... 164.6 151.4
</TABLE>
S-28
<PAGE>
- --------
(1) Includes charge for asbestos related costs of (Pounds)515 million under
U.K. GAAP and $1.244 billion under U.S. GAAP.
(2) The T&N historical financial statements were prepared in accordance with
U.K. GAAP, which differs in certain significant respects from U.S. GAAP
(see Note 29 to the T&N Financial Statements). The following table
reconciles the T&N profit/loss attributable to shareholders as reported
under U.K. GAAP to net earnings/loss as stated under U.S. GAAP:
<TABLE>
<CAPTION>
1997 1996
------------- --------------
(IN MILLIONS)
<S> <C> <C>
Profit/(loss) attributable to shareholders
as reported under U.K. GAAP--stated in
pound sterling............................. (Pounds)122.4 (Pounds)(400.8)
Converted to U.S. dollars................... $ 201.4 $ (628.4)
U.S. GAAP adjustments (in U.S. dollars):
Amortization of goodwill................... (11.2) (5.3)
Amortization--of patents................... (2.6) (2.5)
Deferred taxation--full provision.......... (67.1) 158.7
Tax effect of other U.S. GAAP reconciling
items..................................... 3.0 121.8
Pension costs.............................. (11.5) (23.7)
Asbestos provision discount................ (0.8) (355.9)
Depreciation on fixed asset revaluations... 9.5 9.7
Carrying value of investments.............. (31.6) --
Other...................................... 2.1 2.0
Minority interests......................... (0.8) (1.1)
------------- --------------
Net earnings (loss)......................... $ 90.4 $ (724.7)
============= ==============
</TABLE>
(3) Operating results and balance sheet data for 1997 have been translated at
a rate of 1.6453 U.S. dollars to 1 pound sterling, and 1.6488 U.S. dollars
to 1 pound sterling, respectively. Operating results and balance sheet
data for 1996 have been translated at a rate of 1.5680 U.S. dollars to 1
pound sterling and 1.1710 U.S. dollars to 1 pound sterling, respectively.
(4) "EBITDA" represents the sum of income before interest expense and income
taxes, plus depreciation and amortization as well as nonrecurring charges
including gains on the sale of businesses, the cost and gains associated
with options over shares of Kolbenschmidt AG, asbestos related costs and
bid costs. EBITDA should not be construed as a substitute for income from
operations, net income or cash flow operating activities, for the purpose
of analyzing T&N's operating performance, financial position and cash
flows. The Company has presented EBITDA because it is commonly used by
investors to analyze and compare companies on the basis of operating
performance and to determine a company's ability to service debt.
S-29
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA--FEL-PRO
The following selected historical consolidated financial information of Fel-
Pro with respect to the years ended December 28, 1997 and December 29, 1996 is
derived from the Fel-Pro Financial Statements. The Fel-Pro Financial
Statements have been audited by Ernst & Young LLP, independent certified
public accountants. The selected consolidated financial information provided
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Fel-Pro" and the Fel-Pro
Financial Statements included elsewhere in this Prospectus Supplement.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 28, DECEMBER 29,
1997 1996
------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 489.3 $ 448.0
Costs and expenses................................... (442.3) (408.7)
Income tax (expense) benefit......................... (25.5) (6.9)
------- -------
Net earnings......................................... $ 21.5 $ 32.4
======= =======
CONSOLIDATED BALANCE SHEET DATA:
Total assets......................................... $ 270.1 $ 261.8
Short-term debt...................................... -- --
Long-term debt....................................... -- --
Shareholder's equity................................. 139.9 151.8
OTHER FINANCIAL INFORMATION:
EBITDA(1)............................................ $ 58.4 $50.5
Expenditures for property, plant, equipment and other
long term assets.................................... 18.3 14.1
Depreciation and amortization expense................ 11.5 11.3
</TABLE>
- --------
(1) "EBITDA" represents the sum of income before income taxes, plus
depreciation and amortization. EBITDA should not be construed as a
substitute for income from operations, net income or cash flow from
operating activities, for the purpose of analyzing Fel-Pro's operating
performance, financial position and cash flows. The Company has presented
EBITDA because it is commonly used by investors to analyze and compare
companies on the basis of operating performance and to determine a
company's ability to service debt.
S-30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
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. The Company's
principal customers include many of the world's major original equipment
manufacturers of such vehicles and industrial products. The Company also
manufactures and supplies its products and related parts to the aftermarket.
The Company, which had traditionally focused on the manufacture and
distribution of engine bearings and sealing systems, in 1990 began to add
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
underwent 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 such restructuring, Federal-Mogul took
the following actions: (i) closed international aftermarket distribution
centers in Malaysia and Singapore; (ii) divested 72 international retail
aftermarket operations and sold or restructured 25 wholesale aftermarket
operations; (iii) closed its Leiters Ford, Indiana manufacturing facility and
consolidated its lighting products operations in Juarez, Mexico; (iv)
consolidated certain of its North American warehouse facilities; (v)
consolidated its customer support functions previously housed in Phoenix,
Arizona into the Company's Southfield headquarters; (vi) consolidated its
European aftermarket management functions in Geneva, Switzerland into the
Wiesbaden, Germany manufacturing headquarters; and (vii) streamlined certain
of its administrative and operational staff functions worldwide. In addition,
by the end of the first quarter of 1998, the Company expects to have
successfully exited all of its retail businesses, except for Puerto Rico where
the Company continues to seek a buyer.
In connection with the restructuring, Federal-Mogul also began to pursue a
growth strategy of acquiring complementary manufacturing companies that
enhance Federal-Mogul's product base, expand its global manufacturing
operations and provide opportunities to capitalize on Federal-Mogul's
aftermarket distribution network and technological resources.
On March 6, 1998, Federal-Mogul completed its cash offer to acquire all
outstanding common stock of T&N for 260 pence per share. On February 24, 1998,
Federal-Mogul acquired all the equity interests of Fel-Pro. See "T&N and Fel-
Pro Acquisitions."
The Company also acquired Bimet S.A. ("Bimet") during the first quarter of
1998 and increased its ownership in Federal-Mogul/Bruss Sealing Systems
("Summerton") and KFM Bearing Co., Ltd. ("KFM"), as well as divesting its
minority interest in G. Bruss GmbH & Co. KG ("Bruss"). See notes 2 and 7 to
the "Federal-Mogul Unaudited Interim Financial Statements."
The consolidated statement of operations for the three months ended March
31, 1998 includes the operating results of T&N and Fel-Pro from their
respective acquisition dates. Operating results for the T&N Bearings Business
and Fel-Pro chemical business (which includes amortization expense for
goodwill allocated to the businesses and interest expense relating to the
holding costs of the businesses) have been excluded from the condensed
consolidated statement of operations for the three months ended March 31,
1998.
S-31
<PAGE>
FEDERAL-MOGUL
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH
THREE MONTHS ENDED MARCH 31, 1997
THE FOLLOWING IS BASED ON TEXT INCLUDED IN FEDERAL-MOGUL'S QUARTERLY REPORT ON
FORM 10-Q FILED IN RESPECT OF THE THREE-MONTH PERIOD ENDED MARCH 31, 1998 AND
SPEAKS AS OF THAT DATE.
RESULTS OF OPERATIONS
Following the acquisitions of T&N and Fel-Pro, Federal-Mogul's integrated
operations are being reorganized to realize synergies and effectively
coordinate operations. Operations will be conducted through three
manufacturing operating units corresponding to major product areas: Powertrain
Systems, Sealing Systems and General Products. The major product categories in
Powertrain Systems include engine bearings and piston products. Sealing
Systems includes dynamic seals and gaskets. General Products include
camshafts, friction products, sintered products, systems protection products
and a number of smaller product lines. The Worldwide Aftermarket organization
is responsible for the Company's global aftermarket sales, marketing and
distribution.
Net Sales
Sales for the first quarter of 1998 were $658.0 million compared to $485.6
million in the same 1997 quarter. The 35.5% increase in net sales is primarily
attributable to the acquisitions of T&N and Fel-Pro, the results of which were
included from their respective dates of acquisition. Excluding the impact of
T&N and Fel-Pro acquisitions and the impact of previously divested retail
aftermarket businesses, net sales decreased 2.3%.
Powertrain Systems sales were $279.0 million for the first quarter of 1998
compared to $209.2 million for the same 1997 quarter. Approximately $84
million of the 33.4% increase related to sales of T&N. Excluding the
acquisition of T&N and powertrain products previously sold through the
divested retail aftermarket businesses, sales were relatively flat compared to
1997.
Sealing Systems sales were $163.3 million in the first quarter of 1998
compared to $83.8 million in the first quarter of 1997. Approximately $20
million of the 94.9% increase related to sales of T&N and approximately $52
million related to sales of Fel-Pro. Excluding the acquisitions of T&N and
Fel-Pro and sealing products previously sold through the divested retail
aftermarket businesses, sales increased 9.7% due to strong heavy duty and
industrial sales.
General Products sales were $215.7 million in the first quarter of 1998
compared to $192.6 million in 1997. Approximately $69 million of the 12.0%
increase related to sales of T&N. Excluding the acquisitions of T&N and
general products previously sold through the divested retail aftermarket
businesses, sales decreased 10.2% primarily due to continuing softness in the
North American aftermarket business.
Cost of Products Sold
Cost of products sold as a percent of net sales decreased to 75.5% for the
first quarter of 1998 from 76.9% for the same 1997 quarter. Excluding the
effect of a $10.9 million charge in the first quarter of 1998 associated with
the purchase accounting write-up of acquired inventory to fair value and the
subsequent sale of this inventory at the higher cost, as well as a $3.5
million write-down of inventory associated with the Puerto Rico retail
aftermarket to be divested, cost of products sold as a percent of sales
decreased to 73.3%. Management attributes this decrease to productivity
improvements, cost controls, streamlined operations, the divestiture of
underperforming assets and the acquisitions previously discussed.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses as a percent of net
sales increased to 14.9% for the first quarter of 1998 compared to 15.6% for
the first quarter of 1997. The decrease is primarily attributable to the
benefits of prior restructuring actions and the divestiture of retail
aftermarket businesses, slightly offset by a $1.1 million charge related to
Year 2000 costs.
S-32
<PAGE>
Amortization Expense
Amortization expense in the first quarter of 1998 was $10.1 million compared
to $2.5 million for the first quarter of 1997. The increase in amortization
expense was attributable to the expense related to the increase in goodwill
and other intangible assets associated with the T&N and Fel-Pro acquisitions.
Purchased In-Process Research and Development Charge
The Company recognized an $18.6 million charge in the first quarter of 1998
associated with the estimated fair value of in-process research and
development costs allocated in purchase accounting to a portion of the total
consideration paid.
Restructuring Charges
During the first quarter of 1998, the Company recognized a $10.5 million
restructuring charge related to operations in place prior to the acquisitions
of T&N and Fel-Pro. The restructuring charge included $10.2 million and $0.3
million for severance and exit costs, respectively. Employee severance costs
result from planned terminations in various business operations of the
Company. The severance costs were based on the estimated levels that will be
paid to the affected employees pursuant to the Company's workforce reduction
policies and certain foreign governmental regulations. The Company anticipates
that the actions related to the first quarter 1998 restructuring plan will be
completed primarily within one year.
Rationalization of Acquired Businesses
In connection with the previously discussed acquisitions, the Company
recognized approximately $151 million in reserves related to the
rationalization and integration of acquired businesses. The rationalization
reserves provide for approximately $125 million and $26 million in severance
and exit costs, respectively.
The components of the integration plan include: closure of four
manufacturing facilities worldwide; relocation of highly manual manufacturing
product lines to lower cost regions or more suitable locations; consolidation
of overlapping manufacturing, technical and sales facilities and joint
ventures; closure of two aftermarket central warehouses and five in-country
warehouses; consolidation of aftermarket marketing and customer support
functions; and streamlining of administrative, sales, marketing and product
engineering staffs worldwide. An anticipated result of the integration plan
and the restructuring will be a reduction of approximately 4,200 full-time
employees.
In addition to the $10.5 restructuring charge and the $151 million
rationalization reserve, the Company expects to incur additional expenses of
approximately $43 million necessary to complete the integration of the
acquired companies. The anticipated annual synergy associated with the
restructuring, rationalization and integration is expected to be moderately in
excess of these costs in the year 2000.
Adjustment of Assets Held for Sale to Fair Value
In addition to the T&N Bearings Business and chemical businesses held for
sale, during the first quarter of 1998 the Company decided to sell its
subsidiary, Bertolotti Pietro e Figli, S.r.l. ("Bertolotti"), conducting
aftermarket operations in Italy. The carrying value of Bertolotti's assets
have been reduced to its fair value based on estimates of selling values less
costs to sell, calculated using multiples of earnings similar to recent
automotive industry transactions in Italy. The Company recognized a $20.0
million first quarter charge primarily associated with the write-down of
Bertolotti's assets to the estimated fair value. The Company expects to
complete the sale of Bertolotti within one year.
As part of its 1996 restructuring plan, the Company continued to close or
sell certain retail aftermarket operations during the first quarter of 1998.
As of March 31, 1998, retail aftermarket operations that continue to be held
for sale include those in Puerto Rico. Net cash proceeds received for those
retail aftermarket locations sold in the first quarter approximated $2
million. No gain or loss was recognized on the dispositions of those retail
aftermarket locations, as the related assets had been previously adjusted to
fair value.
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<PAGE>
Interest Expense
Interest expense in the first quarter of 1998 was $15.5 million compared to
$9.8 million for the first quarter of 1997. The increase in interest expense
is attributable to the interest expense related to the financing of the T&N
and Fel-Pro acquisitions slightly offset by reduced preacquisition debt levels
as compared to the first quarter of 1997.
Net Gain on British Pound Currency Option and Forward Contract
In the fourth quarter of 1997, in anticipation of the then pending T&N
acquisition, the Company purchased a British pound currency option for $28.1
million with a notional amount of $2.5 billion. In January 1998, the Company
settled the option and recognized a loss of $17.3 million.
Also in January 1998, in anticipation of the then pending T&N acquisition,
the Company entered into a forward contract to purchase (Pounds)1.5 billion
for a notional amount of approximately $2.45 billion. As a result of favorable
exchange fluctuations in the British pound/U.S. dollar exchange rate
experienced during the contract period, the Company recognized a $30.6 million
gain.
The Company entered into the above transactions to effectively serve as
economic hedges for the purchase of T&N. Such transactions, however, do not
qualify for "hedge accounting" under U.S. GAAP, and therefore the loss on the
British pound currency option and the gain on the British pound forward
contract are reflected in the statement of operations caption "Net gain on
British pound currency option and forward contract."
Income Tax Expense
During the first quarter of 1998, the Company recognized charges for
adjustment of assets held for sale to fair value and purchased research and
development and recognized a net gain on the British pound currency option and
forward contract. These transactions resulted in a pre-tax net charge of $25.3
million. The net income tax benefit related to these transactions totaled $2.1
million.
Pro Forma Results
The following unaudited pro forma financial information for the three months
ended March 31, 1998 and 1997 assume the T&N and Fel-Pro acquisitions occurred
as of the beginning of the respective periods, after giving effect to certain
adjustments, including the amortization of intangible assets, interest expense
on acquisition debt, divestitures of the T&N Bearings Business and Fel-Pro
chemical business and income tax effects. The pro forma results (in millions
of dollars, except per share data) have been prepared for comparative purposes
only and are not necessarily indicative of the results of operations which may
occur in the future or that would have occurred had the acquisitions of T&N
and Fel-Pro been consummated on the dates indicated, nor are they necessarily
indicative of the Company's future results of operations.
<TABLE>
<CAPTION>
UNAUDITED PRO
FORMA FINANCIAL
INFORMATION THREE
MONTHS ENDED
MARCH 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales............................................ $1,193.6 $1,247.9
Net loss............................................. $ (16.5) $ (7.0)
Loss per share....................................... $ (0.44) $ (0.28)
Loss per share assuming dilution..................... $ (0.44) $ (0.28)
</TABLE>
The unaudited pro forma financial information for the three months ended
March 31, 1998 include charges for adjustment of assets held for sale to fair
value, restructuring, the effect of the previously described purchase
accounting write-up of acquired inventory to fair value and writedown of
inventory associated with the Puerto Rico retail aftermarket business to be
divested, and certain other charges. Also included in the 1998 unaudited
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<PAGE>
pro forma financial information were the recognized net gain on the British
pound currency option and forward contract and the gain on the Bruss
divestiture. The net after tax effect of these transactions was a charge of
approximately $19 million ($0.48 per diluted share).
The $18.6 million charge for purchased in-process research and development
has been excluded from the 1998 unaudited pro forma financial information.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Provided from Operating Activities
Cash flow provided from operating activities was $82.7 million for the first
quarter of 1998. Cash flow was generated primarily from a decrease in
inventories of $36.8 million and net earnings adjusted for the non-cash
charges of depreciation and amortization, purchased in-process research and
development, restructuring and adjustment of assets held for sale to fair
value. Partially offsetting these items was an increase in accounts receivable
of $57.1 million.
Cash Flow used by Investing Activities
Cash flow used by investing activities was $2,586.5 million and was
primarily related to the acquisitions of T&N, Fel-Pro, Bimet and the increase
in ownership of Summerton and KFM partially reduced by the sale of the
Company's interest in Bruss. Partially offsetting the acquisitions, the
Company received proceeds from the sale of options which were acquired with
the acquisition of T&N. In addition, capital expenditures of $19.5 million
were made for property, plant and equipment to implement process improvements,
information technology and new product introductions. Capital expenditures are
anticipated to be approximately $235 million in 1998, primarily for enhanced
manufacturing capabilities and process improvements.
Cash Flow Provided from Financing Activities
Cash flow provided from financing activities was $2,063.9 million for the
first quarter of 1998 primarily from the increase in debt related to the
acquisitions of T&N and Fel-Pro detailed below, partially offset by the
related debt issuance fees of $33.3 million.
In connection with the Company's effort to put into place a permanent
capital structure with an appropriate combination of debt and equity to
partially replace the Senior Credit Agreement and Senior Subordinated Credit
Agreement debt, the Company on April 17, 1998 filed a registration statement
with the Securities and Exchange Commission for the offering from time to time
of up to an aggregate $2.5 billion of debt or equity securities (including
shares of Common Stock registered for the account of the Selling
Shareholders).
In addition to the Offerings, the Company is also evaluating the possibility
of issuing debt securities pursuant to such registration statement, all or a
significant portion of the net proceeds of which the Company would use to
refinance certain additional indebtedness of the Company. There can be no
assurance that any such offering of equity or debt securities will be
consummated. The accelerated payment, if any, of certain portions of the
Senior Credit Agreement and Senior Subordinated Credit Agreement debt would
result in a significant extraordinary charge due to the write-off of the
issuance costs associated with the early retirement of debt. The total
unamortized issuance costs related to the Senior Credit Agreement and Senior
Subordinated Credit Agreement were approximately $56 million at March 31,
1998.
In connection with the Fel-Pro acquisition the Company paid approximately
$492 million cash which was provided through an existing revolving credit
facility and three short-term loans and issued 1,030,325.6 shares of Federal-
Mogul Series E Stock with an imputed value of $225 million. The shares of
Series E Stock are exchangeable into shares of Common Stock at a rate of five
shares of Common Stock per share of Series E Stock and pay dividends of $.12
per quarter per common stock equivalent. The Series E Stock are required to be
exchanged no later than February 24, 1999, subject to certain conditions.
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<PAGE>
The Company believes that cash flow from operations, together with
borrowings available under the Company's revolving credit facility, will
continue to be sufficient to meet its ongoing working capital requirements.
Foreign Currency and Commodity Contracts
The financial condition and results of operations of certain of the
Company's 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 the Company'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 the
Company. Conversely, the depreciation of the dollar against these foreign
currencies will have a positive impact.
In addition, the Company 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 the Company 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 the Company's financial condition or results
of operations.
ASBESTOS LIABILITY AND LEGAL PROCEEDINGS
T&N Asbestos
As of March 31, 1998, the Company has provided $1.351 billion as its
estimate for future costs related to resolving asbestos claims. In the United
States, T&N plc and two of T&N plc's U.S. subsidiaries are among many
defendants named in numerous court actions alleging personal injury resulting
from exposure to asbestos or asbestos-containing products. T&N is also subject
to asbestos-disease litigation, to a lesser extent, in the United Kingdom and
to property damage litigation based upon asbestos in the United States.
Because of the slow onset of asbestos-related diseases, management anticipates
that similar claims will be made in the future. It is not known how many such
claims may be made nor the expenditure which may arise therefrom. T&N has
appointed the Center for Claims Resolution ("CCR") as its exclusive
representative in relation to all asbestos-related personal injury claims made
against the T&N Companies in the United States.
Prior to its acquisition, T&N secured a 500 million pounds sterling
(approximately $838 million at the March 31, 1998 exchange rate of 1 pound
sterling to 1.6758 U.S. dollars) layer of insurance which will be triggered
should the aggregate number of claims notified after June 30, 1996, where the
exposure occurred prior to that date, exceed 690 million pounds sterling
(approximately $1,156 million at the March 31, 1998 exchange rate). At March
31, 1998 the Company has recorded reserves for incurred but not reported
claims up to the insurance level, which is 690 million pounds sterling.
While management believes that estimated reserves, which have not been
reduced by any potential insurance proceeds, are appropriate for anticipated
losses arising from T&N's asbestos related claims, no assurance can be given
that T&N will not be subject to material additional liabilities and
significant additional litigation relating to asbestos. Any such liabilities
or litigation could have a material adverse effect on the Company's results of
operations, business, liquidity and financial condition.
Federal-Mogul and Fel-Pro Asbestos
Federal-Mogul Corporation also is one of a large number of defendants in a
number of lawsuits brought by claimants alleging injury due to exposure to
asbestos. In addition, Fel-Pro has been named as a defendant in approximately
18,000 product liability cases involving asbestos, primarily involving gasket
or packing products
S-36
<PAGE>
sold to ship owners. The Company is defending all such claims vigorously and
believes that it and Fel-Pro have substantial defenses to liability and
adequate insurance coverage for defense and indemnity costs (though Fel-Pro
has agreed with its insurers to pay 20% of defense costs, in exchange for the
right to a significant role in decisions regarding litigation). While the
outcome of litigation can't be predicted with certainty, management believes
that asbestos claims pending against Federal-Mogul Corporation and Fel-Pro as
of March 31, 1998 will not have a material effect on the Company's financial
position. No related reserves, or payments, have been provided, or paid to
date, related to asbestos claims pending against Federal-Mogul Corporation and
Fel-Pro.
Other
The Company is involved in various other legal actions and claims, directly
and through its subsidiaries (including T&N and Fel-Pro). After taking into
consideration legal counsel's evaluation of such actions, management is of the
opinion that its outcomes are not reasonably likely to have a material adverse
affect on the Company's financial position, operating results, or cash flows.
OTHER MATTERS
New Dividend Policy
Dividends on the Common Stock of the Company are payable at the discretion
of the Company's Board of Directors. Historically, quarterly dividends had
been 12 cents per share. The Board of Directors has recently reduced the
quarterly dividend and has declared a cash dividend payable in the second
quarter of 1998 in the amount of one-quarter cent per share of Common Stock.
The Company, consistent with its growth strategy, presently intends to retain
future earnings in the business and therefore anticipates paying dividends at
a comparable level in the foreseeable future.
Effect of Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued Statement No. 130
("SFAS No. 130") "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The Company
adopted Statement 130 as of January 1, 1998. The adoption of this statement
had no impact on Federal Mogul's net earnings (loss) or shareholders' equity.
SFAS No. 130 requires foreign currency translation adjustments and unrealized
gains or losses on investments and derivative instruments to be included in
other comprehensive income. Prior to the adoption of SFAS No. 130 these items
were reported as a component of shareholders' equity.
Total comprehensive income (loss), net of the related estimated tax, was
$(4.6) million and $5.3 million for the three months ended March 31, 1998 and
1997, respectively.
Subsequent Event
In April 1998, the Company retired $251 million in private placement debt
assumed in connection with the acquisition of T&N. The early retirement of the
debt required a make whole payment of approximately $27 million, which will be
recognized as an extraordinary loss in the second quarter of 1998 of
approximately $19 million, net of the related tax benefit.
S-37
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996 AND
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
THE FOLLOWING IS BASED ON TEXT INCLUDED IN FEDERAL-MOGUL'S ANNUAL
REPORT ON FORM 10-K FILED IN RESPECT OF THE YEAR ENDED DECEMBER 31,
1997 AND SPEAKS AS OF THAT DATE.
RESULTS OF OPERATIONS
Net Sales
Consolidated net sales decreased 11.1% in 1997, primarily due to the
divestiture of certain international retail and wholesale operations, the sale
of the heavy wall bearings operations in Brazil and Germany, the sale of the
United States ball bearing business and continued softness in the North
American aftermarket business. These decreases were partially offset by
certain volume increases primarily in the original equipment business.
Original equipment and aftermarket sales were:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Original Equipment:
Americas........................................... $ 451.4 $ 449.1 $ 465.4
International...................................... 170.3 219.5 222.7
Aftermarket:
United States and Canada........................... 699.1 759.8 780.8
International...................................... 485.8 604.3 530.9
-------- -------- --------
Total sales...................................... $1,806.6 $2,032.7 $1,999.8
======== ======== ========
</TABLE>
Original equipment business sales in the Americas were flat in 1997 as
compared to 1996. However, excluding the effect of the Company's divestitures
of its electrical products business in September 1996 and its United States
ball bearing operations in November 1996, net sales increased 15.7% in 1997
compared to 1996. Management attributes this increase primarily to strong 1997
sales in its sealing products division. Sales decreased in 1996 as compared to
1995 due to the sale of the Precision Forged Products Division in April 1995
and the 1996 sales of the electrical products business and the United States
ball bearings manufacturing operations, offset slightly by the acquisition of
Seal Technology Systems Limited in September 1995. Excluding the effect of
these acquisitions and divestitures, sales increased 2.7% in 1996.
International original equipment business sales decreased in 1997 as
compared to 1996 due to the effects of exchange rate fluctuations and the
divestiture of the heavy wall bearing operations in Germany and Brazil
completed on January 2, 1997. Excluding the effects of exchange rate
fluctuations and the divestiture, sales increased 11.7%. Management attributes
this increase to strong customer demand for sputter bearings and Glycodur
material products. In 1996, sales decreased as compared to 1995 due to the
Company's decision to exit some conventional engine bearing business that did
not meet appropriate profitability levels.
North American aftermarket sales decreased in 1997 as compared to 1996 due
to continued weak sales in engine products. Sales decreased in 1996 as
compared to 1995 primarily due to the elimination of special extended payment
terms.
International aftermarket business sales in 1997 as compared to 1996
decreased primarily due to the effects of foreign exchange fluctuations and
the 1997 divestitures of operations in Turkey, Australia, South Africa and
Chile. Excluding the effects of exchange and 1997 divestitures, sales were
essentially flat. In 1996, sales increased as compared to 1995 due to the full
year impact of the acquisitions of Bertolotti in June 1995 and Centropiezas in
September 1995, and to a lesser extent, volume and pricing increases in
Mexico, increased sales volume in Australia and new local operations in
Brazil. These increases were partially offset by $21 million resulting from
the devaluation of the South African rand and a decrease in Venezuela due to a
recession.
S-38
<PAGE>
Original equipment sales as a percentage of total sales of the Company
increased to 34.4% in 1997 from 32.8% in 1996, with a corresponding decrease
in aftermarket sales. This shift in 1997 reflects the Company's pursuit and
implementation of its strategy to focus on manufacturing and distribution, as
demonstrated by the previously discussed 1997 divestitures and planned
acquisitions. Previously, as the Company was implementing its retail growth
strategy, original equipment sales as a percentage of total sales of the
Company decreased to 32.8% in 1996 from 34.4% in 1995, with a corresponding
increase in aftermarket sales.
Cost of Products Sold
Cost of products sold as a percent of net sales decreased to 76.5% in 1997
compared to 81.7% for 1996. The decrease is primarily due to the 1997
divestitures of less profitable operations and productivity improvements in
the North American aftermarket and the Americas original equipment business.
In addition, a portion of the 1997 decrease is attributable to 1996 third and
fourth quarter charges incurred of $8 million for customer incentive programs
and $13 million for excess and obsolete inventory. See "--Changes in
Accounting Estimates."
Cost of products sold as a percent of net sales increased to 81.7% in 1996
compared to 80.2% in 1995. The increase is primarily attributable to 1996
third and fourth quarter charges incurred of $8 million for customer incentive
programs and $13 million for excess and obsolete inventory. See "--Changes in
Accounting Estimates."
Selling, General and Administrative Expenses
SG&A expenses as a percent of net sales decreased to 15.8% for 1997 compared
to 16.4% for 1996. In contrast, SG&A expenses as a percent of net sales
increased to 16.4% for 1996 compared to 15.0% for 1995. The 1997 decrease and
1996 increase in SG&A as a percent of net sales is primarily attributable to
bad debt expense, customer incentive programs and environmental and legal
matters (see "--Changes in Accounting Estimates" of $3 million for bad debt
expense, $8 million for customer incentive programs and $9 million for
environmental and legal matters) incurred in the third and fourth quarters of
1996. In addition, the 1996 increase was partially due to higher SG&A costs in
the international aftermarket business.
Changes in Accounting Estimates
In 1996, the Company made certain changes in accounting estimates totaling
$51 million in the third and fourth quarters attributable to 1996 events and
new information becoming available. The changes in accounting estimates
included the following:
Customer Incentive Programs: The increase in the provision for customer
incentive programs of $18 million resulted from contractual changes
implemented primarily in the third and fourth quarters of 1996 with certain
customers, new sales programs, additional customer participation in these
programs and current experience with these programs.
Excess and Obsolete Inventory: Business volume growth remained below
expectations in 1996, principally in the third and fourth quarters, causing a
build up of certain inventories beyond anticipated demand. In addition, the
Company's strategic initiative to focus on its manufacturing business and
divest its retail and certain aftermarket businesses and the sale of the U.S.
ball bearings operations in the fourth quarter adversely affected the utility
of the North American aftermarket business inventory. As a result, the Company
recorded an additional $13 million provision for excess and obsolete
inventory.
Bad Debts: The increase in the bad debt provision of $3 million was
principally attributable to the deterioration of account balances of numerous
low volume customers and termination of business with certain North American
aftermarket customers during 1996.
Environmental and Legal Matters: The environmental and legal provision was
increased by $9 million due to the completion of environmental studies and
related analyses, new issues arising and changes in the status of other legal
matters.
S-39
<PAGE>
Other: The remaining $8 million of changes in accounting estimates is
comprised of $1 million for changes in the workers' compensation reserve based
on worsening experience in outstanding claims in certain older policy years,
$3 million for interest capitalization, $2 million to adjust estimates of
inventoriable costs and $2 million for other items.
Sales of Businesses
During 1997, the Company received $73.6 million in net cash proceeds from
the sale of its aftermarket operations in South Africa, Australia and Chile,
and its heavy wall bearing operations in Germany and Brazil.
During 1996, the Company received $42.0 million in net cash proceeds from
the sale of its United States ball bearings and electrical products
manufacturing operations.
Except for the sale of the electrical products manufacturing operations,
sales of businesses in 1997 and 1996 relate to assets previously adjusted to
fair value. See "--Adjustment of Assets Held for Sale to Fair Value and Other
Long Lived Assets." Accordingly, no gain or loss was recognized on the date of
sale related to these transactions. In addition, no gain or loss was
recognized related to the sale of the electrical products manufacturing
operations.
During 1995, the Company sold its equity interest in Westwind Air Bearings,
Limited, recognizing a pretax gain of $16.2 million and its Precision Forged
Products Division for a pretax gain of $7.8 million.
Restructuring Charges
Primarily as a result of the amendments to the 1996 restructuring plan,
described previously in this section, the Company's 1997 operating results
were increased by $23.1 million for the reversal of previously recognized 1996
and 1995 restructuring charges. Offsetting this reversal is a $22.0 million
charge for new 1997 restructuring programs. The net impact on 1997 operations,
as a result of the restructuring activities, was a credit of $1.1 million. The
1997 charge includes $3.1 million for exiting certain European aftermarket
product lines and the related employment reductions, $6.8 million for
termination of certain European administrative and support personnel, $7.5
million for additional exit and severance costs related to the Puerto Rican
retail operations, $2.6 million for consolidation and reconfiguration of the
North American aftermarket service branch network and $2.0 million for other
actions. The Company anticipates that the actions related to the 1997
restructuring plan will be complete by the end of 1998, and that most of the
severance and exit costs will be paid in 1998.
In the fourth quarter of 1996, the Company recognized a restructuring charge
of $57.6 million for costs associated with employee severance, exit and
consolidation costs for 132 international retail operations and 30 wholesale
aftermarket operations, rationalization of European manufacturing operations,
consolidation of lighting products, consolidation or closure of certain North
American warehouse facilities, consolidation of customer support functions in
the United States and streamlining of administrative and operational staff
functions worldwide. The charge consists of $22.7 million for the sale of 132
international retail aftermarket and 30 wholesale aftermarket operations,
$14.7 million for corporate employee severance costs, $7.7 million for the
rationalization of European manufacturing operations, $5.3 million for
consolidation or closure of certain North American warehouse facilities, $2.8
million for consolidation of customer support functions in the United States,
$2.5 million for closure of the Leiters Ford facility and $1.9 million for
other miscellaneous actions, including the consolidation of the European
aftermarket management function into the European manufacturing headquarters.
The Company's 1997 progress and actual implementation of the 1996
restructuring plan resulted in 1997 operating results being increased by $20.8
million for severance and $1.4 million of exit and consolidation costs being
reversed. The Company expects to pay out most of the remaining 1996 severance
and exit costs in 1998.
Results of operations in the second and fourth quarters of 1995 include
restructuring charges of $6.1 million and $20.8 million, respectively. These
charges were comprised of $20.1 million for employee severance and $6.8
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<PAGE>
million for exit costs and consolidation of certain facilities. The workforce
reductions and consolidation of facilities were completed as of December 31,
1996. Operating results for 1997 were increased by $0.9 million relating to
1995 exit costs being reversed. The Company expects to pay out the remaining
1995 exit costs in 1998.
Reengineering and Other Related Charges
Operating results for 1997 include a credit of $1.6 million relating to 1996
reengineering and other related charges being reversed.
In 1996, the Company initiated an extensive effort to strategically review
its businesses and focus on its competencies manufacturing, engineering and
distribution. As a result of this process, the Company recognized a charge of
$11.4 million for professional fees and personnel costs related to the
strategic review of the Company and changes in management and related costs.
In 1995, the Company recognized a charge of $13.9 million for reengineering
and other costs. These costs included $7.0 million for professional fees and
personnel costs, and $6.9 million primarily for certain other non-recurring
costs relating to brand consolidation at the customer level of the Company's
Federal-Mogul(R), TRW(R) and Sealed Power(R) branded engine parts.
Adjustment of Assets Held for Sale to Fair Value and Other Long Lived Assets
The Company continually reviews all components of its businesses for
possible improvement of future profitability through acquisition, divestiture,
reengineering or restructuring. The Company also continually reviews and
updates its impairment reserves related to the divestiture of its remaining
international retail aftermarket operations and adjusts the reserve components
to approximate their net fair value.
In the fourth quarter of 1997, the Company recognized a charge of $2.4
million to write-down certain long lived assets to fair value. As of December
31, 1997, assets held for sale primarily include retail aftermarket operations
in Puerto Rico, Ecuador, Venezuela and Panama. By the end of the first quarter
of 1998, the Company expects to have successfully exited all of its retail
aftermarket businesses, except for Puerto Rico where the Company continues to
seek a buyer.
During 1996, management designed a restructuring plan to aggressively
improve the Company's cost structure, streamline operations and divest the
Company of underperforming assets. As part of this plan, the Company decided
to sell 132 international retail aftermarket operations, sell or restructure
30 wholesale aftermarket operations and consolidate a North American
manufacturing operation. The carrying value of assets held for sale was
reduced to fair value based on estimates of selling values less costs to sell.
Selling values used to determine the fair value of assets held for sale were
determined using market prices (i.e., valuation multiples) of comparable
companies from other 1996 transactions. The resulting adjustment of $148.5
million to reduce assets held for sale to fair value was recorded in the
fourth quarter of 1996. As previously described in this section, the Company
made significant progress related to the implementation of the 1996
restructuring plan. Also in 1996, based upon the final sale, the Company
recognized an additional writedown of $2.8 million to the net asset value of
the United States ball bearings operations. In 1995, the Company decided to
sell the ball bearings operations and reduced the carrying value by $17.0
million to record assets held for sale at fair value.
In 1995, the Company also decided to sell its heavy wall bearing operations
in Germany and Brazil. The Company estimated the fair value of the businesses
held for sale based on discussions with prospective buyers, adjusted for
selling costs. The Company reduced its carrying value by $17 million to record
assets held for sale at fair value. The heavy wall bearing operations were
sold in January 1997 for net proceeds of $8.9 million, which approximated the
carrying value of the assets at December 31, 1996.
In addition, in 1995, the Company reduced the carrying value of certain
other impaired long-lived assets by $17.8 million to record them at fair
value. No further fair value adjustments were recorded for these assets in
1996 or 1997.
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<PAGE>
Net sales for all assets held for sale and adjusted to fair value
approximated $114 million, $335 million, and $322 million in 1997, 1996 and
1995, respectively. Net sales for the remaining retail aftermarket operations
held for sale at December 31, 1997 approximated $44 million, $48 million and
$22 million in 1997, 1996 and 1995, respectively.
Interest Expense
Interest expense decreased $10.6 million in 1997 to $32.0 million. The
decrease was primarily due to a $188 million reduction of debt which resulted
from improvements in working capital and the sale of the South African and
Australian businesses. Although the Company decreased its debt by $104 million
from 1995 to 1996, interest expense increased $5.3 million in 1996 primarily
due to a higher average debt level than in 1995. Excluding the U.S. and
European revolving credit facilities, which were classified as short-term debt
during 1996 and as long-term debt during 1995, the weighted average interest
rate for short-term debt increased to 10.9% for 1996 from 9.5% for 1995. The
interest rate on the U.S. and European revolving credit facilities at December
31, 1996 and 1995 was 6.1% and 6.2%, respectively.
Income Taxes
At December 31, 1997, the Company had deferred tax assets, net of a $44.4
million valuation allowance, of $140.5 million and deferred tax liabilities of
$75.9 million.
The net deferred tax asset of $64.6 million included the tax benefits of
$58.2 million related to the Company's postretirement benefit obligation at
December 31, 1997. The Company expects to realize the benefits associated with
this obligation over a period of 35 to 40 years.
The difference between the 1997 effective income tax rate and the statutory
tax rate is principally due to utilization of losses on foreign investment and
an income tax benefit related to the sales of the South African and Australian
businesses (refer also to Note 16 of the Consolidated Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations of $215.7 million in 1997 increased significantly
during 1997 primarily due to increased earnings. The Company also reduced
inventory from operations by $59.9 million in 1997. Inventory reductions in
the North American aftermarket business were primarily responsible for the
decrease. The decrease in North America aftermarket inventory is attributable
to reduced lead times while still maintaining availability of products and
modifying safety stock levels.
Cash flow used by investing activities of $5.5 million in 1997 include $28.1
million for the British pound currency option, described later in this
section, and $2.4 million for other professional fees paid in anticipation of
the T&N acquisition. In addition, cash flows used by investing activities
include the receipt of $73.6 million in net proceeds from the 1997
divestitures.
Cash flow from 1997 financing activities were $298.1 million, an increase of
$420.9 million from 1996. The following events were primarily responsible for
the net increase for 1997:
Issuance of Preferred Securities of Affiliate: In December 1997, the
Company's financing trust completed a $575 million private issuance of
11,500,000 shares of 7% Trust Convertible Preferred Securities. The
convertible preferred securities are redeemable at the Company's option, in
whole or in part, on or after December 6, 2000. All outstanding convertible
securities are required to be redeemed no later than December 1, 2027.
Issuance of Senior Notes: In April 1997, the Company issued a fully
subscribed $125 million debt offering of ten year 8.8% senior notes. Proceeds
from the offering were used to reduce the Company's short-term debt and the
early extinguishment of the private placement debt.
S-42
<PAGE>
Extinguishment of Private Placement Debt: In the second quarter of 1997, the
Company retired $64.7 million in private placement debt. The early retirement
of this debt eliminated high coupon debt and potentially restrictive covenants
giving the Company greater financial flexibility in the future. In addition,
the early retirement of this debt involved a make whole payment that resulted
in a $4.1 million pretax ($2.6 million after tax) extraordinary loss.
Accounts Receivable Securitization: During 1997, the Company replaced an
existing accounts receivable securitization program with a new program which
provides up to $100 million of financing. On an ongoing basis, the Company
sells certain accounts receivable to a subsidiary of the Company, which then
sells such receivables, without recourse, to a master trust. Amounts sold
under this arrangement were $63.2 million as of December 31, 1997, and have
been excluded from the balance sheet. During 1997, cash payments totaling
$31.8 million were made to the master trust related to the Company's accounts
receivable securitization. These cash payments effectively increased the
Company's investment in the accounts receivable securitization.
Multicurrency Revolver: In June 1997, the Company entered into a new $350
million multicurrency revolving credit facility with a consortium of
international banks which matures in June 2002. The multicurrency revolving
credit facility replaced the existing U.S. and European revolving credit
facilities. The multicurrency revolving credit facility contains restrictive
covenants that, among other matters, require the Company to maintain certain
financial ratios. As of December 31, 1997, there were no borrowings
outstanding against the multicurrency revolving credit facility.
In December 1997, the Company entered into a $3.25 billion committed bank
facility with a reputable financial institution related to the T&N
acquisition. The facility provides for up to $2.75 billion of senior debt and
up to $500 million of subordinated debt. Because this facility was contingent
upon the acquisition of T&N, no amounts were outstanding as of December 31,
1997. Certain fees relating to this facility have been incurred and paid as of
December 31, 1997.
The Company believes that cash flow from operations will continue to be
sufficient to meet its ongoing working capital requirements.
ENVIRONMENTAL MATTERS
The Company is a party to lawsuits filed in various jurisdictions alleging
claims pursuant to the Comprehensive Environmental Response Compensation and
Liability Act of 1980 ("CERCLA") or other state or federal environmental laws.
In addition, the Company has been notified by the Environmental Protection
Agency and various state agencies that it may be a potentially responsible
party ("PRP") for the cost of cleaning up certain other hazardous waste
storage or disposal facilities pursuant to CERCLA and other federal and state
environmental laws. PRP designation requires the funding of site
investigations and subsequent remedial activities. Although these laws could
impose joint and several liability upon each party at any site, the potential
exposure is expected to be limited because at all sites other companies,
generally including many large, solvent public companies, have been named as
PRPs. In addition, the Company has identified certain present and former
properties at which it may be responsible for cleaning up environmental
contamination.
The Company is actively seeking to resolve these matters. Although difficult
to quantify based on the complexity of the issues, the Company has accrued the
estimated cost associated with such matters based upon current available
information from site investigations and consultants. The environmental and
legal reserve was approximately $11 million at December 31, 1997 and $12
million at December 31, 1996. Management believes that such accruals will be
adequate to cover the Company's estimated liability for its exposure in
respect of such matters.
FOREIGN CURRENCY AND COMMODITY CONTRACTS
In connection with the T&N acquisition, the Company purchased for $28.1
million a foreign currency option with a notional amount of $2.5 billion to
cap the effect of potential unfavorable fluctuations in the British pound/U.S.
dollar exchange rate. The cost of the option and its change in fair value has
been reflected in the results of operations in the fourth quarter of 1997. At
December 31, 1997 the Company has recognized a net loss on this transaction of
$10.5 million.
S-43
<PAGE>
The Company is subject to exposure to market risks from changes in foreign
exchange rates and raw material price fluctuations, derivative financial
instruments are utilized by the Company to reduce those risks. Except for the
British pound currency option discussed above, the Company does not hold or
issue derivative financial instruments for trading purposes.
Other than the British pound currency option discussed above, the Company
does not have foreign exchange forward or currency option contracts
outstanding at December 31, 1997.
In the first quarter of 1998, the Company settled the British pound currency
option, resulting in a pretax loss of $17.3 million. Also in the first quarter
of 1998, the Company entered into a forward contract to purchase 1.5 billion
British pounds for a notional amount approximating $2.45 billion. The forward
contract expires in the first quarter of 1998.
OTHER MATTERS
Conversion of Series D Convertible Exchangeable Preferred Stock
In August 1997, the Company announced a call for the redemption of all its
outstanding $3.875 Series D Convertible Exchangeable Preferred Stock. These
preferred shareholders elected to convert each preferred share into 2.778
shares of Common Stock. The Company issued 4.4 million shares of Common Stock
in exchange for all of the outstanding Series D convertible exchangeable
preferred stock.
Year 2000 Costs
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. The Company has
established a team that has completed an awareness program and assessment
project to address the Year 2000 issue. In addition, the Board of Directors
has received status reports related to the Company's progress in addressing
the Year 2000 issue. The Company has determined that it will be required to
modify or replace portions of its software so that its computer systems will
properly utilize dates beyond December 31, 1999. The Company has initiated
remediation, and is implementing the action plan to address the Year 2000
issue. The Company presently believes that with modifications to existing
software and conversions to new software, the Year 2000 issue can be
mitigated. However, if such modifications and conversions are not made, or are
not completed timely, the Year 2000 issue could have a material impact on the
operations of the Company.
The Company has initiated formal communications with a substantial majority
of its significant suppliers and large customers to determine their plans to
address the Year 2000 issue. While the Company expects a successful resolution
of all issues, there can be no guarantee that the systems of other companies
on which the Company's systems rely will be converted in a timely manner, or
that a failure to convert by a supplier or customer, or a conversion that is
incompatible with the Company's systems, would not have a material adverse
effect on the Company. The Company has determined it has no exposure to
contingencies related to the Year 2000 issue for the products it has sold.
The Company has contracts in place with external resources and has allocated
internal resources to reprogram or replace, and test the software for Year
2000 modifications. The Company plans to complete the Year 2000 project within
one year. The total cost of the Year 2000 project is estimated to be $17
million and is being funded through operating cash flows. Of the total project
cost, approximately $11 million is attributable to the purchase of new
software which will be capitalized. The remaining $6 million represents
maintenance and repair of existing systems and will be expensed as incurred.
The Company expects a substantial majority of the costs will be incurred in
1998, and any remaining costs incurred in 1999 are expected to be immaterial.
As of December 31, 1997, the Company had incurred and expensed approximately
$0.7 million related to the completed awareness program and assessment project
and the implementation of their remediation plan.
The costs of the project and the date which the Company plans to complete
the Year 2000 modifications are based on management's best estimates, which
were derived utilizing numerous assumptions of future events
S-44
<PAGE>
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially
from those plans. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel
trained in this area, the ability to locate and correct all relevant computer
codes and similar uncertainties.
As a result of the Company's due diligence related to the T&N acquisition
and the Fel-Pro acquisition, the Company expects costs to address the Year
2000 issue for Fel-Pro to be immaterial, and T&N costs for repair and
maintenance of existing systems are expected to approximate $8 million.
Divestiture of Minority Interest
In February 1998, the Company announced the divestiture of its minority
interest in G. Bruss GmBH & Co. KG, a German manufacturer of seals and
gaskets. As part of the divestiture agreement, the Company increased their
ownership to 100% in the Summerton, South Carolina gasket business. The
Company also received cash and recognized a gain as a result of these
transactions. The gain recognized is not expected to be significant to 1998
first quarter operating results.
Customer Reorganization
On February 2, 1998, APS Holding Corporation ("APS"), filed for
reorganization protection under Chapter 11 of the United States Bankruptcy
Code. As of the date of the Chapter 11 filing, the Company's total receivables
with APS approximated $10 million. APS has received a capital line of credit
from a reputable financial institution and is continuing business operations.
The Company continues to do business with APS on a cash in advance basis.
Although difficult to quantify based upon the uncertainty of the financial
condition of APS, the Company believes that net uncollectible receivables, if
any, from APS will be immaterial.
In addition, APS is a customer of Fel-Pro. The Company believes that the
allowance established by Fel-Pro prior to the acquisition of Fel-Pro related
to receivables from APS is adequate to cover any uncollectible amounts.
Effect of Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income. This Statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. Statement 130 is effective for fiscal
years beginning after December 15, 1997. Beginning in 1998, the Company will
provide the information relating to comprehensive income to conform to the
Statement 130 requirements.
Also in 1997, the Financial Accounting Standards Board issued Statement No.
131, Disclosures about Segments of an Enterprise and Related Information. The
statement supersedes Financial Accounting Standards Board Statement No. 14 and
establishes standards for the way public business enterprises report selected
information about operating segments in annual reports and interim financial
reports issued to shareholders. Statement 131 is effective for fiscal years
beginning after December 15, 1997. For the year ended 1998, the Company will
provide financial and descriptive information about its reportable operating
segments to conform to the Statement 131 requirements. Management plans to
report the requirements of Statement 131 for the following operating segments:
Sealing Systems, Powertrain Systems and General Products.
S-45
<PAGE>
T&N
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
AND YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
On March 6, 1998, Federal-Mogul completed its cash offer to acquire all
outstanding common stock of T&N for 260 pence per share. Total consideration
paid was (Pounds)1.4636 billion ($2.4164 billion, converted at a blended
exchange rate of 1 pound sterling to 1.6510 U.S. dollars). In connection with
securing regulatory approvals for the acquisition of T&N, Federal Mogul agreed
subsequently to divest certain assets, consisting principally of T&N's
thinwall and dry bearings (polymer bearings) operations. See "Business--
Reorganization." These assets are a subset of the operations T&N included in
its bearings product group and the discussion below of such product group does
not, therefore, directly correspond to the assets to be divested (which are
referred to elsewhere in this Prospectus Supplement as the "T&N Bearings
Business").
The following discussion is based upon the T&N Financial Statements included
elsewhere in this Prospectus Supplement, which have been prepared in
conformance with U.K. GAAP. U.K. GAAP differ in certain significant respects
from U.S. GAAP. The significant differences between U.S. GAAP and U.K. GAAP as
they relate to T&N are summarized in Note 29 to the T&N Financial Statements.
RESULTS OF OPERATIONS
Turnover (Net Sales)
T&N's consolidated turnover excluding associated undertakings (hereinafter
referred to as net sales) decreased by 8.0% in 1997. The 1997 decrease was
primarily due to the effects of adverse foreign exchange fluctuations, 1997
divestitures and the full year impact of 1996 divestitures. These decreases
were partially offset by the 1997 acquisition of Metal Leve, Inc., which
expanded T&N's product offerings in piston-related products, and certain
volume improvements for continuing businesses. Excluding 1997 acquisitions
(which added (Pounds)30 million to 1997 net sales) and the impact of
divestitures, 1997 net sales decreased 4.4% as compared to 1996.
The primary source of the foreign exchange fluctuation impact on T&N in 1997
was the continued appreciation of the pound sterling in relation to other
European currencies (and, to a lesser extent, the U.S. dollar) through the
year. This appreciation resulted in an adverse currency translation effect
upon overseas earnings and erosion of margins on exports billed in foreign
currency. These effects were partially offset by reduced expense for materials
imported into the U.K. Excluding the effects of (Pounds)153 million in adverse
foreign currency fluctuations and acquisitions, net sales from continuing
operations increased by approximately 4.0%.
Net sales by market were:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
(POUNDS STERLING IN MILLIONS)
<S> <C> <C> <C>
Light vehicle original
equipment............... (Pounds) 731.2 (Pounds) 772.9 (Pounds) 756.6
Automotive aftermarket... 497.1 529.4 480.1
Industrial and heavy duty
original equipment...... 570.8 653.7 854.8
--------------- --------------- ---------------
(Pounds)1,799.1 (Pounds)1,956.0 (Pounds)2,091.5
=============== =============== ===============
</TABLE>
Net sales by product group (as these were configured prior to Federal-
Mogul's acquisition of T&N) were:
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ---------------
(POUNDS STERLING IN MILLIONS)
<S> <C> <C> <C>
Bearings................. (Pounds) 329.6 (Pounds) 333.1 (Pounds) 342.5
Sealing products......... 195.1 216.0 227.0
Friction products........ 293.9 309.5 319.0
Piston products.......... 572.8 574.7 559.6
Composites and camshafts. 372.9 381.1 328.9
--------------- --------------- ---------------
Continuing operations.... 1,764.3 1,814.4 1,777.0
Discontinued operations.. 34.8 141.6 314.5
--------------- --------------- ---------------
(Pounds)1,799.1 (Pounds)1,956.0 (Pounds)2,091.5
=============== =============== ===============
</TABLE>
S-46
<PAGE>
Decreases in sealing products net sales were primarily attributable to
German and French businesses. Piston products net sales, which declined by
0.3% in 1997 as compared with 1996, were affected by the acquisition of Metal
Leve, Inc. (excluding that acquisition, piston products net sales from
continuing operations decreased 5.2%).
During 1997, 1996 and 1995, T&N divested certain non-core businesses with
net sales of (Pounds)34.8 million, (Pounds)141.6 million and (Pounds)314.5
million. These divestitures included the disposition of T&N's entire
construction materials and engineering products business.
Net sales for businesses divested by product group were:
<TABLE>
<CAPTION>
DISCONTINUED OPERATIONS
----------------------------------------
1997 1996 1995
------------ ------------- -------------
(POUNDS STERLING IN MILLIONS)
<S> <C> <C> <C>
Sealing products................ (Pounds)12.1 (Pounds) 49.8 (Pounds) 49.6
Friction products............... 12.5 18.6 10.9
Composites and camshafts........ 10.2 18.9 170.8
Construction materials and
engineering.................... -- 54.3 83.2
------------ ------------- -------------
(Pounds)34.8 (Pounds)141.6 (Pounds)314.5
============ ============= =============
</TABLE>
Cost of Sales
Cost of sales as a percentage of net sales was 71.8%, 72.5% and 72.1% for
1997, 1996 and 1995, respectively. The 1997 acquisition and 1997 and 1996
divestitures had an immaterial impact on cost of sales as a percentage of net
sales. Excluding the impact of 1995 divestitures, cost of sales as a
percentage of net sales was 71.3% in 1995.
Federal-Mogul Bid Related Costs
T&N incurred (Pounds)10 million of costs in 1997 related to the acquisition
bid by Federal-Mogul. These fees were primarily for professional services
provided with respect to the offer to purchase the entire outstanding share
capital of T&N.
Other Operating Expenses
Significant components of other operating expenses were:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
(POUNDS STERLING IN MILLIONS)
<S> <C> <C> <C>
Selling and distribution
costs........................ (Pounds)148.8 (Pounds)168.6 (Pounds)173.5
Administrative expenses....... 130.7 148.7 144.0
Research & development........ 52.1 53.0 52.2
------------- ------------- -------------
(Pounds)331.6 (Pounds)370.3 (Pounds)369.7
============= ============= =============
</TABLE>
Selling and distribution costs as a percentage of net sales were 8.3%, 8.6%
and 8.3% for 1997, 1996 and 1995, respectively. Administrative expenses as a
percentage of net sales were 7.3%, 7.6% and 6.9% for 1997, 1996 and 1995,
respectively. The 1997 acquisition and 1997, 1996 and 1995 divestitures impact
on selling and distribution costs as a percentage of net sales and
administrative expenses as a percentage of net sales were immaterial.
Research and development costs as a percentage of net sales were 2.9%, 2.7%
and 2.5% for 1997, 1996 and 1995, respectively, and reflect T&N's continuing
commitment to investment in innovation and technology.
S-47
<PAGE>
ASBESTOS
In the U.S., T&N plc and two of its U.S. subsidiaries (the "T&N Companies")
are among many defendants named in numerous court actions alleging personal
injury resulting from exposure to asbestos or asbestos-containing products.
T&N plc is also, to a lesser extent, subject to asbestos-disease litigation in
the U.K. and to property damage litigation in the U.S. Because of the slow
onset of asbestos-related diseases, management anticipates that similar claims
will be made in the future. It is not known how many such claims may be made
nor the expenditure which may arise therefrom. See "Risk Factors--T&N's
Asbestos Liability."
In 1996, T&N secured a (Pounds)500 million layer of insurance which will be
triggered should the aggregate cost to resolve claims notified after June 30,
1996, where the exposure occurred prior to that date (incurred but not
reported, or "IBNR," claims), exceed (Pounds)690 million. For additional
information regarding asbestos-related liabilities and reserves, see the Pro
Forma Financial Statements and Notes 19 and 28 to the T&N Financial
Statements.
Asbestos Charges Recognized in 1996 and 1997
T&N recognized two charges to establish provisions for IBNR claims for the
year ended December 31, 1996, one in the amount of (Pounds)323 million
((Pounds)550 million on an undiscounted basis) and a second in the amount of
(Pounds)50 million. The latter charge was related to the risk that U.S. courts
would reject a class action settlement to which the T&N Companies were party
(in Georgine et al v. Amchem et al). This settlement was ultimately rejected
by the U.S. Supreme Court in 1997 and some increase in new IBNR claims filed
has resulted. T&N also recognized a (Pounds)50 million charge in 1996 for
claims notified and outstanding as of June 30, 1996. In addition, T&N recorded
the (Pounds)92 million cost of the (Pounds)500 million layer of insurance in
1996, and the premium was paid in 1997. T&N recognized no additional
provisions relating to asbestos in 1997.
Asbestos-Related Payments in 1996 and 1997
T&N paid (Pounds)149.4 million for asbestos-related claims, including the
(Pounds)92 million insurance premium, during 1997 and (Pounds)64.8 million in
1996.
RELEASE OF PROVISION/(PROVISION AGAINST) FIXED ASSET INVESTMENTS:
KOLBENSCHMIDT COSTS
In March 1995, T&N entered into option arrangements for 1,345,452 shares of
Kolbenschmidt AG ("KS"), which represented approximately 49% of the
outstanding share capital of KS. In 1995, T&N recognized a charge of
(Pounds)19.5 million related to the creation of provisions relating to the
reduction of the value of fixed asset investments (the Kolbenschmidt options).
In 1996, KS issued nine shares for each share already outstanding such that
the option arrangements increased to 13,454,520 shares. In December 1996,
options over 6,727,260 shares expired and T&N recognized a (Pounds)23.4
million related charge.
In 1997, Commerzbank subsequently sold the KS shares and, subject to the
option arrangement, T&N received part of the proceeds and recognized a gain of
(Pounds)13.2 million, accordingly. In addition, T&N received an offer to
purchase its remaining interest in KS, and, as a result, T&N recognized in
1997 an additional (Pounds)19.2 million gain (the sale of such remaining
interest occurred in March 1998). (See Note 4 to the T&N Financial
Statements.)
NET INTEREST PAYABLE AND SIMILAR CHARGES - GROUP
Net interest payable and similar charges - group (hereinafter referred to as
interest expense or interest income) was (Pounds)28.4 million in 1997 as
compared to (Pounds)26.8 million in 1996.
S-48
<PAGE>
Gross interest expense was (Pounds)39.3 million in 1997 as compared to
(Pounds)32.5 million in 1996. The 1997 increase of (Pounds)6.8 million in
gross interest expense is primarily attributable to higher interest rates,
partially offset by lower average borrowings arising from continued
improvements in working capital. In addition, 1997 gross interest expense
includes (Pounds)2.5 million for the amortization of T&N's discounted asbestos
provision.
Gross interest income was (Pounds)10.9 million in 1997 as compared to
(Pounds)5.7 million in 1996. The 1997 increase was primarily attributable to
earnings on funds reserved for asbestos liabilities.
Net interest expense in 1996 decreased (Pounds)9.0 million as compared to
1995. The 1996 decrease was primarily due to lower debt levels and interest
rates as compared with 1995.
TAX ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES (INCOME TAXES)
Income tax expense was (Pounds)62.8 million in 1997 resulting in an
effective tax rate of 33.0% compared with the statutory U.K. corporation tax
of 31.5%. The difference between the effective tax rate and U.K. corporation
rate is attributable to a number of factors, none of which are material.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities (including asbestos) were (Pounds)111.4
million in 1997 as compared to (Pounds)215.7 million in 1996. The 1997
decrease is primarily attributable to the strong sales performance and the
increase in orders for 1998 shipment in the fourth quarter of 1997 which
limited T&N's ability to reduce debtors (accounts receivable) and stocks
(inventory) as compared to the 1996 reductions.
Capital expenditures in 1997 were (Pounds)103.9 million compared to
(Pounds)114.3 million in 1996. The 1997 decrease is primarily attributable to
the disposal of certain businesses and foreign currency fluctuations.
Proceeds from business disposals were (Pounds)75.7 million in 1997 compared
to (Pounds)74.8 million in 1996.
T&N paid (Pounds)32.6 million in 1997 for the acquisition of businesses. The
most significant acquisition in 1997 was that of Metal Leve, Inc., a
manufacturer of articulated pistons based in the United States.
LEGAL MATTERS
In addition to the asbestos litigation, T&N is engaged in various actions
arising in the ordinary course of its business. Management is of the opinion
that the outcome of these matters will not have a material adverse effect on
T&N's financial condition.
FOREIGN CURRENCY AND COMMODITY CONTRACTS
T&N was subject to exposure to market risks from changes in foreign exchange
rates and raw material price fluctuations. Derivative financial instruments
were utilized by T&N to reduce those risks. T&N does not hold or issue
derivative financial instruments for trading purposes.
OTHER MATTERS - YEAR 2000 COSTS
T&N has established a Year 2000 steering group to coordinate and address the
Year 2000 issue. Awareness and assessment stages have been completed. T&N is
currently implementing its action plan with a target completion date of
September 1998. Total costs for repair and maintenance of existing systems are
expected to approximate (Pounds)5 million ($8 million).
S-49
<PAGE>
FEL-PRO
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
AND YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
On January 9, 1998, Fel-Pro's owners signed an agreement to sell the Fel-Pro
group, consisting of Fel-Pro Inc., certain operating businesses and holding
companies affiliated with Fel-Pro Inc. and certain real estate owned by Fel-
Pro Inc. or its affiliates to Federal-Mogul. The transaction closed on
February 24, 1998, at which time Federal-Mogul acquired all equity interests
in the specified Fel-Pro entities for approximately $717 million, which
included 1,030,325.6 shares of Series E Stock (as hereinafter defined) with an
imputed value of $225 million and approximately $492 million in cash. Federal-
Mogul is in the process of reselling the chemical manufacturing operations
acquired with Fel-Pro (representing approximately $32.8 million of Fel-Pro's
1997 net sales and $2.6 million of Fel-Pro's 1997 net income).
RESULTS OF OPERATIONS
Net Sales
Fel-Pro's consolidated net sales increased 9.2% in 1997 as compared to 1996,
primarily due to volume increases from new and existing customers in the
aftermarket business. Consolidated net sales increased 15.5% in 1996 as
compared to 1995 primarily due to volume increases from new and existing
customers in the aftermarket business, as well as the acquisition of TCI, a
high performance transmission and torque converter manufacturer in December of
1995 and the acquisition of Korody-Colyer ("KC") in October of 1995 for $12.3
million and $7.1 million, respectively. Excluding the effect of the
acquisitions of TCI and KC, Fel-Pro's net sales increased 6.4% in 1995.
Original equipment and aftermarket sales of Fel-Pro were:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Original Equipment:
Americas................................................. $ 94.6 $ 88.4 $ 85.8
Aftermarket:
United States and Canada................................. 299.8 282.9 246.4
International............................................ 94.9 76.6 55.5
------ ------ ------
Total sales............................................ $489.3 $447.9 $387.7
====== ====== ======
</TABLE>
Original equipment sales increased 7.0% in 1997 as compared to 1996 due to
volume increases of gaskets for the heavy duty market partially offset by
volume decreases in the automotive market related to the end of certain
products' life cycles. Fel-Pro's original equipment sales increased 3.0% in
1996 as compared to 1995.
Aftermarket sales in the United States and Canada increased 6.0% in 1997 as
compared to 1996 primarily due to new customer business. Sales increased 14.8%
in 1996 as compared to 1995 due to the following: (i) volume increases from
new and existing customers; (ii) the December 1995 acquisition of TCI; and
(iii) the full year impact of the October 1995 acquisition of KC.
Excluding the effect of the 1995 acquisitions, Fel-Pro's aftermarket sales
in the United States and Canada increased 7.8% in 1996.
International aftermarket sales increased 23.9% in 1997 as compared to 1996
primarily due to volume increases in heavy duty diesel engine parts.
International aftermarket sales increased 38.0% in 1996 as compared to 1995
primarily due to volume increases in heavy duty engine parts which included
the full year impact of the October 1995 KC acquisition. Excluding the effect
of the acquisition, international aftermarket sales increased 22.7% in 1996.
Cost of Goods Sold
Cost of goods sold as a percent of net sales was flat in 1997 at 54.8% as
compared to 1996. Cost of goods sold as a percent of net sales decreased to
54.8% in 1996 compared to 56.0% in 1995. The decrease is primarily
attributable to cost reductions and productivity improvement efforts.
S-50
<PAGE>
Operating Expenses
Operating expenses as a percentage of net sales decreased to 35.5% in 1997
compared to 36.4% in 1996. The 1997 decrease is primarily attributable to Fel-
Pro's increases in sales volume exceeding the corresponding increase in
variable operating expenses. Operating expenses as a percentage of net sales
were relatively flat in 1996 as compared to 1995.
Income Taxes
Fel-Pro's $15.7 million deferred tax assets at December 29, 1996 were
written off in 1997 due to the conversion from C corporation status to
Subchapter S corporation status of its principal operating company effective
1997.
The difference between Fel-Pro's effective income tax rate and the statutory
tax rate is also due to the conversion of Fel-Pro's principal operating
company from C corporation status to Subchapter S corporation status in 1997.
In 1997, upon conversion of the principal operating company (Felt Products
Mfg. Co. and subsidiaries) to Subchapter S corporation status and in addition
to writing off the deferred tax assets, Fel-Pro recognized $7.4 million of
expense associated with LIFO recapture taxes.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations of $51.7 million in 1997 increased significantly
during 1997 primarily due to the write-off of $16.8 million in deferred taxes
and an $11.3 million improvement in accounts receivable over the prior year.
Cash flow used by investing activities of $18.5 million in 1997 include $3.5
million for the September purchase of certain operating assets of Biwax
Corporation. Capital expenditures were $18.3 million in 1997, primarily for
enhanced manufacturing capabilities and process improvements. Partially
offsetting these outflows were $3.9 million related to proceeds from available
for sale marketable securities.
Cash flows used by 1997 financing activities were $33.2 million, a decrease
of $32.7 million from 1996. The 1997 decrease was primarily due to lower
amounts provided to fund Fel-Pro's affiliates.
LEGAL MATTERS
Fel-Pro is engaged in various legal actions arising in the ordinary course
of its business. Management, after taking into consideration legal counsel's
evaluation of such actions, is of the opinion that it has adequate legal
defenses or insurance coverage and that the outcome of these matters will not
have a material adverse effect on Fel-Pro's financial position.
OTHER MATTERS
Year 2000 Costs
Fel-Pro is presently implementing an enterprise resource planning system
using Oracle software. This system is expected to be Year 2000 compliant. This
project was undertaken in late 1996 recognizing that information will be a key
driver for growth in the 21st century and that business needs are changing.
The system solution provides the ability to handle multiple product lines,
currencies, businesses, and locations. The existing mainframe systems lack
functionality and flexibility in addition to being incompatible with the Year
2000. The total project is expected to be completed by February 1999. The
expected cost related to Fel-Pro's Year 2000 project is immaterial.
Customer Bankruptcy Reorganization
On February 2, 1998, APS filed for reorganization protection under Chapter
11 of the United States Bankruptcy Code.
Fel-Pro believes that the allowance established related to receivables from
APS is adequate to cover any uncollectible amounts.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
In connection with the acquisitions of T&N and Fel-Pro, Federal-Mogul
entered into a $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) and a $500 million floating rate senior
subordinated credit agreement (the "Senior Subordinated Credit Agreement" and,
together with the Senior Credit Agreement, the "Credit Agreements"), each with
Chase as agent and as lender. The entire amount of the senior term loan
facility, as well as the entire amount of senior subordinated credit facility
have been drawn down. It is anticipated that the net proceeds to Federal-Mogul
from the Offerings will be used to prepay the entire outstanding principal
amount of the Senior Subordinated Loans, with the balance of the net proceeds
used to repay a portion of the Interim Loans. The Credit Agreements have been
syndicated to other lenders. These credit facilities have replaced a revolving
credit facility that provided for loans in an amount of up to $350 million
outstanding at any time and refinanced the outstanding balance under such
facility ($350 million, which was used to finance the acquisition of Fel-Pro)
and other indebtedness incurred in the acquisition of Fel-Pro in the amount of
$150 million. See "T&N and Fel-Pro Acquisitions--Financing of the
Acquisitions." The Company intends to put into place a permanent capital
structure with an appropriate combination of debt and equity which will
partially replace the Senior Credit Agreement and Senior Subordinated Credit
Agreement debt.
The Senior Credit Facility
Under the Senior Credit Agreement, Federal-Mogul (i) has borrowed $2.275
billion in term loans (the "Term Loans") to (a) finance the acquisition of
T&N, (b) refinance existing indebtedness of T&N, (c) pay fees and expenses
incurred in connection with the acquisition of T&N and the Credit Agreements
and (d) refinance indebtedness incurred in the acquisition of Fel-Pro and (ii)
may borrow up to $400 million outstanding at any time in revolving credit
loans (the "Revolving Credit Loans") to be used (a) to pay fees and expenses
incurred under the Senior Credit Agreement and (b) for working capital and
other general corporate purposes.
The Term Loans are divided into three tranches: (i) interim loans (the
"Interim Loans") in the aggregate amount of $925 million maturing September
12, 1999, (ii) Tranche A loans (the "Tranche A Loans") in the aggregate amount
of $600 million maturing on December 31, 2003, which are to be repaid in 20
quarterly installments commencing March 31, 1999, the amount of each quarterly
installment being $19 million in 1999 and 2000, $30 million in 2001 and $41
million in 2002 and 2003; and (iii) Tranche B loans (the "Tranche B Loans") in
the aggregate amount of $750 million maturing on December 31, 2005, which are
to be repaid in 28 quarterly installments commencing March 31, 1999, the
amount of each quarterly installment being $1.25 million during the period
from 1999 to 2003, inclusive, $75 million in 2004 and $106.25 million in 2005.
Revolving Credit Loans are to be available for a period of six years
commencing on March 12, 1998 (the "Closing Date"). Up to $120 million of
Revolving Credit Loans may be borrowed in currencies other than U.S. dollars.
Indebtedness under the Senior Credit Agreement bears interest at a floating
rate based upon, at Federal-Mogul's option, either (i) the higher of the prime
rate of Chase and 0.5% in excess of the overnight federal funds rate ("Base
Rate"), plus (in each case) a margin of 0.5% for Revolving Credit Loans, 1.0%
for the Interim Loans and Tranche A Loans and 1.25% for Tranche B Loans, or
(ii) the average of the offering rates of banks in the London interbank
eurodollar market for U.S. dollar deposits ("Eurodollar Rate") plus a margin
of 1.5% for Revolving Credit Loans, 2.0% for the Interim Loans and Tranche A
Loans and 2.25% for Tranche B Loans. After repayment of the Interim Loans the
applicable margins will depend upon Federal-Mogul's consolidated leverage
ratio: (i) in the case of Base Rate loans the applicable margin will vary
between 0% and 0.5% for Revolving Credit Loans, 0.0% and 1.0% for Tranche A
Loans and 0.5% and 1.25% for Tranche B Loans, and (ii) in the case of
Eurodollar Rate loans the applicable margin will vary between 0.75% and 1.5%
for Revolving Credit Loans, 1.0% and 2% for Tranche A Loans and 1.5% and 2.25%
for Tranche B Loans.
Federal-Mogul's obligations under the Senior Credit Agreement are secured by
a lien on all inventory and accounts receivable of Federal-Mogul and its U.S.
subsidiaries, other than certain accounts receivable subject to
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an existing securitization program. Federal-Mogul, its U.S. subsidiaries and
certain of its foreign subsidiaries have also pledged 100% (or, in the case of
the stock of certain foreign subsidiaries, 65%) of the capital stock of their
subsidiaries and certain intercompany loans to secure Term Loans and Revolving
Credit Loans. Part of such collateral also secures certain existing public
debt of Federal-Mogul, and all such collateral will be released when Federal-
Mogul has obtained investment grade ratings for its debt or met a certain
leverage ratio. In addition, Federal-Mogul, its U.S. subsidiaries and certain
of its foreign subsidiaries have guaranteed the Term Loans and Revolving
Credit Loans.
The Senior Subordinated Credit Facility
Under the Senior Subordinated Credit Agreement, Federal-Mogul has borrowed
$500 million (the "Senior Subordinated Loans") (i) to finance the acquisition
of T&N, (ii) to pay fees and expenses in connection with the acquisition of
T&N and the financing thereof and (iii) to refinance indebtedness incurred in
the acquisition of Fel-Pro. The Senior Subordinated Loans were disbursed on
the Closing Date and are subordinated to the loans under the Senior Credit
Agreement and other senior indebtedness of Federal-Mogul.
The Senior Subordinated Loans will mature on March 12, 1999, the first
anniversary of the Closing Date (the "Initial Maturity Date"). If such loans
have not been repaid on the Initial Maturity Date, they will be converted into
term loans maturing on the tenth anniversary of the Closing Date. After the
Initial Maturity Date, the lenders under the Senior Subordinated Credit
Agreement, at their option, may elect to receive Exchange Notes (as defined in
the Senior Subordinated Credit Agreement) equal to 100% of the aggregate
principal amount of the loans for which they are exchanged. The Exchange Notes
will be issued pursuant to an indenture and will grant the holders of the
exchange notes certain limited additional rights to be set forth in the
indenture.
Indebtedness under the Senior Subordinated Credit Agreement bears interest
at a floating rate which is the offering rate of Chase in the London interbank
eurodollar market for U.S. dollar deposits plus an initial margin of 4.5%.
This margin is to increase to 5.5% six months after the Closing Date and to 6%
nine months after the Closing Date. If the loans have not been repaid on or
prior to the Initial Maturity Date, the applicable interest rate thereafter is
to be the highest of (i) 0.5% in excess of the interest rate borne by the
loans immediately prior to the Initial Maturity Date, (ii) 6.5% in excess of
the treasury rate (the rate borne by direct obligations of the United States
maturing on the tenth anniversary of the Closing Date) or (iii) 3% in excess
of the CSI high yield index rate (as published in the Chase Securities
Incorporated High Yield Research Weekly Update Report), plus (in each case) an
additional margin of 0% for the first three months commencing on the Initial
Maturity Date and increasing by 5% at the beginning of each subsequent three
month period. In no event may the interest rate exceed 16% per annum and to
the extent the interest rate exceeds 14% per annum, Federal-Mogul may, at its
option, pay such excess interest by adding such excess interest to the
principal amount of loans outstanding.
The Senior Subordinated Loans have the benefit of guarantees, on a
subordinated basis, by the guarantors of the loans under the Senior Credit
Agreement.
Certain Covenants
The Credit Agreements contain certain covenants that restrict or limit
Federal-Mogul from taking various actions, including, subject to specified
exceptions, (i) the granting of additional liens, (ii) the incurrence of
additional indebtedness, (iii) the granting of additional guarantees, (iv)
mergers, acquisitions and other fundamental corporate changes, (v) the sale of
assets, (vi) the payment of dividends and other restricted payments, (vii) the
making of investments, (viii) optional prepayments of certain debt and the
modification of debt instruments, (ix) entering into sale and leaseback
transactions, (x) the imposition of restrictions on any subsidiary's ability
to make payments, loans or advances to Federal-Mogul, (xi) entering into a new
debt agreement with more restrictive covenants and (xii) transactions with
affiliates. The Senior Credit Agreement also contains certain financial
covenants that require Federal-Mogul to meet and maintain certain financial
tests and minimum ratios, including a minimum cash flow coverage ratio, a
minimum consolidated leverage ratio and a minimum consolidated net worth test.
After payment of the Interim Loans Federal-Mogul may elect to have a different
set of covenants apply to the Senior Credit Agreement, which will require
lower leverage but otherwise will be less restrictive. The Subordinated Credit
Agreement restricts in certain circumstances and, prior to
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payment of the Interim Loans and the election by Federal-Mogul of alternative
covenants, the Senior Credit Agreement prohibits, payment of dividends on
Federal-Mogul Common Stock in excess of the current rate of $0.12 per quarter.
Repayments and Refinancing
The Credit Agreements require mandatory repayments with some or all of the
net proceeds received upon the occurrence of certain events, including
issuances by Federal-Mogul of capital stock, the incurrence by Federal-Mogul
of certain debt and certain sales of assets. The Senior Credit Agreement also
requires mandatory prepayment from "excess cash flow." The "asset sale" and
"excess cash flow" (each as defined in the Credit Agreements) prepayment
requirements in the Senior Credit Agreement cease to be applicable when
certain leverage tests are met.
Pursuant to these requirements it is anticipated that the net proceeds of
the Offerings will be used to prepay the entire outstanding principal amount
of the Senior Subordinated Loans ($500 million), with the balance of the net
proceeds used to repay a portion of the Interim Loans (the outstanding
principal balance of which is $925 million), though if the proceeds to
Federal-Mogul of the Offerings are less than $500 million, the proceeds will
be applied solely to prepay the Interim Loans. Thereafter (subject to certain
exceptions) the net proceeds of any equity offering or incurrence of
indebtedness by Federal-Mogul shall be used to prepay Term Loans, provided
that (i) if the Senior Subordinated Loans are not prepaid by the Offerings,
proceeds of any subsequent equity offering completed by July 12, 1998, which,
together with the proceeds of the Offerings and the proceeds of other equity
offerings, if any, completed by July 12, 1998 exceed $500 million, may be used
to prepay the Senior Subordinated Loans, with any balance being applied to
prepay the Term Loans, (ii) proceeds of certain subordinated debt offerings
may be used to prepay the Senior Subordinated Loans, if not prepaid by the
Offerings, and (iii) after payment of the Interim Loans and the Senior
Subordinated Loans, the proceeds of further issuances of equity or
subordinated debt need not be applied to prepay the Term Loans.
Federal-Mogul has the option to prepay without premium at any time the Term
Loans and the Revolving Credit Loans and (subject to certain requirements
involving prior repayment of the Term Loans and Revolving Credit Loans) the
Senior Subordinated Loans. In the event that the Senior Subordinated Loans are
exchanged for Exchange Notes which are then sold, it is contemplated that the
holders of such Exchange Notes will have the option to fix the interest rates
thereon at the rate in effect at the time of such sale and, if such option is
exercised, that the Exchange Notes will be non-callable for a period of time
and will be callable thereafter at a premium.
Federal-Mogul anticipates prepaying a portion of the balance of the Interim
Loans remaining after the Offerings with asset sales proceeds and refinancing
the Senior Subordinated Loans, if outstanding after the Offerings, and the
balance of the Interim Loans through further equity or debt offerings.
Events of Default
The Credit Agreements contain customary events of default, including
nonpayment of principal, interest or fees, violation of covenants, inaccuracy
of representations or warranties in any material respect, cross acceleration
and cross default to certain other indebtedness, bankruptcy, noncompliance
with certain provisions of ERISA, material judgments, failure of the
collateral documents or subordination provisions, and change of control. The
occurrence of any of such events could result in acceleration of Federal-
Mogul's obligations under the Credit Agreements and foreclosure on collateral
securing the Term Loans and Revolving Credit Loans.
Fees
Federal-Mogul has paid a facility fee on the used and unused portion of each
lender's commitment to make Revolving Credit Loans at the rate of 0.5% per
annum prior to repayment of the Interim Loans and at the rate of 0.25% to 0.5%
per annum thereafter, depending on Federal-Mogul's leverage ratio. In
addition, Federal-Mogul has paid customary fees to Chase on the Closing Date
and reimbursed customary expenses in connection with the Senior Credit
Agreement and the Senior Subordinated Credit Agreement.
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BUSINESS
For purposes of this section of the Prospectus Supplement ("Business"),
references to "Federal-Mogul" or the "Company" include operations acquired in
the acquisitions of T&N and Fel-Pro and statistics have been prepared 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, unless otherwise noted. See "Unaudited Pro Forma Financial Data."
OVERVIEW
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 systems components (dynamic seals and gaskets) and
general products (primarily camshafts, friction products, sintered products
and systems protection products). Federal-Mogul markets its products to many
of the world's major OE 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 underwent 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 such restructuring, Federal-Mogul took the following actions: (i)
closed international aftermarket distribution centers in Malaysia and
Singapore; (ii) divested 72 international retail aftermarket operations and
sold or restructured 25 wholesale aftermarket operations; (iii) closed its
Leiters Ford, Indiana manufacturing facility and consolidated its lighting
products operations in Juarez, Mexico; (iv) consolidated certain of its North
American warehouse facilities; (v) consolidated its customer support functions
previously housed in Phoenix, Arizona into the Company's Southfield
headquarters; (vi) consolidated its European aftermarket management functions
in Geneva, Switzerland into the Wiesbaden, Germany manufacturing headquarters;
and (vii) streamlined certain of its administrative and operational staff
functions worldwide. In addition, by the end of the first quarter of 1998, the
Company expects to have successfully exited all of its retail businesses,
except for Puerto Rico where the Company continues to seek a buyer. 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 (Pounds)1.46 billion ($2.42 billion
(converted at a blended exchange rate of 1 pound sterling to 1.6510 U.S.
dollars). 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 OE
heavy duty market. See "T&N and Fel-Pro Acquisitions."
Federal-Mogul currently operates facilities at over 240 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.
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The following charts set forth Federal-Mogul's net sales by customer group,
geographic region and manufacturing division as a percentage of total net
sales for the year ended December 31, 1997, on a pro forma basis.
Charts setting forth net sales by customer group, geographic region and
manufacturing division for the year ended December 31, 1997
Among Federal-Mogul's largest customers are Caterpillar, Chrysler, Cummins,
Ford, General Motors, Mercedes-Benz, NAPA, Peugeot and Volkswagen/Audi (in
alphabetical order).
BUSINESS STRATEGY
The Company believes its recent restructuring program, which refocused the
Company on its core competency of manufacturing, and the acquisitions of T&N
and Fel-Pro, which expanded the Company's product base and geographic reach,
significantly enhanced its position within the automobile, truck and other
vehicular components markets. The Company believes that opportunities exist to
continue its growth and further enhance its market presence through the
following initiatives:
Systems Approach
The breadth of the Company's manufacturing capabilities and product
offerings enable it to be one of a small number of manufacturers with the
ability to seal entire engine, transmission and axle systems and to be a
single source supplier of engine and sealing components. In addition, Federal-
Mogul is committed to becoming a provider of a complete engine and
transmission modules for its OE customers. The Company believes that OE
manufacturers of automobiles, trucks and other vehicles are increasingly
seeking to reduce the number of suppliers from which they source parts and to
develop relationships with suppliers that can offer integrated systems and
modules in order to lower production costs, increase quality, provide better
technology and shorten product development cycles. The T&N and Fel-Pro
acquisitions, which expanded the Company's gasket, cast aluminum piston, large
bearing and sealing product lines and added product lines for articulated
pistons, cylinder liners and piston rings, are major steps toward Federal-
Mogul's strategic goal of developing global engine and sealing systems for its
OE customers.
Continue Focus on New Product Innovation
The Company's expertise in engineering and research and development has made
Federal-Mogul a leader in virtually all of the products segments in which it
competes. The Company utilizes the latest technologies, processes and
materials to solve problems for customers and to bring new, innovative
products to market. The Company has special competencies in alloy development,
customized materials formulations, surface technology, advanced modeling and
testing and systems engineering. These capabilities allow the Company to
reduce production costs and to develop products that are more durable and
exhibit better interaction with surrounding components. These innovative
products better serve OE customers and aid brand development, resulting in a
higher margin product mix.
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Extend Global Manufacturing Reach
The Company is committed to extending its manufacturing capabilities
worldwide in response to the global expansion of its OE manufacturing
customers. The acquisition of T&N and Fel-Pro have substantially increased the
Company's manufacturing presence, particularly in North America and Europe.
Management believes expansion of manufacturing operations to follow the
expansion of OE manufacturers into Latin America, Eastern Europe and Asia
provides significant growth opportunities for the Company in the future.
Pursue Strategic Acquisitions
The vehicular engine and sealing component industry is large and highly
fragmented. The Company believes that as OE manufacturers continue to
outsource and reduce the number of suppliers, opportunities will exist for
further consolidation within industry. The Company believes that, through its
established presence in these markets and its strong relationships with OE
manufacturers worldwide, the Company is in a favorable position to capitalize
on future industry consolidation. The Company's management has substantial
experience in completing and integrating acquisitions within the automobile
parts industry and believes that this experience will help it select and
pursue acquisition opportunities that can enhance the Company's product base,
expand its global manufacturing operations and further capitalize on the
Company's aftermarket distribution network and technological resources.
Expand Aftermarket Presence
Approximately 48% of the Company's 1997 sales, on a pro forma basis, were
generated from the aftermarket. The Company believes that opportunities exist
to further leverage its broad product offerings, reputation for new product
innovation and presence within the OE market to increase its penetration of
the worldwide aftermarket. In addition, the Company believes that its ability
to sell products developed for the OE market to aftermarket customers reduces
the impact of adverse changes in demand for new vehicles.
EVA Focus
In 1997, the Company adopted Economic Value Added (EVA(R)) as its primary
financial measurement and incentive compensation metric. EVA is equal to net
operating profits after economic taxes and a charge for capital invested in
the Company, which is equal to the product of the total capital invested in
the Company and the weighted average cost of capital for the Company's target
blend of debt and equity. The Company's management has placed significant
emphasis on improving the Company's financial performance and achieving
various operating efficiencies through technical development, manufacturing,
marketing and administrative rationalization in connection with this effort.
The Company's EVA improved significantly in 1997 due primarily to improved
operating margins (4.9% in 1996 and 7.7% in 1997) combined with $166 million
of cash flow from continuing operations (net of expenditures for property,
plant and equipment) in 1997. EVA is also being applied to the integration of
T&N and Fel-Pro to optimize synergies and cost savings. As the Company
continues to expand both its product base and its geographic scope, management
will evaluate investments and acquisitions based on both EVA and strategic
importance. In addition, the Company currently determines compensation for
certain top managers using an EVA based system and expects to increase the
number of managers participating in its EVA based compensation system to over
200 in 1999.
REORGANIZATION
Following the acquisitions of T&N and Fel-Pro, Federal-Mogul's integrated
operations are being reorganized to realize synergies and effectively
coordinate operations. Operations will be conducted through three
manufacturing operating units corresponding to major product areas: Powertrain
Systems, Sealing Systems and General Products. The major product categories in
Powertrain Systems include engine bearings and piston products. Sealing
Systems includes dynamic seals and gaskets. General Products include
camshafts, friction products, sintered products, systems protection products
and a number of smaller product lines. The Worldwide Aftermarket organization
is responsible for Federal-Mogul's global aftermarket sales, marketing and
distribution.
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The components of Federal-Mogul's plan for integrating operations acquired
with T&N and Fel-Pro include: closure of four manufacturing facilities
worldwide; relocation of highly manual manufacturing product lines to lower
cost regions or more suitable locations; consolidation of overlapping
manufacturing, technical and sales facilities and joint ventures; closure of
two aftermarket central warehouses and five in-country warehouses;
consolidation of aftermarket marketing and customer support functions; and
streamlining of administrative, sales, marketing and product engineering
staffs worldwide. An anticipated result of the integration plan and the
restructuring is a reduction of approximately 4,200 employees.
In connection with securing regulatory approvals for the acquisition of T&N,
Federal-Mogul executed an Agreement Containing Consent Order with the FTC on
February 27, 1998. Pursuant to this agreement Federal-Mogul must divest the
T&N Bearings Business, consisting principally of T&N's thinwall and dry
bearings (polymer bearings) operations, within six months after the FTC
declares the consent order final and must provide for independent management
of those assets pending such divestiture. The agreement stipulates that the
T&N Bearings Business is to be maintained as a viable, independent competitor
of Federal-Mogul and that Federal-Mogul shall not attempt to direct the
activities of, or exercise control over, the T&N Bearings Business or have
contact with the T&N Bearings Business outside of normal business activities.
The T&N Bearings Business accounted for approximately $393.1 million of T&N's
1997 revenues and employed approximately 4,000 people. Certain pro forma
information related to the disposition of the T&N Bearings Business is set
forth under the caption "Unaudited Pro Forma Financial Data." In addition,
T&N's North American aftermarket business is being held separately (on an
interim basis) as an independent business pursuant to the Agreement Containing
Consent Order.
MANUFACTURING DIVISIONS
Federal-Mogul has three manufacturing divisions as follows:
<TABLE>
<CAPTION>
% OF
MANUFACTURING 1997
DIVISION PRODUCT SALES BRAND NAMES APPLICATION
<S> <C> <C> <C> <C>
Powertrain Engine Bearings, Bushings, Washers Federal-Mogul(R), Glyco(R), automotive, light truck,
Systems and Large Bearings 40.0% AE Goetze(R) and Sterling(R) heavy duty, industrial,
($1.9 billion of Pistons and Piston Pins 33.0% marine, agricultural,
consolidated Rings and Liners 27.0% power generation and
sales ------ small air-cooled engine
in 1997)
100.0%
Sealing Systems Dynamic Seals 30.0% National(R), Mather(R), STS(R), automotive, light truck,
($1.1 billion of Gaskets 70.0% Redi-Seal(R), Redi-Sleeve(R), heavy duty truck,
consolidated ------ Unipiston(R), Engine Seal(R), Fel- agricultural, off-highway,
sales in 1997) Pro(R), Payen(R) and McCord(R) marine, railroad, high
performance and
industrial
100.0%
General Products Camshafts 13.0% Weyburn-Bartel(R), Weyburn- vehicular and industrial
($1.2 billion of Friction Products 42.0% Lydmet(R), Brico(R), Sintertech(R),
consolidated Sintered Products 17.0% Bentley-Harris(R), Silverton(R),
sales in Systems Protection Products 9.0% FHE(R), Connoisseur Auto
1997)(1) Other General Products 19.0% Air Conditioning(R), Carter(R)
------ and Signal-Stat(R)
100.0%
</TABLE>
- -------
(1) Excluding $600 million of sourced aftermarket product.
POWERTRAIN SYSTEMS
Federal-Mogul's Powertrain Systems products are used in automotive, light
truck, heavy duty, industrial, marine, agricultural, power generation and
small air-cooled engine applications. The Powertrain Systems (not including
the T&N Bearings Business to be divested) accounted for $1.9 billion of
Federal-Mogul's 1997 pro forma consolidated sales, of which 41% were in North
America, 52% were in Europe and 7% were in the rest of the world. In 1997,
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Powertrain Systems unit's five largest customers by sales volume were
Caterpillar, Cummins, Ford, General Motors and Volkswagen/Audi (in
alphabetical order). Approximately 68% of the sales in 1997 for Powertrain
Systems were to OE customers while 32% were to aftermarket customers.
Federal-Mogul's Powertrain Systems operations combine large bearings and
piston products operations acquired in the T&N acquisition with pre-existing
powertrain assets of Federal-Mogul, primarily bearings operations. The
addition of T&N greatly expanded Federal-Mogul's presence in cast aluminum
pistons and large bearings as well as adding four additional product lines,
articulated pistons, piston rings, cylinder liners and piston pins. The
Company's Powertrain Systems maintains 57 manufacturing locations in 16
countries. (T&N's other Powertrain Systems operations--thinwall bearings and
dry bearings--are to be divested for regulatory reasons and are held
separately, in the interim, see "--Reorganization.")
Engine Bearings, Bushings, Washers and Large Bearings. Engine bearings,
bushings, washers and large bearings accounted for approximately 40% of the
sales for Powertrain Systems. Federal-Mogul manufactures thin wall engine
bearings, bushings and washers for original equipment and aftermarket sales.
These products include bimetallic and trimetallic journal bearings (main,
connecting rod, thrust and tilting pad), bimetallic and trimetallic bushings
and washers, valve plates, labyrinth seals, dry bearings and sputter bearings.
Federal-Mogul's large bearings products--heavy wall bearings, rotating plant
bearings and structural products--are sold only to OE customers. Engine
bearings, bushings, washers and large bearings are sold under the brand names
Federal-Mogul(R) and Glyco(R).
Pistons and Piston Pins. Pistons and piston pins accounted for approximately
33% of the sales for Powertrain Systems. Federal-Mogul designs and
manufactures cast aluminum pistons for all gasoline and diesel engine
applications, articulated aluminum body/steel crown pistons for heavy duty
diesel applications, piston rings for all classes of internal combustion
engines, cylinder liners in cast iron for new generation aluminum block
engines and piston pins from steel. The addition of T&N has significantly
expanded the technology, scope and range of pistons offered by Federal-Mogul,
most notably in the OE market. The T&N acquisition has also added piston rings
and a wide range of high strength steel piston pins (also known as wrist pins
or gudgeon pins) to the Federal-Mogul product line. Pistons and piston rings
are sold under the brand names AE Goetze(R) and Sterling(R).
Rings and Liners. Rings and liners accounted for approximately 27% of the
sales for Powertrain Systems. Federal-Mogul manufactures a wide range of cast
iron or steel rings, plasma, chrome and CKS coatings and wet, dry and cast
liners. Federal-Mogul now designs and manufactures a wide range of cast iron
and steel piston rings. With the addition of T&N and Fel-Pro, Federal-Mogul
added cylinder liners to its product line. Rings and liners are marketed under
the brand name AE Goetze(R).
SEALING SYSTEMS
Federal-Mogul's Sealing Systems products are used in automotive, light
truck, heavy duty diesel, agricultural, off-highway, marine, railroad, high
performance and industrial applications. Sealing Systems accounted for $1.1
billion of Federal-Mogul's 1997 consolidated sales, of which 66% were in North
America, 23% were in Europe and 11% were in the rest of the world. In 1997,
this division's five largest customers by sales volume were Chrysler, Cummins,
Fiat, Ford and General Motors (in alphabetical order). Approximately 47% of
the sales in 1997 for Sealing Systems division were to OE customers while 53%
were to aftermarket customers.
Federal-Mogul's Sealing Systems operations combine the gaskets operations
acquired in the T&N and Fel-Pro acquisitions with the pre-existing Federal-
Mogul dynamic seals business. The acquisitions of T&N and Fel-Pro have made
Federal-Mogul one of a select number of manufacturers with the ability to seal
entire engines, transmission and axle systems. The Company's Sealing Systems
maintains 23 manufacturing locations in 12 countries.
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Dynamic Seals. Dynamic seals accounted for approximately 30% of the sales
for Sealing Systems division. Federal-Mogul manufactures a line of dynamic
seals consisting of oil seals (for engine, transmissions and axles),
crankshaft seal carrier assemblies, valve stem seals, air conditioning
compressor seals, bonded pistons for transmissions, 24-hour made-to-order oil
seals, wear sleeves for shaft sealing surface repair and truck hub seals.
These products are marketed under the brand names National(R), Mather(R),
STS(R), Redi-Seal(R), Redi-Sleeve(R) and Unipiston(R).
Gaskets. Gaskets accounted for approximately 70% of the sales for Sealing
Systems. Federal-Mogul utilizes a wide range of material technologies to
manufacture a full range of gasket types, including cylinder head gaskets in
multi-layer steel, graphite, edge molded metal plate and other composites,
valve and rocker cover gaskets, intake and exhaust manifold gaskets and
miscellaneous gaskets in steel, composite, elastomeric and spiral wound.
Federal-Mogul also offers a complete line of repair kits for professional
installers under the brand name of Fel-Pro(R). Federal-Mogul established a
strong presence in the heavy duty OE market for gaskets (including, primarily,
gaskets for light and heavy duty diesel engines) through its acquisition of
Fel-Pro. While Fel-Pro's market share of automotive OE gaskets was more
limited, T&N's Sealing Products division has a stronger presence in the
automotive OE market, adding balance to Federal-Mogul's overall OE gasket
activities.
GENERAL PRODUCTS
Federal-Mogul's General Products includes four primary product lines, which
were primarily acquired with T&N: camshafts, friction products, sintered
products and systems protection products. In addition, General Products
includes a number of smaller product lines, some of which (fuel systems
components and lighting products) pre-date the acquisition of T&N and others
of which (heat transfer products and textiles) were acquired with T&N.
Products Federal-Mogul sources from other manufacturers, which are not related
to Powertrain Systems and Sealing Systems, are included in General Products
and distributed by Worldwide Aftermarkets.
Products manufactured by Federal-Mogul's General Products accounted for $1.2
billion of Federal-Mogul's 1997 consolidated sales (excluding $600 million of
sourced aftermarket product). Approximately 34% of the unit's manufactured
sales were in North America, 57% were in Europe and 9% were in the rest of the
world. In 1997, General Products' five largest customers by sales volume were
Ford, General Motors, LucasVarity, Peugeot and Renault (in alphabetical
order). Approximately 64% of the sales in 1997 for General Products of
products it manufactures were to OE customers while 36% were to aftermarket
customers. The Company's General Products maintains 53 manufacturing locations
in 17 countries.
Camshafts. Camshafts accounted for approximately 13% of Federal-Mogul
manufactured products sales for General Products. Federal-Mogul casts,
machines and assembles camshafts primarily for the automotive market. These
products are marketed under the brand names Weyburn-Bartel(R) and Weyburn-
Lydmet(R).
Friction Products. Friction products accounted for approximately 42% of
Federal-Mogul manufactured products sales for General Products. Federal-Mogul
manufactures disc brake pads, drum brakes and brake linings for the automotive
and commercial vehicle sector. These products are marketed under the brand
name Ferodo(R) and are sold primarily in Europe.
Sintered Products. Sintered products accounted for approximately 17% of
Federal-Mogul manufactured products sales for General Products. Federal-Mogul
utilizes advanced powder metallurgy techniques for the manufacture of a wide
range of automotive components including valve guides, valve seat inserts, ABS
sensor rings and other transmission components, together with engine
components, principally pulleys, gears and sprockets. These products are
marketed under the brand names Brico(R) and Sintertech(R), solely to OE
customers.
Systems Protection Products. Systems protection products accounted for
approximately 9% of Federal-Mogul manufactured products sales for General
Products. Federal-Mogul manufactures a wide variety of
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products used for automotive under body and under hood protection from heat,
noise, abrasion and stone impingement. Most of these products are based on
braided, knitted and non-woven fabrics. Products based on the same
technologies are sold in the electrical, white goods and aerospace industries.
These products are marketed under the brand name Bentley-Harris(R), solely to
OE customers, and are sold primarily in North America.
Other General Products. Other general products--primarily consisting of heat
transfer products, fuel system components and lighting products--accounted for
approximately 19% of Federal-Mogul manufactured products sales for General
Products. Federal-Mogul is in the process of reselling the chemical
manufacturing operations acquired with Fel-Pro (representing approximately
$32.8 million of Fel-Pro's 1997 net sales and $2.6 million of Fel-Pro's 1997
net income). The primary components of other general products are:
. heat transfer products (engine cooling radiators in both aluminum and
copper brass construction and heater, ventilator and air conditioning
units for automotive in-cab use) manufactured in South Africa for sale
in the South African market and for global export under the brand names
Silverton(R), FHE(R) and Connoisseur Auto Air Conditioning(R);
. fuel system components (a full line of fuel pumps including mechanical
fuel pumps, diesel lift pumps, electric fuel pumps, electric fuel
modules and hanger assemblies) marketed in North America, under the
brand name Carter(R); and
. lighting products (clearance marker lamps, front, side and rear signal
lamps, stop, tail and turn lights, emergency lighting, turn signal
switches, auxiliary lighting and back-up lamps) marketed under the brand
name Signal-Stat(R).
WORLDWIDE AFTERMARKET
Federal-Mogul's North American distribution centers in Jacksonville,
Alabama, LaGrange, Indiana, and Maysville, Kentucky (the "Distribution
Centers"), served as the core of Federal-Mogul's domestic aftermarket
distribution network prior to the acquisitions of T&N and Fel-Pro. Products
are shipped from these Distribution Centers to service centers in the United
States and Canada. For Latin American sales, products are shipped through a
facility in Weston, Florida to two international regional distribution centers
and 15 Latin American branches. For European sales, products are shipped
through Federal-Mogul's facility in Kontich, Belgium.
T&N and Fel-Pro each brought with them developed aftermarket operations
duplicating, in part, Federal-Mogul's existing capabilities. T&N was, at the
time of its acquisition, the world's largest supplier of engine parts to the
independent aftermarket, as measured by revenues (with approximately 80% of
the parts distributed having been produced by T&N). Fel-Pro also brought
significant aftermarket penetration with it, built on the substantial brand
loyalty its gasket lines have acquired through a history of technological
innovations, merchandising and marketing, which have differentiated them in
the market, particularly among professional installers. Management thus
believes that aftermarket distribution provides significant opportunities for
realization of synergies.
T&N's aftermarket distribution system at the time of the acquisition
included 36 major distribution centers and sales offices utilizing over 1,600
employees worldwide to distribute over 200,000 component parts of 5,000 engine
models via its AE and Goetze marketing networks. The Company's Worldwide
Aftermarket includes 119 distribution facilities in 19 countries.
Fel-Pro's domestic aftermarket business, focused primarily on gaskets,
primarily distributed from a state-of- the-art facility inside its Skokie,
Illinois plant, using a highly automated, virtually paperless process.
CUSTOMERS
Among Federal-Mogul's largest customers are Caterpillar, Chrysler, Cummins,
Ford, General Motors, Mercedes-Benz, NAPA, Peugeot and Volkswagen/Audi (in
alphabetical order).
Original Equipment. Federal-Mogul's OE customers consist primarily of
automotive and heavy duty vehicle customers, as well as farm and industrial
equipment manufacturers, agricultural, off-highway, marine, railroad, high
performance and industrial applications. Federal-Mogul has well-established
relationships with substantially
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all major North American and European automotive OE manufacturers, some pre-
existing and others resulting from the acquisitions of T&N and Fel-Pro.
Management believes there are additional system opportunities with OE
manufacturers in the Asia-Pacific and Latin American regions. In addition,
management believes that the acquisitions of T&N and Fel-Pro have positioned
Federal-Mogul to take advantage of developing OE customer demand for single
supplier systems and modules in the future, particularly in light of Federal-
Mogul's global reach and capabilities. See "--Strategy."
Aftermarket. Federal-Mogul's domestic and international customers include
independent warehouse distributors who redistribute products to local parts
suppliers called "jobbers," industrial bearing distributors, distributors of
heavy duty vehicular parts, engine rebuilders and retail parts stores. The
breadth of Federal-Mogul's product lines, together with the strength of its
brand names and sales force, are central to Federal-Mogul's aftermarket
operations.
RESEARCH AND DEVELOPMENT
Federal-Mogul maintains technical centers in Europe and North America to
develop and provide advanced materials, products and manufacturing processes
for all of its manufacturing units, including facilities acquired with T&N and
Fel-Pro. Federal-Mogul's expertise in engineering, research and development
ensures that the latest technologies, processes and materials are considered
in solving problems for customers and bringing new, innovative product to
market. Federal-Mogul provides its customers with real-time engineering
capabilities and design development in their home countries. In recognition of
the importance of technology throughout its operations, following the
acquisitions, Federal-Mogul created the post of Vice President--Technology to
coordinate technological activities throughout its operations.
The acquisitions of T&N and Fel-Pro provided Federal-Mogul with substantial
additional technological expertise. In particular, the newly acquired
technical centers in the United Kingdom and the United States bring a new
depth of capability in materials development, surface engineering,
computational analysis, engine testing and systems engineering. Recent
achievements of these centers include development of advanced piston alloys,
novel bearing coatings, brake pads for motor sport applications, engine
structure modelling to predict gasket performance and test techniques for
measurement of bore distortion in running engines.
The Fel-Pro acquisition brought substantial research operations focusing on
gaskets and their manufacture, including complete material, application design
and process development capabilities and a dedicated design/engineering staff
of over 100 employees. Recent technology innovations pioneered by Fel-Pro
include PermaDry Plus(R), multi-layered steel head gaskets, noise and
vibration dampening devices and rubber edge molded gaskets. In the past, Fel-
Pro has introduced several product innovations including Fel-Coprene(R),
Print-O-Seal(R) and Perma-Torque Blue(R), which have become market standards
in the gasket aftermarket.
Technological activities are conducted at facilities Federal-Mogul acquired
from T&N including, in particular, its central technical center at Cawston,
England, its facility at Burscheid, Germany and its technical center at
Plymouth, Michigan, and at Fel-Pro's facilities in Skokie, Illinois, as well
as at Federal-Mogul's major pre-existing technological centers, in Ann Arbor,
Michigan, Logansport, Indiana, Malden, Missouri, and Wiesbaden, Germany. Each
of Federal-Mogul's operating units is engaged in various engineering, research
and development efforts working side by side with customers to develop custom
solutions unique to their needs.
Total expenditures for research and development activities, on a pro forma
basis, were approximately $102.8 million in 1997, $101.6 million in 1996 and
$99.8 million in 1995.
SUPPLIERS
Federal-Mogul sells its manufactured parts as well as parts manufactured by
other manufacturers to the aftermarket. In 1997, no outside supplier of
Federal-Mogul provided products that accounted for more than 5% of Federal-
Mogul's net sales.
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Federal-Mogul does not normally experience supply shortages of raw
materials. Certain of Federal-Mogul's relationships with its long-term
suppliers are contractual.
In connection with the acquisition of the automotive aftermarket business of
TRW, Inc. ("TRW") in 1992, Federal-Mogul and TRW entered into a Supply
Agreement for an initial term of 15 years (the "Supply Period"), pursuant to
which TRW agreed to supply Federal-Mogul with parts manufactured by TRW and
distributed by Federal-Mogul. During the first five years of the Supply Period
(the "Exclusive Period"), Federal-Mogul is an exclusive distributor of such
TRW parts and thereafter will be a nonexclusive distributor for the remaining
term of the Supply Agreement, subject to certain exceptions. Thereafter, both
the Exclusive Period and the Supply Period are automatically renewable for
one-year periods and are terminable upon one year's notice by either party.
LEGAL PROCEEDINGS
T&N Asbestos
In the United States, Federal-Mogul's subsidiary T&N plc and two of T&N
plc's U.S. subsidiaries ("the T&N Companies") are among many defendants named
in numerous court actions alleging personal injury resulting from exposure to
asbestos or asbestos-containing products. T&N plc is also subject to asbestos-
disease litigation, to a lesser extent, in the UK and to property damage
litigation based upon asbestos in the United States. Because of the slow onset
of asbestos-related diseases, management anticipates that similar claims will
be made in the future. It is not known how many such claims may be made nor
the expenditure which may arise therefrom. T&N has appointed the Center for
Claims Resolution ("CCR") as its exclusive representative in relation to all
asbestos-related personal injury claims made against the T&N Companies in the
United States. As of March 31, 1998, the Company has provided $1.351 million
as its estimate for future costs to resolve asbestos claims.
Prior to its acquisition by Federal-Mogul, T&N secured, by payment of a
premium of (Pounds)92 million, a (Pounds)500 million layer of insurance cover
which will be triggered should the aggregate number of claims notified after
June 30, 1996, where the exposure occurred prior to that date ("IBNR claims"),
exceed (Pounds)690 million. At March 31, 1998, Federal-Mogul has recorded
reserves for IBNR claims up to the insurance level, which is (Pounds)690
million. For discussion of asbestos-related liabilities and reserves, see
Notes 19 and 28 to the T&N Financial Statements and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--T&N--Asbestos."
While management believes that estimated reserves, which have not been
reduced by any potential insurance proceeds, coupled with T&N's asbestos-
related claims insurance policy, are appropriate for anticipated losses
arising from T&N's asbestos related claims, no assurance can be given that T&N
will not be subject to material additional liabilities and significant
additional litigation relating to asbestos. Any such liabilities or litigation
could have a material adverse effect on Federal-Mogul's results of operations,
business, liquidity and financial condition. See "Risk Factors--T&N's Asbestos
Liability."
Federal-Mogul and Fel-Pro Asbestos
Federal-Mogul also is one of a large number of defendants in a number of
lawsuits brought by claimants alleging injury due to exposure to asbestos. In
addition, Fel-Pro has been named as a defendant in approximately 18,000
product liability cases involving asbestos, primarily involving gasket or
packing products sold to ship owners. Federal-Mogul is defending all such
claims vigorously and believes that it and Fel-Pro have substantial defenses
to liability and adequate insurance coverage for defense costs (though Fel-Pro
has agreed with its insurers to pay approximately 20% of defense costs, in
exchange for the right to a significant role in decisions regarding the
litigation). While the outcome of litigation cannot be predicted with
certainty, after consulting with
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the office of Federal-Mogul's general counsel, management believes that
asbestos claims pending against Federal-Mogul and Fel-Pro as of March 31, 1998
will not have a material effect on Federal-Mogul's financial position.
Other
Federal-Mogul is involved in various other legal actions and claims,
directly and through its subsidiaries (including T&N and Fel-Pro). After
taking into consideration legal counsel's evaluation of such actions,
management is of the opinion that their outcomes are not reasonably likely to
have a material adverse effect on Federal-Mogul's financial position operating
results or cash flow.
For information respecting lawsuits concerning environmental matters to
which Federal-Mogul is a party, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Federal-Mogul--Environmental
Matters."
EMPLOYEE RELATIONS
On March 31, 1998, Federal-Mogul had approximately 45,000 full-time
employees (including the T&N Bearings Business), of whom approximately 17,500
were employed in the United States. Approximately 13,700 of these employees
work for operations predating the acquisitions of T&N and Fel-Pro,
approximately 28,600 work for operations acquired with T&N and approximately
2,700 work for operations acquired with Fel-Pro. An anticipated result of the
integration plan and restructuring relating to the acquisitions of T&N and
Fel-Pro is a reduction of approximately 4,200 employees.
Approximately 45% of Federal-Mogul's United States employees are represented
by six unions. Approximately 50% of Federal-Mogul's foreign employees are
represented by various unions. Each of Federal-Mogul's unionized manufacturing
facilities has its own contract with its own expiration date and, as a result,
no contract expiration date affects more than one facility. Federal-Mogul
believes its labor relations to be good.
ENVIRONMENTAL REGULATIONS
Federal-Mogul's operations, in common with those of industry generally, are
subject to numerous existing and proposed laws and governmental regulations
designed to protect the environment, particularly regarding plant wastes and
emissions and solid waste disposal. Capital expenditures for property, plant
and equipment for environment control activities did not have a material
impact on Federal-Mogul's financial position or results of operations in 1997
and are not expected to have a material impact on Federal-Mogul's financial
position or results of operations in 1998 or 1999.
BACKLOG
The majority of Federal-Mogul's products are not on a backlog status. They
are produced from readily available materials and have a relatively short
manufacturing cycle. For products supplied by outside suppliers, Federal-Mogul
generally purchases products from more than one source. Federal-Mogul expects
to be capable of handling the anticipated 1998 sales volumes.
PATENTS AND LICENSES
Federal-Mogul is committed to protecting its technology investments and
market share through an active and growing international patent portfolio.
Federal-Mogul's patent portfolio is composed of a large number of foreign and
U.S. patents and pending patent applications which relate to a wide variety of
products and processes. In the aggregate, Federal-Mogul's international patent
portfolio is of material importance to its business; however, Federal-Mogul
does not consider any international patent or group of international patents
relating to a particular product or process to be of material importance when
judged from the standpoint of the business as a whole.
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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 component parts in the
United States and abroad. In general, competition for such sales is based on
price, product quality, customer service and the breadth of products offered
by a given supplier. Federal-Mogul has attempted to meet these competitive
challenges through more efficiently integrating its manufacturing and
distribution operations, expanding its product coverage within its core
businesses, and expanding its worldwide distribution network.
PROPERTIES
Federal-Mogul conducts its business from its World Headquarters complex in
Southfield, Michigan, which is leased pursuant to a sale/leaseback
arrangement. At March 31, 1998, Federal-Mogul had over 120 manufacturing
facilities with in excess of 16 million square feet (approximately 80% of
which were owned and 20% were leased) and over 100 aftermarket facilities with
in excess of 3.5 million square feet (approximately 10% of which were owned
and 90% were leased). Over half of the manufacturing facilities (by square
footage) were in Europe and approximately one third were in North America.
Over 85% of aftermarket facilities (by square footage) were in North America,
with a strong majority of the remainder in Europe. Federal-Mogul also had
other facilities (primarily research and office only sites) accounting for
approximately 800,000 square feet.
All owned and leased properties are well maintained and equipped for the
purposes for which they are used. Federal-Mogul believes that its facilities
are suitable and adequate for the operations involved. In the case of leased
properties, Federal-Mogul believes that the leases could be renewed or
comparable facilities could be obtained without materially affecting
operations.
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MANAGEMENT
The following tables set forth the name, age and position of the executive
officers and the directors, respectively of Federal-Mogul.
<TABLE>
<CAPTION>
EXECUTIVE OFFICER AGE POSITION
----------------- --- --------
<S> <C> <C>
Chairman, Chief Executive Officer and
Richard A. Snell........... 56 President
Executive Vice President--Powertrain
Alan C. Johnson............ 49 Systems
Executive Vice President--Worldwide
Paul R. Lederer............ 58 Aftermarket
Executive Vice President and Chief
Thomas W. Ryan............. 50 Financial Officer
Wilhelm A. Schmelzer....... 57 Executive Vice President--Sealing Systems
Frank Tomes................ 55 Executive Vice President--General Products
Senior Vice President, General Counsel and
Edward W. Gray, Jr......... 51 Secretary
Alan R. Begg............... 43 Vice President--Technology
David A. Bozynski.......... 43 Vice President and Treasurer
Charles B. Grant........... 53 Vice President--Corporate Development
Richard P. Randazzo........ 54 Vice President--Human Resources
Kenneth P. Slaby........... 46 Vice President and Controller
James J. Zamoyski.......... 51 Vice President--Strategic Planning
<CAPTION>
DIRECTOR AGE
-------- ---
<S> <C> <C>
Richard A. Snell........... 56
John J. Fannon............. 64
Roderick M. Hills.......... 67
Paul S. Lewis(1)........... 61
Antonio Madero............. 60
Robert S. Miller........... 56
John C. Pope............... 49
H. Michael Sekyra.......... 56
Sir Geoffrey Whalen(1)..... 62
</TABLE>
- --------
(1) Nominee proposed for election as a Director of Federal-Mogul at the May
20, 1998 Annual Shareholders' Meeting.
Mr. Snell has served as Chairman of the Board, Chief Executive Officer and
President and a director of Federal-Mogul since November 1996. He also serves
as Chairman of the Executive and Finance Committee and as a member of the
Pension Committee. Mr. Snell was previously employed by Tenneco, Inc., from
November 1987 to November 1996, most recently having served as President and
Chief Executive Officer of Tenneco Automotive from September 1993 until he was
employed by Federal-Mogul. Mr. Snell is also a member of the Board of
Directors of Schneider National, Inc.
Mr. Begg has served as Vice President--Technology since February 1998. Prior
to this position, Mr. Begg served as Managing Director of T&N Technology and
was a member of the T&N Management Committee from 1993 to February 1998,
General Manager, Sales Director and Business Manager at BP Metal Composites
from 1991 to 1993, and Senior Research Scientist and Project Leader for
advance engineering materials development at BP Research Center from 1983 to
1988.
Mr. Bozynski has served as Vice President and Treasurer since May 1996.
Prior thereto, Mr. Bozynski was employed by Unisys Corporation as Vice
President and Assistant Treasurer from October 1994 to April 1996, Vice
President--Line of Business Finance from April 1993 to September 1993, and
Vice President--Corporate Business Analysis from March 1992 to April 1993.
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Mr. Fannon has served as a director of Federal-Mogul since 1986. He is
Chairman of the Compensation Committee and a member of the Pension and the
Nominating Committees. Mr. Fannon retired in 1997 as Vice Chairman of Simpson
Paper Company, a privately held global forest products company with annual
sales exceeding $1 billion, a position that he held since 1993. From 1980
until 1993, Mr. Fannon served as President of Simpson Paper. Previously, he
was Vice President of Marketing for Simpson Paper. He also serves as a
director of Simpson Paper and Seton Medical Center.
Mr. Grant has served as Vice President--Corporate Development since December
1992. Prior to this position, Mr. Grant served as Vice President and
Controller of Federal-Mogul from May 1988 to December 1992, Vice President of
Finance, Vice President--Controller and Controller of the Fastening Systems
Group of Huck Manufacturing, and Audit Manager at Ernst & Young.
Mr. Gray has served as Senior Vice President, General Counsel and Secretary
since March 1998. Prior to this position, Mr. Gray was the managing partner
for the Washington D.C. office of Fitch, Even, Tabin, and Flannery from April
1994 to 1998, a founding partner of Gray, Blount & Associates, LLP from 1993
to 1998 and at R.R. Donnelley & Sons Company from 1986 to May 1993, where his
most recent position was Vice President--Information Services.
Mr. Hills has served as director of Federal-Mogul since 1977. He is Chairman
of the Nominating Committee and a member of the Audit, Executive and Finance,
and Pension Committees. In January 1987, Mr. Hills was named Managing
Director-Chairman of The Manchester Group Ltd., and has continued to manage
that business, which is now conducted under the name of Hills Enterprises,
Ltd. From May 1989 until June 1995, he also served successively as a partner
of and/or a consultant to the law firms of Donovan Leisure Rogovin Huge &
Schiller, Shea & Gould, and Mudge Rose Guthrie Alexander & Ferndon. Mr. Hills
is a member of the Board of Directors of Waste Management, Inc. and Oak
Industries, Inc.
Mr. Johnson has served as Executive Vice President--Powertrain Systems since
February 1998. Mr. Johnson has been with Federal-Mogul since 1970, serving as
Executive Vice President responsible for Federal-Mogul's Worldwide
manufacturing and international aftermarket operations from January 1997 to
February 1998, President--Operations from January 1995 to January 1997, Vice
President and President--Powertrain Operations--Americas from 1993 to January
1995 and Vice President and General Manager--Oil Seal Operations from 1992.
Mr. Lewis will join Federal-Mogul's Board of Directors at the completion of
its May 20, 1998 Annual Shareholders' Meeting. Mr. Lewis joined Tate & Lyle
plc as Group Finance Director in June 1988 and became Deputy Chairman of the
Group in March 1993. He served on the Executive Committee and various other
board and committees with the Group. He joined the Board of Dairy Crest Group
as a non-executive Director in August 1993. On December 1, 1995 Mr. Lewis
joined the Board of T&N plc as a non-executive Director. Mr. Lewis served on
the Listing Policy Committee of the London Stock Exchange until 1996 and is a
Governor of Stratford School, East London and a member of the Finance
Committee of London First.
Mr. Lederer has served as Executive Vice President--Worldwide Aftermarket
since February 1998. Prior to this position, Mr. Lederer was President and
Chief Operating Officer of Fel-Pro, Incorporated. Prior to joining Fel-Pro, he
was a consultant to several automotive parts companies while serving on the
Board of Directors of Ozark/O'Reilly Automotive, Fullerton Metals and Trans-
Pro Corporation. Mr. Lederer has also served as Executive Vice President of
Stant, Chairman and Chief Executive of Epicor Industries, Incorporated,
President--Automotive Group, Group Vice President--Operations and General
Manager-Edelmann Durson at Parker Hanifin, and Executive Vice President of E.
Edelmann & Company.
Mr. Madero has served as director of Federal-Mogul since February 1994. He
is a member of the Audit, Nominating and Compensation Committees. Mr. Madero
founded SANLUIS Corporacion S. A. de C.V.
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("Sanluis") and has served as its Chairman of the Board and Chief Executive
Officer since 1979. Sanluis is a Mexican holding company with interests in
gold, silver, mining and auto parts. Mr. Madero is also a member of the Boards
of Directors of Cydsa S.A., of Cydsa, S.A. de C.V., Grupo Embotelladoras
Unidas, S.A. de C.V., Alfa, S.A. de C.V., Grupo Industrial Saltillo, S.A. de
C.V., Fondo Opcion, S.A. de C.V., Grupo Industrial Durango, S.A. de C.V., G.
Accion S.A., Grupo Financier Banamex Accival S.A., Seguros Comercial America,
S.A., Grupo Posadas, S.A. de C.V., Banca Quadrum, S.A. de C.V., Banca Chase
(Mexico) S.A., Deere and Company and a member of the International Advisory
Committee of The Chase Manhattan Bank.
Mr. Miller has served as a Director of Federal-Mogul since 1993. He is the
Chairman of the Pension Committee and a member of the Audit and Nominating
Committees. From September until November 1996 he served as Acting Chief
Executive Officer of Federal-Mogul. Mr. Miller is Chairman of the Board and
Chief Executive Officer of Waste Management, Inc. Since 1993, Mr. Miller has
served as Vice President and Treasurer, and as a director, of Moore Mill and
Lumber Company, a privately held timber business in Oregon. In April 1995, he
was named Chairman of the Board of Directors of Morrison Knudsen Corporation,
a position he held until September 1996, when he became its Vice Chairman of
the Board. In addition to Waste Management and Morrison Knudsen, Mr. Miller
also serves as a member of the Board of Directors of Fluke Corporation, Pope &
Talbot, Inc. and Symantec Corp.
Mr. Pope has served as a director of Federal-Mogul since 1987. He is
Chairman of the Audit Committee and a member of the Compensation, Executive
and Finance, and Nominating Committees. Mr. Pope was President, Chief
Operating Officer and Director of UAL Corporation and United Air Lines from
May 1992 until July 1994. Mr. Pope was named Chairman of the Board of
MotivePower Industries, Inc. in 1995. Mr. Pope is a member of the Board of
Directors of Dollar Thrifty Automotive Group, Inc., Lamalie Associates, Inc.,
Medaphis Corporation, MotivePower Industries, Inc., Wallace Computer Services,
Inc. and Waste Management, Inc.
Mr. Randazzo has served as Vice President--Human Resources since January
1997. Prior thereto, Mr. Randazzo served as Senior Vice President--Human
Resources of Nextel Communications, Inc. from December 1994 to December 1996,
Senior Vice President--Human Resources--Americas Region of Asea Brown Boveri,
Inc. from December 1990 to December 1994, and various positions at Xerox
Corporation, including Vice President of Human Resources and the U.S.
Marketing Group.
Mr. Ryan has served as Executive Vice President since March 1998 and as
Chief Financial Officer since February 1997. Mr. Ryan joined Federal-Mogul in
February 1997 as Senior Vice President and Chief Financial Officer. Mr. Ryan
was Chief Financial Officer of Tenneco Automotive, a division of Tenneco, Inc.
from January 1995 to February 1997, and Vice President, Treasurer and
Controller of A.O. Smith Corporation from March 1985 to January 1995.
Mr. Schmelzer has served as Executive Vice President--Sealing Systems since
February 1998. Since joining Federal-Mogul in 1969, Mr. Schmelzer has served
as Vice President and Group Executive--Engine and Transmission Products from
April 1995 to February 1998, Vice President and Group Executive--Engine and
Transmission Products Europe from January 1992 to April 1995, General
Manager--Engine and Transmission Products--Americas from 1989 to 1991 and
General Manager of Manufacturing Operations in Spain and Mexico from 1987 to
1989. Mr. Schmelzer represents Federal-Mogul as Chairman of Supervisory Boards
at Federal-Mogul S.A., France and Federal-Mogul S.p.A., Italy. He has been an
Advisory Board member of Arkwright International Ltd. since May 1995.
Dr. Sekyra has served as a director of Federal-Mogul since 1991. He is a
member of the Compensation, Nominating, and Pension Committees. Dr. Sekyra, a
native of Austria, is Chairman and Chief Executive Officer of C.H. CHEM, a.s.,
the largest chemical company in the Czech Republic. He is also Chairman of
Bohler Uddeholm, one of the world's leading companies in tool and speed steel.
Dr. Sekyra holds a number of board positions in banking and industrial
enterprises.
S-68
<PAGE>
Mr. Slaby has served as Vice President and Controller since April 1996.
Prior thereto, Mr. Slaby held various positions at General Electric Company
for 23 years, including Manager--Financial Operation for the global silicones
business from November 1990 to April 1996, Manager--Financial Operation with
GE Aircraft Electronics from March 1987 to November 1990, and Manager Finance
Section at GE Aircraft Electronics Systems Department from July 1985 to March
1987.
Mr. Tomes has served as Executive Vice President--General Products since
February 1998. Prior to this position, Mr. Tomes served as Chief Executive--
Composites and Camshafts Group of T&N plc from January 1996 to February 1998.
Prior to that he was Chief Executive of T&N's Industrial Products and
Materials Group.
Sir Geoffrey Whalen will join Federal-Mogul's Board of Directors at the
completion of its May 20, 1998 Annual Shareholders' Meeting. Between 1984 and
1995, Sir Whalen was Managing Director, and from 1990 Deputy Chairman of
Peugeot Talbot Motor Company plc. in the United Kingdom (now known as
Peugeot). In January 1995, he retired from full-time employment with Peugeot.
Sir Geoffrey Whalen is currently a director of Peugeot Motor Company plc;
Conventry Building Society; Hills Precision Components Ltd.; Camden Motors
Ltd.; Caradon plc, and Hall Engineering Holdings plc. Sir Geoffrey Whalen has
also been active in the Society of Motor Manufacturers & Traders, the Trade
Association representing vehicle and component makers in the United Kingdom
where he was President 1988-1990 and 1993-1994 and is currently Deputy
President.
Mr. Zamoyski has served as Vice President--Strategic Planning since June
1997. Prior to this position, Mr. Zamoyski served as Vice President and
General Manager from April 1995 to June 1997, Worldwide Aftermarket
Operation--International from November 1993 to April 1996, and General
Manager, Worldwide Aftermarket--Distribution and Logistics from August 1991 to
November 1993.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of Common Stock held by shareholders known by the Company (based on
filings with the Securities and Exchange Commission) to beneficially own in
excess of five percent of the outstanding Common Stock as of April 15, 1998.
In accordance with regulations promulgated by the Securities and Exchange
Commission, the table reflects for each beneficial owner the conversion of
convertible securities (convertible within 60 days after April 15, 1998) owned
by such beneficial owners, but, in determining the percentage ownership of
such person, does not assume the conversion of convertible securities owned by
any other person.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED PRIOR
NAME AND TO THE OFFERINGS
ADDRESS ----------------------------------
OF BENEFICIAL NUMBER OF
HOLDER SHARES PERCENT(1)
------------- ----------------- ----------------
<S> <C> <C>
Janus Capital Corporation
100 Fillmore Street
Denver, CO 80206......................... 6,500,000 16.21%
The Capital Group Companies, Inc.
333 South Hope Street
Los Angeles, CA 90071.................... 4,143,000 10.33%
Merrill Lynch Asset Management
800 Scudders Mill Road
Plainsboro, NJ 08536..................... 2,945,200 7.34%
Fidelity Management & Research
82 Devonshire Street
Boston, MA 02109......................... 2,100,000 5.24%
</TABLE>
- --------
(1) Percentages are calculated based on outstanding shares of Common Stock as
of April 15, 1998, of 40,579,372 shares and assume conversion of Federal-
Mogul's Series C Stock and Series E Stock.
S-70
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of Common Stock held by the Selling Shareholders, as of May 12, 1998
and as adjusted to give effect to the Offerings and reflect the sale in the
Offerings of an aggregate of 1,287,907 shares of Common Stock. None of the
Selling Shareholders currently holds, and after the Offerings none of the
Selling Shareholders is expected to hold, greater than 1% of the shares of the
Company's outstanding Common Stock.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BEING OWNED AFTER
NAME THE OFFERINGS(1) OFFERED THE OFFERINGS(1)
---- ------------------- ------------ -------------------
<S> <C> <C> <C>
Robert J. Morris Revocable
Trust UAD 2/16/83........ 69,075 57,746 11,329
Ellen J. Morris........... 97,353 58,678 38,675
Bruce E. Morris........... 113,287 58,678 56,609
Richard A. Morris......... 85,927 58,678 27,249
Elliot Lehman Trust 5/87.. 57,930 57,930 0
Frances M. Lehman Trust
5/87..................... 99,372 99,372 0
E. Lehman 15 Year Income
Trust.................... 3,178 3,178 0
F. Lehman 15 Year Income
Trust.................... 4,104 4,104 0
Kenneth A. Lehman 1996 E.
Family Trust 6/96........ 3,213 3,213 0
Kenneth A. Lehman 1996 F.
Family Trust 6/96........ 3,213 3,213 0
Paul Lehman 1996 E. Family
Trust 6/96............... 3,213 3,213 0
Paul Lehman 1996 F. Family
Trust 6/96............... 3,213 3,213 0
Kay L. Scholzman 1996 E.
Family Trust 6/96........ 3,213 3,213 0
Kay L. Scholzman 1996 F.
Family Trust 6/96........ 3,213 3,213 0
Kenneth A. Lehman......... 106,407 26,601 79,806
Lucy G. Lehman............ 11,405 11,405 0
Paul A. Lehman............ 98,514 71,091 27,423
Ronna Stamm............... 5,973 5,973 0
Kay Schlozman Children's
Trust 12/82.............. 7,690 7,690 0
Schlozman Family Gift
Trust 9/85............... 14,456 14,456 0
Kay L. Schlozman 1997
Children's Trust 11/97... 3,845 3,845 0
Betsy G. Lehman
Irrevocable Trust #1
12/83.................... 6,867 6,867 0
K. Lehman Children's Trust
12/82 FBO Betsy.......... 20,602 1,333 19,269
K. Lehman Children's Trust
9/85 FBO Betsy........... 4,819 4,819 0
Amy G. Lehman Irrevocable
Trust #1 12/83........... 6,867 6,867 0
K. Lehman Children's Trust
12/82 FBO Amy............ 20,602 1,334 19,269
K. Lehman Children's Trust
9/85 FBO Amy............. 4,819 4,819 0
Peter G. Lehman
Irrevocable Trust #1
12/83.................... 6,867 6,867 0
K. Lehman Children's Trust
12/82 FBO Peter.......... 20,602 1,334 19,268
K. Lehman Children's Trust
9/85 FBO Peter........... 4,819 4,819 0
Daniel A. Schlozman Trust
#1 12/81................. 61,265 22,576 38,689
Daniel A. Schlozman Trust
#2 12/81................. 61,264 22,575 38,689
Schlozman 1994 Gift Trust
for Julia................ 5,922 5,922 0
Sylvia M. Radov........... 134,413 17,572 116,841
Lewis C. Weinberg
Irrevocable Trust 8/76... 54,994 5,617 49,377
Sylvia 1996 Gift Trust for
Barbara.................. 2,216 2,216 0
Sylvia 1996 Gift Trust for
David.................... 2,216 2,216 0
Sylvia 1996 Gift Trust for
Daniel................... 2,216 2,216 0
DAW Family Trust 9/85..... 45,382 21,325 24,057
Daniel C. Weinberg
Revocable Trust 7/97..... 72,382 39,218 33,164
Carol Jung................ 35,685 6,016 29,669
</TABLE>
S-71
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES BENEFICIALLY NUMBER SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BEING OWNED AFTER
NAME THE OFFERINGS(1) OFFERED THE OFFERINGS(1)
---- ------------------- ------------ -------------------
<S> <C> <C> <C>
Kessler 1996 Gift for
David.................... 1,323 1,323 0
Kessler 1996 Gift Trust
for Daniel............... 1,438 1,438 0
DCW Family Trust 9/85..... 123,028 33,000 90,028
Lewis Weinberg
Grandchildrens Gift Trust
12/82--Keith............. 11,788 11,788 0
Keith A. Kessler.......... 23,921 7,536 16,385
Lewis Weinberg
Grandchildrens Gift Trust
12/82--Arthur............ 11,788 11,788 0
Arthur J. Kessler......... 33,025 7,536 25,489
Lewis Weinberg
Grandchildrens Gift Trust
12/82--Eric.............. 11,788 11,788 0
Eric J. Kessler
Irrevocable Trust 12/77.. 33,025 7,536 25,489
Lewis Weinberg
Grandchildrens Gift Trust
12/82--Mindy............. 29,872 10,000 19,872
SMR-DAW Childrens Gift
Trust for Mindy 12/82.... 6,319 6,319 0
Lewis Weinberg
Grandchildrens Gift Trust
12/82--Brian............. 29,872 10,000 19,872
SMR-DAW Childrens Gift
Trust for Brian 12/82.... 6,319 6,319 0
Sylvia MGP Trust for
Daniel 06/96............. 97,893 16,000 81,893
Weinberg 1992 Gift Trust
for Barbara ............. 41,954 41,954 0
Weinberg 1992 Gift Trust
for David ............... 41,954 41,954 0
Weinberg 1992 Gift Trust
for Daniel............... 41,954 8,000 33,954
Sylvia 1992 Gift Trust for
Barbara.................. 102,185 27,884 74,301
Sylvia 1992 Gift Trust for
David.................... 102,185 30,923 71,262
Sylvia 1992 Gift Trust for
Daniel................... 102,185 25,000 77,185
H & M Realty Corporation.. 216,584 216,584 0
McCormick Investments,
Inc. .................... 81 81 0
McCormick Investments, LP. 7,926 7,926 0
</TABLE>
- --------
(1) Assumes conversion of the Series E Stock.
The 1,287,907 shares of Common Stock that may be offered and sold by the
Selling Shareholders will be acquired by such Selling Shareholders through
conversion of Series E Stock received as part of the consideration received by
them in the Federal-Mogul acquisition of Fel-Pro. Pursuant to the Registration
Rights Agreement among Federal-Mogul and the Selling Shareholders. Federal-
Mogul shall bear all expenses incident to Federal-Mogul's performance of or
compliance with the Registration Rights Agreement, except that the Selling
Shareholders will pay all underwriting discounts and commissions relating to
their shares of Common Stock, brokerage fees, transfer taxes, and the fees and
expenses of any counsel, accountants or other representatives retained by the
Selling Shareholders, if any. The Selling Shareholders will be indemnified by
Federal-Mogul against certain liabilities, including certain liabilities under
the Securities Act, or will be entitled to contribution in connection
therewith.
S-72
<PAGE>
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 60,000,000 shares of Common
Stock. An increase in Federal-Mogul's authorized Common Stock to 260,000,000
shares is to be voted on at the May 20, 1998 Annual Shareholders' Meeting. 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
offered hereby 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.
S-73
<PAGE>
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 or 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). See "Capitalization."
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. All of the shares of Series E Stock
were outstanding as of May 12, 1998. Federal-Mogul and the holders thereof
have contractually agreed that 257,581.4 shares of Series E Stock will be
converted at the time of the offering and the resulting Common Stock will be
included in the Offerings, resulting in a reduction in the number of Series E
Stock outstanding to 772,774.2 shares. See "Underwriting."
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.
S-74
<PAGE>
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 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
S-75
<PAGE>
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:
"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.
S-76
<PAGE>
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.
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.
TRUST PREFERRED SECURITIES
In December 1997, Federal-Mogul's wholly-owned financing trust ("Affiliate")
completed a $575 million private issue of 11.5 million shares of 7.0% Trust
Convertible Preferred Securities ("TCP Securities") with a liquidation value
of $50 per convertible security. The net proceeds from the TCP Securities were
used to purchase an equal amount of 7.0% Convertible Junior Subordinate
Debentures ("Debentures") of Federal-Mogul. The TCP Securities represent an
undivided interest in the Affiliate's assets, with a liquidation preference of
$50 per security. Distribution on the TCP Securities are cumulative and will
be paid quarterly in arrears at an annual rate of 7.0%, and are included in
the consolidated statement of operations as a component of Other Expense, Net.
The Company has the option to defer payment of the distributions for an
extension period of up to 20 consecutive quarters.
The TCP Securities are convertible, at the option of the holder, into
Federal-Mogul Common Stock at an initial conversion rate of .9709 shares of
Common Stock per TCP Security (an aggregate of 11,165,049 shares of Common
Stock), subject to adjustment in certain circumstances. The TCP Securities and
the Debentures will be redeemable, at the option of Federal-Mogul, on or after
December 6, 2000 at a Redemption Price, expressed as a percentage of principal
which is added to accrued and unpaid interest. The Redemption Price range is
from 104.9% on December 6, 2000 to 100.0% after December 1, 2007. All
outstanding TCP Securities and Debentures are required to be redeemed by
December 1, 2027. At May 12, 1998, 11,500,000 Convertible Preferred Securities
were outstanding.
S-77
<PAGE>
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a person that, for United States federal income tax purposes, is a
nonresident alien individual or foreign corporation (a "non-U.S. holder"). The
discussion does not consider specific facts and circumstances that may be
relevant to a particular non-U.S. holder's tax position. Accordingly, each
non-U.S. holder is urged to consult its own tax advisor with respect to the
United States tax consequences of the ownership and disposition of Common
Stock, as well as any tax consequences that may arise under the laws of any
state, municipality, foreign country or other taxing jurisdiction.
DIVIDENDS
Dividends paid to a non-U.S. holder of Common Stock ordinarily will be
subject to withholding of United States federal income tax at a 30 percent
rate, or at a lower rate under an applicable income tax treaty that provides
for a reduced rate of withholding. However, if the dividends are effectively
connected with the conduct by the holder of a trade or business within the
United States, then the dividends will be exempt from the withholding tax
described above and instead will be subject to United States federal income
tax on a net income basis.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to United States federal
income tax in respect of gain realized on a disposition of Common Stock,
provided that (a) the gain is not effectively connected with a trade or
business conducted by the non-U.S. holder in the United States and (b) in the
case of a non-U.S. holder who is an individual and who holds the Common Stock
as a capital asset, such holder is present in the United States for less than
183 days in the taxable year of the sale and other conditions are met and (c)
the Company is not nor has been a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code at any time
within the shorter of the five-year period ending on the date of disposition
or the non-U.S. holder's holding period and certain other conditions are met.
The Company does not believe that it is, or is likely to become, a "United
States real property holding corporation."
FEDERAL ESTATE TAXES
Common Stock owned or treated as being owned by a non-U.S. holder at the
time of death will be included in such holder's gross estate for United States
federal estate tax purposes, unless an applicable estate tax treaty provides
otherwise.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
U.S. information reporting requirements and backup withholding tax will not
apply to dividends paid on Common Stock to a non-U.S. holder at an address
outside the United States, except that with respect to payments made after
December 31, 1999, a non-U.S. holder will be entitled to such an exemption
only if it provides a Form W-8 (or satisfies certain documentary evidence
requirements for establishing that it is a non-United States person) or
otherwise establishes an exemption. As a general matter, information reporting
and backup withholding also will not apply to a payment of the proceeds of a
sale of Common Stock effected outside the United States by a foreign office of
a foreign broker. However, information reporting requirements (but not backup
withholding) will apply to a payment of the proceeds of a sale of Common Stock
effected outside the United States by a foreign office of a broker if the
broker (i) is a U.S. person, (ii) derives 50 percent or more of its gross
income for certain periods from the conduct of a trade or business in the
United States, (iii) is a "controlled foreign corporation" as to the United
States or (iv) with respect to payments made after December 31, 1999, a
foreign partnership that, at any time during its taxable year is 50% or more
(by income or capital interest) owned by U.S. persons or is engaged in the
conduct of a U.S. trade or business, unless the broker has documentary
evidence in its records that the holder is a non-U.S. holder and certain
conditions are met, or the holder otherwise establishes an exemption. Payment
by a United States office of a broker of the proceeds of a sale of Common
Stock will be subject to both backup withholding and information reporting
unless the holder certifies its non-United States status under penalties of
perjury or otherwise establishes an exemption.
S-78
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the United States Purchase
Agreement (the "U.S. Purchase Agreement") among Federal-Mogul, the Selling
Shareholders and each of the Underwriters named below (the "U.S.
Underwriters"), and concurrently with the sale of 2,200,000 shares of Common
Stock to the International Managers (as hereinafter defined), Federal-Mogul
and the Selling Shareholders severally have agreed to sell to each of the U.S.
Underwriters, and each of the U.S. Underwriters severally has agreed to
purchase, the aggregate number of shares of Common Stock set forth opposite
its name below:
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
----------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
Bear, Stearns & Co. Inc. ......................................
Morgan Stanley & Co. Incorporated .............................
Smith Barney Inc. .............................................
Donaldson, Lufkin & Jenrette Securities Corporation............
Schroder & Co. Inc. ...........................................
---------
Total..................................................... 8,800,000
=========
</TABLE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Bear,
Stearns & Co. Inc., Morgan Stanley & Co. Incorporated, Smith Barney Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, and Schroder & Co. Inc.
are acting as representatives (the "U.S. Representatives") of the U.S.
Underwriters.
Federal-Mogul and the Selling Shareholders have also entered into an
International Purchase Agreement (the "International Purchase Agreement" and,
together with the U.S. Purchase Agreement, the "Purchase Agreements") with
certain underwriters outside the United States and Canada (the "International
Managers" and, together with the U.S. Underwriters, the "Underwriters").
Subject to the terms and conditions set forth in the International Purchase
Agreement, and concurrently with the sale of 8,800,000 shares of Common Stock
to the U.S. Underwriters pursuant to the U.S. Purchase Agreement, Federal-
Mogul and the Selling Shareholders severally have agreed to sell to the
International Managers, and the International Managers severally have agreed
to purchase, an aggregate of 2,200,000 shares of Common Stock. The offering
price per share and the total underwriting discount per share are identical
under the U.S. Purchase Agreement and the International Purchase Agreement.
In each Purchase Agreement, the several U.S. Underwriters and the several
International Managers, respectively, have agreed, subject to the terms and
conditions set forth in such Purchase Agreement, to purchase all of the shares
of Common Stock being sold pursuant to such Purchase Agreement if any of such
shares of
S-79
<PAGE>
Common Stock being sold pursuant to such Purchase Agreement are purchased.
Under certain circumstances, the commitments of non-defaulting U.S.
Underwriters or International Managers (as the case may be) may be increased.
The sale of Common Stock to the U.S. Underwriters is conditioned upon the sale
of shares of Common Stock to the International Managers, and vice versa.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, the Underwriters are permitted to sell shares of Common Stock to
each other for purposes of resale at the public offering price set forth on
the cover page of this Prospectus Supplement, less an amount not greater than
the selling concession. Under the terms of the Intersyndicate Agreement, the
U.S. Underwriters and any dealer to whom they sell shares of Common Stock will
not offer to sell or sell shares of Common Stock to persons who are non-U.S.
or non-Canadian persons or to persons they believe intend to resell to persons
who are non-U.S. or non-Canadian persons, and the International Managers and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to U.S. persons or Canadian persons or to persons
they believe intend to resell to U.S. persons or Canadian persons, except, in
each case, for transactions pursuant to the Intersyndicate Agreement.
The U.S. Underwriters have advised Federal-Mogul and the Selling
Shareholders that the U.S. Underwriters propose initially to offer the shares
of Common Stock to the public at the public offering price set forth on the
cover page of this Prospectus Supplement and to certain dealers at such price
less a concession not in excess of $ per share of Common Stock. The U.S.
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share of Common Stock on sales to certain other dealers. After the
public offering, the public offering price, concession and discount may be
changed.
Federal-Mogul and the Selling Shareholders have granted options to the U.S.
Underwriters, exercisable during the 30-day period after the date of this
Prospectus Supplement, to purchase up to an additional 660,000 shares and
660,000 shares, respectively, of Common Stock at the public offering price set
forth on the cover page hereof, less the underwriting discount. The U.S.
Underwriters may exercise this option only to cover over-allotments, if any,
made on the sale of shares of Common Stock offered hereby. To the extent that
the U.S. Underwriters exercise this option, each U.S. Underwriter will be
obligated, subject to certain conditions, to purchase approximately the number
of additional shares of Common Stock proportionate to such U.S. Underwriters'
initial amount reflected in the foregoing table. Federal-Mogul and the Selling
Shareholders have also granted options to the International Managers,
exercisable during the 30-day period after the date of this Prospectus
Supplement, to purchase up to an additional 165,000 shares and 165,000 shares,
respectively, of Common Stock to cover over-allotments, if any, on terms
similar to those granted to the U.S. Underwriters.
Federal-Mogul, certain of its executive officers and the Selling
Shareholders have agreed that, except under certain circumstances (including
issuances of securities in connection with acquisitions), they will not,
directly or indirectly, for a period of 90 days following the date of the
Prospectus Supplement, except with the prior consent of Merrill Lynch, on
behalf of the Underwriters, sell, offer to sell, grant any option for the sale
of, or otherwise dispose of, any Common Stock, except that Federal-Mogul may
issue Common Stock or options for shares of Common Stock issued pursuant to or
sold in connection with any employee benefit plan.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the U.S. Underwriters and certain selling
group members to bid for and purchase the Common Stock. As an exception to
these rules, the U.S. Underwriters are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.
If the U.S. Underwriters create a short position in the Common Stock in
connection with the Offerings (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus Supplement), the U.S.
Underwriters may reduce that short position by purchasing Common Stock in the
open market. The U.S. Underwriters may also elect to reduce any short position
through the exercise of all or part of the over-
S-80
<PAGE>
allotment option described above. In general, purchases of a security for the
purpose of stabilization or to reduce a short position could cause the price
of the security to be higher than it might be in the absence of such
purchases.
Neither Federal-Mogul nor the U.S. Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither Federal-Mogul nor the Underwriters make any representation
that the Underwriters will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
Federal-Mogul and the Selling Shareholders have agreed to indemnify the U.S.
Underwriters and the International Managers, Federal-Mogul has agreed to
indemnify certain Selling Shareholders, and such Selling Shareholders have
agreed to indemnify Federal-Mogul, in each case against certain liabilities,
including liabilities under the Securities Act.
S-81
<PAGE>
PRESENTATION OF FINANCIAL INFORMATION
All references herein to "U.S. dollar," "dollar" or "$" are to the lawful
currency of the United States of America, and all references herein to
"pounds," "pounds sterling," "(Pounds)," "pence" or "p" are to the lawful
currency of the United Kingdom. T&N, a subsidiary of Federal-Mogul, has
published its consolidated financial statements in pounds sterling. Solely for
the convenience of the reader, this Prospectus Supplement and the accompanying
Prospectus contain translations of certain amounts in pounds sterling into
U.S. dollars at specified rates. No representation is made that the pounds
sterling amounts actually represent such U.S. dollar amounts or could be
converted into U.S. dollars at those or any other rates. For informational
purposes only, the Noon Buying Rate on May 12, 1998 was $1.6347 =
(Pounds)1.00. See "Exchange Rates" for historical information regarding the
Noon Buying Rate.
Federal-Mogul acquired T&N on March 6, 1998 and acquired Fel-Pro on February
24, 1998. See "T&N and Fel-Pro Acquisitions." The financial information
relating to Federal-Mogul set forth in this Prospectus Supplement and the
accompanying Prospectus (i) to the extent it relates to the years ended
December 31, 1995, 1996 and 1997, or is stated at those dates, has been
derived from Federal-Mogul's audited consolidated financial statements of and
for the years ended December 31, 1995, 1996 and 1997 included in Federal-
Mogul's Annual Report on Form 10-K and included elsewhere in this Prospectus
Supplement (the "Federal-Mogul Audited Financial Statements") and (ii) to the
extent it relates to the three-month periods ended March 31, 1997 and 1998, or
is stated at those dates, has been derived from Federal-Mogul's unaudited
interim consolidated financial statements of and for the three-month periods
ended March 31, 1997 and 1998 (which includes the results of operations and
cash flows of T&N and Fel-Pro from March 6, 1998 and February 24, 1998,
respectively) included in Federal-Mogul's Quarterly Report on Form 10-Q and
included elsewhere in this Prospectus Supplement (the "Federal-Mogul Unaudited
Interim Financial Statements" and, together with the Federal-Mogul Audited
Financial Statements, the "Federal-Mogul Financial Statements"). The financial
information relating to T&N for the years ended December 31, 1996 and 1997 set
forth in this Prospectus Supplement and the accompanying Prospectus has been
derived from the audited consolidated financial statements of T&N included
elsewhere in this Prospectus Supplement (the "T&N Financial Statements") and
the financial information relating to Fel-Pro set forth in this Prospectus
Supplement and the accompanying Prospectus has been derived from the audited
consolidated financial statements of Fel-Pro for the years ended December 28,
1997 and December 29, 1996 included elsewhere in this Prospectus Supplement
(the "Fel-Pro Financial Statements" and, together with the Federal-Mogul
Financial Statements and the T&N Financial Statements, the "Financial
Statements"). The T&N Financial Statements have been prepared in accordance
with generally accepted accounting principles in the United Kingdom ("U.K.
GAAP"), which differ in certain significant respects from generally accepted
accounting principles in the United States ("U.S. GAAP"). The significant
differences between U.S. GAAP and U.K. GAAP as they relate to T&N are
summarized in Note 29 to the T&N Financial Statements.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for Federal-Mogul by David M. Sherbin, Esq., Associate General Counsel of
Federal-Mogul. Mr. Sherbin owns and holds options to purchase approximately
1,550 shares of Common Stock of Federal-Mogul. Certain legal matters in
connection with the Offerings will be passed upon for Federal-Mogul by Cleary,
Gottlieb, Steen & Hamilton, New York, New York, and for the Underwriters by
Sidley & Austin, Chicago, Illinois and Sachnoff & Weaver Ltd., Chicago,
Illinois.
EXPERTS
The Federal-Mogul Audited Financial Statements contained herein have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon included therein and contained herein. Such consolidated
financial statements and schedules audited by Ernst & Young LLP are contained
herein in reliance on such reports given upon the authority of such firm as
experts in accounting and auditing.
The Fel-Pro Financial Statements contained herein have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report thereon
included therein and contained herein. Such financial statements audited by
Ernst & Young LLP are contained herein in reliance on such report given upon
the authority of such firm as experts in accounting and auditing.
The T&N Financial Statements contained herein have been audited by KPMG
Audit Plc, independent auditors, as set forth in their reports thereon
included therein and contained herein. Such consolidated financial statements
audited by KPMG Audit Plc are included herein in reliance on their report
given on their authority as experts in accounting and auditing.
S-82
<PAGE>
PROSPECTUS
$2,500,000,000
FEDERAL MOGUL CORPORATION
DEBT SECURITIES, PREFERRED STOCK AND COMMON STOCK
Federal-Mogul Corporation, a Michigan corporation ("Federal-Mogul" or the
"Company"), may offer and sell from time to time, in one or more series, (i)
its debt securities, consisting of debentures, notes and/or other evidences of
indebtedness representing unsecured obligations of Federal-Mogul (the "Debt
Securities"), (ii) shares of its preferred stock, no par value per share
("Preferred Stock"), and (iii) shares of its common stock, no par value per
share ("Common Stock"). The Selling Shareholders (as defined herein) may offer
and sell Common Stock as provided for in an accompanying supplement to this
Prospectus. See "Plan of Distribution." Debt Securities, Preferred Stock and
Common Stock are herein collectively referred to as the "Securities."
Certain specific terms of the particular Securities in respect of which this
Prospectus is being delivered will be set forth in an accompanying supplement
to this Prospectus (the "Prospectus Supplement"), which will describe, without
limitation and where applicable, the following: (i) in the case of Debt
Securities, the specific designation, aggregate principal amount, ranking as
senior or subordinated Debt Securities, denomination, maturity, premium, if
any, interest rate (which may be fixed or variable), method of calculating
interest, if any, place or places where principal of, premium, if any, and
interest, if any, on such Debt Securities will be payable, the currencies or
currency units in which principal of, premium, if any, and interest, if any,
on such Debt Securities will be payable, any terms of redemption or
conversion, any sinking fund provisions, the purchase price, any listing on a
securities exchange, any right of Federal-Mogul to defer payment of interest
on the Debt Securities and the maximum length of such deferral period and
other special terms; (ii) in the case of Preferred Stock, the specific
designation and liquidation preference per share and number of shares offered,
the purchase price, dividend rate (which may be fixed or variable), method of
calculating payment of dividends, if any, place or places where dividends on
such Preferred Stock will be payable, any terms of redemption, dates on which
dividends shall be payable and dates from which dividends shall accrue, any
listing on a securities exchange, voting and other rights, including
conversion or exchange rights, if any, and other special terms; and (iii) in
the case of Common Stock, the number of shares offered, the initial offering
price, market price and dividend information.
The offering price to the public of the Securities will be limited to U.S.
$2,500,000,000 in the aggregate (or its equivalent (based on the applicable
exchange rate at the time of issue), if Securities are offered for
consideration denominated in one or more foreign currencies or currency units
as shall be designated by Federal-Mogul). The Debt Securities may be
denominated in United States dollars or, at the option of Federal-Mogul if so
specified in the applicable Prospectus Supplement, in one or more foreign
currencies or currency units. The Debt Securities may be issued in registered
form or bearer form, or both. If so specified in the applicable Prospectus
Supplement, Securities of one or more classes or series may be issued in whole
or in part in the form of one or more temporary or permanent global
securities.
The Common Stock is listed on the New York Stock Exchange under the trading
symbol "FMO."
The Securities may be sold to or through underwriters, through dealers or
agents or directly to purchasers. See "Plan of Distribution." The names of any
underwriters, dealers or agents involved in the sale of the Securities in
respect of which this Prospectus is being delivered and any applicable fee,
commission or discount arrangements with them will be set forth in a
Prospectus Supplement. See "Plan of Distribution" for possible indemnification
arrangements for dealers, underwriters and agents.
The Selling Shareholders will receive the net proceeds from the sale of
shares of Common Stock by the Selling Shareholders and will pay all
underwriting discounts, selling commissions and transfer taxes, if any,
applicable to any such sale. Federal-Mogul is responsible for payment of all
other expenses incident to the registration of the shares of Common Stock. The
Selling Shareholders and any broker-dealers, agents or underwriters that
participate in the distribution of the Common Stock sold by the Selling
Shareholders may be deemed "underwriters" within the meaning of the Securities
Act, and any commission received by them and any profit on the resale of the
shares of Common Stock purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Plan of Distribution"
for a description of certain indemnification arrangements.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
--------------
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 , 1998.
<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.
Federal-Mogul has 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 and the securities offered hereby,
reference is made to the Registration Statement and to the exhibits thereto.
2
<PAGE>
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 ("OE") 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 plc ("T&N"), a U.K. based supplier of engine and transmission
products, for total consideration of approximately (Pounds)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, Incorporated and certain
affiliated entities ("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 OE
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 T&N thinwall and drywall and dry bearings
(polymer bearings) operations ("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.
3
<PAGE>
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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS --------------------------------
ENDED MARCH 31, 1998 1997 1996 1995 1994 1993
-------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Fixed Charges(1): 1.1x 3.3x N/A(2) N/A(3) 4.3x 2.7x
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
THREE MONTHS --------------------------------
ENDED MARCH 31, 1998 1997 1996 1995 1994 1993
-------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Combined Fixed Charges
and Preferred Stock
Dividends(1): 1.1x 2.9x N/A(2) N/A(3) 3.1x 2.2x
</TABLE>
- --------
(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
Unless otherwise indicated in the accompanying Prospectus Supplement, the
net proceeds received by Federal-Mogul from the sale of the Securities offered
hereby are expected to be used for general corporate purposes. Any specific
allocation of the proceeds to a particular purpose that has been made at the
date of any Prospectus Supplement will be described therein. Federal-Mogul
will not receive any proceeds from the sale of shares of Common Stock by any
Selling Shareholder.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities offered hereby, consisting of notes, debentures and
other evidences of indebtedness, are to be issued in one or more series
constituting either senior Debt Securities ("Senior Debt Securities") or
subordinated Debt Securities ("Subordinated Debt Securities"). Unless
otherwise specified in the applicable Prospectus Supplement, the Debt
Securities will be issued pursuant to indentures described below (as
applicable, the "Senior Indenture" or the "Subordinated Indenture," each, an
"Indenture" and, together, the "Indentures"), in each case between Federal-
Mogul and the trustee identified therein (the "Trustee"), the forms of which
have been filed as exhibits to the Registration Statement of which this
Prospectus forms a part. Except for the subordination provisions of the
Subordinated Indenture, for which there are no counterparts in the Senior
Indenture, the provisions of the Subordinated Indenture are substantially
identical in substance to the provisions of the Senior Indenture that bear the
same section numbers.
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<PAGE>
The statements herein relating to the Debt Securities and the following
summaries of certain general provisions of the Indentures do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Indentures (as they may be amended or
supplemented from time to time), including the definitions therein of certain
terms capitalized in this Prospectus. All article and section references
appearing herein are to articles and sections of the applicable Indenture and
whenever particular Sections or defined terms of the Indentures (as they may
be amended or supplemented from time to time) are referred to herein or in a
Prospectus Supplement, such Sections or defined terms are incorporated herein
or therein by reference.
GENERAL
The Debt Securities will be unsecured obligations of Federal-Mogul. The
Indentures do not limit the aggregate amount of Debt Securities which may be
issued thereunder, nor do they limit the incurrence or issuance of other
secured or unsecured debt of Federal-Mogul. The Debt Securities issued under
the Senior Indenture will be unsecured and will rank pari passu with all other
unsecured and unsubordinated obligations of Federal-Mogul. The Debt Securities
issued under the Subordinated Indenture will be subordinate and junior in
right of payment, to the extent and in the manner set forth in the
Subordinated Indenture, to all Senior Indebtedness of Federal-Mogul. See "--
Subordination under the Subordinated Indenture."
Reference is made to the applicable Prospectus Supplement which will
accompany this Prospectus for a description of the specific series of Debt
Securities being offered thereby, including, but not limited to, the
following: (1) the title of such Debt Securities, including whether the Debt
Securities are Senior Debt Securities or Subordinated Debt Securities and
whether such Debt Securities will be issued under the Senior Indenture, the
Subordinated Indenture or other indenture set forth in the Prospectus
Supplement; (2) any limit upon the aggregate principal amount of such Debt
Securities; (3) the date or dates on which the principal of and premium, if
any, on such Debt Securities is payable or the method of determining such date
or dates; (4) the rate or rates (which may be fixed or variable) at which such
Debt Securities will bear interest, if any, or the method of calculating such
rate or rates of interest, the date or dates from such interest will accrue or
the method by which such date or dates will be determined, the date or dates
on which interest, if any, will be payable and the record date or dates
therefor; (5) the place or places where principal of, premium, if any, and
interest, if any, on such Debt Securities will be payable; (6) the right, if
any, of Federal-Mogul to defer payment of interest on Debt Securities and the
maximum length of any such deferral period; (7) the period or periods within
which, the price or prices at which, the currency or currencies (including
currency unit or units) in which, and the other terms and conditions upon
which, such Debt Securities may be redeemed or otherwise purchased, in whole
or in part, at the option of Federal-Mogul; (8) the obligation, if any, and
the limitations, if any, on Federal-Mogul to redeem or purchase such Debt
Securities pursuant to any sinking fund or analogous provisions or upon the
happening of a specified event or at the option of a Holder thereof or at
Federal-Mogul's option or otherwise, or to apply any purchases of such Debt
Securities to any such redemption, and, if any, the period or periods within
which, the price or prices at which, the application of purchases to
redemptions, and the other terms and conditions upon which such Debt
Securities shall be redeemed or purchased, in whole or in part; (9) the
denominations in which such Debt Securities are authorized to be issued; (10)
the currency or currencies (including currency unit or units) in which
principal of, premium, if any, and interest, if any, on such Debt Securities
will be payable, or in which such Debt Securities will be denominated and
whether Federal-Mogul or the holders of any such Debt Securities may elect to
receive payments in respect of such Debt Securities in a currency or currency
unit other than that in which such Debt Securities are stated to be payable;
(11) if other than the principal amount thereof, the portion of the principal
amount of such Debt Securities which will be payable upon declaration of the
acceleration of the maturity thereof or the method by which such portion shall
be determined; (12) the person to whom any interest on any such Debt Security
shall be payable if other than the person in whose name such Debt Security is
registered on the applicable record date; (13) any addition to, or
modification or deletion of, any Event of Default or any covenant of Federal-
Mogul specified in the Indenture with respect to such Debt Securities; (14)
the
5
<PAGE>
application, if any, of such means of defeasance or covenant defeasance as may
be specified for such Debt Securities; (15) whether such Debt Securities are
to be issued in whole or in part in the form of one or more temporary or
permanent global securities and, if so, the identity of the depositary for
such global security or securities; (16) whether the Debt Securities of the
series are convertible into Common Stock or Preferred Stock, and, if so, the
class or series of capital stock of Federal-Mogul into which such Debt
Securities are convertible and the terms and conditions upon which such
conversion will be effected; and (17) any other special terms pertaining to
such Debt Securities. Unless otherwise specified in the applicable Prospectus
Supplement, the Debt Securities will not be listed on any securities exchange.
(Section 3.1.)
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities will be issued in fully-registered form without coupons. Where Debt
Securities of any series are issued in bearer form, the special restrictions
and considerations, including special offering restrictions and special United
States Federal income tax considerations, applicable to any such Debt
Securities and to payment on and transfer and exchange of such Debt Securities
will be described in the applicable Prospectus Supplement. Bearer Debt
Securities will be transferable by delivery. (Section 3.5.)
Debt Securities may be sold at a substantial discount below their stated
principal amount, bearing no interest or interest at a rate which at the time
of issuance is below market rates. Certain United States Federal income tax
consequences and special considerations applicable to any such Debt
Securities, or to Debt Securities issued at par that are treated as having
been issued at a discount, will be described in the applicable Prospectus
Supplement.
If the purchase price of any of the Debt Securities is payable in one or
more foreign currencies or currency units or if any Debt Securities are
denominated in one or more foreign currencies or currency units or if the
principal of, premium, if any, or interest, if any, on any Debt Securities is
payable in one or more foreign currencies or currency units, or by reference
to commodity prices, equity indices or other factors, the restrictions,
elections, certain United States Federal income tax considerations, specific
terms and other information with respect to such issue of Debt Securities and
such foreign currency or currency units or commodity prices, equity indices or
other factors will be set forth in the applicable Prospectus Supplement. In
general, holders of such series of Debt Securities may receive a principal
amount on any principal payment date, or a payment of premium, if any, on any
premium payment date or a payment of interest on any interest payment date,
that is greater than or less than the amount of principal, premium, if any, or
interest, if any, otherwise payable on such dates, depending on the value on
such dates of the applicable currency, commodity, equity index or other
factor.
PAYMENT, REGISTRATION, TRANSFER AND EXCHANGE
Unless otherwise provided in the applicable Prospectus Supplement, payments
in respect of the Debt Securities will be made in the designated currency at
the office or agency of Federal-Mogul maintained for that purpose as Federal-
Mogul may designate from time to time, except that, at the option of Federal-
Mogul, interest payments, if any, on Debt Securities in registered form may be
made (i) by check mailed to the address of the person entitled thereto as
specified in the Register or (ii) at Federal-Mogul's expense, by wire transfer
to an account maintained by the person entitled thereto as specified in the
Register. (Sections 3.7(a) and 9.2.) Unless otherwise indicated in the
applicable Prospectus Supplement, payment of any installment of interest on
Debt Securities in registered form will be made to the person in whose name
such Debt Security is registered at the close of business on the regular
record date for such interest. (Section 3.7(a).)
Payment in respect of Debt Securities in bearer form will be made in the
currency and in the manner designated in the Prospectus Supplement, subject to
any applicable laws and regulations, at such paying agencies outside the
United States as Federal-Mogul may appoint from time to time. The paying
agents outside the United States initially appointed by Federal-Mogul for a
series of Debt Securities will be named in the Prospectus Supplement. Federal-
Mogul may at any time designate additional paying agents or rescind the
designation of any paying agents, except that, if Debt Securities of a series
are issuable as Registered Securities, Federal-Mogul
6
<PAGE>
will be required to maintain at least one paying agent in each Place of
Payment for such series and, if Debt Securities of a series are issuable as
Bearer Securities, Federal-Mogul will be required to maintain a paying agent
in a Place of Payment outside the United States where Debt Securities of such
series and any coupons appertaining thereto may be presented and surrendered
for payment. (Section 9.2.)
Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities in registered form will be transferable or exchangeable at the
agency of Federal-Mogul maintained for such purpose as designated by Federal-
Mogul from time to time. (Sections 3.5 and 9.2.) Debt Securities may be
transferred or exchanged without service charge, other than any tax or other
governmental charge imposed in connection therewith. (Section 3.5.)
GLOBAL DEBT SECURITIES
Unless otherwise specified in the applicable Prospectus Supplement, the Debt
Securities of a series may be issued in whole or in part in the form of one or
more fully registered global securities (a "Registered Global Security") that
will be deposited with a depositary (the "Depositary") or with a nominee for
the Depositary identified in the applicable Prospectus Supplement. In such a
case, one or more Registered Global Securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding Debt Securities of the series to be
represented by such Registered Global Security or Securities. (Section 3.3.)
Unless and until it is exchanged in whole or in part for Debt Securities in
definitive certificated form, a Registered Global Security may not be
transferred except as a whole by the Depositary for such Registered Global
Security to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by such Depositary or
any such nominee to a successor Depositary for such series or a nominee of
such successor Depositary and except in the circumstances described in the
applicable Prospectus Supplement. (Section 3.5.)
The specific terms of the depositary arrangement with respect to any portion
of a series of Debt Securities to be represented by a Registered Global
Security will be described in the applicable Prospectus Supplement. Unless
otherwise specified in the applicable Prospectus Supplement, Federal-Mogul
expects that the following provisions will apply to such depositary
arrangements.
Ownership of beneficial interests in a Registered Global Security will be
limited to participants or persons that may hold interests through
participants (as such term is defined below). Upon the issuance of any
Registered Global Security, and the deposit of such Registered Global Security
with or on behalf of the Depositary for such Registered Global Security, the
Depositary will credit, on its book-entry registration and transfer system,
the respective principal amounts of the Debt Securities represented by such
Registered Global Security to the accounts of institutions ("participants")
that have accounts with the Depositary or its nominee. The accounts to be
credited will be designated by the underwriters or agents engaging in the
distribution of such Debt Securities or by Federal-Mogul, if such Debt
Securities are offered and sold directly by Federal-Mogul. Ownership of
beneficial interests by participants in such Registered Global Security will
be shown on, and the transfer of such beneficial interests will be effected
only through, records maintained by the Depositary for such Registered Global
Security or by its nominee. Ownership of beneficial interests in such
Registered Global Security by persons that hold through participants will be
shown on, and the transfer of such beneficial interests within such
participants will be effected only through, records maintained by such
participants. The laws of some jurisdictions require that certain purchasers
of securities take physical delivery of such securities in certificated form.
The foregoing limitations and such laws may impair the ability to transfer
beneficial interests in such Registered Global Security.
So long as the Depositary for a Registered Global Security, or its nominee,
is the registered owner of such Registered Global Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder
of the Debt Securities represented by such Registered Global Security for all
purposes under the applicable Indenture. Unless otherwise specified in the
applicable Prospectus Supplement and except as specified below, owners of
beneficial interests in such Registered Global Security will not be entitled
to have Debt
7
<PAGE>
Securities of the series represented by such Registered Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of Debt Securities of such series in certificated form and will not
be considered the holders thereof for any purposes under the relevant
Indenture. (Section 3.8.) Accordingly, each person owning a beneficial
interest in such Registered Global Security must rely on the procedures of the
Depositary and, 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 relevant Indenture. The Depositary may grant
proxies and otherwise authorize participants to give or take any request,
demand, authorization, direction, notice, consent, waiver or other action
which a holder is entitled to give or take under the relevant Indenture.
Federal-Mogul understands that, under existing industry practices, if Federal-
Mogul requests any action of holders or if any owner of a beneficial interest
in such Registered Global Security desires to give any notice or take any
action which a holder is entitled to give or take under the relevant
Indenture, the Depositary would authorize the participants to give such notice
or take such action, and such participants would authorize beneficial owners
owning through such participants to give such notice or take such action or
would otherwise act upon the instructions of beneficial owners owning through
them.
Unless otherwise specified in the applicable Prospectus Supplement, payments
with respect to principal, premium, if any, and interest, if any, on Debt
Securities represented by a Registered Global Security registered in the name
of a Depositary or its nominee will be made to such Depositary or its nominee,
as the case may be, as the registered owner of such Registered Global
Security. (Section 3.8.)
Federal-Mogul expects that the Depositary for any Debt Securities
represented by a Registered Global Security, upon receipt of any payment of
principal, premium or interest, will immediately credit participants' accounts
with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Registered Global Security as shown
on the records of such Depositary. Federal-Mogul also expects that payments by
participants to owners of beneficial interests in such Registered Global
Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with the securities
held for the accounts of customers registered in "street names," and will be
the responsibility of such participants. None of Federal-Mogul, the respective
Trustees or any agent of Federal-Mogul or the respective Trustees shall have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of a Registered
Global Security, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests. (Section 3.8.)
Unless otherwise specified in the applicable Prospectus Supplement, if the
Depositary for any Debt Securities represented by a Registered Global Security
is at any time unwilling or unable to continue as Depositary or ceases to be a
clearing agency registered under the Exchange Act and any other applicable
statute or regulation and a duly registered successor Depositary is not
appointed by Federal-Mogul within 90 days, Federal-Mogul will issue such Debt
Securities in definitive certificated form in exchange for such Registered
Global Security. In addition, Federal-Mogul may at any time in its sole
discretion determine not to have any of the Debt Securities of a series
represented by one or more Registered Global Securities and, in such event,
will issue Debt Securities of such series in definitive certificated form in
exchange for all of the Registered Global Security or Securities representing
such Debt Securities. (Section 3.5.)
The Debt Securities of a series may also be issued in whole or in part in
the form of one or more bearer global securities (a "Bearer Global Security")
that will be deposited with a depositary, or with a nominee for such
depositary, identified in the applicable Prospectus Supplement. Any such
Bearer Global Security may be issued in temporary or permanent form. (Section
3.4.) The specific terms and procedures, including the specific terms of the
depositary arrangement, with respect to any portion of a series of Debt
Securities to be represented by one or more Bearer Global Securities will be
described in the applicable Prospectus Supplement.
CONSOLIDATION, MERGER OR SALE BY FEDERAL-MOGUL
Unless otherwise specified in the applicable Prospectus Supplement, Federal-
Mogul shall not consolidate with or merge into any other corporation or
transfer or lease all or substantially all of its assets, unless: (i) the
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<PAGE>
corporation formed by such consolidation or into which Federal-Mogul is merged
or the corporation which acquires its assets is organized in the United
States; (ii) the corporation formed by such consolidation or into which
Federal-Mogul is merged or which acquires Federal-Mogul's assets expressly
assumes all of the obligations of Federal-Mogul under each Indenture; (iii)
immediately after giving effect to such transaction, no Default (as
hereinafter defined) or Event of Default exists; and (iv) if, as a result of
such transaction, properties or assets of Federal-Mogul would become subject
to an encumbrance which would not be permitted by the terms of any series of
Debt Securities, Federal-Mogul or the successor corporation, as the case may
be, shall take such steps as are necessary to secure such Debt Securities
equally and ratably with all indebtedness secured thereunder. Upon any such
consolidation, merger or sale, the successor corporation formed by such
consolidation, or into which Federal-Mogul is merged or to which such sale is
made, shall succeed to, and be substituted for Federal-Mogul under each
Indenture. (Section 7.1.)
EVENTS OF DEFAULT, NOTICE AND CERTAIN RIGHTS ON DEFAULT
Each Indenture provides that, if an Event of Default specified therein
occurs with respect to the Debt Securities of any series and is continuing,
the Trustee for such series or the holders of at least 25% in aggregate
principal amount of all of the outstanding Debt Securities of that series, by
written notice to Federal-Mogul (and to the Trustee for such series, if notice
is given by such holders of Debt Securities), may declare the principal of
(or, if the Debt Securities of that series are Original Issue Discount
Securities or Indexed Securities, such portion of the original principal
amount specified in the Prospectus Supplement) and accrued interest, if any,
on all the Debt Securities of that series to be due and payable (provided,
with respect to any Debt Securities issued under the Subordinated Indenture,
that the payment of principal, premium, if any, and interest, if any, on such
Debt Securities shall remain subordinated to the extent provided in Article 12
of the Subordinated Indenture). (Section 5.2.)
Unless otherwise specified in the applicable Prospectus Supplement, Events
of Default with respect to Debt Securities of any series are defined in each
Indenture as being: (a) default for 30 days in payment of any interest on any
Debt Security of that series or any coupon appertaining thereto or any
additional amount payable with respect to Debt Securities of such series as
specified in the applicable Prospectus Supplement when due and payable; (b)
default in payment of principal, or premium, if any, at maturity or on
redemption or otherwise, or in the making of a mandatory sinking fund payment
of any Debt Securities of that series when due; (c) default for 60 days after
notice to Federal-Mogul by the Trustee for such series, or to Federal-Mogul
and the Trustee for such series by the holders of at least 25% in aggregate
principal amount of the Debt Securities of such series then outstanding, in
the performance of any covenant with respect to the Debt Securities of that
series; (d) with respect to the Senior Indenture, default with respect to
other indebtedness of Federal-Mogul for borrowed money in an aggregate
principal amount of at least $25 million, which default shall constitute a
failure to pay any portion of the principal when due and payable after the
expiration of an applicable grace period with respect thereto or shall result
in an acceleration thereof and such acceleration is not rescinded or annulled
or such debt shall not be paid in full within 30 days after the written notice
thereof to Federal-Mogul by the Trustee or to Federal-Mogul and the Trustee by
the holders of 25% in aggregate principal amount of the Debt Securities of
such series then outstanding, provided that such Event of Default will be
remedied, cured or waived if such default under such other agreement is
remedied, cured or waived; and (e) certain events of bankruptcy, insolvency or
reorganization of Federal-Mogul. (Section 5.1.) The definition of "Event of
Default" in each Indenture specifically excludes a default under a secured
debt under which the obligee has recourse (exclusive of recourse for ancillary
matters such as environmental indemnities, misapplication of funds, costs of
enforcement, etc.) only to the collateral pledged for repayment, and where the
fair market value of such collateral does not exceed two percent of Total
Assets (as defined in the Indenture) at the time of the default. Events of
Default with respect to a specified series of Debt Securities may be added to
the Indenture and, if so added, will be described in the applicable Prospectus
Supplement. (Sections 3.1 and 5.1(7).)
Each Indenture provides that the Trustee will, if it is known to a
Responsible Officer of the Trustee, within 90 days after the occurrence of a
Default with respect to the Debt Securities of any series, give to the holders
of the Debt Securities of that series notice of all Defaults known to it
unless such Default shall have been cured or
9
<PAGE>
waived; provided, that except in the case of a Default in payment on the Debt
Securities of that series, the Trustee may withhold the notice if and so long
as the board of directors, the executive committee or a committee of its
Responsible Officers in good faith determines that withholding such notice is
in the interests of the holders of the Debt Securities of that series.
(Section 6.6.) "Default" means any event which is, or after notice or passage
of time or both, would be, an Event of Default. (Section 1.1.)
Each Indenture provides that the holders of a majority in aggregate
principal amount of the Debt Securities of each series affected (with each
such series voting as a class) may, subject to certain limited conditions,
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee for such series, or exercising any trust or power
conferred on such Trustee. (Section 5.8.)
Each Indenture includes a covenant that Federal-Mogul will file annually
with the Trustee a certificate as to Federal-Mogul's compliance with all
conditions and covenants of such Indenture. (Section 9.6.)
The holders of a majority in aggregate principal amount of any series of
Debt Securities then outstanding by notice to the Trustee for such series may
waive, on behalf of the holders of all Debt Securities of such series, any
past Default or Event of Default with respect to that series and its
consequences except a Default or Event of Default in the payment of the
principal of, premium, if any, or interest, if any, on any Debt Security of
such series, or except in respect of an Event of Default resulting from the
breach of a covenant or provision of either Indenture which, pursuant to the
applicable Indenture, cannot be amended or modified without the consent of the
holders of each outstanding Debt Security of such series affected. (Section
5.7.)
OPTION TO DEFER INTEREST PAYMENTS
If provided in the applicable Prospectus Supplement, Federal-Mogul shall
have the right at any time and from time to time during the term of the series
of Debt Securities to defer the payment of interest for such number of
consecutive interest payment periods as may be specified in the applicable
Prospectus Supplement (each, an "Extension Period"), subject to the terms,
conditions and covenants, if any, specified in such Prospectus Supplement,
provided that such Extension Period may not extend beyond the stated maturity
of the Debt Securities. Certain material United States Federal income tax
consequences and special considerations applicable to any such Debt Securities
will be described in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, at the
end of such Extension Period, Federal-Mogul shall pay all interest then
accrued and unpaid together with interest thereon compounded semiannually at
the rate specified for the Debt Securities 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
distributions 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 capital stock of Federal-Mogul in connection with
the satisfaction by Federal-Mogul of its obligations under any employee or
agent benefit plans or the satisfaction by Federal-Mogul of its obligations
pursuant to any contract or security outstanding on the date of such event
requiring Federal-Mogul to purchase capital stock of Federal-Mogul, (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 Federal-Mogul's capital stock, (iii) the purchase
of fractional interests in shares of Federal-Mogul's capital stock pursuant to
the conversion of exchange provisions of such capital stock or the security
being conversed or exchanged, (iv) dividends or distributions in capital stock
of Federal-Mogul (or rights to acquire capital stock) or repurchases or
redemptions of capital stock solely from the issuance or exchange of capital
stock or (v) redemptions or repurchases of any rights outstanding under a
shareholder rights plan), (b) Federal-Mogul shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by Federal-Mogul that rank junior to the Debt
Securities, and (c) Federal-Mogul shall not make any guarantee payments with
respect to the foregoing. Prior to the termination of any such Extension
Period, Federal-Mogul may further defer payments of interest by extending the
interest payment period; provided, however, that, such Extension Period,
including all such previous and further extensions, may not extend beyond the
maturity of the Debt Securities. Upon the termination of any Extension Period
and the payment of all amounts then due, Federal-Mogul may commence a new
10
<PAGE>
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, but Federal-Mogul may prepay at any time all or any portion of the
interest accrued during an Extension Period. Federal-Mogul has no present
intention of exercising its right to defer payments of interest by extending
the interest payment period on the Debt Securities. Federal-Mogul shall give
the holders of the Debt Securities notice of its selection of such Extension
Period ten Business Days prior to the earlier of (i) the Interest Payment Date
or (ii) the date upon which Federal-Mogul is required to give notice to the
New York Stock Exchange (or other applicable self-regulatory organization) or
to holders of the Debt Securities of the record or payment date of such
related interest payment.
MODIFICATION OF THE INDENTURES
Unless otherwise specified in the applicable Prospectus Supplement, each
Indenture contains provisions permitting Federal-Mogul and the Trustee to
enter into one or more supplemental indentures without the consent of the
holders of any of the Debt Securities in order (i) to evidence the succession
of another corporation to Federal-Mogul and the assumption of the covenants
and obligations of Federal-Mogul by a successor to Federal-Mogul; (ii) to add
to the covenants of Federal-Mogul or to surrender any right or power of
Federal-Mogul; (iii) to add additional Events of Default with respect to any
series of Debt Securities; (iv) to add or change any provisions to such extent
as necessary to facilitate the issuance of Debt Securities in bearer form or
to facilitate the issuance of Debt Securities in global form; (v) to add,
change or eliminate any provision affecting only Debt Securities not yet
issued; (vi) to secure the Debt Securities; (vii) to establish the form or
terms of Debt Securities; (viii) to evidence and provide for successor
Trustees; (ix) if allowed without penalty under applicable laws and
regulations, to permit payment in respect of Debt Securities in bearer form in
the United States; (x) to correct any defect or supplement any inconsistent
provisions or to make any other provisions with respect to matters or
questions arising under such Indenture, provided that such action does not
adversely affect the interests of the holders of Debt Securities of any
series; or (xi) to cure any ambiguity or correct any mistake. The Subordinated
Indenture also permits Federal-Mogul and the Trustee thereunder to enter into
such supplemental indentures to modify the subordination provisions contained
in the Subordinated Debenture except in a manner adverse to any outstanding
Debt Securities. (Section 8.1.)
Unless otherwise specified in the applicable Prospectus Supplement, each
Indenture also contains provisions permitting Federal-Mogul and the Trustee,
with the consent of the holders of a majority in aggregate principal amount of
the outstanding Debt Securities affected by such supplemental indenture (with
the Debt Securities of each series voting as a class), to execute supplemental
indentures adding any provisions to or changing or eliminating any of the
provisions of such Indenture or any supplemental indenture or modifying the
rights of the holders of Debt Securities of such series, except that, without
the consent of the holder of each Debt Security so affected, no such
supplemental indenture may: (i) change the time for payment of principal or
premium, if any, or interest, if any, on any Debt Security; (ii) reduce the
principal of, or the rate of interest, or premium, if any, on any Debt
Security, or change the manner in which the amount of any of the foregoing is
determined; (iii) reduce the amount of premium, if any, payable upon the
redemption of any Debt Security; (iv) reduce the amount of principal payable
upon acceleration of the maturity of any Original Issue Discount Security or
Indexed Security; (v) impair the right to institute suit for the enforcement
of any payment on or with respect to any Debt Security; (vi) reduce the
percentage in principal amount of the outstanding Debt Securities affected
thereby, the consent of whose holders is required for modification or
amendment of such Indenture or for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults; (viii) change
the obligation of Federal-Mogul to maintain an office or agency in the places
and for the purposes specified in such Indenture; (ix) modify the provisions
relating to the subordination of outstanding Debt Securities of any series in
a manner adverse to the holders thereof; or (x) modify the provisions relating
to waiver of certain defaults or any of the foregoing provisions. (Section
8.2.)
SUBORDINATION UNDER THE SUBORDINATED INDENTURE
The Subordinated Indenture provides that any Subordinated Debt Securities
issued thereunder are subordinate and junior in right of payment to all Senior
Indebtedness to the extent provided in the Subordinated Indenture. (Section
12.1 of the Subordinated Indenture.) The Subordinated Indenture defines the
term "Senior
11
<PAGE>
Indebtedness" as: (i) all indebtedness of Federal-Mogul, whether outstanding
on the date of the Subordinated Indenture or thereafter created, incurred or
assumed, that is for money borrowed, or evidenced by a note or similar
instrument given in connection with the acquisition of any business,
properties or assets, including securities; (ii) any indebtedness of others of
the kinds described in the preceding clause (i) for the payment of which
Federal-Mogul is responsible or liable as guarantor or otherwise; and (iii)
amendments, renewals, extensions and refundings of any such indebtedness. The
Senior Indebtedness shall continue to be Senior Indebtedness and entitled to
the benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of the Senior Indebtedness or extension or
renewal of the Senior Indebtedness. Senior Indebtedness does not include (A)
any indebtedness of Federal-Mogul to any of its subsidiaries, (B) indebtedness
incurred for the purchase of goods or materials or for services obtained in
the ordinary course of business, and (C) any indebtedness which by its terms
is expressly made pari passu with or subordinated to the Subordinated Debt
Securities. (Section 12.2 of the Subordinated Indenture.)
If (i) Federal-Mogul defaults in the payment of any principal, or premium,
if any, or interest, if any, on any Senior Indebtedness when the same becomes
due and payable, whether at maturity or at a date fixed for prepayment or
declaration or otherwise or (ii) an event of default occurs with respect to
any Senior Indebtedness permitting the holders thereof to accelerate the
maturity thereof and written notice of such event of default (requesting that
payments on Subordinated Debt Securities cease) is given to Federal-Mogul by
the holders of Senior Indebtedness, then unless and until such default in
payment or event of default shall have been cured or waived or shall have
ceased to exist, no direct or indirect payment (in cash, property or
securities, by set-off or otherwise) shall be made or agreed to be made on
account of the Subordinated Debt Securities or interest thereon or in respect
of any repayment, redemption, retirement, purchase or other acquisition of
Subordinated Debt Securities. (Section 12.4 of the Subordinated Indenture.)
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to Federal-Mogul, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding-up of Federal-Mogul, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by Federal-Mogul for the benefit of creditors, or (iv)
any other marshalling of the assets of Federal-Mogul, all Senior Indebtedness
(including, without limitation, interest accruing after the commencement of
any such proceeding, assignment or marshalling of assets) shall first be paid
in full before any payment or distribution, whether in cash, securities or
other property, shall be made by Federal-Mogul on account of Subordinated Debt
Securities. In any such event, any payment or distribution, whether in cash,
securities or other property (other than securities of Federal-Mogul or any
other corporation provided for by a plan of reorganization or readjustment,
the payment of which is subordinate, at least to the extent provided in the
subordination provisions of the Subordinated Indenture with respect to the
indebtedness evidenced by Subordinated Debt Securities, to the payment of all
Senior Indebtedness at the time outstanding and to any securities issued in
respect thereof under any such plan of reorganization or readjustment), which
would otherwise (but for the subordination provisions) be payable or
deliverable in respect of Subordinated Debt Securities (including any such
payment or distribution which may be payable or deliverable by reason of the
payment of any other indebtedness of Federal-Mogul being subordinated to the
payment of Subordinated Debt Securities) shall be paid or delivered directly
to the holders of Senior Indebtedness, or to their representative or trustee,
in accordance with the priorities then existing among such holders until all
Senior Indebtedness shall have been paid in full. (Section 12.3 of the
Subordinated Indenture.) No present or future holder of any Senior
Indebtedness shall be prejudiced in the right to enforce subordination of the
indebtedness evidenced by Subordinated Debt Securities by any act or failure
to act on the part of Federal-Mogul. (Section 12.9 of the Subordinated
Indenture.)
Senior Indebtedness shall not be deemed to have been paid in full unless the
holders thereof shall have received cash, securities or other property equal
to the amount of such Senior Indebtedness then outstanding. After all Senior
Indebtedness has been paid in full and until the Subordinated Debt Securities
are paid in full, the holders of Subordinated Debt Securities shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
distributions applicable to the Senior Indebtedness to the extent that
distributions otherwise payable to the holders of Subordinated Debt Securities
have been applied to the payment of Senior Indebtedness, and such
12
<PAGE>
payments or distributions received by any holder of Subordinated Debt
Securities, by reason of such subrogation, of cash, securities or other
property which otherwise would be paid or distributed to the holders of Senior
Indebtedness, shall, as between Federal-Mogul and its creditors other than the
holders of Senior Indebtedness, on the one hand, and the holders of
Subordinated Debt Securities, on the other, be deemed to be a payment by
Federal-Mogul on account of Senior Indebtedness, and not on account of
Subordinated Debt Securities. (Section 12.7 of the Subordinated Indenture.)
The Subordinated Indenture provides that the foregoing subordination
provisions, insofar as they relate to any particular issue of Subordinated
Debt Securities, may be changed prior to such issuance. Any such change would
be described in the applicable Prospectus Supplement relating to such
Subordinated Debt Securities.
DEFEASANCE AND COVENANT DEFEASANCE
If indicated in the applicable Prospectus Supplement, Federal-Mogul may
elect either (i) to defease and be discharged from any and all obligations
with respect to the Debt Securities of or within any series (except as
otherwise provided in the relevant Indenture) ("defeasance") or (ii) to be
released from its obligations with respect to certain covenants applicable to
the Debt Securities of or within any series ("covenant defeasance"), upon the
deposit with the relevant Trustee (or other qualifying trustee), in trust for
such purpose, of money and/or Government Obligations which through the payment
of principal and interest in accordance with their terms will provide money in
an amount sufficient, without reinvestment, to pay the principal of and any
premium or interest on such Debt Securities to Maturity or redemption, as the
case may be, and any mandatory sinking fund or analogous payments thereon. As
a condition to defeasance or covenant defeasance, Federal-Mogul must deliver
to the Trustee an Opinion of Counsel to the effect that the Holders of such
Debt Securities will not recognize income, gain or loss for United States
Federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to United States Federal income tax on the same
amounts and in the same manner and at the same times as would have been the
case if such deposit, defeasance and discharge had not occurred. Such Opinion
of Counsel, in the case of defeasance under clause (i) above, must refer to
and be based upon a ruling of the Internal Revenue Service or a change in
applicable Federal income tax law occurring after the date of the relevant
Indenture. (Article 4.) If indicated in the applicable Prospectus Supplement,
in addition to obligations of the United States or an agency or
instrumentality thereof, Government Obligations may include obligations of the
government or an agency or instrumentality of the government issuing the
currency or currency unit in which Debt Securities of such series are payable.
(Section 3.1.)
In addition, with respect to the Subordinated Indenture, in order to be
discharged, no event or condition shall exist that, pursuant to certain
provisions described under "--Subordination under the Subordinated Indenture"
above, would prevent Federal-Mogul from making payments of principal of (and
premium, if any) and interest, if any, on Subordinated Debt Securities at the
date of the irrevocable deposit referred to above. (Section 4.6(i) of the
Subordinated Indenture.)
Federal-Mogul may exercise its defeasance option with respect to such Debt
Securities notwithstanding its prior exercise of its covenant defeasance
option. If Federal-Mogul exercises its defeasance option, payment of such Debt
Securities may not be accelerated because of an Event of Default. (Section
4.4.) If Federal-Mogul exercises its covenant defeasance option, payment of
such Debt Securities may not be accelerated by reason of a Default or an Event
of Default with respect to the covenants to which such covenant defeasance is
applicable. However, if such acceleration were to occur by reason of another
Event of Default, the realizable value at the acceleration date of the money
and Government Obligations in the defeasance trust could be less than the
principal and interest then due on such Debt Securities, in that the required
deposit in the defeasance trust is based upon scheduled cash flow rather than
market value, which will vary depending upon interest rates and other factors.
THE TRUSTEES
Unless otherwise specified in the applicable Prospectus Supplement, The Bank
of New York will be the Trustee under the Senior Indenture and under the
Subordinated Indenture. Federal-Mogul may also maintain banking and other
commercial relationships with each of the Trustees and their affiliates in the
ordinary course of business.
13
<PAGE>
DESCRIPTION OF PREFERRED STOCK AND COMMON STOCK
In general, the classes of authorized capital stock are afforded preferences
with respect to dividends and liquidation rights in the order listed above.
The Board of Directors of Federal-Mogul is empowered, without approval of the
shareholders, to cause the Preferred Stock to be issued in one or more series,
with the numbers of shares of each series and the rights, preferences and
limitations of each series to be determined by it including, without
limitation, the dividend rights, conversion rights, redemption rights and
liquidation preferences, if any, of any wholly unissued series of Preferred
Stock (or of the entire class of Preferred Stock if none of such shares have
been issued), the number of shares constituting each such series and the terms
and conditions of the issue thereof. The descriptions set forth below do not
purport to be complete and are qualified in their entirety by reference to the
Restated Articles of Incorporation.
The Prospectus Supplement relating to an offering of Common Stock will
describe terms relevant thereto, including the number of shares offered, the
initial offering price, market price and dividend information.
PREFERRED STOCK
The applicable Prospectus Supplement will describe the following terms of
any Preferred Stock in respect of which this Prospectus is being delivered (to
the extent applicable to such Preferred Stock): (i) the specific designation,
number of shares, seniority and purchase price; (ii) any liquidation
preference per share; (iii) any date of maturity; (iv) any redemption,
repayment or sinking fund provisions; (v) any dividend rate or rates (which
may be fixed or variable) and the dates on which any such dividends will be
payable and the dates from which such dividends shall accrue (or the method by
which such rates or dates will be determined); (vi) any voting rights; (vii)
if other than the currency of the United States of America, the currency or
currencies, including composite currencies, in which such Preferred Stock is
denominated and/or in which payments will or may be payable; (viii) the method
by which amounts in respect of such Preferred Stock may be calculated and any
commodities, currencies or indices, or value, rate or price, relevant to such
calculation; (ix) whether the Preferred Stock is convertible or exchangeable
and, if so, the securities or rights into which such Preferred Stock is
convertible or exchangeable (which may include other Preferred Stock, Debt
Securities, Common Stock or other securities or rights of Federal-Mogul
(including rights to receive payment in cash or securities based on the value,
rate or price of one or more specified commodities, currencies or indices) or
a combination of the foregoing), and the terms and conditions upon which such
conversions or exchanges will be effected, including the initial conversion or
exchange prices or rates, the conversion or exchange period and any other
related provisions; (x) the place or places where dividends and other payments
on the Preferred Stock will be payable; and (xi) any additional dividend,
liquidation, redemption and other rights, preferences, privileges, limitations
and restrictions.
All shares of Preferred Stock offered hereby, or issuable upon conversion,
exchange or exercise of Securities, will, when issued, be fully paid and non-
assessable.
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. All shares of Common Stock offered hereby, or issuable upon
conversion, exchange or exercise of Securities, will, when issued, be fully
paid and non-assessable. 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.
14
<PAGE>
CERTAIN PROVISIONS
The Restated 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 Restated 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
Restated 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:
"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
15
<PAGE>
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.
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.
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 or 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.
16
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of Common Stock held by the Selling Shareholders, as of May 12,
1998. As of such date, none of the Selling Shareholders holds greater than 1%
of the shares of the Company's outstanding Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
SHARES BENEFICIALLY
OWNED AS OF
NAME MAY 12, 1998(1)
---- -------------------
<S> <C>
Robert J. Morris Revocable Trust UAD 2/16/83................ 69,075
Ellen J. Morris............................................. 97,353
Bruce E. Morris............................................. 113,287
Richard A. Morris........................................... 85,927
Elliot Lehman Trust 5/87.................................... 57,930
Frances M. Lehman Trust 5/87................................ 99,372
E. Lehman 15 Year Income Trust.............................. 3,178
F. Lehman 15 Year Income Trust.............................. 4,104
Kenneth A. Lehman 1996 E. Family Trust 6/96................. 3,213
Kenneth A. Lehman 1996 F. Family Trust 6/96................. 3,213
Paul Lehman 1996 E. Family Trust 6/96....................... 3,213
Paul Lehman 1996 F. Family Trust 6/96....................... 3,213
Kay L. Scholzman 1996 E. Family Trust 6/96.................. 3,213
Kay L. Scholzman 1996 F. Family Trust 6/96.................. 3,213
Kenneth A. Lehman........................................... 106,407
Lucy G. Lehman.............................................. 11,405
Paul A. Lehman.............................................. 98,514
Ronna Stamm................................................. 5,973
Kay Schlozman Children's Trust 12/82........................ 7,690
Schlozman Family Gift Trust 9/85............................ 14,456
Kay L. Schlozman 1997 Children's Trust 11/97................ 3,845
Betsy G. Lehman Irrevocable Trust #1 12/83.................. 6,867
K. Lehman Children's Trust 12/82 FBO Betsy.................. 20,602
K. Lehman Children's Trust 9/85 FBO Betsy................... 4,819
Amy G. Lehman Irrevocable Trust #1 12/83.................... 6,867
K. Lehman Children's Trust 12/82 FBO Amy.................... 20,602
K. Lehman Children's Trust 9/85 FBO Amy..................... 4,819
Peter G. Lehman Irrevocable Trust #1 12/83.................. 6,867
K. Lehman Children's Trust 12/82 FBO Peter.................. 20,602
K. Lehman Children's Trust 9/85 FBO Peter................... 4,819
Daniel A. Schlozman Trust #1 12/81.......................... 61,265
Daniel A. Schlozman Trust #2 12/81.......................... 61,264
Schlozman 1994 Gift Trust for Julia......................... 5,922
Sylvia M. Radov............................................. 134,413
Lewis C. Weinberg Irrevocable Trust 8/76.................... 54,994
Sylvia 1996 Gift Trust for Barbara.......................... 2,216
Sylvia 1996 Gift Trust for David............................ 2,216
Sylvia 1996 Gift Trust for Daniel........................... 2,216
DAW Family Trust 9/85....................................... 45,382
Daniel C. Weinberg Revocable Trust 7/97..................... 72,382
Carol Jung.................................................. 35,685
Kessler 1996 Gift for David................................. 1,323
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES BENEFICIALLY
OWNED AS OF
NAME MAY 12, 1998(1)
---- -------------------
<S> <C>
Kessler 1996 Gift Trust for Daniel.......................... 1,438
DCW Family Trust 9/85....................................... 123,028
Lewis Weinberg Grandchildrens Gift Trust 12/82--Keith....... 11,788
Keith A. Kessler............................................ 23,921
Lewis Weinberg Grandchildrens Gift Trust 12/82--Arthur...... 11,788
Arthur J. Kessler........................................... 33,025
Lewis Weinberg Grandchildrens Gift Trust 12/82--Eric........ 11,788
Eric J. Kessler Irrevocable Trust 12/77..................... 33,025
Lewis Weinberg Grandchildrens Gift Trust 12/82--Mindy....... 29,872
SMR-DAW Childrens Gift Trust for Mindy 12/82................ 6,319
Lewis Weinberg Grandchildrens Gift Trust 12/82--Brian....... 29,872
SMR-DAW Childrens Gift Trust for Brian 12/82................ 6,319
Sylvia MGP Trust for Daniel 06/96........................... 97,893
Weinberg 1992 Gift Trust for Barbara........................ 41,954
Weinberg 1992 Gift Trust for David.......................... 41,954
Weinberg 1992 Gift Trust for Daniel......................... 41,954
Sylvia 1992 Gift Trust for Barbara.......................... 102,185
Sylvia 1992 Gift Trust for David............................ 102,185
Sylvia 1992 Gift Trust for Daniel........................... 102,185
H&M Realty Corporation...................................... 216,584
McCormick Investments, Inc.................................. 81
McCormick Investments, LP................................... 7,926
</TABLE>
- --------
(1) Assumes conversion of Series E Stock.
The Selling Shareholders may from time to time offer and sell pursuant to
this Prospectus and a Prospectus Supplement providing therefor, shares of
Common Stock held by such Selling Shareholders.
The shares of Common Stock that may be offered and sold by the Selling
Shareholders will be acquired by such Selling Shareholders through conversion
of Series E Stock received as part of the consideration received by them in
the Federal-Mogul acquisition of Fel-Pro. Pursuant to the Registration Rights
Agreement among Federal-Mogul and the Selling Shareholders. Federal-Mogul
shall bear all expenses incident to Federal-Mogul's performance of or
compliance with the Registration Rights Agreement, except that the Selling
Shareholders will pay all underwriting discounts and commissions relating to
their shares of Common Stock, brokerage fees, transfer taxes, and the fees and
expenses of any counsel, accountants or other representatives retained by the
Selling Shareholders, if any. The Selling Shareholders will be indemnified by
Federal-Mogul against certain liabilities, including certain liabilities under
the Securities Act, or will be entitled to contribution in connection
therewith.
18
<PAGE>
PLAN OF DISTRIBUTION
Federal-Mogul may sell any of the Securities being offered hereby in any one
or more of the following ways from time to time: (i) through agents; (ii) to
or through underwriters; (iii) through dealers; or (iv) directly to
purchasers.
The Prospectus Supplement with respect to the Securities will set forth the
terms of the offering of the Securities, including the name or names of any
underwriters, dealers or agents; the purchase price of the Securities and the
proceeds to Federal-Mogul from such sale; any underwriting discounts and
commissions or agency fees and other items constituting underwriters' or
agents' compensation; any initial public offering price and any discounts or
concessions allowed or reallowed or paid to dealers and any securities
exchange on which such Securities may be listed. Any initial public offering
price, discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
Offers to purchase Securities may be solicited by agents designated by
Federal-Mogul from time to time. Any such agent involved in the offer or sale
of the Securities in respect of which this Prospectus is delivered will be
named, and any commissions payable by Federal-Mogul to such agent will be set
forth, in the applicable Prospectus Supplement. Unless otherwise indicated in
such Prospectus Supplement, any such agent will be acting on a reasonable best
efforts basis for the period of its appointment. Any such agent may be deemed
to be an underwriter, as that term is defined in the Securities Act of 1933,
of the Securities so offered and sold.
If Securities are sold by means of an underwritten offering, Federal-Mogul
will execute an underwriting agreement with an underwriter or underwriters at
the time an agreement for such sale is reached, and the names of the specific
managing underwriter or underwriters, as well as any other underwriters, and
the terms of the transaction, including commissions, discounts and any other
compensation of the underwriters and dealers, if any, will be set forth in the
Prospectus Supplement which will be used by the underwriters to make resales
of the Securities in respect of which this Prospectus is delivered to the
public. If underwriters are utilized in the sale of the Securities in respect
of which this Prospectus is delivered, the Securities will be acquired by the
underwriters for their own account and may be resold from time to time in one
or more transactions, including negotiated transactions, at fixed public
offering prices or at varying prices determined by the underwriter at the time
of sale. Securities may be offered to the public either through underwriting
syndicates represented by managing underwriters or directly by the managing
underwriters. If any underwriter or underwriters are utilized in the sale of
the Securities, unless otherwise indicated in the Prospectus Supplement, the
underwriting agreement will provide that the obligations of the underwriters
are subject to certain conditions precedent and that the underwriters with
respect to a sale of Securities will be obligated to purchase all such
Securities of a series if any are purchased.
If a dealer is utilized in the sales of the Securities in respect of which
this Prospectus is delivered, Federal-Mogul will sell such Securities to the
dealer as principal. The dealer may then resell such Securities to the public
at varying prices to be determined by such dealer at the time of resale. Any
such dealer may be deemed to be an underwriter, as such term is defined in the
Securities Act, of the Securities so offered and sold. The name of the dealer
and the terms of the transaction will be set forth in the Prospectus
Supplement relating thereto.
Offers to purchase Securities may be solicited directly by Federal-Mogul and
the sale thereof may be made by Federal-Mogul directly to institutional
investors or others, who may be deemed to be underwriters within the meaning
of the Securities Act with respect to any resale thereof. The terms of any
such sales will be described in the Prospectus Supplement relating thereto.
Agents, underwriters and dealers may be entitled under relevant agreements
to indemnification or contribution by Federal-Mogul against certain
liabilities, including liabilities under the Securities Act.
19
<PAGE>
Agents, underwriters and dealers may be customers of, engage in transactions
with, or perform services for, Federal-Mogul and its subsidiaries in the
ordinary course of business.
Securities may also be offered and sold, if so indicated in the applicable
Prospectus Supplement, in connection with a remarketing upon their purchase,
in accordance with a redemption or repayment pursuant to their terms, or
otherwise, by one or more firms ("remarketing firms"), acting as principals
for their own accounts or as agents for Federal-Mogul. Any remarketing firm
will be identified and the terms of its agreement, if any, with its
compensation will be described in the applicable Prospectus Supplement.
Remarketing firms may be deemed to be underwriters, as such term is defined in
the Securities Act, in connection with the Securities remarketed thereby.
Remarketing firms may be entitled under agreements which may be entered into
with Federal-Mogul to indemnification or contribution by Federal-Mogul against
certain civil liabilities, including liabilities under the Securities Act, and
may be customers of, engage in transactions with or perform services for
Federal-Mogul and its subsidiaries in the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, Federal-Mogul may
authorize agents, underwriters or dealers to solicit offers by certain types
of institutions to purchase Securities from Federal-Mogul at the public
offering prices set forth in the applicable Prospectus Supplement pursuant to
delayed delivery contracts ("Contracts") providing for payment and delivery on
a specified date or dates in the future. A commission indicated in the
applicable Prospectus Supplement will be paid to underwriters, dealers and
agents soliciting purchases of Securities pursuant to Contracts accepted by
Federal-Mogul.
The Selling Shareholders have informed the Company that, unless otherwise
specified in a Prospectus Supplement, they intend to dispose of their shares
of Common Stock offered hereby (the "Shares") through underwriters and that
they will execute an underwriting agreement with an underwriter or
underwriters at the time an agreement for such sale is reached. The names of
the specific managing underwriter or underwriters, as well as any other
underwriters, and the terms of the transaction, including commissions,
discounts and any other compensation of the underwriters and dealers, if any,
will be set forth in the Prospectus Supplement which will be used by the
underwriters to make resales of the Shares in respect of which this Prospectus
is delivered to the public. The Shares will be acquired by the underwriters
for their own account and may be resold from time to time in one or more
transactions, including negotiated transactions, at fixed public offering
prices or at varying prices determined by the underwriter at the time of sale.
Shares may be offered to the public either through underwriting syndicates
represented by managing underwriters or directly by the managing underwriters.
Unless otherwise indicated in the Prospectus Supplement, the underwriting
agreement will provide that the obligations of the underwriters are subject to
certain conditions precedent and that the underwriters with respect to a sale
of Shares will be obligated to purchase all such Shares if any are purchased.
INCORPORATION OF CERTAIN INFORMATION 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 and May 14,
1998; and
4. Federal-Mogul's Proxy Statement for the 1998 Annual Shareholders'
Meeting, filed on April 21, 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
20
<PAGE>
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).
LEGAL MATTERS
Unless otherwise indicated in the applicable Prospectus Supplement, the
validity of Securities being offered hereby will be passed upon for Federal-
Mogul by David M. Sherbin, Esq., 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 schedule 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 included herein and 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 by reference herein. Such financial statements audited by
Ernst & Young LLP are incorporated herein by reference in reliance on such
report given upon the authority of such firm as experts in accounting and
auditing.
21
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Federal-Mogul Financial Statements:
Unaudited Consolidated Statements of Operations for the Three-Month
Periods Ended March 31,
1998 and 1997.......................................................... F-2
Consolidated Balance Sheets at March 31, 1998 (Unaudited) and December
31, 1997............................................................... F-3
Unaudited Consolidated Statements of Cash Flows for the Three-Month
Periods Ended March 31,
1998 and 1997.......................................................... F-4
Notes to Consolidated Financial Statements (Unaudited).................. F-5
Report of Independent Auditors.......................................... F-13
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995.................................................... F-14
Consolidated Balance Sheets at December 31, 1997 and 1996............... F-15
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995.................................................... F-16
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1997,
1996 and 1995.......................................................... F-17
Notes to Consolidated Financial Statements.............................. F-18
T&N Financial Statements:
Independent Auditor's Report............................................ F-41
Consolidated Profit and Loss Accounts for the Years Ended December 31,
1997, 1996 and 1995.................................................... F-42
Consolidated Balance Sheets at December 31, 1997 and 1996............... F-43
Consolidated Cash Flow Statements for the Years Ended December 31, 1997,
1996 and 1995.......................................................... F-44
Reconciliations of Movements in Shareholders' Funds for the Years Ended
December 31, 1997,
1996 and 1995.......................................................... F-48
Notes to Consolidated Financial Statements.............................. F-49
Fel-Pro Financial Statements:
Report of Independent Auditors.......................................... F-85
Consolidated Statements of Operations for the Years Ended December 28,
1997, December 29, 1996 and December 31, 1995.......................... F-86
Consolidated Balance Sheets at December 28, 1997 and December 29, 1996.. F-87
Consolidated Statements of Cash Flows for the Years Ended December 28,
1997, December 29, 1996 and December 31, 1995.......................... F-88
Notes to Consolidated Financial Statements.............................. F-89
</TABLE>
F-1
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1998 1997
--------- ---------
(MILLIONS OF
DOLLARS, EXCEPT PER
SHARE AMOUNT)
<S> <C> <C>
Net sales................................................ $ 658.0 $ 485.6
Cost of products sold.................................... 496.7 373.5
--------- ---------
Gross margin........................................... 161.3 112.1
Selling, general and administrative expenses............. (98.1) (75.9)
Amortization............................................. (10.1) (2.5)
Purchased in-process research and development charge..... (18.6) --
Restructuring charges.................................... (10.5) --
Adjustment of assets held for sale to fair value......... (20.0) --
Interest expense......................................... (15.5) (9.8)
Interest income.......................................... 6.7 0.7
International currency exchange losses................... (1.1) (0.1)
Net gain on British pound currency option and forward
contract................................................ 13.3 --
Other expense, net....................................... (5.8) (2.0)
--------- ---------
Earnings Before Income Taxes........................... 1.6 22.5
Income tax expense....................................... 8.8 8.6
--------- ---------
Net Earnings (Loss).................................. (7.2) 13.9
Preferred stock dividends, net of related tax benefits... 0.8 2.1
--------- ---------
Net Earnings (Loss) Available for Common
Shareholders........................................ $ (8.0) $ 11.8
========= =========
Earnings Per Common Share................................
Net earnings (loss).................................... $ (.20) $ .34
========= =========
Net earnings (loss) assuming dilution.................. $ (.20) $ .32
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS AT
MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
UNAUDITED
MARCH 31 DECEMBER 31
1998 1997
--------- -----------
(MILLIONS OF DOLLARS)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and equivalents........................................ $ 101.5 $ 541.4
Accounts receivable......................................... 728.6 158.9
Investment in accounts receivable securitization............ 86.0 48.7
Inventories................................................. 697.5 277.0
Prepaid expenses and income tax benefits.................... 261.0 113.2
Acquired businesses to be divested.......................... 443.8 --
-------- --------
Total current assets...................................... 2,318.4 1,139.2
Property, plant and equipment................................. 1,469.1 313.9
Goodwill...................................................... 2,675.9 143.8
Other intangible assets....................................... 379.4 48.4
Business investments and other assets......................... 555.9 156.8
-------- --------
Total Assets.............................................. $7,398.7 $1,802.1
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Short-term debt, including current portion of long-term
debt....................................................... $ 837.8 $ 28.6
Accounts payable............................................ 418.2 102.3
Accrued compensation........................................ 162.2 36.8
Restructuring and rationalization reserves.................. 188.6 31.5
Payable to T&N plc shareholders............................. 60.3 --
Current portion of asbestos liability....................... 100.0 --
Other accrued liabilities................................... 343.5 130.4
-------- --------
Total current liabilities................................. 2,110.6 329.6
Long-term debt................................................ 2,273.7 273.1
Long-term portion of asbestos liability....................... 1,251.4 --
Postemployment benefits....................................... 452.0 190.9
Other accrued liabilities..................................... 84.3 50.6
Minority interest in consolidated subsidiaries................ 65.7 13.6
Minority interest--preferred securities of affiliate.......... 575.0 575.0
<CAPTION>
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C>
Series C ESOP preferred stock................................. 48.1 49.0
Series E preferred stock...................................... 225.0 --
Common stock.................................................. 202.4 201.0
Additional paid-in capital.................................... 327.3 332.6
Accumulated deficit........................................... (130.8) (123.6)
Unearned ESOP compensation.................................... (21.7) (21.8)
Accumulated other comprehensive income........................ (61.5) (65.7)
Other......................................................... (2.8) (2.2)
-------- --------
Total Shareholders' Equity................................ 586.0 369.3
-------- --------
Total Liabilities and Shareholders' Equity.............. $7,398.7 $1,802.1
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
-----------------
1998 1997
--------- ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES
Net earnings (loss)....................................... $ (7.2) $ 13.9
Adjustments to reconcile net earnings (loss) to net cash
provided from operating activities
Depreciation and amortization........................... 29.8 14.0
Purchased in-process research and development charge.... 18.6 --
Restructuring charges................................... 10.5 --
Adjustment of assets held for sale to fair value........ 20.0 --
Deferred income taxes................................... (0.7) 4.6
Postemployment benefits................................. (0.1) (0.4)
Increase in accounts receivable......................... (57.1) (38.0)
Decrease in inventories................................. 36.8 17.1
Increase (decrease) in accounts payable................. 22.0 (2.4)
Increase in current liabilities and other............... 20.0 28.3
Payments against restructuring and reengineering
reserves............................................... (4.5) (9.0)
Payments against asbestos liability..................... (5.4) --
--------- ------
Net Cash Provided From Operating Activities............... 82.7 28.1
CASH PROVIDED FROM (USED BY) INVESTING ACTIVITIES
Expenditures for property, plant and equipment............ (19.5) (8.4)
Proceeds from sale of business investments................ 49.3 10.4
Proceeds from sale of options............................. 39.5 --
Business acquisitions, net of cash acquired............... (2,655.8) --
--------- ------
Net Cash Provided From (Used By) Investing Activities... (2,586.5) 2.0
CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES
Issuance of common stock.................................. 7.4 0.8
Net increase (decrease) in debt........................... 2,111.7 (23.3)
Fees paid for debt issuance............................... (33.3) --
Investment in accounts receivable securitization.......... (9.6) --
Dividends................................................. (5.4) (5.7)
Other..................................................... (6.9) (2.0)
--------- ------
Net Cash Provided From (Used By) Financing Activities... 2,063.9 (30.2)
Decrease in Cash and Equivalents........................ (439.9) (0.1)
Cash and Equivalents at Beginning of Period................. 541.4 33.1
--------- ------
Cash and Equivalents at End of Period..................... $ 101.5 $ 33.0
========= ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with United States generally accepted accounting
principles (U.S. GAAP) for interim financial information and with instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1997. Certain items in the prior year condensed
consolidated financial statements have been reclassified to conform with the
presentation used in 1998.
2. ACQUISITIONS
The Company acquired Fel-Pro, Incorporated and certain affiliated entities,
which constitute the operating businesses of the Fel-Pro group of companies
(Fel-Pro), and acquired T&N plc (T&N) and Bimet S.A. (Bimet) during the first
quarter of 1998. In addition, the Company increased its ownership in the
Summerton, South Carolina gasket business (Summerton) and KFM Bearing Co.,
Ltd. (KFM) during the first quarter. Due to the complexity of valuing certain
assets and liabilities acquired and related valuation estimates that are in
process, the purchase allocation may subsequently be adjusted as further
information becomes available. Goodwill recognized in connection with these
transactions is being amortized on a straight-line basis over forty years.
Fel-Pro Transaction
On February 24, 1998, the Company acquired all the equity interests of Fel-
Pro, a privately owned manufacturer headquartered in Skokie, Illinois, for a
total consideration of approximately $717 million, which included 1,030,325.6
shares of Federal-Mogul Series E Mandatory Exchangeable preferred stock with
an imputed value of $225 million (refer also to Note 8) and approximately $492
million in cash. The acquisition has been accounted for as a purchase and,
accordingly, the total consideration was allocated to the acquired assets and
assumed liabilities based on estimated fair values as of the acquisition date.
The preliminary purchase price allocation of the total consideration exceeds
the estimated fair value of net assets acquired by $509.3 million which has
been recognized as goodwill.
The consolidated statement of operations includes the operating results of
the acquired business, exclusive of the Fel-Pro chemical business (refer to
the caption "Acquired Businesses to be Divested," described later in this
section), from the acquisition date.
T&N plc Transaction
On March 6, 1998, the Company satisfied all regulatory conditions relating
to the acquisition of T&N, a manufacturer based in Manchester, England, and
made its offer wholly unconditional. The Company paid for the outstanding T&N
shares on March 12, 1998.
As of March 31, 1998 the Company has paid total consideration (including
direct costs of the acquisition) of $2.356 billion. The Company also acquired
cash of approximately $222 million and debt of approximately $707 million. In
addition, the Company is required to pay 260 pence per share for certain T&N
options expected to be converted to T&N shares subsequent to March 31, 1998.
The Company has estimated the cost, net of cash to be received, of outstanding
T&N options at March 31, 1998 and included the amount ($60.3 million) as a
liability in the balance sheet caption "Payable to T&N plc shareholders." The
acquisition has been accounted
F-5
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
for as a purchase and, accordingly, the total consideration was allocated to
the acquired assets and assumed liabilities based on estimated fair values as
of the acquisition date. The preliminary purchase price allocation of the
total consideration exceeds the estimated fair value of net assets acquired by
$2.035 billion which has been recognized as goodwill.
The consolidated statement of operations for the three months ended March
31, 1998 includes the operating results of T&N, exclusive of the T&N Bearings
Business (refer to the caption "Acquired Businesses to be Divested," described
later in this section), from the acquisition date. The Company recognized an
$18.6 million charge in the first quarter of 1998 associated with the
estimated fair value of purchased in process research and development costs
allocated in purchase accounting to a portion of the total consideration paid.
Acquired Businesses to be Divested
In connection with securing regulatory approvals for the acquisition of T&N,
the Company executed an Agreement Containing Consent Order with the FTC on
February 27, 1998. Pursuant to this agreement the Company must divest the T&N
Bearings Business, consisting of T&N's thinwall and dry bearings (polymer
bearings) operations within six months after the FTC declares the consent
order final and must provide for independent management of those assets
pending such divestiture. The agreement stipulates that the T&N Bearings
business is to be maintained as a viable, independent competitor of the
Company and that the Company shall not attempt to direct the activities of, or
exercise control over, the T&N Bearings business or have contact with the T&N
Bearings business outside of normal business activities.
In addition, the Company is holding the chemical business acquired in the
Fel-Pro transaction for sale. The Company expects to complete the divestiture
of the chemical business within one year.
The net assets of the T&N Bearings Business and chemical business have been
recorded at their fair value based on estimates of selling values less costs
to sell, calculated using multiples of earnings similar to recent comparable
industry transactions. The Company's investment in the T&N Bearings Business
and chemical business is included in the balance sheet caption "Acquired
businesses to be divested." In addition, the Company's preliminary purchase
price allocation for T&N includes an increase of $124 million to adjust the
acquired income tax liability related to the anticipated divestiture of the
T&N Bearings Business.
Operating results for the T&N Bearings and chemical businesses (which
includes amortization expense for goodwill allocated to the businesses and
interest expense relating to the holding costs of the businesses) have been
excluded from the condensed consolidated statement of operations for the three
months ended March 31, 1998.
Pro Forma Results
The following unaudited pro forma financial information for the three months
ended March 31, 1998 and 1997 assume the T&N and Fel-Pro acquisitions occurred
as of the beginning of the respective periods, after giving effect to certain
adjustments, including the amortization of intangible assets, interest expense
on acquisition debt, divestitures of the T&N Bearings business and Fel-Pro
chemical business, and income tax effects. The pro forma results (in millions
of dollars, except per share data) have been prepared for comparative purposes
only and are not necessarily indicative of the results of operations which may
occur in the future or that would have occurred had the acquisitions of T&N
and Fel-Pro been consummated on the dates indicated, nor are they necessarily
indicative of the Company's future results of operations (refer also to
Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Pro Forma Results).
F-6
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
THREE MONTHS ENDED MARCH 31,
------------------------------------------
1998 1997
-------------------- --------------------
<S> <C> <C>
Net sales.................... $ 1,193.6 $ 1,247.9
Net loss..................... $ (16.5) $ (7.0)
Loss per share............... $ (0.44) $ (0.28)
Loss per share assuming
dilution.................... $ (0.44) $ (0.28)
</TABLE>
Summerton, KFM and Bimet Transactions
In February 1998, the Company increased its ownership in Summerton in
connection with the Bruss Divestiture Agreement, described in Note 7. In March
1998, the Company increased its ownership from 30% to 87% in KFM, a Korean
joint venture formed in 1988 with Kukje Special Metal Co., Ltd. Also in March
1998, the Company acquired Bimet, a manufacturer of engine bearings, bushings
and related products located in Gdansk, Poland. The total cash consideration
paid for the Summerton, KFM and Bimet acquisitions approximated $32 million.
The Summerton, KFM and Bimet transactions have been accounted for as
purchases and, accordingly, the total consideration was allocated to the
acquired assets and assumed liabilities based on its estimated fair values as
of the acquisition dates. The preliminary purchase price allocation of total
consideration over the estimated fair value of net assets acquired of $16.4
million has been recognized as goodwill. The consolidated statement of
operations for the three months ended March 31, 1998 includes the operating
results of the acquired businesses from the applicable date of acquisition.
3. RESTRUCTURING AND RATIONALIZATION OF ACQUIRED BUSINESSES
Restructuring Charge
During the first quarter of 1998, the Company recognized a $10.5 million
restructuring charge related to operations in place prior to the acquisitions
of T&N and Fel-Pro. The restructuring charge included $10.2 million and $0.3
million for severance and exit costs, respectively. Employee severance costs
result from planned terminations in various business operations of the
Company. The severance costs were based on the estimated levels that will be
paid to the affected employees pursuant to the Company's workforce reduction
policies and certain foreign governmental regulations. The Company anticipates
that the actions related to the first quarter 1998 restructuring plan will be
completed primarily within one year.
Rationalization of Acquired Businesses
In connection with the previously discussed acquisitions, the Company
recognized approximately $151 million in reserves related to the
rationalization and integration of acquired businesses. The rationalization
reserves provide for approximately $125 million and $26 million in severance
and exit costs, respectively.
The components of the integration plan include: closure of four
manufacturing facilities worldwide; relocation of highly manual manufacturing
product lines to lower cost regions or more suitable locations; consolidation
of overlapping manufacturing, technical and sales facilities and joint
ventures; closure of two aftermarket central warehouses and five in-country
warehouses; consolidation of aftermarket marketing and customer support
functions; and streamlining of administrative, sales, marketing and product
engineering staffs worldwide. An anticipated result of the integration plan
and the restructuring will be a reduction of approximately 4,200 full-time
employees.
F-7
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. ASBESTOS LIABILITY AND LEGAL PROCEEDINGS
T&N Asbestos
As of March 31, 1998, the Company has provided $1.351 billion as its
estimate for future costs related to resolving asbestos claims. In the United
States, the Company's subsidiary, T&N, and two of T&N's U.S. subsidiaries (the
T&N Companies) are among many defendants named in numerous court actions
alleging personal injury resulting from exposure to asbestos or asbestos-
containing products. T&N is also subject to asbestos-disease litigation, to a
lesser extent, in the United Kingdom and to property damage litigation based
upon asbestos in the United States. Because of the slow onset of asbestos-
related diseases, management anticipates that similar claims will be made in
the future. It is not known how many such claims may be made nor the
expenditure which may arise therefrom. T&N has appointed the Center for Claims
Resolution (CCR) as its exclusive representative in relation to all asbestos-
related personal injury claims made against the T&N Companies in the United
States.
Prior to its acquisition, T&N secured a 500 million pound sterling
(approximately $838 million at the March 31, 1998 exchange rate of 1.6758 U.S.
dollars to 1 pound sterling) layer of insurance which will be triggered should
the aggregate number of claims notified after June 30, 1996, where the
exposure occurred prior to that date, exceed 690 million pound sterling
(approximately $1,156 million at the March 31, 1998 exchange rate). At March
31, 1998 the Company has recorded reserves for incurred but not reported
claims up to the insurance level, 690 million pound sterling.
While management believes that estimated reserves, which have not been
reduced by any potential insurance proceeds, are appropriate for anticipated
losses arising from T&N's asbestos related claims, no assurance can be given
that T&N will not be subject to material additional liabilities and
significant additional litigation relating to asbestos. Any such liabilities
or litigation could have a material adverse effect on the Company's results of
operations, business, liquidity and financial condition.
Federal-Mogul and Fel-Pro Asbestos
Federal-Mogul Corporation also is one of a large number of defendants in a
number of lawsuits brought by claimants alleging injury due to exposure to
asbestos. In addition, Fel-Pro has been named as a defendant in approximately
18,000 product liability cases involving asbestos, primarily involving gasket
or packing products sold to ship owners. The Company is defending all such
claims vigorously and believes that it and Fel-Pro have substantial defenses
to liability and adequate insurance coverage for defense and indemnity costs
(though Fel-Pro has agreed with its insurers to pay 20% of defense costs, in
exchange for the right to a significant role in decisions regarding
litigation). While the outcome of litigation can't be predicted with
certainty, management believes that asbestos claims pending against Federal-
Mogul Corporation and Fel-Pro as of March 31, 1998 will not have a material
effect on the Company's financial position. No related reserves, or payments,
have been provided, or paid to date, related to asbestos claims pending
against Federal-Mogul Corporation and Fel-Pro.
Other
The Company is involved in various other legal actions and claims, directly
and through its subsidiaries (including T&N and Fel-Pro). After taking into
consideration legal counsel's evaluation of such actions, management is of the
opinion that its outcomes are not reasonably likely to have a material adverse
affect on the Company's financial position, operating results, or cash flows.
F-8
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. BRITISH POUND CURRENCY OPTION AND FORWARD CONTRACT
In the fourth quarter of 1997, in anticipation of the then pending T&N
acquisition, the Company purchased a British pound currency option for $28.1
million with a notional amount of $2.5 billion. In January 1998, the Company
settled the option and recognized a loss of $17.3 million.
Also in January 1998, in anticipation of the then pending T&N acquisition,
the Company entered into a forward contract to purchase 1.5 billion pounds
sterling for a notional amount of approximately $2.45 billion. As a result of
favorable exchange fluctuations in the British pound/U.S. dollar exchange rate
experienced during the contract period, the Company recognized a $30.6 million
gain.
The Company entered into the above transactions to effectively serve as
economic hedges for the purchase of T&N. Such transactions, however, do not
qualify for "hedge accounting" under GAAP, and therefore the loss on the
British pound currency option and the gain on the British pound forward
contract are reflected in the statement of operations caption "Net gain on
British pound currency option and forward contract."
6. ISSUANCE OF DEBT
In connection with the acquisition of T&N, the Company entered into a $2.675
billion floating rate Senior Credit Agreement (consisting of a $2.275 billion
term loan facility, and a $400 million revolving loan facility) and a $500
million floating rate Senior Subordinated Credit Agreement, each with Chase
Manhattan Bank as agent and lender.
As of March 31, 1998, the Company had $2.5 billion outstanding related to
the Senior Credit Agreement and Senior Subordinated Credit Agreement. The
Senior Credit Agreement has maturities ranging from March of 1999 through the
year 2005. The Senior Subordinated Credit Agreement matures in March of 1999.
In addition, the Company funded a portion of the T&N acquisition through the
December 1997 sale of 7% Trust Convertible Preferred Securities (generating
gross proceeds of $575 million) by Federal-Mogul Financing Trust, a subsidiary
of the Company.
On April 17, 1998, in connection with the Company's efforts to put into
place a permanent capital structure with an appropriate combination of debt
and equity to partially replace the Senior Credit Agreement and Senior
Subordinated Credit Agreement debt. The Company filed a registration statement
with the Securities and Exchange Commission for the offering from time to time
of up to an aggregate $2.5 billion of debt or equity securities (including
shares of common stock registered for the account of certain securityholders).
On May 14, 1998 the Company filed an amendment to such registration statement
relating to a proposed offering of 9,712.093 shares of common stock by the
Company (exclusive of 1,287,907 shares of common stock for the account of
certain securityholders). The net proceeds to the Company of such offering of
common stock are expected to be used to repay certain existing indebtedness.
The Company is also evaluating the possibility of issuing debt securities
pursuant to such registration statement, all or a significant portion of the
net proceeds, of which the Company would use to refinance certain additional
indebtedness of the Company. There can be no assurance that any such offering
of common stock or debt securities will be consummated.
The accelerated payment, if any, of certain portions of the Senior Credit
Agreement and Senior Subordinated Credit Agreement debt would result in a
significant extraordinary charge due to the write-off of the issuance costs
associated with the early retirement of debt. The total unamortized issuance
costs related to the Senior Credit Agreement and Senior Subordinated Credit
Agreement was approximately $56 million at March 31, 1998.
F-9
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pursuant to the Senior Credit Agreement, the stock of Felt Products Mfg. Co.
(Felt), a wholly owned subsidiary of the Company, is pledged as collateral for
borrowings outstanding thereunder. Such pledge also secures the Company's ESOP
obligation, Medium-term notes and Senior Notes. The following presents certain
unaudited financial information of Felt as of March 31, 1998 and the period
February 24, 1998 to March 31, 1998 (in millions):
<TABLE>
<CAPTION>
FINANCIAL POSITION
- ------------------
<S> <C>
Current assets.......... $115.3
Noncurrent assets....... 661.6
Current liabilities..... 78.0
Noncurrent liabilities.. 547.7
</TABLE>
<TABLE>
<CAPTION>
OPERATING RESULTS
- -----------------
<S> <C>
Net Sales............... $36.2
Costs and expenses...... 35.0
Net earnings............ 1.2
</TABLE>
Subsequent Event
In April 1998, the Company retired $251 million in private placement debt
assumed in connection with the acquisition of T&N. The early retirement of the
debt required a make whole payment of approximately $27 million, which will be
recognized as an extraordinary loss in the second quarter of 1998 of
approximately $19 million, net of the related tax benefit.
7. ASSETS HELD FOR SALE AND DIVESTITURES
In addition to the T&N Bearings Business and Fel-Pro chemical businesses
held for sale, during the first quarter of 1998, the Company decided to sell
its subsidiary, Bertolotti Pietro e Figli, S.r.l. (Bertolotti), conducting
aftermarket operations in Italy. The carrying value of Bertolotti's assets
have been reduced to its fair value based on estimates of selling values less
costs to sell, calculated using multiples of earnings similar to recent
automotive industry transactions in Italy. The Company recognized a $20.0
million first quarter charge primarily associated with the write-down of
Bertolotti's assets to the estimated fair value. The Company expects to
complete the sale of Bertolotti within one year.
As part of its 1996 restructuring plan, the Company continued to close or
sell certain retail aftermarket operations during the first quarter of 1998.
As of March 31, 1998, retail aftermarket operations that continue to be held
for sale include those in Puerto Rico. Net cash proceeds received for those
retail aftermarket locations sold in the first quarter approximated $2
million. No gain or loss was recognized on the dispositions of those retail
aftermarket locations, as the related assets had been previously adjusted to
fair value.
Bruss Divestiture Agreement
In February 1998, the Company divested its minority interest in G. Bruss
GmbH & Co. KG, a German manufacturer of seals and gaskets. As part of the
divestiture agreement the Company also increased its ownership to 100% in
Summerton. The Company received net proceeds of approximately $47 million
related to the divestiture agreement and recognized a gain on the divestiture
of $4.8 million. The gain on the divestiture is included as a component of
other expense.
Sale of Acquired Options
In addition, the Company received proceeds from the sale of options which
were acquired with the acquisition of T&N. No gain or loss was recognized in
connection with the sale of the options acquired.
F-10
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. EARNINGS PER SHARE, NON-CASH TRANSACTION AND COMPREHENSIVE INCOME
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share for the three months ended March 31, 1998 and 1997 (in millions,
except per share data):
<TABLE>
<CAPTION>
1998 1997
------ -----
<S> <C> <C>
Numerator:
Net earnings (loss)..................................... $ (7.2) $13.9
Series C preferred dividend requirement................. (0.6) (0.6)
Series D preferred dividend requirement................. -- (1.5)
Series E preferred dividend requirement................. (0.2) --
------ -----
Numerator for basic earnings per share--income (loss)
available to common shareholders....................... $ (8.0) $11.8
Effect of dilutive securities:
Series C preferred dividend requirement............... -- 0.6
Additional required ESOP contribution................. -- (0.5)
------ -----
Numerator for diluted earnings per share--income (loss)
available to common shareholders after assumed
conversions............................................ $ (8.0) $11.9
====== =====
Denominator:
Denominator for basic earnings per share--weighted
average shares outstanding............................. 40.1 34.7
Effect of dilutive securities:
Dilutive stock options outstanding...................... -- 0.2
Nonvested stock......................................... -- 0.4
Conversion of Series C preferred stock.................. -- 1.6
Contingent issuance of common stock to satisfy Series C
redemption price guarantee............................. -- 0.3
------ -----
Denominator for dilutive earnings per share adjusted
weighted average after assumed conversions............. 40.1 37.2
====== =====
Basic earnings (loss) per share........................... $(0.20) $0.34
====== =====
Diluted earnings (loss) per share......................... $(0.20) $0.32
====== =====
</TABLE>
Convertible preferred securities redeemable for 11.2 million shares of
common stock were outstanding during the first quarter of 1998. In addition,
1,030,325.6 shares of Series E Stock approximating 5.2 million shares of
common stock were outstanding during a portion of the first quarter of 1998.
The convertible preferred securities and Series E stock were not included in
the computation of diluted earnings per share for the three months ended March
31, 1998 because the effect would be antidilutive.
Quarterly dividends of $0.12 per common share were declared for both the
first quarters of 1998 and 1997.
Non-cash Transaction
In connection with the Fel-Pro acquisition, the Company issued 1,030,325.6
million shares of Series E Mandatory Exchangeable Preferred Stock (Series E
Stock) with an imputed value of $225 million. The shares of Series E Stock are
exchangeable into shares of the Company's common stock at a rate of five
shares of common stock per share of Series E Stock. The Series E Stock are
required to be exchanged no later than February 24, 1999, subject to certain
conditions and pay quarterly dividends at a rate of $0.12 per common stock
equivalent.
F-11
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Comprehensive Income
During 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income. This Statement establishes standards for
the reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. The Company adopted Statement 130
as of January 1, 1998. The adoption of this Statement had no impact on the
Company's net earnings (loss) or shareholders' equity. Statement 130 requires
foreign currency translation adjustments and unrealized gains or losses on
investments and certain derivative instruments, which prior to the adoption of
Statement 130 were reported as a component of shareholders' equity, to be
included in other comprehensive income.
Total comprehensive income (loss), net of the related estimated tax, was
$(4.6) million and $5.3 million for the three months ended March 31, 1998 and
1997, respectively.
9. INVENTORIES
At March 31, 1998 and December 31, 1997, inventories consisted of the
following (in millions of dollars):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Finished products......................................... $515.8 $254.6
Work-in-process........................................... 84.9 21.8
Raw materials............................................. 139.9 15.7
------ ------
740.6 292.1
Reserve for inventory valuation........................... (43.1) (15.1)
------ ------
$697.5 $277.0
====== ======
</TABLE>
The significant increase in inventory was primarily due to the previously
described acquisitions in Note 2.
10. INCOME TAXES
During the first quarter of 1998, the Company recognized charges for
adjustment of assets held for sale to fair value and purchased in-process
research and development and recognized a net gain on the British pound
currency option and forward contract. These transactions resulted in a pre-tax
net charge of $25.3 million. The net income tax benefit related to these
transactions totaled $2.1 million.
F-12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors, Federal-Mogul Corporation:
We have audited the accompanying consolidated balance sheets of Federal-
Mogul Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. Our
audit also included the financial statement schedule listed in Item 14(a).
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Federal-Mogul Corporation and subsidiaries at December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
Detroit, Michigan
January 30, 1998 except for Note 20, as
to which the date is February 24, 1998
F-13
<PAGE>
FEDERAL-MOGUL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1997 1996 1995
-------- -------- --------
(MILLIONS OF DOLLARS,
EXCEPT PER SHARE AMOUNT)
<S> <C> <C> <C>
Net sales........................................ $1,806.6 $2,032.7 $1,999.8
Cost of products sold............................ 1,381.8 1,660.5 1,602.2
-------- -------- --------
Gross margin..................................... 424.8 372.2 397.6
Selling, general and administrative expenses..... (286.2) (333.8) (299.3)
Gain on sales of businesses...................... -- -- 24.0
Restructuring (charges) credits.................. 1.1 (57.6) (26.9)
Reengineering and other related (charges)
credits......................................... 1.6 (11.4) (13.9)
Adjustment of assets held for sale to fair value
and other long lived assets..................... (2.4) (151.3) (51.8)
Interest expense................................. (32.0) (42.6) (37.3)
Interest income.................................. 7.1 2.9 9.6
International currency exchange losses........... (0.6) (3.7) (2.9)
British pound currency option cost, net.......... (10.5) -- --
Other expense, net............................... (3.4) (3.4) (2.4)
-------- -------- --------
Earnings (Loss) before income taxes and
extraordinary item.......................... 99.5 (228.7) (3.3)
Income tax expense (benefit)..................... 27.5 (22.4) 2.5
-------- -------- --------
Net Earnings (Loss) before extraordinary
Item........................................ 72.0 (206.3) (5.8)
======== ======== ========
Extraordinary item--loss on early retirement of
debt, net of applicable income tax benefit...... (2.6) -- --
-------- -------- --------
Net Earnings (Loss).......................... 69.4 (206.3) (5.8)
Preferred dividends.............................. 5.5 8.7 8.9
-------- -------- --------
Net Earnings (Loss) Available to Common
Shareholders................................ $ 63.9 $ (215.0) $ (14.7)
======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item........ $ 1.81 $ (6.20) $ (.42)
Extraordinary item............................. (.07) -- --
-------- -------- --------
Net Earnings (Loss) Per Common Share......... $ 1.74 $ (6.20) $ (.42)
======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE ASSUMING
DILUTION:
Income (loss) before extraordinary item........ $ 1.67 $ (6.20) $ (.42)
Extraordinary item............................. (.06) -- --
-------- -------- --------
Net Earnings (Loss) Per Common Share Assuming
Dilution.................................... $ 1.61 $ (6.20) $ (.42)
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-14
<PAGE>
FEDERAL-MOGUL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------
ASSETS 1997 1996
------ -------- --------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Cash and equivalents........................................ $ 541.4 $ 33.1
Accounts receivable......................................... 158.9 204.3
Investment in accounts receivable securitization............ 48.7 27.0
Inventories................................................. 277.0 417.0
Prepaid expenses and income tax benefits.................... 113.2 81.5
-------- --------
Total current assets.................................... 1,139.2 762.9
Property, plant and equipment............................... 313.9 350.3
Goodwill.................................................... 143.8 154.0
Other intangible assets..................................... 48.4 63.1
Business investments and other assets....................... 156.8 124.9
-------- --------
Total Assets............................................ $1,802.1 $1,455.2
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Short-term debt............................................. $ 28.6 $ 280.1
Accounts payable............................................ 102.3 142.7
Accrued compensation........................................ 36.8 37.6
Accrued customer incentives................................. 22.4 20.3
Restructuring reserves...................................... 31.5 55.2
Other accrued liabilities................................... 108.0 127.9
-------- --------
Total current liabilities............................... 329.6 663.8
Long-term debt.............................................. 273.1 209.6
Postemployment benefits..................................... 190.9 207.1
Other accrued liabilities................................... 64.2 56.2
-------- --------
Total liabilities....................................... 857.8 1,136.7
Minority interest--preferred securities of affiliate........ 575.0 --
<CAPTION>
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C>
Series D preferred stock.................................... -- 76.6
Series C ESOP preferred stock............................... 49.0 53.1
Common stock................................................ 201.0 175.7
Additional paid-in capital.................................. 332.6 283.5
Accumulated deficit......................................... (123.6) (193.0)
Unearned ESOP compensation.................................. (21.8) (28.4)
Currency translation and other.............................. (67.9) (49.0)
-------- --------
Total Shareholders' Equity.............................. 369.3 318.5
-------- --------
Total Liabilities and Shareholders' Equity.............. $1,802.1 $1,455.2
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-15
<PAGE>
FEDERAL-MOGUL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1997 1996 1995
------- ------- -------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES
Net earnings (loss)............................... $ 69.4 $(206.3) $ (5.8)
Adjustments to reconcile net earnings (loss) to
net cash provided from (used by) operating
activities:
Depreciation and amortization................... 52.8 63.7 61.0
Gain on sales of businesses..................... -- -- (24.0)
Restructuring charges (credits)................. (1.1) 57.6 26.9
Reengineering and other related charges
(credits)...................................... (1.6) 11.4 13.9
Adjustment of assets held for sale to fair value
and other long lived assets.................... 2.4 151.3 51.8
Vesting of restricted stock..................... 9.0 0.4 0.1
Loss on early retirement of debt................ 4.1 -- --
British pound currency option cost, net......... 10.5 -- --
Deferred income taxes........................... 13.0 (27.8) (16.2)
Postemployment benefits......................... (7.7) (2.0) 1.8
Decrease (increase) in accounts receivable...... 7.6 46.5 (5.0)
Decrease (increase) in inventories.............. 59.9 54.5 (103.9)
Increase (decrease) in accounts payable......... (19.5) (25.5) 7.2
Payments against restructuring and reengineering
reserves....................................... (26.2) (17.6) (19.4)
Increase (decrease) in current liabilities and
other.......................................... 43.1 42.8 (23.1)
------- ------- -------
Net Cash Provided From (Used By) Operating
Activities................................... $ 215.7 $ 149.0 $ (34.7)
======= ======= =======
CASH PROVIDED FROM (USED BY) INVESTING ACTIVITIES
Expenditures for property, plant and equipment and
other long-term assets........................... $ (49.7) $ (54.2) $ (78.5)
Acquisitions of businesses........................ -- (.3) (72.1)
Payments for rationalization of acquired
businesses....................................... -- -- (7.3)
Proceeds from sales of business investments....... 73.6 42.0 48.5
Fees paid in anticipation of business acquisition. (30.5) -- --
Other............................................. 1.1 -- --
------- ------- -------
Net Cash Used By Investing Activities......... $ (5.5) $ (12.5) $(109.4)
======= ======= =======
CASH PROVIDED FROM (USED BY) FINANCING ACTIVITIES
Issuance of common stock.......................... $ 14.2 $ .6 $ .2
Repurchase of common stock........................ -- -- (9.0)
Proceeds from issuance of long-term debt.......... 179.6 -- 166.2
Principal payments on long-term debt.............. (127.4) (29.4) (24.9)
Increase (decrease) in short-term debt............ (235.8) (61.4) 33.7
Fees for early retirement of debt................. (4.1) -- --
Fees paid for debt issuance....................... (25.6) -- --
Investment in accounts receivable securitization.. (31.8) -- --
Issuance of preferred securities of affiliate..... 575.0 -- --
Fees paid for issuance of preferred securities of
affiliate........................................ (17.2) -- --
Dividends......................................... (24.8) (26.9) (27.3)
Other............................................. (4.0) (5.7) (.4)
------- ------- -------
Net Cash Provided From (Used By) Financing
Activities................................... 298.1 (122.8) 138.5
------- ------- -------
Increase (Decrease) In Cash And Equivalents... 508.3 13.7 (5.6)
Cash and equivalents at beginning of year........... 33.1 19.4 25.0
------- ------- -------
Cash and Equivalents at End of Year........... $ 541.4 $ 33.1 $ 19.4
======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-16
<PAGE>
FEDERAL-MOGUL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES C RETAINED
SERIES C ESOP ADDITIONAL EARNINGS UNEARNED CURRENCY
PREFERRED PREFERRED COMMON PAID-IN (ACCUMULATED ESOP TRANSLATION
STOCK STOCK STOCK CAPITAL DEFICIT) COMPENSATION AND OTHER TOTAL
--------- --------- ------ ---------- ------------ ------------ ----------- ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994................... $76.6 $59.1 $174.9 $277.8 $ 73.3 $(39.8) $ (33.4) $588.5
Net loss................ (5.8) (5.8)
Net issuance of
restricted stock....... 2.2 6.5 (7.7) 1.0
Exercise of stock
options................ .2 .2
Repurchase of common
stock.................. (1.9) (5.3) (7.2)
Retirement of Series C
ESOP preferred stock... (2.3) (2.3)
Amortization of unearned
ESOP compensation...... 5.5 5.5
Dividends............... (27.3) (27.3)
Preferred dividend tax
benefits............... 1.6 1.6
Currency translation.... (1.5) (1.5)
Pension adjustment...... (2.4) (2.4)
----- ----- ------ ------ ------- ------ ------- ------
BALANCE AT DECEMBER 31,
1995................... $76.6 $56.8 $175.2 $280.8 $ 40.2 $(34.3) $(45.0) $550.3
===== ===== ====== ====== ======= ====== ======= ======
Net loss................ (206.3) (206.3)
Net issuance of
restricted stock....... .3 .9 (1.2) --
Exercise of stock
options................ .2 .4 .6
Retirement of Series C
ESOP preferred stock... (3.7) (3.7)
Amortization of unearned
ESOP compensation...... 5.9 5.9
Dividends............... (26.9) (26.9)
Preferred dividend tax
benefits............... 1.4 1.4
Currency translation
effect on assets held
for sale............... 20.1 20.1
Currency translation.... (24.4) (24.4)
Pension adjustment...... 1.5 1.5
----- ----- ------ ------ ------- ------ ------- ------
BALANCE AT DECEMBER 31,
1996................... $76.6 $53.1 $175.7 $283.5 $(193.0) $(28.4) $(49.0) $318.5
===== ===== ====== ====== ======= ====== ======= ======
Net earnings............ 69.4 69.4
Conversion of Series D
preferred stock........ (76.6) 22.3 54.3 --
Net repurchase of
restricted stock....... (.4) (1.1) 1.5 --
Vesting of restricted
stock.................. 5.0 5.2 10.2
Exercise of stock
options................ 3.4 10.8 14.2
Retirement of Series C
ESOP preferred stock... (4.1) (4.1)
Amortization of unearned
ESOP compensation...... 6.6 6.6
Dividends............... (24.8) (24.8)
Preferred dividend tax
benefits............... 4.9 4.9
Currency translation.... (27.4) (27.4)
Pension adjustment...... 1.8 1.8
----- ----- ------ ------ ------- ------ ------- ------
BALANCE AT DECEMBER
31,1997................ $ -- $49.0 $201.0 $332.6 $(123.6) $(21.8) $ (67.9) $369.3
===== ===== ====== ====== ======= ====== ======= ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-17
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Organization--Federal-Mogul Corporation (the Company) is a global
manufacturer and distributor of a broad range of non-discretionary parts
primarily for automobiles, light trucks, heavy trucks, farm and construction
vehicles. The Company was founded in 1899.
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its majority-owned subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.
Cash and Equivalents--The Company considers all highly liquid investments
with maturities of 90 days or less from the date of purchase to be cash
equivalents.
Inventories--Inventories are stated at the lower of cost or market. Cost
determined by the last-in, first-out (LIFO) method was used for 55% and 48% of
the inventory at December 31, 1997 and 1996, respectively. The remaining
inventories are costed using the first-in, first-out (FIFO) method. If
inventories had been valued at current cost, amounts reported at December 31
would have been increased by $44.5 million in 1997 and $49.4 million in 1996.
Inventory quantity reductions resulting in liquidations of certain LIFO
inventory layers increased net earnings by $3.2 million and $3.1 million ($.08
and $.09 per diluted share) in 1997 and 1996, respectively. There was no
effect on operations for 1995.
At December 31, inventories consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Finished products......................................... $254.6 $417.0
Work-in-process........................................... 21.8 28.0
Raw materials............................................. 15.7 20.0
------ ------
292.1 465.0
Reserve for inventory valuation........................... (15.1) (48.0)
------ ------
$277.0 $417.0
====== ======
</TABLE>
The $32.9 million decrease in the reserve for inventory valuation resulted
primarily from the Company's initiative to dispose of fully reserved slow
moving and obsolete inventory, and the sales of certain international retail
and wholesale businesses.
Goodwill and Other Intangible Assets--Intangible assets, which result
principally from acquisitions, consist of goodwill, trademarks, non-compete
agreements, patents and other intangibles. Intangible assets are periodically
reviewed for impairment based on an assessment of future cash flows, or fair
value for assets held for sale, to ensure that they are appropriately valued.
Intangible assets are amortized on a straight-line basis over their estimated
useful lives, generally ranging from three to fifteen years for other
intangible assets and generally forty years for goodwill. Goodwill and other
intangible assets reflected in the consolidated balance sheets are net of
accumulated amortization of $20.0 million and $18.7 million for goodwill and
$28.9 million and $22.1 million for other intangible assets at December 31,
1997 and 1996, respectively. Impairment charges recorded in 1997, 1996 and
1995 related primarily to assets held for sale. Management believes that the
remaining intangible assets, which relate only to the core manufacturing and
distribution businesses, are not impaired, and their remaining amortization
periods are appropriate.
F-18
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition--The Company recognizes revenue and returns from product
sales and the related customer incentive and warranty expense when goods are
shipped to the customer.
Research and Development and Advertising Costs--The Company expenses
research and development costs as incurred. Research and development expense
was $13.1 million, $14.4 million and $15.1 million for 1997, 1996 and 1995,
respectively.
Costs associated with advertising and promotion are expensed as incurred.
Advertising and promotion expense was $31.8 million, $34.0 million and $19.1
million for 1997, 1996 and 1995, respectively.
Currency Translation--Exchange adjustments related to international currency
transactions and translation adjustments for subsidiaries whose functional
currency is the United States dollar (principally those located in highly
inflationary economies) are reflected in the consolidated statements of
operations. Translation adjustments of international subsidiaries for which
the local currency is the functional currency are reflected in the
consolidated financial statements as a separate component of shareholders'
equity.
Earnings Per Share--In 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share. Statement 128 replaced the calculation
of primary and fully-diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is similar to the previously reported
fully diluted earnings per share. All earnings per share amounts for all
periods have been presented, and where appropriate, restated to conform to the
Statement 128 requirements (refer to Note 13).
Effect of Accounting Pronouncement--In 1997, the Financial Accounting
Standards Board issued Statement No. 130, Reporting Comprehensive Income. This
Statement establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. Statement 130 is effective for fiscal years beginning after
December 15, 1997. Beginning in 1998, the Company will provide the information
relating to comprehensive income to conform to the requirements.
Environmental Liabilities--The Company recognizes estimated environmental
liabilities when a loss is probable. Such liabilities are generally not
subject to insurance coverage.
Each environmental obligation is estimated by engineering and legal
specialists within the Company based on current law and existing technologies.
Such estimates are based primarily upon the estimated cost of investigation
and remediation required and the likelihood that other potentially responsible
parties will be able to fulfill their commitments at the sites where the
Company may be jointly and severally liable with such parties (refer to Note
18).
The Company regularly evaluates and revises its estimates for environmental
obligations based on expenditures against established reserves and the
availability of additional information.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Reclassifications--Certain items in the prior year financial statements have
been reclassified to conform with the presentation used in 1997.
F-19
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. RESTRUCTURING CHARGES
The following is a summary of restructuring charges and related activity for
1995, 1996 and 1997 (in millions of dollars):
<TABLE>
<CAPTION>
1995 1996 1997
RESTRUCTURING RESTRUCTURING RESTRUCTURING
PROVISION PROVISION PROVISION
--------------- --------------- --------------
SEVERANCE EXIT SEVERANCE EXIT SEVERANCE EXIT TOTAL
--------- ----- --------- ----- --------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 restructuring
charge................. $ 20.1 $ 6.8 $ -- $ -- $ -- $-- $ 26.9
Payments against
restructuring reserves. (16.2) -- -- -- -- -- (16.2)
------ ----- ------ ----- ----- ---- ------
Balance of restructuring
reserves at December
31, 1995............... 3.9 6.8 -- -- -- -- 10.7
1996 restructuring
charge................. -- -- 42.8 14.8 -- -- 57.6
Payments against
restructuring reserves. (3.9) (3.4) (4.8) (1.0) -- -- (13.1)
------ ----- ------ ----- ----- ---- ------
Balance of restructuring
reserves at December
31, 1996............... -- 3.4 38.0 13.8 -- -- 55.2
1997 restructuring
charge................. -- -- -- -- 16.7 5.3 22.0
Adjustment to
restructuring reserves. -- (.9) (20.8) (1.4) -- -- (23.1)
------ ----- ------ ----- ----- ---- ------
1997 restructuring
charges (net).......... -- (.9) (20.8) (1.4) 16.7 5.3 (1.1)
Payments against
restructuring reserves. -- (1.7) (14.0) (3.7) (.1) -- (19.5)
------ ----- ------ ----- ----- ---- ------
Balance of restructuring
reserves at December
31, 1997............... $ -- $ 0.8 $ 3.2 $ 8.7 $16.6 $5.3 $ 34.6
====== ===== ====== ===== ===== ==== ======
</TABLE>
1997
The Company's total restructuring reserves at December 31, 1997 of $34.6
million include $3.1 million of severance which will be paid over the next two
years and has been classified as noncurrent other accrued liabilities in the
balance sheet.
Results of operations in the fourth quarter of 1997 include a $22.0 million
charge for 1997 severance and exit costs. The restructuring actions are
designed to improve the Company's cost structure, streamline operations and
divest the Company of underperforming assets. The majority of the 1997 charge
is expected to be paid out during 1998.
Employee severance costs for 1997 result from the planned termination of
approximately 500 employees, in various business operations of the Company.
The severance costs were based on the minimum levels that will be paid to the
affected employees pursuant to the Company's workforce reduction policies and
certain foreign governmental regulations.
Exit costs for 1997 principally include lease termination costs for certain
North American distribution service branches and retail aftermarket operations
in Puerto Rico, and the consolidation of certain European distribution, and
North American and European manufacturing operations.
1996
Primarily due to the T&N and Fel-Pro transactions (refer to Note 20), the
Company elected not to fully implement the following actions under the 1996
restructuring plan:
. Reductions to the operational and administrative staff were not made to
the extent that was originally planned.
F-20
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
. Reconfiguration of the North American distribution network was altered to
accommodate the planned integration of T&N and Fel-Pro aftermarket
operations;
. Relocation of certain European manufacturing product lines to lower cost
areas within Europe and related workforce reductions did not take place.
Management of the Company decided not to pursue this action primarily in
anticipation of the integration of future acquisitions.
Primarily as a result of actions not fully implemented under the 1996
restructuring plan, the Company's 1997 operating results were increased by
$23.1 million for the reversal of previously recognized 1996 and 1995
restructuring charges.
Results of operations in the fourth quarter of 1996 include a restructuring
charge of $57.6 million for severance and exit costs for certain facilities.
As of December 31, 1997, employee severance costs related to the 1996 charge
have resulted in the termination of approximately 600 employees, primarily in
the international retail aftermarket and wholesale aftermarket operations, the
North American distribution business and a closed manufacturing operation. The
Company expects to pay out most of the remaining 1996 severance charge in
1998.
Exit costs for 1996 principally include lease termination costs of
international retail aftermarket stores and certain international wholesale
aftermarket operations, the consolidation of certain North American
distribution facilities and the closing of a North American manufacturing
operation. The Company expects to pay out most of the remaining 1996 exit
costs in 1998.
1995
Results of operations in the second and fourth quarters of 1995 include
restructuring charges of $6.1 million and $20.8 million, respectively, for
employee severance and exit costs for certain facilities.
Employee severance costs for 1995 resulted from the termination of
approximately 750 employees, primarily in Argentina, the United States and
Europe. Exit costs for 1995 include efforts to consolidate and restructure
selected operations primarily in the United States including costs for certain
aftermarket and related facilities consolidated after the acquisition of SPX
Corporation's Sealed Power Replacement aftermarket business. Operating results
for 1997 were increased by $0.9 million relating to 1995 exit costs being
reversed.
3. ADJUSTMENT OF ASSETS HELD FOR SALE TO FAIR VALUE AND OTHER LONG LIVED
ASSETS
The Company continually reviews all components of its businesses for
possible improvement of future profitability through acquisition, divestiture,
reengineering or restructuring.
The Company also continually reviews and updates its impairment reserves
related to the divestiture of its remaining international retail/wholesale
aftermarket operations and other long lived assets and adjusts the reserve
components to approximate their net fair value.
In the fourth quarter of 1997, the Company recognized a charge of $2.4
million to write-down certain long lived assets to fair value. As of December
31, 1997, assets held for sale primarily include retail aftermarket operations
in Puerto Rico, Ecuador, Venezuela and Panama. The Company expects to complete
the actions related to those assets to be disposed of in 1998.
During 1996, management designed and implemented a restructuring plan to
aggressively improve the Company's cost structure, streamline operations and
divest the Company of underperforming assets. As part of this plan, the
Company decided to sell 132 international retail aftermarket operations, sell
or restructure 30
F-21
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
wholesale aftermarket operations and consolidate a North American
manufacturing operation. The carrying value of the assets held for sale was
reduced to fair value based on estimates of selling values less costs to sell.
Selling values used to determine the fair value of assets held for sale were
determined using market prices (i.e. valuation multiples) of comparable
companies from other 1996 transactions. The resulting adjustment of $148.5
million to reduce assets held for sale to fair value was recorded in the
fourth quarter of 1996. During 1997, the Company completed the following
actions related to the 1996 restructuring plan; 1) divested 72 international
retail aftermarket operations, 2) sold or restructured 25 wholesale
aftermarket operations, and 3) consolidated a North American manufacturing
operation (refer to Note 7). In 1996, the Company also recorded an additional
writedown of $2.8 million to the net asset value of the United States ball
bearings manufacturing operations. In 1995, the Company decided to sell the
ball bearings operations and reduced the carrying value by $17.0 million to
record assets held for sale at fair value.
In 1995, the Company decided to sell its heavy wall bearing operations in
Germany and Brazil and certain other non-strategic assets. The Company
estimated the fair value of the businesses held for sale based on discussions
with prospective buyers, adjusted for selling costs. The Company reduced its
carrying value by $17.0 million to record assets held for sale at fair value.
In addition, in 1995, the Company reduced the carrying value of certain
other impaired long-lived assets by $17.8 million to record them at fair
value. No further significant fair value adjustments were recorded for these
assets in 1996 or 1997.
The carrying value of net assets held for sale as of December 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Accounts receivable............................. $ 5 $ 38
Inventory....................................... 27 88
Noncurrent assets............................... 3 11
Accounts payable................................ (4) (29)
Other net current liabilities................... (2) (1)
---------- -----------
Total....................................... $ 29 $ 107
========== ===========
</TABLE>
Net sales for all assets held for sale and adjusted to fair value
approximated $114 million, $335 million and $322 million in 1997, 1996 and
1995, respectively. Net sales for the remaining retail aftermarket operations
held for sale at December 31, 1997 approximated $44 million, $48 million and
$22 million in 1997, 1996 and 1995, respectively.
4. REENGINEERING AND OTHER RELATED CHARGES
Operating results for 1997 include a credit of $1.6 million relating to the
reversal of certain 1996 reengineering and other related charges.
In 1996, the Company initiated an extensive effort to strategically review
its businesses and focus on its competencies of manufacturing, engineering and
distribution. As a result of this process, the Company incurred $11.4 million
for professional fees and personnel costs related to the strategic review of
the Company and changes in management and related costs.
In 1995, the Company recognized $13.9 million for reengineering and other
costs. These costs included $7.0 million in professional fees and personnel
costs to reengineer the business on a Company-wide basis and $6.9 million
primarily for certain other non-recurring costs relating to brand
consolidation at the customer level of the Company's Federal-Mogul(R), TRW(R)
and Sealed Power(R) branded engine parts.
F-22
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. CHANGES IN ACCOUNTING ESTIMATES
During the third and fourth quarters of 1996, the Company made certain
changes in accounting estimates totaling $51 million ($34 million after tax,
$.98 per share) attributable to 1996 events and new information becoming
available. The changes in accounting estimates included increasing the
provision for customer incentive programs and related sales initiatives by $18
million, increasing the provision for excess and obsolete inventory by $13
million, increasing the provision for bad debts by $3 million, increasing the
provision for environmental and legal matters by $9 million and increasing
various other provisions by approximately $8 million.
6. ACQUISITIONS OF BUSINESSES
The Company accounted for the following acquisitions as purchases, and
accordingly, the purchase prices have been allocated to the acquired assets
and assumed liabilities based on their estimated fair values as of the
acquisition date. The consolidated statements of operations include the
operating results of the acquired businesses from the acquisition dates.
In September 1995, the Company completed its acquisition of the Centropiezas
group, a chain of retail stores in Puerto Rico.
Also in September 1995, the Company purchased United Kingdom-based Seal
Technology Systems Ltd., a leading designer and manufacturer of a specialized
range of seals and gaskets for the automotive sector and other industrial
markets.
In June 1995, the Company acquired Bertolotti Pietro e Figli, S.r.1.
(Bertolotti), a distributor of premium brand European auto and truck parts
throughout Italy.
7. SALES OF BUSINESSES
Results of operations have been included through the applicable date of sale
for the following transactions:
During 1997, the Company received $73.6 million in net cash proceeds for
sales of their aftermarket operations in South Africa, Australia, and Chile
and their heavy wall bearing operations in Germany and Brazil.
During 1996, the Company received $42 million in net cash proceeds for sales
of their United States ball bearings and electrical products manufacturing
operations.
Except for the sale of the electrical products manufacturing operations,
sales of businesses in 1997 and 1996 relate to assets previously adjusted to
fair value (refer to Note 3). Accordingly, no gain or loss was recognized on
the date of sale related to these transactions. In addition, no gain or loss
was recognized related to the sale of the electrical products manufacturing
operations.
In December 1995, the Company sold its equity interest in Westwind Air
Bearings, Ltd. in the United Kingdom and its affiliated operations in the
United States and Japan for $20.5 million. The Company recognized a pretax
gain on the sale of $16.2 million.
In April 1995, the Company completed the sale of the operations and
substantially all of the assets of its Precision Forged Products Division to
Borg-Warner Automotive, Inc. The Company received $28.0 million in cash and
retained customer receivables while Borg-Warner assumed certain liabilities.
The Company recognized a pretax gain on the sale of $7.8 million.
F-23
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. FINANCIAL INSTRUMENTS
Foreign Exchange Risk and Commodity Price Management
In connection with the proposed T&N plc acquisition (refer to Note 20) the
Company purchased a British pound currency option for $28.1 million with a
notional amount of $2.5 billion to cap the effect of potential unfavorable
fluctuations in the British pound/U.S. dollar exchange rate. The cost of the
option and its change in fair value has been reflected in the results of
operations in the fourth quarter of 1997. At December 31, 1997, the Company
recognized a net loss on this transaction of $10.5 million. The option was
settled in the first quarter of 1998 resulting in a loss of $17.3 million
(refer to Note 20).
The Company is subject to exposure to market risks from changes in foreign
exchange rates and raw material price fluctuations. Derivative financial
instruments are utilized by the Company to reduce those risks. Except for the
British pound currency option discussed above, the Company does not hold or
issue derivative financial instruments for trading purposes.
Other than the British pound currency option discussed above, the Company
does not have foreign exchange forward or currency option contracts
outstanding at December 31, 1997. As of December 31, 1996, the Company had
foreign exchange forward contracts principally for Japanese yen and South
African rand totaling a notional amount of $6.6 million. At December 31, 1996,
there was no deferred gain or loss related to foreign exchange forward
contracts.
The Company has entered into copper contracts to hedge against the risk of
price increases. These contracts are expected to offset the effects of price
changes on the firm purchase commitments for copper and expire in 1998. Under
the agreements, the Company is committed to purchase 7.3 million pounds of
copper. The net unrealized loss on these firm purchase commitments at December
31, 1997 is $0.7 million.
Deferred gains and losses are included in other assets and liabilities and
recognized in operations when the future purchase or sale occurs, or at the
point in time when the purchase or sale is no longer expected to occur.
Accounts Receivable Securitization
During 1997, the Company replaced an existing accounts receivable
securitization program with a new program which provides up to $100 million of
financing. On an ongoing basis, the Company sells certain accounts receivable
to Federal-Mogul Funding Corporation (FMFC), a wholly-owned subsidiary of the
Company, which then sells such receivables, without recourse, to a master
trust. Amounts sold under these arrangements were $63.2 million and $95
million at December 31, 1997 and 1996 respectively, and have been excluded
from the balance sheets. The Company's retained interest in the accounts
receivable sold to FMFC is included in the balance sheet caption Investment in
Accounts Receivable Securitization.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable and
cash investments. The Company's customer base includes virtually every
significant global automotive manufacturer and a large number of distributors
and installers of automotive aftermarket parts. The Company's credit
evaluation process, reasonably short collection terms and the geographical
dispersion of sales transactions help to mitigate any concentration of credit
risk. The Company requires placement of investments in financial institutions
evaluated as highly creditworthy.
The Company does not generally require collateral for its trade accounts
receivable or those assets included in the investment in accounts receivable
securitization. The allowance for doubtful accounts of $18.7 million and $16.3
million at December 31, 1997 and 1996 is based upon the expected
collectibility of trade accounts receivable.
F-24
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments
The carrying amounts of certain financial instruments such as cash and
equivalents, accounts receivable, accounts payable, British pound currency
option, and short-term debt approximate their fair values. The carrying
amounts and estimated fair values of the Company's long term debt were $273.1
million and $286.1 million at December 31, 1997. The fair value of the long-
term debt is estimated using discounted cash flow analysis and the Company's
current incremental borrowing rates for similar types of arrangements.
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and include expenditures
which materially extend the useful lives of existing buildings, machinery and
equipment.
Depreciation is computed principally by the straight-line method for
financial reporting purposes and by accelerated methods for income tax
purposes. Depreciation expense for the years ended December 31, 1997, 1996 and
1995, was $42.6 million, $49.8 million and $48.3 million, respectively.
At December 31, property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1997 1996
----------- ------ ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Land.......................................... -- $ 29.1 $ 32.1
Buildings and building improvements........... 40 yrs. 124.0 144.1
Machinery and equipment....................... 3-12 yrs. 363.4 378.8
------ ------
516.5 555.0
Accumulated depreciation...................... (202.6) (204.7)
------ ------
$313.9 $350.3
====== ======
</TABLE>
The Company leases various facilities and equipment under both capital and
operating leases. Net assets subject to capital leases were not significant at
December 31, 1997 and 1996.
The balance of the deferred gain resulting from the 1988 sale and leaseback
of a portion of the corporate headquarters complex was $7.1 million at
December 31, 1997. The deferred gain is being amortized over the term of the
lease as a reduction of rent expense. Future minimum payments under
noncancelable operating leases with initial or remaining terms of more than 1
year are, in millions: 1998--$20.3; 1999--$16.8; 2000 $13.8; 2001--$11.8;
2002--$10.6 and thereafter $42.0. Future minimum lease payments have been
reduced by approximately $26.2 million for amounts to be received under
sublease agreements.
Total rental expense under operating leases was $29.1 million in 1997, $33.8
million in 1996 and $34.0 million in 1995, exclusive of property taxes,
insurance and other occupancy costs generally payable by the Company.
10. DEBT
In December 1997, the Company entered into a $3.25 billion committed bank
facility with a reputable financial institution related to the proposed T&N
plc acquisition (refer to Note 20). The facility provides for up to $2.75
billion of senior debt and up to $500 million of subordinated debt. This
facility is contingent upon the acquisition of T&N plc. Accordingly no amounts
are outstanding as of December 31, 1997.
F-25
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In June 1997, the Company entered into a new $350 million multicurrency
revolving credit facility with a consortium of international banks which
matures in June 2002. The multicurrency revolving credit facility replaced the
existing U.S. and European revolving credit facilities. The multicurrency
revolving credit facility contains restrictive covenants that, among other
matters, require the Company to maintain certain financial ratios. As of
December 31, 1997, there were no borrowings outstanding against the
multicurrency revolving credit facility. As of December 31, 1996, the Company
had $185 million borrowed against the U.S. revolver and $9 million borrowed
against the European revolver, both of which were included in short-term debt.
Short-term debt also includes international subsidiaries local credit
arrangements that have terms in accordance with local customary practice. The
weighted average interest rate for the Company's short-term debt was 9.9% and
7.9% as of December 31, 1997 and 1996, respectively.
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Medium-term notes.......................................... $125.0 $125.0
Senior notes............................................... 124.6 --
Private placement debt..................................... -- 64.7
ESOP obligation............................................ 21.9 28.0
Other...................................................... 11.8 17.8
------ ------
283.3 235.5
Less current maturities included in short-term debt........ 10.2 25.9
------ ------
$273.1 $209.6
====== ======
</TABLE>
In April 1997, the Company issued $125.0 million of ten-year 8.8% senior
notes.
During the second quarter of 1997, the Company retired $64.7 million in
private placement debt. The early retirement of the debt required a make-whole
payment of $4.1 million, which was recognized as an extraordinary item of $2.6
million, net of the related tax benefit.
In August 1994, the Company initiated a medium-term note program for up to
$200 million. Notes were issued in maturities ranging from five to ten years.
The average interest rate was approximately 8.4%.
The ESOP obligation represents the unpaid principal balance on an 11 year
loan entered into by the Company's ESOP in 1989. Proceeds of the loan were
used by the ESOP to purchase the Company's Series C ESOP preferred stock.
Payment of principal and interest on the notes is unconditionally guaranteed
by the Company, and therefore, the unpaid principal balance of the borrowing
is classified as long-term debt. Company contributions and dividends on the
preferred shares held by the ESOP are used to meet semi-annual principal and
interest obligations.
The original ESOP obligation bore an annual interest rate of 11.5%. The
obligation was refinanced on June 30, 1995 at a fixed interest rate of 7.2%.
The ESOP obligation matures in December 2000.
Aggregate maturities of long-term debt for each of the years following 1998
are, in millions: 1999--$29.2; 2000--$31.8; 2001--$45.0; 2002--$6.0 and
thereafter $161.1.
Interest paid in 1997, 1996 and 1995 was $30.7 million, $43.5 million and
$37.1 million, respectively.
F-26
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. CAPITAL STOCK AND PREFERRED SHARE PURCHASE RIGHTS
The Company's articles of incorporation authorize the issuance of 60,000,000
shares of common stock, of which 40,196,603 shares, 35,130,359 shares and
35,044,859 shares were outstanding at December 31, 1997, 1996 and 1995,
respectively.
In August 1997, the Company announced a call for the redemption of all its
outstanding $3.875 Series D Convertible Exchangeable Preferred Stock. These
preferred stockholders elected to convert each preferred share into 2.778
shares of common stock. The Company issued 4.4 million shares of common stock
in exchange for all of the outstanding Series convertible exchangeable
preferred stock.
The Company's ESOP covers substantially all domestic salaried employees and
allocates Series ESOP Convertible Preferred Stock to eligible employees based
on their contributions to the Salaried Employees' Investment Program and their
eligible compensation. There were 773,351, 835,898 and 892,620 shares of
Series C ESOP preferred stock outstanding at December 31, 1997, 1996 and 1995,
respectively. The Series C ESOP preferred shares are nonvoting and pay
dividends at a rate of 7.5%. The Company repurchased and retired 62,547 Series
C ESOP preferred shares valued at $4.0 million during 1997 and 56,722 Series C
ESOP preferred shares valued at $3.6 million during 1996, all of which were
forfeited by participants upon early withdrawal from the plan.
The Series C ESOP preferred stock is convertible into shares of the
Company's common stock at a rate of two shares of common stock for each share
of preferred stock. The Series C ESOP preferred stock may be issued only to a
trustee acting on behalf of an employee stock ownership plan or other employee
benefit plan of the Company. These shares are automatically converted into
shares of common stock in the event of any transfer to any person other than
the plan trustee. The Series C ESOP preferred stock is redeemable, in whole or
in part, at the option of the Company.
The charge to operations for the cost of the ESOP was $5.2 million in 1997,
$4.2 million in 1996 and $4.4 million in 1995. The Company made cash
contributions to the plan of $8.1 million in 1997 and 1996, and $8.5 million
in 1995, including preferred stock dividends of $3.8 million in 1997, $4.1
million in 1996 and $4.3 million in 1995. ESOP shares are released as
principal and interest on the debt is paid. The ESOP Trust uses the preferred
dividends not allocated to employees to make principal and interest payments
on the debt. Compensation expense is measured based on the fair value of
shares committed to be released to employees. Dividends on ESOP shares are
treated as a reduction of retained earnings in the period declared. The number
of allocated shares and suspense shares held by the ESOP were 532,817 and
240,534 at December 31, 1997, and 504,435 and 331,463 at December 31, 1996,
respectively. There were no committed-to-be-released shares at December 31,
1997 and December 31, 1996. Any repurchase of the ESOP shares is strictly at
the option of the Company.
In 1988, the Company's Board of Directors authorized the distribution of one
Preferred Share Purchase Right (Right) for each outstanding share of common
stock of the Company. Each Right entitles shareholders to buy one-half of one-
hundredth of a share of a new Series of preferred stock at a price of $70.
As distributed, the Rights trade together with the common stock of the
Company. They may be exercised or traded separately only after the earlier to
occur of: (i) ten days following a public announcement that a person or group
of persons has obtained the right to acquire 10% or more of the outstanding
common stock of the Company (20% in the case of certain institutional
investors), or (ii) ten business days (or such later date as may be determined
by action of the Board of Directors) following the commencement or
announcement of an intent to make a tender offer or exchange offer which would
result in beneficial ownership by a person or group of persons
F-27
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of 10% or more of the Company's outstanding common stock. Additionally, if the
Company is acquired in a merger or other business combination, each Right will
entitle its holder to purchase, at the Right's exercise price, shares of the
acquiring Company's common stock (or stock of the Company if it is the
surviving corporation) having a market value of twice the Right's exercise
price.
The Rights may be redeemed at the option of the Board of Directors for $.005
per Right at any time before a person or group of persons acquires 10% or more
of the Company's common stock. The Board may amend the Rights at any time
without shareholder approval. The Rights will expire by their terms on
November 14, 1998.
12. MINORITY INTEREST--PREFERRED SECURITIES OF AFFILIATE
In December 1997, the Company's wholly-owned financing trust ("Affiliated")
completed a $575 million private issue of 11.5 million shares of 7.0% Trust
Convertible Preferred Securities ("TCP Securities") with a liquidation value
of $50 per convertible security. The net proceeds from the TCP Securities were
used to purchase an equal amount of 7.0% Convertible Junior Subordinate
Debentures ("Debentures") of the Company. The TCP Securities represent an
undivided interest in the Affiliate's assets, with a liquidation preference of
$50 per security.
Distribution on the TCP Securities are cumulative and will be paid quarterly
in arrears at an annual rate of 7.0%, and are included in the consolidated
statement of operations as a component of Other Expense, Net. The Company has
the option to defer payment of the distributions for an extension period of up
to 20 consecutive quarters if the Company is in compliance with the terms of
the TCP Securities.
The shares of the TCP Securities are convertible, at the option of the
holder, into the Company's common stock at an equivalent conversion price of
approximately $51.50 per share, subject to adjustment in certain events. The
TCP Securities and the Debentures will be redeemable, at the option of the
Company, on or after December 6, 2000 at a Redemption Price, expressed as a
percentage of principal which is added to accrued and unpaid interest. The
Redemption Price range is from 104.2% on December 6, 2000 to 100.0% after
December 1, 2007. All outstanding TCP Securities and Debentures are required
to be redeemed by December 1, 2027.
F-28
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (in millions, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
----- ------- ------
<S> <C> <C> <C>
Numerator:
Net earnings (loss) after extraordinary item...... $69.4 $(206.3) $ (5.8)
Extraordinary item--loss on early retirement of
debt net of applicable tax benefit............... (2.6) -- --
----- ------- ------
Net earnings (loss) before extraordinary item..... 72.0 (206.3) (5.8)
Series C preferred dividend requirement........... (2.4) (2.5) (2.7)
Series D preferred dividend requirement........... (3.1) (6.2) (6.2)
----- ------- ------
Numerator for basic earnings per share--income
(loss) available to common shareholders before
extraordinary item............................... $66.5 $(215.0) $(14.7)
Effect of dilutive securities:
Series C preferred dividend requirement......... 2.4 -- --
Series D preferred dividend requirement......... 3.1 -- --
Additional required ESOP contribution........... (1.9) -- --
----- ------- ------
Numerator for diluted earnings per share--income
(loss) available to common shareholders after
assumed conversions, before extraordinary item... $70.1 $(215.0) $(14.7)
----- ------- ------
Numerator for basic earnings per share--income
(loss) available to common shareholders after
extraordinary item................................. $63.9 $(215.0) $(14.7)
Numerator for diluted earnings per share--income
(loss) available to common shareholders after
extraordinary item................................. $67.5 $(215.0) $(14.7)
Denominator:
Denominator for basic earnings per share--weighted
average shares 36.6 34.7 34.6
Effect of dilutive securities:
Dilutive stock options outstanding.............. 0.4 -- --
Nonvested stock................................. 0.3 -- --
Conversion of Series C preferred stock.......... 1.6 -- --
Conversion of Series D preferred stock.......... 3.0 -- --
----- ------- ------
Dilutive potential common shares.................. 5.3 -- --
Denominator for dilutive earnings per share--
adjusted weighted average shares and assumed
conversions.................................... 41.9 34.7 34.6
===== ======= ======
Basic earnings (loss) per share before extraordinary
item............................................... $1.81 $ (6.20) $(0.42)
===== ======= ======
Basic earnings (loss) per share after extraordinary
item............................................... $1.74 $ (6.20) $(0.42)
===== ======= ======
Diluted earnings (loss) per share before
extraordinary item................................. $1.67 $ (6.20) $(0.42)
===== ======= ======
Diluted earnings (loss) per share after
extraordinary item................................. $1.61 $ (6.20) $(0.42)
===== ======= ======
</TABLE>
For additional disclosures regarding the Series C and Series D preferred
stock, the employee stock options and nonvested stock shares, refer to Notes
11 and 14.
Convertible preferred securities (refer to Note 12) redeemable for 11.5
million shares of common stock were outstanding for a portion of 1997 but were
not included in the computation of diluted earnings per share because the
effect would be antidilutive.
F-29
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. INCENTIVE STOCK PLANS
The Company's shareholders adopted stock option plans in 1976 and 1984 and
performance incentive stock plans in 1989 and 1997. These plans provide
generally for awarding restricted shares or granting options to purchase
shares of the Company's common stock. Restricted shares entitle employees to
all the rights of common stock shareholders, subject to certain transfer
restrictions and to forfeiture in the event that the conditions for their
vesting are not met. Options entitle employees to purchase shares at an
exercise price not less than 100% of the fair market value on the grant date
and expire after a five or ten year period as determined by the Board of
Directors.
Under the plans, awards vest from 6 months to 5 years after their date of
grant, as determined by the Board of Directors at the time of grant. At
December 31, 1997, there were 934,245 shares available for future grants under
the plans.
In October 1997, the Company met certain share price performance criteria
under the 1989 Long-Term Incentive Plan which resulted in the recognition of
$5.4 million in compensation expense relating to the vesting of restricted
stock awards. The total compensation cost that has been charged to operations
for vesting of restricted stock awards was $9.0 million, $0.4 million and $0.1
million in 1997, 1996 and 1995, respectively.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock awards. Accordingly, no
compensation cost has been recognized for its stock option grants, as the
exercise price of the Company's employee stock options equals the underlying
stock price on the date of grant. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method of
Financial Accounting Standards Board Statement No. 123 "Accounting for Stock
Based Compensation," the Company's net earnings (loss), in millions, and
earnings (loss) per share would have been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
----- ------- -----
<S> <C> <C> <C>
Net earnings (loss) as reported.................... $69.4 $(206.3) $(5.8)
Pro forma.......................................... $70.7 $(207.1) $(6.0)
Basic earnings (loss) per share as reported........ $1.74 $ (6.20) $(.42)
Pro forma.......................................... $1.78 $ (6.22) $(.43)
Diluted earnings (loss) per share as reported...... $1.61 $ (6.20) $(.42)
Pro forma.......................................... $1.64 $ (6.22) $(.43)
</TABLE>
Pro forma information regarding net income and earnings per share is
required by Statement 123 as if the Company had accounted for its employee
stock options under the fair value method. The fair value for options is
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 1997, 1996 and 1995,
respectively: risk-free interest rates of 6.5%; dividend yields of 1.5%, 2.3%
and 2.4%; volatility factors of the expected market price of the Company's
common stock of 27.2%, 11.2% and 8.1% and a weighted average expected life of
the option of five years. The fair value of nonvested stock awards is equal to
the market price of the stock on the date of the grant.
Since the above pro forma disclosures of results are only required to
consider grants awarded in 1995 and thereafter, the pro forma effects during
this initial phase-in period may not be representative of the effects on the
reported results for future years.
The weighted average fair value and the total number (in millions) of
options granted was $9.99, $3.34 and $3.09, and 0.9, 0.3 and 0.1 for 1997,
1996 and 1995, respectively. The weighted average fair value and total
F-30
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
number of nonvested stock awards granted was $24.47, $18.90 and $18.38 and
0.1, 0.2 and 0.4 for 1997, 1996 and 1995, respectively. All options and stock
awards that are not vested at December 31, 1997, vest solely on employees'
rendering additional service.
The following table summarizes the activity relating to the Company's
incentive stock plans:
<TABLE>
<CAPTION>
NUMBER OF SHARES WEIGHTED-AVERAGE
(IN MILLIONS) PRICE
---------------- ----------------
<S> <C> <C>
Outstanding at January 1, 1995......... 2.4 $22.98
Options/stock granted................ .5 18.72
Options/stock lapsed or canceled..... (.3) 23.69
---- ------
Outstanding at December 31, 1995....... 2.6 22.02
Options/stock granted................ .5 22.08
Options exercised.................... -- --
Options/stock lapsed or canceled..... (.6) 22.32
---- ------
Outstanding at December 31, 1996....... 2.5 22.03
Options/stock granted................ 1.0 31.74
Options exercised/stock vested....... (1.0) 21.94
Options/stock lapsed or canceled..... (0.3) 22.29
---- ------
Outstanding at December 31, 1997....... 2.2 $26.46
==== ======
Options exercisable at December 31,
1997................................ 0.9 $23.07
==== ======
Options exercisable at December 31,
1996................................ 1.3 $22.50
==== ======
Options exercisable at December 31,
1995................................ 1.5 $21.50
==== ======
</TABLE>
The following is a summary of the range of exercise prices for stock options
that are outstanding and the amount of nonvested stock awards at December 31,
1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OUTSTANDING ----------------
AWARDS REMAINING
RANGE (IN MILLIONS) PRICE LIFE
----- ------------- ------ ---------
<S> <C> <C> <C>
Options:
$15.69 to $23.50......................... 0.8 $21.63 4 years
$23.50 to $41.28......................... 1.2 $31.26 5 years
Nonvested stock.......................... 0.2 -- --
---
Total.................................. 2.2
===
</TABLE>
15. POSTEMPLOYMENT BENEFITS
The Company maintains several defined benefit pension plans which cover
substantially all domestic employees and certain employees in other countries.
Benefits for domestic salaried employees are based on compensation, age and
years of service, while hourly employees' benefits are primarily based on
negotiated rates and years of service. International plans maintained by the
Company provide benefits based on years of service and compensation.
The Company's funding policy is consistent with funding requirements of
federal and international laws and regulations. Plan assets consist primarily
of listed equity securities and fixed income instruments.
F-31
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net periodic pension cost for the Company's defined benefit plans in 1997,
1996 and 1995 consists of the following:
UNITED STATES PLANS
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(MILLIONS OF
DOLLARS)
(INCOME)/EXPENSE
<S> <C> <C> <C>
Service cost--benefits earned during the period. $ 7.8 $ 9.0 $ 7.3
Interest cost on projected benefit obligation... 14.0 15.0 15.0
Actual return on plan assets.................... (61.8) (30.8) (51.6)
Net amortization and deferral................... 33.4 3.3 28.6
Curtailment loss................................ -- 3.7 .5
------ ------ ------
Net periodic pension (income) cost.............. $ (6.6) $ .2 $ (.2)
====== ====== ======
INTERNATIONAL PLANS
<CAPTION>
1997 1996 1995
------ ------ ------
(MILLIONS OF
DOLLARS)
(INCOME)/EXPENSE
<S> <C> <C> <C>
Service cost--benefits earned during the period. $ .3 $ .4 $ .4
Interest cost on projected benefit obligation... 1.9 2.5 2.7
------ ------ ------
Net periodic pension cost....................... $ 2.2 $ 2.9 $ 3.1
====== ====== ======
</TABLE>
The following table sets forth the funded status for the Company's defined
benefit plans at December 31:
UNITED STATES PLANS
<TABLE>
<CAPTION>
PLANS WITH ASSETS PLANS WITH
IN EXCESS OF ACCUMULATED
ACCUMULATED BENEFITS IN
BENEFITS EXCESS OF ASSETS
------------------- ------------------
1997 1996 1997 1996
--------- -------- -------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation....... $ 129.9 $ 96.2 $ 45.8 $ 88.8
========= ======== ======== ========
Accumulated benefit obligation.. 139.1 102.1 55.5 106.4
========= ======== ======== ========
Projected benefit obligation.... 140.8 104.0 56.4 107.1
--------- -------- -------- --------
Plan assets at fair value....... 243.8 177.8 49.9 84.8
--------- -------- -------- --------
Plan assets in excess of (less
than) projected benefit
obligation..................... 103.0 73.8 (6.5) (22.3)
Unrecognized net (asset)
liability at transition........ (2.7) (5.8) .7 .5
Unrecognized prior service cost. 3.7 .5 6.0 10.0
Unrecognized net (gain) loss.... (54.7) (23.2) (5.6) 3.2
--------- -------- -------- --------
Accrued pension asset
(liability) included in the
consolidated balance sheets.... $ 49.3 $ 45.3 $ (5.4) $ (8.6)
========= ======== ======== ========
</TABLE>
F-32
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INTERNATIONAL PLANS
<TABLE>
<CAPTION>
ACCUMULATED
BENEFITS
EXCEED ASSETS
--------------
1997 1996
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.............................. $ 25.3 $ 32.9
------ ------
Accumulated benefit obligation......................... 26.6 34.5
------ ------
Projected benefit obligation........................... 26.6 34.5
------ ------
Plan assets less than projected benefit obligation....... (26.6) (34.5)
Unrecognized net loss.................................... 2.8 4.0
------ ------
Accrued pension liability included in the consolidated
balance sheet........................................... $(23.8) $(30.5)
====== ======
</TABLE>
The assumptions used in computing the above information are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Discount rates....................................... 7 1/2% 7 1/2% 7 1/2%
Rates of increase in compensation levels............. 4 1/2% 4 1/2% 4 1/2%
Expected long-term rates of return on assets......... 10% 10% 10%
</TABLE>
The Company's minimum liability adjustment was $1.3 million and $13.4
million for United States plans at December 31, 1997 and 1996, respectively,
and $2.7 million and $3.5 million for international plans at December 31, 1997
and 1996, respectively.
The Company also provides health care and life insurance benefits for
certain domestic retirees covered under company-sponsored benefit plans.
Participants in these plans may become eligible for these benefits if they
reach normal retirement age while working for the Company. The Company's
policy is to fund benefit costs as they are provided, with retirees paying a
portion of the costs.
The components of net periodic postretirement benefit costs are as follows
as of December 31:
<TABLE>
<CAPTION>
1997 1996 1995
----- ---- -----
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Service cost.......................................... $ 2.5 $2.8 $ 2.3
Interest cost......................................... 10.5 10.8 10.4
Curtailment gain...................................... -- (7.5) (1.0)
Amortized gains....................................... (.5) (.5) (1.1)
----- ---- -----
Net periodic postretirement benefits cost............. $12.5 $5.6 $10.6
===== ==== =====
</TABLE>
The following schedule reconciles the funded status of the Company's
postretirement benefit plans to the amounts recorded in the Company's balance
sheets as of December 31:
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees................................................... $107.6 $103.9
Active plan participants................................... 42.8 46.9
------ ------
150.4 150.8
Unrecognized net gain (loss)............................... 3.8 (1.4)
Unrecognized prior service cost............................ 3.5 4.1
------ ------
Accrued postretirement benefits liability.................. $157.7 $153.5
====== ======
</TABLE>
F-33
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The discount rate used in determining the APBO was 7.5% at December 31, 1997
and 1996.
At December 31, 1997, the assumed annual health care cost trend used in
measuring the APBO approximated 7.5% in 1997 declining to 7.1% in 1998 and to
an ultimate rate of 5.5% estimated to be achieved in 2009.
At December 31, 1996, the assumed annual health care cost trend used in
measuring the APBO approximated 7.5% in 1996, declining to 7.1% in 1997 and to
an ultimate annual rate of 5.5% estimated to be achieved in 2008.
Increasing the assumed cost trend rate by 1% each year would have increased
the APBO by approximately 8.3% and 8.4% at December 31, 1997 and 1996,
respectively. Aggregate service and interest costs would have increased by
approximately 9.4% for 1997 and 1996, and 12.9% for 1995.
In 1991, the Company established a retiree health benefits account (as
defined in Section 401(h) of the Internal Revenue Code) within its domestic
salaried employees' pension plan. Annually, the Company may elect to transfer
excess pension plan assets (subject to defined limitations) to the 401(h)
account for purposes of funding current salaried retiree health care costs.
The Company transferred excess pension plan assets of $4.4 million in 1997,
$4.2 million in 1996 and $4.2 million in 1995 to the 401(h) account to fund
salaried retiree health care benefits.
The Company sponsors two defined contribution retirement saving plans
covering substantially all domestic employees. Matching Company contributions
for the Salaried Employees' Investment Program are provided through the ESOP
(refer to Note 11). In addition, the Company provided matching contributions
to eligible employees based upon their contributions to the Employee
Investment Program of approximately $1.5 million, $1.6 million, and $1.2
million for 1997, 1996, and 1995, respectively.
16. INCOME TAXES
Under the liability method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. The
components of earnings (loss) before income taxes and extraordinary item
consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----- ------- -----
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Domestic............................................ $50.1 $ (88.3) $ 7.9
International....................................... 49.4 (140.4) (11.2)
----- ------- -----
$99.5 $(228.7) $(3.3)
===== ======= =====
Significant components of the provision for income taxes (tax benefit) are as
follows:
<CAPTION>
1997 1996 1995
----- ------- -----
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Current:
Federal........................................... $ 9.6 $ (4.0) $12.7
State and local................................... 0.2 2.3 1.2
International..................................... 6.6 6.3 9.3
----- ------- -----
Total current................................... 16.4 4.6 23.2
Deferred:
Federal........................................... 6.1 (25.2) (9.0)
State and local................................... 0.7 (1.8) (.9)
International..................................... 4.3 -- (10.8)
----- ------- -----
Total deferred.................................. 11.1 (27.0) (20.7)
----- ------- -----
$27.5 $ (22.4) $ 2.5
===== ======= =====
</TABLE>
F-34
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The reconciliation of income taxes (tax benefits) computed at the United
States federal statutory tax rate to income tax expense (benefit) is:
<TABLE>
<CAPTION>
1997 1996 1995
----- ------ -----
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Income taxes (tax benefits) at United States
statutory rate.................................... $34.9 $(80.1) $(1.1)
Tax effect from:
Tax credits, state income taxes and other........ 2.1 1.8 (2.3)
Tax benefit related to the sale of South African
and Australian businesses....................... (6.8) -- --
Losses on international operations without tax
benefits and foreign tax rate differences....... (2.7) 55.9 5.9
----- ------ -----
$27.5 $(22.4) $ 2.5
===== ====== =====
The following table summarizes the Company's total provision for income
taxes/(tax benefits):
<CAPTION>
1997 1996 1995
----- ------ -----
(MILLIONS OF
DOLLARS)
<S> <C> <C> <C>
Income tax expense (benefit)....................... $27.5 $(22.4) $ 2.5
Allocated to equity:
Currency translation............................. (3.6) (4.9) 5.3
Preferred dividends.............................. (1.3) (1.5) (1.6)
Investment securities............................ (0.6) .8 --
Other............................................ 1.2 .7 .8
----- ------ -----
$23.2 $(27.3) $ 7.0
===== ====== =====
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(MILLIONS OF
DOLLARS)
<S> <C> <C>
Deferred tax assets:
Postretirement benefits................................ $ 58.2 $ 57.2
Net operating loss carryforwards of international
subsidiaries.......................................... 45.0 68.1
Loss on foreign investment............................. 23.2 49.0
Restructuring costs.................................... -- 8.3
Inventory basis........................................ 10.3 12.0
Allowance for doubtful accounts........................ 11.3 7.0
Other temporary differences............................ 36.9 27.6
------ ------
Total deferred tax assets............................ 184.9 229.2
Valuation allowance for deferred tax assets.............. (44.4) (89.4)
------ ------
Net deferred tax assets.............................. 140.5 139.8
------ ------
Deferred tax liabilities:
Fixed asset basis differences.......................... (50.5) (55.0)
Pension................................................ (17.3) (12.4)
Restructuring costs.................................... (8.1) --
------ ------
Total deferred tax liabilities....................... (75.9) (67.4)
------ ------
$64.6 $ 72.4
====== ======
</TABLE>
F-35
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets and liabilities are recorded in the consolidated balance
sheets as follows:
<TABLE>
<CAPTION>
1997 1996
----- -----
(MILLIONS
OF DOLLARS)
<S> <C> <C>
Assets:
Prepaid expenses and income tax benefits.................. $46.6 $54.6
Business investments and other assets..................... 26.7 21.9
Liabilities:
Other current accrued liabilities......................... (4.2) (3.6)
Other long-term accrued liabilities....................... (4.5) (.5)
----- -----
$64.6 $72.4
===== =====
</TABLE>
Income taxes paid in 1997, 1996 and 1995 were $2.6 million, $6.7 million and
$19.4 million, respectively.
Undistributed earnings of the Company's international subsidiaries amounted
to approximately $39 million at December 31, 1997. No taxes have been provided
on approximately $30 million of these earnings, which are considered by the
Company to be permanently reinvested.
F-36
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Upon distribution of these earnings, the Company would be subject to United
States income taxes and foreign withholding taxes. Determining the
unrecognized deferred tax liability on the distribution of these earnings is
not practicable as such liability, if any, is dependent on circumstances
existing when remittance occurs.
The Company has a $67 million German net operating loss carryforward at
December 31, 1997 that has no expiration date. The Company has $50 million of
additional foreign operating losses with various expiration dates through
2003.
17. OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
The Company is a global manufacturer and distributor of a broad range of
non-discretionary parts, primarily vehicular components for automobiles, light
trucks, heavy duty trucks, farm and construction vehicles. The Company sells
parts to original equipment manufacturers, principally the major automotive
manufacturers in the United States and Europe. Through its worldwide
distribution network, the Company also sells replacement parts in the
vehicular replacement market. All of these activities constitute a single
business segment. Canadian operations are aggregated with the U.S. operations
as they are not significant under the materiality thresholds of Financial
Accounting Standards Board Statement No. 14.
Financial information, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Net sales:
United States and Canada.................. $1,132.2 $1,224.7 $1,280.6
Europe.................................... 372.3 436.0 382.8
Other international....................... 302.1 372.0 336.4
-------- -------- --------
$1,806.6 $2,032.7 $1,999.8
======== ======== ========
Operating earnings (loss):
United States and Canada.................. $ 114.3 $ (53.2) $ 57.5
Europe.................................... 20.6 11.8 (13.2)
Other international....................... 31.9 (112.8) 13.2
-------- -------- --------
166.8 (154.2) 57.5
Corporate expenses and other................ (27.9) (27.7) (27.8)
-------- -------- --------
$ 138.9 $ (181.9) $ 29.7
======== ======== ========
Identifiable assets:
United States and Canada.................. $1,240.4 $ 775.5 $ 893.5
Europe.................................... 467.0 451.0 493.9
Other international....................... 94.7 228.7 322.7
-------- -------- --------
$1,802.1 $1,455.2 $1,710.1
======== ======== ========
</TABLE>
Transfers between geographic areas are not significant, and when made, are
recorded at prices comparable to normal unaffiliated customer sales.
The information presented above was prepared in accordance with Statement
14. In 1997, the Financial Accounting Standards Board issued Statement No.
131, Disclosures about Segments of an Enterprise and Related Information. The
statement supersedes Statement 14 and establishes standards for the way public
business enterprises report selected information about operating segments in
annual reports and interim financial reports issued to shareholders. Statement
131 is effective for fiscal years beginning after December 15, 1997. For the
year ended 1998, the Company will provide financial and descriptive
information about its reportable operating segments to conform to the
requirements.
F-37
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. LITIGATION AND ENVIRONMENTAL MATTERS
The Company is one of a large number of defendants in a number of lawsuits
brought by claimants alleging injury due to exposure to asbestos. The Company
is defending all such claims vigorously and believes it has substantial
defenses to liability and adequate insurance coverage for its defense costs.
The Company is also involved in various other legal actions and claims. While
the outcome of litigation cannot be predicted with certainty, after consulting
with counsel for the Company, management believes that these matters will not
have a material effect on the Company's consolidated financial statements.
The Company is a party to lawsuits filed in various jurisdictions alleging
claims pursuant to the Comprehensive Environmental Response Compensation and
Liability Act of 1980 (CERCLA) or other state or federal environmental laws.
In addition, the Company has been notified by the Environmental Protection
Agency and various state agencies that it may be a potentially responsible
party (PRP) for the cost of cleaning up certain other hazardous waste storage
or disposal facilities pursuant to CERCLA and other federal and state
environmental laws. PRP designation requires the funding of site
investigations and subsequent remedial activities. Although these laws could
impose joint and several liability upon each party at any site, the potential
exposure is expected to be limited because at all sites other companies,
generally including many large, solvent public companies, have been named as
PRPs. In addition, the Company has identified certain present and former
properties at which it may be responsible for cleaning up environmental
contamination. The Company is actively seeking to resolve these matters.
Although difficult to quantify based on the complexity of the issues, the
Company has accrued the estimated cost associated with such matters based upon
current available information from site investigations and consultants. The
environmental and legal reserve was approximately $11 million at December 31,
1997 and $12 million at December 31, 1996 and is included in other long-term
accrued liabilities. Management believes these accruals, which have not been
reduced by any anticipated insurance proceeds, will be adequate to cover the
Company's estimated liability for these exposures.
F-38
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND(1) THIRD FOURTH(2) YEAR
------ --------- -------- --------- --------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Net sales...................... $485.6 $481.8 $424.2 $ 415.0 $1,806.6
Gross margin................... 112.1 115.3 102.8 94.6 424.8
Net earnings before
extraordinary item............ 13.9 28.5 17.4 12.2 72.0
Extraordinary item--loss on
early retirement of debt, net
of tax benefit................ -- (2.6) -- -- (2.6)
Net earnings................... 13.9 25.9 17.4 12.2 69.4
Diluted earnings per share(5).. .32 .61 .40 .28 1.61
<CAPTION>
FIRST SECOND THIRD(3) FOURTH(4) YEAR
------ --------- -------- --------- --------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Net sales...................... $522.9 $536.6 $492.4 $ 480.8 $2,032.7
Gross margin................... 113.2 117.5 83.2 58.3 372.2
Net earnings (loss)............ 11.2 15.9 (12.6) (220.8) (206.3)
Diluted earnings (loss) per
share(5)...................... .25 .36 (.43) (6.43) (6.20)
</TABLE>
- --------
(1) Includes an income tax benefit of $6.8 million related to the sales of the
South African and Australian businesses.
(2) Includes $1.1 million for a net restructuring credit, a $2.4 million
charge for an adjustment of assets held for sale to fair value, a $1.6
million credit for reengineering and other related charges, and a $10.5
million net charge related to the British pound currency option.
(3) Net loss includes a pretax charge of $38.5 million primarily relating to
changes in estimates, adjustment of assets held for sale to fair value and
other related charges.
(4) Net loss includes a pretax charge for restructuring of $57.6 million,
adjustment of assets held for sale to fair value of $144.9 million and
$61.7 million primarily relating to changes in estimates, and other
related charges.
(5) The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with Statement 128, Earnings Per Share.
<TABLE>
<CAPTION>
1997 1996
------------- -------------
QUARTER HIGH LOW HIGH LOW
------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
First......................................... $26.75 $21.63 $20.88 $17.38
Second........................................ 35.38 24.50 19.88 17.88
Third......................................... 39.94 32.75 22.50 16.25
Fourth........................................ 47.63 36.75 24.50 20.38
</TABLE>
Quarterly dividends of $.12 per common share were declared for 1997 and
1996. In February 1998, the Company's Board of Directors declared a quarterly
dividend of $.12 per common share. This was the 248th consecutive quarterly
dividend declared by the Company.
20. SUBSEQUENT EVENTS
T&N PLC Transaction
On October 16, 1997, the Company announced it made a cash offer to acquire
all the outstanding common stock of T&N plc (T&N) for 260 pence per share. The
offer valued T&N's issued share capital at approximately $2.4 billion. T&N,
headquartered in Manchester, England, had 1997 net sales of approximately $2.9
billion. On January 6, 1998, the Company's offer to acquire all of the
outstanding common stock of T&N was declared
F-39
<PAGE>
FEDERAL-MOGUL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
unconditional as to acceptances. By the second closing date under the offer,
January 2, 1998, valid acceptances of the offer had been received for
approximately 95% of the entire issued share capital of T&N. The Company will
finance the acquisition through a committed bank facility from a reputable
financial institution. The Company's intention is to put in place a permanent
capital structure with an appropriate combination of equity and debt
financing.
The offer is subject to various conditions customary in the United Kingdom
and the receipt of all applicable regulatory approvals in the United States
and Europe. As part of the acquisition process, certain financing,
professional and other related fees have been incurred in 1997. These fees
have been capitalized as incurred and will be accounted for as direct
acquisition or financing costs once the transaction closes. Management fully
expects the acquisition to close in the first quarter of 1998, however, in the
event the acquisition is not completed, these fees would be charged to
operations and would materially impact earnings at that time. As of December
31, 1997, the Company had capitalized $28 million of these fees. In addition,
the Company may elect to accelerate payment of certain portions of the bank
facility which would result in an extraordinary charge due to the write-off of
the financing cost associated with the early retirement of debt.
The British pound currency option (refer to Note 8) was settled by the
Company in the first quarter of 1998 resulting in a $17.3 million pretax loss.
Also in the first quarter of 1998, the Company entered into a forward contract
to purchase 1.5 billion British pounds for a notional amount of approximately
$2.45 billion. The forward contract expires in the first quarter of 1998.
Fel-Pro Incorporated Transaction
On February 24, 1998, the Company acquired Fel-Pro Inc., a privately owned
manufacturer, headquartered in Skokie, Illinois, with net sales of
approximately $500 million for total consideration of $720 million which
includes $225 million in equity and $495 million in cash. The $495 million in
cash was primarily provided through available borrowings on the $350 million
multicurrency revolver. The remaining consideration paid was through the
issuance of promissory notes.
Divestiture of Minority Interest
In February 1998, the Company announced the divestiture of its minority
interest in G. Bruss GmbH & Co. KG, a German manufacturer of seals and
gaskets. As part of the divestiture agreement the Company increased their
ownership to 100% in the Summerton, South Carolina gasket business. The
Company also received cash and recognized a gain as a result of these
transactions. The gain recognized is not expected to be significant to 1998
first quarter results.
F-40
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of T&N plc
We have audited the accompanying consolidated balance sheets of T&N plc and
its subsidiaries at 31 December 1997 and 31 December 1996, and the related
consolidated profit and loss accounts, reconciliations of movements in
shareholders' funds and consolidated cash flow statements for each of the
years in the three year period ended 31 December 1997. These consolidated
financial statements are the responsibility of the management of T&N plc. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United Kingdom, which are substantially consistent with those
of the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of T&N plc
and its subsidiaries at 31 December 1997 and 31 December 1996, and the results
of their operations and their cash flows for each of the years in the three
year period ended 31 December 1997, in conformity with generally accepted
accounting principles in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in
certain significant respects from accounting principles generally accepted in
the United States of America. Application of accounting principles generally
accepted in the United States would have affected net income for the two years
ended 31 December 1997 and shareholders' funds at 31 December 1997 and 31
December 1996, to the extent summarised in Note 29 to the consolidated
financial statements.
/s/ KPMG Audit Plc
Chartered Accountants
Registered Auditor
London, England
17 February 1998
F-41
<PAGE>
T&N PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNTS
FOR THE YEARS ENDED 31 DECEMBER
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
---------- ----------------- ----------------- -----------------
(POUND STERLING)M (POUND STERLING)M (POUND STERLING)M
<S> <C> <C> <C> <C>
Turnover
Turnover including
share of associated
undertakings......... 1,883.3 2,037.9 2,164.5
Associated
undertakings......... (84.2) (81.9) (73.0)
-------- -------- --------
Turnover excluding
associated
undertakings......... 1,799.1 1,956.0 2,091.5
Continuing operations. 1,734.7 1,814.4 1,777.0
Acquisitions.......... 29.6 -- --
-------- -------- --------
Total continuing
operations........... 1,764.3 1,814.4 1,777.0
Discontinued
operations........... 34.8 141.6 314.5
-------- -------- --------
Total turnover
excluding associated
undertakings......... 2(a) 1,799.1 1,956.0 2,091.5
Cost of sales......... 2(d) (1,293.5) (1,418.3) (1,507.8)
-------- -------- --------
Gross profit............ 505.6 537.7 583.7
Federal-Mogul bid
related costs........ (10.0) -- --
Other operating
expenses............. 2(d) (331.6) (370.3) (369.7)
-------- -------- --------
Group operating profit
before asbestos-
related costs........ 164.0 167.4 214.0
Share of profits of
associated
undertakings......... 2(d) 13.2 11.8 11.8
-------- -------- --------
Operating profit
before asbestos-
related costs........ 2(b), 2(e) 177.2 179.2 225.8
Asbestos-related
costs................ 2(d) -- (515.0) (51.3)
-------- -------- --------
Operating profit/(loss)
on ordinary activities.
Continuing operations. 171.4 (350.3) 148.0
Acquisitions.......... 3.2 -- --
-------- -------- --------
Total continuing
operations........... 174.6 (350.3) 148.0
Discontinued
operations........... 2.6 14.5 26.5
-------- -------- --------
Total operating
profit/(loss) on
ordinary activities.... 2(d) 177.2 (335.8) 174.5
Profit/(loss) on
disposal of
discontinued
operations........... 3 14.5 (1.0) 1.5
Release/(charge) of
provision against
loss on disposals.... 3 -- 1.4 (1.4)
Provision for
loss/loss on disposal
of properties
(continuing
operations).......... (3.1) (2.0) --
Release of
provision/(provision
against) fixed asset
investments:
Kolbenschmidt costs.. 4 32.4 (23.4) (19.5)
-------- -------- --------
Profit/(loss) on
ordinary activities
before finance charges. 221.0 (360.8) 155.1
Net interest payable
and similar charges--
Group................ 5 (28.4) (26.8) (35.8)
Net interest
(payable)/receivable
and similar charges--
Associates........... (2.5) (0.7) 0.8
-------- -------- --------
Profit/(loss) on
ordinary activities
before taxation........ 190.1 (388.3) 120.1
Tax on profit/(loss)
on ordinary
activities........... 6 (62.8) (8.0) (41.4)
-------- -------- --------
Profit/(loss) on
ordinary activities
after taxation......... 127.3 (396.3) 78.7
Minority interests.... (4.9) (4.5) (8.4)
-------- -------- --------
Profit/(loss)
attributable to
shareholders......... 122.4 (400.8) 70.3
Dividends paid and
proposed............. 7 (49.5) (16.0) (31.9)
-------- -------- --------
Transfer to/(from)
reserves............... 21 72.9 (416.8) 38.4
======== ======== ========
Earnings/(loss) per
share................ 8 22.9p (75.4)p 13.3p
Earnings per share pre
asbestos-related
costs................ 8 20.4p 14.8 p 22.7p
Dividends per share... 7 9.2p 3.0 p 6.0p
</TABLE>
Where applicable, figures for the year ended 31 December 1996 and 31
December 1995 have been restated to disclose separately the results of
business discontinued during 1997. In addition, the 1996 and 1995 figures have
been restated to show the share of interest payable and similar charges of
associated companies below operating profit.
See accompanying notes to consolidated financial statements
F-42
<PAGE>
T&N PLC
CONSOLIDATED BALANCE SHEETS
AS AT 31 DECEMBER
<TABLE>
<CAPTION>
BEFORE ASBESTOS 1997 ASBESTOS
NOTES RELATED ITEMS RELATED ITEMS TOTAL 1997 TOTAL 1996
----- --------------- ------------- ---------- ----------
(POUND (POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C> <C> <C>
Fixed assets
Tangible assets....... 11 676.4 -- 676.4 697.2
Investments........... 12 83.6 -- 83.6 59.5
----- ------ ------- -------
760.0 -- 760.0 756.7
----- ------ ------- -------
Current assets
Stocks................ 13 221.9 -- 221.9 247.6
Debtors falling due
within one year...... 14 318.8 -- 318.8 350.8
Debtors falling due
after more than one
year................. 14 73.5 -- 73.5 66.1
Investments........... 15 8.0 -- 8.0 5.6
Cash at bank and in
hand................. 18 115.8 78.2 194.0 131.5
----- ------ ------- -------
738.0 78.2 816.2 801.6
----- ------ ------- -------
Creditors: due within
one year
Borrowings............ 18 103.7 -- 103.7 77.2
Other creditors....... 16 403.4 19.6 423.0 472.5
----- ------ ------- -------
507.1 19.6 526.7 549.7
----- ------ ------- -------
Net current assets...... 230.9 58.6 289.5 251.9
----- ------ ------- -------
Total assets less
current liabilities.. 990.9 58.6 1,049.5 1,008.6
Creditors: due after
more than one year...
Borrowings............ 18 285.4 -- 285.4 260.2
Other creditors....... 17 12.0 -- 12.0 15.9
----- ------ ------- -------
297.4 -- 297.4 276.1
----- ------ ------- -------
Provisions for
liabilities and
charges.............. 19 147.1 388.2 535.3 589.5
----- ------ ------- -------
Net assets.............. 546.4 (329.6) 216.8 143.0
===== ====== ======= =======
Capital and reserves
Called up share
capital.............. 20 219.5 532.2
Share premium account. 21 2.7 0.2
Shares to be issued... 0.7 --
Special reserve....... 63.2 --
Revaluation reserve... 21 14.2 21.6
Associated
undertakings'
reserve.............. 21 (2.1) 5.0
Goodwill write off
reserve.............. 21 (182.9) (181.1)
Profit and loss
account.............. 21 76.1 (259.6)
------- -------
Equity shareholders'
funds................ 191.4 118.3
Minority equity
interests............ 25.4 24.7
------- -------
216.8 143.0
======= =======
</TABLE>
These financial statements were approved by the board of directors and were
signed on its behalf by Sir Colin Hope (Chairman) and David Harding (Finance
Director) on 17 February 1998.
See accompanying notes to consolidated financial statements
F-43
<PAGE>
T&N PLC
CONSOLIDATED CASH FLOW STATEMENTS
FOR THE YEARS ENDED 31 DECEMBER
<TABLE>
<CAPTION>
BEFORE
ASBESTOS ASBESTOS
RELATED RELATED
NOTES FLOWS FLOWS 1997 TOTAL
----- ---------- ---------- ----------
(POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C> <C>
Cash inflow from operating activities
Before asbestos related payments... 22(a) 260.8 -- 260.8
Asbestos related payments.......... 22(a)
IBNR............................. -- (12.7) (12.7)
Other claims..................... -- (44.7) (44.7)
Insurance........................ -- (92.0) (92.0)
------ ------ ------
Net cash inflow from operating
activities.......................... 22(a) 260.8 (149.4) 111.4
Dividends from associates............ 6.5 -- 6.5
Returns on investments and servicing
of finance.......................... 22(b) (27.6) 2.7 ( 24.9)
Taxation............................. 22(c) (20.1) -- (20.1)
Capital expenditure and financial
investment.......................... 22(d) (101.9) -- (101.9)
------ ------ ------
117.7 (146.7) (29.0)
Acquisitions and disposals........... 22(e) 43.1 -- 43.1
Equity dividends paid................ (17.6) -- (17.6)
------ ------ ------
143.2 (146.7) (3.5)
------ ------ ------
Management of liquid resources....... 22(f) (76.5) -- (76.5)
Financing............................ 22(g) 34.0 -- 34.0
------ ------ ------
Increase/(decrease) in cash.......... 100.7 (146.7) (46.0)
====== ====== ======
Reconciliation of asbestos-related
flows to asbestos fund
Cash outflows (as above)........... (146.7)
Cash transferred to asbestos fund.. 88.2
Non IBNR payments.................. 136.7
------
Asbestos fund at year end.......... 78.2
======
</TABLE>
See accompanying notes to consolidated financial statements
F-44
<PAGE>
T&N PLC
CONSOLIDATED CASH FLOW STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER
<TABLE>
<CAPTION>
BEFORE
ASBESTOS ASBESTOS
RELATED RELATED
NOTES FLOWS FLOWS 1996 TOTAL 1995 TOTAL
----- ---------- ---------- ---------- ----------
(POUND (POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C> <C> <C>
Cash inflow from operating
activities
Before asbestos related
payments............... 22(a) 280.5 -- 280.5 298.6
Asbestos related
payments............... 22(a)
IBNR.................. -- (1.2) (1.2) --
Other claims.......... -- (63.6) (63.6) (55.7)
Insurance............. -- -- -- --
------ ----- ------ ------
Net cash inflow from
operating activities..... 22(a) 280.5 (64.8) 215.7 242.9
Dividends from associates. 6.8 -- 6.8 1.6
Returns on investments and
servicing of finance..... 22(b) ( 31.4) -- (31.4) (37.4)
Taxation.................. 22(c) (28.9) -- (28.9) (13.3)
Capital expenditure and
financial investment..... 22(d) (125.5) -- (125.5) (155.6)
------ ----- ------ ------
101.5 (64.8) 36.7 38.2
Acquisitions and
disposals................ 22(e) 59.3 -- 59.3 5.8
Equity dividends paid..... (31.9) -- (31.9) (33.0)
------ ----- ------ ------
128.9 (64.8) (64.1) 11.0
------ ----- ------ ------
Management of liquid
resources................ 22(f) (6.2) -- (6.2) 6.7
Financing................. 22(g) (27.1) -- (27.1) (0.4)
------ ----- ------ ------
Increase/(decrease) in
cash..................... 95.6 (64.8) (30.8) 17.3
====== ===== ====== ======
Reconciliation of asbestos
related flows to asbestos
fund
Cash outflows (as
above)................. (64.8) (55.7)
Cash transferred to
asbestos fund.......... 1.2 --
Non IBNR payments....... 63.6 55.7
----- ------
Asbestos fund at year
end.................... -- --
===== ======
</TABLE>
See accompanying notes to consolidated financial statements
F-45
<PAGE>
T&N PLC
CONSOLIDATED CASH FLOW STATEMENTS--(CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
----- ---------- ---------- ----------
RECONCILIATION OF NET CASH FLOW TO (POUND (POUND (POUND
MOVEMENT IN NET DEBT STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C> <C>
(Decrease)/increase in cash in the
year.................................. (46.0) 30.8 17.3
Cash (inflow)/outflow from movement in
debt.................................. 22(g)
and lease financing................... (22.8) 30.1 3.2
Cash outflow/(inflow) from movement in
liquid resources...................... 76.5 6.2 (6.7)
Loans acquired with businesses......... (4.8) -- (7.4)
------ ------ ------
Change in net debt resulting from cash
flows................................. 2.9 67.1 6.4
Deduction of costs of raising finance
paid from net debt.................... 1.6 -- --
Amortisation of costs of raising
finance............................... (0.2) -- --
Exchange difference.................... 8.9 42.6 (14.9)
------ ------ ------
Reduction/(increase) in net debt....... 13.2 109.7 (8.5)
Net debt at start of year.............. (200.3) (310.0) (301.5)
------ ------ ------
Net debt at end of year................ (187.1) (200.3) (310.0)
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements
F-46
<PAGE>
T&N PLC
STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEARS ENDED 31 DECEMBER
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
----- ---------- ---------- ----------
(POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C> <C>
Profit/(loss) attributable to
shareholders............................ 122.4 (400.8) 70.3
Other recognised gains and losses
Unrealised loss on revaluation of fixed
assets................................ 21 (1.7) -- 1.6
Currency translation differences on
foreign currency net investments...... 21 (17.4) (23.1) (1.6)
Other recognised losses................ -- (0.6) (1.4)
----- ------ -----
Total recognised gains and losses
relating to the year................ 103.3 (424.5) 68.9
===== ====== =====
Historical cost profits/(losses)
Reported profit/(loss) on ordinary
activities before taxation............ 190.1 (388.3) 120.1
Realisation of revaluation surpluses... 4.8 5.6 6.6
Difference between the historical
depreciation charge and the actual
depreciation charge................... 0.5 0.6 0.7
----- ------ -----
Historical cost profit/(loss) on ordinary
activities before taxation.............. 195.4 (382.1) 127.4
----- ------ -----
Historical cost profit/(loss) for the
year after taxation, minority interests
and dividends........................... 78.2 (410.6) 45.7
===== ====== =====
</TABLE>
See accompanying notes to consolidated financial statements
F-47
<PAGE>
T&N PLC
RECONCILIATIONS OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE YEARS ENDED 31 DECEMBER
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
----- ---------- ---------- ----------
(POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C> <C>
Profit/(loss) attributable to
shareholders........................... 122.4 (400.8) 70.3
Dividends............................... (49.5) (16.0) (31.9)
----- ------ -----
Transfer to/(from) to reserves.......... 72.9 (416.8) 38.4
Other recognised gains and losses (as
above)................................. (19.1) (23.7) (1.4)
New share capital subscribed............ 9.2 1.2 2.2
Scrip dividends......................... 15.4 -- --
Shares to be issued under Executive
Share Option Schemes................... 0.7 -- --
Goodwill................................ 21 (6.0) 9.4 (4.4)
----- ------ -----
Net change.............................. 73.1 (429.9) 34.8
Shareholders' funds at start of year.... 118.3 548.2 513.4
----- ------ -----
Shareholders' funds at end of year...... 191.4 118.3 548.2
===== ====== =====
</TABLE>
See accompanying notes to consolidated financial statements
F-48
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The Group follows applicable UK Accounting Standards and Practice. The
consolidated financial statements are prepared under the historical cost
convention, as modified by the revaluation of certain fixed assets.
During 1997 the accounting policy for Executive share options has been
amended as set out below, in accordance with UITF Abstract 17, Employee Share
Schemes.
Basis of Consolidation
The consolidated financial statements comprise the audited accounts of the
Company and its subsidiary undertakings, together with the Group's share of
the profits and losses and of the reserves of its associated undertakings. The
accounts of subsidiaries are drawn up to the same date as those of the
Company. Results of subsidiaries acquired or sold during the year are included
from, or up to, their respective dates of acquisition or disposal.
Associated Undertakings
Associated undertakings are companies, other than subsidiaries, in which the
Group has a long-term and substantial investment and over which significant
influence is exercised, normally through board representation. Associated
undertakings are accounted for on the equity basis, that is, the Group's share
of operating profit and items reported below operating profit are included in
the profit and loss account. Its interest in their net assets, other than
goodwill, is included in investments in the Group balance sheet.
Deferred Tax
Deferred tax is attributable to timing differences between results as
computed for tax purposes and as stated in the accounts. These differences
arise from, for example, different rates at which allowances are granted for
capital expenditure for tax purposes and at which depreciation is charged in
the accounts. Provision for deferred tax, including that relating to post
retirement benefits, is made only to the extent that it is probable that an
actual liability or asset will crystallise.
Depreciation
Depreciation is provided on cost or the revalued amount, as applicable, to
write fixed assets down to their estimated residual values on a straight line
basis as follows:
. Freehold buildings, 2.5% per annum;
. Leasehold buildings are assumed to have a life equal to the period of the
lease, but with a maximum of 40 years;
. Plant and machinery, at rates ranging from 7% to 33% per annum.
Foreign Currencies
Overseas companies' results and cash flows are translated into sterling at
average exchange rates and their balance sheets at year end exchange rates. An
adjustment to local currency results is made to reflect current price levels,
where appropriate, before translation into sterling. Exchange differences
arising from the translation of the opening balance sheets and results of
overseas companies are dealt with through reserves. Exchange differences on
transactions in foreign currencies are included in the profit and loss
account.
F-49
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Grants
Grants related to expenditure on tangible fixed assets are credited to
profit over a period approximating to the lives of qualifying assets. Grants
receivable to date, less the amounts so far credited to profit, are included
in creditors.
Intangibles
Goodwill, being the excess of the fair value of purchase consideration over
the fair value attributed to the net assets acquired, is charged to reserves.
On disposal of businesses, any goodwill previously eliminated on acquisition
is included in determining the profit or loss on disposal. Other intangibles
are written off when acquired.
Leasing
Finance leases of significant items of plant and machinery are capitalised
and depreciated in accordance with the Group's depreciation policy. The
capital element of future lease payments is included under borrowings.
Interest, calculated on the reducing balance method, is included within net
financing charges. Operating lease rentals are charged to the profit and loss
account on a straight line basis over the life of the lease.
Pensions and Other Post-Retirement Benefits
The cost of providing pensions and other post-employment benefits is charged
against profits on a systematic basis, with pension surpluses and deficits
being amortised over the expected remaining service lives of current
employees. Differences between the amounts charged in the profit and loss
account and payments made to the plans are treated as assets or liabilities in
the consolidated balance sheet. The unfunded post-employment medical benefit
liability is included in provisions in the consolidated balance sheet.
Research and Development
Research and development revenue expenditure, including all expenditure on
patents and trademarks, is written off when incurred.
Share Options
For options which are expected to be exercised under the Executive share
option schemes, the difference between the market value on the date of
granting options and the option price is charged to the profit and loss
account over the period to which the employees' performance relates. No charge
is made in respect of the Save As You Earn option scheme which is open to all
UK employees who satisfy the necessary length of service requirements.
Stocks
Stocks are stated at the lower of original costs and net realisable value on
a first-in-first out basis. Cost comprises material, labour and an allocation
of attributable overhead expenses. Net realisable value is the price at which
stock can be sold in the normal course of business after allowing for the
costs of realisation.
Turnover
Turnover is the value of sales to third parties at net invoice value
excluding value added tax or equivalent overseas sales taxes.
F-50
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ANALYSIS OF RESULTS
The composites and camshafts grouping comprises camshafts, powder metal
products, heat transfer products and industrial products and materials.
Figures for the engine parts aftermarket group are reflected in the product
groupings to which they relate.
(a) Turnover
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(POUND STERLING)M (POUND STERLING)M (POUND STERLING)M
<S> <C> <C> <C>
Market supplied
Light vehicle original
equipment............. 731.2 772.9 756.6
Automotive aftermarket. 497.1 529.4 480.1
Industrial and heavy
duty original
equipment............. 570.8 653.7 854.8
------- ------- -------
1,799.1 1,956.0 2,091.5
======= ======= =======
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
(POUND STERLING)M (POUND STERLING)M (POUND STERLING)M
<S> <C> <C> <C>
Product groupings
Bearings............... 329.6 333.1 342.5
Sealing Products....... 195.1 216.0 227.0
Friction Products...... 293.9 309.5 319.0
Piston Products........ 572.8 574.7 559.6
Composites and
Camshafts............. 372.9 381.1 328.9
------- ------- -------
Continuing operations.... 1,764.3 1,814.4 1,777.0
Discontinued operations.. 34.8 141.6 314.5
------- ------- -------
1,799.1 1,956.0 2,091.5
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
ACQUISITIONS DISCONTINUED DISCONTINUED DISCONTINUED
----------------- ----------------- ----------------- -----------------
(POUND STERLING)M (POUND STERLING)M (POUND STERLING)M (POUND STERLING)M
<S> <C> <C> <C> <C>
Business acquired and
discontinued
Sealing Products...... -- 12.1 49.8 49.6
Friction Products..... -- 12.5 18.6 10.9
Piston Products....... 27.7 -- -- --
Composites and
Camshafts............ 1.9 10.2 18.9 170.8
Construction Materials
and Engineering...... -- -- 54.3 83.2
---- ---- ----- -----
29.6 34.8 141.6 314.5
==== ==== ===== =====
</TABLE>
F-51
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
BY ORIGIN BY DESTINATION
-------------------------------- --------------------------------
1997 1996 1995 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
(POUND (POUND (POUND (POUND POUND POUND
STERLING)M STERLING)M STERLING)M STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C> <C> <C> <C>
Regional
UK.................... 442.1 431.5 418.6 283.3 280.4 271.8
Mainland Europe....... 640.2 724.4 720.6 715.0 785.3 791.9
North America......... 563.1 527.7 503.2 568.1 540.2 518.7
South Africa.......... 101.7 111.2 115.0 93.1 93.0 99.8
Other countries....... 17.2 19.6 19.6 104.8 115.5 94.8
------- ------- ------- ------- ------- -------
Continuing operations... 1,764.3 1,814.4 1,777.0 1,764.3 1,814.4 1,777.0
Discontinued operations. 34.8 141.6 314.5 34.8 141.6 314.5
------- ------- ------- ------- ------- -------
1,799.1 1,956.0 2,091.5 1,799.1 1,956.0 2,091.5
======= ======= ======= ======= ======= =======
</TABLE>
Inter-group turnover between product groupings and regions is not material.
(b) Operating profit before asbestos-related costs
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C>
Product groupings
Bearings..................................... 47.9 44.1 48.5
Sealing Products............................. 18.8 16.1 25.1
Friction Products............................ 20.4 16.0 28.2
Piston Products.............................. 50.9 43.9 56.5
Composites and Camshafts..................... 46.6 44.6 41.8
----- ----- -----
184.6 164.7 200.1
----- ----- -----
Bid costs...................................... (10.0) -- --
----- ----- -----
Continuing operations.......................... 174.6 164.7 200.1
Discontinued operations........................ 2.6 14.5 26.5
----- ----- -----
177.2 179.2 226.6
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
ACQUISITIONS DISCONTINUED DISCONTINUED DISCONTINUED
------------ ------------ ------------ ------------
(POUND (POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C> <C>
Business acquired and
discontinued
Sealing Products......... -- 1.1 5.2 1.2
Friction Products........ -- (0.1) 0.4 0.6
Piston Products.......... 3.4 -- -- --
Composites and Camshafts. (0.2) 1.6 3.5 7.9
Construction Materials
and Engineering......... -- -- 5.4 16.8
---- ---- ---- ----
3.2 2.6 14.5 26.5
==== ==== ==== ====
</TABLE>
F-52
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C>
Regional
UK........................................... 53.6 58.5 59.3
Mainland Europe.............................. 62.7 46.4 73.4
North America................................ 64.0 52.7 52.3
South Africa................................. 7.0 7.6 12.9
Other countries.............................. (2.7) (0.5) 2.2
----- ----- -----
184.6 164.7 200.1
Bid costs...................................... (10.0) -- --
----- ----- -----
Continuing operations.......................... 174.6 164.7 200.1
Discontinued operations........................ 2.6 14.5 26.5
----- ----- -----
177.2 179.2 226.6
===== ===== =====
</TABLE>
Asbestos-related costs, finance charges, losses on disposal of discontinued
operations and the movements in the provision against the Kolbenschmidt
investment are not allocated by product groupings or region.
(c) Capital employed
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
(POUND STERLING) (POUND STERLING)
M M
<S> <C> <C>
Product groupings
Bearings................................... 128.1 121.5
Sealing Products........................... 67.1 65.6
Friction Products.......................... 117.3 124.6
Piston Products............................ 294.0 272.9
Composites and Camshafts................... 148.5 137.0
------ ------
Continuing operations........................ 755.0 721.6
Discontinued operations...................... -- 22.9
------ ------
755.0 744.5
Assets held for disposal and trade
investments................................. 37.0 14.6
Asbestos-related provisions.................. (388.2) (440.6)
Net deferred consideration for acquisitions
and disposals............................... 0.1 24.8
------ ------
Capital employed............................. 403.9 343.3
Net borrowings............................... (187.1) (200.3)
------ ------
Net assets................................... 216.8 143.0
====== ======
</TABLE>
F-53
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
(POUND STERLING) (POUND STERLING)
M M
<S> <C> <C>
Regional
UK.......................................... 251.2 230.6
Mainland Europe............................. 181.2 240.4
North America............................... 236.4 190.7
South Africa................................ 43.0 40.4
Other countries............................. 43.2 42.4
----- -----
755.0 744.5
===== =====
</TABLE>
(d) Continuing and discontinued activities
<TABLE>
<CAPTION>
1997
CONTINUING ACQUISITIONS DISCONTINUED TOTAL
---------- ------------ ------------ ---------
(POUND (POUND (POUND (POUND
STERLING) STERLING) STERLING) STERLING)
M M M M
<S> <C> <C> <C> <C>
Turnover........................ 1,734.7 29.6 34.8 1,799.1
Cost of sales................... (1,245.2) (24.3) (24.0) (1,293.5)
-------- ----- ----- --------
Gross profit.................... 489.5 (53) 10.8 505.6
Selling and distribution costs.. (143.5) (0.3) (5.0) (148.8)
Administrative expenses......... (137.0) (1.1) (2.6) (140.7)
Research and development........ (50.7) (0.7) (0.7) (52.1)
Share of profits of associated
undertakings................... 13.1 -- 0.1 13.2
-------- ----- ----- --------
Operating profit before
asbestos-related costs......... 171.4 3.2 2.6 177.2
Asbestos-related costs.......... -- -- -- --
-------- ----- ----- --------
Operating profit................ 171.4 3.2 2.6 177.2
======== ===== ===== ========
</TABLE>
<TABLE>
<CAPTION>
1996
CONTINUING DISCONTINUED TOTAL
---------- ------------ ---------
(POUND (POUND (POUND
STERLING) STERLING) STERLING)
M M M
<S> <C> <C> <C>
Turnover..................................... 1,814.4 141.6 1,956.0
Cost of sales................................ (1,317.2) (101.1) (1,418.3)
-------- ------ --------
Gross profits................................ 497.2 (40.5) 517.7
Selling and distribution costs............... (155.2) (13.2) (168.6)
Administrative expenses...................... (137.4) (11.3) (148.7)
Research and development..................... (51.5) (1.5) (53.0)
Share of profits of associated undertakings.. 11.6 0.2 11.8
-------- ------ --------
Operating profit before asbestos-related
costs....................................... 164.7 14.5 179.2
Asbestos-related costs....................... (515.0) -- (515.0)
-------- ------ --------
Operating profit............................. (350.3) 14.5 (335.8)
======== ====== ========
</TABLE>
F-54
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1995
CONTINUING DISCONTINUED TOTAL
---------- ------------ ---------
(POUND (POUND (POUND
STERLING) STERLING) STERLING)
M M M
<S> <C> <C> <C>
Turnover..................................... 1,777.0 314.5 2,091.5
Cost of sales................................ (1,267.8) (240.0) (1,507.8)
-------- ------ --------
Gross profit................................. 509.2 (74.5) 583.7
Selling and distribution costs............... (152.0) (21.5) (173.5)
Administrative expenses...................... (120.5) (23.5) (144.0)
Research and development..................... (49.2) (3.0) (52.2)
Share of profits of associated undertakings.. 11.8 -- 11.8
-------- ------ --------
Operating profit before asbestos-related
costs....................................... 199.3 26.5 225.8
Asbestos-related costs....................... (51.3) -- (51.3)
-------- ------ --------
Operating profit............................. 148.0 26.5 174.5
======== ====== ========
</TABLE>
1996 and 1995 amounts have been restated to reflect businesses disposed of in
1997.
(e) Costs of continuing operations charged in arriving at operating profit
before asbestos-related costs include 17.5 pound sterling millions (1996 15.3
pound sterling millions, 1995 11.3 pound sterling million) in respect of
redundancy and rationalisation. 4.5 pound sterling millions of these costs
(1996 8.1 pound sterling millions) have been charged as administrative costs
and the majority of the remainder as cost of sales.
(f) Profit before finance charges is stated after charging
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(POUND (POUND (POUND
STERLING) STERLING) STERLING)
M M M
<S> <C> <C> <C>
Auditors and its associates' remuneration
--as Group auditors (including T&N plc 0.4
pound sterling millions (1996 0.6 pound
sterling millions 1995 pound 0.6m))........... (1.3) (1.8) (1.8)
--fees for other services (includes T&N plc 0.9
pound sterling millions (1996 0.9 pound
sterling millions 1995 0.4 pound sterling
million))..................................... (1.9) (1.4) (0.9)
Depreciation of tangible fixed assets
--owned assets................................. (94.2) (97.3) (100.3)
--finance leased assets........................ (0.7) (1.0) (1.3)
Operating lease rentals
--on plant and machinery....................... (9.1) (8.7) (7.8)
--on land and buildings........................ (6.3) (7.4) (7.0)
</TABLE>
F-55
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SALE OF DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
1997
----------------
(POUND STERLING)
M
<S> <C>
The profit for the year on disposal of discontinued operations
comprises
Provisions against amounts receivable on disposal of the
Construction Materials business in Zimbabwe................ (7.5)
Profit on disposal in the year.............................. 22.0
----
Net profit................................................ 14.5
====
</TABLE>
<TABLE>
<CAPTION>
BUSINESS DISPOSED EFFECTIVE DATE
- ----------------- ---------------
<S> <C>
Flexitallic..................................................... 10 April 1997
Ferodo Caemarfon................................................ 3 May 1997
Kafue Fisheries................................................. 26 June 1997
Tenmal.......................................................... 4 August 1997
Ferodo US Heavy Parts........................................... 9 December 1997
</TABLE>
Details of assets disposed are set out below:
<TABLE>
<CAPTION>
NET ASSETS AT DATE OF T&N
DISPOSAL FLEXITALLIC TENMAT OTHERS S AFRICA TOTAL
- --------------------- ----------- --------- --------- --------- ---------
(POUND (POUND (POUND (POUND
(POUND STERLING) STERLING) STERLING) STERLING)
STERLING) M M M M M
<S> <C> <C> <C> <C> <C>
Fixed assets............... 10.7 6.5 5.7 -- 22.9
Investments................ 0.5 -- -- -- 0.5
Stocks..................... 4.7 1.8 2.9 -- 9.4
Debtors.................... 7.8 2.9 3.0 -- 13.7
Creditors and provisions... (5.1) (2.3) (1.1) -- (8.5)
Net cash................... -- 0.4 -- -- 0.4
Goodwill on acquisition of
businesses................ 1.6 2.4 -- -- 4.0
Minority interest sold..... -- -- -- 0.4 0.4
---- ---- ---- --- ----
Assets disposed............ 20.2 11.7 10.5 0.4 42.8
Profit/(loss).............. 20.8 5.0 (3.8) -- 22.0
---- ---- ---- --- ----
Cash consideration
realised.................. 41.0 16.7 6.7 0.4 64.8
==== ==== ==== === ====
Cash arising during the
year from the disposal of
operations................
Net cash proceeds.......... 64.8
Prior year disposals....... 9.6
Deferred payments.......... 1.7
Net cash disposed.......... (0.4)
----
Cash flow.................. 75.7
====
Operating profit in 1997 to
date of disposal.......... 1.1 1.6 (0.1) -- 2.6
==== ==== ==== === ====
</TABLE>
During the year the Group's shareholdings in T&N Holdings Ltd in South Africa
was reduced from 52.4% to 50.8% by selling shares which were taken up as scrip
dividends.
F-56
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. OPTION OVER SHARES IN KOLBENSCHMIDT AG ("KS")
In December 1996 option arrangements with Commerzbank AG over 6,727,260
shares in KS expired. Commerzbank AG subsequently sold the shares subject to
the arrangement and under the terms of the agreement, the Company received
part of the proceeds. The gain of pound sterling 13.2 million has been
recognised as a profit.
At 31 December 1996 the Company held options to acquire 6,727,260 shares in
KS, representing 24.99% of the issued share capital of KS. The option price is
DM 17 per share and the consideration payable on exercise of the options would
be DM 114.4 pound sterling millions (38.7 pound sterling millions). On 28 May
1997 the Company announced that it had entered into option arrangements to
sell 6,727,260 shares in KS at a price of DM 30 per share. The revenue
receivable on exercise of these options would be DM 201.8 pound sterling
millions (68.2 pound sterling millions). The costs of these options, which are
exercisable in December 1999, was 6.1 pound sterling million. An offer has
been received to purchase both of the above rights for 10.7 pound sterling
million per share resulting in a release of provisions totalling 19.2 pound
sterling million.
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(POUND (POUND (POUND
STERLING) STERLING) STERLING)
M M M
<S> <C> <C> <C>
Received from Commerzbank AG on sale of shares... 13.2 -- --
Release/(creation) of provision made in prior
years........................................... 19.2 -- (12.0)
Transfer of options to Metallbank GmbH........... -- (8.5) --
Payable on lapse of options with Commerzbank AG.. -- (10.0) --
Other holding costs.............................. -- (4.9) (7.5)
---- ----- -----
32.4 (23.4) (19.5)
==== ===== =====
</TABLE>
5. NET INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(POUND (POUND (POUND
STERLING) STERLING) STERLING)
M M M
<S> <C> <C> <C>
Interest payable on bank loans, overdrafts and
other loans
-- repayable within five years, not by
instalments.................................. (28.4) (26.2) (31.5)
-- repayable within five years, by
instalments.................................. (4.0) (4.4) (4.6)
-- repayable wholly or partly in more than
five years................................... (4.1) (1.5) (3.4)
Interest on finance leases repayable within five
years.......................................... (0.3) (0.4) (0.3)
Amortisation of discounted asbestos provisions.. (2.5) -- --
----- ----- -----
(39.3) (32.5) (39.8)
===== ===== =====
Interest receivable
On asbestos fund................................ 2.7 -- --
Other interest receivable....................... 8.2 5.7 4.0
----- ----- -----
10.9 5.7 4.0
===== ===== =====
Net interest payable and similar charges........ (28.4) (26.8) (35.8)
===== ===== =====
</TABLE>
F-57
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. TAXATION
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(POUND (POUND (POUND
STERLING) STERLING) STERLING)
M M M
<S> <C> <C> <C>
UK corporation tax at 31.5% (1996 33% 1995 33%)... (13.1) (15.2) (13.9)
Relief for overseas taxation...................... 7.8 8.6 8.8
Advance corporation tax written (off)/back........ (3.2) 0.7 (3.9)
Deferred tax...................................... (0.5) 9.0 (4.4)
Adjustments in respect of prior years............. (2.7) -- 0.4
----- ----- -----
Total UK.......................................... (11.7) 3.1 (13.0)
Overseas.......................................... (30.6) (21.5) (23.3)
Overseas deferred tax............................. (15.3) 16.2 (0.8)
Associated undertakings........................... (5.0) (7.0) (5.6)
Adjustments in respect of prior years............. (0.2) 1.2 1.3
----- ----- -----
(62.8) (8.0) (41.4)
===== ===== =====
</TABLE>
The overseas tax charge has been reduced by pound sterling 10.9 million
(1996 pound sterling 5.0 million, 1995 pound sterling 6.0 million) by
utilising losses brought forward.
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(POUND (POUND (POUND
STERLING) STERLING) STERLING)
M M M
<S> <C> <C> <C>
The tax (charge)/credit arise as follows
On the disposal of operations.................. (5.1) (1.8) (2.4)
On provision for loss/loss on disposal of
properties.................................... -- (0.1) --
On (release of provision)/provision against
fixed asset investments....................... (11.9) 0.6 5.5
On asbestos-related costs...................... 13.1 35.5 1.6
On other profits............................... (58.9) (42.2) (46.1)
----- ----- -----
(62.8) (8.0) (41.4)
===== ===== =====
</TABLE>
The tax credit taken in these accounts in respect of asbestos is calculated
by reference to the payments made rather than the charge in the accounts and
has been reduced by the related movements in the deferred tax debtor. No tax
relief is available on the goodwill of pound sterling 4.0 million (1996: pound
sterling 9.7 million) charged in arriving at the profit on disposal of
operations of pound sterling 14.5 million (1996: pound sterling 0.4 million).
F-58
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The group's tax charge differs from the "expected" tax charge that would
result from applying the UK rate of 31.5% (1996 and 1995: 33%) to profit
before tax as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(POUND (POUND (POUND
STERLING) STERLING) STERLING)
M M M
<S> <C> <C> <C>
Tax actually (charged)........................... (62.8) (8.0) (41.4)
Less: "Expected" tax charge at 31.5% (1996: 33%). 59.9 (128.0) 39.6
----- ------ -----
(2.9) (136.0) (1.8)
===== ====== =====
Reconciliation
Differences from UK tax rate..................... (12.2) 2.6 (6.0)
Prior year differences........................... (2.7) -- --
UK tax on inter-company dividends................ (14.3) -- --
Bid costs not deductible for tax................. (3.1) -- --
Other items not deductible for tax (permanent
differences).................................... (6.6) (3.5) (3.6)
Timing differences on asbestos provisions not
provided for.................................... 39.1 (132.7) 11.0
Timing differences not provided for other........ 2.2 (0.3) 8.4
Impact of ACT.................................... (3.2) 0.7 (4.0)
Others........................................... (2.1) (2.8) (7.6)
----- ------ -----
(2.9) (136.0) (1.8)
===== ====== =====
</TABLE>
The UK tax charge for 1997 has increased by pound 2.2 million due to the
reduction in the rate of UK corporation tax as from 1 April 1997 from 33% to
31% the reduced rate means there is a smaller deferred tax asset carried
forward.
7. DIVIDENDS
<TABLE>
<CAPTION>
1997 1997 1996 1996 1995 1995
----- --------- ----- --------- ----- ---------
PENCE (POUND PENCE (POUND PENCE (POUND
PER STERLING) PER STERLING) PER STERLING)
SHARE M SHARE M SHARE M
<S> <C> <C> <C> <C> <C> <C>
First interim paid on 11 July
1997.......................... 3.0 (16.0) -- -- 3.0 (15.9)
Second interim paid on 14
November 1997................. 3.2 (17.0) 3.0 (16.0) -- --
Third interim paid 30 January
1998.......................... 3.0 (16.5) -- -- -- --
Final proposed................. -- -- -- -- 3.0 (16.0)
--- ----- --- ----- --- -----
9.2 (49.5) 3.0 (16.0) 6.0 (31.9)
=== ===== === ===== === =====
</TABLE>
Because of the exceptional asbestos-related charge during 1996, the Company
did not have sufficient distributable reserves to declare a final dividend for
1996. A first interim dividend of 3.0 pence per share was paid to shareholders
on the register on 2 May 1997 in lieu of the final 1996 dividend with the
result that shareholders received dividends totalling 6.0 pence per share in
respect of 1996. A third interim dividend of 3.0 pence per share was declared
on 16 October 1997 and paid on 30 January 1998. No final dividend for 1997 is
proposed. Together with the second interim dividend of 3.2 pence per share,
shareholders have received dividends totalling 6.2 pence per share in respect
of 1997.
Dividends with a value of pound 15.4 million were taken up as scrip
dividends. This comprises pound sterling 0.6 million in respect of the first
interim dividend and pound 14.8 million in respect of the second interim
dividend.
F-59
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. EARNINGS/(LOSS) PER SHARE
<TABLE>
<CAPTION>
1997 1997 1996 1996 1995 1995
----- --------- ----- --------- ----- ---------
PENCE (POUND PENCE (POUND PENCE (POUND
PER STERLING) PER STERLING) PER STERLING)
SHARE M SHARE M SHARE M
<S> <C> <C> <C> <C> <C> <C>
Earnings/(loss):
Net basis................... 22.9 122.4 (75.4) (400.8) 13.3 70.3
Nil basis................... 24.4 130.9 (75.6) (401.5) 14.0 74.2
Pre asbestos-related cost
basis...................... 20.4 109.3 14.8 78.7 22.7 22.7
Average number of shares in
issue weighted on a time
basis...................... 534.5m 531.6m 530.2m
</TABLE>
In addition to earnings per share on a net basis as required by SSAP 3, the
earnings per share are also shown after adjustment for asbestos-related costs.
The adjustment made is to add back asbestos-related costs of pound sterling
nil (1996 pound sterling 515.0 million, 1995 pound sterling 51.3 million) and
associated tax credits of pound sterling 13.1 million (1996 pound sterling
35.5 million, 1995 pound sterling 1.6 million). In the opinion of the
directors, this allows shareholders to gain a clearer understanding of the
performance of the Group. There is no material differences between the
earnings per share figures noted above and those calculated on a fully diluted
basis.
Earnings per share calculated on a nil basis has been adjusted for Advance
Corporate Tax payable for the year of pound sterling 8.5 million (1996 write
back of pound sterling 0.7 million, 1995 charge of pound sterling 3.9
million).
9. EMPLOYEES
<TABLE>
<CAPTION>
1997 1996 1995
AVERAGE AVERAGE AVERAGE
NUMBERS NUMBERS NUMBERS
------- ------- -------
<S> <C> <C> <C>
UK...................................................... 8,637 10,036 11,613
Mainland Europe......................................... 9,388 9,765 10,228
North America........................................... 7,398 7,172 7,115
South America........................................... 3,767 4,379 4,221
Zimbabwe................................................ -- 2,069 8,785
Other countries......................................... 444 472 695
------ ------ ------
29,634 33,893 42,657
====== ====== ======
</TABLE>
At the year end the total number of employees was 28,904 (1996 30,473).
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(POUND (POUND (POUND
STERLING) STERLING) STERLING)
M M M
<S> <C> <C> <C>
Employment costs
Wages and salaries................................ 543.0 601.1 635.8
Social security costs............................. 81.4 96.0 96.0
Other pension costs (note 10)....................... 11.3 12.9 12.4
Other post-employment benefits (note 10)............ 3.0 3.0 2.6
Redundancy payments............................... 14.6 13.9 6.5
----- ----- -----
653.3 726.9 753.3
===== ===== =====
</TABLE>
F-60
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. POST-EMPLOYMENT BENEFITS
The Company and most of its subsidiaries operate both defined benefit and
defined contribution pension schemes. With the exception of the schemes in
Germany, the assets of the principal schemes are held in separate trustee-
administered funds. The most significant schemes are in the UK, Germany, and
the US. The element of the total pension cost relating to overseas schemes has
been determined in accordance with local best practice and regulations and,
where applicable, on the advice of consultant actuaries.
The major pension costs are:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(POUND (POUND (POUND
STERLING) STERLING) STERLING)
M M M
<S> <C> <C> <C>
UK (credit)....................................... (6.4) (5.7) (4.9)
United States..................................... 5.9 5.9 5.9
Germany........................................... 5.7 6.0 4.4
France............................................ 2.3 3.3 3.5
Others............................................ 3.8 3.4 3.5
---- ---- ----
Total......................................... 11.3 12.9 12.4
==== ==== ====
</TABLE>
The UK scheme is the largest, covering the majority of UK employees. The
pension cost is assessed in accordance with the advice of independent
qualified actuaries in order to secure final salary-related benefits. The most
recent actuarial review, using the projected unit method, was carried out on
31 March 1996 and, as a result of this review, a number of scheme improvements
were made. At 31 March 1996 the market value of the assets of the UK scheme
was 963 pound sterling millions (1993 747 pound sterling millions) and the
actuarial value of these assets represented 121% (1993 129%) of the benefits
that had accrued to members, after allowing for increases in earnings and
scheme improvements.
The assumptions made which have the most significant effect on the results
of this valuation are those relating to the differentials between the rates of
return on investments and the rates of increase in salaries and pensions. It
was assumed that the investment return would be 2% (1993 2%) per annum higher
than the rate of annual salary increases, and 5% (1993 5%) per annum higher
than the rate at which present and future pensions would increase.
The surplus in the UK scheme is being amortised over 13 years, the average
remaining service lives of employees. The credit arising from the amortisation
of this surplus more than offsets ongoing pension costs. The resultant SSAP 24
credit, including interest, was 6.6 pound sterling millions (1996 5.7 pound
sterling millions, 1995 4.9 pound sterling millions).
From January 1995 until 31 March 1996 the Group made payments to the UK
scheme at a rate of 4% of pensionable earnings. Since 1 April 1996 no payments
have been necessary because of the surplus in the scheme.
During the year the prepayment in respect of pensions for the UK scheme
increased by 6.6 pound sterling millions to 51.6 pound sterling millions at
the end of 1997. This amount is included in debtors (note 14).
In the US, the Group operates a number of defined benefits schemes and
defined contribution schemes. These schemes undergo an actuarial analysis
annually.
In Germany, the Group operates a number of defined benefit pension schemes.
These undergo an actuarial valuation annually. Provisions for the liabilities
amounted to 70.0 pound sterling millions at the end of 1997 (1996 76.9 pound
sterling millions, 1995 89.1 pound sterling millions).
In addition, other post-employment benefits in the US are fully provided for
in accordance with UK accounting standards. Provisions amounted to 32.3 pound
sterling millions the end of 1997 (1996 31.1 pound sterling millions, 1995
34.3 pound sterling millions) in respect of these benefits. The cost of post-
employment medical benefits in the US was 2.8 pound sterling millions (1996
2.8 pound sterling millions, 1995 2.9 pound sterling millions).
There are no other significant post-employment benefits.
F-61
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
PLANT &
LAND & BUILDINGS MACHINERY TOTAL
---------------- ---------------- ----------------
(POUND STERLING) (POUND STERLING) (POUND STERLING)
M M M
<S> <C> <C> <C>
Cost or valuation
At 1 January 1997......... 230.8 1,017.8 1,248.6
Currency translation...... (8.6) (31.8) (40.4)
Acquisition of business... 3.5 14.4 17.6
Capital expenditure....... 10.8 94.6 105.4
Transfers between Group
companies and
reclassifications........ 2.2 (2.2) --
Disposal of operations.... (9.8) (36.9) (46.7)
Other disposals........... (4.4) (22.9) (27.3)
Valuation adjustment...... (1.7) -- (1.7)
----- ------- -------
At 31 December 1997....... 222.8 1,032.6 1,255.4
===== ======= =======
Comprising:
Cost...................... 145.2 937.5 1,082.7
Valuation in
1989.................... 48.0 11.0 59.0
Other years............. 29.6 84.1 113.7
----- ------- -------
222.8 1,032.6 1,255.4
===== ======= =======
</TABLE>
Revaluations are carried out on an existing use basis. The valuation
adjustment of 1.7 pound sterling millions relates to one property. The value of
this property has been estimated by the directors.
<TABLE>
<CAPTION>
PLANT &
LAND & BUILDINGS MACHINERY TOTAL
Depreciation ---------------- ---------------- ----------------
(POUND STERLING) (POUND STERLING) (POUND STERLING)
M M M
<S> <C> <C> <C>
At 1 January 1997........... 30.9 520.5 551.4
Currency translation........ (1.2) (18.5) (19.7)
Transfers between Group
companies and
reclassifications.......... 0.5 (0.5) --
Disposal of operations...... (1.8) (22.0) (23.8)
Other disposals............. (2.4) (20.9) (23.5)
Charge for the year......... 7.4 87.5 94.9
----- ----- -----
At 31 December 1997......... 33.4 545.6 579.0
===== ===== =====
Net book value
At 31 December 1997......... 189.4 487.0 676.4
===== ===== =====
At 31 December 1996......... 199.9 497.3 697.2
===== ===== =====
</TABLE>
F-62
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Included in the cost of fixed assets at 31 December 1997 are buildings in
the course of construction of 0.5 pound sterling millions (1996 2.8 pound
sterling millions) and plant and machinery in the course of construction of
29.0 pound sterling millions. (1996 25.9 pound sterling millions).
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Net book value of land and buildings
Freehold land--not depreciated.......... 44.9 49.5
Freehold buildings...................... 142.4 148.3
Long leasehold (over 50 years
unexpired)............................. 0.2 0.2
Short leasehold......................... 1.9 1.9
----- -----
189.4 199.9
===== =====
<CAPTION>
1997 1996
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Capitalised leases included in plant and
machinery
Cost.................................... 24.1 28.4
Depreciation............................ (20.9) (23.8)
----- -----
Net book value............................ 3.2 4.6
===== =====
</TABLE>
<TABLE>
<CAPTION>
LAND &
BUILDINGS PLANT & MACHINERY TOTAL
----------------- ----------------- -----------------
(POUND STERLING)M (POUND STERLING)M (POUND STERLING)M
<S> <C> <C> <C>
Historical cost of
tangible fixed assets
Cost (or ascribed
value)................ 196.7 1,031.7 1,228.4
Depreciation........... (32.1) (544.9) (577.0)
----- ------- -------
Net historical cost value
at 31 December 1997..... 164.6 486.8 651.4
----- ------- -------
Net historical cost value
at 31 December 1996..... 161.6 497.1 658.7
===== ======= =======
</TABLE>
F-63
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. FIXED ASSET INVESTMENTS
<TABLE>
<CAPTION>
ASSOCIATED OTHER OTHER
UNDERTAKINGS SHARES INVESTMENTS TOTAL
----------------- ----------------- ----------------- -----------------
(POUND STERLING)M (POUND STERLING)M (POUND STERLING)M (POUND STERLING)M
<S> <C> <C> <C> <C>
Cost of valuation
At 1 January 1997..... 51.7 7.9 37.6 97.2
Currency translation.. (4.7) (0.2) (3.8) (8.7)
Additions............. 5.3 0.2 6.1 11.6
Acquisitions of
operations........... -- 0.6 -- 0.6
Disposals and
repayments........... (0.7) -- (12.8) (13.5)
Share of retained
losses............... (0.8) -- -- (0.8)
---- ---- ----- -----
At 31 December 1997... 50.8 8.5 27.1 86.4
==== ==== ===== =====
Provisions
At 1 January 1996..... -- (0.1) (37.6) (37.7)
Currency translation.. -- -- 2.8 2.8
Disposals............. -- -- 12.8 12.8
Release of provision.. -- 0.1 19.2 19.3
---- ---- ----- -----
At 31 December 1997... -- -- (2.8) (2.8)
==== ==== ===== =====
Net book value
At 31 December 1997... 50.8 8.5 24.3 83.6
==== ==== ===== =====
At 31 December 1996... 51.7 7.8 -- 59.5
==== ==== ===== =====
</TABLE>
Listed investments included above in associated undertakings at net book
value are (pound sterling)7.7m (1996 (pound sterling)7.5m)--market value
(pound sterling)4.7m (1996 (pound sterling)5.7m). At 31 December 1997, Group
associated undertakings investments included loans receivable of (pound
sterling)5.1m (1996 (pound sterling)1.8m).
13. STOCKS
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Raw materials and consumables............... 45.5 41.9
Work in progress............................ 39.3 45.7
Finished goods.............................. 137.1 160.0
----- -----
221.9 247.6
===== =====
</TABLE>
F-64
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. DEBTORS
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Debtors falling due within one year
Trade...................................... 264.4 260.2
Amounts owed by associated undertakings.... 3.9 1.4
Amounts owed in respect of disposals of
operations................................ 7.8 24.8
Assets held for disposal................... 4.2 6.8
Overseas taxation recoverable.............. 2.8 6.1
Deferred tax recoverable (note 25)........... 1.8 13.9
Prepayments and accrued income............. 9.8 13.9
Other...................................... 24.1 23.7
----- -----
318.8 350.8
===== =====
Debtors falling due after more than one year
Amounts owed in respect of disposal of
operations................................ 0.6 3.4
Prepaid pension costs (note 10).............. 51.6 45.0
Deferred tax recoverable (note 25)........... 19.3 16.5
Overseas taxation recoverable.............. 0.4 0.2
Other debtors.............................. 1.6 1.0
----- -----
73.5 66.1
===== =====
Total debtors............................ 392.3 416.9
===== =====
</TABLE>
15. CURRENT ASSET INVESTMENT
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Listed investments-- market value(pound
sterling)8.1m (1996(pound sterling)5.1m).. 7.7 5.1
Other investments-- market value(pound
sterling)0.4m (1996(pound sterling)0.6m).. 0.3 0.5
--- ---
8.0 5.6
=== ===
</TABLE>
16. CREDITORS--DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Trade..................................... 165.3 168.9
Amounts owed to associated undertakings... 2.7 2.1
Amounts owed in respect of acquisitions... 2.8 --
Payroll and other taxes, including social
security................................. 48.4 54.1
Taxation--United Kingdom corporation tax.. 8.7 5.9
--Overseas taxation.................... 30.1 13.6
Accruals and deferred income.............. 88.4 69.4
Grants not yet credited to profit......... 1.3 1.7
Proposed dividend (note 7)................ 16.5 --
Asbestos-related insurance premium........ -- 92.0
Other..................................... 58.8 64.8
----- -----
423.0 472.5
===== =====
</TABLE>
F-65
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. CREDITORS--DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Amounts owed in respect of acquisitions..... 5.5 3.4
Accruals and deferred income................ -- 1.3
Grants not yet credited to profit........... 3.8 4.4
Other....................................... 2.7 6.8
---- ----
12.0 15.9
==== ====
</TABLE>
18. NET BORROWINGS
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Borrowings
Repayable after more than five years
--instalments.......................... 7.3 7.7
--otherwise............................ 153.7 0.7
Two to five years
--instalments.......................... 16.9 23.0
--otherwise............................ 100.3 186.0
One to two years
--instalments.......................... 5.8 8.7
--otherwise............................ 1.4 34.1
------ ------
Total due after more than one year......... 285.4 260.2
Total due within one year.................. 103.7 77.2
------ ------
Total borrowings........................... 389.1 337.4
Cash at bank and in hand and current asset
investments............................... (202.0) (137.1)
------ ------
Net borrowings............................. 187.1 200.3
====== ======
Analysis of total borrowings
Finance leases........................... 3.9 5.3
Bank overdrafts and loans secured on
assets of the Group..................... 27.5 37.4
Unsecured bank overdrafts and loans...... 357.7 294.7
------ ------
389.1 337.4
====== ======
Analysis of borrowings by currency
Sterling................................. (28.6) (33.9)
Other European currencies................ 78.0 130.3
United States Dollar..................... 119.0 80.4
South African Rand....................... 8.1 9.3
Other currencies......................... 10.6 14.2
------ ------
187.1 200.3
====== ======
</TABLE>
The majority of the Group's borrowings are at variable rates between 35 and
50 basis points above the applicable base rate for the currency. Interest rate
swaps have been entered into in a mix of currencies whereby the interest
charge on total debt of (pound sterling)154.2m has been swapped from variable
to fixed rates for periods of between two and five years. Included in cash and
current asset investments, at 31 December 1997, amounts totalling (pound
sterling)23.7m (1996 (pound sterling)22.8m) are held by the Group's insurance
company of which (pound sterling)18.0m (1996 (pound sterling)17.6m) is
required to meet insurance regulatory requirements and which, as a result, is
not readily available for the general purposes of the Group.
F-66
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
POST-
DEFERRED EMPLOYMENT ASBESTOS OTHER
TAXATION BENEFITS RELATED PROVISIONS TOTAL
---------- ---------- ---------- ---------- ----------
(POUND (POUND (POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C> <C> <C>
At 1 January 1997....... -- 142.1 440.6 6.8 589.5
Reclassified from
creditors.............. -- -- 90.7 -- 90.7
Reclassified from
debtors................ -- -- (0.3) -- (0.3)
Acquisition of
operations............. -- 0.6 -- 0.4 1.0
Currency translation.... (0.2) (9.1) 4.1 (0.2) (5.4)
Charge for the year..... 5.9 13.9 -- 0.6 20.4
Amortisation of
discount............... -- -- 2.5 -- 2.5
Payments................ -- (11.5) (149.4) (2.2) (163.1)
---- ----- ------ ---- ------
At 31 December 1997..... 5.7 136.0 388.2 5.4 535.3
==== ===== ====== ==== ======
</TABLE>
Other provisions include leaving benefits payable to employees in certain
acquired companies and costs of environmental cleaning.
20. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
AUTHORISED ISSUED AND
NO. OF FULLY PAID ISSUED AND
SHARES AUTHORISED NO. OF SHARES FULLY PAID
----------- ---------- ------------- ----------
(POUND (POUND
STERLING)M STERLING)M
<S> <C> <C> <C> <C>
Ordinary Shares
At 1 January 1997............ 725,000,000 725.0 532,203,165 532.2
Options exercised to 30
January 1997................ -- -- 113,269 0.1
----------- ------ ----------- ------
At 30 January 1997........... 725,000,000 725.0 532,316,434 532.3
Capital reduction............ -- (435.0) -- (319.4)
----------- ------ ----------- ------
After capital reduction...... 725,000,000 290.0 532,316,434 212.9
Options issued to 31 December
1997........................ -- -- 6,275,782 2.6
Issued as scrip dividends.... -- -- 10,111,955 4.0
----------- ------ ----------- ------
At 31 December 1997.......... 725,000,000 290.0 548,704,171 219.5
=========== ====== =========== ======
</TABLE>
A capital reduction was approved by the Court on 29 January 1997 and took
effect on 30 January 1997. In accordance with the terms of the capital
reduction, the nominal value of authorised and issued shares was reduced from
(pound sterling) 1.00 to 40p.
<TABLE>
<CAPTION>
SAVINGS-
EXECUTIVE RELATED TOTAL
NO. OF SHARES NO. OF SHARES NO. OF SHARES
------------- ------------- -------------
<S> <C> <C> <C>
Share option schemes
At 1 January 1997................... 12,332,229 12,537,575 24,869,804
Granted............................. 2,965,000 4,100,923 7,065,923
Exercised........................... (4,001,750) (2,387,301) (6,389,051)
Lapsed.............................. (628,255) (2,234,510) (2,862,765)
---------- ---------- ----------
At 31 December 1997................. 10,667,224 12,016,687 22,683,911
========== ========== ==========
</TABLE>
F-67
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
SAVINGS-
EXECUTIVE RELATED TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Share option schemes
Number of holders............................ 236 3,976 4,212
Latest dates exercisable range between....... 1998/2007 1998/2003
Exercisable at the following price per share
101.7p..................................... -- 599,843 599,843
111.4p..................................... 873,136 -- 873,136
119.7p-147.8p.............................. 812,777 6,459,850 7,272,627
151.6p-172.1p.............................. 6,294,224 4,420,819 10,715,043
182.8p-199.8p.............................. 271,162 536,175 807,337
201.6p-226.2p.............................. 2,415,925 -- 2,415,925
---------- ---------- ----------
10,667,224 12,016,687 22,683,911
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ORDINARY SHARES
-----------------------
31 DECEMBER 31 DECEMBER
1997 1996
----------- -----------
<S> <C> <C>
The interests in the Company, of those who were
directors at 31 December 1997, were as follows:
Sir Colin Hope...................................... 107,774 105,562
R G Beeston......................................... 10,000 --
R H Boissier........................................ 2,595 2,488
D A Harding......................................... 5,104 5,000
Sir Terence Harrison................................ 10,000 5,000
Professor F R Hartley............................... 3,131 3,001
P S Lewis........................................... 1,000 1,000
A C McWilliam....................................... 2,375 2,326
I F R Much.......................................... 34,952 34,168
T A Welsh........................................... 19,445 5,914
Sir Geoffrey Whalen................................. 4,856 4,654
------- -------
201,232 169,113
======= =======
</TABLE>
F-68
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
There have been no changes in the interests of directors between 31 December
1997 and 17 February 1998. No director has any beneficial interest in shares of
any subsidiary.
<TABLE>
<CAPTION>
SHARE ASSOCIATED
PREMIUM SHARES TO SPECIAL REVALUATION UNDERTAKINGS
ACCOUNT BE ISSUED RESERVE RESERVES RESERVES
---------- ---------- ---------- ----------- ------------
(POUND (POUND (POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C> <C> <C>
Reserves
At 1 January 1995..... -- -- -- 34.3 7.8
Currency translation
on overseas assets... -- -- -- 0.1 (1.0)
Currency translation
on net debt.......... -- -- -- -- --
Transfer to profit &
loss................. -- -- -- -- 6.1
Realisation of
revaluation surplus.. -- -- -- 1.6 --
Premium on share
issues............... 0.5 -- -- (6.6) --
Goodwill arising on
acquisitions......... -- -- -- -- --
Goodwill arising on
formation of Turkish
joint venture ....... -- -- -- -- --
Goodwill on disposals. -- -- -- -- --
Scrip issues of
shares............... (0.5) -- -- (0.1) --
Other movements....... -- -- -- -- --
---- --- ------ ---- ----
At 31 December 1995... -- -- -- 29.3 12.9
Currency translation
on overseas assets... -- -- -- (1.7) (5.9)
Currency translation
on net debt.......... -- -- -- -- --
Transfer to profit &
loss................. -- -- -- -- (2.7)
Realisation of
revaluation surplus.. -- -- -- (5.6) --
Premium on share
issues............... 0.2 -- -- -- --
Goodwill arising on
acquisitions......... -- -- -- -- --
Goodwill on disposals. -- -- -- -- --
Other movements....... -- -- -- (0.4) 0.7
---- --- ------ ---- ----
At 31 December 1996... 0.2 -- -- 21.6 5.0
Transfer to special
reserve.............. -- -- (262.5) -- --
Transfer capital
reduction to special
reserve.............. -- -- 319.4 -- --
Currency translation
on overseas assets... -- -- -- (0.4) (4.9)
Currency translation
on net debt.......... -- -- -- -- --
Transfer to profit and
loss................. -- -- -- -- (0.8)
Realisation of
revaluation surplus.. -- -- 5.2 (5.3) --
Revaluations.......... -- -- -- (1.7) --
Premium on share
issues............... 6.5 -- -- -- --
Scrip dividend (Note
7)................... (4.0) -- -- -- --
Goodwill arising on
acquisitions......... -- -- -- -- --
Goodwill on disposals. -- -- 1.1 -- --
Realisation of
reserves on disposal. -- -- -- -- (0.3)
Executive share
options.............. -- 0.7 -- -- --
Other movements....... -- -- -- -- (1.1)
---- --- ------ ---- ----
At 31 December 1997... 2.7 0.7 63.2 14.2 (2.1)
==== === ====== ==== ====
</TABLE>
F-69
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
GOODWILL PROFIT & LOSS
WRITE OFF RESERVE ACCOUNT
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
At 1 January 1995.......................... (186.1) 127.9
Currency translation on overseas assets.... -- 14.4
Currency translation on net debt........... -- (15.1)
Transfer to profit & loss.................. -- 32.3
Realisation of revaluation surplus......... -- --
Premium on share issues.................... -- 6.6
Goodwill arising on acquisitions........... (7.5) --
Goodwill arising on formation of Turkish
joint venture............................. (3.5) --
Goodwill on disposals...................... 6.6 --
Scrip issues of shares..................... -- 0.6
Other movements............................ -- (1.4)
------ ------
At 31 December 1995........................ (190.5) 165.3
Currency translation on overseas assets.... -- (58.1)
Currency translation on net debt........... -- 42.6
Transfer to profit & loss.................. -- (414.1)
Realisation of revaluation surplus......... -- 5.6
Premium on share issues.................... -- --
Goodwill arising on acquisitions........... (0.3) --
Goodwill on disposals...................... 9.7 --
Other movements............................ -- (0.9)
------ ------
At 31 December 1996........................ (181.1) (259.6)
Transfer to special reserve................ 5.3 257.2
Transfer capital reduction to special
reserve................................... -- --
Currency translation on overseas assets.... -- (21.0)
Currency translation on net debt........... -- 8.9
Transfer to profit and loss................ -- 73.7
Realisation of revaluation surplus......... -- 0.1
Revaluations............................... -- --
Premium on share issues.................... -- --
Scrip dividend (Note 7).................... -- 15.4
Goodwill arising on acquisitions........... (10.0) --
Goodwill on disposals...................... 2.9 --
Realisation of reserves on disposal........ -- 0.3
Executive share options.................... -- --
Other movements............................ -- 1.1
------ ------
At 31 December 1997........................ (182.9) 76.1
====== ======
</TABLE>
A capital reduction, which was approved by the Court on 29 January 1997,
took effect on 30 January 1997 and, in accordance with the Court Order, was
applied to eliminating the deficit on the Company's profit and loss account
(including goodwill previously written off). The accounting entries recorded
in the accounting records of the Company in accordance with the terms approved
by the Court were as follows:
(i) The nominal value of each share in issue at 30 January 1997 was
reduced from (pound sterling)1.00 to 40p. As a consequence, the nominal
value of shares in issue at 30 January 1997 (1996 (pound sterling) 532.2m,
1995 (pound sterling) 531.2m) was reduced by (pound sterling) 319.4m to
(pound sterling) 212.9m. The reduction of (pound sterling) 319.4m was
credited to the special reserve.
F-70
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ii) The balance of (pound sterling) 5.3m on the goodwill reserve of the
Company at 31 December 1996 was transferred to the special reserve.
(iii) The balance of (pound sterling) 257.2m on the profit and loss
account reserve of the Company at 31 December 1996 was transferred to the
special reserve. The special reserve is not distributable except in certain
limited circumstances. Any goodwill or revaluation reserves in existence at
1 January 1997 must be credited to the special reserve when they are
realised.
Cumulative goodwill written off to Group reserves at 31 December 1997 totals
(pound sterling) 254.3m (1996 (pound sterling) 248.3m, 1995 (pound sterling)
257.7m), comprising (pound sterling) 182.9m (1996 (pound sterling) 181.1m,
1995 (pound sterling) 190.5m) shown above, (pound sterling) 67.2m (1996 (pound
sterling) 67.2m, 1995 (pound sterling) 67.2m) written off to a merger reserve
in earlier years and (pound sterling) 4.2m transferred to the special reserve
in 1997.
Retained earnings of overseas subsidiaries and associated undertakings would
be liable to tax if remitted as dividends to the United Kingdom. No provision
has been made for this liability as there are no plans to remit such earnings.
22. NOTES TO THE CASH FLOW STATEMENT
(A) Recognition of Operating Profit to Net Cash Inflow from Operating
Activities
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C>
Operating profit/(loss)....................... 177.2 (335.8) 175.3
Share of profit of associated undertakings.... (13.2) (11.8) (12.6)
Depreciation.................................. 93.5 98.3 101.6
Loss on sale of tangible fixed assets......... 0.8 2.5 2.3
Decrease/(increase) in stocks................. 12.8 22.2 (15.8)
(Increase)/decrease in debtors................ (25.4) 1.0 (1.7)
Increase/(decrease) in creditors.............. 13.7 (2.0) 21.4
Increase/(decrease) in provisions............. 1.6 (7.9) (19.1)
Other non cash movements...................... (0.2) (1.0) (4.1)
Charge for asbestos-related costs............. -- 515.0 51.3
------ ------ -----
Cash inflow from operating activities before
asbestos-related payments.................... 260.8 280.5 298.6
Asbestos-related payments..................... (149.4) (64.8) (55.7)
------ ------ -----
Cash inflow from operating activities after
asbestos-related payments.................... 111.4 215.7 242.9
====== ====== =====
</TABLE>
(B) Returns on Investment and Servicing of Finance
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C>
Interest received.............................. 11.0 5.2 3.8
Interest paid.................................. (35.1) (35.4) (40.1)
Dividends paid to minorities................... (0.8) (1.2) (1.1)
----- ----- -----
(24.9) (31.4) (37.4)
===== ===== =====
</TABLE>
F-71
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(C) Taxation
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C>
UK tax paid.................................... (8.5) (9.3) (5.0)
Overseas tax paid.............................. (11.6) (19.6) (8.3)
----- ----- -----
(20.1) (28.9) (13.3)
===== ===== =====
</TABLE>
(D) Capital Expenditure and Financial Investment
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C>
Purchase of tangible fixed assets............. (103.9) (114.3) (151.8)
Grants received............................... 0.2 -- 0.2
Disposal of tangible fixed assets............. 3.3 2.3 2.0
Additions to trade and other investments
(primarily Kolbenschmidt).................... (14.7) (13.6) (6.0)
Disposal of trade investments (Kolbenschmidt). 13.2 0.1 --
------ ------ ------
(101.9) (125.5) (155.6)
====== ====== ======
</TABLE>
(E) Acquisitions and Disposals
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C>
Acquisitions (note 23)......................... (27.3) (8.5) (58.7)
Sale of discontinued operations (note 3)....... 75.7 74.8 69.3
Additions to associated undertakings........... (5.3) (7.0) (1.1)
Impact of Turkish joint venture................ -- -- (3.7)
----- ---- -----
43.1 59.3 5.8
===== ==== =====
</TABLE>
(F) Management of Liquid Resources
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C>
(Additions)/reduction to current asset
investments.................................. (2.4) (4.4) 5.4
(Increase)/reduction in short term
investments.................................. (74.1) (1.8) 1.3
----- ---- ---
(76.5) (6.2) 6.7
===== ==== ===
</TABLE>
F-72
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(G) Financing
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(POUND (POUND (POUND
STERLING)M STERLING)M STERLING)M
<S> <C> <C> <C>
New loans..................................... 139.4 176.7 60.4
Repayment of loans............................ (116.6) (206.8) (63.6)
------ ------ -----
Cash inflow/(outflow) from decrease in debt
and lease financing.......................... 22.8 (30.1) (3.2)
Issue of ordinary share capital............... 9.1 1.2 1.6
Capital input by minorities................... 2.1 1.8 1.2
------ ------ -----
34.0 (27.1) (0.4)
====== ====== =====
</TABLE>
(H) Acquired and Discontinued Operations
In 1997, acquired and discontinued operations had no significant impact on
any of the cash flow categories, other than as disclosed in acquisitions and
disposals (Note 22(e)) above.
23. ACQUISITIONS
On 27 February 1997 the group acquired Michigan Stamping Corporation, which
manufactures heat shields and is based in Michigan, USA. On 16 June 1997 The
group acquired Metal Leve Inc, a manufacturer of articulated pistons also
based in Michigan, USA. This Company was subsequently renamed AE Goetze
Carolina Inc.
In addition, on various dates during the year, the Group acquired the
following minority interests:
<TABLE>
<CAPTION>
% OWNERSHIP AT % OWNERSHIP AT
START OF YEAR END OF YEAR
-------------- --------------
<S> <C> <C>
Ferodo a.s........................................ 55% 100%
Ferodo India Pvt Ltd.............................. 76% 100%
AE Goetze Argentina SA............................ 94% 100%
Nanchang Payen Company Limited.................... 70% 80%
</TABLE>
Details of the acquisitions, including the fair value adjustments made to
the assets and liabilities acquired, are set out below. Substantially all the
assets and goodwill acquired relate to Metal Leve Inc. Substantially all the
minority interest acquired relate to Ferodo a.s.
<TABLE>
<CAPTION>
BOOK VALUE AT ACCOUNTING POLICY
ACQUISITION ALIGNMENT OTHER ADJUSTMENTS FAIR VALUE
----------------- ----------------- ----------------- -----------------
(POUND STERLING)M (POUND STERLING)M (POUND STERLING)M (POUND STERLING)M
<S> <C> <C> <C> <C>
Tangible fixed assets... 15.6 -- 2.3 17.9
Investments............. 0.6 -- -- 0.6
Stocks.................. 3.4 0.3 -- 3.7
Debtors................. 8.6 -- (0.5) 8.1
Creditors............... (8.9) -- -- (8.9)
Provisions.............. (1.5) (0.4) 1.0 (0.9)
Cash.................... 4.2 -- -- 4.2
Loans................... (4.8) -- -- (4.8)
Minority interests...... -- -- -- --
---- ---- ---- ----
Assets acquired......... 17.2 (0.1) 2.8 19.9
Goodwill................ 10.3
----
Cash consideration...... 30.2
====
</TABLE>
F-73
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MINORITY
INTERESTS TOTAL
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Tangible fixed assets....................... -- 17.9
Investments................................. -- 0.6
Stocks...................................... -- 3.7
Debtors..................................... -- 8.1
Creditors................................... -- (8.9)
Provisions.................................. -- (0.9)
Cash........................................ -- 4.2
Loans....................................... -- (4.8)
Minority interests.......................... 5.1 5.1
---- ----
Assets acquired............................. 5.1 25.0
Goodwill.................................... (0.3) 10.0
---- ----
Cash consideration.......................... 4.8 35.0
==== ====
</TABLE>
All accounting policy alignments and other adjustments relate to Metal Leve
Inc. The accounting policy alignments comprise the recording as stocks of
(pound sterling)0.3m of consumable stores previously written off and a
provision of (pound sterling)0.4m in respect of environmental work required at
the date of acquisition. Other adjustments comprise the revaluation of fixed
assets ((pound sterling)2.3m) and the elimination of deferred tax debtors
((pound sterling)0.5m) and creditors ((pound sterling)1.0m).
In its last statutory year, ended 31 December 1996, Metal Leve Inc earned
profits after taxation of(pound sterling)1.4m; in the period from 1 January
1997 to 15 June 1997 it earned profits after taxation of(pound sterling)1.6m.
<TABLE>
<CAPTION>
(POUND STERLING)M
-----------------
<S> <C>
Cash paid for acquisitions
Cash consideration.......................................... 35.0
Consideration deferred...................................... (4.0)
Prior year deferred consideration paid...................... 0.5
Less cash acquired.......................................... (4.2)
----
Cash outflow on acquisitions................................ 27.3
====
</TABLE>
24. ANALYSIS OF MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
OTHER NON CASH
AT 1 JANUARY 1997 CASH FLOW MOVEMENTS DEBT ACQUIRED
----------------- ----------------- ----------------- -----------------
(POUND STERLING)M (POUND STERLING)M (POUND STERLING)M (POUND STERLING)M
<S> <C> <C> <C> <C>
Cash at bank and in
hand................... 110.4 (3.2) -- --
Overdrafts.............. (24.0) (42.8) -- --
------ ----- --- ----
86.4 (46.0) -- --
------ ----- --- ----
Debt due within one
year................... (51.7) 12.4 -- (1.5)
Debt due after one year. (256.4) (36.4) 1.4 (3.2)
Finance leases.......... (5.3) 1.2 -- (0.1)
------ ----- --- ----
(313.4) (22.8) 1.4 (4.8)
------ ----- --- ----
Short term deposits..... 21.1 74.1 -- --
Current asset
investments............ 5.6 2.4 -- --
------ ----- --- ----
26.7 76.5 -- --
------ ----- --- ----
Net borrowings.......... (200.3) 7.7 1.4 (4.8)
====== ===== === ====
</TABLE>
F-74
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
EXCHANGE MOVEMENT ON AT 31 DECEMBER
OPENING BALANCES MOVEMENT IN YEAR 1997
-------------------- ----------------- -----------------
(POUND STERLING)M (POUND STERLING)M (POUND STERLING)M
<S> <C> <C> <C>
Cash at bank and in
hand................... (5.0) (2.3) 99.9
Overdrafts.............. 1.4 0.3 (65.1)
---- ---- ------
(3.6) (2.0) 34.8
---- ---- ------
Debt due within one
year................... 3.9 (0.6) (37.5)
Debt due after one year. 10.5 1.5 (282.6)
Finance leases.......... 0.3 -- (3.9)
---- ---- ------
14.7 0.9 (324.0)
---- ---- ------
Short term deposits..... (0.2) (0.9) 94.1
Current asset
investments............. -- -- 8.0
---- ---- ------
(0.2) (0.9) 102.1
---- ---- ------
Net borrowings.......... 10.9 (2.0) (187.1)
==== ==== ======
</TABLE>
Included within the closing balance of short term deposits is (pound
sterling) 78.2m in the asbestos fund.
25. DEFERRED TAXATION
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Asset/(liability) recognised
Asbestos-related costs.................... 21.1 27.4
Losses and other timing differences....... (5.7) 3.0
---- ----
15.4 30.4
==== ====
</TABLE>
No provision has been made for tax which would become payable on the amount
by which assets have been revalued because there is no current intention to
dispose of these assets.
Provision for deferred taxation is only made to the extent that it is
probable that an actual liability or asset will crystallise, as noted below.
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Deferred tax assets:
Advance corporation tax.................. 61.9 56.5
Operating losses......................... 36.6 41.6
Capital losses........................... 24.8 30.8
Asbestos provision....................... 129.7 179.1
Other.................................... 40.9 78.3
------ ------
293.9 386.3
Less: Deferred tax not recognised under UK
GAAP...................................... (272.8) (355.9)
------ ------
Deferred tax asset recognised under UK
GAAP...................................... 21.1 30.4
====== ======
</TABLE>
F-75
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Deferred tax liability:
Accelerated capital allowances........... (64.5) (60.8)
Other.................................... (26.8) (25.3)
----- -----
(91.3) (86.1)
Less: Deferred tax not recognized under UK
GAAP...................................... (85.6) (86.1)
----- -----
Deferred tax liability provided under UK
GAAP...................................... (5.7) --
===== =====
Net deferred tax asset recognized under UK
GAAP...................................... 15.4 30.4
===== =====
</TABLE>
A deferred tax asset is carried in respect of the provision for asbestos
claims settlements in the UK and US (and at 1996 additionally in respect of
the insurance premium against asbestos liabilities). The amount recognised is
the forecast tax relief to be obtained for asbestos claims settlements over
the next three years.
The analysis of the deferred tax liability provided under UK GAAP between
current and non-current amounts is as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Current:
UK........................................ -- --
US........................................ 1.8 10.8
Germany................................... -- 3.1
---- ----
1.8 13.9
==== ====
Non-current:
UK........................................ 9.9 10.3
US........................................ 9.4 6.2
Germany................................... (5.7) --
---- ----
13.6 16.5
==== ====
Total deferred tax asset................ 15.4 30.4
==== ====
</TABLE>
No deferred tax liability has been recognised for temporary differences
related to investments in foreign subsidiaries and associates. Remittance of
retained earnings of overseas subsidiaries and associates as dividends would
be liable to tax in the UK. However, it is likely that no net tax liability
would arise, since credit would be available for foreign taxes suffered on
those earnings, and surplus ACT, of (pound sterling)61.9 million at 31
December 1997 ((pound sterling)56.5 million at 31 December 1996) that has not
been recognised for deferred tax, would be available to offset the liability.
The temporary difference could also become taxable if capital of the foreign
companies were repaid to their UK parent company. However, the taxable gain
would be reduced by the base cost of the shares and an inflation allowance.
Additionally, capital losses, with a value of (pound sterling)24.8 million at
31 December 1997 ((pound sterling)30.8 million at 31 December 1996) that have
not been recognised for deferred tax, would be available to offset the net
taxable gain.
The value of tax losses (excluding capital losses) carried forward and their
expiry dates are as follows:
<TABLE>
<CAPTION>
(POUND STERLING)M
-----------------
<S> <C>
1998.......................................................... 4.4
1999.......................................................... 4.1
2000.......................................................... 3.2
2001.......................................................... 1.0
After 2001.................................................... 23.8
----
36.5
====
</TABLE>
F-76
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
26. RELATED PARTY TRANSACTIONS
The T&N Group is related to all its associated undertakings because it
exerts significant influence over them. During the year various transaction
have occurred between the T&N Group and its associates including:
. Sales of goods and equipment to associated undertakings of (pound
sterling)12.1m (1996 (pound sterling)12.8m);
. purchases of goods from associated undertakings of (pound sterling)15.9m
(1996 (pound sterling)15.5m);
. royalties received from associated undertakings of (pound sterling)1.9m
(1996 (pound sterling)1.4m);
. dividends received from associated undertakings of (pound sterling)6.5m
(1996 (pound sterling)6.8m);
. investments in associated undertakings as set out in Note 12.
Sales between associated undertakings totalled (pound sterling)26.1m (1996
(pound sterling)16.0m).
Trading balances with associated undertakings at 31 December 1996 and 1997 are
set out in Notes 14 and 16.
Entities which the T&N Group sold and acquired during the year, details of
which are set out in Notes 3 and 23, are deemed to be related parties because
the T&N Group exercise control over these whilst they were part of the T&N
Group. Transactions during the year which are not eliminated on consolidation
totalled (pound sterling)0.3m (1996 (pound sterling)1.0m) comprising mainly
the provision of utilities to disposed businesses.
All these transaction were entered into on arms length terms.
27. COMMITMENTS AND CONTINGENT LIABILITIES
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Future capital expenditure--contracts
placed................................... 20.0 12.6
==== ====
Operating leases--payment commitments for
1998 on leases of land and buildings
expiring:
--within one year....................... 1.0 1.0
--between two and five years............ 3.3 2.1
--in more than five years............... 2.5 2.1
---- ----
6.8 5.2
==== ====
On leases of plant and machinery expiring:
--within one year....................... 1.2 1.4
--between two and five years............ 5.7 7.0
--in more than five years............... -- 0.1
---- ----
6.9 8.5
==== ====
</TABLE>
At 31 December 1997 the Company and its UK subsidiaries had contingent
liabilities of (pound sterling)67.6m (1996 (pound sterling)64.3m) in
connection with guarantees relating to bank borrowings of certain overseas
subsidiaries. The maximum potential liability under those guarantees is (pound
sterling)99.4m (1996 (pound sterling)121.4m). Contingent liabilities also
exist in respect of cross-guarantees given by the Company and its UK
subsidiaries to support some of the Group's UK bank borrowings.
F-77
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
28. ASBESTOS-RELATED LITIGATION
In the United States of America, T&N plc and two of its US subsidiaries
("the T&N Companies") are among many defendants named in numerous court
actions alleging personal injury resulting from exposure to asbestos or
asbestos-containing products. T&N plc is also subject to asbestos-disease
litigation, to a lesser extent, in the UK. Because of the slow onset of
asbestos-related diseases, the directors anticipate that similar claims will
be made in the future. It is not known how many such claims may be made nor
the expenditure which may arise therefrom. Provisions are, however, made in
respect of both known and possible future claims, on the following bases.
Claims Notified after 30 June 1996
As announced on 27 November 1996 the Company has secured, by payment of a
premium of (pound sterling)92m, a (pound sterling)500m layer of insurance
cover which will be triggered should the aggregate number of claims notified
after 30 June 1996, where the exposure occurred prior to that date ("IBNR
claims"), exceed (pound sterling)690m.
This, together with recent claims experience and medical information,
enabled the directors of the company during 1996 to estimate the cost of IBNR
claims with reasonable accuracy. Accordingly, provision was made of (pound
sterling)550m during the year ended 31 December 1996 for IBNR claims at 30
June 1996 (being a point between the high ((pound sterling)690m) and low
((pound sterling)429m) estimates prepared by actuaries using assumptions
referred to below). The provision was made on a discounted basis, using a rate
of 7%. The directors intend to set aside this provision in a separate fund,
and the provision established in 1996 of (pound sterling)327m allowed a margin
to enable this to be phased in accordance with the assumptions over a period
of approximately 36 months. Tax relief is available on this provision when
payments are made. At 31 December 1997, the provision amounted to (pound
sterling)300m and the fund established for IBNR claims stood at (pound
sterling)78.2m. Details of the movement in the IBNR provision are set out in
Note 19.
Claims Notified and Outstanding at 30 June 1996
As regards claims notified and outstanding at 30 June 1996 in the UK, full
provision is made in respect of such claims, based on estimates agreed with
the Company's external litigation lawyers.
As regards claims notified and outstanding at 30 June 1996 in the US,
provision continues to be made based on data provided by the Center for Claims
Resolution (CCR), who T&N has appointed as its exclusive representative in
relation to all asbestos-related personal injury claims made against the T&N
Companies in the United States. In estimating the provision, the directors
have had regard principally to the industry in which the plaintiff claims
exposure, the alleged disease type, the State in which the action is being
brought and the share which will be applicable to the T&N Companies having
regard to the agreed method of operation of the CCR. Such shares may in
certain circumstances be subject to retroactive adjustment. Even where
settlement has already been agreed in principle with plaintiffs' lawyers in
respect of a group of cases, the actual cost of each claim to the T&N
Companies may not be determined until it is finally processed and paid
sometime in the future.
Contingent Liability
Accordingly, although the directors believe that they have made appropriate
provision for claims, because of the factors described in this note, there are
contingencies in relation to the amount at which such claims will be finally
settled.
Given the substantial layer of insurance cover, one contingency in relation
to IBNR claims concerns claims exceeding the amount provided, but below the
level of insurance cover. This amounts to (pound sterling)140m
F-78
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
gross, and (pound sterling)58m when discounted. The directors also recognise
the importance of setting up a separate fund in accordance with the
assumptions used in arriving at the discounted provision. During 1997 the sum
of (pound sterling)88.2m was put into such a fund.
In arriving at the IBNR provision, assumptions have been made regarding the
total number of claims which it is anticipated may be received in the future,
the average cost of settlement (which is sensitive to the industry in which
the plaintiff claims exposure, the alleged disease type and the State in which
the action is being brought), the rate of receipt of claims and the timing of
settlement and the level of subrogation claims brought by insurance companies.
So far as relates to claims reported at 30 June 1996, T&N is primarily
exposed to differences between the assumptions referred to above and the
actual claims settlement experience as it emerges.
US Property Damage Litigation
Following the successful jury verdict in the Chase Manhattan property damage
case in December 1995, judgement was entered in the Company's favour on all
counts during the year. The Chase Manhattan Bank has appealed against the
decision in the Company's favour. That appeal is still pending. The Company
has received legal advice that such appeal stands no realistic prospect of
success. Full provision has been made in respect of the anticipated legal
costs which may be incurred in relation to the Chase Manhattan case, and for
the other three remaining property claims.
29. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED
STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
The Group's accounts are prepared in conformity with generally accepted
accounting principles applicable in the United Kingdom (UK GAAP), which differ
in certain significant respects from those applicable in the United States (US
GAAP). These differences, together with the approximate effects of the
adjustments on net profit and shareholders' funds, relate principally to the
items set out below:
Goodwill and Other Intangible Assets
Under UK GAAP goodwill arising on acquisition is charged to reserves. Under
US GAAP goodwill is capitalised and amortised by charges against income over
the period, not to exceed 40 years, over which the benefit arises. For US
GAAP, goodwill has been amortised by the Group over periods not exceeding 40
years.
Under UK GAAP the profit and loss on the disposal of all or part of a
previously acquired business is calculated after taking account of the gross
amount of any goodwill previously charged to reserves. Under US GAAP an
adjustment to profit or loss on disposal is required in respect of goodwill
previously amortised.
Under UK GAAP patents acquired as part of the acquisition of a company are
written off to reserves as part of goodwill. US GAAP requires patents to be
capitalised and amortised by charges against income over the period to
expiring of the patent.
US GAAP requires direct costs, such as legal fees and filing fees, to be
capitalised in respect of internally developed intangibles.
Dividends
Under UK GAAP dividends proposed after the end of an accounting period in
respect of that accounting period are deducted in arriving at retained
earnings for that period. Under US GAAP such dividends are not deducted until
formally approved.
F-79
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred Taxation
Under UK GAAP provision is made for deferred taxation only to the extent
that it is probable that an actual liability or asset will crystallise in the
foreseeable future. US GAAP requires full provision for deferred income taxes
under the liability method on all temporary differences and, if required, a
valuation allowance is established to reduce gross deferred taxation assets to
the amount which is likely to be realised.
Deferred taxation also arises in relation to the tax effect of other US GAAP
differences.
Pension Costs
Under UK GAAP, the cost of providing pensions and post employment benefits
is charged against profits on a systematic basis, with pension surpluses and
deficits being amortised over the expected remaining service lives of current
employees. Under US GAAP, costs and surpluses are similarly spread over the
expected remaining service lives but based on prescribed actuarial
assumptions, allocation of costs and valuation methods, which differ in
certain respects from those used for UK GAAP.
Derivatives
Under UK GAAP only the accrued interest to the balance sheet date is carried
on the consolidated balance sheet. Under US GAAP, where the swaps do not meet
specific hedging criteria the swap must be carried on the consolidated balance
sheet at fair value with the related gains or losses recorded in income.
Asbestos Provision
Under UK GAAP an element of asbestos provision has been discounted to
reflect the long term nature of this environmental provision. Under US GAAP,
such environmental provisions are not generally discounted.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Group, for US GAAP purposes, has adopted the provision of SFAS No. 121,
Accounting for The Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognised is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
Restructuring Costs
Under US GAAP the Group recognises a liability for restructuring costs and
charges the Group's profit and loss account in the period in which the
decision has been made to restructure a part of the business. Under US GAAP,
certain types of restructuring costs are only recognised when further specific
criteria have been met. Among these criteria is the requirement that all
significant actions arising from a restructuring and integration plan and
their completion dates must be identified by the balance sheet date. These
criteria also apply to the recognition of integration costs considered
liabilities on acquisition.
Capitalisation of Interest
Under UK GAAP the capitalisation of interest is not required. US GAAP
requires that gross interest should be capitalised on all qualifying assets
during the time required to prepare them for their intended use.
F-80
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Share Option Schemes
Under UK GAAP the Group does not recognise any compensation cost for share
options granted to directors and employees. US GAAP requires compensation cost
to be recorded, over the vesting period, for the excess of the market value of
the underlying shares, at the date of granting of the options, over the
exercise price of the options.
Revaluation of Fixed Assets
Under UK GAAP the Group has revalued certain fixed assets. This is not
permitted under US GAAP.
Carrying Value of Investments
Under UK GAAP the Group has during 1997 reversed certain provisions in
respect of fixed asset investments held at the balance sheet date. Under US
GAAP these provisions would not be reversed on the basis that they related to
impairments which were other than temporary in nature.
Discontinued Operations
UK and US GAAP have different criteria for determining discontinued
operations. Under UK GAAP, certain disposals in 1996 and 1997 have been
treated as discontinued operations. Under US GAAP, the only disposal in 1996
and 1997 treated as discontinued operations was the disposal of the
Construction Materials business in 1996.
Current Assets and Liabilities
Under UK GAAP current assets include amounts which fall due after more than
one year. Under US GAAP such assets would be reclassified as non-current
assets. Also under UK GAAP provisions for liabilities and charges include
amounts due within one year which would be reclassified to current liabilities
under US GAAP.
Associated Undertakings
The Group's share of the results of associated undertakings, excluding
interest and taxation, have been disclosed within the UK Group financial
statements as part of operating results. The net interest in respect of
associated undertakings is included, and separately disclosed, within net
interest payable and similar charges; The tax attributable to the Group's
share of the results of associated undertakings is included within the Group
tax charge.
Under US GAAP, the Group's share of the results of associated undertakings
would be disclosed, net of interest and tax, below the operating result of the
Group.
Capital Grants
Under UK GAAP capital grants not yet released to the profit and loss account
are held as deferred income within creditors due within one year and due after
more than one year. Under US GAAP such capital grants are netted off against
the carrying value of the fixed assets to which they relate.
Cash Flows
The principal difference between UK GAAP and US GAAP is in respect of
classification. Under UK GAAP, the Group presents its cash flows for operating
activities, returns on investments and servicing of finance, taxation, capital
expenditures and financial investments, acquisition and disposals, equity
dividends paid,
F-81
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
management of liquid resources, and financing. US GAAP requires only three
categories of cash flow activities which are operating, investing and
financing.
Cash flows arising from taxation and returns on investments and servicing of
finance under UK GAAP would, with the exception of dividends paid, be included
as operating activities under US GAAP; dividend payments would be included as
a financing activity under US GAAP. In addition, capital expenditures and
financial investment, acquisition and disposals, and management of liquid
resources under UK GAAP would be presented as investing activities under US
GAAP.
UK GAAP defines cash as cash in hand and deposits repayable on demand. Short
term deposits which are readily convertible into cash into known amounts of
cash at, or close to, their carrying value are classified as liquid resources.
US GAAP defines cash and cash equivalents as cash in hand and short term
highly liquid investments with original maturities of three months or less.
Cash flows in respect of short term deposits with original maturities
exceeding three months are included in investing activities under US GAAP and
are included in capital expenditure and financial investment under UK GAAP.
Under US GAAP, the following amounts would be reported:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Net cash provided by operating activities.. 163.4 73.7
Net cash used in investing activities...... (70.9) (135.1)
Net cash provided by/(used in) financing
activities................................ (71.9) 56.7
Effect of changes in exchange rate......... (4.1) (5.6)
----- ------
Net increase/(decrease) in cash and cash
equivalents............................... 16.5 (10.3)
Cash and cash equivalents at beginning of
year...................................... 114.8 131.3
----- ------
Cash and cash equivalents at end of year... 131.3 121.0
===== ======
</TABLE>
Effect on profit/(loss) attributable to shareholders of differences between
UK and US GAAP
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Profit/(loss) attributable to shareholders
as reported under UK GAAP................. 122.4 (400.8)
US GAAP adjustments:
Goodwill................................. (6.8) (3.4)
Amortisation of patents.................. (1.6) (1.6)
Deferred taxation--full provision........ (40.8) 101.2
Tax effect of other US GAAP reconciling
items................................... 1.8 77.7
Pension costs............................ (7.0) (15.1)
Asbestos provision....................... (0.5) (227.0)
Fixed asset revaluations................. 5.8 6.2
Carrying value of investments............ (19.2) --
Other.................................... 1.3 1.3
Minority interests....................... (0.5) (0.7)
----- ------
Net income/(loss) under US GAAP............ 54.9 (462.2)
===== ======
Basic and diluted earnings per 40p
(1996:(pound sterling)1) share under US
GAAP......................................
.10 (0.87)
===== ======
</TABLE>
F-82
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The after-tax net loss under US GAAP for 1996 comprises income from
discontinued operations of(pound sterling)3.6 million (per share(pound
sterling)0.01) and loss from continuing operations of(pound sterling)465.8
million (per share(pound sterling)0.87).
Effect on shareholders' funds of differences between UK and US GAAP
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
(POUND STERLING)M (POUND STERLING)M
<S> <C> <C>
Shareholders' funds as reported under UK
GAAP...................................... 191.4 118.3
US GAAP adjustments:
Goodwill................................. 208.0 207.0
Amortisation of patents.................. 9.2 10.7
Deferred taxation--full provision........ 64.5 100.8
Tax effect of other US GAAP reconciling
items................................... 85.6 83.5
Pension costs............................ (11.0) (4.0)
Asbestos provision....................... (230.5) (227.0)
Fixed asset revaluations................. (14.2) (21.6)
Carrying value of investments............ (19.2) --
Other.................................... (0.1) (1.4)
Minority interests....................... (0.1) 0.4
------ ------
Shareholders' funds under US GAAP.......... 283.6 266.7
====== ======
</TABLE>
Under US GAAP the gross value of goodwill, prior to amortisation, at 31
December 1997 was (pound sterling)254.6 million (1996: (pound sterling)248.3
million).
New US Accounting Standards and Pronouncements Not Yet Adopted
SFAS No. 131--Disclosure about segments of an Enterprise and Related
Information: SFAS No. 131 was issued in June 1997 and is effective for fiscal
years beginning after 15 December 1997. In the initial year of application,
comparative information for earlier years is to be restated. It requires that
companies disclose segment data based on how management makes decisions about
allocating resources to segments and measuring their performance. It also
requires entity wide disclosures about the products and services and entity
provides, the material countries in which it holds assets and reports revenues
and its major customers.
New UK Accounting Standards Not Yet Adopted
FRS 9--Associates and Joint Ventures: In December 1997, the Accounting
Standards Board in the United Kingdom issued Financial Reporting Standard No.
9 "Associates and Joint Ventures" (FRS 9). FRS 9 sets out the definitions and
accounting treatments for associated companies, joint ventures and joint
arrangements. It requires the Group's share of results of associated companies
to be analysed between operating income, interest, exceptional items and
taxation. Previously the Group's share of associated companies income before
tax was included in the consolidated statement of income on a single line. FRS
9 requires the sales of joint ventures to be separately disclosed, though the
underlying accounting is the same as for associated companies. FRS 9 is
effective for accounting periods ending on or after 23 June 1998.
FRS 10--Goodwill and Intangible Assets: In December 1997, the Accounting
Standard Board in the United Kingdom issued Financial Reporting Standard No.
10 "Goodwill and Intangible Assets" (FRS 10). FRS 10 requires that purchased
goodwill and intangible assets should be capitalised as assets and amortised
over the life of the assets. Goodwill and intangible assets need not be
amortised if it can be demonstrated that the current
F-83
<PAGE>
T&N PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
market value of the goodwill or intangible is not below its carrying value.
FRS 10 is effective for accounting periods ending on or after 23 December
1998. The standard does not require reinstatement of goodwill previously
eliminated against retained surplus.
Companies Act 1985
These consolidated financial statements do not constitute "statutory
accounts" within the meaning of the Companies Act 1985 of Great Britain for
any of the periods presented. Statutory accounts for the year ended 31
December 1996 have been filed with the United Kingdom's Registrar of Companies
and statutory accounts for the year ended 31 December 1997 will be filed with
the United Kingdom's Registrar of Companies. The auditor has reported on these
accounts. The reports were unqualified and did not contain statements under
Section 237 (2) or (3) of the Act.
These consolidated financial statements exclude certain parent company
statements and other information required by the Companies Act 1985, however,
they include all material disclosures required by generally accepted
accounting principles in the United Kingdom including those Companies Act 1985
disclosures relating to the statement of income and balance sheet items.
F-84
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Management of the Operating Businesses of the Fel-Pro Group
We have audited the accompanying balance sheets of the Operating Businesses
of the Fel-Pro Group as of December 28, 1997 and December 29, 1996 and the
related statements of operations and cash flows for each of the three fiscal
years in the period ended December 28, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Operating Businesses
of the Fel-Pro Group at December 28, 1997 and December 29, 1996 and the
results of their operations and their cash flows for each of the three fiscal
years in the period ended December 28, 1997 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
February 13, 1998
Chicago, Illinois
F-85
<PAGE>
OPERATING BUSINESSES OF THE FEL-PRO GROUP
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales................................ $489,305 $448,042 $387,928
Cost of goods sold....................... 268,477 245,761 217,572
-------- -------- --------
Gross profit............................. 220,828 202,281 170,356
Operating expenses:
Shipping............................... 22,537 19,808 16,946
Advertising and selling................ 74,955 72,433 63,335
General and administrative............. 72,829 68,026 57,754
Other.................................. 3,496 2,897 3,831
-------- -------- --------
173,817 163,164 141,866
-------- -------- --------
Income from operations................... 47,011 39,117 28,490
Other income (expense), net.............. (66) 125 (265)
-------- -------- --------
Income before income taxes............... 46,945 39,242 28,225
Income taxes............................. 25,488 6,871 4,796
-------- -------- --------
Net income............................... $ 21,457 $ 32,371 $ 23,429
======== ======== ========
</TABLE>
See notes to financial statements.
F-86
<PAGE>
OPERATING BUSINESSES OF THE FEL-PRO GROUP
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1997 1996
------------ ------------
ASSETS
------
<S> <C> <C>
Current assets:
Trade accounts receivable, less allowances of
$5,009 in 1997 and $3,210 in 1996................. $ 83,412 $ 79,266
Inventories, net................................... 61,009 51,469
Refundable income taxes............................ 530 3,859
Deferred income taxes.............................. -- 5,530
Other current assets............................... 4,162 2,972
-------- --------
Total current asset.............................. 149,113 143,096
Property, plant, and equipment:
Land............................................... 4,197 4,165
Buildings and improvements......................... 45,750 44,371
Machinery and equipment............................ 64,426 58,555
Construction in process............................ 9,087 5,945
Accumulated depreciation........................... (42,828) (41,419)
-------- --------
Total property, plant, and equipment............. 80,632 71,617
Other assets:
Investment in marketable securities................ 7,490 10,352
Intangible assets, net............................. 16,685 17,665
Deferred income taxes.............................. -- 10,183
Other long-term assets............................. 16,199 8,872
-------- --------
Total other assets............................... 40,374 47,072
-------- --------
Total assets..................................... $270,119 $261,785
======== ========
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C>
Current liabilities:
Trade accounts payable............................. $ 22,703 $ 17,596
Accrued income taxes............................... 6,725 --
Accrued sales rebates.............................. 10,466 7,999
Accrued real estate taxes.......................... 2,169 1,958
Accrued payroll and benefits....................... 24,142 21,640
Other current liabilities.......................... 10,507 8,969
-------- --------
Total current liabilities........................ 76,712 58,162
Accrued postretirement benefit obligation............ 46,835 46,572
Other long-term liabilities.......................... 6,633 5,203
Equity:
Owners' equity..................................... 138,159 149,925
Foreign currency translation adjustments........... 1,256 1,483
Unrealized gain on marketable equity securities,
net of taxes...................................... 524 440
-------- --------
Total equity..................................... 139,939 151,848
-------- --------
Total liabilities and equity..................... $270,119 $261,785
======== ========
</TABLE>
See notes to financial statements.
F-87
<PAGE>
OPERATING BUSINESSES OF THE FEL-PRO GROUP
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................. $ 21,457 $ 32,371 $ 23,429
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation......................... 9,486 8,775 8,003
Amortization of intangibles.......... 2,016 2,526 2,750
Provision for losses on accounts
receivable.......................... 2,754 707 (71)
Deferred income taxes................ 15,978 (835) (209)
Accrued postretirement benefit
obligation.......................... 263 2,406 2,139
Other................................ (406) (165) (8,591)
Changes in operating assets and
liabilities:
Trade accounts receivable.......... (6,121) (17,447) (3,351)
Inventories........................ (8,553) (4,608) 348
Other assets....................... (5,166) (6,578) (4,443)
Trade accounts payable............. 5,107 1,615 3,555
Accrued payroll and benefits....... 2,502 6,354 1,132
Other liabilities.................. 12,371 5,979 (2,480)
-------- -------- --------
Net cash provided by operating
activities...................... 51,688 31,100 22,211
INVESTING ACTIVITIES
Acquisition of business, less cash
acquired.............................. (3,501) (13,491) (7,101)
Proceeds from sale of marketable
securities............................ 3,850 -- --
Purchases of marketable securities..... (988) (3,042) (7,310)
Purchases of property, plant, and
equipment............................. (18,277) (14,058) (12,505)
Proceeds from disposal of property,
plant, and equipment.................. 451 72 --
Other investment activities............ -- (112) --
-------- -------- --------
Net cash used in investing
activities...................... (18,465) (30,631) (26,916)
FINANCING ACTIVITIES
Cash distributions to owners........... (27,500) (21,055) (11,099)
-------- -------- --------
Net Cash provided to/from
affiliates...................... $ (5,723) $ 20,586 $ 15,804
======== ======== ========
</TABLE>
See notes to financial statements
F-88
<PAGE>
OPERATING BUSINESSES OF THE FEL-PRO GROUP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 28, 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On January 9, 1998, the owners of the Fel-Pro Group of affiliated entities
signed an agreement to sell the Fel-Pro Group operating businesses and certain
related real estate (collectively, the operating businesses of the Fel-Pro
Group or the Company) to Federal Mogul Corporation (Federal Mogul). Certain
non-operating assets, including cash, debt, certain marketable securities,
real estate and insurance assets, are not included in the transaction. The
transaction closed on February 24, 1998 and the owners received $491.8 million
in cash plus $225 million of Federal Mogul Corporation stock.
The accompanying financial statements include the net assets and operations
purchased by Federal Mogul and are presented as if the Company had existed as
an entity separate from certain affiliated entities not purchased by Federal
Mogul. Any activity with those affiliated entities has been reflected in
owners' equity.
The operating businesses of the Fel-Pro Group are owned by the following
affiliated entities:
Felt Products Mfg. Co. and subsidiaries (Felt)
Fel-Pro Specialty Sealing Products
Fel-Pro Mexico S.A. de C.V. (FP Mexico) L.P. (SSP)
Fel-Pro Chemical Products L.P.
Meridian Parts Corporation (Meridian) (Chemical)
FP Performance Products L.P.
FP Diesel L.P. (Diesel) (Performance)
All significant intercompany accounts and transactions have been eliminated
in the financial statements.
The Company is engaged in the manufacture and/or distribution of automotive,
heavy duty and industrial gaskets (primary product line); replacement parts
for heavy duty diesel engines; adhesives, lubricants, sealers, and other
chemical products for industrial use, and high performance transmissions and
torque converters. Products are primarily sold to customers located throughout
the United States, Canada, Mexico, South America, the Middle East, Asia and
Europe either directly to original equipment manufacturers or to aftermarket
customers. All of these activities constitute a single business segment.
Domestic sales, including export sales, represent over 90% of total net sales
in 1997, 1996 and 1995. Export sales represent approximately 13%, 11% and 9%
of total net sales for 1997, 1996 and 1995, respectively. The Company performs
periodic credit evaluations of its customers' financial condition and
generally does not require collateral.
The terms of customer receivables vary based on customer agreements. Credit
losses are provided for in the financial statements and consistently have been
within management's expectations. Primary manufacturing operations and
corporate offices are located at facilities in Skokie, Illinois.
The following is a summary of significant accounting policies:
Fiscal Year
The Company uses a 52 or 53 week year, ending on the last Sunday in
December. The fiscal years ended December 28, 1997 and December 29, 1996
include 52 weeks, while the fiscal year ended December 31, 1995 includes 53
weeks.
Cash and Cash Equivalents
An affiliated entity provides a centralized cash management function;
accordingly, the Company does not maintain separate cash accounts and its cash
disbursements and collections are settled through owners' equity.
F-89
<PAGE>
OPERATING BUSINESSES OF THE FEL-PRO GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Marketable Securities
Management determines the appropriate classification of its investments at
the time of acquisition and reevaluates such determination at each balance
sheet date. All investments are classified as available-for-sale securities
which are carried at fair value, with unrealized holding gains and losses, net
of tax, reported as a separate component of equity. Marketable equity and debt
securities being held for non-current uses such as the funding of
postretirement benefit obligations are classified as long-term assets. Quoted
market prices have been used in determining the fair value of these
investments.
Inventories
Inventories owned by Felt, Diesel and Meridian, are carried at the lower of
last in, first out (LIFO) cost or market. The aggregate inventories owned by
all other entities are carried at the lower of first in, first out (FIFO) cost
or market. At December 28, 1997 and December 29, 1996, 21% of total
inventories are carried on a FIFO basis.
Intangible Assets
Goodwill, patents, and trademarks are being amortized over periods of 14 to
20 years using the straight-line method. Noncompetition agreements are being
amortized over the terms of the related agreements.
Translation of Foreign Operations
The financial statements of the foreign entities have been translated in
accordance with Statement of Financial Accounting Standards No. 52 and
accordingly, unrealized foreign currency translation adjustments are reflected
as a component of equity, except for those related to FP Mexico. In 1997,
Mexico was determined to be a highly inflationary country. As a result,
unrealized foreign currency translation adjustments related to peso
denominated monetary assets and liabilities, which are not significant, are
reported under "Other income, net", and other assets and liabilities are
translated at historical exchange rates.
Depreciation and Amortization
Property, plant, and equipment is recorded at cost. For depreciable assets
acquired prior to 1991, provisions for depreciation and amortization are
computed using both straight-line and accelerated methods for financial
reporting purposes, based on the estimated useful lives of the assets.
Beginning in 1991, provisions for newly acquired depreciable assets are
computed using the straight-line method, based on the estimated useful lives
of the assets.
Research and Development
Activities related to new product development and major improvements to
existing products and processes are expensed as incurred and amounted to
approximately $4.4 million in 1997, $4.1 million in 1996, and $4.2 million in
1995.
Management Estimates
The financial statements include estimated amounts and disclosures based on
management's assumptions about future events. Actual results could differ from
those estimates.
F-90
<PAGE>
OPERATING BUSINESSES OF THE FEL-PRO GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENTS
The composition of marketable securities is as follows:
<TABLE>
<CAPTION>
DECEMBER 28, 1997 DECEMBER 29, 1996
----------------- -----------------
COST FAIR VALUE COST FAIR VALUE
------ ---------- ------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long term investments:
Brinson Global Fund................. $6,617 $7,490 $9,618 $10,352
====== ====== ====== =======
</TABLE>
Interest and dividend income, net is included in other income(expense), net,
and was $.8 million in 1997 and 1996, and $.5 million in 1995.
3. INVENTORIES
Inventories at December 28, 1997, and December 29, 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Raw materials............................................ $13,931 $12,595
Work in process.......................................... 6,869 7,930
Finished goods........................................... 59,871 51,396
------- -------
Inventories at FIFO...................................... 80,671 71,921
Less: Excess of FIFO cost over LIFO cost................. 19,662 20,452
------- -------
$61,009 $51,469
======= =======
</TABLE>
4. INCOME TAXES
Earnings of the operating businesses of the Fel-Pro Group owned by Diesel,
SSP, Performance and Chemical are not subject to federal or state income taxes
because these entities are partnerships. The partners include the earnings
from these partnerships in the partner's Federal and state income tax returns.
Effective December 30, 1996, the stockholders of Felt elected under
Subchapter S of the Internal Revenue Code to include Felt's income in their
own income for federal tax purposes. Accordingly, Felt is not subject to
federal income taxes effective December 30, 1996, and the net deferred tax
asset of approximately $15.7 million at December 29, 1996 was written off as a
charge to tax expense in fiscal 1997. Additionally, the LIFO reserve of $21.2
million was included in taxable income and the tax cost recorded as a charge
to tax expense in the income statement in fiscal 1997.
F-91
<PAGE>
OPERATING BUSINESSES OF THE FEL-PRO GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes for Felt for the year
ended December 29, 1996. Significant components of the deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
1996
--------------
(IN THOUSANDS)
<S> <C>
Deferred Tax Assets
Postretirement benefit obligation........................ $14,383
Other.................................................... 7,538
-------
Total deferred tax assets................................ 21,921
Deferred Tax Liabilities
Tax over book depreciation............................... (5,877)
Other.................................................... (331)
-------
Total deferred tax liabilities........................... (6,208)
=======
Net deferred tax assets/(liabilities).................... $15,713
=======
</TABLE>
The income tax provision consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal......................................... $ 8,986 $5,500 $3,992
State........................................... 719 1,436 758
Foreign......................................... 70 770 255
------- ------ ------
9,775 7,706 5,005
Deferred (credit)................................. 15,713 (835) (209)
------- ------ ------
$25,488 $6,871 $4,796
======= ====== ======
</TABLE>
The reconciliation of income taxes (tax benefits) computed at the United
States federal statutory tax rate to income tax expense is:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Pretax income for taxable entities........ $ 2,133.0 $19,502.0 $11,966.0
========= ========= =========
Income taxes at U.S. statutory rate....... $ 746.6 $ 6,825.7 $ 4,088.1
Tax effect from:
Reversal of deferred taxes.............. 15,713.0
LIFO recapture.......................... 7,420.0
State income taxes...................... 251.6 933.4 492.7
Other................................... 1,356.8 (888.1) 215.2
--------- --------- ---------
$25,488.0 $ 6,871.0 $ 4,796.0
========= ========= =========
</TABLE>
Income taxes paid were approximately $3.7 million in 1997, $12.8 million in
1996, and $5.6 million in 1995.
F-92
<PAGE>
OPERATING BUSINESSES OF THE FEL-PRO GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. OWNERS' EQUITY
A summary of the account activity is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance........................... $149,925 $118,023 $ 89,889
Net income.................................. 21,457 32,371 23,429
Distribution to owners...................... (27,500) (21,055) (11,099)
Net cash provided to/(from) affiliates...... (5,723) 20,586 15,804
-------- -------- --------
Ending balance.............................. $138,159 $149,925 $118,023
======== ======== ========
</TABLE>
The operating businesses of the Fel-Pro Group are owned by entities having
the following stock authorized and issued at December 28, 1997. These amounts
are included in owners' equity above.
<TABLE>
<S> <C>
FELT
Authorized shares ($.01 par value)........................... 200,100
Shares issued and outstanding................................ 198,137.62
Par value.................................................... $ 1,981
FP MEXICO
Authorized shares ($.12 par value)........................... 410,000
Shares issued and outstanding................................ 410,000
Par value.................................................... $ 48,200
MERIDIAN
Authorized shares ($1 par value)............................. 250,000
Shares issued and outstanding................................ 20,000
Par value.................................................... $ 20,000
</TABLE>
6. EMPLOYEE BENEFIT PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company maintains, for the benefit of its eligible employees, the
following benefit plans:
Employees' Profit-Sharing and Retirement Plan
This plan is noncontributory on the part of participants, except for their
voluntary contributions (which are limited, as provided in the plan
agreement). Discretionary contributions by the Company for each year are
determined by the Board of Directors. Distributions from the plan are made to
participants or their beneficiaries on death, retirement, disability, or
termination of employment. Contributions were approximately $9.8 million in
1997, $9.3 million in 1996, and $7.8 million in 1995.
Death Benefit Plan
The Company maintains a "death benefit plan" for selected managerial
employees. The plan provides that in the event of death of a participant,
before termination of employment or retirement, the applicable death benefits,
as defined, are payable to the participant's designated beneficiaries. There
were no beneficiary payments made in 1997, 1996, or 1995.
The Company may at any time amend or revoke the "death benefit plan" without
the consent of its participants. Since the plan is presently fully funded
through life insurance policies in which the participants possess no interest
and the payment of benefits is contingent upon the death of participants, no
provision for such future possible payments has been reflected in the
financial statements.
F-93
<PAGE>
OPERATING BUSINESSES OF THE FEL-PRO GROUP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Deferred Compensation Plan
The Company maintains deferred compensation plans for qualified managers.
The plans allow such participants to defer up to 90% of their annual bonuses
and salary (subject to certain limitations). The plans also provide for
matching amounts (as defined) from the employer, provide for a growth
increment dependent on several factors, and provide for additional employer
contributions on compensation in excess of $160,000. Distributions from the
plan are made to the participants or their designated beneficiaries upon the
earlier of death, retirement, disability, termination of employment, or by
participant choice. Employer and employee contributions, including interest,
of $2.7 million, $2.3 million, and $2.2 million were paid to the plans in
1997, 1996, and 1995, respectively.
Other Postretirement Benefits
The Company provides postretirement medical, dental, and death benefits to
domestic employees hired prior to January 1, 1988, who have worked at least 10
years and attained age 55 while in service with the Company. All employees
hired subsequent to this date are eligible for these benefits if they have
worked at least 20 years and attained age 55. The plan amendment in November
1996 provided that for all retiree groups, the Company caps its contributions
toward retiree health care at the employer cost levels reached in 2004,
thereby reducing the liability and annual expense. The plan is contributory
and contains certain cost-sharing features such as deductibles, coinsurance,
and a lifetime payout maximum. Assets with a fair value of $7.5 million and
$10.4 million which are included in investments in marketable securities at
December 28, 1997 and December 29, 1996, respectively, are being held for non-
current uses such as the posretirement benefits. The Company's foreign
entities provide no significant postretirement benefits. The following table
presents the components of the liability recognized in the Company's balance
sheet:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................... $16,297 $13,412
Fully eligible active plan participants................ 4,708 7,592
Other active plan participants......................... 7,381 9,238
Unrecognized net gain.................................... 4,514 1,205
Unrecognized plan reduction.............................. 13,935 15,125
------- -------
Accrued postretirement benefit cost...................... $46,835 $46,572
======= =======
</TABLE>
A summary of the components of net periodic postretirement benefit cost is
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost..................................... $ 666 $1,612 $1,435
Interest cost.................................... 1,991 2,824 2,978
Amortization of plan reduction................... (1,190) (421) (267)
Amortization of unrecognized gain................ (97) -- --
------- ------ ------
Net periodic postretirement benefit cost......... $ 1,370 $4,015 $4,146
======= ====== ======
</TABLE>
The health care cost trend rate utilized to determine the benefit cost was
9.5% for 1997 and 1996, decreasing gradually to 5.5% for 2005 and thereafter.
Increasing the trend rate by one percentage point in each year would increase
the accumulated postretirement benefit obligation as of December 28, 1997, by
$1.8 million and increase the 1997 postretirement benefit cost by $0.2
million. The discount rate used in determining the accumulated postretirement
benefit obligation was 7.50% at December 28, 1997 and December 29, 1996.
F-94
<PAGE>
OPERATING BUSINESSES OF THE FEL-PRO GROUP
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
7. COMMITMENTS AND CONTINGENCIES
The Company is engaged in various legal actions arising in the ordinary
course of its business. Management, after taking into consideration legal
counsel's evaluation of such actions, is of the opinion that it has adequate
legal defenses or insurance coverages and that the outcome of these matters
will not have a material adverse effect on the Company's financial position.
8. ACQUISITIONS
On September 8, 1997, Chemical acquired for $3.5 million certain operating
assets of Biwax Corporation, a manufacturer of urethane potting and
encapsulating products.
On June 27, 1996, Diesel acquired for $1.2 million certain operating assets
of Infinitive, a manufacturer of pistons and liners.
On December 29, 1995, Performance acquired for $12.3 million the net assets
of Torque Converters, Inc. (TCI), a high performance transmission and torque
converter remanufacturer, marketer and distributor and assumed a $0.4 million
of long-term liability.
On October 30, 1995, Diesel acquired for $7.1 million certain operating
assets of Korody-Colyer, a marketer and distributor of heavy duty diesel
engine parts and gaskets.
The acquisitions were accounted for under the purchase method, and,
accordingly, the accounts and transactions of the acquired companies have been
included in the financial statements from the dates of acquisition.
9. IMPACT OF YEAR 2000 (UNAUDITED)
Felt personnel are presently implementing an enterprise resource planning
system using Oracle software for manufacturing, OEM management, and financial
systems, and IMI software for an Aftermarket order management system. This
system will be Year 2000 compliant. This project was undertaken in late 1996
recognizing that information will be a key driver for growth in the 21st
century and that business needs are changing. The system solution provides the
ability to handle multiple product lines, currencies, businesses, and
locations. The existing mainframe systems lack functionality and flexibility,
and are also incompatible with the Year 2000. The total project is expected to
be completed by February 1999. Information systems for Chemical, Performance,
SSP, Meridian, Diesel and FP Mexico will undertake system changes in 1998 to
ensure compatibility with the Year 2000 by such date.
F-95
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPO-
RATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN CONNEC-
TION WITH THE OFFER CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PRO-
SPECTUS, NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTI-
TUTE ANY OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OF-
FER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Summary........................................................ S-3
Risk Factors.............................................................. S-11
Forward Looking Statements................................................ S-14
Use of Proceeds........................................................... S-15
Exchange Rates............................................................ S-15
T&N and Fel-Pro Acquisitions.............................................. S-16
Price Range of Common Stock and Dividends................................. S-18
Capitalization............................................................ S-19
Unaudited Pro Forma Financial Data........................................ S-20
Selected Consolidated Financial Data--
Federal-Mogul............................................................ S-27
Selected Consolidated Financial Data--T&N................................. S-28
Selected Consolidated Financial Data--Fel-Pro............................. S-30
Management's Discussion and Analysis of Financial Condition............... S-31
Description of Certain Indebtedness....................................... S-52
Business.................................................................. S-55
Management................................................................ S-66
Principal Shareholders.................................................... S-70
Selling Shareholders...................................................... S-71
Description of Capital Stock.............................................. S-73
Certain United States Tax Consequences to
Non-United States Holders................................................ S-78
Underwriting.............................................................. S-79
Presentation of Financial Information..................................... S-82
Legal Matters............................................................. S-82
Experts................................................................... S-82
PROSPECTUS
Available Information..................................................... 2
The Company............................................................... 3
Ratio Of Earnings To Fixed Charges And Ratio Of Earnings To Combined Fixed
Charges And Preferred Stock Dividends.................................... 4
Use of Proceeds........................................................... 4
Description of Debt Securities............................................ 4
Description of Preferred Stock and Common Stock........................... 14
Selling Shareholders...................................................... 17
Plan of Distribution...................................................... 19
Incorporation of Certain Information by Reference......................... 20
Legal Matters............................................................. 21
Experts................................................................... 21
FINANCIAL STATEMENTS
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
11,000,000 SHARES
LOGO
COMMON STOCK
----------------
PROSPECTUS SUPPLEMENT
----------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
SCHRODER & CO. INC.
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS +
+SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY +
+NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH +
+OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR +
+QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED MAY 14, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1998)
11,000,000 SHARES
LOGO
COMMON STOCK
-----------
Of the 11,000,000 shares of Common Stock, without par value (the "Common
Stock"), of Federal-Mogul Corporation (the "Company" or "Federal-Mogul") being
offered hereby, 9,712,093 shares are being offered by Federal-Mogul and
1,287,907 shares are being offered by certain shareholders of Federal-Mogul
(the "Selling Shareholders"). Federal-Mogul will not receive any of the
proceeds from the sale of shares of Common Stock by the Selling Shareholders.
See "Selling Shareholders" and "Underwriting."
Of the 11,000,000 shares of Common Stock offered hereby, 2,200,000 are being
offered initially outside the United States and Canada (the "International
Offering") and 8,800,000 shares are being offered initially in a concurrent
offering inside the United States and Canada (the "U.S. Offering," and together
with the International Offering, the "Offerings"). The public offering price
and the underwriting discount per share are identical for both Offerings. See
"Underwriting."
The Common Stock is listed on the New York Stock Exchange, Inc. (the "NYSE")
under the trading symbol "FMO." On May 12, 1998, the last reported sale price
of Common Stock on the NYSE was $63 15/16 per share. See "Price Range of Common
Stock and Dividends."
SEE "RISK FACTORS" BEGINNING ON PAGE S-11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
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 SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO PROCEEDS TO
PRICE TO UNDERWRITING FEDERAL- SELLING
PUBLIC DISCOUNT(1) MOGUL(2) SHAREHOLDERS
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................
- ----------------------------------------------------------------------------------
Total(3).........................
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Federal-Mogul and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses of the Offerings payable by Federal-Mogul
estimated at $2,000,000.
(3) Federal-Mogul and the Selling Shareholders have granted options to the U.S.
Underwriters, exercisable within 30 days of the date hereof, to purchase up
to an aggregate of 1,320,000 additional shares of Common Stock and options
to the International Managers, exercisable within 30 days of the date
hereof, to purchase up to an aggregate of 330,000 additional shares of
Common Stock, solely to cover over-allotments, if any. If such options are
exercised in full, the total Price to Public, Underwriting Discounts,
Proceeds to Federal-Mogul and Proceeds to Selling Shareholders will be
$ , $ , $ and $ , respectively. See "Underwriting."
-----------
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by them,
subject to approval of certain legal matters by counsel to the Underwriters and
to certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of Common Stock will be made in New York, New York on or
about , 1998.
-----------
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL LIMITED
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
SCHRODERS
-----------
The date of this Prospectus Supplement is , 1998.
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the International Purchase
Agreement (the "International Purchase Agreement") among Federal-Mogul, the
Selling Shareholders and each of the underwriters named below (the
"International Managers"), and concurrently with the sale of 8,800,000 shares
of Common Stock to the U.S. Underwriters (as defined below), Federal-Mogul and
the Selling Shareholders severally have agreed to sell to each of the
International Managers, and each of the International Managers severally has
agreed to purchase, the aggregate number of shares of Common Stock set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
INTERNATIONAL MANAGERS ---------
<S> <C>
Merrill Lynch International.....................................
Bear, Stearns International Limited.............................
Morgan Stanley & Co. International Limited......................
Smith Barney Inc................................................
Donaldson, Lufkin & Jenrette International......................
J. Henry Schroder & Co. Limited.................................
---------
Total....................................................... 2,200,000
=========
</TABLE>
Merrill Lynch International ("Merrill Lynch"), Bear, Stearns International
Limited, Morgan Stanley & Co. International Limited, Smith Barney Inc.,
Donaldson, Lufkin & Jenrette International and J. Henry Schroder & Co. Limited
are acting as representatives (the "International Managers") of the
International Managers.
Federal-Mogul and the Selling Shareholders have also entered into a Purchase
Agreement (the "U.S. Purchase Agreement" and, together with the International
Purchase Agreement, the "Purchase Agreements") with certain underwriters in
the United States and Canada (collectively, the "U.S. Underwriters" and,
together with the International Managers, the "Underwriters"). Subject to the
terms and conditions set forth in the U.S. Purchase Agreement, and
concurrently with the sale of 2,200,000 shares of Common Stock to the
International Managers pursuant to the International Purchase Agreement,
Federal-Mogul and the Selling Shareholders severally have agreed to sell to
the U.S. Underwriters, and the U.S. Underwriters severally have agreed to
purchase from Federal-Mogul and the Selling Shareholders, an aggregate of
8,800,000 shares of Common Stock. The offering price per share and the total
underwriting discount per share are identical under the U.S. Purchase
Agreement and the International Purchase Agreement.
In each Purchase Agreement, the several International Managers and the
several U.S. Underwriters, respectively, have agreed, subject to the terms and
conditions set forth in such Purchase Agreement, to purchase all of the shares
of Common Stock being sold pursuant to such Purchase Agreement if any of such
shares of Common Stock being sold pursuant to such Purchase Agreement are
purchased. Under certain circumstances, the commitments of non-defaulting
International Managers or U.S. Underwriters (as the case may be) may be
increased. The sale of Common Stock to the International Managers is
conditioned upon the sale of shares of Common Stock to the U.S. Underwriters,
and vice versa.
<PAGE>
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, the Underwriters are permitted to sell shares of Common Stock to
each other for purposes of resale at the public offering price set forth on
the cover page of this Prospectus Supplement, less an amount not greater than
the selling concession. Under the terms of the Intersyndicate Agreement, the
International Managers and any dealer to whom they sell shares of Common Stock
will not offer to sell or sell shares of Common Stock to persons who are U.S.
or Canadian persons or to persons they believe intend to resell to persons who
are U.S. or Canadian persons, and the U.S. Underwriters and any dealer to whom
they sell shares of Common Stock will not offer to sell or sell shares of
Common Stock to non-U.S. persons or non-Canadian persons or to persons they
believe intend to resell to non-U.S. persons or non-Canadian persons, except,
in each case, for transactions pursuant to the Intersyndicate Agreement.
The International Managers have advised Federal-Mogul and the Selling
Shareholders that the International Managers propose initially to offer the
shares of Common Stock to the public at the public offering price set forth on
the cover page of this Prospectus Supplement and to certain dealers at such
price less a concession not in excess of $ per share of Common Stock. The
International Managers may allow, and such dealers may reallow, a discount not
in excess of $ per share of Common Stock on sales to certain other
dealers. After the public offering, the public offering price, concession and
discount may be changed.
Each International Manager has agreed that (i) it has not offered or sold,
and will not for a period of six months following consummation of the
Offerings offer or sell, in the United Kingdom by means of any document, any
shares of Common Stock offered hereby, other than to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances that do not constitute an offer to the public
within the meaning of the Public Offers of Securities Regulations of 1995;
(ii) it has complied with and will comply with all applicable provisions of
the Financial Services Act of 1986 with respect to anything done by it in
relation to the Common Stock in form or otherwise involving the United Kingdom
and (iii) it has only issued or passed on and will only issue the Common Stock
if that person is a kind described in Article 11(3) of the Financial Services
Act of 1986 (Investment Advertisements) (Exemptions) Order 1996, as amended,
or is a person to whom the document may otherwise lawfully be issued or passed
on.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase, in addition to the offering price set forth on the
cover page hereof.
Federal-Mogul, certain of its executive officers and the Selling
Shareholders have granted options to the International Managers, exercisable
during the 30-day period after the date of this Prospectus Supplement, to
purchase up to an additional 165,000 shares and 165,000 shares, respectively,
of Common Stock at the public offering price set forth on the cover page
hereof, less the underwriting discount. The International Managers may
exercise this option only to cover over-allotments, if any, made on the sale
of shares of Common Stock offered hereby. To the extent that the International
Managers exercise this option, each International Manager will be obligated,
subject to certain conditions, to purchase approximately the number of
additional shares of Common Stock proportionate to such International
Managers' initial amount reflected in the foregoing table. Federal-Mogul and
the Selling Shareholders have also granted options to the U.S. Underwriters,
exercisable during the 30-day period after the date of this Prospectus
Supplement, to purchase up to an additional 660,000 shares and 660,000 shares,
respectively, of Common Stock to cover over-allotments, if any, on terms
similar to those granted to the International Managers.
Federal-Mogul and the Selling Shareholders have agreed that, except under
certain circumstances (including issuances of securities in connection with
acquisitions), they will not, directly or indirectly, for a period of 90 days
following the date of the Prospectus Supplement, except with the prior consent
of Merrill Lynch, on behalf of the Underwriters, sell, offer to sell, grant
any option for the sale of, or otherwise dispose of, any Common Stock, except
that Federal-Mogul may issue Common Stock or options for shares of Common
Stock issued pursuant to or sold in connection with any employee benefit plan.
<PAGE>
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the International Managers and certain
selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the International Managers are permitted to engage
in certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.
If the International Managers create a short position in the Common Stock in
connection with the Offerings (i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus Supplement), the
International Managers may reduce that short position by purchasing Common
Stock in the open market. The International Managers may also elect to reduce
any short position through the exercise of all or part of the over-allotment
option described above. In general, purchases of a security for the purpose of
stabilization or to reduce a short position could cause the price of the
security to be higher than it might be in the absence of such purchases.
Neither Federal-Mogul nor the International Managers make any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither Federal-Mogul nor the Underwriters make any representation
that the Underwriters will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
Federal-Mogul and the Selling Shareholders have agreed to indemnify the
International Managers and the U.S. Underwriters, Federal-Mogul has agreed to
indemnify certain Selling Shareholders, and such Selling Shareholders have
agreed to indemnify Federal-Mogul, in each case against certain liabilities,
including liabilities under the Securities Act of 1933.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPO-
RATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN CONNEC-
TION WITH THE OFFER CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PRO-
SPECTUS, NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTI-
TUTE ANY OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OF-
FER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PROSPECTUS SUPPLEMENT
<S> <C>
Prospectus Summary........................................................ S-3
Risk Factors.............................................................. S-11
Forward Looking Statements................................................ S-14
Use of Proceeds........................................................... S-15
Exchange Rates............................................................ S-15
T&N and Fel-Pro Acquisitions.............................................. S-16
Price Range of Common Stock and Dividends................................. S-18
Capitalization............................................................ S-19
Unaudited Pro Forma Financial Data........................................ S-20
Selected Consolidated Financial Data--Federal-Mogul....................... S-27
Selected Consolidated Financial Data--T&N................................. S-28
Selected Consolidated Financial Data--Fel-Pro............................. S-30
Management's Discussion and Analysis of Financial Condition............... S-31
Description of Certain Indebtedness....................................... S-52
Business.................................................................. S-55
Management................................................................ S-66
Principal Shareholders.................................................... S-70
Selling Shareholders...................................................... S-71
Description of Capital Stock.............................................. S-73
Certain United States Tax Consequences to Non-United States Holders....... S-78
Underwriting.............................................................. S-79
Presentation of Financial Information..................................... S-82
Legal Matters............................................................. S-82
Experts................................................................... S-82
PROSPECTUS
Available Information..................................................... 2
The Company............................................................... 3
Ratio Of Earnings To Fixed Charges And Ratio Of Earnings To Combined Fixed
Charges And Preferred Stock Dividends.................................... 4
Use of Proceeds........................................................... 4
Description of Debt Securities............................................ 4
Description of Preferred Stock and Common Stock........................... 14
Selling Shareholders...................................................... 17
Plan of Distribution...................................................... 19
Incorporation of Certain Information by Reference......................... 20
Legal Matters............................................................. 21
Experts................................................................... 21
FINANCIAL STATEMENTS
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
11,000,000 SHARES
LOGO
COMMON STOCK
----------------
PROSPECTUS SUPPLEMENT
----------------
MERRILL LYNCH INTERNATIONAL
BEAR, STEARNS INTERNATIONAL
LIMITED
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL
SCHRODERS
, 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:
<TABLE>
<S> <C>
Filing fee of Securities and Exchange Commission relating to
registration statement...................................... $ 737,500
Fees and expenses of counsel for the Registrant.............. 450,000
Fee of accountants........................................... 100,000
Printing expenses............................................ 700,000
Miscellaneous................................................ 12,500
----------
Total.................................................... $2,000,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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 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
II-1
<PAGE>
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.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
***1.1 Form of Shelf Underwriting Agreement relating to Debt and Equity
Securities
***1.2 Form of U.S. Purchase Agreement
***1.3 Form of International Purchase Agreement
***3.1 Federal-Mogul's Second Restated Articles of Incorporation, as
amended
*3.2 Federal-Mogul's Bylaws, as amended (filed as Exhibit 3.2 to
Federal-Mogul's Form 10-K for the year ended December 31, 1997)
**4.1 Form of Senior Indenture
**4.2 Form of Subordinated Indenture
4.3 Form of Debt Security. The form or forms of such Debt Securities
with respect to each particular offering will be filed as an
exhibit subsequently included or incorporated by reference
herein.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
4.4 Form of Preferred Stock. Any amendment to the Company's Articles
of Incorporation authorizing the creation of any series of
Preferred Stock and setting forth the rights, preferences and
designations thereof will be filed as an exhibit subsequently
included or incorporated by reference herein.
***5 Opinion of David M. Sherbin, Esq.
***12.1 Computation of Ratio of Earnings to Fixed Charges
***12.2 Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
**23.1 Consent of Ernst & Young LLP
**23.2 Consent of KPMG Audit Plc
***23.3 Consent of David M. Sherbin, Esq.
**23.4 Consent of Paul S. Lewis
**23.5 Consent of Sir Geoffrey Whalen
*24 Power of Attorney (included on the signature page of the
original filing)
**25.1 Statement of Eligibility on Form T-1 under the Trust Indenture
Act of 1939, as amended, of The Bank of New York, as Trustee
under the Indentures
</TABLE>
- --------
*Previously filed.
**Filed herewith.
***To be filed with amendment.
ITEM 17. UNDERTAKINGS
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 fact 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 this 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 this registration statement or
any material change to such information in the registration statement;
provided, however, that the undertakings set forth in the paragraphs (i)
and (ii) above 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.
II-3
<PAGE>
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 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 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 provisions described
under Item 15 above, 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 such 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 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 such Act and
will be governed by the final adjudication of such issue.
F. that, for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
G. that, for purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
H. to file an application for the purposes 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-4
<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, MICHIGAN ON THE 14TH DAY OF MAY, 1998.
Federal-Mogul Corporation
/s/ David M. Sherbin
By: _________________________________
David M. Sherbin
Associate General Counsel
II-5
<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 THE 14TH DAY OF
MAY, 1998.
Federal-Mogul Corporation
/s/ David M. Sherbin
By: ____________________________
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 14th day of May, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Chairman of the Board, President, Chief
___________________________________________ Executive Officer and Director (Principal
Richard A. Snell Executive Officer)
* Executive Vice President and Chief
___________________________________________ Financial Officer (Principal Financial
Thomas W. Ryan Officer)
* Vice President and Controller (Principal
___________________________________________ Accounting Officer)
Kenneth P. Slaby
* Director
___________________________________________
John J. Fannon
* Director
___________________________________________
Roderick M. Hills
* Director
___________________________________________
Antonio Madero
* Director
___________________________________________
Robert S. Miller, Jr.
* Director
___________________________________________
John C. Pope
* Director
___________________________________________
Dr. Hugo Michael Sekyra
</TABLE>
/s/ David M. Sherbin
*By: ___________________________
David M. Sherbin,
Attorney-in-fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
1.1 Form of Shelf Underwriting Agreement relating to Debt and Eq-
uity Securities
1.2 Form of U.S. Purchase Agreement
1.3 Form of International Purchase Agreement--Equity
3.1 Federal-Mogul's Second Restated Articles of Incorporation, as
amended
3.2 Federal-Mogul's Bylaws, as amended (filed as Exhibit 3.2 to
Federal-Mogul's Form 10-K for the year ended December 31,
1997)
4.1 Form of Senior Indenture
4.2 Form of Subordinated Indenture
4.3 Form of Debt Security. The form or forms of such Debt Securi-
ties with respect to each particular offering will be filed as
an exhibit subsequently included or incorporated by reference
herein.
4.4 Form of Preferred Stock. Any amendment to the Company's Arti-
cles of Incorporation authorizing the creation of any series
of Preferred Stock and setting forth the rights, preferences
and designations thereof will be filed as an exhibit subse-
quently included or incorporated by reference herein.
5 Opinion of David M. Sherbin, Esq.
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Combined Fixed Changes and
Preferred Stock Dividends
23.1 Consent of Ernst & Young LLP
23.2 Consent of KPMG Audit Plc
23.3 Consent of David M. Sherbin, Esq.
23.4 Consent of Paul S. Lewis
23.5 Consent of Sir Geoffrey Whalen
24 Power of Attorney (included in Part II of this Registration
Statement)
25.1 Statement of Eligibility on Form T-1 under the Trust Indenture
Act of 1939, as amended, of The Bank of New York, as Trustee
under the Indentures
</TABLE>
<PAGE>
Exhibit 4.1
===============================================================================
INDENTURE
between
FEDERAL-MOGUL CORPORATION
as Issuer
to
THE BANK OF NEW YORK
as Trustee
Dated as of [ ], 1998
Providing for Issuance of
Senior Debt Securities in Series
===============================================================================
<PAGE>
Reconciliation and tie between Indenture, dated as of [ ], 1998, and the Trust
Indenture Act of 1939, as amended.
<TABLE>
<CAPTION>
Trust Indenture Act Indenture
Of 1939 Section Section
- ------------------ -------------
<S> <C> <C>
310 (a)(1).................................. 6.12
(a)(2).................................. 6.12
(a)(3).................................. TIA
(a)(4).................................. Not applicable
(a)(5).................................. TIA
(b)..................................... 6.10; 6.12; TIA
311 (a)..................................... TIA
(b)..................................... TIA
312 (a)..................................... 6.8
(b)..................................... TIA
(c)..................................... TIA
313 (a)..................................... 6.7; TIA
(b)..................................... TIA
(c)..................................... 6.7; TIA
(d)..................................... 6.7; TIA
314 (a)..................................... 9.5; 9.6; TIA
(b)..................................... Not Applicable
(c)(1).................................. 1.2
(c)(2).................................. 1.2
(c)(3).................................. Not Applicable
(d)..................................... Not Applicable
(e)..................................... 1.2; TIA
(f)..................................... TIA
315 (a)..................................... 6.1
(b)..................................... 6.6
(c)..................................... 6.1
(d)(1).................................. 6.1; TIA
(d)(2).................................. 6.1; TIA
(d)(3).................................. 6.1; TIA
(e)..................................... 5.15; TIA
316 (a)(last sentence)...................... 1.1
(a)(1)(A)............................... 5.2; 5.8
(a)(1)(B)............................... 5.7
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(b)..................................... 5.9; 5.10
(c)..................................... 1.4; TIA
317 (a)(l).................................. 5.3
(a)(2).................................. 5.4
(b)..................................... 9.3
318 (a)..................................... 1.11
(b)..................................... 1.11 TIA
(c)..................................... 1.11; TIA
</TABLE>
This reconciliation and tie section does not constitute part of the
Indenture.
<PAGE>
TABLE OF CONTENTS/1/
--------------------
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1. Definitions......................................................1
SECTION 1.2. Compliance Certificates and Opinions.............................9
SECTION 1.3. Form of Documents Delivered to Trustee..........................10
SECTION 1.4. Acts of Holders.................................................11
SECTION 1.5. Notices, etc., to Trustee and Company...........................12
SECTION 1.6. Notice to Holders; Waiver.......................................13
SECTION 1.7. Headings and Table of Contents..................................14
SECTION 1.8. Successors and Assigns..........................................14
SECTION 1.9. Separability....................................................14
SECTION 1.10. Benefits of Indenture..........................................14
SECTION 1.11. Governing Law..................................................14
SECTION 1.12. Legal Holidays.................................................14
ARTICLE 2
SECURITY FORMS
SECTION 2.1. Forms Generally.................................................15
SECTION 2.2. Form of Trustee's Certificate of Authentication.................15
SECTION 2.3. Securities in Global Form.......................................16
SECTION 2.4. Form of Legend for Securities in Global Form....................16
ARTICLE 3
THE SECURITIES
SECTION 3.1. Amount Unlimited; Issuable in Series............................17
SECTION 3.2. Denominations...................................................21
SECTION 3.3. Execution, Authentication, Delivery and Dating..................21
SECTION 3.4. Temporary Securities............................................24
SECTION 3.5. Registration, Transfer and Exchange.............................24
SECTION 3.6. Replacement Securities..........................................28
SECTION 3.7. Payment of Interest; Interest Rights Preserved..................29
SECTION 3.8. Persons Deemed Owners...........................................31
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/1/ Note: This table of contents shall not, for any purpose be deemed to be
part of the Indenture.
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SECTION 3.9. Cancellation....................................................31
SECTION 3.10. Computation of Interest........................................32
SECTION 3.11. CUSIP Numbers..................................................32
SECTION 3.12. Currency and Manner of Payment in Respect of Securities........32
SECTION 3.13. Appointment and Resignation of Exchange Rate Agent.............36
ARTICLE 4
SATISFACTION, DISCHARGE AND DEFEASANCE
SECTION 4.1. Termination of Company's Obligations Under the Indenture........37
SECTION 4.2. Application of Trust Funds......................................38
SECTION 4.3. Applicability of Defeasance Provisions; Company's Option to
Effect Defeasance or Covenant Defeasance......................38
SECTION 4.4. Defeasance and Discharge........................................38
SECTION 4.5. Covenant Defeasance.............................................39
SECTION 4.6. Conditions to Defeasance or Covenant Defeasance.................39
SECTION 4.7. Deposited Money and Government Obligations to Be Held in Trust..41
SECTION 4.8. Repayment to Company............................................42
SECTION 4.9. Indemnity for Government Obligations............................42
ARTICLE 5
DEFAULTS AND REMEDIES
SECTION 5.1. Events of Default...............................................42
SECTION 5.2. Acceleration; Rescission and Annulment..........................44
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee.45
SECTION 5.4. Trustee May File Proofs of Claim................................45
SECTION 5.5. Trustee May Enforce Claims Without Possession of Securities.....46
SECTION 5.6. Delay or Omission Not Waiver....................................46
SECTION 5.7. Waiver of Past Defaults.........................................46
SECTION 5.8. Control by Majority.............................................46
SECTION 5.9. Limitation on Suits by Holders..................................47
SECTION 5.10. Rights of Holders to Receive Payment...........................47
SECTION 5.11. Application of Money Collected.................................48
SECTION 5.12. Restoration of Rights and Remedies.............................48
SECTION 5.13. Rights and Remedies Cumulative.................................48
SECTION 5.14. Waiver of Usury, Stay or Extension Laws........................48
SECTION 5.15. Undertaking for Costs..........................................49
ARTICLE 6
THE TRUSTEE
SECTION 6.1. Certain Duties and Responsibilities of the Trustee..............49
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SECTION 6.2. Rights of Trustee...............................................50
SECTION 6.3. Trustee May Hold Securities.....................................51
SECTION 6.4. Money Held in Trust.............................................51
SECTION 6.5. Trustee's Disclaimer............................................51
SECTION 6.6. Notice of Defaults..............................................51
SECTION 6.7. Reports by Trustee to Holders...................................52
SECTION 6.8. Securityholder Lists............................................52
SECTION 6.9. Compensation and Indemnity......................................52
SECTION 6.10. Replacement of Trustee.........................................53
SECTION 6.11. Acceptance of Appointment by Successor.........................54
SECTION 6.12. Eligibility; Disqualification..................................55
SECTION 6.13. Merger, Conversion, Consolidation or Succession to Business....56
SECTION 6.14. Appointment of Authenticating Agent............................56
ARTICLE 7
CONSOLIDATION, MERGER OR SALE BY THE COMPANY
SECTION 7.1. Consolidation, Merger or Sale of Assets Permitted...............58
ARTICLE 8
SUPPLEMENTAL INDENTURES
SECTION 8.1. Supplemental Indentures Without Consent of Holders..............59
SECTION 8.2. Supplemental Indentures with Consent of Holders.................60
SECTION 8.3. Compliance With Trust Indenture Act.............................61
SECTION 8.4. Execution of Supplemental Indentures............................61
SECTION 8.5. Effect of Supplemental Indentures...............................62
SECTION 8.6. Reference in Securities to Supplemental Indentures..............62
ARTICLE 9
COVENANTS
SECTION 9.1. Payment of Principal, Premium, if any, and Interest, if any.....62
SECTION 9.2. Maintenance of Office or Agency.................................62
SECTION 9.3. Money for Securities Payments to Be Held in Trust; Unclaimed
Money.........................................................63
SECTION 9.4. Corporate Existence.............................................64
SECTION 9.5. Reports by the Company..........................................65
SECTION 9.6. Annual Review Certificate; Notice of Defaults or Events of
Default.......................................................65
SECTION 9.7. Books of Record and Account.....................................66
ARTICLE 10
REDEMPTION
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SECTION 10.1. Applicability of Article.......................................66
SECTION 10.2. Election to Redeem Notice to Trustee...........................66
SECTION 10.3. Selection of Securities to Be Redeemed.........................66
SECTION 10.4. Notice of Redemption...........................................67
SECTION 10.5. Deposit of Redemption Price....................................68
SECTION 10.6. Securities Payable on Redemption Date..........................68
SECTION 10.7. Securities Redeemed in Part....................................69
ARTICLE 11
SINKING FUNDS
SECTION 11.1. Applicability of Article.......................................70
SECTION 11.2. Satisfaction of Sinking Fund Payments with Securities..........70
SECTION 11.3. Redemption of Securities for Sinking Fund......................70
</TABLE>
<PAGE>
INDENTURE, dated as of [ ], 1998 from Federal-Mogul
Corporation, a Michigan corporation, as issuer (the "Company"), to The Bank of
New York, a New York banking corporation, as trustee (the "Trustee").
RECITALS
--------
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness ("Securities") to be issued
in one or more series as herein provided.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed as
follows for the equal and ratable benefit of the Holders of the Securities:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions. (a) For all purposes of this Indenture,
except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles; and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Affiliate" of any specified Person means any Person directly or
indirectly controlling or controlled by, or under direct or indirect common
control, with such specified Person. For purposes of this definition, "control"
when used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent" means any Paying Agent or Registrar.
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"Authenticating Agent" means any authenticating agent appointed by the
Trustee pursuant to Section 6.14.
"Authorized Newspaper" means a newspaper in the official language of
the country of publication or in the English language, customarily published on
each Business Day whether or not published on Saturdays, Sundays or holidays,
and of general circulation in the place in connection with which the term is
used or in the financial community of such place. Whenever successive
publications in an Authorized Newspaper are required hereunder they may be made
(unless otherwise expressly provided herein) on any Business Day and in the same
or different Authorized Newspapers.
"Bearer Security" means any Security issued hereunder which is payable
to bearer.
"Board" or "Board of Directors" means the Board of Directors of the
Company, the Executive Committee or any other duly authorized committee thereof.
"Board Resolution" means a copy of a resolution of the Board of
Directors, certified by the Secretary or an Assistant Secretary of the Company,
to have been duly adopted by the Board of Directors and to be in full force and
effect on the date of the certificate, and delivered to the Trustee.
"Business Day", when used with respect to any Place of Payment or any
other particular location referred to in this Indenture or in the Securities,
means, unless otherwise specified with respect to any Securities pursuant to
Section 3.1, each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in that Place of Payment or particular
location are authorized or obligated by law or executive order to close.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Stock" means any and all shares of series and classes of stock
of the Company designated as common stock, whether voting or non-voting, and
whether now outstanding or issued after the date of this Indenture.
"Company" means the party named as the Company in the first paragraph
of this Indenture until one or more successor corporations shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
means such successors.
"Company Order" and "Company Request" mean, respectively, a written
order or request signed in the name of the Company by two Officers, one of whom
must be the Chairman of the Board, the President the Chief Financial Officer,
any Executive Vice President, Senior Vice President or Vice President, the
Treasurer, any Assistant Treasurer or the Controller of the Company.
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"Conversion Event" means the cessation of use of (i) a Foreign
Currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community, (ii) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Communities or (iii) any currency
unit other than the ECU for the purposes for which it was established.
"Corporate Trust Office" means the office of the Trustee in which at
any particular time its corporate trust business shall be principally
administered, which office at the date hereof is located at 101 Barclay Street,
New York, New York 10286, Attention: Corporate Trust Administration.
"Debt" means indebtedness for money borrowed.
"Default" means any event which is, or after notice or passage of
time, or both, would be, an Event of Default.
"Depositary", when used with respect to the Securities of or within
any series issuable or issued in whole or in part in global form, means the
Person designated as Depositary by the Company pursuant to Section 3.1 until a
successor Depositary shall have become such pursuant to the applicable
provisions of this Indenture, and thereafter shall mean or include each Person
which is then a Depositary hereunder, and if at any time there is more than one
such Person, shall be a collective reference to such Persons.
"Dollar" means the currency of the United States as at the time of
payment is legal tender for the payment of public and private debts.
"ECU" means the European Currency Unit as defined and revised from
time to time by the Council of the European Communities.
"European Communities" means the European Economic Community, the
European Coal and Steel Community and the European Atomic Energy Community.
"European Monetary System" means the European Monetary System
established by the Resolution of December 5, 1978 of the Council of the European
Communities.
"Exchange Rate Agent", when used with respect to Securities of or
within any series, means, unless otherwise specified with respect to any
Securities pursuant to Section 3.1, a New York Clearing House bank designated
pursuant to Section 3.1 or Section 3.13 (which may include any such bank acting
as Trustee hereunder).
"Exchange Rate Officers' Certificate" means a certificate setting
forth (i) the applicable Market Exchange Rate or the applicable bid quotation
and (ii) the Dollar or Foreign Currency amounts of principal (and premium, if
any) and interest, if any (on an aggregate basis and on the basis of a Security
having the lowest denomination principal amount in the relevant currency or
currency unit), payable with respect to a Security of any series on the basis of
such
3
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Market Exchange Rate or the applicable bid quotation, signed by the Chief
Financial Officer, any Executive Vice President, Senior Vice President or Vice
President, the Treasurer, any Assistant Treasurer or the Controller of the
Company.
"Foreign Currency" means any currency issued by the government of one
or more countries other than the United States or by any recognized
confederation or association of such governments.
"Government Obligations" means securities which are (i) direct
obligations of the United States or, if specified as contemplated by Section
3.1, the government which issued the currency in which the Securities of a
particular series are or may be payable, for the payment of which its full faith
and credit is pledged or (ii) obligations of a Person controlled or supervised
by and acting as an agency or instrumentality of the United States or, if
specified as contemplated by Section 3.1, such government which issued the
foreign currency in which the Securities of such series are or may be payable,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States or such other government, which, in either case,
are not callable or redeemable at the option of the issuer thereof, and shall
also include a depositary receipt issued by a bank or trust company as custodian
with respect to any such Government Obligation or a specific payment of interest
on or principal of any such Government Obligation held by such custodian for the
account of the holder of a depositary receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depositary receipt from any amount received by the
custodian in respect of the Government Obligation evidenced by such depositary
receipt.
"Holder" means, with respect to a Bearer Security, a bearer thereof or
of a coupon appertaining thereto and, with respect to a Registered Security, a
person in whose name a Security is registered on the Register.
"Indenture" means this Indenture as originally executed or as amended
or supplemented from time to time and shall include the forms and terms of
particular series of Securities established as contemplated hereunder.
"Indexed Security" means a Security the terms of which provide that
the principal amount thereof payable at Stated Maturity may be more or less than
the principal face amount thereof at original issuance.
"Interest", when used with respect to an Original Issue Discount
Security which by its terms bears interest only after Maturity, means interest
payable after Maturity.
"Interest Payment Date", when used with respect to any Security, means
the Stated Maturity of an installment of interest on such Security.
"Market Exchange Rate" means, unless otherwise specified with respect
to any Securities pursuant to Section 3.1, (i) for any conversion involving a
currency unit on the one hand and Dollars or any Foreign Currency on the other,
the exchange rate between the relevant
4
<PAGE>
currency unit and Dollars or such Foreign Currency calculated by the method
specified pursuant to Section 3.1 for the Securities of the relevant series,
(ii) for any conversion of Dollars into any Foreign Currency, the noon buying
rate for such Foreign Currency for cable transfers quoted in New York City as
certified for customs purposes by the Federal Reserve Bank of New York and (iii)
for any conversion of one Foreign Currency into Dollars or another Foreign
Currency, the spot rate at noon local time in the relevant market at which, in
accordance with normal banking procedures, the Dollars or Foreign Currency into
which conversion is being made could be purchased with the Foreign Currency from
which conversion is being made from major banks located in New York City, London
or any other principal market for Dollars or such purchased Foreign Currency, in
each case determined by the Exchange Rate Agent. Unless otherwise specified with
respect to any Securities pursuant to Section 3.1, in the event of the
unavailability of any of the exchange rates provided for in the foregoing
clauses (i), (ii) and (iii), the Exchange Rate Agent shall use, in its sole
discretion and without liability on its part, such quotation of the Federal
Reserve Bank of New York as of the most recent available date, or quotations
from one or more major banks in New York City, London or other principal market
for such currency or currency unit in question (which may include any such bank
acting as Trustee under this Indenture), or such other quotations as the
Exchange Rate Agent shall deem appropriate. If there is more than one market for
dealing in any currency or currency unit by reason of foreign exchange
regulations or otherwise, the market to be used in respect of such currency or
currency unit shall be that upon which a nonresident issuer of securities
designated in such currency or currency unit would purchase such currency or
currency unit in order to make payments in respect of such securities.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Officer" means the Chairman of the Board, the President, the Chief
Financial Officer, any Executive Vice President, Senior Vice President or Vice
President, the Treasurer, any Assistant Treasurer, the Controller, the Secretary
or any Assistant Secretary of the Company.
"Officers' Certificate", when used with respect to the Company, means
a certificate signed by two Officers, one of whom must be the Chairman of the
Board, the President, the Chief Financial Officer, any Executive Vice President,
Senior Vice President or Vice President, the Treasurer, any Assistant Treasurer
or the Controller of the Company.
"Opinion of Counsel" means a written opinion from the General Counsel
or the Associate General Counsel of the Company or other legal counsel who is
reasonably acceptable to the Trustee. Such other counsel may be an employee of
or counsel to the Company.
"Original Issue Discount Security" means any Security which provides
for an amount less than the stated principal amount thereof to be due and
payable upon declaration of acceleration of the Maturity thereof pursuant to
Section 5.2.
5
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"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or redemption
money or Government Obligations in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust (if the Company
shall act as its own Paying Agent) for the Holders of such Securities and
any coupons appertaining thereto; provided that, if such Securities are to
be redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provisions therefor satisfactory to the Trustee have been
made;
(iii) Securities, except to the extent provided in Sections 4.4 and
4.5, with respect to which the Company has effected defeasance and/or
covenant defeasance as provided in Article 4; and
(iv) Securities which have been paid pursuant to Section 3.6 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, or whether
sufficient funds are available for redemption or for any other purpose and for
the purpose of making the calculations required by Section 313 of the Trust
Indenture Act, (w) the principal amount of any Original Issue Discount
Securities that may be counted in making such determination or calculation and
that shall be deemed to be Outstanding for such purpose shall be equal to the
amount of principal thereof that would be (or shall have been declared to be)
due and payable, at the time of such determination, upon a declaration of
acceleration of the maturity thereof pursuant to Section 5.2, (x) the principal
amount of any Security denominated in a Foreign Currency that may be counted in
making such determination or calculation and that shall be deemed Outstanding
for such purpose shall be equal to the Dollar equivalent, determined as of the
date such Security is originally issued by the Company as set forth in an
Exchange Rate Officers' Certificate delivered to the Trustee, of the principal
amount (or, in the case of an Original Issue Discount Security, the Dollar
equivalent as of such date of original issuance of the amount determined as
provided in clause (w) above) of such Security, (y) the principal amount of any
Indexed Security that may be counted in making such determination or calculation
and that shall be deemed Outstanding for such purpose shall be equal to the
principal face amount of such Indexed Security at original issuance, unless
otherwise provided with respect to such security pursuant to Section 3.1, and
(z) Securities owned by the Company or any other obligor upon the Securities or
any Affiliate of the Company or of such other obligor shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the
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Trustee shall be protected in making such calculation or in relying upon any
such request, demand, authorization, direction, notice, consent or waiver, only
Securities which the Trustee knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company or any other obligor upon the Securities or any Affiliate of
the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of, premium, if any, or interest and any other payments on any
Securities on behalf of the Company.
"Periodic Offering" means an offering of Securities of a series from
time to time the specific terms of which Securities, including, without
limitation, the rate or rates of interest or formula for determining the rate or
rates of interest thereon, if any, the Maturity thereof and the redemption
provisions, if any, with respect thereto, are to be determined by the Company
upon the issuance of such Securities.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Place of Payment", when used with respect to the Securities of or
within any series, means the place or places where the principal of, premium, if
any, and interest, if any, and any other payments on such Securities are payable
as specified as contemplated by Sections 3.1 and 9.2.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.6 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Preferred Stock" means any and all shares of series and classes of
stock of the Company designated as preferred stock, whether voting or non-
voting, and whether now outstanding or issued after the date of this Indenture.
"Principal Amount", when used with respect to any Security, means the
amount of principal, if any, payable in respect thereof at Maturity; provided,
however, that when used with respect to an Indexed Security in any context other
than the making of payments at Maturity, "principal amount" means the principal
face amount of such Indexed Security at original issuance.
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
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"Redemption Price", when used with respect to any Security to be
redeemed, in whole or in part, means the price at which it is to be redeemed
pursuant to this Indenture.
"Registered Security" means any Security issued hereunder and
registered as to principal and interest in the Register.
"Regular Record Date" for the interest payable on any Interest Payment
Date on the Registered Securities of or within any series means the date
specified for that purpose as contemplated by Section 3.1.
"Responsible Officer", when used with respect to the Trustee, shall
mean any officer within the corporate trust department of the Trustee, including
any vice president, any assistant vice president, any assistant secretary, any
assistant treasurer, any trust officer, or any other officer of the Trustee
customarily performing functions similar to those performed by the persons who
at the time shall be such officers, respectively, or to whom any corporate trust
matter is referred because of such officer's knowledge of and familiarity with a
particular subject and who shall have direct responsibility for the
administration of this Indenture.
"Security" or "Securities" has the meaning stated in the first recital
of this Indenture and more particularly means any Security or Securities of the
Company issued, authenticated and delivered under this Indenture.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity", when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security or in a coupon representing such installment of interest as the
fixed date on which the principal of such Security or such installment of
principal or interest is due and payable.
"Subsidiary" of any Person means any Person of which at least a
majority of capital stock having ordinary voting power for the election of
directors or other governing body of such Person is owned by such Person
directly or through one or more Subsidiaries of such Person.
"Total Assets" means, at any date, the total assets appearing on the
most recently prepared consolidated balance sheet of the Company and its
consolidated Subsidiaries as at the end of a fiscal quarter of the Company,
prepared in accordance with generally accepted accounting principles.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
effect on the date of this Indenture, except as provided in Section 8.3.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor Trustee replaces it pursuant to the applicable
provisions of this Indenture, and thereafter means such successor Trustee and
if, at any time, there is more than one Trustee,
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"Trustee" as used with respect to the Securities of any series shall mean the
Trustee with respect to the Securities of that series.
"United States" means, unless otherwise specified with respect to the
Securities of any series as contemplated by Section 3.1 the United States of
America (including the States and the District of Columbia), its territories,
its possessions and other areas subject to its jurisdiction.
"U.S. Person" means, unless otherwise specified with respect to the
Securities of any series as contemplated by Section 3.1, a citizen, national or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, or an estate or trust, the income of which is subject to
United States federal income taxation regardless of its source.
(b) The following terms shall have the meanings specified in the
Sections referred to opposite such term below:
<TABLE>
<CAPTION>
Term Section
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"Act" 1.4(a)
"Bankruptcy Law" 5.1
"Component Currency" 3.12(d)
"Conversion Date" 3.12(d)
"Custodian" 5.1
"Defaulted Interest" 3.7(b)
"Election Date" 3.12(h)
"Event of Default" 5.1
"Notice of Default" 5.1(3)
"Register" 3.5
"Registrar" 3.5
"Valuation Date" 3.7(c)
</TABLE>
Section 1.2. Compliance Certificates and Opinions. Upon any
application or request by the Company to the Trustee to take an action under any
provision of this Indenture, the Company shall furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Sections 2.3, 3.3 and 9.6) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such condition or covenant and the definitions herein relating
thereto;
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(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such condition or covenant has been
complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
Section 1.3. Form of Documents Delivered to Trustee. In any case
where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.
Any certificate or opinion of an Officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such Officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an Officer or Officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations as to such matters are
erroneous.
Any certificate, statement or opinion of an Officer of the Company or
of counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Company, unless such Officer or counsel, as the
case may be, knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to the accounting matters
upon which his certificate, statement or opinion is based are erroneous.
Where any Person is required to make give or execute two or more
applications, requests, consents, certificates, statements opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Any acts to be taken or matters to be established pursuant to a Board
Resolution may be taken or established by one or more Officers or other
individuals authorized to act pursuant to a Board Resolution.
Section 1.4. Acts of Holders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Holders
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may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Holders in person or by an agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other reasonable manner which the Trustee deems sufficient.
(c) The ownership of Bearer Securities may be proved by the production
of such Bearer Securities or by a certificate executed by any trust company,
bank, banker or other depositary, wherever situated, if such certificate shall
be deemed by the Trustee to be satisfactory, showing that at the date therein
mentioned such Person had on deposit with such depositary, or exhibited to it,
the Bearer Securities therein described; or such facts may be proved by the
certificate or affidavit of the Person holding such Bearer Securities, if such
certificate or affidavit is deemed by the Trustee to be satisfactory. The
Trustee and the Company may assume that such ownership of any Bearer Security
continues until (i) another such certificate or affidavit bearing a later date
issued in respect of the same Bearer Security is produced, (ii) such Bearer
Security is produced to the Trustee by some other Person, (iii) such Bearer
Security is surrendered in exchange for a Registered Security or (iv) such
Bearer Security is no longer Outstanding. The ownership of Bearer Securities may
also be proved in any other reasonable manner which the Trustee deems
sufficient.
(d) The ownership of Registered Securities shall be proved by the
Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
(f) If the Company shall solicit from the Holders of any series any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its
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option, by or pursuant to a Board Resolution, fix in advance a record date for
the determination of Holders of such series entitled to give such request,
demand, authorization, direction, notice, consent, waiver or other Act, but the
Company shall have no obligation to do so, provided that the Company may not set
a record date for, and the provisions of this paragraph shall not apply with
respect to, the giving or making of any notice, declaration, request or
direction referred to in the next paragraph. If such a record date is fixed,
such request, demand, authorization, direction, notice, consent, waiver or other
Act may be given before or after such record date, but only the Holders of
record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed as of
such record date; provided that no such authorization, agreement or consent by
the Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than six months
after the record date.
(g) The Trustee may set any day as a record date for the purpose of
determining the Holders of any series entitled to join in the giving or making
of (i) any Notice of Default, (ii) any declaration of acceleration referred to
in Section 5.2, (iii) any direction referred to in Section 5.8 or (iv) any
request to institute proceedings referred to in Section 5.9(2), in each case
with respect to Securities of such series. If such a record date is fixed
pursuant to this paragraph, the relevant action may be taken or given before or
after such record date, but only the Holders of record at the close of business
on such record date shall be deemed to be holders of a series for the purpose of
determining whether Holders of the requisite proportion of Outstanding
Securities of such series have authorized or agreed or consented to such action,
and for that purpose the Outstanding Securities of such series shall be computed
as of such record date; provided that no such action by Holders on such record
date shall be deemed effective unless it shall become effective pursuant to the
provisions of this Indenture not later than six months after the record date.
Nothing in this paragraph shall be construed to prevent the Trustee from setting
a new record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be cancelled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Outstanding
Securities of the relevant series on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Trustee, at the
Company's expense, shall cause notice of such record date and the proposed
action by Holders to be given to the Company in writing and to each Holder of
Securities of the relevant series in the manner set forth in Section 1.6.
Section 1.5. Notices, etc., to Trustee and Company. Any request,
demand, authorization, direction, notice, consent, waiver or Act of Holders or
other document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with,
(a) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-
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class postage prepaid, to the Trustee at its Corporate Trust Office, Attention:
Corporate Trust Trustee Administration, or
(b) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Company addressed to it
at Federal-Mogul Corporation, 26555 Northwestern Highway, Southfield, Michigan
48034, Attention: General Counsel or at any other address previously furnished
in writing to the Trustee by the Company.
Section 1.6. Notice to Holders; Waiver. Where this Indenture provides
for notice to Holders of an event (i) if any of the Securities affected by such
event are Registered Securities, such notice to the Holders thereof shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed first-class postage prepaid to each such Holder affected by such
event, at his address as it appears in the Register within the time prescribed
for the giving of such notice and, (ii) if any of the Securities affected by
such event are Bearer Securities, notice to the Holders thereof shall be
sufficiently given (unless otherwise herein or in the terms of such Bearer
Securities expressly provided) if published once in an Authorized Newspaper in
New York, New York and in such other city or cities, if any, as may be specified
as contemplated by Section 3.1.
In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders of Registered Securities or the sufficiency of any notice to
Holders of Bearer Securities given as provided herein. In any case where notice
is given to Holders by publication, neither the failure to publish such notice,
nor any defect in any notice so published, shall affect the sufficiency of such
notice with respect to other Holders of Bearer Securities or the sufficiency of
any notice with respect to any Holders of Registered Securities given as
provided herein. Any notice mailed to a Holder in the manner herein prescribed
shall be conclusively deemed to have been received by such Holder, whether or
not such Holder actually receives such notice.
If by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice as provided above,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder. If it is
impossible or, in the opinion of the Trustee, impracticable to give any notice
by publication in the manner herein required, then such publication in lieu
thereof as shall be made with the approval of the Trustee shall constitute a
sufficient publication of such notice.
Any request, demand, authorization, direction, notice, consent or
waiver required or permitted under this Indenture shall be in the English
language, except that any published notice may be in an official language of the
country of publication.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be
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filed with the Trustee, but such filing shall not be a condition precedent to
the validity of any action taken in reliance upon such waiver.
Section 1.7. Headings and Table of Contents. The Article and Section
headings herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
Section 1.8. Successors and Assigns. All covenants and agreements in
this Indenture by the Company shall bind its successors and assigns, whether so
expressed or not.
Section 1.9. Separability. In case any provision of this Indenture
or the Securities shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 1.10. Benefits of Indenture. Nothing in this Indenture or in
the Securities, expressed or implied, shall give to any Person, other than the
parties hereto and their successors hereunder and the Holders, any benefit or
any legal or equitable right, remedy or claim under this Indenture.
Section 1.11. Governing Law. THIS INDENTURE, THE SECURITIES AND ANY
COUPONS APPERTAINING THERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. This Indenture is subject to the Trust
Indenture Act and if any provision hereof limits, qualifies or conflicts with
any provision of the Trust Indenture Act, which is required under such Act to be
a part of and govern this Indenture, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act which may be so modified or excluded the latter provision shall be
deemed to apply to this Indenture as so modified or to be excluded, as the case
may be. Whether or not this Indenture is required to be qualified under the
Trust Indenture Act, the provisions of the Trust Indenture Act required to be
included in an indenture in order for such indenture to be so qualified shall be
deemed to be included in this Indenture with the same effect as if such
provisions were set forth herein and any provisions hereof which may not be
included in an indenture which is so qualified shall be deemed to be deleted or
modified to the extent such provisions would be required to be deleted or
modified in an indenture so qualified.
Section 1.12. Legal Holidays. In any case where any Interest Payment
Date, Redemption Date, sinking fund payment date, Stated Maturity or Maturity of
any Security shall not be a Business Day at any Place of Payment, then
(notwithstanding any other provision of this Indenture or of any Security or
coupon other than a provision in the Securities of any series which specifically
states that such provision shall apply in lieu of this Section) payment of
principal, premium, if any, or interest, if any, need not be made at such Place
of Payment on such date, but may be made on the next succeeding Business Day at
such Place of Payment with the same force and effect as if made on such date;
provided that no interest shall accrue on the amount so payable for the period
from and after such Interest Payment Date, Redemption Date, sinking fund payment
date, Stated Maturity or Maturity, as the case may be.
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ARTICLE 2
SECURITY FORMS
Section 2.1. Forms Generally. The Securities of each series and the
coupons, if any, to be attached thereto shall be in substantially such form as
shall be established by or pursuant to a Board Resolution or in one or more
indentures supplemental hereto, in each case with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or Depositary
therefor or as may, consistently herewith, be determined by the officers
executing such Securities and coupons, if any, as evidenced by their execution
of the Securities and coupons, if any. If temporary Securities of any series are
issued as permitted by Section 3.4, the form thereof also shall be established
as provided in the preceding sentence. If the forms of Securities and coupons,
if any, of any series are established by, or by action taken pursuant to, a
Board Resolution, a copy of the Board Resolution together with an appropriate
record of any such action taken pursuant thereto, including a copy of the
approved form of Securities or coupons, if any, shall be certified by the
Secretary or an Assistant Secretary of the Company and delivered to the Trustee
at or prior to the delivery of the Company Order contemplated by Section 3.3 for
the authentication and delivery of such Securities.
Unless otherwise specified as contemplated by Section 3.1, Bearer
Securities shall have interest coupons attached.
The definitive Securities and coupons, if any, shall be printed,
lithographed or engraved on steel engraved borders or may be produced in any
other manner, all as determined by the officers executing such Securities and
coupons, if any, as evidenced by their execution of such Securities and coupons,
if any.
Section 2.2. Form of Trustee's Certificate of Authentication. The
Trustee's certificate of authentication shall be in substantially the following
form:
This is one of the Securities of the series described in the within-
mentioned Indenture.
The Bank of New York
as Trustee
---------------------------------
by Authorized Signatory
Section 2.3. Securities in Global Form. If Securities of or within a
series are issuable in whole or in part in global form, any such Security may
provide that it shall represent the aggregate or specified amount of Outstanding
Securities from time to time endorsed thereon
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and may also provide that the aggregate amount of Outstanding Securities
represented thereby may from time to time be reduced or increased to reflect
exchanges. Any endorsement of a Security in global form to reflect the amount,
or any increase or decrease in the amount, or changes in the rights of Holders,
of Outstanding Securities represented thereby, shall be made in such manner and
by such Person or Persons as shall be specified therein or in the Company Order
to be delivered to the Trustee pursuant to Section 3.3 or 3.4. Subject to the
provisions of Section 3.3 and, if applicable, Section 3.4, the Trustee shall
deliver and redeliver any security in permanent global form in the manner and
upon instructions given by the Person or Persons specified therein or in the
applicable Company Order. Any instructions by the Company with respect to
endorsement or delivery or redelivery of a Security in global form shall be in
writing but need not comply with Section 1.2 hereof and need not be accompanied
by an Opinion of Counsel.
The provisions of the last paragraph of Section 3.3 shall apply to any
Security in global form if such Security was never issued and sold by the
Company and the Company delivers to the Trustee the Security in global form
together with written instructions (which need not comply with Section 1.2 and
need not be accompanied by an Opinion of Counsel) with regard to the reduction
in the principal amount of Securities represented thereby, together with the
written statement contemplated by the last paragraph of Section 3.3.
Notwithstanding the provisions of Section 2.1, unless otherwise
specified as contemplated by Section 3.1, payment of principal of, premium, if
any, and interest, if any, on any Security in permanent global form shall be
made to the Person or Persons specified therein.
Section 2.4. Form of Legend for Securities in Global Form. Any
Registered Security in global form authenticated and delivered hereunder shall
bear a legend in substantially the following form with such changes as may be
required by the Depositary:
THIS SECURITY IS IN GLOBAL FORM WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN
PART FOR SECURITIES IN CERTIFICATED FORM IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS
A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF
THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY
THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE
OF SUCH SUCCESSOR DEPOSITARY.
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ARTICLE 3
THE SECURITIES
Section 3.1. Amount Unlimited; Issuable in Series. (a) The aggregate
principal amount of Securities which may be authenticated and delivered under
this Indenture is unlimited. The Securities may be issued from time to time in
one or more series.
(b) The following matters shall be established with respect to each
series of Securities issued hereunder (i) by a Board Resolution, (ii) by
action taken pursuant to a Board Resolution and (subject to Section 3.3)
set forth, or determined in the manner provided, in an Officers'
Certificate or (iii) in one or more indentures supplemental hereto:
(1) the title of the Securities of the series (which title shall
distinguish the Securities of the series from all other series of
Securities);
(2) any limit upon the aggregate principal amount of the Securities
of the series which may be authenticated and delivered under this Indenture
(which limit shall not pertain to (i) Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu
of, other Securities of the series pursuant to Section 3.4, 3.5, 3.6, 8.6,
or 10.7 and (ii) any Securities which, pursuant to the last paragraph of
Section 3.3, are deemed never to have been authenticated and delivered
hereunder);
(3) the date or dates on which the principal of and premium, if any,
on the Securities of the series is payable or the method of determination
thereof;
(4) the rate or rates at which the Securities of the series shall
bear interest, if any, or the method of calculating such rate or rates of
interest, the date or dates from which such interest shall accrue or the
method by which such date or dates shall be determined, the Interest
Payment Dates on which any such interest shall be payable and, with respect
to Registered Securities, the Regular Record Date, if any, for the interest
payable on any Registered Security on any Interest Payment Date;
(5) the place or places where the principal of, premium, if any, and
interest, if any, on Securities of the series shall be payable;
(6) the period or periods within which, the price or prices at which,
the currency or currencies (including currency unit or units) in which, and
the other terms and conditions upon which, Securities of the series may be
redeemed or otherwise purchased, in whole or in part, at the option of the
Company and, if other than as provided in Section 10, the manner in which
the particular Securities of such series (if less than all Securities of
such series are to be redeemed) are to be selected for redemption;
(7) the obligation, if any, and the limitations, if any, on the
rights of the Company to redeem or purchase Securities of the series
pursuant to any sinking fund or analogous provisions or upon the happening
of a specified event or at the option of a
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Holder thereof or at the Company's option or otherwise, or to apply any
purchases of Securities to any such redemption, and, if any, the period or
periods within which, the price or prices at which, the application of
purchases to redemptions, and the other terms and conditions upon which
Securities of the series shall be redeemed or purchased, in whole or in
part;
(8) if other than denominations of $1,000 and any integral multiple
thereof, if Registered Securities, and if other than denominations of
$5,000 and any integral multiple thereof, if Bearer Securities, the
denominations in which Securities of the series shall be issuable;
(9) if other than Dollars, the currency or currencies (including
currency unit or units) in which the principal of, premium, if any, and
interest, if any, on the Securities of the series shall be payable, or in
which the Securities of the series shall be denominated, and the particular
provisions applicable thereto in accordance with, in addition to, or in
lieu of the provisions of Section 3.12, and whether the Securities of the
series may be satisfied and discharged other than as provided in Article 4;
(10) if the payments of principal of, premium, if any, or interest, if
any, on the Securities of the series are to be made, at the election of the
Company or a Holder, in a currency or currencies (including currency unit
or units) other than that in which such Securities are denominated or
designated to be payable, the currency or currencies (including currency
unit or units) in which such payments are to be made, the terms and
conditions of such payments and the manner in which the exchange rate with
respect to such payments shall be determined, and the particular provisions
applicable thereto in accordance with, in addition to, or in lieu of the
provisions of Section 3.12, and whether the Securities of the series may be
satisfied and discharged other than as provided in Article 4;
(11) if the amount of payments of principal of, premium, if any, and
interest, if any, on the Securities of the series shall be determined with
reference to an index, formula or other method (which index, formula or
method may be based, without limitation, on a currency or currencies
(including currency unit or units) other than that in which the Securities
of the series are denominated or designated to be payable), the index,
formula or other method by which such amounts shall be determined;
(12) if other than the principal amount thereof, the portion of the
principal amount of such Securities of the series which shall be payable
upon declaration of acceleration thereof pursuant to Section 5.2 or the
method by which such portion shall be determined;
(13) if the principal amount payable at the Stated Maturity of any
Securities of the series will not be determinable as of any one or more
dates prior to the Stated Maturity, the amount which shall be deemed to be
the principal amount of such Securities as of any such date for any purpose
thereunder or hereunder, including the principal amount thereof which shall
be due and payable upon any Maturity other than the Stated
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Maturity or which shall be deemed to be Outstanding as of any date prior to
the Stated Maturity (or, in any such case, the manner in which such amount
deemed to be the principal amount shall be determined);
(14) if other than as provided in Section 3.7, the Person to whom any
interest on any Registered Security of the series shall be payable and the
manner in which, or the Person to whom, any interest on any Bearer
Securities of the series shall be payable, and the extent to which, or the
manner in which (including any certification requirement and other terms
and conditions under which), any interest payable on a temporary or
permanent global Security on an Interest Payment Date will be paid if other
than in the manner provided in Section 2.3 and Section 3.4, as applicable;
(15) provisions, if any, granting special rights to the Holders of
Securities of the series upon the occurrence of such events as may be
specified or any provisions which may be related to rights of the Holders
to give any notice of acceleration, or to waive any past default or to
rescind and annul any declaration of acceleration and its consequences or
to institute or control any proceeding for any remedy with respect to
Securities of the series;
(16) any deletions from, modifications of or additions to the Events
of Default set forth in Section 5.1 or remedies set forth in Article 5 or
covenants of the Company set forth in Article 9 pertaining to the
Securities of the series;
(17) under what circumstances, if any, the Company will pay additional
amounts on the Securities of that series held by a Person who is not a U.S.
Person in respect of taxes or similar charges withheld or deducted and, if
so, whether the Company will have the option to redeem or otherwise
purchase such Securities rather than pay such additional amounts (and the
terms of any such option);
(18) whether Securities of the series shall be issuable as Registered
Securities or Bearer Securities (with or without interest coupons), or
both, and any restrictions applicable to the offering, sale or delivery of
Bearer Securities and, if other than as provided in Section 3.5, the terms
upon which Bearer Securities of a series may be exchanged for Registered
Securities of the same series and vice versa;
(19) the date as of which any Bearer Securities of the series and any
temporary global Security representing Outstanding Securities of the series
shall be dated if other than the date of original issuance of the first
Security of the series to be issued;
(20) the forms of the Securities and coupons, if any, of the series;
(21) the applicability, if any, to the Securities of or within the
series of Sections 4.4 and 4.5, or such other means of defeasance or
covenant defeasance as may be specified for the Securities and coupons, if
any, of such series, and, if the Securities are payable in a currency other
than Dollars, whether, for the purpose of such defeasance or covenant
defeasance the term "Government Obligations" shall include obligations
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referred to in the definition of such term which are not obligations of the
United States or an agency or instrumentality of the United States;
(22) if other than the Trustee, the identity of the Registrar and any
Paying Agent;
(23) the designation of the initial Exchange Rate Agent, if any;
(24) if the Securities of the series shall be issued in whole or in part in
global form (i) the Depositary for such global Securities, (ii) the form of
any legend in addition to or in lieu of that in Section 2.4 which shall be
borne by such global security, (iii) whether beneficial owners of interests
in any Securities of the series in global form may exchange such interests
for certificated Securities of such series and of like tenor of any
authorized form and denomination, and (iv) if other than as provided in
Section 3.5, the circumstances under which any such exchange may occur;
(25) whether Securities of the series are convertible into Common Stock or
Preferred Stock, and, if so, the class or series of capital stock of the
Company into which such Securities are convertible and the terms and
conditions upon which such conversion will be effected, including the
initial conversion price or conversion rate and other conversion
provisions; and
(26) any other terms of the series (which terms shall not be inconsistent
with the provisions of this Indenture and the Trust Indenture Act)
including any terms which may be required by or advisable under United
States laws or regulations or advisable (as determined by the Company) in
connection with the marketing of Securities of the series.
(c) All Securities of any one series and coupons, if any, appertaining to
any Bearer Securities of such series shall be substantially identical except, in
the case of Registered Securities, as to denomination and except as may
otherwise be provided (i) by a Board Resolution, (ii) by action taken pursuant
to a Board Resolution and (subject to Section 3.3) set forth or determined in
the manner provided, in the related Officers' Certificate or (iii) in an
indenture supplemental hereto. All Securities of any one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the Holders, for issuances of additional
Securities of such series.
(d) If any of the terms of the Securities of any series are established by
action taken pursuant to a Board Resolution, a copy of such Board Resolution
shall be certified by the Corporate Secretary or an Assistant Secretary of the
Company and delivered to the Trustee at or prior to the delivery of the
Officers' Certificate setting forth, or providing the manner for determining,
the terms of the Securities of such series, and an appropriate record of any
action taken pursuant thereto in connection with the issuance of any Securities
of such series shall be delivered to the Trustee prior to the authentication and
delivery thereof. With respect to Securities of a series subject to a Periodic
Offering, such Board Resolutions or Officers' Certificates may provide general
terms for Securities of such series and provide either that the specific terms
of particular securities of such series shall be specified in a Company Order,
or
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that such terms shall be determined by the Company, or one or more of its agents
designated in its Officers' Certificates, in accordance with the Company Order,
as contemplated by the first proviso of the third paragraph of Section 3.3.
Section 3.2. Denominations. Unless otherwise provided as contemplated
by Section 3.1, any Registered Securities of a series shall be issuable in
denominations of $1,000 and any integral multiple thereof and any Bearer
Securities of a series shall be issuable in denominations of $5,000 and any
integral multiples thereof.
Section 3.3. Execution, Authentication, Delivery and Dating.
Securities shall be executed on behalf of the Company by two Officers. The
signatures of any of these Officers on the Securities may be manual or
facsimile. The coupons, if any, of Bearer Securities shall bear the facsimile
signature of two Officers.
Securities and coupons bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time, the Company may deliver Securities,
together with any coupons appertaining thereto, of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall authenticate and deliver such Securities; provided,
however, that in the case of Securities offered in a Periodic Offering, the
Trustee shall authenticate and deliver such Securities from time to time in
accordance with such other procedures (including, without limitation, the
receipt by the Trustee of oral or electronic instructions from the Company or
its duly authorized agents, promptly confirmed in writing) reasonably acceptable
to the Trustee as may be specified by or pursuant to a Company Order delivered
to the Trustee prior to the time of the first authentication of Securities of
such series.
If the form or terms of the Securities of a series have been
established by or pursuant to one or more Board Resolutions as permitted by
Sections 2.1 and 3.1, in authenticating such Securities and accepting the
additional responsibilities under this Indenture in relation to such Securities,
the Trustee shall be entitled to receive, and (subject to Section 315(a) through
(d) of the Trust Indenture Act) shall be fully protected in relying upon, an
Opinion of Counsel stating,
(1) if the forms of such Securities and any coupons have been
established by or pursuant to a Board Resolution as permitted by Section
2.1, that such forms have been established in conformity with the
provisions of this Indenture;
(2) if the terms of such Securities and any coupons have been
established by or pursuant to a Board Resolution as permitted by Section
3.1, that such terms have been, or in the case of Securities of a series
offered in a Periodic Offering, will be, established
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in conformity with the provisions of this Indenture, subject in the case of
Securities offered in a Periodic Offering, to any conditions specified in
such Opinion of Counsel; and
(3) that such Securities together with any coupons appertaining
thereto, when authenticated and delivered by the Trustee and issued by the
Company in the manner and subject to any conditions specified in such
Opinion of Counsel, will constitute valid and binding obligations of the
Company, enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other
similar laws of general applicability relating to or affecting the
enforcement of creditors' rights and to general equity principles and
except further as enforcement thereof may be limited by (A) requirements
that a claim with respect to any Securities denominated other than in
Dollars (or a Foreign Currency or currency unit judgment in respect of such
claim) be converted into Dollars at a rate of exchange prevailing on a date
determined pursuant to applicable law or (B) governmental authority to
limit, delay or prohibit the making of payments in Foreign Currencies or
currency units or payments outside the United States.
Notwithstanding that such form or terms have been so established, the Trustee
shall have the right to decline to authenticate such Securities if, in the
written opinion of counsel to the Trustee (which counsel may be an employee of
the Trustee) reasonably acceptable to the Company, the issue of such Securities
pursuant to this Indenture will adversely affect the Trustee's own rights,
duties or immunities under this Indenture or otherwise in a manner which the
Trustee reasonably determines, by action of its board of directors or trustees,
executive committee, or a trust committee of directors or trustees or vice
presidents, that such action would expose the Trustee to personal liability to
existing Holders. Notwithstanding the generality of the foregoing, the Trustee
will not be required to authenticate Securities denominated in a Foreign
Currency if the Trustee reasonably believes that it would be unable to perform
its duties with respect to such Securities.
Notwithstanding the provisions of Section 3.1 and of the two preceding
paragraphs, if all of the Securities of any series are not to be issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 3.1 or the Company Order and Opinion of Counsel
otherwise required pursuant to the two preceding paragraphs in connection with
the authentication of each Security of such series if such documents, with
appropriate modifications to cover such future issuances, are delivered at or
prior to the authentication upon original issuance of the first Security of such
series to be issued.
With respect to Securities of a series offered in a Periodic Offering,
the Trustee and all other Holders may rely upon the documents delivered pursuant
to Sections 2.1 and 3.1 and this Section, as applicable, in connection with the
first authentication of Securities of such series.
If the Company shall establish pursuant to Section 3.1 that the
Securities of a series are to be issued in whole or in part in global form, then
the Company shall execute and the
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Trustee shall, in accordance with this Section and the Company Order with
respect to such series, authenticate and deliver one or more Securities in
global form that (i) shall represent and shall be denominated in an amount equal
to the aggregate principal amount of the Outstanding Securities of such series
to be represented by such Security or Securities in global form, (ii) shall be
registered, if a Registered Security, in the name of the Depositary for such
Security or Securities in global form or the nominee of such Depositary, (iii)
shall be delivered by the Trustee to such Depositary or pursuant to such
Depositary's instruction and (iv) shall bear the legends set forth in Section 4
and the terms determined by or pursuant to the Board Resolution or supplemental
indenture relating to such series.
Each Depositary designated pursuant to Section 3.1 for a Registered
Security in global form must, at the time of its designation and at all times
while it serves as Depositary, be a clearing agency registered under the
Securities Exchange Act of 1934 and any other applicable statute or regulation.
The Trustee shall have no responsibility to determine if the Depositary is so
registered. Each Depositary shall enter into an agreement with the Trustee
governing the respective duties and rights of such Depositary and the Trustee
with regard to Securities issued in global form.
Each Registered Security shall be dated the date of its authentication
and each Bearer Security shall be dated as of the date specified as contemplated
by Section 3.1.
No Security or coupon appertaining thereto shall be entitled to any
benefits under this Indenture or be valid or obligatory for any purpose until
authenticated by the manual signature of one of the authorized signatories of
the Trustee or an Authenticating Agent and no coupon shall be valid until the
Security to which it appertains has been so authenticated. Such signature upon
any Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered under this Indenture and is
entitled to the benefits of this Indenture. Except as permitted by Section 3.6
or 3.7, the Trustee shall not authenticate and deliver any Bearer Security
unless all appurtenant coupons for interest then matured have been detached and
cancelled.
Notwithstanding the foregoing, if any Security shall have been
authenticated and delivered hereunder but never issued and sold by the Company,
and the Company shall deliver such Security to the Trustee for cancellation as
provided in Section 3.9 together with a written statement (which need not comply
with Section 1.2 and need not be accompanied by an Opinion of Counsel) stating
that such Security has never been issued and sold by the Company, for all
purposes of this Indenture such Security shall be deemed never to have been
authenticated and delivered hereunder and shall not be entitled to the benefits
of this Indenture.
Section 3.4. Temporary Securities. Pending the preparation of
definitive Securities of any series, the Company may execute and, upon Company
Order, the Trustee shall authenticate and deliver temporary Securities of such
series which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor and form,
with or without coupons, of the definitive Securities in lieu of which they are
issued and with such appropriate insertions, omissions, substitutions and other
variations as
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the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities and coupons, if any. In the case of
Securities of any series, such temporary Securities may be in global form,
representing all or a portion of the Outstanding Securities of such series.
Except in the case of temporary Securities in global form, each of
which shall be exchanged in accordance with the provisions thereof, if temporary
Securities of any series are issued, the Company will cause definitive
Securities of such series to be prepared without unreasonable delay. After
preparation of definitive Securities of such series, the temporary Securities of
such series shall be exchangeable for definitive Securities of such series upon
surrender of the temporary Securities of such series at the office or agency of
the Company pursuant to Section 9.2 in a Place of Payment for such series,
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities of any series (accompanied by any unmatured coupons
appertaining thereto), the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of the same series of authorized denominations and of like
tenor; provided, however, that no definitive Bearer Security shall be delivered
in exchange for a temporary Registered Security; and provided further that no
definitive Bearer Security shall be delivered in exchange for a temporary Bearer
Security unless the Trustee shall have received from the person entitled to
receive the definitive Bearer Security a certificate substantially in the form
approved in or pursuant to the Board Resolutions relating thereto and such
delivery shall occur only outside the United States. Until so exchanged, the
temporary Securities of any series shall in all respects be entitled to the same
benefits under this Indenture as definitive Securities of such series except as
otherwise specified as contemplated by Section 3.1.
Section 3.5. Registration, Transfer and Exchange. The Company shall
cause to be kept at the Corporate Trust Office of the Trustee or in any office
or agency to be maintained by the Company in accordance with Section 9.2 in a
Place of Payment a register (the "Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Registered Securities and the registration of transfers of
Registered Securities. The Register shall be in written form or in any other
form capable of being converted into written form within a reasonable time. The
Trustee is hereby appointed "Registrar" for the purpose of registering
Registered Securities and transfers of Registered Securities as herein provided.
Upon surrender for registration of transfer of any Registered Security
of any series at the office or agency maintained pursuant to Section 9.2 in a
Place of Payment for that series, the Company shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Registered Securities of the same series, of any
authorized denominations and of a like aggregate principal amount containing
identical terms and provisions.
Bearer Securities or any coupons appertaining thereto shall be
transferable by delivery.
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At the option of the Holder, Registered Securities of any series
(except a Registered Security in global form) may be exchanged for other
Registered Securities of the same series, of any authorized denominations and of
a like aggregate principal amount containing identical terms and provisions,
upon surrender of the Registered Securities to be exchanged at such office or
agency. Whenever any Registered Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the
Registered Securities which the Holder making the exchange is entitled to
receive. Unless otherwise specified as contemplated by Section 3.1, Bearer
Securities may not be issued in exchange for Registered Securities.
Unless otherwise specified as contemplated by Section 3.1, at the
option of the Holder, Bearer Securities of such series may be exchanged for
Registered Securities (if the Securities of such series are issuable in
registered form) or Bearer Securities (if Bearer Securities of such series are
issuable in more than one denomination and such exchanges are permitted by such
series) of the same series, of any authorized denominations and of like tenor
and aggregate principal amount, upon surrender of the Bearer Securities to be
exchanged at any such office or agency, with all unmatured coupons and all
matured coupons in default thereto appertaining. If the Holder of a Bearer
Security is unable to produce any such unmatured coupon or coupons or matured
coupon or coupons in default, such exchange may be effected if the Bearer
Securities are accompanied by payment in funds acceptable to the Company and the
Trustee in an amount equal to the face amount of such missing coupon or coupons,
or the surrender of such missing coupon or coupons may be waived by the Company
and the Trustee if there be furnished to them such security or indemnity as they
may require to save each of them and any Paying Agent harmless. If thereafter
the Holder of such Security shall surrender to any Paying Agent any such missing
coupon in respect of which such a payment shall have been made, such Holder
shall be entitled to receive the amount of such payment; provided, however,
that, except as otherwise provided in Section 9.2, interest represented by
coupons shall be payable only upon presentation and surrender of those coupons
at an office or agency located outside the United States. Notwithstanding the
foregoing, in case any Bearer Security of any series is surrendered at any such
office or agency in exchange for a Registered Security of the same series after
the close of business at such office or agency on (i) any Regular Record Date
and before the opening of business at such office or agency on the relevant
Interest Payment Date, or (ii) any Special Record Date and before the opening of
business at such office or agency on the related date for payment of Defaulted
Interest, such Bearer Security shall be surrendered without the coupon relating
to such Interest Payment Date or proposed date of payment, as the case may be
(or, if such coupon is so surrendered with such Bearer Security, such coupon
shall be returned to the person so surrendering the Bearer Security), and
interest or Defaulted Interest, as the case may be, will not be payable on such
Interest Payment Date or proposed date for payment, as the case may be, in
respect of the Registered Security issued in exchange for such Bearer Security,
but will be payable only to the Holder of such coupon, when due in accordance
with the provisions of this Indenture.
Each Security issued in global form authenticated under this Indenture
shall be registered in the name of the Depositary designated for such series or
a nominee thereof and
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delivered to such Depositary or a nominee thereof or custodian therefor, and
each such Security issued in global form shall constitute a single Security for
all purposes of this Indenture.
Notwithstanding any other provision (other than the provisions set
forth in the eighth, ninth and tenth paragraphs of this Section) of this
Section, unless and until it is exchanged in whole or in part for Securities in
certificated form in the circumstances described below, a Security in global
form representing all or a portion of the Securities of a series may not be
transferred except as a whole by the Depositary for such series to a nominee of
such Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor Depositary for such series or a nominee of such successor Depositary.
If at any time the Depositary for the Securities of a series notifies
the Company that it is unwilling or unable to continue as Depositary for the
Securities of such series or if at any time the Depositary for the Securities of
such series shall no longer be eligible under Section 3.3, the Company shall
appoint a successor Depositary with respect to the Securities of such series. If
a successor Depositary for the Securities of such series is not appointed by the
Company within 90 days after the Company receives such notice or becomes aware
of such ineligibility, the Company's election pursuant to Section 3.1(b)(24)
shall no longer be effective with respect to the Securities of such series and
the Company shall execute, and the Trustee, upon receipt of a Company Order for
the authentication and delivery of certificated Securities of such series of
like tenor, shall authenticate and deliver Securities of such series of like
tenor in certificated form, in authorized denominations and in an aggregate
principal amount equal to the principal amount of the Security or Securities of
such series of like tenor in global form in exchange for such Security or
Securities in global form.
The Company may at any time in its sole discretion determine that
Securities of a series issued in global form shall no longer be represented by
such a Security or Securities in global form. In such event the Company shall
execute, and the Trustee, upon receipt of a Company Order for the authentication
and delivery of certificated Securities of such series of like tenor, shall
authenticate and deliver, Securities of such series of like tenor in
certificated form, in authorized denominations and in an aggregate principal
amount equal to the principal amount of the Security or Securities of such
series of like tenor in global form in exchange for such Security or Securities
in global form.
If specified by the Company pursuant to Section 3.1 with respect to a
series of Securities, the Depositary for such series may surrender a Security in
global form of such series in exchange in whole or in part for Securities of
such series in certificated form on such terms as are acceptable to the Company
and such Depositary. Thereupon, the Company shall execute, and the Trustee shall
authenticate and deliver, without service charge,
(i) to each Person specified by such Depositary a new certificated
Security or Securities of the same series of like tenor, of any authorized
denomination as requested by such Person, in aggregate principal amount
equal to and in exchange for such Person's beneficial interest in the
Security in global form; and
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(ii) to such Depositary a new Security in global form of like tenor in
a denomination equal to the difference, if any, between the principal
amount of the surrendered Security in global form and the aggregate
principal amount of certificated Securities delivered to Holders thereof.
Upon the exchange of a Security in global form for Securities in
certificated form, such Security in global form shall be cancelled by the
Trustee. Unless expressly provided with respect to the Securities of any series
that such Security may be exchanged for Bearer Securities, Securities in
certificated form issued in exchange for a Security in global form pursuant to
this Section shall be registered in such names and in such authorized
denominations as the Depositary for such Security in global form, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver such Securities to the Persons
in whose names such Securities are so registered.
Whenever any Securities are surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or upon any
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Registered Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company, the Registrar or
the Trustee) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company, the Registrar and the Trustee duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
for any exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration or transfer or exchange of Securities, other
than exchanges pursuant to Section 3.4, 8.6 or 10.7 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer
of, or exchange any Securities for a period beginning at the opening of business
15 days before any selection for redemption of Securities of like tenor and of
the series of which such Security is a part 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 Securities of like tenor and of such series to
be redeemed; (ii) to register the transfer of or exchange any Registered
Security selected for redemption, in whole or in part, except the unredeemed
portion of any Security being redeemed in part; or (iii) to exchange any Bearer
Security selected for redemption, except that such a Bearer Security may be
exchanged for a Registered Security of that series and like tenor; provided that
such Registered Security shall be simultaneously surrendered for redemption.
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The foregoing provisions relating to registration, transfer and
exchange may be modified, supplemented or superseded with respect to any series
of Securities by or pursuant to a Board Resolution or in one or more indentures
supplemental hereto.
Section 3.6. Replacement Securities. If a mutilated Security or a
Security with a mutilated coupon appertaining to it is surrendered to the
Trustee, together with, in proper cases, such security or indemnity as may be
required by the Company or the Trustee to save each of them harmless, the
Company shall execute and the Trustee shall authenticate and deliver a
replacement Registered Security, if such surrendered Security was a Registered
Security, or a replacement Bearer Security with coupons corresponding to the
coupons appertaining to the surrendered Security, if such surrendered Security
was a Bearer Security, of the same series and date of maturity, if the Trustee's
requirements are met.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
or Security with a destroyed, lost or stolen coupon and (ii) such security or
indemnity as may be required by them to save each of them and any agent of
either of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security or coupon has been acquired by a bona fide purchaser,
the Company shall execute and the Trustee shall authenticate and deliver in lieu
of any such destroyed, lost or stolen Security or in exchange for the Security
to which a destroyed, lost or stolen coupon appertains (with all appurtenant
coupons not destroyed, lost or stolen), a replacement Registered Security, if
such Holder's claim appertains to a Registered Security, or a replacement Bearer
Security with coupons corresponding to the coupons appertaining to the
destroyed, lost or stolen Bearer Security or the Bearer Security to which such
lost, destroyed or stolen coupon appertains, if such Holder's claim appertains
to a Bearer Security, of the same series and principal amount, containing
identical terms and provisions and bearing a number not contemporaneously
outstanding with coupons corresponding to the coupons, if any, appertaining to
the destroyed, lost or stolen Security.
In case any such mutilated, destroyed, lost or stolen Security or
coupon has become or is about to become due and payable, the Company in its
discretion may, instead of issuing a new Security or coupon, pay such Security
or coupon; provided, however, that payment of principal of and any premium or
interest on Bearer Securities shall, except as otherwise provided in Section
9.2, be payable only at an office or agency located outside the United States
and, unless otherwise specified as contemplated by Section 3.1, any interest on
Bearer Securities shall be payable only upon presentation and surrender of the
coupons appertaining thereto.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee, its agents and
counsel) connected therewith.
Every new Security of any series with its coupons, if any, issued
pursuant to this Section in lieu of any destroyed, lost or stolen Security, or
in exchange for a Security to which a destroyed, lost or stolen coupon
appertains, shall constitute an original additional contractual
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obligation of the Company, whether or not the destroyed, lost or stolen Security
and its coupon, if any, or the destroyed, lost or stolen coupon, shall be at any
time enforceable by anyone, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Securities of that
series and their coupons, if any, duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities or coupons.
Section 3.7. Payment of Interest; Interest Rights Preserved. (a)
Unless otherwise provided as contemplated by Section 3.1 with respect to any
series of Securities, interest, if any, on any Registered Security which is
payable, and is punctually paid or duly provided for, on any Interest Payment
Date shall be paid to the Person in whose name that Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest at the office or agency maintained for such
purpose pursuant to Section 9.2; provided, however, that at the option of the
Company, interest on any series of Registered Securities that earn interest may
be paid (i) by check mailed to the address of the Person entitled thereto as it
shall appear on the Register of Holders of Securities of such series or (ii) at
the expense of the Company, by wire transfer to an account maintained by the
Person entitled thereto as specified in the Register of Holders of Securities of
such series.
Unless otherwise provided as contemplated by Section 3.1 with respect
to any series of Securities, (i) interest, if any, on Bearer Securities shall be
paid only against presentation and surrender of the coupons for such interest
installments as are evidenced thereby as they mature and (ii) original issue
discount, if any, on Bearer Securities shall be paid only against presentation
and surrender of such Securities; in either case at the office of a Paying Agent
located outside the United States, unless the Company shall have otherwise
instructed the Trustee in writing, provided that any such instruction for
payment in the United States does not cause any Bearer Security to be treated as
a "registration-required obligation" under United States laws and regulations.
The interest, if any, on any temporary Bearer Security shall be paid, as to any
installment of interest evidenced by a coupon attached thereto, only upon
presentation and surrender of such coupon and, as to other installments of
interest, only upon presentation of such Security for notation thereon of the
payment of such interest. If at the time a payment of principal of, premium, if
any, or interest, if any, on a Bearer Security or coupon shall become due, the
payment of the full amount so payable at the office or offices of all the Paying
Agents outside the United States is illegal or effectively precluded because of
the imposition of exchange controls or other similar restrictions on the payment
of such amount in Dollars, then the Company may instruct the Trustee to make
such payments at a Paying Agent located in the United States, provided that
provision for such payment in the United States would not cause such Bearer
Security to be treated as a "registration-required obligation" under United
States laws and regulations.
b) Unless otherwise provided as contemplated by Section 3.1 with
respect to any series of Securities, any interest on Registered Securities of
any series which is payable, but is not punctually paid or duly provided for, on
any Interest Payment Date (herein called
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"Defaulted Interest") shall forthwith cease to be payable to the Holders on the
relevant Regular Record Date by virtue of their having been such Holders, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of such Defaulted Interest
to the Persons in whose names such Registered Securities (or their
respective Predecessor Securities) are registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit the Persons entitled to such Defaulted Interest as in this clause
(1) provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days and
not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder of such Registered Securities at his address as it appears
in the Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so mailed, such Defaulted Interest shall
be paid to the Persons in whose names such Registered Securities (or their
respective Predecessor Securities) are registered at the close of business
on such Special Record Date and shall no longer be payable pursuant to the
following clause (2).
(2) The Company may make payment of such Defaulted Interest to the
Persons in whose names such Registered Securities (or their respective
Predecessor Securities) are registered at the close of business on a
specified date in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Registered Securities
may be listed, and upon such notice as may be required by such exchange,
if, after notice given by the Company to the Trustee of the proposed
payment pursuant to this clause (2), such manner of payment shall be deemed
practicable by the Trustee.
(c) Subject to the foregoing provisions of this Section and Section
3.5, each Security delivered under this Indenture upon registration of
transfer of or in exchange for or in lieu of any other Security shall carry
the rights to interest accrued and unpaid, and to accrue, which were
carried by such other Security.
Section 3.8. Persons Deemed Owners. Prior to due presentment of any
Registered Security for registration of transfer, the Company, the Trustee and
any agent of the Company or the Trustee may treat the Person in whose name such
Registered Security is registered as the owner of such Registered Security for
the purpose of receiving payment of principal of,
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premium, if any, and (subject to Section 3.7) interest, if any, on such
Registered Security and for all other purposes whatsoever, whether or not such
Registered Security be overdue, and neither the Company, the Trustee nor any
agent of the Company or the Trustee shall be affected by notice to the contrary.
The Company, the Trustee and an agent of the Company or the Trustee
may treat the bearer of any Bearer Security and the bearer of any coupon as the
absolute owner of such Bearer Security or coupon for the purpose of receiving
payment thereof or on account thereof and for all other purposes whatsoever,
whether or not such Bearer Security or coupon be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
None of the Company, the Trustee or any agent of the Company or the
Trustee shall have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of a
Security in global form, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. Notwithstanding the
foregoing, with respect to any Security in global form, nothing herein shall
prevent the Company or the Trustee, or any agent of the Company or the Trustee,
from giving effect to any written certification, proxy or other authorization
furnished by any Depositary (or its nominee) as a Holder, with respect to such
Security in global form or impair, as between such Depositary and owners of
beneficial interests in such Security in global form, the operation of customary
practices governing the exercise of the rights of such Depositary (or its
nominee) as Holder of such Security in global form.
Section 3.9. Cancellation. The Company at any time may deliver
Securities and coupons to the Trustee for cancellation. The Registrar and any
Paying Agent shall forward to the Trustee any Securities and coupons surrendered
to them for replacement, for registration of transfer, or for exchange or
payment. The Trustee shall cancel all Securities and coupons surrendered for
replacement, for registration of transfer, or for exchange, payment, redemption
or cancellation and may, but shall not be required to, dispose of cancelled
Securities and coupons and issue a certificate of destruction to the Company.
The Company may not issue new Securities to replace Securities that it has paid
or delivered to the Trustee for cancellation, except as expressly permitted in
the terms of Securities for any particular series or as permitted pursuant to
the terms of this Indenture.
Section 3.10. Computation of Interest. Except as otherwise specified
as contemplated by Section 3.1, interest on the Securities of each series shall
be computed on the basis of a 360-day year of twelve 30-day months.
Section 3.11. CUSIP Numbers. The Company in issuing the Securities
may use "CUSIP" numbers (if then generally in use), and, in such case, the
Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to
Holders; provided that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed
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only on the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
Section 3.12. Currency and Manner of Payment in Respect of Securities.
(a) Unless otherwise specified with respect to any Securities pursuant to
Section 3.1, with respect to Registered Securities of any series not permitting
the election provided for in paragraph (b) below or the Holders of which have
not made the election provided for in paragraph (b) below, and with respect to
Bearer Securities of any series, except as provided in paragraph (d) below,
payment of the principal of, premium, if any, and interest, if any, on any
Registered or Bearer Security of such series will be made in the currency or
currencies or currency unit or units in which such Registered Security or Bearer
Security, as the case may be, is payable. The provisions of this Section 3.12
may be modified or superseded pursuant to Section 3.1 with respect to any
Securities.
(b) It may be provided pursuant to Section 3.1, with respect to
Registered Securities of any series, that Holders shall have the option, subject
to paragraphs (d) and (e) below, to receive payments of principal of, premium,
if any, or interest, if any, on such Registered Securities in any of the
currencies or currency units which may be designated for such election by
delivering to the Trustee (or the applicable Paying Agent) a written election
with signature guarantees and in the applicable form established pursuant to
Section 3.1, not later than the close of business on the Election Date
immediately preceding the applicable payment date. If a Holder so elects to
receive such payments in any such currency or currency unit, such election will
remain in effect for such Holder or any transferee of such Holder until changed
by such Holder or such transferee by written notice to the Trustee (or any
applicable Paying Agent) for such series of Registered Securities (but any such
change must be made not later than the close of business on the Election Date
immediately preceding the next payment date to be effective for the payment to
be made on such payment date, and no such change of election may be made with
respect to payments to be made on any Registered Security of such series with
respect to which an Event of Default has occurred or with respect to which the
Company has deposited funds pursuant to Article 4 or with respect to which a
notice of redemption has been given by or on behalf of the Company). Any Holder
of any such Registered Security who shall not have delivered any such election
to the Trustee (or any applicable Paying Agent) not later than the close of
business on the applicable Election Date will be paid the amount due on the
applicable payment date in the relevant currency or currency unit as provided in
Section 3.12(a). The Trustee (or the applicable Paying Agent) shall notify the
Exchange Rate Agent as soon as practicable after the Election Date of the
aggregate principal amount of Registered Securities for which Holders have made
such written election.
(c) If the election referred to in paragraph (b) above has been
provided for with respect to any Registered Securities of a series pursuant to
Section 3.1, then, unless otherwise specified pursuant to Section 3.1 with
respect to any such Registered Securities, not later than the fourth Business
Day after the Election Date for each payment date for such Registered
Securities, the Exchange Rate Agent will deliver to the Company a written notice
specifying, in the currency or currencies or currency unit or units in which
Registered Securities of such series are payable, the respective aggregate
amounts of principal of, premium, if any, and
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interest, if any, on such Registered Securities to be paid on such payment date,
and specifying the amounts in such currency or currencies or currency unit or
units so payable in respect of such Registered Securities as to which the
Holders of Registered Securities denominated in any currency or currencies or
currency unit or units shall have elected to be paid in another currency or
currency unit as provided in paragraph (b) above. If the election referred to in
paragraph (b) above has been provided for with respect to any Registered
Securities of a series pursuant to Section 3.1, and at least one Holder has made
such election, then, unless otherwise specified pursuant to Section 3.1, on the
second Business Day preceding such payment date the Company will deliver to the
Trustee (or the applicable Paying Agent) an Exchange Rate Officers' Certificate
in respect of the Dollar, Foreign Currency or Currencies, ECU or other currency
unit payments to be made on such payment date. Unless otherwise specified
pursuant to Section 3.1, the Dollar, Foreign Currency or Currencies, ECU or
other currency unit amount receivable by Holders of Registered Securities who
have elected payment in a currency or currency unit as provided in paragraph (b)
above shall be determined by the Company on the basis of the applicable Market
Exchange Rate in effect on the second Business Day (the "Valuation Date")
immediately preceding each payment date, and such determination shall be
conclusive and binding for all purposes, absent manifest error.
(d) If a Conversion Event occurs with respect to a Foreign Currency,
ECU or any other currency unit in which any of the Securities are denominated or
payable otherwise than pursuant to an election provided for pursuant to
paragraph (b) above, then, with respect to each date for the payment of
principal of, premium, if any, and interest, if any, on the applicable
Securities denominated or payable in such Foreign Currency, ECU or such other
currency unit occurring after the last date on which such Foreign Currency, ECU
or such other currency unit was used (the "Conversion Date"), the Dollar shall
be the currency of payment for use on each such payment date (but such Foreign
Currency, ECU or such other currency unit that was previously the currency of
payment shall, at the Company's election, resume being the currency of payment
on the first such payment date preceded by 15 Business Days during which the
circumstances which gave rise to the Dollar becoming such currency no longer
prevail). Unless otherwise specified pursuant to Section 3.1, the Dollar amount
to be paid by the Company to the Trustee or any applicable Paying Agent and by
the Trustee or any applicable Paying Agent to the Holders of such Securities
with respect to such payment date shall be, in the case of a Foreign Currency
other than a currency unit, the Dollar Equivalent of the Foreign Currency or, in
the case of a Foreign Currency that is a currency unit, the Dollar Equivalent of
the Currency Unit, in each case as determined by the Exchange Rate Agent in the
manner provided in paragraph (f) or (g) below.
(e) Unless otherwise specified pursuant to Section 3.1, if the Holder
of a Registered Security denominated in any currency or currency unit shall have
elected to be paid in another currency or currency unit or in other currencies
as provided in paragraph (b) above, and (i) a Conversion Event occurs with
respect to any such elected currency or currency unit, such Holder shall receive
payment in the currency or currency unit in which payment would have been made
in the absence of such election and (ii) if a Conversion Event occurs with
respect to the currency or currency unit in which payment would have been made
in the absence of such election, such Holder shall receive payment in Dollars as
provided in paragraph (d) of this
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Section 3.12 (but, subject to any contravening valid election pursuant to
paragraph (b) above, the elected payment currency or currency unit, in the case
of the circumstances described in clause (i) above, or the payment currency or
currency unit in the absence of such election, in the case of the circumstances
described in clause (ii) above, shall, at the Company's election, resume being
the currency or currency unit of payment with respect to Holders who have so
elected, but only with respect to payments on payment dates preceded by 15
Business Days during which the circumstances which gave rise to such currency or
currency unit, in the case of the circumstances described in clause (i) above,
or the Dollar, in the case of the circumstances described in clause (ii) above,
as applicable, becoming the currency or currency unit of payment, no longer
prevail).
(f) The "Dollar Equivalent of the Foreign Currency" shall be
determined by the Exchange Rate Agent and shall be obtained for each subsequent
payment date by the Exchange Rate Agent by converting the specified Foreign
Currency into Dollars at the Market Exchange Rate on the Conversion Date.
(g) The "Dollar Equivalent of the Currency Unit" shall be determined
by the Exchange Rate Agent and, subject to the provisions of paragraph (h)
below, shall be the sum of each amount obtained by converting the Specified
Amount of each Component Currency (as each such term is defined in paragraph (h)
below) into Dollars at the Market Exchange Rate for such Component Currency on
the Valuation Date with respect to each payment.
(h) For purposes of this Section 3.12 the following terms shall have
the following meanings:
"Component Currency" shall mean any currency which, on the Conversion
Date, was a component currency of the relevant currency unit, including, but not
limited to, ECU.
"Election Date" shall mean the Regular Record Date for the applicable
series of Registered Securities as specified pursuant to Section 3.1 by which
the written election referred to in Section 3.12(b) may be made.
A "Specified Amount" of a Component Currency shall mean the number of
units of such Component Currency or fractions thereof which such Component
Currency represented in the relevant currency unit, including, but not limited
to, ECU, on the Conversion Date. If after the Conversion Date the official unit
of any Component Currency is altered by way of combination or subdivision, the
Specified Amount of such Component Currency shall be divided or multiplied in
the same proportion. If after the Conversion Date two or more Component
Currencies are consolidated into a single currency, the respective Specified
Amounts of such Component Currencies shall be replaced by an amount in such
single currency equal to the sum of the respective Specified Amounts of such
consolidated Component Currencies expressed in such single currency, and such
amount shall thereafter be a Specified Amount and such single currency shall
thereafter be a Component Currency. If after the Conversion Date any Component
Currency shall be divided into two or more currencies, the Specified Amount of
such Component Currency shall be replaced by specified amounts of such two or
more currencies, the sum of which, at the Market Exchange Rate of such two or
more currencies on the date of such replacement, shall be equal to the Specified
Amount of such former Component Currency and
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such amounts shall thereafter be Specified Amounts and such currencies shall
thereafter be Component Currencies. If, after the Conversion Date of the
relevant currency unit, including, but not limited to, ECU, a Conversion Event
(other than any event referred to above in this definition of "Specified
Amount") occurs with respect to any Component Currency of such currency unit and
is continuing on the applicable Valuation Date, the Specified Amount of such
Component Currency shall, for purposes of calculating the Dollar Equivalent of
the Currency Unit, be converted into Dollars at the Market Exchange Rate in
effect on the Conversion Date of such Component Currency.
All decisions and determinations of the Exchange Rate Agent regarding
the Dollar Equivalent of the Foreign Currency, the Dollar Equivalent of the
Currency Unit, the Market Exchange Rate and changes in the Specified Amounts as
specified above shall be in its sole discretion and shall, in the absence of
manifest error, be conclusive for all purposes and irrevocably binding upon the
Company, the Trustee (and any applicable Paying Agent) and all Holders of
Securities denominated or payable in the relevant currency, currencies or
currency units. The Exchange Rate Agent shall promptly give written notice to
the Company and the Trustee of any such decision or determination.
In the event that the Company determines in good faith that a
Conversion Event has occurred with respect to a Foreign Currency, the Company
will promptly give written notice thereof to the Trustee (or any applicable
Paying Agent) and to the Exchange Rate Agent (and the Trustee (or such Paying
Agent) will promptly thereafter give notice in the manner provided in Section
1.6 to the affected Holders) specifying the Conversion Date. In the event the
Company so determines that a Conversion Event has occurred with respect to ECU
or any other currency unit in which Securities are denominated or payable, the
Company will promptly give written notice thereof to the Trustee (or any
applicable Paying Agent) and to the Exchange Rate Agent (and the Trustee (or
such Paying Agent) will promptly thereafter give notice in the manner provided
in Section 1.6 to the affected Holders) specifying the Conversion Date and the
Specified Amount of each Component Currency on the Conversion Date. In the event
the Company determines in good faith that any subsequent change in any Component
Currency as set forth in the definition of Specified Amount above has occurred,
the Company will similarly give written notice to the Trustee (or any applicable
Paying Agent) and to the Exchange Rate Agent and the Trustee (or such Paying
Agent) will similarly given written notice to the affected Holders.
The Trustee of the appropriate series of Securities shall be fully
justified and protected in relying and acting upon information received by it
from the Company and the Exchange Rate Agent and shall not otherwise have any
duty or obligation to determine the accuracy or validity of such information
independent of the Company or the Exchange Rate Agent.
Section 3.13. Appointment and Resignation of Exchange Rate Agent. (a)
Unless otherwise specified pursuant to Section 3.1, if and so long as the
Securities of any series (i) are denominated in a currency other than Dollars or
(ii) may be payable in a currency other than Dollars, or so long as it is
required under any other provision of this Indenture, then the
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Company will maintain with respect to each such series of Securities, or as so
required, at least one Exchange Rate Agent. The Company will cause the Exchange
Rate Agent to make the necessary foreign exchange determinations at the time and
in the manner specified pursuant to Section 3.12 for the purpose of determining
the applicable rate of exchange and, if applicable, for the purpose of
converting the issued currency or currencies or currency unit or units into the
applicable payment currency or currency unit for the payment of principal,
premium, if any, and interest, if any, pursuant to Section 3.12.
(b) No resignation of the Exchange Rate Agent and no appointment of a
successor Exchange Rate Agent pursuant to this Section shall become effective
until the acceptance of appointment by the successor Exchange Rate Agent as
evidenced by a written instrument delivered to the Company and the Trustee of
the appropriate series of Securities accepting such appointment executed by the
successor Exchange Rate Agent.
(c) If the Exchange Rate Agent shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of the Exchange
Rate Agent for any cause, with respect to the Securities of one or more series,
the Company, by or pursuant to a Board Resolution, shall promptly appoint a
successor Exchange Rate Agent or Exchange Rate Agents with respect to the
Securities of that or those series (it being understood that any such successor
Exchange Rate Agent may be appointed with respect to the Securities of one or
more or all of such series and that, unless otherwise specified pursuant to
Section 3.1 at any time there shall only be one Exchange Rate Agent with respect
to the Securities of any particular series that are originally issued by the
Company on the same date and that are initially denominated and/or payable in
the same currency or currencies or currency unit or units).
ARTICLE 4
SATISFACTION, DISCHARGE AND DEFEASANCE
Section 4.1. Termination of Company's Obligations Under the
Indenture. (a) This Indenture shall upon a Company Request cease to be of
further effect with respect to Securities of or within any series and any
coupons appertaining thereto (except as to any surviving rights of registration
of transfer or exchange of such Securities and replacement of such Securities
which may have been lost, stolen or mutilated as herein expressly provided for)
and the Trustee, at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to such
Securities and any coupons appertaining thereto when
(1) either
(A) all such Securities previously authenticated and delivered
and all coupons appertaining thereto (other than (i) such coupons appertaining
to Bearer Securities surrendered in exchange for Registered Securities and
maturing after such exchange, surrender of which is not required or has been
waived as provided in Section 3.5, (ii) such Securities and coupons which have
been destroyed, lost or stolen and which have been replaced or paid, as provided
in Section
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3.6, (iii) such coupons appertaining to Bearer Securities called for redemption
and maturing after the relevant Redemption Date, surrender of which has been
waived as provided in Section 10.6 and (iv) such Securities and coupons for
whose payment money has theretofore been deposited in trust or segregated and
held in trust by the Company and thereafter repaid to the Company or discharged
from such trust as provided in Section 9.3) have been delivered to the Trustee
for cancellation; or
(B) all Securities of such series and, in the case of (i) or (ii)
below, any coupons appertaining thereto not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) if redeemable at the option of the Company, are to be
called for redemption within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in the name, and
at the expense, of the Company, and the Company, in the case of (i), (ii) or
(iii) above, has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for the purpose an amount in the currency or
currencies or currency unit or units in which the Securities of such series are
payable, sufficient to pay and discharge the entire indebtedness on such
Securities and such coupons not theretofore delivered to the Trustee for
cancellation, for principal, premium, if any, and interest, if any, with respect
thereto, on the date of such deposit (in the case of Securities which have
become due and payable) or at the Stated Maturity or Redemption Date, as the
case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture as to
such series have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the obligation
of the Company to the Trustee and any predecessor Trustee under Section 6.9, the
obligations of the Company to any Authenticating Agent under Section 6.14 and,
if money shall have been deposited with the Trustee pursuant to subclause (B) of
clause (1) of this Section, the obligations of the Trustee under Section 4.2 and
the last paragraph of Section 9.3 shall survive.
Section 4.2. Application of Trust Funds. Subject to the provisions
of the last paragraph of Section 9.3, all money deposited with the Trustee
pursuant to Section 4.1 shall be held in trust and applied by it, in accordance
with the provisions of the Securities, the coupons and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal, premium, if any, and interest, if any, for
whose payment such money has
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been deposited with or received by the Trustee, but such money need not be
segregated from other funds except to the extent required by law.
Section 4.3. Applicability of Defeasance Provisions; Company's Option
to Effect Defeasance or Covenant Defeasance. If pursuant to Section 3.1
provision is made for either or both of (i) defeasance of the Securities of or
within a series under Section 4.4 or (ii) covenant defeasance of the Securities
of or within a series under Section 4.5, then the provisions of such Section or
Sections, as the case may be, together with the provisions of Sections 4.6
through 4.9 inclusive, with such modifications thereto as may be specified
pursuant to Section 3.1 with respect to any Securities, shall be applicable to
such Securities and any coupons appertaining thereto, and the Company may at its
option by or pursuant to Board Resolution, at any time, with respect to such
Securities and any coupons appertaining thereto, elect to have Section 4.4 (if
applicable) or Section 4.5 (if applicable) be applied to such Outstanding
Securities and any coupons appertaining thereto upon compliance with the
conditions set forth below in this Article.
Section 4.4. Defeasance and Discharge. Upon the Company's exercise
of the option specified in Section 4.3 applicable to this Section with respect
to the Securities of or within a series, the Company shall be deemed to have
been discharged from its obligations with respect to such Securities and any
coupons appertaining thereto on and after the date the conditions set forth in
Section 4.6 are satisfied (hereinafter "defeasance"). For this purpose, such
defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by such Securities and any coupons
appertaining thereto which shall thereafter be deemed to be "Outstanding" only
for the purposes of Section 4.7 and the other Sections of this Indenture
referred to in clause (ii) of this Section, and to have satisfied all its other
obligations under such Securities and any coupons appertaining thereto and this
Indenture insofar as such Securities and any coupons appertaining thereto are
concerned (and the Trustee, at the expense of the Company, shall on a Company
Order execute proper instruments acknowledging the same), except the following,
which shall survive until otherwise terminated or discharged hereunder: (i) the
rights of Holders of such Securities and any coupons appertaining thereto to
receive, solely from the trust funds described in Section 4.6(a) and as more
fully set forth in such Section, payments in respect of the principal of,
premium, if any, and interest, if any, on such Securities or any coupons
appertaining thereto when such payments are due; (ii) the Company's obligations
with respect to such Securities under Sections 3.5, 3.6, 9.2 and 9.3 and with
respect to the payment of additional amounts, if any, payable with respect to
such Securities as specified pursuant to Section 3.1(b)(16); (iii) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and (iv) this
Article 4. Subject to compliance with this Article 4, the Company may exercise
its option under this Section notwithstanding the prior exercise of its option
under Section 4.5 with respect to such Securities and any coupons appertaining
thereto. Following a defeasance, payment of such Securities may not be
accelerated because of an Event of Default.
Section 4.5. Covenant Defeasance. Upon the Company's exercise of the
option specified in Section 4.3 applicable to this Section with respect to any
Securities of or within a series, the Company shall be released from its
obligations under Sections 7.1, 9.4 and 9.7 (and with respect to Section 9.6,
shall be required to certify only with respect to those covenants not
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defeased pursuant to this Section 4.5) and, if specified pursuant to Section
3.1, its obligations under any other covenant, with respect to such Securities
and any coupons appertaining thereto on and after the date the conditions set
forth in Section 4.6 are satisfied (hereinafter, "covenant defeasance"), and
such Securities and any coupons appertaining thereto shall thereafter be deemed
to be not "Outstanding" for the purposes of any direction, waiver, consent or
declaration or Act of Holders (and the consequences of any thereof) in
connection with Sections 7.1, 9.4 and 9.7 or such other covenant, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to such Securities
and any coupons appertaining thereto, the Company may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such Section or such other covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such Section or
such other covenant or by reason of reference in any such Section or such other
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 5.1(3) or 5.1(7), or otherwise, as the case may be, but, except as
specified above, the remainder of this Indenture and such Securities and any
coupons appertaining thereto shall be unaffected thereby.
Section 4.6. Conditions to Defeasance or Covenant Defeasance. The
following shall be the conditions to application of Section 4.4 or Section 4.5
to any Securities of or within a series and any coupons appertaining thereto:
(a) The Company shall have deposited or caused to be deposited
irrevocably with the Trustee (or another trustee satisfying the requirements of
Section 6.12 who shall agree to comply with, and shall be entitled to the
benefits of, the provisions of Sections 4.3 through 4.9 inclusive and the last
paragraph of Section 9.3 applicable to the Trustee, for purposes of such
Sections also a "Trustee") as trust funds in trust for the purpose of making the
payments referred to in clauses (x) and (y) of this Section 4.6(a), specifically
pledged as security for, and dedicated solely to, the benefit of the Holders of
such Securities and any coupons appertaining thereto, with instructions to the
Trustee as to the application thereof, (A) money in an amount (in such currency,
currencies or currency unit or units in which such Securities and any coupons
appertaining thereto are then specified as payable at Maturity), or (B) if
Securities of such series are not subject to repayment at the option of Holders,
Government Obligations which through the payment of interest, if any, and
principal in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment referred to in clause (x)
or (y) of this Section 4.6(a), money in an amount or (C) a combination thereof
in an amount sufficient, in the opinion of a nationally recognized firm of
independent certified public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, and which shall be
applied by the Trustee to pay and (x) discharge the principal of, premium, if
any, and interest, if any, on such Securities and any coupons appertaining
thereto on the Maturity of such principal or installment of principal or
interest, if any, and (y) any mandatory sinking fund payments applicable to such
Securities on the day on which such payments are due and payable in accordance
with the terms of this Indenture and such Securities and any coupons
appertaining thereto. Before such a deposit the Company may make arrangements
satisfactory to the Trustee for the redemption or purchase of Securities at a
future date or dates in accordance with Article 10 which shall be given effect
in applying the foregoing.
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(b) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default or Event of Default under, this
Indenture or result in a breach or violation of, or constitute a default under,
any other material agreement or instrument to which the Company is a party or by
which it is bound, in each case, on the date of such deposit pursuant to Section
4.6(a).
(c) In the case of an election under Section 4.4, the Company shall
have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel
to the effect that (i) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling, or (ii) since the date of
execution of this Indenture, there has been a change in the applicable Federal
income tax law, in either case to the effect that, and based thereon such
opinion shall confirm that, the Holders of such Securities and any coupons
appertaining thereto will not recognize income, gain or loss for Federal income
tax purposes as a result of such defeasance and will be subject to Federal
income tax on the same amount and in the same manner and at the same times, as
would have been the case if such deposit, defeasance and discharge had not
occurred.
(d) In the case of an election under Section 4.5, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of such Securities and any coupons appertaining thereto will not
recognize income, gain or loss for Federal income tax purposes as a result of
such covenant defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred.
(e) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance under Section 4.4 or the covenant defeasance under
Section 4.5 (as the case may be) have been complied with.
(f) No Default or Event of Default under Section 5.1(5) or 5.1(6) with
respect to such Securities and any coupons appertaining thereto shall have
occurred and be continuing during the period commencing on the date of such
deposit and ending on the 91st day after such date (it being understood that
this condition shall not be deemed satisfied until the expiration of such
period).
(g) Such Defeasance or Covenant Defeasance shall not result in the
trust arising from such deposit constituting an investment company within the
meaning of the Investment Company Act of 1940 unless such trust shall be
registered under such Act or exempt from registration thereunder.
(h) Such defeasance or covenant defeasance shall be effected in
compliance with any additional or substitute terms, conditions or limitations
which may be imposed on the Company in connection therewith as contemplated by
Section 3.1.
Section 4.7. Deposited Money and Government Obligations to be Held in
Trust. Subject to the provisions of the last paragraph of Section 9.3, all
money and Government
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Obligations (or other property as may be provided pursuant to Section 3.1)
(including the proceeds thereof) deposited with the Trustee pursuant to Section
4.6 in respect of any Securities of any series and any coupons appertaining
thereto shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and any coupons appertaining thereto and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities and any coupons appertaining
thereto of all sums due and to become due thereon in respect of principal,
premium, if any, and interest, if any, but such money need not be segregated
from other funds except to the extent required by law.
Unless otherwise specified with respect to any Security pursuant to
Section 3.1, if, after a deposit referred to in Section 4.6(a) has been made,
(i) the Holder of a Security in respect of which such deposit was made is
entitled to, and does, elect pursuant to Section 3.12(b) or the terms of such
Security to receive payment in a currency or currency unit other than that in
which the deposit pursuant to Section 4.6(a) has been made in respect of such
Security, or (ii) a Conversion Event occurs as contemplated in Section 3.12(d)
or 3.12(e) or by the terms of any Security in respect of which the deposit
pursuant to Section 4.6(a) has been made, the indebtedness represented by such
Security and any coupons appertaining thereto shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of,
premium, if any, and interest, if any, on such Security as the same becomes due
out of the proceeds yielded by converting (from time to time as specified below
in the case of any such election) the amount or other property deposited in
respect of such Security into the currency or currency unit in which such
Security becomes payable as a result of such election or Conversion Event based
on the applicable Market Exchange Rate for such currency or currency unit in
effect on the second Business Day prior to each payment date, except, with
respect to a Conversion Event, for such currency or currency unit in effect (as
nearly as feasible) at the time of the Conversion Event.
Section 4.8. Repayment to Company. To the extent permitted by the
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 76, as amended or interpreted by the Financial Accounting Standards Board
from time to time, or any successor thereto ("Standard No. 76"), or to the
extent permitted by the Commission, the Trustee shall, from time to time, take
one or more of the following actions as specified in a Company Request: (a)
retransfer, reassign and deliver to the Company any securities deposited with
the Trustee pursuant to Section 4.6(a), provided that the Company shall, in
substitution therefor, simultaneously transfer, assign and deliver to the
Trustee other Governmental Obligations appropriate to satisfy the Company's
obligations in respect of the relevant Securities; and (b) the Trustee and
Paying Agent shall promptly pay to the Company upon Company Request any excess
money or securities held by them at any time, including, without limitation, any
assets deposited with the Trustee pursuant to Section 4.6(a) exceeding those
necessary for the purposes of Section 4.6(a). The Trustee shall not take the
actions described in subsections (a) and (b) of this Section 4.8 unless it shall
have first received a written report of Ernst & Young LLP, or another nationally
recognized independent public accounting firm, (i) expressing their opinion that
the contemplated action is permitted by Standard No. 76 or the Commission for
transactions accounted for as extinguishment of debt under the circumstances
described in paragraph 3.c of
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Standard No. 76 or any successor provision, and (ii) verifying the accuracy,
after giving effect to such action or actions, of the computations which
demonstrate that the amounts remaining to be earned on the Government
Obligations deposited with the Trustee pursuant to Section 4.6(a) will be
sufficient for purposes of Section 4.6(a).
Section 4.9. Indemnity for Government Obligations. The Company shall
pay, and shall indemnify the Trustee against, any tax, fee or other charge
imposed on or assessed against Government Obligations deposited pursuant to this
Article or the principal and interest, if any, and any other amount received on
such Government Obligations.
ARTICLE 5
DEFAULTS AND REMEDIES
Section 5.1. Events of Default. An "Event of Default" occurs with
respect to the Securities of any series if (whatever the reason for such Event
of Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) the Company defaults in the payment of interest on any Security of that
series or any coupon appertaining thereto or any additional amount payable
with respect to any Security of that series as specified pursuant to
Section 3.1(b) when the same becomes due and payable and such default
continues for a period of 30 days;
(2) the Company defaults in the payment of the principal of or any premium
on any Security of that series when the same becomes due and payable at its
Maturity or on redemption or otherwise, or in the payment of a mandatory
sinking fund payment when and as due by the terms of the Securities of that
series;
(3) the Company fails to comply in any material respect with any of its
agreements or covenants in, or any of the provisions of, this Indenture
with respect to any Security of that series (other than an agreement,
covenant or provision for which non-compliance is elsewhere in this Section
specifically dealt with), and such non-compliance continues for a period of
60 days after there has been given by registered or certified mail, to the
Company by the Trustee or to the Company and the Trustee by the Holders of
at least 25% in principal amount of the Outstanding Securities of the
series, a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default"
hereunder;
(4) a default under any mortgage, agreement, indenture or instrument under
which there may be issued, or by which there may be secured, guaranteed or
evidenced any Debt of the Company (including this Indenture) whether such
Debt now exists or shall hereafter be created, in an aggregate principal
amount then outstanding of $25,000,000 or more, which default (a) shall
constitute a failure to pay any portion of the principal of
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such Debt when due and payable after the expiration of an applicable grace
period with respect thereto or (b) shall result in such Debt becoming or
being declared due and payable prior to the date on which it would
otherwise become due and payable, and such acceleration shall not be
rescinded or annulled, or such Debt shall not be paid in full within a
period of 30 days after there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by
the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities of that series a written notice specifying such
event of default and requiring the Company to cause such acceleration to be
rescinded or annulled or to pay in full such Debt and stating that such
notice is a "Notice of Default" hereunder; (it being understood however,
that the Trustee shall not be deemed to have knowledge of such default
under such agreement or instrument unless either (A) a Responsible Officer
of the Trustee shall have actual knowledge of such default or (B) a
Responsible Officer of the Trustee shall have received written notice
thereof from the Company, from any Holder, from the holder of any such
indebtedness or from the trustee under any such agreement or other
instrument); provided, however, that if such default under such agreement
or instrument is remedied or cured by the Company or waived by the holders
of such indebtedness, then the Event of Default hereunder by reason thereof
shall be deemed likewise to have been thereupon remedied, cured or waived
without further action upon the part of either the Trustee or any of such
Holders; provided, further, that the foregoing shall not apply to any
secured Debt under which the obligee has recourse (exclusive of recourse
for ancillary matters such as environmental indemnities, misapplication of
funds, costs of enforcement and the like) only to the collateral pledged
for repayment so long as the fair market value of such collateral does not
exceed 2% of Total Assets at the time of the default;
(5) the Company, pursuant to or within the meaning of any Bankruptcy Law,
(A) commences a voluntary case or proceeding, (B) consents to the entry of
an order for relief against it in an involuntary case or proceeding, (C)
consents to the appointment of a Custodian of it or for all or
substantially all of its property, (D) makes a general assignment for the
benefit of its creditors, (E) makes an admission in writing of its
inability to its debts generally as they become due or (F) takes corporate
action in furtherance of any such action;
(6) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that (A) is for relief against the Company, in an
involuntary case, (B) adjudges the Company as bankrupt or insolvent, or
approves as properly filed a petition seeking reorganization, arrangement,
and adjustment or composition of or in respect of the Company, or appoints
a Custodian of the Company, or for all or substantially all of its
property, or (C) orders the liquidation of the Company and the decree
remains unstayed and in effect for 60 days; or
(7) any other Event of Default provided as contemplated by Section 3.1 with
respect to Securities of that series.
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The Company shall deliver to the Trustee, as soon as practicable,
written notice in the form of an Officers' Certificate of any Default, its
status and what action the Company is taking or proposes to take with respect
thereto.
As used in the Indenture, the term "Bankruptcy Law" means Title 11,
U.S. Code, or any similar federal or state bankruptcy, insolvency,
reorganization or other law for the relief of debtors. As used in the Indenture,
the term "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
Section 5.2. Acceleration; Rescission and Annulment. If an Event of
Default with respect to the Securities of any series at the time Outstanding
occurs and is continuing, the Trustee or the Holders of at least 25% in
aggregate principal amount of all of the Outstanding Securities of that series
by written notice to the Company (and if given by the Holders, to the Trustee),
may declare the principal (or, if the Securities of that series are Original
Issue Discount Securities or Indexed Securities, such portion of the original
principal amount as may be specified in the terms of that series) of and accrued
interest, if any, on the Securities of that series to be due and payable and
upon any such declaration such principal (or, in the case of Original Issue
Discount Securities or Indexed Securities, such specified amount) and interest,
if any, shall be immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in aggregate principal amount of the
Outstanding Securities of that series, by written notice to the Trustee, may
rescind and annul such declaration and its consequences if all existing Defaults
and Events of Default with respect to Securities of that series, other than the
non-payment of the principal of, premium, if any, and interest, if any, on
Securities of that series which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 5.7. No such
rescission shall affect any subsequent default or impair any right consequent
thereon.
Section 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee. The Company covenants that if
(1) default is made in the payment of any interest on any Security or
coupon, if any, when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium, if any,
on) any Security at the Maturity thereof, the Company will, upon demand of
the Trustee, pay to it, for the benefit of the Holders of such Securities
or coupons, if any, the whole amount then due and payable on such
Securities for principal, premium, if any, and interest, if any, and, to
the extent that payment of such interest shall be legally enforceable,
interest on any overdue principal, premium, if any, and on any overdue
interest, if any, at the rate or rates prescribed therefor in such
Securities or coupons, if any, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of
collection,
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including the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel.
If an Event of Default with respect to Securities of any series occurs
and is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of Securities of such series by
such appropriate judicial proceedings as the Trustee shall deem most effectual
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to secure any other proper remedy.
Section 5.4. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents and take such actions
authorized under the Trust Indenture Act as may be necessary or advisable in
order to have the claims of the Trustee and the Holders of Securities allowed in
any judicial proceedings relating to the Company, its creditors or its property.
In particular, the Trustee shall be authorized to collect and receive any moneys
or other property payable or deliverable on any such claims and to distribute
the same; and any custodian, receiver, assignee, trustee, liquidator,
sequestrator or other similar official in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 6.9.
Section 5.5. Trustee May Enforce Claims Without Possession of
Securities. All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee, in its own name as an
express trust, without the possession of any of the Securities or the production
thereof in any proceeding relating thereto and any recovery of judgment shall,
after provision for the reasonable fees and expenses of the Trustee and its
counsel, be for the ratable benefit of the Holders of the Securities in respect
to which judgment was recovered.
Section 5.6. Delay or Omission Not Waiver. No delay or omission by
the Trustee or any Holder of any Securities to exercise any right or remedy
accruing upon an Event of Default shall impair any such right or remedy or
constitute a waiver of or acquiescence in any such Event of Default.
Section 5.7. Waiver of Past Defaults. In addition to the provisions
of Section 5.2 and except as otherwise provided as contemplated by Section 3.1,
the Holders of a majority in aggregate principal amount of Outstanding
Securities of any series by written notice to the Trustee may waive on behalf of
the Holders of all Securities of such series a past Default or Event of Default
with respect to that series and its consequences except (i) a Default or Event
of Default in the payment of the principal of, premium, if any, or interest, if
any, on any Security of such series or any coupon appertaining thereto or (ii)
in respect of a covenant or provision hereof which pursuant to Section 8.2
cannot be amended or modified without the consent of the Holder of each
Outstanding Security of such series adversely affected. Upon any such waiver,
such
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Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured, for every purpose of this Indenture.
Section 5.8. Control by Majority. Except as otherwise provided as
contemplated by Section 3.1, the Holders of a majority in aggregate principal
amount of the Outstanding Securities of each series affected (with each such
series voting as a class) shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it with respect to Securities of that
series; provided, however, that (i) the Trustee may refuse to follow any
direction that conflicts with law or this Indenture (ii) the Trustee may refuse
to follow any direction that is unduly prejudicial to the rights of the Holders
of Securities of such series not consenting or that would in the good faith
judgment of the Trustee have a substantial likelihood of involving the Trustee
in personal liability and (iii) the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such direction. Prior to
the taking of any action hereunder, the Trustee shall be entitled to reasonable
indemnification satisfactory to the Trustee against all losses and expenses
caused by taking or not taking such action. This paragraph shall be in lieu of
Section 316(a)(1)(A) of the Trust Indenture Act and such Section 316(a)(1)(A) is
hereby expressly excluded from this Indenture, as permitted by the Trust
Indenture Act.
Section 5.9. Limitation on Suits by Holders. No Holder of any
Security of any series or any coupons appertaining thereto shall have any right
to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(1) the Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(2) the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities of that series have made a written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense to be,
or which may be, incurred by the Trustee in pursuing the remedy;
(4) the Trustee for 60 days after its receipt of such notice, request
and the offer of indemnity has failed to institute any such proceedings;
and
(5) during such 60 day period, the Holders of a majority in aggregate
principal amount of the Outstanding Securities of that series have not
given to the Trustee a direction inconsistent with such written request.
Except as otherwise provided as contemplated by Section 3.1, no one or
more Holders shall have any right in any manner whatever by virtue of, or by
availing of, any provision of this Indenture to affect, disturb or prejudice the
rights of any other of such Holders,
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or to obtain or to seek to obtain priority or preference over any other of such
Holders or to enforce any right under this Indenture, except in the manner
herein provided and for the equal and ratable benefit of all of such Holders.
Section 5.10. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, but subject to Section 9.2, the right of
any Holder of a Security or coupon to receive payment of principal of, premium,
if any, and, subject to Sections 3.5 and 3.7, interest, if any, on the Security,
on or after the respective due dates expressed in the Security (or, in case of
redemption, on the redemption dates), and the right of any Holder of a coupon to
receive payment of interest due as provided in such coupon, or, subject to
Section 5.9, to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
Section 5.11. Application of Money Collected. If the Trustee
collects any money pursuant to this Article, it shall pay out the money in the
following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal, premium, if any, or
interest, if any, upon presentation of the Securities and the notation thereon
of the payment if only partially paid and upon surrender thereof if fully paid:
First: to the Trustee for amounts due under Section 6.9;
Second: to Holders of Securities and coupons in respect of which or
for the benefit of which such money has been collected for amounts due and
unpaid on such Securities for principal of, premium, if any, and interest, if
any, ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal, premium, if any, and
interest, if any, respectively; and
Third: to the Company.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 5.11. At least 15 days before such record date,
the Trustee shall mail to each Holder and the Company a notice that states the
record date, the payment date and the amount to be paid.
Section 5.12. Restoration of Rights and Remedies. If the Trustee or
any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then
and in every such case, subject to any determination in such proceeding, the
Company, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
Section 5.13. Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Securities in the last paragraph of Section 3.6, no right or
remedy herein conferred upon or reserved to the Trustee or the Holders is
intended to be exclusive of any other right or remedy, and every right
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and remedy shall, to the extent permitted by law, be cumulative and in addition
to every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. The assertion or employment of any existing right
or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.14. Waiver of Usury, Stay or Extension Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any usury, stay or extension law wherever enacted, now
or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
Section 5.15. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorney's fees, against any party litigant in the
suit having due regard to the merits and good faith of the claims or defenses
made by the party litigant.
ARTICLE 6
THE TRUSTEE
Section 6.1. Certain Duties and Responsibilities of the Trustee. (a)
Except during the continuance of an Event of Default, the Trustee's duties and
responsibilities under this Indenture shall be governed by Section 315(a) of the
Trust Indenture Act.
(b) In case an Event of Default has occurred and is continuing with
respect to the Securities of any series, the Trustee shall exercise the rights
and powers vested in it by this Indenture with respect to the Securities of such
series, and shall use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, it own negligent failure to
act, or its own willful misconduct, except that: this subsection shall not be
construed to limit the effect of subsection (a) of this Section; the Trustee
shall not be liable for any error of judgment made in good faith by a
Responsible Officer, unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts; and the Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders in accordance with Section 5.8
relating to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred upon
the Trustee, under the Indenture.
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Section 6.2. Rights of Trustee. Subject to the provisions of the
Trust Indenture Act:
(a) The Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any document believed by it to be
genuine and to have been signed or presented by the proper party or
parties. The Trustee need not investigate any fact or matter stated in the
document;
(b) Any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order (other than
delivery of any Security, together with any coupons appertaining thereto,
to the Trustee for authentication and delivery pursuant to Section 3.3
which shall be sufficiently evidenced as provided therein) and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) Whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, conclusively rely upon an Officers' Certificate;
(d) The Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) The Trustee may act through agents or attorneys and shall not be
responsible for the misconduct or negligence of any agent or attorney
appointed with due care;
(f) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its
rights or powers;
(g) The Trustee shall not be required to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of its rights or powers if it shall
have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured
to it;
(h) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(i) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or
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indemnity against the costs, expenses and liabilities which might be incurred by
it in compliance with such request or direction;
(j) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section 6.2;
(k) The rights, privileges, protections, immunities and benefits
given to the Trustee, including, without limitation, its right to be
indemnified, are extended to, and shall be enforceable by, the Trustee in each
of its capacities hereunder, and to each agent, custodian and other Person
employed to act hereunder.
Section 6.3. Trustee May Hold Securities. The Trustee, any Paying
Agent, any Registrar or any other agent of the Company in its in individual or
any other capacity, may become the owner or pledgee of Securities and coupons
and, subject to Sections 310(b) and 311 of the Trust Indenture Act, may
otherwise deal with the Company, an Affiliate of the Company or Subsidiary of
the Company with the same rights it would have if it were not Trustee, Paying
Agent, Registrar or such other agent.
Section 6.4. Money Held in Trust. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed upon in writing with the
Company.
Section 6.5. Trustee's Disclaimer. The recitals contained herein
and in the Securities, except the Trustee's certificate of authentication, shall
be taken as the statements of the Company, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representation as to
the validity or adequacy of this Indenture or the Securities or any coupon. The
Trustee shall not be accountable for the Company's use of the proceeds from the
Securities or for monies paid over to the Company pursuant to the Indenture.
Section 6.6. Notice of Defaults. If a Default occurs and is
continuing with respect to the Securities of any series and if it is actually
known to a Responsible Officer of the Trustee, the Trustee shall, within 90 days
after it occurs, transmit by mail to the Holders of Securities of such series,
in the manner and to the extent provided in Section 313(c) of the Trust
Indenture Act, notice of all Defaults known to it unless such Default shall have
been cured or waived; provided, however, that except in the case of a Default in
payment on the Securities of any series, the Trustee may withhold the notice if
and so long as the board of directors, the executive committee or a committee of
its Responsible Officers in good faith determines that withholding such notice
is in the interests of Holders of Securities of that series; and provided,
further, that in the case of any Default of the character specified in Section
5.1(3) with respect to Securities of such series, no such notice to Holder shall
be given until at least 30 days after the occurrence thereof.
Section 6.7. Reports by Trustee to Holders. Within 60 days after
each May 15 of each year commencing with the first May 15 after the first
issuance of Securities pursuant to this
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Indenture, the Trustee shall transmit by mail to all Holders of Securities as
provided in Section 313(C) of the Trust Indenture Act a brief report dated as of
such May 15 if required by and in compliance with Section 313(A) of the Trust
Indenture Act. A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange, if
any, upon which the Securities are listed, with the Commission and with the
Company. The Company will promptly notify the Trustee when the Securities are
listed on, or delisted from, any stock exchange.
Section 6.8. Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Holders of Securities of each series. If the
Trustee is not the Registrar, the Company shall furnish to the Trustee
semiannually on or before the last day of June and December in each year, and at
such other times as the Trustee may request in writing, a list, in such form and
as of such date as the Trustee may reasonably require containing all the
information in the possession or control of the Registrar, the Company or any of
its Paying Agents other than the Trustee as to the names and addresses of
Holders of Securities of each such series. If there are Bearer Securities of any
series Outstanding, even if the Trustee is the Registrar, the Company shall
furnish to the Trustee such a list containing such information with respect to
Holders of such Bearer Securities only.
Section 6.9. Compensation and Indemnity. (a) The Company shall pay to
the Trustee from time to time such reasonable compensation for its services as
the Company and the Trustee shall agree in writing from time to time. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred by it in connection
with the performance of its duties under this Indenture. Such expenses shall
include the reasonable compensation and expenses of the Trustee's agents and
counsel.
(b) The Company shall indemnify the Trustee or any Predecessor
Trustee and their agents for, and hold them harmless against, any loss or
liability damage, claim or reasonable expense including taxes (other than taxes
based upon or determined or measured by the income of the Trustee) incurred by
it arising out of or in connection with its acceptance or administration of the
trust or trusts hereunder, including the reasonable costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity. The
Company shall defend the claim and the Trustee shall cooperate in the defense.
The Company need not pay for any settlement made without its consent.
(c) The Company need not reimburse any expense or indemnify against
any loss, liability, damage or claim incurred by the Trustee through negligence
or bad faith or willful misconduct.
(d) To secure the payment obligations of the Company pursuant to this
Section, the Trustee shall have a lien prior to the Securities of any series on
all money or property held or collected by the Trustee, except that held in
trust to pay principal, premium, if any, and interest, if any, on particular
Securities.
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When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 5.1(5) or Section 5.1(6), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
Section 6.10. Replacement of Trustee. (a) The resignation or removal
of the Trustee and the appointment of a successor Trustee shall become effective
only upon the successor Trustee's acceptance of appointment as provided in
Section 6.11.
(b) The Trustee may resign at any time with respect to the Securities
of any series by giving written notice thereof to the Company.
(c) The Holders of a majority in aggregate principal amount of the
Outstanding Securities of any series may remove the Trustee with respect to that
series by so notifying the Trustee and the Company and may appoint a successor
Trustee for such series with the Company's consent.
(d) If at any time:
(1) the Trustee fails to comply with Section 310(b) of the Trust
Indenture Act after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months; or
(2) the Trustee shall cease to be eligible under Section 6.12 of this
Indenture or Section 310(a) of the Trust Indenture Act and shall fail to
resign after written request therefor by the Company or by any Holder of a
Security who has been a bona fide Holder of a Security for at least six
months; or
(3) the Trustee becomes incapable of acting, is adjudged a bankrupt
or an insolvent or a receiver or public officer takes charge of the Trustee
or its property or affairs for the purpose of rehabilitation, conservation
or liquidation, then, in any such case, (i) the Company by or pursuant to a
Board Resolution may remove the Trustee with respect to all Securities, or
(ii) subject to Section 315(e) of the Trust Indenture Act, any Holder who
has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee with respect to all
Securities and the appointment of a successor Trustee or Trustees.
(e) If the instrument of acceptance by a successor Trustee required
by Section 6.11 shall not have been delivered to the Trustee within 30 days
after the giving of such notice of resignation or removal, the Trustee resigning
or being removed may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
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(f) If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, with respect to Securities of one or more
series, the Company, by or pursuant to a Board Resolution, shall promptly
appoint a successor Trustee with respect to the Securities of that or those
series (it being understood that any such successor Trustee may be appointed
with respect to the Securities of one or more or all of such series and that at
any time there shall be only one Trustee with respect to the Securities of any
particular series) and shall comply with the applicable requirements of Section
6.11. If, within one year after such resignation, removal or incapability, or
the occurrence of such vacancy, a successor Trustee with respect to the
Securities of any series shall be appointed by Act of the Holders of a majority
in principal amount of the Outstanding Securities of such series delivered to
the Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance with the
applicable requirements of Section 6.11, become the successor Trustee with
respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with respect
to the Securities of any series shall have been so appointed by the Company or
the Holders and accepted appointment in the manner required by Section 6.11, any
Holder who has been a bona fide Holder of a Security of such series for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee
with respect to the Securities of such series.
Section 6.11. Acceptance of Appointment by Successor. (a) In case of
the appointment hereunder of a successor Trustee with respect to all Securities,
every such successor Trustee shall execute, acknowledge and deliver to the
Company and to the retiring Trustee an instrument accepting such appointment.
Thereupon, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee, without further act, deed or conveyance,
shall become vested with all the rights, powers and duties of the retiring
Trustee; but, on the request of the Company or the successor Trustee, such
retiring Trustee shall, upon payment of its charges, execute and deliver an
instrument transferring to such successor Trustee all the rights, powers and
trusts of the retiring Trustee and shall duly assign, transfer and deliver to
such successor Trustee all property and money held by such retiring Trustee
hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and such successor Trustee shall execute and deliver an
indenture supplemental hereto wherein such successor Trustee shall accept such
appointment and which (i) shall contain such provisions as shall be necessary or
desirable to transfer and confirm to, and to vest in, such successor Trustee all
the rights, powers, trusts and duties of the retiring Trustee with respect to
the Securities of that or those series to which the appointment of such
successor Trustee relates, (ii) if the retiring Trustee is not retiring with
respect to all Securities, shall contain such provisions as shall be deemed
necessary or desirable to confirm that all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
as to which the retiring Trustee is not retiring shall continue to be vested in
the retiring Trustee, and (iii) shall add to or change any of the provisions of
this Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same
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trust and that each such Trustee shall be trustee of a trust or trusts hereunder
separate and apart from any trust or trusts hereunder administered by any other
such Trustee and upon the execution and delivery of such supplemental indenture
the resignation or removal of the retiring Trustee shall become effective to the
extent provided therein and each such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee with respect to the Securities of that or
those series to which the appointment of such successor Trustee relates; but, on
request of the Company or any successor Trustee, such retiring Trustee shall
duly assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder with respect to the Securities of
that or those series to which the appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to the successor Trustee all such rights, powers and trusts referred
to in paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under the Trust Indenture Act.
(e) The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities of any series
in the manner provided for notices to the Holders of Securities in Section 1.6.
Each notice shall include the name of the successor Trustee with respect to the
Securities of such series and the address of its Corporate Trust Office.
Section 6.12. Eligibility; Disqualification. There shall at all times
be a Trustee hereunder which shall be eligible to act as Trustee under Section
310(a)(1) of the Trust Indenture Act and shall have a combined capital and
surplus of at least $75,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or the requirements of Federal,
State, Territorial or District of Columbia supervising or examining authority,
then, for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect heretofore specified
in this Article.
Section 6.13. Merger, Conversion, Consolidation or Succession to
Business. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any
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successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Securities so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Securities.
Section 6.14. Appointment of Authenticating Agent. The Trustee may
appoint an Authenticating Agent or Agents with respect to one or more series of
Securities which shall be authorized to act on behalf of the Trustee to
authenticate Securities of such series issued upon original issue, exchange,
registration of transfer or partial redemption thereof, and Securities so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Any such appointment shall be evidenced by an instrument in writing
signed by a Responsible Officer of the Trustee, a copy of which instrument shall
be promptly furnished to the Company. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and, except as may otherwise be provided pursuant to
Section 3.1, shall at all times be a bank or trust company or corporation
organized and doing business and in good standing under the laws of the United
States of America or of any State or the District of Columbia, authorized under
such laws to act as Authenticating Agent, having a combined capital and surplus
of not less than $25,000,000 and subject to supervision or examination by
Federal or State authorities. If such Authenticating Agent publishes reports of
condition at least annually, pursuant to law or the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such Authenticating Agent shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or further act
on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent for any series of Securities may at any time
resign by giving written notice of resignation to the Trustee for such series
and to the Company. The Trustee for any series of Securities may at any time
terminate the agency of an Authenticating Agent by giving written notice of
termination to such Authenticating Agent and to the Company. Upon receiving such
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee for such series may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall give
notice of such appointment to all Holders of Securities
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of the series with respect to which such Authenticating Agent will serve in the
manner set forth in Section 1.6. Any successor Authenticating Agent upon
acceptance of its appointment hereunder shall become vested with all the rights,
powers and duties of its predecessor hereunder, with like effect as if
originally named as an Authenticating Agent herein. No successor Authenticating
Agent shall be appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation including reimbursement of its reasonable expenses
for its services under this Section.
If an appointment with respect to one or more series is made pursuant
to this Section, the Securities of such series may have endorsed thereon, in
addition to or in lieu of the Trustee's certificate of authentication, an
alternate certificate of authentication substantially in the following form:
This is one of the Securities of the series described in the within-
mentioned Indenture.
----------------------------------
as Trustee
by
----------------------------------
as Authenticating Agent
by
----------------------------------
Authorized Signatory
ARTICLE 7
CONSOLIDATION, MERGER OR SALE BY THE COMPANY
Section 7.1. Consolidation, Merger or Sale of Assets Permitted
(1) the Person formed by or surviving any such consolidation or any
merger (if other than the Company), or to which such transfer or lease shall
have been made, is a corporation organized and existing under the laws of the
United States, any State thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or
merger (if other than the Company), or to which such transfer or lease shall
have been made, assumes by
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supplemental indenture all the obligations of the Company under the Securities
and this Indenture;
(3) immediately after giving effect to the transaction no Default or
Event of Default exists; and
(4) if, as a result of any such consolidation or merger or such
conveyance, transfer or lease, properties or assets of the Company would become
subject to a mortgage, pledge, lien, security interest or other encumbrance
which would not be permitted by the Securities of any series, the Company or
such successor Person, as the case may be, shall take such steps as shall be
necessary effectively to secure such Securities equally and ratably with all
indebtedness secured thereby.
The Company shall deliver to the Trustee prior to the proposed
transaction an Officers' Certificate to the foregoing effect and an Opinion of
Counsel stating that the proposed transaction and such supplemental indenture
comply with this Indenture and that all conditions precedent to the consummation
of the transaction under this Indenture have been met.
In the event of the assumption by a successor corporation as provided
in clause (2) above, such successor corporation shall succeed to and be
substituted for the Company hereunder and under the Securities with the same
effect as if it had been named hereunder and thereunder and any coupons
appertaining thereto and all such obligations of the Company shall terminate.
ARTICLE 8
SUPPLEMENTAL INDENTURES
Section 8.1. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by or pursuant
to a Board Resolution, and the Trustee at any time and from time to time, may
enter into indentures supplemental hereto, in form reasonably satisfactory to
the Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation to the Company
and the assumption by any such successor of the covenants and obligations of the
Company herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to be for
the benefit of less than all series of Securities, stating that such covenants
are expressly being included solely for the benefit of such series) or to
surrender any right or power herein conferred upon the Company; provided,
however, that in respect of any such additional covenant such supplemental
indenture may provide for a particular period of grace after Default (which
period may be shorter or longer than that allowed in the case of other Defaults)
or may limit the remedies available to the Trustee upon such Default; or
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(3) to add any additional Events of Default with respect to all or any
series of Securities (and if such Events of Default are to be for the benefit of
less than all series of Securities, stating that such Events of Default are
expressly included solely for the benefit of such series); or
(4) to add to or change any of the provisions of this Indenture to
such extent as shall be necessary to facilitate the issuance of Bearer
Securities (including, without limitation, to provide that Bearer Securities may
be registrable as to principal only) or to facilitate the issuance of Securities
in global form; or
(5) to add to, change or eliminate any of the provisions of this
Indenture, provided that any such addition, change or elimination shall become
effective only when there is no Security Outstanding of any series created prior
to the execution of such supplemental indenture which is entitled to the benefit
of such provision; or
(6) to secure the Securities; or
(7) to establish the form or terms of Securities of any series as
permitted by Sections 2.1 and 3.1; or
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or more
series and to add to or change any of the provisions of this Indenture as shall
be necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of Section
6.11; or
(9) if allowed without penalty under applicable laws and regulations,
to permit payment in the United States (including any of the States and the
District of Columbia), its territories, its possessions and other areas subject
to its jurisdiction of principal, premium, if any, or interest, if any, on
Bearer Securities or coupons, if any; or
(10) to correct or supplement any provision herein which may be
inconsistent with any other provision herein or to make any other provisions
with respect to matters or questions arising under this Indenture, provided such
action shall not adversely affect the interests of the Holders of Securities of
any series; or
(11) to cure an ambiguity or correct any mistake, provided such action
shall not adversely affect the interests of the Holders of Securities of any
series.
Section 8.2. Supplemental Indentures with Consent of Holders. With
the written consent of the Holders of a majority of the aggregate principal
amount of the Outstanding Securities of each series adversely affected by such
supplemental indenture, the Company, when authorized by or pursuant to a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto to add any provisions to or to change or eliminate any
provisions of this Indenture or of any other indenture supplemental hereto or to
modify the rights of the
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Holders of such Securities; provided, however, that without the consent of the
Holder of each Outstanding Security affected thereby, a supplemental indenture
under this Section may not:
(1) change the Stated Maturity of the principal of, or premium, if
any, on, or any installment of principal of or premium, if any, or
interest, if any, on, any Security, or reduce the principal amount thereof
or the rate of interest thereon or any premium payable upon the redemption,
repurchase or repayment thereof, or change the manner in which the amount
of any principal thereof or premium, if any, or interest, if any, thereon
is determined or reduce the amount of the principal of any Original Issue
Discount Security or Indexed Security that would be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section
5.2, or change the Place of Payment where or the currency in which any
Security or any premium or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment on or after
the Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date);
(2) reduce the percentage in principal amount of the Outstanding
Securities of such series affected thereby, the consent of whose Holders is
required for any such supplemental indenture, or the consent of whose
Holders is required for any waiver (of compliance with certain provisions
of this Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture;
(3) waive a default in the payment of principal of, premium, if any,
or interest, if any, on, any Security of such Series;
(4) change any obligation of the Company to maintain an office or
agency in the places and for the purposes specified in Section 9.2; or
(5) make any change in Section 5.7 or this 8.2(a) except to increase
any percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holders
of each Outstanding Security of such series affected thereby.
A supplemental indenture which changes or eliminates any covenant or
other provision of this Indenture, which has expressly been included solely for
the benefit of one or more particular series of Securities, or which modifies
the rights of the Holders of Securities of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
It is not necessary under this Section 8.2 for the Holders to consent
to the particular form of any proposed supplemental indenture, but it is
sufficient if they consent to the substance thereof.
Upon the request of the Company, accompanied by an Officers'
Certificate and a Board Resolution authorizing the execution of any such
supplemental indenture, and upon the filing with the Trustee of evidence of the
consent of Holders as aforesaid, the Trustee shall join
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with the Company in the execution of such supplemental indenture unless such
supplemental indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may, but shall not
be obligated to, enter into such supplemental indenture.
Section 8.3. Compliance with Trust Indenture Act. Every amendment to
this Indenture or the Securities of one or more series shall be set forth in a
supplemental indenture that complies with the Trust Indenture Act as then in
effect.
Section 8.4. Execution of Supplemental Indentures. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article or the modification thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
such supplemental indenture is authorized or permitted by this Indenture. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Section 8.5. Effect of Supplemental Indentures. Upon the execution
of any supplemental indenture under this article, this Indenture shall be
modified in accordance therewith and such supplemental indenture shall form a
part of this Indenture for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder and of any
coupon appertaining thereto shall be bound thereby.
Section 8.6. Reference in Securities to Supplemental Indentures.
Securities, including any coupons, of any series authenticated and delivered
after the execution of any supplemental indenture pursuant to this Article may,
and shall if required by the Trustee, bear a notation in form approved by the
Trustee as to any matter provided for in such supplemental indenture. If the
Company shall so determine, new Securities including any coupons of any series
so modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities including any coupons of such series.
ARTICLE 9
COVENANTS
Section 9.1. Payment of Principal, Premium, if any, and Interest, if
any. The Company covenants and agrees for the benefit of the Holders of each
series of Outstanding Securities that it will duly and punctually pay the
principal of, premium, if any, and interest, if any, on the Securities of that
series in accordance with the terms of the Securities of such series, any
coupons appertaining thereto and this Indenture. An installment of principal,
premium, if any, or interest, if any, shall be considered paid on the date it is
due if the Trustee or Paying Agent holds on that date money designated for and
sufficient to pay the installment.
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Section 9.2. Maintenance of Office or Agency. If Securities of a
series are issued as Registered Securities, the Company will maintain in each
Place of Payment for any series of Securities an office or agency where
Securities of that series may be presented or surrendered for payment, where
Securities of that series may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities of that series and this Indenture may be served. If Securities of a
series are issuable as Bearer Securities, the Company will maintain, (i) subject
to any laws or regulations applicable thereto, an office or agency in a Place of
Payment for that series which is located outside the United States where
Securities of that series and related coupons may be presented and surrendered
for payment; provided, however, that if the Securities of that series are listed
on The International Stock Exchange of the United Kingdom and the Republic of
Ireland Limited, the Luxembourg Stock Exchange or any other stock exchange
located outside the United States and such stock exchange shall so require, the
Company will maintain a Paying Agent for the Securities of that series in
London, Luxembourg or any other required city located outside the United States,
as the case may be, so long as the Securities of that series are listed on such
exchange, and (ii) subject to any laws or regulations applicable thereto, an
office or agency in a Place of Payment for that series which is located outside
the United States, where Securities of that series may be surrendered for
exchange and where notices and demands to or upon the Company in respect of the
Securities of that series and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in the
location, of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
Unless otherwise specified as contemplated by Section 3.1, no payment
of principal, premium or interest on Bearer Securities shall be made at any
office or agency of the Company in the United States, by check mailed to any
address in United States, by transfer to an account located in the United States
or upon presentation or surrender in the United States of a Bearer Security or
coupon for payment, even if the payment would be credited to an account located
outside the United States; provided, however, that, if the Securities of a
series are denominated and payable in Dollars, payment of principal of and any
premium or interest on any such Bearer Security shall be made at the office of
the Company's Paying Agent located within the United States, if (but only if)
payment in Dollars of the full amount of such principal, premium or interest, as
the case may be, at all offices or agencies outside the United States maintained
for the purpose by the Company in accordance with this Indenture is illegal or
effectively precluded by exchange controls or other similar restrictions. The
Company may also from time to time designate one or more other offices or
agencies where the Securities (including coupons, if any) of one or more series
may be presented or surrendered for any or all such purposes and may from time
to time rescind such designations; provided, however, that no such designation
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in each Place of Payment for Securities (including
coupons, if any) of any series for such purposes. The Company will give prompt
written notice to the Trustee of any
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such designation or rescission and of any change in the location of any such
other office or agency.
Unless otherwise specified as contemplated by Section 3.1, the Trustee
shall initially serve as Paying Agent.
Section 9.3. Money for Securities Payments to be Held in Trust;
Unclaimed Money. If the Company shall at any time act as its own Paying Agent
with respect to any series of Securities, it will, on or before each due date of
the principal of, premium, if any, or interest, if any, on any of the Securities
of that series, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal, premium, if any, or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee in
writing of its action or failure so to act.
The Company will cause each Paying Agent for any series of Securities
other than the Trustee to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of,
premium, if any, or interest, if any, on Securities of that series in trust
for the benefit of the Persons entitled thereto until such sums shall be
paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities of that series) in the making of any
payment of principal, premium, if any, or interest, if any, on the
Securities; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge or defeasance of this Indenture or for any other
purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee
all sums held in trust by the Company or such Paying Agent, such sums to be held
by the Trustee upon the same terms as those upon which such sums were held by
the Company or such Paying Agent; and, upon such payment by any Paying Agent to
the Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of any principal, premium or interest
on any Security of any series and remaining unclaimed for two years after such
principal, premium, if any, or interest, if any, has become due and payable
shall be paid to the Company on Company Request or (if then held by the Company)
shall be discharged from such trust, unless otherwise required by certain
provisions of applicable law; and the Holder of such Security and coupon, if
any, shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability
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of the Trustee or such Paying Agent with respect to such trust money, and all
liability of the Company as trustee thereof, shall thereupon cease; provided,
however, that the Trustee or such Paying Agent, before being required to make
any such repayment, may at the expense of the Company cause to be published
once, in a newspaper published in the English language, customarily published on
each Business Day and of general circulation in The City of New York, or cause
to be mailed to such Holder, notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
Section 9.4. Corporate Existence. Subject to Article 7, the Company
will at all times do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence and its rights and
franchises; provided that nothing in this Section 9.4 shall prevent the
abandonment or termination of any right or franchise of the Company if, in the
opinion of the Company, such abandonment or termination is in the best interests
of the Company and does not materially adversely affect the ability of the
Company to fulfill its obligations hereunder.
Section 9.5. Reports by the Company. The Company covenants:
(a) to file with the Trustee, within 30 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as amended; or, if the Company is not
required to file information, documents or reports pursuant to either of
such sections, then to file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by the
Commission, such of the supplementary and periodic information, documents
and reports which may be required pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, in respect of a security listed and
registered on a national securities exchange as may be prescribed from time
to time in such rules and regulations;
(b) to file with the Trustee and the Commission, in accordance with
the rules and regulations prescribed from time to time by the Commission,
such additional information, documents and reports with respect to
compliance by the Company with the conditions and covenants provided for in
this Indenture, as may be required from time to time by such rules and
regulations; and
(c) to transmit to all Holders of Securities, within 30 days after
the filing thereof with the Trustee, in the manner and to the extent
provided in section 313(c) of the Trust Indenture Act, such summaries of
any information, documents and reports required to be filed by the Company
pursuant to subsections (a) and (b) of this Section 9.5, as may be required
by rules and regulations prescribed from time to time by the Commission.
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Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including information
concerning the Company's compliance with any of its covenants hereunder,
provided that the foregoing shall not relieve the Trustee of any of its
responsibilities hereunder.
Section 9.6. Annual Review Certificate; Notice of Defaults or Events
of Default. (a) The Company covenants and agrees to deliver to the Trustee,
within 120 days after the end of each fiscal year of the Company (beginning with
respect to Securities of any series with the fiscal year next following the
issue date of such series of Securities), a certificate from the principal
executive officer, principal financial officer or principal accounting officer
as to his or her knowledge of the Company's compliance with all conditions and
covenants under this Indenture. For purposes of this Section 9.6, such
compliance shall be determined without regard to any period of grace or
requirement of notice provided under this Indenture.
(b) The Company covenants and agrees to deliver to the Trustee,
within a reasonable time after the Company becomes aware of the occurrence of a
Default or an Event of Default of the character specified in Section 5.1(4)
hereof, written notice of the occurrence of such Default or Event of Default.
Section 9.7. Books of Record and Account. The Company will keep proper
books of record and account, either on a consolidated or individual basis. The
Company shall cause its books of record and account to be examined either on a
consolidated or individual basis, by one or more firms of independent public
accountants not less frequently than annually. The Company shall prepare its
financial statements in accordance with generally accepted accounting
principles.
ARTICLE 10
REDEMPTION
Section 10.1. Applicability of Article. Securities (including coupons,
if any) of any series which are redeemable before their Stated Maturity, whether
at the option of the Holder thereof or the Company, shall be redeemable in
accordance with their terms and (except as otherwise specified as contemplated
by Section 3.1 for Securities of any series) in accordance with this Article.
Section 10.2. Election to Redeem Notice to Trustee. The election of
the Company to redeem any Securities, including coupons, if any, shall be
evidenced by or pursuant to a Board Resolution. In the case of any redemption at
the election of the Company of less than all the Securities or coupons, if any,
of any series, the Company shall, at least 60 days prior to the Redemption Date
fixed by the Company (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee of such Redemption Date and Redemption Price, of
the principal amount of Securities of such series to be redeemed and, if
applicable, of the tenor of the Securities to be redeemed. In the case of any
redemption of Securities (i) prior to the expiration
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of any restriction on such redemption provided in the terms of such Securities
or elsewhere in this Indenture or (ii) pursuant to an election of the Company
which is subject to a condition specified in the terms of such Securities, the
Company shall furnish the Trustee with an Officers' Certificate evidencing
compliance with such restriction or condition.
Section 10.3. Selection of Securities to be Redeemed. Unless
otherwise specified as contemplated by Section 3.1, if less than all the
Securities (including coupons, if any) of a series with the same terms are to be
redeemed, the Trustee, not more than 45 days prior to the Redemption Date, shall
select the Securities of the series to be redeemed in such manner as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of a portion of the principal amount of any Security of such series,
provided that the unredeemed portion of the principal amount of any Security
shall be in an authorized denomination (which shall not be less than the minimum
authorized denomination) for such Security. The Trustee shall make the selection
from Securities of the series that are Outstanding and that have not previously
been called for redemption and may provide for the selection for redemption of
portions (equal to the minimum authorized denomination for Securities, including
coupons, if any, of that series or any integral multiple thereof) of the
principal amount of Securities, including coupons, if any, of such series of a
denomination larger than the minimum authorized denomination for Securities of
that series. The Trustee shall promptly notify the Company in writing of the
Securities selected by the Trustee for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to be
redeemed. If the Company shall so direct, Securities registered in the name of
the Company, any Affiliate of the Company or any Subsidiary of the Company
thereof shall not be included in the Securities selected for redemption.
For purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities (including coupons, if
any) shall relate, in the case of any Securities (including coupons, if any)
redeemed or to be redeemed only in part, to the portion of the principal amount
of such Securities (including coupons, if any) which has been or is to be
redeemed.
Section 10.4. Notice of Redemption. Unless otherwise specified as
contemplated by Section 3.1, notice of redemption shall be given in the manner
provided in Section 1.6 not less than 30 days nor more than 60 days prior to the
Redemption Date to the Holders of the Securities to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) if less than all the Outstanding Securities of a series are to be
redeemed, the identification (and in the case of partial redemption, the
principal amounts) of the particular Security or Securities to be redeemed;
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(4) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the Redemption
Date, upon surrender of such Security, the Holder will receive, without a
charge, a new Security or Securities of authorized denominations for the
principal amount thereof remaining unredeemed;
(5) the Place or Places of Payment where such Securities, together in
the case of Bearer Securities with all coupons appertaining thereto, if any,
maturing after the Redemption Date, are to be surrendered for payment for the
Redemption Price;
(6) that Securities of the series called for redemption and all
unmatured coupons, if any, appertaining thereto must be surrendered to the
Paying Agent to collect the Redemption Price;
(7) that, on the Redemption Date, the Redemption Price will become
due and payable upon each such Security, or the portion thereof, to be redeemed
and, if applicable, that interest thereon will cease to accrue on and after said
date;
(8) that the redemption is for a sinking fund, if such is the case;
(9) that unless otherwise specified in such notice, Bearer Securities
of any series, if any, surrendered for redemption must be accompanied by all
coupons maturing subsequent to the Redemption Date or the amount of any such
missing coupon or coupons will be deducted from the Redemption Price, unless
security or indemnity satisfactory to the Company, the Trustee and any Paying
Agent is furnished; and
(10) the CUSIP number, if any, of the Securities.
Notice of redemption of Securities to be redeemed shall be given by
the Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company.
Section 10.5. Deposit of Redemption Price. On or prior to any
Redemption Date, the Company shall deposit with the Trustee or with a Paying
Agent (or, if the Company is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 9.3) an amount of money in the currency or
currencies (including currency unit or units) in which the Securities of such
series are payable (except as otherwise specified pursuant to Section 3.1 for
the Securities of such series) sufficient to pay on the Redemption Date the
Redemption Price of, and (unless the Redemption Date shall be an Interest
Payment Date) interest accrued to the Redemption Date on, all Securities or
portions thereof which are to be redeemed on that date.
Unless any Security by its terms prohibits any sinking fund payment
obligation from being satisfied by delivering and crediting Securities
(including Securities redeemed otherwise than through a sinking fund), the
Company may deliver such Securities to the Trustee for crediting against such
payment obligation in accordance with the terms of such Securities and this
Indenture or as otherwise specified as contemplated by Section 3.1.
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Section 10.6. Securities Payable on Redemption Date. Notice of
redemption having been given as aforesaid, the Securities so to be redeemed
shall, on the Redemption Date, become due and payable at the Redemption Price
therein specified, and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest and the coupons for any such interest
appertaining to any Bearer Security so to be redeemed, except to the extent
provided below, shall be void. Except as provided in the next succeeding
paragraph, upon surrender of any such Security, including coupons, if any, for
redemption in accordance with said notice, such Security shall be paid by the
Company at the Redemption Price, together with accrued interest to the
Redemption Date; provided, however, that installments of interest on Bearer
Securities whose Stated Maturity is on or prior to the Redemption Date shall be
payable only at an office or agency located outside the United States and its
possessions (except as otherwise provided in Section 9.2) and, unless otherwise
specified as contemplated by Section 3.1, only upon presentation and surrender
of coupons for such interest; and provided, further that, unless otherwise
specified as contemplated by Section 3.1, installments of interest on Registered
Securities whose Stated Maturity is on or prior to the Redemption Date shall be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions of Section 3.7.
If any Bearer Security surrendered for redemption shall not be
accompanied by all appurtenant coupons maturing after the Redemption Date, such
Bearer Security may be paid after deducting from the Redemption Price an amount
equal to the face amount of all such missing coupons, or the surrender of such
missing coupon or coupons may be waived by the Company and the Trustee if there
be furnished to them such security or indemnity as they may require to save each
of them and any Paying Agent harmless. If thereafter the Holder of such Bearer
Security shall surrender to the Trustee or any Paying Agent any such missing
coupon in respect of which a deduction shall have been made from the Redemption
Price, such Holder shall be entitled to receive the amount so deducted;
provided, however, that interest represented by coupons shall be payable only at
an office or agency located outside of the United States (except as otherwise
provided pursuant to Section 9.2) and, unless otherwise provided as contemplated
by Section 3.1, only upon presentation and surrender of those coupons.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate prescribed
therefor in the Security.
Section 10.7. Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part at any Place of Payment therefor (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing), the Company
shall execute and the Trustee shall authenticate and deliver to the Holder of
that Security, without service charge a new Security or Securities of the same
series, having the same form, terms and Stated Maturity, in any authorized
denomination equal in aggregate principal amount to the unredeemed portion of
the principal amount of the Security surrendered.
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ARTICLE 11
SINKING FUNDS
Section 11.1. Applicability of Article. The provisions of this Article
shall be applicable to any sinking fund for the retirement of Securities of a
series except as otherwise specified as contemplated by Section 3.1 for
Securities of such series.
The minimum amount of any sinking fund payment provided for by the
terms of Securities of any series is herein referred to as a "mandatory sinking
fund payment", and any payment in excess of such minimum amount provided for by
the terms of Securities of any series is herein referred to as an "optional
sinking fund payment". If provided for by the terms of Securities of any series,
the cash amount of any sinking fund payment may be subject to reduction as
provided in Section 11.2. Each sinking fund payment shall be applied to the
redemption of Securities of any series as provided for by the terms of the
Securities of such series.
Section 11.2. Satisfaction of Sinking Fund Payments with Securities.
The Company (i) may deliver Outstanding Securities of a series (other than any
previously called for redemption) together, in the case of Bearer Securities of
such series, with all unmatured coupons appertaining thereto and (ii) may apply
as a credit Securities of a series which have been redeemed either at the
election of the Company pursuant to the terms of such Securities or through the
application of permitted optional sinking fund payments pursuant to the terms of
such Securities, or (iii) may apply Securities of a series previously cancelled
or delivered to the Trustee for cancellation pursuant to Section 3.9 in each
case in satisfaction of all or any part of any sinking fund payment with respect
to the Securities of such series required to be made pursuant to the terms of
such Securities as provided for by the terms of such series; provided that such
Securities have not been previously so credited. Such Securities shall be
received and credited for such purpose by the Trustee at the Redemption Price
specified in such Securities for redemption through operation of the sinking
fund and the amount of such sinking fund payment shall be reduced accordingly.
Section 11.3. Redemption of Securities for Sinking Fund. Not less than
60 days prior to each sinking fund payment date for any series of Securities,
the Company will deliver to the Trustee an Officers' Certificate specifying the
amount of the next ensuing sinking fund payment for that series pursuant to the
terms of that series, the portion thereof, if any, which is to be satisfied by
payment of cash and the portion thereof, if any, which is to be satisfied by
delivering and crediting Securities of that series pursuant to Section 11.2 and
will also deliver to the Trustee any Securities to be so delivered. Not less
than 30 days before each such sinking fund payment date the Trustee shall select
the Securities to be redeemed upon such sinking fund payment date in the manner
specified in Section 10.3 and cause notice of the redemption thereof to be given
in the name of and at the expense of the Company in the manner provided in
Section 10.4. Such notice having been duly given, the redemption of such
Securities shall be made upon the terms and in the manner stated in Sections
10.6 and 10.7.
* * *
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This Indenture may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute but
one instrument.
69
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
FEDERAL-MOGUL CORPORATION
by:
----------------------------
Name:
Title:
THE BANK OF NEW YORK, as Trustee
by:
----------------------------
Name:
Title:
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Exhibit 4.2
================================================================================
INDENTURE
between
FEDERAL-MOGUL CORPORATION
as Issuer
to
THE BANK OF NEW YORK
as Trustee
Dated as of [ ], 1998
Providing for Issuance of
Subordinated Debt Securities in Series
================================================================================
<PAGE>
Reconciliation and tie between Subordinated Indenture, dated as of [ ], 1998,
and the Trust Indenture Act of 1939, as amended.
TRUST INDENTURE ACT SUBORDINATED
OF 1939 SECTION INDENTURE SECTION
- --------------- -----------------
310 (a) (1) 6.12
(a) (2) 6.12
(a) (3) TIA
(a) (4) Not applicable
(a) (5) TIA
(b) 6.10; 6.12; TIA
311 (a) TIA
(b) TIA
312 (a) 6.8
(b) TIA
(c) TIA
313 (a) 6.7; TIA
(b) TIA
(c) 6.7; TIA
(d) 6.7; TIA
314 (a) 9.5; 9.6; TIA
(b) Not applicable
(c)(1) 1.2
(c)(2) 1.2
(c)(3) Not applicable
(d) Not applicable
(e) 1.2; TIA
(f) TIA
315 (a) 6.1
(b) 6.6
(c) 6.1
(d)(1) 6.1; TIA
(d)(2) 6.1; TIA
(d)(3) 6.1; TIA
(e) 5.15; TIA
316 (a)(last sentence) 1.1
(a)(1)(A) 5.2; 5.8
(a)(1)(B) 5.7
(b) 5.9; 5.10
(c) 1.4; TIA
317 (a)(1) 5.3
(a)(2) 5.4
(b) 9.3
<PAGE>
318 (a) 1.11
(b) 1.11; TIA
(c) 1.11; TIA
This reconciliation and tie section does not constitute part of the Subordinated
Indenture.
<PAGE>
TABLE OF CONTENTS/1/
Page
----
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1. Definitions................................................... 1
SECTION 1.2. Compliance Certificates and Opinions.......................... 9
SECTION 1.3. Form of Documents Delivered to Trustee........................ 10
SECTION 1.4. Acts of Holders............................................... 11
SECTION 1.5. Notices, etc., to Trustee and Company......................... 13
SECTION 1.6. Notice to Holders; Waiver..................................... 13
SECTION 1.7. Headings and Table of Contents................................ 14
SECTION 1.8. Successors and Assigns........................................ 14
SECTION 1.9. Separability.................................................. 14
SECTION 1.10. Benefits of Indenture........................................ 14
SECTION 1.11. Governing Law................................................ 14
SECTION 1.12. Legal Holidays............................................... 15
ARTICLE 2
SECURITY FORMS
SECTION 2.1. Forms Generally............................................... 15
SECTION 2.2. Form of Trustee's Certificate of Authentication............... 15
SECTION 2.3. Securities in Global Form..................................... 16
SECTION 2.4. Form of Legend for Securities in Global Form.................. 16
ARTICLE 3
THE SECURITIES
SECTION 3.1. Amount Unlimited; Issuable in Series.......................... 17
SECTION 3.2. Denominations................................................. 21
SECTION 3.3. Execution, Authentication, Delivery and Dating................ 21
SECTION 3.4. Temporary Securities.......................................... 24
SECTION 3.5. Registration, Transfer and Exchange........................... 24
SECTION 3.6. Replacement Securities........................................ 28
SECTION 3.7. Payment of Interest; Interest Rights Preserved................ 29
SECTION 3.8. Persons Deemed Owners......................................... 31
SECTION 3.9. Cancellation.................................................. 31
SECTION 3.10. Computation of Interest...................................... 32
/1/ Note: This table of contents shall not, for any purpose be deemed to be
part of the Indenture.
i
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<TABLE>
<S> <C> <C>
SECTION 3.11. CUSIP Numbers.................................................. 32
SECTION 3.12. Currency and Manner of Payment in Respect of Securities........ 32
SECTION 3.13. Appointment and Resignation of Exchange Rate Agent............. 36
ARTICLE 4
SATISFACTION, DISCHARGE AND DEFEASANCE
SECTION 4.1. Termination of Company's Obligations Under the Indenture........ 37
SECTION 4.2. Application of Trust Funds...................................... 38
SECTION 4.3. Applicability of Defeasance Provisions; Company's Option
to Effect Defeasance or Covenant Defeasance.................... 38
SECTION 4.4. Defeasance and Discharge........................................ 38
SECTION 4.5. Covenant Defeasance............................................. 39
SECTION 4.6. Conditions to Defeasance or Covenant Defeasance................. 40
SECTION 4.7. Deposited Money and Government Obligations to Be Held in Trust.. 41
SECTION 4.8. Repayment to Company............................................ 42
SECTION 4.9. Indemnity for Government Obligations............................ 43
ARTICLE 5
DEFAULTS AND REMEDIES
SECTION 5.1. Events of Default............................................... 43
SECTION 5.2. Acceleration; Rescission and Annulment.......................... 44
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee. 45
SECTION 5.4. Trustee May File Proofs of Claim................................ 45
SECTION 5.5. Trustee May Enforce Claims Without Possession of Securities..... 45
SECTION 5.6. Delay or Omission Not Waiver.................................... 46
SECTION 5.7. Waiver of Past Defaults......................................... 46
SECTION 5.8. Control by Majority............................................. 46
SECTION 5.9. Limitation on Suits by Holders.................................. 46
SECTION 5.10. Rights of Holders to Receive Payment........................... 47
SECTION 5.11. Application of Money Collected................................. 47
SECTION 5.12. Restoration of Rights and Remedies............................. 48
SECTION 5.13. Rights and Remedies Cumulative................................. 48
SECTION 5.14. Waiver of Usury, Stay or Extension Laws........................ 48
SECTION 5.15. Undertaking for Costs.......................................... 48
ARTICLE 6
THE TRUSTEE
SECTION 6.1. Certain Duties and Responsibilities of the Trustee.............. 49
SECTION 6.2. Rights of Trustee............................................... 49
SECTION 6.3. Trustee May Hold Securities..................................... 50
SECTION 6.4. Money Held in Trust............................................. 51
SECTION 6.5. Trustee's Disclaimer............................................ 51
SECTION 6.6. Notice of Defaults.............................................. 51
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 6.7. Reports by Trustee to Holders................................... 51
SECTION 6.8. Securityholder Lists............................................ 51
SECTION 6.9. Compensation and Indemnity...................................... 52
SECTION 6.10. Replacement of Trustee......................................... 53
SECTION 6.11. Acceptance of Appointment by Successor......................... 54
SECTION 6.12. Eligibility; Disqualification.................................. 55
SECTION 6.13. Merger, Conversion, Consolidation or Succession to Business.... 55
SECTION 6.14. Appointment of Authenticating Agent............................ 56
ARTICLE 7
CONSOLIDATION, MERGER OR SALE BY THE COMPANY
SECTION 7.1. Consolidation, Merger or Sale of Assets Permitted............... 57
ARTICLE 8
SUPPLEMENTAL INDENTURES
SECTION 8.1. Supplemental Indentures Without Consent of Holders.............. 58
SECTION 8.2. Supplemental Indentures with Consent of Holders................. 59
SECTION 8.3. Compliance With Trust Indenture Act............................. 61
SECTION 8.4. Execution of Supplemental Indentures............................ 61
SECTION 8.5. Effect of Supplemental Indentures............................... 61
SECTION 8.6. Reference in Securities to Supplemental Indentures.............. 61
ARTICLE 9
COVENANTS
SECTION 9.1. Payment of Principal, Premium, if any, and Interest, if any..... 62
SECTION 9.2. Maintenance of Office or Agency................................. 62
SECTION 9.3. Money for Securities Payments to Be Held
in Trust; Unclaimed Money...................................... 63
SECTION 9.4. Corporate Existence............................................. 64
SECTION 9.5. Reports by the Company.......................................... 64
SECTION 9.6. Annual Review Certificate; Notice of Defaults
or Events of Default........................................... 65
SECTION 9.7. Books of Record and Account..................................... 65
ARTICLE 10
REDEMPTION
SECTION 10.1. Applicability of Article....................................... 66
SECTION 10.2. Election to Redeem Notice to Trustee........................... 66
SECTION 10.3. Selection of Securities to Be Redeemed......................... 66
SECTION 10.4. Notice of Redemption........................................... 67
SECTION 10.5. Deposit of Redemption Price.................................... 68
SECTION 10.6. Securities Payable on Redemption Date.......................... 68
SECTION 10.7. Securities Redeemed in Part.................................... 69
</TABLE>
iii
<PAGE>
ARTICLE 11
SINKING FUNDS
<TABLE>
<S> <C> <C>
SECTION 11.1. Applicability of Article............................... 69
SECTION 11.2. Satisfaction of Sinking Fund Payments with Securities.. 69
SECTION 11.3. Redemption of Securities for Sinking Fund.............. 70
ARTICLE 12
SUBORDINATION
SECTION 12.1. Agreement to Subordinate............................... 70
SECTION 12.2. Certain Definitions.................................... 70
SECTION 12.3. Liquidation; Dissolution; Bankruptcy; Etc.............. 71
SECTION 12.4. Default on Senior Indebtedness......................... 71
SECTION 12.5. When Distribution Must Be Paid Over.................... 72
SECTION 12.6. Notice By Company...................................... 72
SECTION 12.7. Subrogation............................................ 72
SECTION 12.8. Relative Rights....................................... 73
SECTION 12.9. Subordination May Not Be Impaired By Company.......... 73
SECTION 12.10. Distribution.......................................... 73
SECTION 12.11. Rights Of Trustee And Paying Agent.................... 73
SECTION 12.12. Authorization To Effect Subordination................. 74
</TABLE>
iv
<PAGE>
INDENTURE, dated as of [___________], 1998 from Federal-Mogul
Corporation, a Michigan corporation, as issuer (the "Company"), to The Bank of
New York, a New York banking corporation, as trustee (the "Trustee").
RECITALS
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
subordinated debentures, notes or other evidences of indebtedness ("Securities")
to be issued in one or more series as herein provided.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed as
follows for the equal and ratable benefit of the Holders of the Securities:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions. (a) For all purposes of this Indenture,
except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles; and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Affiliate" of any specified Person means any Person directly or
indirectly controlling or controlled by, or under direct or indirect common
control, with such specified Person. For purposes of this definition, "control"
when used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agent" means any Paying Agent or Registrar.
<PAGE>
"Authenticating Agent" means any authenticating agent appointed by the
Trustee pursuant to Section 6.14.
"Authorized Newspaper" means a newspaper in the official language of
the country of publication or in the English language, customarily published on
each Business Day whether or not published on Saturdays, Sundays or holidays,
and of general circulation in the place in connection with which the term is
used or in the financial community of such place. Whenever successive
publications in an Authorized Newspaper are required hereunder they may be made
(unless otherwise expressly provided herein) on any Business Day and in the same
or different Authorized Newspapers.
"Bearer Security" means any Security issued hereunder which is payable
to bearer.
"Board" or "Board of Directors" means the Board of Directors of the
Company, the Executive Committee or any other duly authorized committee thereof.
"Board Resolution" means a copy of a resolution of the Board of
Directors, certified by the Secretary or an Assistant Secretary of the Company,
to have been duly adopted by the Board of Directors and to be in full force and
effect on the date of the certificate, and delivered to the Trustee.
"Business Day", when used with respect to any Place of Payment or any
other particular location referred to in this Indenture or in the Securities,
means, unless otherwise specified with respect to any Securities pursuant to
Section 3.1, each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in that Place of Payment or particular
location are authorized or obligated by law or executive order to close.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Stock" means any and all shares of series and classes of stock
of the Company designated as common stock, whether voting or non-voting, and
whether now outstanding or issued after the date of this Indenture.
"Company" means the party named as the Company in the first paragraph
of this Indenture until one or more successor corporations shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
means such successors.
"Company Order" and "Company Request" mean, respectively, a written
order or request signed in the name of the Company by two Officers, one of whom
must be the Chairman of the Board, the President the Chief Financial Officer,
any Executive Vice President, Senior Vice President or Vice President, the
Treasurer, any Assistant Treasurer or the Controller of the Company.
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"Conversion Event" means the cessation of use of (i) a Foreign
Currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community, (ii) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Communities or (iii) any currency
unit other than the ECU for the purposes for which it was established.
"Corporate Trust Office" means the office of the Trustee in which at
any particular time its corporate trust business shall be principally
administered, which office at the date hereof is located at 101 Barclay Street,
New York, New York 10286, Attention: Corporate Trust Administration.
"Debt" means indebtedness for money borrowed.
"Default" means any event which is, or after notice or passage of
time, or both, would be, an Event of Default.
"Depositary", when used with respect to the Securities of or within
any series issuable or issued in whole or in part in global form, means the
Person designated as Depositary by the Company pursuant to Section 3.1 until a
successor Depositary shall have become such pursuant to the applicable
provisions of this Indenture, and thereafter shall mean or include each Person
which is then a Depositary hereunder, and if at any time there is more than one
such Person, shall be a collective reference to such Persons.
"Dollar" means the currency of the United States as at the time of
payment is legal tender for the payment of public and private debts.
"ECU" means the European Currency Unit as defined and revised from
time to time by the Council of the European Communities.
"European Communities" means the European Economic Community, the
European Coal and Steel Community and the European Atomic Energy Community.
"European Monetary System" means the European Monetary System
established by the Resolution of December 5, 1978 of the Council of the European
Communities.
"Exchange Rate Agent", when used with respect to Securities of or
within any series, means, unless otherwise specified with respect to any
Securities pursuant to Section 3.1, a New York Clearing House bank designated
pursuant to Section 3.1 or Section 3.13 (which may include any such bank acting
as Trustee hereunder).
"Exchange Rate Officers' Certificate" means a certificate setting
forth (i) the applicable Market Exchange Rate or the applicable bid quotation
and (ii) the Dollar or Foreign Currency amounts of principal (and premium, if
any) and interest, if any (on an aggregate basis and on the basis of a Security
having the lowest denomination principal amount in the relevant currency or
currency unit), payable with respect to a Security of any series on the basis of
such
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Market Exchange Rate or the applicable bid quotation, signed by the Chief
Financial Officer, any Executive Vice President, Senior Vice President or Vice
President, the Treasurer, any Assistant Treasurer or the Controller of the
Company.
"Foreign Currency" means any currency issued by the government of one
or more countries other than the United States or by any recognized
confederation or association of such governments.
"Government Obligations" means securities which are (i) direct
obligations of the United States or, if specified as contemplated by Section
3.1, the government which issued the currency in which the Securities of a
particular series are or may be payable, for the payment of which its full faith
and credit is pledged or (ii) obligations of a Person controlled or supervised
by and acting as an agency or instrumentality of the United States or, if
specified as contemplated by Section 3.1, such government which issued the
foreign currency in which the Securities of such series are or may be payable,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States or such other government, which, in either case,
are not callable or redeemable at the option of the issuer thereof, and shall
also include a depositary receipt issued by a bank or trust company as custodian
with respect to any such Government Obligation or a specific payment of interest
on or principal of any such Government Obligation held by such custodian for the
account of the holder of a depositary receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depositary receipt from any amount received by the
custodian in respect of the Government Obligation evidenced by such depositary
receipt.
"Holder" means, with respect to a Bearer Security, a bearer thereof or
of a coupon appertaining thereto and, with respect to a Registered Security, a
person in whose name a Security is registered on the Register.
"Indenture" means this Indenture as originally executed or as amended
or supplemented from time to time and shall include the forms and terms of
particular series of Securities established as contemplated hereunder.
"Indexed Security" means a Security the terms of which provide that
the principal amount thereof payable at Stated Maturity may be more or less than
the principal face amount thereof at original issuance.
"Interest", when used with respect to an Original Issue Discount
Security which by its terms bears interest only after Maturity, means interest
payable after Maturity.
"Interest Payment Date", when used with respect to any Security, means
the Stated Maturity of an installment of interest on such Security.
"Market Exchange Rate" means, unless otherwise specified with respect
to any Securities pursuant to Section 3.1, (i) for any conversion involving a
currency unit on the one hand and Dollars or any Foreign Currency on the other,
the exchange rate between the relevant
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<PAGE>
currency unit and Dollars or such Foreign Currency calculated by the method
specified pursuant to Section 3.1 for the Securities of the relevant series,
(ii) for any conversion of Dollars into any Foreign Currency, the noon buying
rate for such Foreign Currency for cable transfers quoted in New York City as
certified for customs purposes by the Federal Reserve Bank of New York and (iii)
for any conversion of one Foreign Currency into Dollars or another Foreign
Currency, the spot rate at noon local time in the relevant market at which, in
accordance with normal banking procedures, the Dollars or Foreign Currency into
which conversion is being made could be purchased with the Foreign Currency from
which conversion is being made from major banks located in New York City, London
or any other principal market for Dollars or such purchased Foreign Currency, in
each case determined by the Exchange Rate Agent. Unless otherwise specified with
respect to any Securities pursuant to Section 3.1, in the event of the
unavailability of any of the exchange rates provided for in the foregoing
clauses (i), (ii) and (iii), the Exchange Rate Agent shall use, in its sole
discretion and without liability on its part, such quotation of the Federal
Reserve Bank of New York as of the most recent available date, or quotations
from one or more major banks in New York City, London or other principal market
for such currency or currency unit in question (which may include any such bank
acting as Trustee under this Indenture), or such other quotations as the
Exchange Rate Agent shall deem appropriate. If there is more than one market for
dealing in any currency or currency unit by reason of foreign exchange
regulations or otherwise, the market to be used in respect of such currency or
currency unit shall be that upon which a nonresident issuer of securities
designated in such currency or currency unit would purchase such currency or
currency unit in order to make payments in respect of such securities.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Officer" means the Chairman of the Board, the President, the Chief
Financial Officer, any Executive Vice President, Senior Vice President or Vice
President, the Treasurer, any Assistant Treasurer, the Controller, the Secretary
or any Assistant Secretary of the Company.
"Officers' Certificate", when used with respect to the Company, means
a certificate signed by two Officers, one of whom must be the Chairman of the
Board, the President, the Chief Financial Officer, any Executive Vice President,
Senior Vice President or Vice President, the Treasurer, any Assistant Treasurer
or the Controller of the Company.
"Opinion of Counsel" means a written opinion from the General Counsel
or the Associate General Counsel of the Company or other legal counsel who is
reasonably acceptable to the Trustee. Such other counsel may be an employee of
or counsel to the Company.
"Original Issue Discount Security" means any Security which provides
for an amount less than the stated principal amount thereof to be due and
payable upon declaration of acceleration of the Maturity thereof pursuant to
Section 5.2.
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<PAGE>
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption money or Government Obligations in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust (if the Company
shall act as its own Paying Agent) for the Holders of such Securities and
any coupons appertaining thereto; provided that, if such Securities are to
be redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provisions therefor satisfactory to the Trustee have been
made;
(iii) Securities, except to the extent provided in Sections 4.4 and
4.5, with respect to which the Company has effected defeasance and/or
covenant defeasance as provided in Article 4; and
(iv) Securities which have been paid pursuant to Section 3.6 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, or whether
sufficient funds are available for redemption or for any other purpose and for
the purpose of making the calculations required by Section 313 of the Trust
Indenture Act, (w) the principal amount of any Original Issue Discount
Securities that may be counted in making such determination or calculation and
that shall be deemed to be Outstanding for such purpose shall be equal to the
amount of principal thereof that would be (or shall have been declared to be)
due and payable, at the time of such determination, upon a declaration of
acceleration of the maturity thereof pursuant to Section 5.2, (x) the principal
amount of any Security denominated in a Foreign Currency that may be counted in
making such determination or calculation and that shall be deemed Outstanding
for such purpose shall be equal to the Dollar equivalent, determined as of the
date such Security is originally issued by the Company as set forth in an
Exchange Rate Officers' Certificate delivered to the Trustee, of the principal
amount (or, in the case of an Original Issue Discount Security, the Dollar
equivalent as of such date of original issuance of the amount determined as
provided in clause (w) above) of such Security, (y) the principal amount of any
Indexed Security that may be counted in making such determination or calculation
and that shall be deemed Outstanding for such purpose shall be equal to the
principal face amount of such Indexed Security at original issuance, unless
otherwise provided with respect to such security pursuant to Section 3.1, and
(z) Securities owned by the Company or any other obligor upon the Securities or
any Affiliate of the Company or of such other obligor shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the
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<PAGE>
Trustee shall be protected in making such calculation or in relying upon any
such request, demand, authorization, direction, notice, consent or waiver, only
Securities which the Trustee knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the satisfaction of the Trustee the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Company or any other obligor upon the Securities or any Affiliate of
the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of, premium, if any, or interest and any other payments on any
Securities on behalf of the Company.
"Periodic Offering" means an offering of Securities of a series from
time to time the specific terms of which Securities, including, without
limitation, the rate or rates of interest or formula for determining the rate or
rates of interest thereon, if any, the Maturity thereof and the redemption
provisions, if any, with respect thereto, are to be determined by the Company
upon the issuance of such Securities.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Place of Payment", when used with respect to the Securities of or
within any series, means the place or places where the principal of, premium, if
any, and interest, if any, and any other payments on such Securities are payable
as specified as contemplated by Sections 3.1 and 9.2.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.6 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Preferred Stock" means any and all shares of series and classes of
stock of the Company designated as preferred stock, whether voting or non-
voting, and whether now outstanding or issued after the date of this Indenture.
"Principal Amount", when used with respect to any Security, means the
amount of principal, if any, payable in respect thereof at Maturity; provided,
however, that when used with respect to an Indexed Security in any context other
than the making of payments at Maturity, "principal amount" means the principal
face amount of such Indexed Security at original issuance.
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
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"Redemption Price", when used with respect to any Security to be
redeemed, in whole or in part, means the price at which it is to be redeemed
pursuant to this Indenture.
"Registered Security" means any Security issued hereunder and
registered as to principal and interest in the Register.
"Regular Record Date" for the interest payable on any Interest Payment
Date on the Registered Securities of or within any series means the date
specified for that purpose as contemplated by Section 3.1.
"Responsible Officer", when used with respect to the Trustee, shall
mean any officer within the corporate trust department of the Trustee, including
any vice president, any assistant vice president, any assistant secretary, any
assistant treasurer, any trust officer, or any other officer of the Trustee
customarily performing functions similar to those performed by the persons who
at the time shall be such officers, respectively, or to whom any corporate trust
matter is referred because of such officer's knowledge of and familiarity with a
particular subject and who shall have direct responsibility for the
administration of this Indenture.
"Security" or "Securities" has the meaning stated in the first recital
of this Indenture and more particularly means any Security or Securities of the
Company issued, authenticated and delivered under this Indenture.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 3.7.
"Stated Maturity", when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security or in a coupon representing such installment of interest as the
fixed date on which the principal of such Security or such installment of
principal or interest is due and payable (subject to any rights of the Company
to defer such payments in the manner set forth therein).
"Subsidiary" of any Person means any Person of which at least a
majority of capital stock having ordinary voting power for the election of
directors or other governing body of such Person is owned by such Person
directly or through one or more Subsidiaries of such Person.
"Total Assets" means, at any date, the total assets appearing on the
most recently prepared consolidated balance sheet of the Company and its
consolidated Subsidiaries as at the end of a fiscal quarter of the Company,
prepared in accordance with generally accepted accounting principles.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
effect on the date of this Indenture, except as provided in Section 8.3.
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"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor Trustee replaces it pursuant to the applicable
provisions of this Indenture, and thereafter means such successor Trustee and
if, at any time, there is more than one Trustee, "Trustee" as used with respect
to the Securities of any series shall mean the Trustee with respect to the
Securities of that series.
"United States" means, unless otherwise specified with respect to the
Securities of any series as contemplated by Section 3.1 the United States of
America (including the States and the District of Columbia), its territories,
its possessions and other areas subject to its jurisdiction.
"U.S. Person" means, unless otherwise specified with respect to the
Securities of any series as contemplated by Section 3.1, a citizen, national or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, or an estate or trust, the income of which is subject to
United States federal income taxation regardless of its source.
(b) The following terms shall have the meanings specified in the
Sections referred to opposite such term below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
"Act" 1.4(a)
"Bankruptcy Law" 5.1
"Component Currency" 3.12(d)
"Conversion Date" 3.12(d)
"Custodian" 5.1
"Defaulted Interest" 3.7(b)
"Election Date" 3.12(h)
"Event of Default" 5.1
"Notice of Default" 5.1(3)
"Register" 3.5
"Registrar" 3.5
"Senior Indenture" 12.2
"Valuation Date" 3.7(c)
</TABLE>
Section 1.2. Compliance Certificates and Opinions. Upon any
application or request by the Company to the Trustee to take an action under any
provision of this Indenture, the Company shall furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
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Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Sections 2.3, 3.3 and 9.6) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such condition or covenant and the definitions herein relating
thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such condition or covenant has been
complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 1.3. Form of Documents Delivered to Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.
Any certificate or opinion of an Officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such Officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an Officer or Officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations as to such matters are
erroneous.
Any certificate, statement or opinion of an Officer of the Company or
of counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Company, unless such Officer or counsel, as the
case may be, knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to the accounting matters
upon which his certificate, statement or opinion is based are erroneous.
Where any Person is required to make give or execute two or more
applications, requests, consents, certificates, statements opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
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Any acts to be taken or matters to be established pursuant to a Board
Resolution may be taken or established by one or more Officers or other
individuals authorized to act pursuant to a Board Resolution.
Section 1.4. Acts of Holders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person or
by an agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other reasonable manner which the Trustee deems sufficient.
(c) The ownership of Bearer Securities may be proved by the
production of such Bearer Securities or by a certificate executed by any trust
company, bank, banker or other depositary, wherever situated, if such
certificate shall be deemed by the Trustee to be satisfactory, showing that at
the date therein mentioned such Person had on deposit with such depositary, or
exhibited to it, the Bearer Securities therein described; or such facts may be
proved by the certificate or affidavit of the Person holding such Bearer
Securities, if such certificate or affidavit is deemed by the Trustee to be
satisfactory. The Trustee and the Company may assume that such ownership of any
Bearer Security continues until (i) another such certificate or affidavit
bearing a later date issued in respect of the same Bearer Security is produced,
(ii) such Bearer Security is produced to the Trustee by some other Person, (iii)
such Bearer Security is surrendered in exchange for a Registered Security or
(iv) such Bearer Security is no longer Outstanding. The ownership of Bearer
Securities may also be proved in any other reasonable manner which the Trustee
deems sufficient.
(d) The ownership of Registered Securities shall be proved by the
Register.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange
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therefor or in lieu thereof in respect of anything done, omitted or suffered to
be done by the Trustee or the Company in reliance thereon, whether or not
notation of such action is made upon such Security.
(f) If the Company shall solicit from the Holders of any series any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders of such series entitled
to give such request, demand, authorization, direction, notice, consent, waiver
or other Act, but the Company shall have no obligation to do so, provided that
the Company may not set a record date for, and the provisions of this paragraph
shall not apply with respect to, the giving or making of any notice,
declaration, request or direction referred to in the next paragraph. If such a
record date is fixed, such request, demand, authorization, direction, notice,
consent, waiver or other Act may be given before or after such record date, but
only the Holders of record at the close of business on such record date shall be
deemed to be Holders for the purposes of determining whether Holders of the
requisite proportion of Outstanding Securities have authorized or agreed or
consented to such request, demand authorization, direction, notice, consent,
waiver or other Act, and for that purpose the Outstanding Securities shall be
computed as of such record date; provided that no such authorization, agreement
or consent by the Holders on such record date shall be deemed effective unless
it shall become effective pursuant to the provisions of this Indenture not later
than six months after the record date.
(g) The Trustee may set any day as a record date for the purpose of
determining the Holders of any series entitled to join in the giving or making
of (i) any Notice of Default, (ii) any declaration of acceleration referred to
in Section 5.2, (iii) any direction referred to in Section 5.8 or (iv) any
request to institute proceedings referred to in Section 5.9(2), in each case
with respect to Securities of such series. If such a record date is fixed
pursuant to this paragraph, the relevant action may be taken or given before or
after such record date, but only the Holders of record at the close of business
on such record date shall be deemed to be holders of a series for the purpose of
determining whether Holders of the requisite proportion of Outstanding
Securities of such series have authorized or agreed or consented to such action,
and for that purpose the Outstanding Securities of such series shall be computed
as of such record date; provided that no such action by Holders on such record
date shall be deemed effective unless it shall become effective pursuant to the
provisions of this Indenture not later than six months after the record date.
Nothing in this paragraph shall be construed to prevent the Trustee from setting
a new record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be cancelled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Outstanding
Securities of the relevant series on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Trustee, at the
Company's expense, shall cause notice of such record date and the proposed
action by Holders to be given to the Company in writing and to each Holder of
Securities of the relevant series in the manner set forth in Section 1.6.
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Section 1.5. Notices, etc., to Trustee and Company. Any request,
demand, authorization, direction, notice, consent, waiver or Act of Holders or
other document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with,
(a) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Trustee at its Corporate
Trust Office, Attention: Corporate Trust Trustee Administration, or
(b) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Company addressed to it
at Federal-Mogul Corporation, 26555 Northwestern Highway, Southfield, Michigan
48034, Attention: General Counsel or at any other address previously furnished
in writing to the Trustee by the Company.
Section 1.6. Notice to Holders; Waiver . Where this Indenture
provides for notice to Holders of an event (i) if any of the Securities affected
by such event are Registered Securities, such notice to the Holders thereof
shall be sufficiently given (unless otherwise herein expressly provided) if in
writing and mailed first-class postage prepaid to each such Holder affected by
such event, at his address as it appears in the Register within the time
prescribed for the giving of such notice and, (ii) if any of the Securities
affected by such event are Bearer Securities, notice to the Holders thereof
shall be sufficiently given (unless otherwise herein or in the terms of such
Bearer Securities expressly provided) if published once in an Authorized
Newspaper in New York, New York and in such other city or cities, if any, as may
be specified as contemplated by Section 3.1.
In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders of Registered Securities or the sufficiency of any notice to
Holders of Bearer Securities given as provided herein. In any case where notice
is given to Holders by publication, neither the failure to publish such notice,
nor any defect in any notice so published, shall affect the sufficiency of such
notice with respect to other Holders of Bearer Securities or the sufficiency of
any notice with respect to any Holders of Registered Securities given as
provided herein. Any notice mailed to a Holder in the manner herein prescribed
shall be conclusively deemed to have been received by such Holder, whether or
not such Holder actually receives such notice.
If by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice as provided above,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder. If it is
impossible or, in the opinion of the Trustee, impracticable to give any notice
by publication in the manner herein required, then such publication in lieu
thereof as shall be made with the approval of the Trustee shall constitute a
sufficient publication of such notice.
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Any request, demand, authorization, direction, notice, consent or
waiver required or permitted under this Indenture shall be in the English
language, except that any published notice may be in an official language of the
country of publication.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
Section 1.7. Headings and Table of Contents. The Article and Section
headings herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
Section 1.8. Successors and Assigns. All covenants and agreements in
this Indenture by the Company shall bind its successors and assigns, whether so
expressed or not.
Section 1.9. Separability. In case any provision of this Indenture or
the Securities shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 1.10. Benefits of Indenture. Nothing in this Indenture or in
the Securities, expressed or implied, shall give to any Person, other than the
parties hereto and their successors hereunder, the Holders of Senior
Indebtedness and the Holders, any benefit or any legal or equitable right,
remedy or claim under this Indenture.
Section 1.11. Governing Law. THIS INDENTURE, THE SECURITIES AND ANY
COUPONS APPERTAINING THERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. This Indenture is subject to the Trust
Indenture Act and if any provision hereof limits, qualifies or conflicts with
any provision of the Trust Indenture Act, which is required under such Act to be
a part of and govern this Indenture, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act which may be so modified or excluded the latter provision shall be
deemed to apply to this Indenture as so modified or to be excluded, as the case
may be. Whether or not this Indenture is required to be qualified under the
Trust Indenture Act, the provisions of the Trust Indenture Act required to be
included in an indenture in order for such indenture to be so qualified shall be
deemed to be included in this Indenture with the same effect as if such
provisions were set forth herein and any provisions hereof which may not be
included in an indenture which is so qualified shall be deemed to be deleted or
modified to the extent such provisions would be required to be deleted or
modified in an indenture so qualified.
Section 1.12. Legal Holidays. In any case where any Interest Payment
Date, Redemption Date, sinking fund payment date, Stated Maturity or Maturity of
any Security shall not be a Business Day at any Place of Payment, then
(notwithstanding any other provision of this Indenture or of any Security or
coupon other than a provision in the Securities of any series
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which specifically states that such provision shall apply in lieu of this
Section) payment of principal, premium, if any, or interest, if any, need not be
made at such Place of Payment on such date, but may be made on the next
succeeding Business Day at such Place of Payment with the same force and effect
as if made on such date; provided that no interest shall accrue on the amount so
payable for the period from and after such Interest Payment Date, Redemption
Date, sinking fund payment date, Stated Maturity or Maturity, as the case may
be.
ARTICLE 2
SECURITY FORMS
Section 2.1. Forms Generally. The Securities of each series and the
coupons, if any, to be attached thereto shall be in substantially such form as
shall be established by or pursuant to a Board Resolution or in one or more
indentures supplemental hereto, in each case with such appropriate insertions,
omissions, substitutions and other variations as are required or permitted by
this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or Depositary
therefor or as may, consistently herewith, be determined by the officers
executing such Securities and coupons, if any, as evidenced by their execution
of the Securities and coupons, if any. If temporary Securities of any series are
issued as permitted by Section 3.4, the form thereof also shall be established
as provided in the preceding sentence. If the forms of Securities and coupons,
if any, of any series are established by, or by action taken pursuant to, a
Board Resolution, a copy of the Board Resolution together with an appropriate
record of any such action taken pursuant thereto, including a copy of the
approved form of Securities or coupons, if any, shall be certified by the
Secretary or an Assistant Secretary of the Company and delivered to the Trustee
at or prior to the delivery of the Company Order contemplated by Section 3.3 for
the authentication and delivery of such Securities.
Unless otherwise specified as contemplated by Section 3.1, Bearer
Securities shall have interest coupons attached.
The definitive Securities and coupons, if any, shall be printed,
lithographed or engraved on steel engraved borders or may be produced in any
other manner, all as determined by the officers executing such Securities and
coupons, if any, as evidenced by their execution of such Securities and coupons,
if any.
Section 2.2. Form of Trustee's Certificate of Authentication. The
Trustee's certificate of authentication shall be in substantially the following
form:
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This is one of the Securities of the series described in the within-
mentioned Indenture.
The Bank of New York
as Trustee
------------------------------
by Authorized Signatory
Section 2.3. Securities in Global Form. If Securities of or within a
series are issuable in whole or in part in global form, any such Security may
provide that it shall represent the aggregate or specified amount of Outstanding
Securities from time to time endorsed thereon and may also provide that the
aggregate amount of Outstanding Securities represented thereby may from time to
time be reduced or increased to reflect exchanges. Any endorsement of a Security
in global form to reflect the amount, or any increase or decrease in the amount,
or changes in the rights of Holders, of Outstanding Securities represented
thereby, shall be made in such manner and by such Person or Persons as shall be
specified therein or in the Company Order to be delivered to the Trustee
pursuant to Section 3.3 or 3.4. Subject to the provisions of Section 3.3 and, if
applicable, Section 3.4, the Trustee shall deliver and redeliver any security in
permanent global form in the manner and upon instructions given by the Person or
Persons specified therein or in the applicable Company Order. Any instructions
by the Company with respect to endorsement or delivery or redelivery of a
Security in global form shall be in writing but need not comply with Section 1.2
hereof and need not be accompanied by an Opinion of Counsel.
The provisions of the last paragraph of Section 3.3 shall apply to any
Security in global form if such Security was never issued and sold by the
Company and the Company delivers to the Trustee the Security in global form
together with written instructions (which need not comply with Section 1.2 and
need not be accompanied by an Opinion of Counsel) with regard to the reduction
in the principal amount of Securities represented thereby, together with the
written statement contemplated by the last paragraph of Section 3.3.
Notwithstanding the provisions of Section 2.1, unless otherwise
specified as contemplated by Section 3.1, payment of principal of, premium, if
any, and interest, if any, on any Security in permanent global form shall be
made to the Person or Persons specified therein.
Section 2.4. Form of Legend for Securities in Global Form. Any
Registered Security in global form authenticated and delivered hereunder shall
bear a legend in substantially the following form with such changes as may be
required by the Depositary:
THIS SECURITY IS IN GLOBAL FORM WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN
PART FOR SECURITIES IN
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CERTIFICATED FORM IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE,
THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO
A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE
DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY.
ARTICLE 3
THE SECURITIES
Section 3.1. Amount Unlimited; Issuable in Series. (a) The aggregate
principal amount of Securities which may be authenticated and delivered under
this Indenture is unlimited. The Securities may be issued from time to time in
one or more series.
(b) The following matters shall be established with respect to each
series of Securities issued hereunder (i) by a Board Resolution, (ii) by action
taken pursuant to a Board Resolution and (subject to Section 3.3) set forth, or
determined in the manner provided, in an Officers' Certificate or (iii) in one
or more indentures supplemental hereto:
(1) the title of the Securities of the series (which title shall
distinguish the Securities of the series from all other series of
Securities);
(2) any limit upon the aggregate principal amount of the Securities
of the series which may be authenticated and delivered under this Indenture
(which limit shall not pertain to (i) Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu
of, other Securities of the series pursuant to Section 3.4, 3.5, 3.6, 8.6,
or 10.7 and (ii) any Securities which, pursuant to the last paragraph of
Section 3.3, are deemed never to have been authenticated and delivered
hereunder);
(3) the date or dates on which the principal of and premium, if any,
on the Securities of the series is payable or the method of determination
thereof;
(4) the rate or rates at which the Securities of the series shall
bear interest, if any, or the method of calculating such rate or rates of
interest, the date or dates from which such interest shall accrue or the
method by which such date or dates shall be determined, the Interest
Payment Dates on which any such interest shall be payable and, with respect
to Registered Securities, the Regular Record Date, if any, for the interest
payable on any Registered Security on any Interest Payment Date;
(5) the place or places where the principal of, premium, if any, and
interest, if any, on Securities of the series shall be payable;
(6) the right, if any, of the Company to defer payment of interest
and the maximum length of any such deferral period.
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(7) the period or periods within which, the price or prices at which,
the currency or currencies (including currency unit or units) in which, and
the other terms and conditions upon which, Securities of the series may be
redeemed or otherwise purchased, in whole or in part, at the option of the
Company and, if other than as provided in Section 10, the manner in which
the particular Securities of such series (if less than all Securities of
such series are to be redeemed) are to be selected for redemption;
(8) the obligation, if any, and the limitations, if any, on the
rights of the Company to redeem or purchase Securities of the series
pursuant to any sinking fund or analogous provisions or upon the happening
of a specified event or at the option of a Holder thereof or at the
Company's option or otherwise, or to apply any purchases of Securities to
any such redemption, and, if any, the period or periods within which, the
price or prices at which, the application of purchases to redemptions, and
the other terms and conditions upon which Securities of the series shall be
redeemed or purchased, in whole or in part;
(9) if other than denominations of $1,000 and any integral multiple
thereof, if Registered Securities, and if other than denominations of
$5,000 and any integral multiple thereof, if Bearer Securities, the
denominations in which Securities of the series shall be issuable;
(10) if other than Dollars, the currency or currencies (including
currency unit or units) in which the principal of, premium, if any, and
interest, if any, on the Securities of the series shall be payable, or in
which the Securities of the series shall be denominated, and the particular
provisions applicable thereto in accordance with, in addition to, or in
lieu of the provisions of Section 3.12, and whether the Securities of the
series may be satisfied and discharged other than as provided in Article 4;
(11) if the payments of principal of, premium, if any, or interest, if
any, on the Securities of the series are to be made, at the election of the
Company or a Holder, in a currency or currencies (including currency unit
or units) other than that in which such Securities are denominated or
designated to be payable, the currency or currencies (including currency
unit or units) in which such payments are to be made, the terms and
conditions of such payments and the manner in which the exchange rate with
respect to such payments shall be determined, and the particular provisions
applicable thereto in accordance with, in addition to, or in lieu of the
provisions of Section 3.12, and whether the Securities of the series may be
satisfied and discharged other than as provided in Article 4;
(12) if the amount of payments of principal of, premium, if any, and
interest, if any, on the Securities of the series shall be determined with
reference to an index, formula or other method (which index, formula or
method may be based, without limitation, on a currency or currencies
(including currency unit or units) other than that in which the Securities
of the series are denominated or designated to be payable), the index,
formula or other method by which such amounts shall be determined;
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(13) if other than the principal amount thereof, the portion of the
principal amount of such Securities of the series which shall be payable
upon declaration of acceleration thereof pursuant to Section 5.2 or the
method by which such portion shall be determined;
(14) if the principal amount payable at the Stated Maturity of any
Securities of the series will not be determinable as of any one or more
dates prior to the Stated Maturity, the amount which shall be deemed to be
the principal amount of such Securities as of any such date for any purpose
thereunder or hereunder, including the principal amount thereof which shall
be due and payable upon any Maturity other than the Stated Maturity or
which shall be deemed to be Outstanding as of any date prior to the Stated
Maturity (or, in any such case, the manner in which such amount deemed to
be the principal amount shall be determined);
(15) if other than as provided in Section 3.7, the Person to whom any
interest on any Registered Security of the series shall be payable and the
manner in which, or the Person to whom, any interest on any Bearer
Securities of the series shall be payable, and the extent to which, or the
manner in which (including any certification requirement and other terms
and conditions under which), any interest payable on a temporary or
permanent global Security on an Interest Payment Date will be paid if other
than in the manner provided in Section 2.3 and Section 3.4, as applicable;
(16) provisions, if any, granting special rights to the Holders of
Securities of the series upon the occurrence of such events as may be
specified or any provisions which may be related to rights of the Holders
to give any notice of acceleration, or to waive any past default or to
rescind and annul any declaration of acceleration and its consequences or
to institute or control any proceeding for any remedy with respect to
Securities of the series;
(17) any deletions from, modifications of or additions to the Events
of Default set forth in Section 5.1 or remedies set forth in Article 5 or
covenants of the Company set forth in Article 9 pertaining to the
Securities of the series;
(18) under what circumstances, if any, the Company will pay
additional amounts on the Securities of that series held by a Person who is
not a U.S. Person in respect of taxes or similar charges withheld or
deducted and, if so, whether the Company will have the option to redeem or
otherwise purchase such Securities rather than pay such additional amounts
(and the terms of any such option);
(19) whether Securities of the series shall be issuable as Registered
Securities or Bearer Securities (with or without interest coupons), or
both, and any restrictions applicable to the offering, sale or delivery of
Bearer Securities and, if other than as provided in Section 3.5, the terms
upon which Bearer Securities of a series may be exchanged for Registered
Securities of the same series and vice versa;
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(20) the date as of which any Bearer Securities of the series and any
temporary global Security representing Outstanding Securities of the series
shall be dated if other than the date of original issuance of the first
Security of the series to be issued;
(21) the forms of the Securities and coupons, if any, of the series;
(22) the applicability, if any, to the Securities of or within the
series of Sections 4.4 and 4.5, or such other means of defeasance or
covenant defeasance as may be specified for the Securities and coupons, if
any, of such series, and, if the Securities are payable in a currency other
than Dollars, whether, for the purpose of such defeasance or covenant
defeasance the term "Government Obligations" shall include obligations
referred to in the definition of such term which are not obligations of the
United States or an agency or instrumentality of the United States;
(23) if other than the Trustee, the identity of the Registrar and any
Paying Agent;
(24) the designation of the initial Exchange Rate Agent, if any;
(25) if the Securities of the series shall be issued in whole or in
part in global form (i) the Depositary for such global Securities, (ii) the
form of any legend in addition to or in lieu of that in Section 2.4 which
shall be borne by such global security, (iii) whether beneficial owners of
interests in any Securities of the series in global form may exchange such
interests for certificated Securities of such series and of like tenor of
any authorized form and denomination, and (iv) if other than as provided in
Section 3.5, the circumstances under which any such exchange may occur;
(26) whether Securities of the series are convertible into Common
Stock or Preferred Stock, and, if so, the class or series of capital stock
of the Company into which such Securities are convertible and the terms and
conditions upon which such conversion will be effected, including the
initial conversion price or conversion rate and other conversion
provisions; and
(27) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture and the Trust Indenture
Act) including any terms which may be required by or advisable under United
States laws or regulations or advisable (as determined by the Company) in
connection with the marketing of Securities of the series.
(c) All Securities of any one series and coupons, if any, appertaining
to any Bearer Securities of such series shall be substantially identical except,
in the case of Registered Securities, as to denomination and except as may
otherwise be provided (i) by a Board Resolution, (ii) by action taken pursuant
to a Board Resolution and (subject to Section 3.3) set forth or determined in
the manner provided, in the related Officers' Certificate or (iii) in an
indenture supplemental hereto. All Securities of any one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the Holders, for issuances of additional
Securities of such series.
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(d) If any of the terms of the Securities of any series are
established by action taken pursuant to a Board Resolution, a copy of such Board
Resolution shall be certified by the Corporate Secretary or an Assistant
Secretary of the Company and delivered to the Trustee at or prior to the
delivery of the Officers' Certificate setting forth, or providing the manner for
determining, the terms of the Securities of such series, and an appropriate
record of any action taken pursuant thereto in connection with the issuance of
any Securities of such series shall be delivered to the Trustee prior to the
authentication and delivery thereof. With respect to Securities of a series
subject to a Periodic Offering, such Board Resolutions or Officers' Certificates
may provide general terms for Securities of such series and provide either that
the specific terms of particular securities of such series shall be specified in
a Company Order, or that such terms shall be determined by the Company, or one
or more of its agents designated in its Officers' Certificates, in accordance
with the Company Order, as contemplated by the first proviso of the third
paragraph of Section 3.3.
Section 3.2. Denominations. Unless otherwise provided as
contemplated by Section 3.1, any Registered Securities of a series shall be
issuable in denominations of $1,000 and any integral multiple thereof and any
Bearer Securities of a series shall be issuable in denominations of $5,000 and
any integral multiples thereof.
Section 3.3. Execution, Authentication, Delivery and Dating.
Securities shall be executed on behalf of the Company by two Officers. The
signatures of any of these Officers on the Securities may be manual or
facsimile. The coupons, if any, of Bearer Securities shall bear the facsimile
signature of two Officers.
Securities and coupons bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities.
At any time and from time to time, the Company may deliver Securities,
together with any coupons appertaining thereto, of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall authenticate and deliver such Securities; provided,
however, that in the case of Securities offered in a Periodic Offering, the
Trustee shall authenticate and deliver such Securities from time to time in
accordance with such other procedures (including, without limitation, the
receipt by the Trustee of oral or electronic instructions from the Company or
its duly authorized agents, promptly confirmed in writing) reasonably acceptable
to the Trustee as may be specified by or pursuant to a Company Order delivered
to the Trustee prior to the time of the first authentication of Securities of
such series.
If the form or terms of the Securities of a series have been
established by or pursuant to one or more Board Resolutions as permitted by
Sections 2.1 and 3.1, in authenticating such Securities and accepting the
additional responsibilities under this Indenture
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in relation to such Securities, the Trustee shall be entitled to receive, and
(subject to Section 315(a) through (d) of the Trust Indenture Act) shall be
fully protected in relying upon, an Opinion of Counsel stating,
(1) if the forms of such Securities and any coupons have been
established by or pursuant to a Board Resolution as permitted by Section
2.1, that such forms have been established in conformity with the
provisions of this Indenture;
(2) if the terms of such Securities and any coupons have been
established by or pursuant to a Board Resolution as permitted by Section
3.1, that such terms have been, or in the case of Securities of a series
offered in a Periodic Offering, will be, established in conformity with the
provisions of this Indenture, subject in the case of Securities offered in
a Periodic Offering, to any conditions specified in such Opinion of
Counsel; and
(3) that such Securities together with any coupons appertaining
thereto, when authenticated and delivered by the Trustee and issued by the
Company in the manner and subject to any conditions specified in such
Opinion of Counsel, will constitute valid and binding obligations of the
Company, enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other
similar laws of general applicability relating to or affecting the
enforcement of creditors' rights and to general equity principles and
except further as enforcement thereof may be limited by (A) requirements
that a claim with respect to any Securities denominated other than in
Dollars (or a Foreign Currency or currency unit judgment in respect of such
claim) be converted into Dollars at a rate of exchange prevailing on a date
determined pursuant to applicable law or (B) governmental authority to
limit, delay or prohibit the making of payments in Foreign Currencies or
currency units or payments outside the United States.
Notwithstanding that such form or terms have been so established, the Trustee
shall have the right to decline to authenticate such Securities if, in the
written opinion of counsel to the Trustee (which counsel may be an employee of
the Trustee) reasonably acceptable to the Company, the issue of such Securities
pursuant to this Indenture will adversely affect the Trustee's own rights,
duties or immunities under this Indenture or otherwise in a manner which the
Trustee reasonably determines, by action of its board of directors or trustees,
executive committee, or a trust committee of directors or trustees or vice
presidents, that such action would expose the Trustee to personal liability to
existing Holders. Notwithstanding the generality of the foregoing, the Trustee
will not be required to authenticate Securities denominated in a Foreign
Currency if the Trustee reasonably believes that it would be unable to perform
its duties with respect to such Securities.
Notwithstanding the provisions of Section 3.1 and of the two preceding
paragraphs, if all of the Securities of any series are not to be issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 3.1 or the Company Order and Opinion of Counsel
otherwise required pursuant to the two preceding paragraphs in connection with
the authentication of each Security of such series if such
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documents, with appropriate modifications to cover such future issuances, are
delivered at or prior to the authentication upon original issuance of the first
Security of such series to be issued.
With respect to Securities of a series offered in a Periodic Offering,
the Trustee and all other Holders may rely upon the documents delivered pursuant
to Sections 2.1 and 3.1 and this Section, as applicable, in connection with the
first authentication of Securities of such series.
If the Company shall establish pursuant to Section 3.1 that the
Securities of a series are to be issued in whole or in part in global form, then
the Company shall execute and the Trustee shall, in accordance with this Section
and the Company Order with respect to such series, authenticate and deliver one
or more Securities in global form that (i) shall represent and shall be
denominated in an amount equal to the aggregate principal amount of the
Outstanding Securities of such series to be represented by such Security or
Securities in global form, (ii) shall be registered, if a Registered Security,
in the name of the Depositary for such Security or Securities in global form or
the nominee of such Depositary, (iii) shall be delivered by the Trustee to such
Depositary or pursuant to such Depositary's instruction and (iv) shall bear the
legends set forth in Section 4 and the terms determined by or pursuant to the
Board Resolution or supplemental indenture relating to such series.
Each Depositary designated pursuant to Section 3.1 for a Registered
Security in global form must, at the time of its designation and at all times
while it serves as Depositary, be a clearing agency registered under the
Securities Exchange Act of 1934 and any other applicable statute or regulation.
The Trustee shall have no responsibility to determine if the Depositary is so
registered. Each Depositary shall enter into an agreement with the Trustee
governing the respective duties and rights of such Depositary and the Trustee
with regard to Securities issued in global form.
Each Registered Security shall be dated the date of its authentication
and each Bearer Security shall be dated as of the date specified as contemplated
by Section 3.1.
No Security or coupon appertaining thereto shall be entitled to any
benefits under this Indenture or be valid or obligatory for any purpose until
authenticated by the manual signature of one of the authorized signatories of
the Trustee or an Authenticating Agent and no coupon shall be valid until the
Security to which it appertains has been so authenticated. Such signature upon
any Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered under this Indenture and is
entitled to the benefits of this Indenture. Except as permitted by Section 3.6
or 3.7, the Trustee shall not authenticate and deliver any Bearer Security
unless all appurtenant coupons for interest then matured have been detached and
cancelled.
Notwithstanding the foregoing, if any Security shall have been
authenticated and delivered hereunder but never issued and sold by the Company,
and the Company shall deliver such Security to the Trustee for cancellation as
provided in Section 3.9 together with a written statement (which need not comply
with Section 1.2 and need not be accompanied by an Opinion of Counsel) stating
that such Security has never been issued and sold by the Company, for all
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purposes of this Indenture such Security shall be deemed never to have been
authenticated and delivered hereunder and shall not be entitled to the benefits
of this Indenture.
Section 3.4. Temporary Securities. Pending the preparation of
definitive Securities of any series, the Company may execute and, upon Company
Order, the Trustee shall authenticate and deliver temporary Securities of such
series which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor and form,
with or without coupons, of the definitive Securities in lieu of which they are
issued and with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Securities may determine, as
conclusively evidenced by their execution of such Securities and coupons, if
any. In the case of Securities of any series, such temporary Securities may be
in global form, representing all or a portion of the Outstanding Securities of
such series.
Except in the case of temporary Securities in global form, each of
which shall be exchanged in accordance with the provisions thereof, if temporary
Securities of any series are issued, the Company will cause definitive
Securities of such series to be prepared without unreasonable delay. After
preparation of definitive Securities of such series, the temporary Securities of
such series shall be exchangeable for definitive Securities of such series upon
surrender of the temporary Securities of such series at the office or agency of
the Company pursuant to Section 9.2 in a Place of Payment for such series,
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities of any series (accompanied by any unmatured coupons
appertaining thereto), the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of the same series of authorized denominations and of like
tenor; provided, however, that no definitive Bearer Security shall be delivered
in exchange for a temporary Registered Security; and provided further that no
definitive Bearer Security shall be delivered in exchange for a temporary Bearer
Security unless the Trustee shall have received from the person entitled to
receive the definitive Bearer Security a certificate substantially in the form
approved in or pursuant to the Board Resolutions relating thereto and such
delivery shall occur only outside the United States. Until so exchanged, the
temporary Securities of any series shall in all respects be entitled to the same
benefits under this Indenture as definitive Securities of such series except as
otherwise specified as contemplated by Section 3.1.
Section 3.5. Registration, Transfer and Exchange. The Company shall
cause to be kept at the Corporate Trust Office of the Trustee or in any office
or agency to be maintained by the Company in accordance with Section 9.2 in a
Place of Payment a register (the "Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Registered Securities and the registration of transfers of
Registered Securities. The Register shall be in written form or in any other
form capable of being converted into written form within a reasonable time. The
Trustee is hereby appointed "Registrar" for the purpose of registering
Registered Securities and transfers of Registered Securities as herein provided.
Upon surrender for registration of transfer of any Registered Security
of any series at the office or agency maintained pursuant to Section 9.2 in a
Place of Payment for that series,
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the Company shall execute, and the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new Registered
Securities of the same series, of any authorized denominations and of a like
aggregate principal amount containing identical terms and provisions.
Bearer Securities or any coupons appertaining thereto shall be
transferable by delivery.
At the option of the Holder, Registered Securities of any series
(except a Registered Security in global form) may be exchanged for other
Registered Securities of the same series, of any authorized denominations and of
a like aggregate principal amount containing identical terms and provisions,
upon surrender of the Registered Securities to be exchanged at such office or
agency. Whenever any Registered Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the
Registered Securities which the Holder making the exchange is entitled to
receive. Unless otherwise specified as contemplated by Section 3.1, Bearer
Securities may not be issued in exchange for Registered Securities.
Unless otherwise specified as contemplated by Section 3.1, at the
option of the Holder, Bearer Securities of such series may be exchanged for
Registered Securities (if the Securities of such series are issuable in
registered form) or Bearer Securities (if Bearer Securities of such series are
issuable in more than one denomination and such exchanges are permitted by such
series) of the same series, of any authorized denominations and of like tenor
and aggregate principal amount, upon surrender of the Bearer Securities to be
exchanged at any such office or agency, with all unmatured coupons and all
matured coupons in default thereto appertaining. If the Holder of a Bearer
Security is unable to produce any such unmatured coupon or coupons or matured
coupon or coupons in default, such exchange may be effected if the Bearer
Securities are accompanied by payment in funds acceptable to the Company and the
Trustee in an amount equal to the face amount of such missing coupon or coupons,
or the surrender of such missing coupon or coupons may be waived by the Company
and the Trustee if there be furnished to them such security or indemnity as they
may require to save each of them and any Paying Agent harmless. If thereafter
the Holder of such Security shall surrender to any Paying Agent any such missing
coupon in respect of which such a payment shall have been made, such Holder
shall be entitled to receive the amount of such payment; provided, however,
that, except as otherwise provided in Section 9.2, interest represented by
coupons shall be payable only upon presentation and surrender of those coupons
at an office or agency located outside the United States. Notwithstanding the
foregoing, in case any Bearer Security of any series is surrendered at any such
office or agency in exchange for a Registered Security of the same series after
the close of business at such office or agency on (i) any Regular Record Date
and before the opening of business at such office or agency on the relevant
Interest Payment Date, or (ii) any Special Record Date and before the opening of
business at such office or agency on the related date for payment of Defaulted
Interest, such Bearer Security shall be surrendered without the coupon relating
to such Interest Payment Date or proposed date of payment, as the case may be
(or, if such coupon is so surrendered with such Bearer Security, such coupon
shall be returned to the person so surrendering the Bearer Security), and
interest or Defaulted Interest, as the case may
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be, will not be payable on such Interest Payment Date or proposed date for
payment, as the case may be, in respect of the Registered Security issued in
exchange for such Bearer Security, but will be payable only to the Holder of
such coupon, when due in accordance with the provisions of this Indenture.
Each Security issued in global form authenticated under this Indenture
shall be registered in the name of the Depositary designated for such series or
a nominee thereof and delivered to such Depositary or a nominee thereof or
custodian therefor, and each such Security issued in global form shall
constitute a single Security for all purposes of this Indenture.
Notwithstanding any other provision (other than the provisions set
forth in the eighth, ninth and tenth paragraphs of this Section) of this
Section, unless and until it is exchanged in whole or in part for Securities in
certificated form in the circumstances described below, a Security in global
form representing all or a portion of the Securities of a series may not be
transferred except as a whole by the Depositary for such series to a nominee of
such Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor Depositary for such series or a nominee of such successor Depositary.
If at any time the Depositary for the Securities of a series notifies
the Company that it is unwilling or unable to continue as Depositary for the
Securities of such series or if at any time the Depositary for the Securities of
such series shall no longer be eligible under Section 3.3, the Company shall
appoint a successor Depositary with respect to the Securities of such series. If
a successor Depositary for the Securities of such series is not appointed by the
Company within 90 days after the Company receives such notice or becomes aware
of such ineligibility, the Company's election pursuant to Section 3.1(b)(24)
shall no longer be effective with respect to the Securities of such series and
the Company shall execute, and the Trustee, upon receipt of a Company Order for
the authentication and delivery of certificated Securities of such series of
like tenor, shall authenticate and deliver Securities of such series of like
tenor in certificated form, in authorized denominations and in an aggregate
principal amount equal to the principal amount of the Security or Securities of
such series of like tenor in global form in exchange for such Security or
Securities in global form.
The Company may at any time in its sole discretion determine that
Securities of a series issued in global form shall no longer be represented by
such a Security or Securities in global form. In such event the Company shall
execute, and the Trustee, upon receipt of a Company Order for the authentication
and delivery of certificated Securities of such series of like tenor, shall
authenticate and deliver, Securities of such series of like tenor in
certificated form, in authorized denominations and in an aggregate principal
amount equal to the principal amount of the Security or Securities of such
series of like tenor in global form in exchange for such Security or Securities
in global form.
If specified by the Company pursuant to Section 3.1 with respect to a
series of Securities, the Depositary for such series may surrender a Security in
global form of such series in exchange in whole or in part for Securities of
such series in certificated form on such terms as
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are acceptable to the Company and such Depositary. Thereupon, the Company shall
execute, and the Trustee shall authenticate and deliver, without service charge,
to each Person specified by such Depositary a new certificated
Security or Securities of the same series of like tenor, of any
authorized denomination as requested by such Person, in aggregate
principal amount equal to and in exchange for such Person's beneficial
interest in the Security in global form; and
to such Depositary a new Security in global form of like tenor in
a denomination equal to the difference, if any, between the principal
amount of the surrendered Security in global form and the aggregate
principal amount of certificated Securities delivered to Holders
thereof.
Upon the exchange of a Security in global form for Securities in
certificated form, such Security in global form shall be cancelled by the
Trustee. Unless expressly provided with respect to the Securities of any series
that such Security may be exchanged for Bearer Securities, Securities in
certificated form issued in exchange for a Security in global form pursuant to
this Section shall be registered in such names and in such authorized
denominations as the Depositary for such Security in global form, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver such Securities to the Persons
in whose names such Securities are so registered.
Whenever any Securities are surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or upon any
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Registered Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company, the Registrar or
the Trustee) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company, the Registrar and the Trustee duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
for any exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration or transfer or exchange of Securities, other
than exchanges pursuant to Section 3.4, 8.6 or 10.7 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer
of, or exchange any Securities for a period beginning at the opening of business
15 days before any selection for redemption of Securities of like tenor and of
the series of which such Security is a
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part 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
Securities of like tenor and of such series to be redeemed; (ii) to register the
transfer of or exchange any Registered Security selected for redemption, in
whole or in part, except the unredeemed portion of any Security being redeemed
in part; or (iii) to exchange any Bearer Security selected for redemption,
except that such a Bearer Security may be exchanged for a Registered Security of
that series and like tenor; provided that such Registered Security shall be
simultaneously surrendered for redemption.
The foregoing provisions relating to registration, transfer and
exchange may be modified, supplemented or superseded with respect to any series
of Securities by or pursuant to a Board Resolution or in one or more indentures
supplemental hereto.
Section 3.6. Replacement Securities. If a mutilated Security or a
Security with a mutilated coupon appertaining to it is surrendered to the
Trustee, together with, in proper cases, such security or indemnity as may be
required by the Company or the Trustee to save each of them harmless, the
Company shall execute and the Trustee shall authenticate and deliver a
replacement Registered Security, if such surrendered Security was a Registered
Security, or a replacement Bearer Security with coupons corresponding to the
coupons appertaining to the surrendered Security, if such surrendered Security
was a Bearer Security, of the same series and date of maturity, if the Trustee's
requirements are met.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
or Security with a destroyed, lost or stolen coupon and (ii) such security or
indemnity as may be required by them to save each of them and any agent of
either of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security or coupon has been acquired by a bona fide purchaser,
the Company shall execute and the Trustee shall authenticate and deliver in lieu
of any such destroyed, lost or stolen Security or in exchange for the Security
to which a destroyed, lost or stolen coupon appertains (with all appurtenant
coupons not destroyed, lost or stolen), a replacement Registered Security, if
such Holder's claim appertains to a Registered Security, or a replacement Bearer
Security with coupons corresponding to the coupons appertaining to the
destroyed, lost or stolen Bearer Security or the Bearer Security to which such
lost, destroyed or stolen coupon appertains, if such Holder's claim appertains
to a Bearer Security, of the same series and principal amount, containing
identical terms and provisions and bearing a number not contemporaneously
outstanding with coupons corresponding to the coupons, if any, appertaining to
the destroyed, lost or stolen Security.
In case any such mutilated, destroyed, lost or stolen Security or
coupon has become or is about to become due and payable, the Company in its
discretion may, instead of issuing a new Security or coupon, pay such Security
or coupon; provided, however, that payment of principal of and any premium or
interest on Bearer Securities shall, except as otherwise provided in Section
9.2, be payable only at an office or agency located outside the United States
and, unless otherwise specified as contemplated by Section 3.1, any interest on
Bearer Securities shall be payable only upon presentation and surrender of the
coupons appertaining thereto.
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Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee, its agents and
counsel) connected therewith.
Every new Security of any series with its coupons, if any, issued
pursuant to this Section in lieu of any destroyed, lost or stolen Security, or
in exchange for a Security to which a destroyed, lost or stolen coupon
appertains, shall constitute an original additional contractual obligation of
the Company, whether or not the destroyed, lost or stolen Security and its
coupon, if any, or the destroyed, lost or stolen coupon, shall be at any time
enforceable by anyone, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Securities of that
series and their coupons, if any, duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities or coupons.
Section 3.7. Payment of Interest; Interest Rights Preserved. (a)
Unless otherwise provided as contemplated by Section 3.1 with respect to any
series of Securities, interest, if any, on any Registered Security which is
payable, and is punctually paid or duly provided for, on any Interest Payment
Date shall be paid to the Person in whose name that Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest at the office or agency maintained for such
purpose pursuant to Section 9.2; provided, however, that at the option of the
Company, interest on any series of Registered Securities that earn interest may
be paid (i) by check mailed to the address of the Person entitled thereto as it
shall appear on the Register of Holders of Securities of such series or (ii) at
the expense of the Company, by wire transfer to an account maintained by the
Person entitled thereto as specified in the Register of Holders of Securities of
such series.
Unless otherwise provided as contemplated by Section 3.1 with respect
to any series of Securities, (i) interest, if any, on Bearer Securities shall be
paid only against presentation and surrender of the coupons for such interest
installments as are evidenced thereby as they mature and (ii) original issue
discount, if any, on Bearer Securities shall be paid only against presentation
and surrender of such Securities; in either case at the office of a Paying Agent
located outside the United States, unless the Company shall have otherwise
instructed the Trustee in writing, provided that any such instruction for
payment in the United States does not cause any Bearer Security to be treated as
a "registration-required obligation" under United States laws and regulations.
The interest, if any, on any temporary Bearer Security shall be paid, as to any
installment of interest evidenced by a coupon attached thereto, only upon
presentation and surrender of such coupon and, as to other installments of
interest, only upon presentation of such Security for notation thereon of the
payment of such interest. If at the time a payment of principal of, premium, if
any, or interest, if any, on a Bearer Security or coupon shall become due, the
payment of the full amount so payable at the office or offices of all the Paying
Agents outside the United States is illegal or effectively precluded because of
the imposition of exchange controls or other similar restrictions on the payment
of such amount in Dollars, then the
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Company may instruct the Trustee to make such payments at a Paying Agent located
in the United States, provided that provision for such payment in the United
States would not cause such Bearer Security to be treated as a "registration-
required obligation" under United States laws and regulations.
(b) Unless otherwise provided as contemplated by Section 3.1 with
respect to any series of Securities, any interest on Registered Securities of
any series which is payable, but is not punctually paid or duly provided for, on
any Interest Payment Date (herein called "Defaulted Interest") shall forthwith
cease to be payable to the Holders on the relevant Regular Record Date by virtue
of their having been such Holders, and such Defaulted Interest may be paid by
the Company, at its election in each case, as provided in clause (1) or (2)
below:
(1) The Company may elect to make payment of such Defaulted Interest
to the Persons in whose names such Registered Securities (or their
respective Predecessor Securities) are registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit the Persons entitled to such Defaulted Interest as in this clause
(1) provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days and
not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder of such Registered Securities at his address as it appears
in the Register, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor having been so mailed, such Defaulted Interest shall
be paid to the Persons in whose names such Registered Securities (or their
respective Predecessor Securities) are registered at the close of business
on such Special Record Date and shall no longer be payable pursuant to the
following clause (2).
(2) The Company may make payment of such Defaulted Interest to the
Persons in whose names such Registered Securities (or their respective
Predecessor Securities) are registered at the close of business on a
specified date in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Registered Securities
may be listed, and upon such notice as may be required by such exchange,
if, after notice given by the Company to the Trustee of the proposed
payment pursuant to this clause (2), such manner of payment shall be deemed
practicable by the Trustee.
(c) Subject to the foregoing provisions of this Section and Section
3.5, each Security delivered under this Indenture upon registration of transfer
of or in exchange for or in
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lieu of any other Security shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Security.
Section 3.8. Persons Deemed Owners. Prior to due presentment of any
Registered Security for registration of transfer, the Company, the Trustee and
any agent of the Company or the Trustee may treat the Person in whose name such
Registered Security is registered as the owner of such Registered Security for
the purpose of receiving payment of principal of, premium, if any, and (subject
to Section 3.7) interest, if any, on such Registered Security and for all other
purposes whatsoever, whether or not such Registered Security be overdue, and
neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
The Company, the Trustee and an agent of the Company or the Trustee
may treat the bearer of any Bearer Security and the bearer of any coupon as the
absolute owner of such Bearer Security or coupon for the purpose of receiving
payment thereof or on account thereof and for all other purposes whatsoever,
whether or not such Bearer Security or coupon be overdue, and neither the
Company, the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
None of the Company, the Trustee or any agent of the Company or the
Trustee shall have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of a
Security in global form, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. Notwithstanding the
foregoing, with respect to any Security in global form, nothing herein shall
prevent the Company or the Trustee, or any agent of the Company or the Trustee,
from giving effect to any written certification, proxy or other authorization
furnished by any Depositary (or its nominee) as a Holder, with respect to such
Security in global form or impair, as between such Depositary and owners of
beneficial interests in such Security in global form, the operation of customary
practices governing the exercise of the rights of such Depositary (or its
nominee) as Holder of such Security in global form.
Section 3.9. Cancellation. The Company at any time may deliver
Securities and coupons to the Trustee for cancellation. The Registrar and any
Paying Agent shall forward to the Trustee any Securities and coupons surrendered
to them for replacement, for registration of transfer, or for exchange or
payment. The Trustee shall cancel all Securities and coupons surrendered for
replacement, for registration of transfer, or for exchange, payment, redemption
or cancellation and may, but shall not be required to, dispose of cancelled
Securities and coupons and issue a certificate of destruction to the Company.
The Company may not issue new Securities to replace Securities that it has paid
or delivered to the Trustee for cancellation, except as expressly permitted in
the terms of Securities for any particular series or as permitted pursuant to
the terms of this Indenture.
Section 3.10. Computation of Interest. Except as otherwise specified
as contemplated by Section 3.1, interest on the Securities of each series shall
be computed on the basis of a 360-day year of twelve 30-day months.
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Section 3.11. CUSIP Numbers. The Company in issuing the Securities
may use "CUSIP" numbers (if then generally in use), and, in such case, the
Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to
Holders; provided that any such notice may state that no representation is made
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
Section 3.12. Currency and Manner of Payment in Respect of
Securities. (a) Unless otherwise specified with respect to any Securities
pursuant to Section 3.1, with respect to Registered Securities of any series not
permitting the election provided for in paragraph (b) below or the Holders of
which have not made the election provided for in paragraph (b) below, and with
respect to Bearer Securities of any series, except as provided in paragraph (d)
below, payment of the principal of, premium, if any, and interest, if any, on
any Registered or Bearer Security of such series will be made in the currency or
currencies or currency unit or units in which such Registered Security or Bearer
Security, as the case may be, is payable. The provisions of this Section 3.12
may be modified or superseded pursuant to Section 3.1 with respect to any
Securities.
(b) It may be provided pursuant to Section 3.1, with respect to
Registered Securities of any series, that Holders shall have the option, subject
to paragraphs (d) and (e) below, to receive payments of principal of, premium,
if any, or interest, if any, on such Registered Securities in any of the
currencies or currency units which may be designated for such election by
delivering to the Trustee (or the applicable Paying Agent) a written election
with signature guarantees and in the applicable form established pursuant to
Section 3.1, not later than the close of business on the Election Date
immediately preceding the applicable payment date. If a Holder so elects to
receive such payments in any such currency or currency unit, such election will
remain in effect for such Holder or any transferee of such Holder until changed
by such Holder or such transferee by written notice to the Trustee (or any
applicable Paying Agent) for such series of Registered Securities (but any such
change must be made not later than the close of business on the Election Date
immediately preceding the next payment date to be effective for the payment to
be made on such payment date, and no such change of election may be made with
respect to payments to be made on any Registered Security of such series with
respect to which an Event of Default has occurred or with respect to which the
Company has deposited funds pursuant to Article 4 or with respect to which a
notice of redemption has been given by or on behalf of the Company). Any Holder
of any such Registered Security who shall not have delivered any such election
to the Trustee (or any applicable Paying Agent) not later than the close of
business on the applicable Election Date will be paid the amount due on the
applicable payment date in the relevant currency or currency unit as provided in
Section 3.12(a). The Trustee (or the applicable Paying Agent) shall notify the
Exchange Rate Agent as soon as practicable after the Election Date of the
aggregate principal amount of Registered Securities for which Holders have made
such written election.
(c) If the election referred to in paragraph (b) above has been
provided for with respect to any Registered Securities of a series pursuant
to Section 3.1, then, unless
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otherwise specified pursuant to Section 3.1 with respect to any such Registered
Securities, not later than the fourth Business Day after the Election Date for
each payment date for such Registered Securities, the Exchange Rate Agent will
deliver to the Company a written notice specifying, in the currency or
currencies or currency unit or units in which Registered Securities of such
series are payable, the respective aggregate amounts of principal of, premium,
if any, and interest, if any, on such Registered Securities to be paid on such
payment date, and specifying the amounts in such currency or currencies or
currency unit or units so payable in respect of such Registered Securities as to
which the Holders of Registered Securities denominated in any currency or
currencies or currency unit or units shall have elected to be paid in another
currency or currency unit as provided in paragraph (b) above. If the election
referred to in paragraph (b) above has been provided for with respect to any
Registered Securities of a series pursuant to Section 3.1, and at least one
Holder has made such election, then, unless otherwise specified pursuant to
Section 3.1, on the second Business Day preceding such payment date the Company
will deliver to the Trustee (or the applicable Paying Agent) an Exchange Rate
Officers' Certificate in respect of the Dollar, Foreign Currency or Currencies,
ECU or other currency unit payments to be made on such payment date. Unless
otherwise specified pursuant to Section 3.1, the Dollar, Foreign Currency or
Currencies, ECU or other currency unit amount receivable by Holders of
Registered Securities who have elected payment in a currency or currency unit as
provided in paragraph (b) above shall be determined by the Company on the basis
of the applicable Market Exchange Rate in effect on the second Business Day (the
"Valuation Date") immediately preceding each payment date, and such
determination shall be conclusive and binding for all purposes, absent manifest
error.
(d) If a Conversion Event occurs with respect to a Foreign Currency,
ECU or any other currency unit in which any of the Securities are denominated or
payable otherwise than pursuant to an election provided for pursuant to
paragraph (b) above, then, with respect to each date for the payment of
principal of, premium, if any, and interest, if any, on the applicable
Securities denominated or payable in such Foreign Currency, ECU or such other
currency unit occurring after the last date on which such Foreign Currency, ECU
or such other currency unit was used (the "Conversion Date"), the Dollar shall
be the currency of payment for use on each such payment date (but such Foreign
Currency, ECU or such other currency unit that was previously the currency of
payment shall, at the Company's election, resume being the currency of payment
on the first such payment date preceded by 15 Business Days during which the
circumstances which gave rise to the Dollar becoming such currency no longer
prevail). Unless otherwise specified pursuant to Section 3.1, the Dollar amount
to be paid by the Company to the Trustee or any applicable Paying Agent and by
the Trustee or any applicable Paying Agent to the Holders of such Securities
with respect to such payment date shall be, in the case of a Foreign Currency
other than a currency unit, the Dollar Equivalent of the Foreign Currency or, in
the case of a Foreign Currency that is a currency unit, the Dollar Equivalent of
the Currency Unit, in each case as determined by the Exchange Rate Agent in the
manner provided in paragraph (f) or (g) below.
(e) Unless otherwise specified pursuant to Section 3.1, if the
Holder of a Registered Security denominated in any currency or currency unit
shall have elected to be paid in another currency or currency unit or in other
currencies as provided in paragraph (b) above, and
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(i) a Conversion Event occurs with respect to any such elected currency or
currency unit, such Holder shall receive payment in the currency or currency
unit in which payment would have been made in the absence of such election and
(ii) if a Conversion Event occurs with respect to the currency or currency unit
in which payment would have been made in the absence of such election, such
Holder shall receive payment in Dollars as provided in paragraph (d) of this
Section 3.12 (but, subject to any contravening valid election pursuant to
paragraph (b) above, the elected payment currency or currency unit, in the case
of the circumstances described in clause (i) above, or the payment currency or
currency unit in the absence of such election, in the case of the circumstances
described in clause (ii) above, shall, at the Company's election, resume being
the currency or currency unit of payment with respect to Holders who have so
elected, but only with respect to payments on payment dates preceded by 15
Business Days during which the circumstances which gave rise to such currency or
currency unit, in the case of the circumstances described in clause (i) above,
or the Dollar, in the case of the circumstances described in clause (ii) above,
as applicable, becoming the currency or currency unit of payment, no longer
prevail).
(f) The "Dollar Equivalent of the Foreign Currency" shall be
determined by the Exchange Rate Agent and shall be obtained for each subsequent
payment date by the Exchange Rate Agent by converting the specified Foreign
Currency into Dollars at the Market Exchange Rate on the Conversion Date.
(g) The "Dollar Equivalent of the Currency Unit" shall be determined
by the Exchange Rate Agent and, subject to the provisions of paragraph (h)
below, shall be the sum of each amount obtained by converting the Specified
Amount of each Component Currency (as each such term is defined in paragraph (h)
below) into Dollars at the Market Exchange Rate for such Component Currency on
the Valuation Date with respect to each payment.
(h) For purposes of this Section 3.12 the following terms shall have
the following meanings:
"Component Currency" shall mean any currency which, on the Conversion
Date, was a component currency of the relevant currency unit, including, but not
limited to, ECU.
"Election Date" shall mean the Regular Record Date for the applicable
series of Registered Securities as specified pursuant to Section 3.1 by which
the written election referred to in Section 3.12(b) may be made.
A "Specified Amount" of a Component Currency shall mean the number of
units of such Component Currency or fractions thereof which such Component
Currency represented in the relevant currency unit, including, but not limited
to, ECU, on the Conversion Date. If after the Conversion Date the official unit
of any Component Currency is altered by way of combination or subdivision, the
Specified Amount of such Component Currency shall be divided or multiplied in
the same proportion. If after the Conversion Date two or more Component
Currencies are consolidated into a single currency, the respective Specified
Amounts of such Component Currencies shall be replaced by an amount in such
single currency equal to the sum of the respective Specified Amounts of such
consolidated Component Currencies expressed in such single currency, and such
amount shall thereafter be a Specified Amount and such single
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currency shall thereafter be a Component Currency. If after the Conversion Date
any Component Currency shall be divided into two or more currencies, the
Specified Amount of such Component Currency shall be replaced by specified
amounts of such two or more currencies, the sum of which, at the Market Exchange
Rate of such two or more currencies on the date of such replacement, shall be
equal to the Specified Amount of such former Component Currency and such amounts
shall thereafter be Specified Amounts and such currencies shall thereafter be
Component Currencies. If, after the Conversion Date of the relevant currency
unit, including, but not limited to, ECU, a Conversion Event (other than any
event referred to above in this definition of "Specified Amount") occurs with
respect to any Component Currency of such currency unit and is continuing on the
applicable Valuation Date, the Specified Amount of such Component Currency
shall, for purposes of calculating the Dollar Equivalent of the Currency Unit,
be converted into Dollars at the Market Exchange Rate in effect on the
Conversion Date of such Component Currency.
All decisions and determinations of the Exchange Rate Agent regarding
the Dollar Equivalent of the Foreign Currency, the Dollar Equivalent of the
Currency Unit, the Market Exchange Rate and changes in the Specified Amounts as
specified above shall be in its sole discretion and shall, in the absence of
manifest error, be conclusive for all purposes and irrevocably binding upon the
Company, the Trustee (and any applicable Paying Agent) and all Holders of
Securities denominated or payable in the relevant currency, currencies or
currency units. The Exchange Rate Agent shall promptly give written notice to
the Company and the Trustee of any such decision or determination.
In the event that the Company determines in good faith that a
Conversion Event has occurred with respect to a Foreign Currency, the Company
will promptly give written notice thereof to the Trustee (or any applicable
Paying Agent) and to the Exchange Rate Agent (and the Trustee (or such Paying
Agent) will promptly thereafter give notice in the manner provided in Section
1.6 to the affected Holders) specifying the Conversion Date. In the event the
Company so determines that a Conversion Event has occurred with respect to ECU
or any other currency unit in which Securities are denominated or payable, the
Company will promptly give written notice thereof to the Trustee (or any
applicable Paying Agent) and to the Exchange Rate Agent (and the Trustee (or
such Paying Agent) will promptly thereafter give notice in the manner provided
in Section 1.6 to the affected Holders) specifying the Conversion Date and the
Specified Amount of each Component Currency on the Conversion Date. In the event
the Company determines in good faith that any subsequent change in any Component
Currency as set forth in the definition of Specified Amount above has occurred,
the Company will similarly give written notice to the Trustee (or any applicable
Paying Agent) and to the Exchange Rate Agent and the Trustee (or such Paying
Agent) will similarly given written notice to the affected Holders.
The Trustee of the appropriate series of Securities shall be fully
justified and protected in relying and acting upon information received by it
from the Company and the Exchange Rate Agent and shall not otherwise have any
duty or obligation to determine the accuracy or validity of such information
independent of the Company or the Exchange Rate Agent.
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Section 3.13. Appointment and Resignation of Exchange Rate Agent. (a)
Unless otherwise specified pursuant to Section 3.1, if and so long as the
Securities of any series (i) are denominated in a currency other than Dollars or
(ii) may be payable in a currency other than Dollars, or so long as it is
required under any other provision of this Indenture, then the Company will
maintain with respect to each such series of Securities, or as so required, at
least one Exchange Rate Agent. The Company will cause the Exchange Rate Agent to
make the necessary foreign exchange determinations at the time and in the manner
specified pursuant to Section 3.12 for the purpose of determining the applicable
rate of exchange and, if applicable, for the purpose of converting the issued
currency or currencies or currency unit or units into the applicable payment
currency or currency unit for the payment of principal, premium, if any, and
interest, if any, pursuant to Section 3.12.
(b) No resignation of the Exchange Rate Agent and no appointment of a
successor Exchange Rate Agent pursuant to this Section shall become effective
until the acceptance of appointment by the successor Exchange Rate Agent as
evidenced by a written instrument delivered to the Company and the Trustee of
the appropriate series of Securities accepting such appointment executed by the
successor Exchange Rate Agent.
(c) If the Exchange Rate Agent shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of the Exchange
Rate Agent for any cause, with respect to the Securities of one or more series,
the Company, by or pursuant to a Board Resolution, shall promptly appoint a
successor Exchange Rate Agent or Exchange Rate Agents with respect to the
Securities of that or those series (it being understood that any such successor
Exchange Rate Agent may be appointed with respect to the Securities of one or
more or all of such series and that, unless otherwise specified pursuant to
Section 3.1 at any time there shall only be one Exchange Rate Agent with respect
to the Securities of any particular series that are originally issued by the
Company on the same date and that are initially denominated and/or payable in
the same currency or currencies or currency unit or units).
ARTICLE 4
SATISFACTION, DISCHARGE AND DEFEASANCE
Section 4.1. Termination of Company's Obligations Under the Indenture.
(a) This Indenture shall upon a Company Request cease to be of further effect
with respect to Securities of or within any series and any coupons appertaining
thereto (except as to any surviving rights of registration of transfer or
exchange of such Securities and replacement of such Securities which may have
been lost, stolen or mutilated as herein expressly provided for) and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to such
Securities and any coupons appertaining thereto when
(1) either
(A) all such Securities previously authenticated and delivered and
all coupons appertaining thereto (other than (i) such coupons appertaining to
Bearer Securities surrendered in
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exchange for Registered Securities and maturing after such exchange, surrender
of which is not required or has been waived as provided in Section 3.5, (ii)
such Securities and coupons which have been destroyed, lost or stolen and which
have been replaced or paid, as provided in Section 3.6, (iii) such coupons
appertaining to Bearer Securities called for redemption and maturing after the
relevant Redemption Date, surrender of which has been waived as provided in
Section 10.6 and (iv) such Securities and coupons for whose payment money has
theretofore been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust as
provided in Section 9.3) have been delivered to the Trustee for cancellation; or
(B) all Securities of such series and, in the case of (i) or (ii)
below, any coupons appertaining thereto not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one
year, or
(iii) if redeemable at the option of the Company, are to be called for
redemption within one year under arrangements satisfactory to the Trustee
for the giving of notice of redemption by the Trustee in the name, and at
the expense, of the Company, and the Company, in the case of (i), (ii) or
(iii) above, has irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for the purpose an amount in the currency
or currencies or currency unit or units in which the Securities of such
series are payable, sufficient to pay and discharge the entire indebtedness
on such Securities and such coupons not theretofore delivered to the
Trustee for cancellation, for principal, premium, if any, and interest, if
any, with respect thereto, on the date of such deposit (in the case of
Securities which have become due and payable) or at the Stated Maturity or
Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture as to
such series have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the obligation
of the Company to the Trustee and any predecessor Trustee under Section 6.9, the
obligations of the Company to any Authenticating Agent under Section 6.14 and,
if money shall have been deposited with the Trustee pursuant to subclause (B) of
clause (1) of this Section, the obligations of the Trustee under Section 4.2 and
the last paragraph of Section 9.3 shall survive.
Section 4.2. Application of Trust Funds. Subject to the provisions of
the last paragraph of Section 9.3, all money deposited with the Trustee pursuant
to Section 4.1 shall be held in trust and applied by it, in accordance with the
provisions of the Securities, the coupons
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and this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal, premium, if any,
and interest, if any, for whose payment such money has been deposited with or
received by the Trustee, but such money need not be segregated from other funds
except to the extent required by law.
Section 4.3. Applicability of Defeasance Provisions; Company's Option
to Effect Defeasance or Covenant Defeasance. If pursuant to Section 3.1
provision is made for either or both of (i) defeasance of the Securities of or
within a series under Section 4.4 or (ii) covenant defeasance of the Securities
of or within a series under Section 4.5, then the provisions of such Section or
Sections, as the case may be, together with the provisions of Sections 4.6
through 4.9 inclusive, with such modifications thereto as may be specified
pursuant to Section 3.1 with respect to any Securities, shall be applicable to
such Securities and any coupons appertaining thereto, and the Company may at its
option by or pursuant to Board Resolution, at any time, with respect to such
Securities and any coupons appertaining thereto, elect to have Section 4.4 (if
applicable) or Section 4.5 (if applicable) be applied to such Outstanding
Securities and any coupons appertaining thereto upon compliance with the
conditions set forth below in this Article.
Section 4.4. Defeasance and Discharge. Upon the Company's exercise of
the option specified in Section 4.3 applicable to this Section with respect to
the Securities of or within a series, the Company shall be deemed to have been
discharged from its obligations with respect to such Securities and any coupons
appertaining thereto on and after the date the conditions set forth in Section
4.6 are satisfied (hereinafter "defeasance"). For this purpose, such defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by such Securities and any coupons appertaining thereto
which shall thereafter be deemed to be "Outstanding" only for the purposes of
Section 4.7 and the other Sections of this Indenture referred to in clause (ii)
of this Section, and to have satisfied all its other obligations under such
Securities and any coupons appertaining thereto and this Indenture insofar as
such Securities and any coupons appertaining thereto are concerned (and the
Trustee, at the expense of the Company, shall on a Company Order execute proper
instruments acknowledging the same), except the following, which shall survive
until otherwise terminated or discharged hereunder: (i) the rights of Holders of
such Securities and any coupons appertaining thereto to receive, solely from the
trust funds described in Section 4.6(a) and as more fully set forth in such
Section, payments in respect of the principal of, premium, if any, and interest,
if any, on such Securities or any coupons appertaining thereto when such
payments are due; (ii) the Company's obligations with respect to such Securities
under Sections 3.5, 3.6, 9.2 and 9.3 and with respect to the payment of
additional amounts, if any, payable with respect to such Securities as specified
pursuant to Section 3.1(b)(16); (iii) the rights, powers, trusts, duties and
immunities of the Trustee hereunder and (iv) this Article 4. Subject to
compliance with this Article 4, the Company may exercise its option under this
Section notwithstanding the prior exercise of its option under Section 4.5 with
respect to such Securities and any coupons appertaining thereto. Following a
defeasance, payment of such Securities may not be accelerated because of an
Event of Default.
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Section 4.5. Covenant Defeasance. Upon the Company's exercise of the
option specified in Section 4.3 applicable to this Section with respect to any
Securities of or within a series, the Company shall be released from its
obligations under Sections 7.1, 9.4 and 9.7 (and with respect to Section 9.6,
shall be required to certify only with respect to those covenants not defeased
pursuant to this Section 4.5) and, if specified pursuant to Section 3.1, its
obligations under any other covenant, with respect to such Securities and any
coupons appertaining thereto on and after the date the conditions set forth in
Section 4.6 are satisfied (hereinafter, "covenant defeasance"), and such
Securities and any coupons appertaining thereto shall thereafter be deemed to be
not "Outstanding" for the purposes of any direction, waiver, consent or
declaration or Act of Holders (and the consequences of any thereof) in
connection with Sections 7.1, 9.4 and 9.7 or such other covenant, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to such Securities
and any coupons appertaining thereto, the Company may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such Section or such other covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such Section or
such other covenant or by reason of reference in any such Section or such other
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 5.1(3) or 5.1(7), or otherwise, as the case may be, but, except as
specified above, the remainder of this Indenture and such Securities and any
coupons appertaining thereto shall be unaffected thereby.
Section 4.6. Conditions to Defeasance or Covenant Defeasance. The
following shall be the conditions to application of Section 4.4 or Section 4.5
to any Securities of or within a series and any coupons appertaining thereto:
(a) The Company shall have deposited or caused to be deposited
irrevocably with the Trustee (or another trustee satisfying the requirements of
Section 6.12 who shall agree to comply with, and shall be entitled to the
benefits of, the provisions of Sections 4.3 through 4.9 inclusive and the last
paragraph of Section 9.3 applicable to the Trustee, for purposes of such
Sections also a "Trustee") as trust funds in trust for the purpose of making the
payments referred to in clauses (x) and (y) of this Section 4.6(a), specifically
pledged as security for, and dedicated solely to, the benefit of the Holders of
such Securities and any coupons appertaining thereto, with instructions to the
Trustee as to the application thereof, (A) money in an amount (in such currency,
currencies or currency unit or units in which such Securities and any coupons
appertaining thereto are then specified as payable at Maturity), or (B) if
Securities of such series are not subject to repayment at the option of Holders,
Government Obligations which through the payment of interest, if any, and
principal in respect thereof in accordance with their terms will provide, not
later than one day before the due date of any payment referred to in clause (x)
or (y) of this Section 4.6(a), money in an amount or (C) a combination thereof
in an amount sufficient, in the opinion of a nationally recognized firm of
independent certified public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, and which shall be
applied by the Trustee to pay and (x) discharge the principal of, premium, if
any, and interest, if any, on such Securities and any coupons appertaining
thereto on the Maturity of such principal or installment of principal or
interest, if any, and (y) any mandatory sinking fund payments applicable to such
Securities on the day on which such payments are due and payable
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in accordance with the terms of this Indenture and such Securities and any
coupons appertaining thereto. Before such a deposit the Company may make
arrangements satisfactory to the Trustee for the redemption or purchase of
Securities at a future date or dates in accordance with Article 10 which shall
be given effect in applying the foregoing.
(b) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default or Event of Default under, this
Indenture or result in a breach or violation of, or constitute a default under,
any other material agreement or instrument to which the Company is a party or by
which it is bound, in each case, on the date of such deposit pursuant to Section
4.6(a).
(c) In the case of an election under Section 4.4, the Company shall
have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel
to the effect that (i) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling, or (ii) since the date of
execution of this Indenture, there has been a change in the applicable Federal
income tax law, in either case to the effect that, and based thereon such
opinion shall confirm that, the Holders of such Securities and any coupons
appertaining thereto will not recognize income, gain or loss for Federal income
tax purposes as a result of such defeasance and will be subject to Federal
income tax on the same amount and in the same manner and at the same times, as
would have been the case if such deposit, defeasance and discharge had not
occurred.
(d) In the case of an election under Section 4.5, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of such Securities and any coupons appertaining thereto will not
recognize income, gain or loss for Federal income tax purposes as a result of
such covenant defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred.
(e) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance under Section 4.4 or the covenant defeasance under
Section 4.5 (as the case may be) have been complied with.
(f) No Default or Event of Default under Section 5.1(5) or 5.1(6)
with respect to such Securities and any coupons appertaining thereto shall have
occurred and be continuing during the period commencing on the date of such
deposit and ending on the 91st day after such date (it being understood that
this condition shall not be deemed satisfied until the expiration of such
period).
(g) Such Defeasance or Covenant Defeasance shall not result in the
trust arising from such deposit constituting an investment company within the
meaning of the Investment Company Act of 1940 unless such trust shall be
registered under such Act or exempt from registration thereunder.
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(h) Such defeasance or covenant defeasance shall be effected in
compliance with any additional or substitute terms, conditions or limitations
which may be imposed on the Company in connection therewith as contemplated by
Section 3.1.
(i) No event or condition shall exist that, pursuant to the
provisions of Article 12, would prevent the Company from making payments of the
principal, premium, if any, or interest, if any, on the Securities of such
series and coupons appertaining thereto on the date of such deposit.
Section 4.7. Deposited Money and Government Obligations to be Held in
Trust. Subject to the provisions of the last paragraph of Section 9.3, all money
and Government Obligations (or other property as may be provided pursuant to
Section 3.1) (including the proceeds thereof) deposited with the Trustee
pursuant to Section 4.6 in respect of any Securities of any series and any
coupons appertaining thereto shall be held in trust and applied by the Trustee,
in accordance with the provisions of such Securities and any coupons
appertaining thereto and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as its own Paying Agent)
as the Trustee may determine, to the Holders of such Securities and any coupons
appertaining thereto of all sums due and to become due thereon in respect of
principal, premium, if any, and interest, if any, but such money need not be
segregated from other funds except to the extent required by law.
Unless otherwise specified with respect to any Security pursuant to
Section 3.1, if, after a deposit referred to in Section 4.6(a) has been made,
(i) the Holder of a Security in respect of which such deposit was made is
entitled to, and does, elect pursuant to Section 3.12(b) or the terms of such
Security to receive payment in a currency or currency unit other than that in
which the deposit pursuant to Section 4.6(a) has been made in respect of such
Security, or (ii) a Conversion Event occurs as contemplated in Section 3.12(d)
or 3.12(e) or by the terms of any Security in respect of which the deposit
pursuant to Section 4.6(a) has been made, the indebtedness represented by such
Security and any coupons appertaining thereto shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of,
premium, if any, and interest, if any, on such Security as the same becomes due
out of the proceeds yielded by converting (from time to time as specified below
in the case of any such election) the amount or other property deposited in
respect of such Security into the currency or currency unit in which such
Security becomes payable as a result of such election or Conversion Event based
on the applicable Market Exchange Rate for such currency or currency unit in
effect on the second Business Day prior to each payment date, except, with
respect to a Conversion Event, for such currency or currency unit in effect (as
nearly as feasible) at the time of the Conversion Event.
Section 4.8. Repayment to Company. To the extent permitted by the
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 76, as amended or interpreted by the Financial Accounting Standards Board
from time to time, or any successor thereto ("Standard No. 76"), or to the
extent permitted by the Commission, the Trustee shall, from time to time, take
one or more of the following actions as specified in a Company Request: (a)
retransfer, reassign and deliver to the Company any securities deposited with
the Trustee
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pursuant to Section 4.6(a), provided that the Company shall, in substitution
therefor, simultaneously transfer, assign and deliver to the Trustee other
Governmental Obligations appropriate to satisfy the Company's obligations in
respect of the relevant Securities; and (b) the Trustee and Paying Agent shall
promptly pay to the Company upon Company Request any excess money or securities
held by them at any time, including, without limitation, any assets deposited
with the Trustee pursuant to Section 4.6(a) exceeding those necessary for the
purposes of Section 4.6(a). The Trustee shall not take the actions described in
subsections (a) and (b) of this Section 4.8 unless it shall have first received
a written report of Ernst & Young LLP, or another nationally recognized
independent public accounting firm, (i) expressing their opinion that the
contemplated action is permitted by Standard No. 76 or the Commission for
transactions accounted for as extinguishment of debt under the circumstances
described in paragraph 3.c of Standard No. 76 or any successor provision, and
(ii) verifying the accuracy, after giving effect to such action or actions, of
the computations which demonstrate that the amounts remaining to be earned on
the Government Obligations deposited with the Trustee pursuant to Section 4.6(a)
will be sufficient for purposes of Section 4.6(a).
Section 4.9. Indemnity for Government Obligations. The Company shall
pay, and shall indemnify the Trustee against, any tax, fee or other charge
imposed on or assessed against Government Obligations deposited pursuant to this
Article or the principal and interest, if any, and any other amount received on
such Government Obligations.
ARTICLE 5
DEFAULTS AND REMEDIES
Section 5.1. Events of Default. An "Event of Default" occurs with
respect to the Securities of any series if (whatever the reason for such Event
of Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) the Company defaults in the payment of interest on any Security of
that series or any coupon appertaining thereto or any additional amount
payable with respect to any Security of that series as specified pursuant
to Section 3.1(b) when the same becomes due and payable and such default
continues for a period of 30 days;
(2) the Company defaults in the payment of the principal of or any premium
on any Security of that series when the same becomes due and payable at its
Maturity or on redemption or otherwise, or in the payment of a mandatory
sinking fund payment when and as due by the terms of the Securities of that
series;
(3) the Company fails to comply in any material respect with any of its
agreements or covenants in, or any of the provisions of, this Indenture
with respect to any Security of that series (other than an agreement,
covenant or provision for which non-compliance is elsewhere in this Section
specifically dealt with), and such non-compliance continues for a period of
60 days after there has been given by registered or certified mail, to the
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Company by the Trustee or to the Company and the Trustee by the Holders of
at least 25% in principal amount of the Outstanding Securities of the
series, a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default"
hereunder;
(4) the Company, pursuant to or within the meaning of any Bankruptcy Law,
(A) commences a voluntary case or proceeding, (B) consents to the entry of
an order for relief against it in an involuntary case or proceeding, (C)
consents to the appointment of a Custodian of it or for all or
substantially all of its property, (D) makes a general assignment for the
benefit of its creditors, (E) makes an admission in writing of its
inability to its debts generally as they become due or (F) takes corporate
action in furtherance of any such action;
(5) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that (A) is for relief against the Company, in an
involuntary case, (B) adjudges the Company as bankrupt or insolvent, or
approves as properly filed a petition seeking reorganization, arrangement,
and adjustment or composition of or in respect of the Company, or appoints
a Custodian of the Company, or for all or substantially all of its
property, or (C) orders the liquidation of the Company and the decree
remains unstayed and in effect for 60 days; or
(6) any other Event of Default provided as contemplated by Section 3.1
with respect to Securities of that series.
The Company shall deliver to the Trustee, as soon as practicable,
written notice in the form of an Officers' Certificate of any Default, its
status and what action the Company is taking or proposes to take with respect
thereto.
As used in the Indenture, the term "Bankruptcy Law" means Title 11,
U.S. Code, or any similar federal or state bankruptcy, insolvency,
reorganization or other law for the relief of debtors. As used in the Indenture,
the term "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
Section 5.2. Acceleration; Rescission and Annulment. If an Event of
Default with respect to the Securities of any series at the time Outstanding
occurs and is continuing, the Trustee or the Holders of at least 25% in
aggregate principal amount of all of the Outstanding Securities of that series
by written notice to the Company (and if given by the Holders, to the Trustee),
may declare the principal (or, if the Securities of that series are Original
Issue Discount Securities or Indexed Securities, such portion of the original
principal amount as may be specified in the terms of that series) of and accrued
interest, if any, on the Securities of that series to be due and payable and
upon any such declaration such principal (or, in the case of Original Issue
Discount Securities or Indexed Securities, such specified amount) and interest,
if any, shall be immediately due and payable, provided, however, that payment of
principal, premium, if any, and interest, if any, on the Securities of such
series shall remain subordinated to the extent provided in Article 12.
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At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in aggregate principal amount of the
Outstanding Securities of that series, by written notice to the Trustee, may
rescind and annul such declaration and its consequences if all existing Defaults
and Events of Default with respect to Securities of that series, other than the
non-payment of the principal of, premium, if any, and interest, if any, on
Securities of that series which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 5.7. No such
rescission shall affect any subsequent default or impair any right consequent
thereon.
Section 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee. The Company covenants that if
(1) default is made in the payment of any interest on any Security or
coupon, if any, when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof, the Company will, upon
demand of the Trustee, pay to it, for the benefit of the Holders of such
Securities or coupons, if any, the whole amount then due and payable on
such Securities for principal, premium, if any, and interest, if any, and,
to the extent that payment of such interest shall be legally enforceable,
interest on any overdue principal, premium, if any, and on any overdue
interest, if any, at the rate or rates prescribed therefor in such
Securities or coupons, if any, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, provided, however,
that payment of all such amounts shall remain subordinated to the extent
provided in Article 12.
If an Event of Default with respect to Securities of any series occurs
and is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of Securities of such series by
such appropriate judicial proceedings as the Trustee shall deem most effectual
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to secure any other proper remedy.
Section 5.4. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents and take such actions
authorized under the Trust Indenture Act as may be necessary or advisable in
order to have the claims of the Trustee and the Holders of Securities allowed in
any judicial proceedings relating to the Company, its creditors or its property.
In particular, the Trustee shall be authorized to collect and receive any moneys
or other property payable or deliverable on any such claims and to distribute
the same; and any custodian, receiver, assignee, trustee, liquidator,
sequestrator or other similar official in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee
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and, in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due the Trustee under Section 6.9.
Section 5.5. Trustee May Enforce Claims Without Possession of
Securities. All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee, in its own name as an
express trust, without the possession of any of the Securities or the production
thereof in any proceeding relating thereto and any recovery of judgment shall,
after provision for the reasonable fees and expenses of the Trustee and its
counsel, be for the ratable benefit of the Holders of the Securities in respect
to which judgment was recovered.
Section 5.6. Delay or Omission Not Waiver. No delay or omission by the
Trustee or any Holder of any Securities to exercise any right or remedy accruing
upon an Event of Default shall impair any such right or remedy or constitute a
waiver of or acquiescence in any such Event of Default.
Section 5.7. Waiver of Past Defaults. In addition to the provisions of
Section 5.2 and except as otherwise provided as contemplated by Section 3.1, the
Holders of a majority in aggregate principal amount of Outstanding Securities of
any series by written notice to the Trustee may waive on behalf of the Holders
of all Securities of such series a past Default or Event of Default with respect
to that series and its consequences except (i) a Default or Event of Default in
the payment of the principal of, premium, if any, or interest, if any, on any
Security of such series or any coupon appertaining thereto or (ii) in respect of
a covenant or provision hereof which pursuant to Section 8.2 cannot be amended
or modified without the consent of the Holder of each Outstanding Security of
such series adversely affected. Upon any such waiver, such Default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been cured, for every purpose of this Indenture.
Section 5.8. Control by Majority. Except as otherwise provided as
contemplated by Section 3.1, the Holders of a majority in aggregate principal
amount of the Outstanding Securities of each series affected (with each such
series voting as a class) shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it with respect to Securities of that
series; provided, however, that (i) the Trustee may refuse to follow any
direction that conflicts with law or this Indenture (ii) the Trustee may refuse
to follow any direction that is unduly prejudicial to the rights of the Holders
of Securities of such series not consenting or that would in the good faith
judgment of the Trustee have a substantial likelihood of involving the Trustee
in personal liability and (iii) the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such direction. Prior to
the taking of any action hereunder, the Trustee shall be entitled to reasonable
indemnification satisfactory to the Trustee against all losses and expenses
caused by taking or not taking such action. This paragraph shall be in lieu of
Section 316(a)(1)(A) of the Trust Indenture Act and such Section 316(a)(1)(A) is
hereby expressly excluded from this Indenture, as permitted by the Trust
Indenture Act.
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Section 5.9. Limitation on Suits by Holders. No Holder of any Security
of any series or any coupons appertaining thereto shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:
(1) the Holder has previously given written notice to the Trustee of
a continuing Event of Default with respect to the Securities of that
series;
(2) the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities of that series have made a written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense to be,
or which may be, incurred by the Trustee in pursuing the remedy;
(4) the Trustee for 60 days after its receipt of such notice, request
and the offer of indemnity has failed to institute any such proceedings;
and
(5) during such 60 day period, the Holders of a majority in aggregate
principal amount of the Outstanding Securities of that series have not
given to the Trustee a direction inconsistent with such written request.
Except as otherwise provided as contemplated by Section 3.1, no one or
more Holders shall have any right in any manner whatever by virtue of, or by
availing of, any provision of this Indenture to affect, disturb or prejudice the
rights of any other of such Holders, or to obtain or to seek to obtain priority
or preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all of such Holders.
Section 5.10. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, but subject to Section 9.2, the right of
any Holder of a Security or coupon to receive payment of principal of, premium,
if any, and, subject to Sections 3.5 and 3.7, interest, if any, on the Security,
on or after the respective due dates expressed in the Security (or, in case of
redemption, on the redemption dates), and the right of any Holder of a coupon to
receive payment of interest due as provided in such coupon, or, subject to
Section 5.9, to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
Section 5.11. Application of Money Collected. If the Trustee collects
any money pursuant to this Article, it shall, subject to the subordination
provisions hereof, pay out the money in the following order, at the date or
dates fixed by the Trustee and, in case of the distribution of such money on
account of principal, premium, if any, or interest, if any, upon presentation of
the Securities and the notation thereon of the payment if only partially paid
and upon surrender thereof if fully paid:
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First: to the Trustee for amounts due under Section 6.9;
Second: to Holders of Securities and coupons in respect of which or
for the benefit of which such money has been collected for amounts due and
unpaid on such Securities for principal of, premium, if any, and interest, if
any, ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal, premium, if any, and
interest, if any, respectively; and
Third: to the Company.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 5.11. At least 15 days before such record date,
the Trustee shall mail to each Holder and the Company a notice that states the
record date, the payment date and the amount to be paid.
Section 5.12. Restoration of Rights and Remedies. If the Trustee or
any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then
and in every such case, subject to any determination in such proceeding, the
Company, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
Section 5.13. Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Securities in the last paragraph of Section 3.6, no right or
remedy herein conferred upon or reserved to the Trustee or the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any existing right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.14. Waiver of Usury, Stay or Extension Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any usury, stay or extension law wherever enacted, now
or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
Section 5.15. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
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costs, including reasonable attorney's fees, against any party litigant in the
suit having due regard to the merits and good faith of the claims or defenses
made by the party litigant.
ARTICLE 6
THE TRUSTEE
Section 6.1. Certain Duties and Responsibilities of the Trustee. (a)
Except during the continuance of an Event of Default, the Trustee's duties and
responsibilities under this Indenture shall be governed by Section 315(a) of the
Trust Indenture Act.
(b) In case an Event of Default has occurred and is continuing with
respect to the Securities of any series, the Trustee shall exercise the rights
and powers vested in it by this Indenture with respect to the Securities of such
series, and shall use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, it own negligent failure to
act, or its own willful misconduct, except that: this subsection shall not be
construed to limit the effect of subsection (a) of this Section; the Trustee
shall not be liable for any error of judgment made in good faith by a
Responsible Officer, unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts; and the Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders in accordance with Section 5.8
relating to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred upon
the Trustee, under the Indenture.
Section 6.2. Rights of Trustee. Subject to the provisions of the
Trust Indenture Act:
(a) The Trustee may conclusively rely and shall be protected in
acting or refraining from acting upon any document believed by it to be genuine
and to have been signed or presented by the proper party or parties. The Trustee
need not investigate any fact or matter stated in the document;
(b) Any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order (other than
delivery of any Security, together with any coupons appertaining thereto, to the
Trustee for authentication and delivery pursuant to Section 3.3 which shall be
sufficiently evidenced as provided therein) and any resolution of the Board of
Directors may be sufficiently evidenced by a Board Resolution;
(c) Whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
conclusively rely upon an Officers' Certificate;
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(d) The Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon;
(e) The Trustee may act through agents or attorneys and shall not be
responsible for the misconduct or negligence of any agent or attorney appointed
with due care;
(f) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers;
(g) The Trustee shall not be required to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it;
(h) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney;
(i) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request or direction;
(j) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section 6.2;
(k) The rights, privileges, protections, immunities and benefits
given to the Trustee, including, without limitation, its right to be
indemnified, are extended to, and shall be enforceable by, the Trustee in each
of its capacities hereunder, and to each agent, custodian and other Person
employed to act hereunder.
Section 6.3. Trustee May Hold Securities. The Trustee, any Paying
Agent, any Registrar or any other agent of the Company in its in individual or
any other capacity, may become the owner or pledgee of Securities and coupons
and, subject to Sections 310(b) and 311 of the Trust Indenture Act, may
otherwise deal with the Company, an Affiliate of the Company or Subsidiary of
the Company with the same rights it would have if it were not Trustee, Paying
Agent, Registrar or such other agent.
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Section 6.4. Money Held in Trust. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed upon in writing with the
Company.
Section 6.5. Trustee's Disclaimer. The recitals contained herein and
in the Securities, except the Trustee's certificate of authentication, shall be
taken as the statements of the Company, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representation as to
the validity or adequacy of this Indenture or the Securities or any coupon. The
Trustee shall not be accountable for the Company's use of the proceeds from the
Securities or for monies paid over to the Company pursuant to the Indenture.
Section 6.6. Notice of Defaults. If a Default occurs and is
continuing with respect to the Securities of any series and if it is actually
known to a Responsible Officer of the Trustee, the Trustee shall, within 90 days
after it occurs, transmit by mail to the Holders of Securities of such series,
in the manner and to the extent provided in Section 313(c) of the Trust
Indenture Act, notice of all Defaults known to it unless such Default shall have
been cured or waived; provided, however, that except in the case of a Default in
payment on the Securities of any series, the Trustee may withhold the notice if
and so long as the board of directors, the executive committee or a committee of
its Responsible Officers in good faith determines that withholding such notice
is in the interests of Holders of Securities of that series; and provided,
further, that in the case of any Default of the character specified in Section
5.1(3) with respect to Securities of such series, no such notice to Holder shall
be given until at least 30 days after the occurrence thereof.
Section 6.7. Reports by Trustee to Holders. Within 60 days after each
May 15 of each year commencing with the first May 15 after the first issuance of
Securities pursuant to this Indenture, the Trustee shall transmit by mail to all
Holders of Securities as provided in Section 313(C) of the Trust Indenture Act a
brief report dated as of such May 15 if required by and in compliance with
Section 313(A) of the Trust Indenture Act. A copy of each such report shall, at
the time of such transmission to Holders, be filed by the Trustee with each
stock exchange, if any, upon which the Securities are listed, with the
Commission and with the Company. The Company will promptly notify the Trustee
when the Securities are listed on, or delisted from, any stock exchange.
Section 6.8. Securityholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Holders of Securities of each series. If the
Trustee is not the Registrar, the Company shall furnish to the Trustee
semiannually on or before the last day of June and December in each year, and at
such other times as the Trustee may request in writing, a list, in such form and
as of such date as the Trustee may reasonably require containing all the
information in the possession or control of the Registrar, the Company or any of
its Paying Agents other than the Trustee as to the names and addresses of
Holders of Securities of each such series. If there are Bearer Securities of any
series Outstanding, even if the Trustee is the Registrar, the Company shall
furnish to the Trustee such a list containing such information with respect to
Holders of such Bearer Securities only.
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Section 6.9. Compensation and Indemnity. (a) The Company shall pay
to the Trustee from time to time such reasonable compensation for its services
as the Company and the Trustee shall agree in writing from time to time. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred by it in connection
with the performance of its duties under this Indenture. Such expenses shall
include the reasonable compensation and expenses of the Trustee's agents and
counsel.
(b) The Company shall indemnify the Trustee or any Predecessor Trustee
and their agents for, and hold them harmless against, any loss or liability
damage, claim or reasonable expense including taxes (other than taxes based upon
or determined or measured by the income of the Trustee) incurred by it arising
out of or in connection with its acceptance or administration of the trust or
trusts hereunder, including the reasonable costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The Trustee shall notify
the Company promptly of any claim for which it may seek indemnity. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Company need not pay for any settlement made without its consent.
(c) The Company need not reimburse any expense or indemnify against
any loss, liability, damage or claim incurred by the Trustee through negligence
or bad faith or willful misconduct.
(d) To secure the payment obligations of the Company pursuant to this
Section, the Trustee shall have a lien prior to the Securities of any series on
all money or property held or collected by the Trustee, except that held in
trust to pay principal, premium, if any, and interest, if any, on particular
Securities.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 5.1(5) or Section 5.1(6), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
Section 6.10. Replacement of Trustee. (a) The resignation or removal
of the Trustee and the appointment of a successor Trustee shall become effective
only upon the successor Trustee's acceptance of appointment as provided in
Section 6.11.
(b) The Trustee may resign at any time with respect to the Securities
of any series by giving written notice thereof to the Company.
(c) The Holders of a majority in aggregate principal amount of the
Outstanding Securities of any series may remove the Trustee with respect to that
series by so notifying the Trustee and the Company and may appoint a successor
Trustee for such series with the Company's consent.
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(d) If at any time:
(1) the Trustee fails to comply with Section 310(b) of the Trust
Indenture Act after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months; or
(2) the Trustee shall cease to be eligible under Section 6.12 of this
Indenture or Section 310(a) of the Trust Indenture Act and shall fail to
resign after written request therefor by the Company or by any Holder of a
Security who has been a bona fide Holder of a Security for at least six
months; or
(3) the Trustee becomes incapable of acting, is adjudged a bankrupt or
an insolvent or a receiver or public officer takes charge of the Trustee or
its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then, in any such case, (i) the Company by or pursuant to a
Board Resolution may remove the Trustee with respect to all Securities, or
(ii) subject to Section 315(e) of the Trust Indenture Act, any Holder who
has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee with respect to all
Securities and the appointment of a successor Trustee or Trustees.
(e) If the instrument of acceptance by a successor Trustee required by
Section 6.11 shall not have been delivered to the Trustee within 30 days after
the giving of such notice of resignation or removal, the Trustee resigning or
being removed may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
(f) If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, with respect to Securities of one or more
series, the Company, by or pursuant to a Board Resolution, shall promptly
appoint a successor Trustee with respect to the Securities of that or those
series (it being understood that any such successor Trustee may be appointed
with respect to the Securities of one or more or all of such series and that at
any time there shall be only one Trustee with respect to the Securities of any
particular series) and shall comply with the applicable requirements of Section
6.11. If, within one year after such resignation, removal or incapability, or
the occurrence of such vacancy, a successor Trustee with respect to the
Securities of any series shall be appointed by Act of the Holders of a majority
in principal amount of the Outstanding Securities of such series delivered to
the Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance with the
applicable requirements of Section 6.11, become the successor Trustee with
respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company. If no successor Trustee with respect
to the Securities of any series shall have been so appointed by the Company or
the Holders and accepted appointment in the manner required by Section 6.11, any
Holder who has been a bona fide Holder of a Security of such series for at least
six months may, on behalf of himself and all
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others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
Section 6.11. Acceptance of Appointment by Successor. (a) In case of
the appointment hereunder of a successor Trustee with respect to all Securities,
every such successor Trustee shall execute, acknowledge and deliver to the
Company and to the retiring Trustee an instrument accepting such appointment.
Thereupon, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee, without further act, deed or conveyance,
shall become vested with all the rights, powers and duties of the retiring
Trustee; but, on the request of the Company or the successor Trustee, such
retiring Trustee shall, upon payment of its charges, execute and deliver an
instrument transferring to such successor Trustee all the rights, powers and
trusts of the retiring Trustee and shall duly assign, transfer and deliver to
such successor Trustee all property and money held by such retiring Trustee
hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and such successor Trustee shall execute and deliver an
indenture supplemental hereto wherein such successor Trustee shall accept such
appointment and which (i) shall contain such provisions as shall be necessary or
desirable to transfer and confirm to, and to vest in, such successor Trustee all
the rights, powers, trusts and duties of the retiring Trustee with respect to
the Securities of that or those series to which the appointment of such
successor Trustee relates, (ii) if the retiring Trustee is not retiring with
respect to all Securities, shall contain such provisions as shall be deemed
necessary or desirable to confirm that all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
as to which the retiring Trustee is not retiring shall continue to be vested in
the retiring Trustee, and (iii) shall add to or change any of the provisions of
this Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee and upon
the execution and delivery of such supplemental indenture the resignation or
removal of the retiring Trustee shall become effective to the extent provided
therein and each such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
to which the appointment of such successor Trustee relates; but, on request of
the Company or any successor Trustee, such retiring Trustee shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to the successor Trustee all such rights, powers and trusts referred
to in paragraph (a) or (b) of this Section, as the case may be.
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(d) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under the Trust Indenture Act.
(e) The Company shall give notice of each resignation and each removal
of the Trustee with respect to the Securities of any series and each appointment
of a successor Trustee with respect to the Securities of any series in the
manner provided for notices to the Holders of Securities in Section 1.6. Each
notice shall include the name of the successor Trustee with respect to the
Securities of such series and the address of its Corporate Trust Office.
Section 6.12. Eligibility; Disqualification. There shall at all
times be a Trustee hereunder which shall be eligible to act as Trustee under
Section 310(a)(1) of the Trust Indenture Act and shall have a combined capital
and surplus of at least $75,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or the requirements of Federal,
State, Territorial or District of Columbia supervising or examining authority,
then, for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect heretofore specified
in this Article.
Section 6.13. Merger, Conversion, Consolidation or Succession to
Business. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
Section 6.14. Appointment of Authenticating Agent. The Trustee may
appoint an Authenticating Agent or Agents with respect to one or more series of
Securities which shall be authorized to act on behalf of the Trustee to
authenticate Securities of such series issued upon original issue, exchange,
registration of transfer or partial redemption thereof, and Securities so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Any such appointment shall be evidenced by an instrument in writing
signed by a Responsible Officer of the Trustee, a copy of which instrument shall
be promptly furnished to the Company. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall
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be acceptable to the Company and, except as may otherwise be provided pursuant
to Section 3.1, shall at all times be a bank or trust company or corporation
organized and doing business and in good standing under the laws of the United
States of America or of any State or the District of Columbia, authorized under
such laws to act as Authenticating Agent, having a combined capital and surplus
of not less than $25,000,000 and subject to supervision or examination by
Federal or State authorities. If such Authenticating Agent publishes reports of
condition at least annually, pursuant to law or the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such Authenticating Agent shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or further act
on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent for any series of Securities may at any time
resign by giving written notice of resignation to the Trustee for such series
and to the Company. The Trustee for any series of Securities may at any time
terminate the agency of an Authenticating Agent by giving written notice of
termination to such Authenticating Agent and to the Company. Upon receiving such
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee for such series may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall give
notice of such appointment to all Holders of Securities of the series with
respect to which such Authenticating Agent will serve in the manner set forth in
Section 1.6. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent herein. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation including reimbursement of its reasonable expenses
for its services under this Section.
If an appointment with respect to one or more series is made pursuant
to this Section, the Securities of such series may have endorsed thereon, in
addition to or in lieu of the Trustee's certificate of authentication, an
alternate certificate of authentication substantially in the following form:
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This is one of the Securities of the series described in the within-
mentioned Indenture.
---------------------------
as Trustee
by
---------------------------
as Authenticating Agent
by
---------------------------
Authorized Signatory
ARTICLE 7
CONSOLIDATION, MERGER OR SALE BY THE COMPANY
Section 7.1. Consolidation, Merger or Sale of Assets Permitted. The
Company shall not consolidate or merge with or into, or transfer or lease all or
substantially all of its assets to, any Person unless:
(1) the Person formed by or surviving any such consolidation or any
merger (if other than the Company), or to which such transfer or lease shall
have been made, is a corporation organized and existing under the laws of the
United States, any State thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or
merger (if other than the Company), or to which such transfer or lease shall
have been made, assumes by supplemental indenture all the obligations of the
Company under the Securities and this Indenture;
(3) immediately after giving effect to the transaction no Default or
Event of Default exists; and
(4) if, as a result of any such consolidation or merger or such
conveyance, transfer or lease, properties or assets of the Company would become
subject to a mortgage, pledge, lien, security interest or other encumbrance
which would not be permitted by the Securities of any series, the Company or
such successor Person, as the case may be, shall take such steps as shall be
necessary effectively to secure such Securities equally and ratably with all
indebtedness secured thereby.
The Company shall deliver to the Trustee prior to the proposed
transaction an Officers' Certificate to the foregoing effect and an Opinion of
Counsel stating that the proposed transaction and such supplemental indenture
comply with this Indenture and that all conditions precedent to the consummation
of the transaction under this Indenture have been met.
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In the event of the assumption by a successor corporation as provided
in clause (2) above, such successor corporation shall succeed to and be
substituted for the Company hereunder and under the Securities with the same
effect as if it had been named hereunder and thereunder and any coupons
appertaining thereto and all such obligations of the Company shall terminate.
ARTICLE 8
SUPPLEMENTAL INDENTURES
Section 8.1. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by or pursuant
to a Board Resolution, and the Trustee at any time and from time to time, may
enter into indentures supplemental hereto, in form reasonably satisfactory to
the Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation to the Company
and the assumption by any such successor of the covenants and obligations of the
Company herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to be for
the benefit of less than all series of Securities, stating that such covenants
are expressly being included solely for the benefit of such series) or to
surrender any right or power herein conferred upon the Company; provided,
however, that in respect of any such additional covenant such supplemental
indenture may provide for a particular period of grace after Default (which
period may be shorter or longer than that allowed in the case of other Defaults)
or may limit the remedies available to the Trustee upon such Default; or
(3) to add any additional Events of Default with respect to all or
any series of Securities (and if such Events of Default are to be for the
benefit of less than all series of Securities, stating that such Events of
Default are expressly included solely for the benefit of such series); or
(4) to add to or change any of the provisions of this Indenture to
such extent as shall be necessary to facilitate the issuance of Bearer
Securities (including, without limitation, to provide that Bearer Securities may
be registrable as to principal only) or to facilitate the issuance of Securities
in global form; or
(5) to add to, change or eliminate any of the provisions of this
Indenture, provided that any such addition, change or elimination shall become
effective only when there is no Security Outstanding of any series created prior
to the execution of such supplemental indenture which is entitled to the benefit
of such provision; or
(6) to secure the Securities; or
(7) to establish the form or terms of Securities of any series as
permitted by Sections 2.1 and 3.1; or
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(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or more
series and to add to or change any of the provisions of this Indenture as shall
be necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of Section
6.11; or
(9) if allowed without penalty under applicable laws and
regulations, to permit payment in the United States (including any of the States
and the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction of principal, premium, if any, or interest, if any,
on Bearer Securities or coupons, if any; or
(10) to correct or supplement any provision herein which may be
inconsistent with any other provision herein or to make any other provisions
with respect to matters or questions arising under this Indenture, provided such
action shall not adversely affect the interests of the Holders of Securities of
any series; or
(11) to cure an ambiguity or correct any mistake, provided such
action shall not adversely affect the interests of the Holders of Securities of
any series; or
(12) to modify the provisions of Article 12 with respect to all or
any series of Securities (except with respect to any Outstanding Securities, to
the extent prohibited by clause (5) of Section 8.2).
Section 8.2. Supplemental Indentures with Consent of Holders. With
the written consent of the Holders of a majority of the aggregate principal
amount of the Outstanding Securities of each series adversely affected by such
supplemental indenture, the Company, when authorized by or pursuant to a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto to add any provisions to or to change or eliminate any
provisions of this Indenture or of any other indenture supplemental hereto or to
modify the rights of the Holders of such Securities; provided, however, that
without the consent of the Holder of each Outstanding Security affected thereby,
a supplemental indenture under this Section may not:
(1) change the Stated Maturity of the principal of, or premium, if
any, on, or any installment of principal of or premium, if any, or
interest, if any, on, any Security, or reduce the principal amount thereof
or the rate of interest thereon or any premium payable upon the redemption,
repurchase or repayment thereof, or change the manner in which the amount
of any principal thereof or premium, if any, or interest, if any, thereon
is determined or reduce the amount of the principal of any Original Issue
Discount Security or Indexed Security that would be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section
5.2, or change the Place of Payment where or the currency in which any
Security or any premium or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment on or after
the Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date);
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(2) reduce the percentage in principal amount of the Outstanding
Securities of such series affected thereby, the consent of whose Holders is
required for any such supplemental indenture, or the consent of whose
Holders is required for any waiver (of compliance with certain provisions
of this Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture;
(3) waive a default in the payment of principal of, premium, if any,
or interest, if any, on, any Security of such Series;
(4) change any obligation of the Company to maintain an office or
agency in the places and for the purposes specified in Section 9.2;
(5) make any change in Section 5.7 or this 8.2(a) except to increase
any percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holders
of each Outstanding Security of such series affected thereby; or
(6) modify the provisions of this Indenture with respect to the
subordination of the Outstanding Securities of any series in a manner
adverse to the Holders thereof.
A supplemental indenture which changes or eliminates any covenant or
other provision of this Indenture, which has expressly been included solely for
the benefit of one or more particular series of Securities, or which modifies
the rights of the Holders of Securities of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
It is not necessary under this Section 8.2 for the Holders to consent
to the particular form of any proposed supplemental indenture, but it is
sufficient if they consent to the substance thereof.
Upon the request of the Company, accompanied by an Officers'
Certificate and a Board Resolution authorizing the execution of any such
supplemental indenture, and upon the filing with the Trustee of evidence of the
consent of Holders as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may, but shall not be obligated to, enter
into such supplemental indenture.
Section 8.3. Compliance with Trust Indenture Act. Every amendment to
this Indenture or the Securities of one or more series shall be set forth in a
supplemental indenture that complies with the Trust Indenture Act as then in
effect.
Section 8.4. Execution of Supplemental Indentures. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article or the modification thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the
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execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Section 8.5. Effect of Supplemental Indentures. Upon the execution
of any supplemental indenture under this article, this Indenture shall be
modified in accordance therewith and such supplemental indenture shall form a
part of this Indenture for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder and of any
coupon appertaining thereto shall be bound thereby.
Section 8.6. Reference in Securities to Supplemental Indentures.
Securities, including any coupons, of any series authenticated and delivered
after the execution of any supplemental indenture pursuant to this Article may,
and shall if required by the Trustee, bear a notation in form approved by the
Trustee as to any matter provided for in such supplemental indenture. If the
Company shall so determine, new Securities including any coupons of any series
so modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities including any coupons of such series.
ARTICLE 9
COVENANTS
Section 9.1. Payment of Principal, Premium, if any, and Interest, if
any. The Company covenants and agrees for the benefit of the Holders of each
series of Outstanding Securities that it will duly and punctually pay the
principal of, premium, if any, and interest, if any, on the Securities of that
series in accordance with the terms of the Securities of such series, any
coupons appertaining thereto and this Indenture. An installment of principal,
premium, if any, or interest, if any, shall be considered paid on the date it is
due if the Trustee or Paying Agent holds on that date money designated for and
sufficient to pay the installment.
Section 9.2. Maintenance of Office or Agency. If Securities of a
series are issued as Registered Securities, the Company will maintain in each
Place of Payment for any series of Securities an office or agency where
Securities of that series may be presented or surrendered for payment, where
Securities of that series may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities of that series and this Indenture may be served. If Securities of a
series are issuable as Bearer Securities, the Company will maintain, (i) subject
to any laws or regulations applicable thereto, an office or agency in a Place of
Payment for that series which is located outside the United States where
Securities of that series and related coupons may be presented and surrendered
for payment; provided, however, that if the Securities of that series are listed
on The International Stock Exchange of the United Kingdom and the Republic of
Ireland Limited, the Luxembourg Stock Exchange or any other stock exchange
located outside the United States and such stock exchange shall so require, the
Company will maintain a Paying Agent for the Securities of that series in
London, Luxembourg or any other required city located outside the United States,
as the
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case may be, so long as the Securities of that series are listed on such
exchange, and (ii) subject to any laws or regulations applicable thereto, an
office or agency in a Place of Payment for that series which is located outside
the United States, where Securities of that series may be surrendered for
exchange and where notices and demands to or upon the Company in respect of the
Securities of that series and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in the
location, of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
Unless otherwise specified as contemplated by Section 3.1, no payment
of principal, premium or interest on Bearer Securities shall be made at any
office or agency of the Company in the United States, by check mailed to any
address in United States, by transfer to an account located in the United States
or upon presentation or surrender in the United States of a Bearer Security or
coupon for payment, even if the payment would be credited to an account located
outside the United States; provided, however, that, if the Securities of a
series are denominated and payable in Dollars, payment of principal of and any
premium or interest on any such Bearer Security shall be made at the office of
the Company's Paying Agent located within the United States, if (but only if)
payment in Dollars of the full amount of such principal, premium or interest, as
the case may be, at all offices or agencies outside the United States maintained
for the purpose by the Company in accordance with this Indenture is illegal or
effectively precluded by exchange controls or other similar restrictions. The
Company may also from time to time designate one or more other offices or
agencies where the Securities (including coupons, if any) of one or more series
may be presented or surrendered for any or all such purposes and may from time
to time rescind such designations; provided, however, that no such designation
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in each Place of Payment for Securities (including
coupons, if any) of any series for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
Unless otherwise specified as contemplated by Section 3.1, the Trustee
shall initially serve as Paying Agent.
Section 9.3. Money for Securities Payments to be Held in Trust;
Unclaimed Money. If the Company shall at any time act as its own Paying Agent
with respect to any series of Securities, it will, on or before each due date of
the principal of, premium, if any, or interest, if any, on any of the Securities
of that series, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal, premium, if any, or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee in
writing of its action or failure so to act.
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The Company will cause each Paying Agent for any series of Securities
other than the Trustee to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of,
premium, if any, or interest, if any, on Securities of that series in trust
for the benefit of the Persons entitled thereto until such sums shall be
paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities of that series) in the making of any
payment of principal, premium, if any, or interest, if any, on the
Securities; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge or defeasance of this Indenture or for any other
purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee
all sums held in trust by the Company or such Paying Agent, such sums to be held
by the Trustee upon the same terms as those upon which such sums were held by
the Company or such Paying Agent; and, upon such payment by any Paying Agent to
the Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of any principal, premium or interest
on any Security of any series and remaining unclaimed for two years after such
principal, premium, if any, or interest, if any, has become due and payable
shall be paid to the Company on Company Request or (if then held by the Company)
shall be discharged from such trust, unless otherwise required by certain
provisions of applicable law; and the Holder of such Security and coupon, if
any, shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in The City of New York, or cause to be mailed to such Holder,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.
Section 9.4. Corporate Existence. Subject to Article 7, the Company
will at all times do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence and its rights and
franchises; provided that nothing in this Section 9.4 shall prevent the
abandonment or termination of any right or franchise of the Company if, in the
opinion of the Company, such abandonment or termination is in the best interests
of the
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Company and does not materially adversely affect the ability of the Company to
fulfill its obligations hereunder.
Section 9.5. Reports by the Company. The Company covenants:
(a) to file with the Trustee, within 30 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or section 15(d) of the
Securities Exchange Act of 1934, as amended; or, if the Company is not
required to file information, documents or reports pursuant to either of
such sections, then to file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by the
Commission, such of the supplementary and periodic information, documents
and reports which may be required pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, in respect of a security listed and
registered on a national securities exchange as may be prescribed from time
to time in such rules and regulations;
(b) to file with the Trustee and the Commission, in accordance with
the rules and regulations prescribed from time to time by the Commission,
such additional information, documents and reports with respect to
compliance by the Company with the conditions and covenants provided for in
this Indenture, as may be required from time to time by such rules and
regulations; and
(c) to transmit to all Holders of Securities, within 30 days after
the filing thereof with the Trustee, in the manner and to the extent
provided in section 313(c) of the Trust Indenture Act, such summaries of
any information, documents and reports required to be filed by the Company
pursuant to subsections (a) and (b) of this Section 9.5, as may be required
by rules and regulations prescribed from time to time by the Commission.
Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including information
concerning the Company's compliance with any of its covenants hereunder,
provided that the foregoing shall not relieve the Trustee of any of its
responsibilities hereunder.
Section 9.6. Annual Review Certificate; Notice of Defaults or Events
of Default. (a) The Company covenants and agrees to deliver to the Trustee,
within 120 days after the end of each fiscal year of the Company (beginning with
respect to Securities of any series with the fiscal year next following the
issue date of such series of Securities), a certificate from the principal
executive officer, principal financial officer or principal accounting officer
as to his or her knowledge of the Company's compliance with all conditions and
covenants under this Indenture. For purposes of this Section 9.6, such
compliance shall be determined without regard to any period of grace or
requirement of notice provided under this Indenture.
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(b) The Company covenants and agrees to deliver to the Trustee,
within a reasonable time after the Company becomes aware of the occurrence of a
Default or an Event of Default of the character specified in Section 5.1(4)
hereof, written notice of the occurrence of such Default or Event of Default.
Section 9.7. Books of Record and Account. The Company will keep
proper books of record and account, either on a consolidated or individual
basis. The Company shall cause its books of record and account to be examined
either on a consolidated or individual basis, by one or more firms of
independent public accountants not less frequently than annually. The Company
shall prepare its financial statements in accordance with generally accepted
accounting principles.
ARTICLE 10
REDEMPTION
Section 10.1. Applicability of Article. Securities (including
coupons, if any) of any series which are redeemable before their Stated
Maturity, whether at the option of the Holder thereof or the Company, shall be
redeemable in accordance with their terms and (except as otherwise specified as
contemplated by Section 3.1 for Securities of any series) in accordance with
this Article.
Section 10.2. Election to Redeem Notice to Trustee. The election of
the Company to redeem any Securities, including coupons, if any, shall be
evidenced by or pursuant to a Board Resolution. In the case of any redemption at
the election of the Company of less than all the Securities or coupons, if any,
of any series, the Company shall, at least 60 days prior to the Redemption Date
fixed by the Company (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee of such Redemption Date and Redemption Price, of
the principal amount of Securities of such series to be redeemed and, if
applicable, of the tenor of the Securities to be redeemed. In the case of any
redemption of Securities (i) prior to the expiration of any restriction on such
redemption provided in the terms of such Securities or elsewhere in this
Indenture or (ii) pursuant to an election of the Company which is subject to a
condition specified in the terms of such Securities, the Company shall furnish
the Trustee with an Officers' Certificate evidencing compliance with such
restriction or condition.
Section 10.3. Selection of Securities to be Redeemed. Unless
otherwise specified as contemplated by Section 3.1, if less than all the
Securities (including coupons, if any) of a series with the same terms are to be
redeemed, the Trustee, not more than 45 days prior to the Redemption Date, shall
select the Securities of the series to be redeemed in such manner as the Trustee
shall deem fair and appropriate and which may provide for the selection for
redemption of a portion of the principal amount of any Security of such series,
provided that the unredeemed portion of the principal amount of any Security
shall be in an authorized denomination (which shall not be less than the minimum
authorized denomination) for such Security. The Trustee shall make the selection
from Securities of the series that are Outstanding and that have not previously
been called for redemption and may provide for the selection for redemption of
portions (equal to the minimum authorized denomination for Securities, including
coupons, if any, of that series or
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any integral multiple thereof) of the principal amount of Securities, including
coupons, if any, of such series of a denomination larger than the minimum
authorized denomination for Securities of that series. The Trustee shall
promptly notify the Company in writing of the Securities selected by the Trustee
for redemption and, in the case of any Securities selected for partial
redemption, the principal amount thereof to be redeemed. If the Company shall so
direct, Securities registered in the name of the Company, any Affiliate of the
Company or any Subsidiary of the Company thereof shall not be included in the
Securities selected for redemption.
For purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities (including coupons, if
any) shall relate, in the case of any Securities (including coupons, if any)
redeemed or to be redeemed only in part, to the portion of the principal amount
of such Securities (including coupons, if any) which has been or is to be
redeemed.
Section 10.4. Notice of Redemption. Unless otherwise specified as
contemplated by Section 3.1, notice of redemption shall be given in the manner
provided in Section 1.6 not less than 30 days nor more than 60 days prior to the
Redemption Date to the Holders of the Securities to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) if less than all the Outstanding Securities of a series are to
be redeemed, the identification (and in the case of partial redemption, the
principal amounts) of the particular Security or Securities to be redeemed;
(4) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the Redemption
Date, upon surrender of such Security, the Holder will receive, without a
charge, a new Security or Securities of authorized denominations for the
principal amount thereof remaining unredeemed;
(5) the Place or Places of Payment where such Securities, together
in the case of Bearer Securities with all coupons appertaining thereto, if any,
maturing after the Redemption Date, are to be surrendered for payment for the
Redemption Price;
(6) that Securities of the series called for redemption and all
unmatured coupons, if any, appertaining thereto must be surrendered to the
Paying Agent to collect the Redemption Price;
(7) that, on the Redemption Date, the Redemption Price will become
due and payable upon each such Security, or the portion thereof, to be redeemed
and, if applicable, that interest thereon will cease to accrue on and after said
date;
65
<PAGE>
(8) that the redemption is for a sinking fund, if such is the case;
(9) that unless otherwise specified in such notice, Bearer
Securities of any series, if any, surrendered for redemption must be accompanied
by all coupons maturing subsequent to the Redemption Date or the amount of any
such missing coupon or coupons will be deducted from the Redemption Price,
unless security or indemnity satisfactory to the Company, the Trustee and any
Paying Agent is furnished; and
(10) the CUSIP number, if any, of the Securities.
Notice of redemption of Securities to be redeemed shall be given by
the Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company.
Section 10.5. Deposit of Redemption Price. On or prior to any
Redemption Date, the Company shall deposit with the Trustee or with a Paying
Agent (or, if the Company is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 9.3) an amount of money in the currency or
currencies (including currency unit or units) in which the Securities of such
series are payable (except as otherwise specified pursuant to Section 3.1 for
the Securities of such series) sufficient to pay on the Redemption Date the
Redemption Price of, and (unless the Redemption Date shall be an Interest
Payment Date) interest accrued to the Redemption Date on, all Securities or
portions thereof which are to be redeemed on that date.
Unless any Security by its terms prohibits any sinking fund payment
obligation from being satisfied by delivering and crediting Securities
(including Securities redeemed otherwise than through a sinking fund), the
Company may deliver such Securities to the Trustee for crediting against such
payment obligation in accordance with the terms of such Securities and this
Indenture or as otherwise specified as contemplated by Section 3.1.
Section 10.6. Securities Payable on Redemption Date. Notice of
redemption having been given as aforesaid, the Securities so to be redeemed
shall, on the Redemption Date, become due and payable at the Redemption Price
therein specified, and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest and the coupons for any such interest
appertaining to any Bearer Security so to be redeemed, except to the extent
provided below, shall be void. Except as provided in the next succeeding
paragraph, upon surrender of any such Security, including coupons, if any, for
redemption in accordance with said notice, such Security shall be paid by the
Company at the Redemption Price, together with accrued interest to the
Redemption Date; provided, however, that installments of interest on Bearer
Securities whose Stated Maturity is on or prior to the Redemption Date shall be
payable only at an office or agency located outside the United States and its
possessions (except as otherwise provided in Section 9.2) and, unless otherwise
specified as contemplated by Section 3.1, only upon presentation and surrender
of coupons for such interest; and provided, further that, unless otherwise
specified as contemplated by Section 3.1, installments of interest on Registered
Securities whose Stated Maturity is on or prior to the Redemption Date shall be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions of Section 3.7.
66
<PAGE>
If any Bearer Security surrendered for redemption shall not be
accompanied by all appurtenant coupons maturing after the Redemption Date, such
Bearer Security may be paid after deducting from the Redemption Price an amount
equal to the face amount of all such missing coupons, or the surrender of such
missing coupon or coupons may be waived by the Company and the Trustee if there
be furnished to them such security or indemnity as they may require to save each
of them and any Paying Agent harmless. If thereafter the Holder of such Bearer
Security shall surrender to the Trustee or any Paying Agent any such missing
coupon in respect of which a deduction shall have been made from the Redemption
Price, such Holder shall be entitled to receive the amount so deducted;
provided, however, that interest represented by coupons shall be payable only at
an office or agency located outside of the United States (except as otherwise
provided pursuant to Section 9.2) and, unless otherwise provided as contemplated
by Section 3.1, only upon presentation and surrender of those coupons.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate prescribed
therefor in the Security.
Section 10.7. Securities Redeemed in Part. Upon surrender of a
Security that is redeemed in part at any Place of Payment therefor (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing), the Company
shall execute and the Trustee shall authenticate and deliver to the Holder of
that Security, without service charge a new Security or Securities of the same
series, having the same form, terms and Stated Maturity, in any authorized
denomination equal in aggregate principal amount to the unredeemed portion of
the principal amount of the Security surrendered.
ARTICLE 11
SINKING FUNDS
Section 11.1. Applicability of Article. The provisions of this
Article shall be applicable to any sinking fund for the retirement of Securities
of a series except as otherwise specified as contemplated by Section 3.1 for
Securities of such series.
The minimum amount of any sinking fund payment provided for by the
terms of Securities of any series is herein referred to as a "mandatory sinking
fund payment", and any payment in excess of such minimum amount provided for by
the terms of Securities of any series is herein referred to as an "optional
sinking fund payment". If provided for by the terms of Securities of any
series, the cash amount of any sinking fund payment may be subject to reduction
as provided in Section 11.2. Each sinking fund payment shall be applied to the
redemption of Securities of any series as provided for by the terms of the
Securities of such series.
Section 11.2. Satisfaction of Sinking Fund Payments with Securities.
The Company (i) may deliver Outstanding Securities of a series (other than any
previously called for redemption) together, in the case of Bearer Securities of
such series, with all unmatured coupons
67
<PAGE>
appertaining thereto and (ii) may apply as a credit Securities of a series which
have been redeemed either at the election of the Company pursuant to the terms
of such Securities or through the application of permitted optional sinking fund
payments pursuant to the terms of such Securities, or (iii) may apply Securities
of a series previously cancelled or delivered to the Trustee for cancellation
pursuant to Section 3.9 in each case in satisfaction of all or any part of any
sinking fund payment with respect to the Securities of such series required to
be made pursuant to the terms of such Securities as provided for by the terms of
such series; provided that such Securities have not been previously so credited.
Such Securities shall be received and credited for such purpose by the Trustee
at the Redemption Price specified in such Securities for redemption through
operation of the sinking fund and the amount of such sinking fund payment shall
be reduced accordingly.
Section 11.3. Redemption of Securities for Sinking Fund. Not less
than 60 days prior to each sinking fund payment date for any series of
Securities, the Company will deliver to the Trustee an Officers' Certificate
specifying the amount of the next ensuing sinking fund payment for that series
pursuant to the terms of that series, the portion thereof, if any, which is to
be satisfied by payment of cash and the portion thereof, if any, which is to be
satisfied by delivering and crediting Securities of that series pursuant to
Section 11.2 and will also deliver to the Trustee any Securities to be so
delivered. Not less than 30 days before each such sinking fund payment date the
Trustee shall select the Securities to be redeemed upon such sinking fund
payment date in the manner specified in Section 10.3 and cause notice of the
redemption thereof to be given in the name of and at the expense of the Company
in the manner provided in Section 10.4. Such notice having been duly given, the
redemption of such Securities shall be made upon the terms and in the manner
stated in Sections 10.6 and 10.7.
ARTICLE 12
SUBORDINATION
Section 12.1. Agreement to Subordinate. The Company agrees, and each
Holder by accepting a Security agrees, that the indebtedness evidenced by the
Security is subordinated in right of payment, to the extent and in the manner
provided in this Article 12, to the prior payment in full of all Senior
Indebtedness, and that the subordination is for the benefit of, and shall be
enforceable directly by, the holders of Senior Indebtedness, without any act or
notice of acceptance hereof or reliance hereon.
Section 12.2. Certain Definitions.
"Senior Indebtedness" means (i) all indebtedness of the Company,
whether outstanding on the date hereof or thereafter created, incurred or
assumed, that is for borrowed money, or evidenced by a note or similar
instrument given in connection with the acquisition of any business, properties
or assets, including securities, (ii) any indebtedness of any other Person of
the kind described in the preceding clause (i) for the payment of which the
Company is responsible or liable as guarantor or otherwise and (iii) amendments,
renewals, extensions and refundings of any such indebtedness. Senior
Indebtedness shall continue to be Senior Indebtedness and to be entitled to the
benefits of the subordination provisions of this Article 12
68
<PAGE>
irrespective of any amendment, modification or waiver of any term of the Senior
Indebtedness or extension or renewal of the Senior Indebtedness.
Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness shall not include (A) any indebtedness of the Company to any of its
Subsidiaries, (B) indebtedness incurred for the purchase of goods or materials
or for services obtained in the ordinary course of business and (C) any
indebtedness which by its terms is expressly made pari passu with or
subordinated to the Securities.
Section 12.3. Liquidation; Dissolution; Bankruptcy; Etc. In the
event of
(i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Company, its creditors or its property,
(ii) any proceeding for the liquidation, dissolution or other winding
up of the Company, voluntary or involuntary, whether or not involving insolvency
or bankruptcy proceedings,
(iii) any assignment by the Company for the benefit of creditors, or
(iv) any other marshalling of the assets of the Company,
all Senior Indebtedness (including, without limitation, interest accruing after
the commencement of any such proceeding, assignment or marshalling of assets)
shall first be paid in full before any payment or distribution, whether in cash,
securities or other property, shall be made by the Company on account of the
Securities. In any such event, any payment or distribution, whether in cash,
securities or other property (other than securities of the Company or any other
corporation provided for by a plan of reorganization or a readjustment, the
payment of which is subordinate, at least to the extent provided in the
subordination provisions of this Indenture with respect to the indebtedness
evidenced by the Securities, to the payment of all Senior Indebtedness at the
time outstanding and to any securities issued in respect thereof under any such
plan of reorganization or readjustment) which would otherwise (but for the
provisions of this Article 12) be payable or deliverable in respect of the
Securities (including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other indebtedness of the Company
being subordinated to the payment of the Securities) shall be paid or delivered
directly to the holders of Senior Indebtedness or to their representative or
trustee in accordance with the priorities then existing among such holders until
all Senior Indebtedness shall have been paid in full.
Section 12.4. Default on Senior Indebtedness. If (i) the Company
defaults in the payment of any principal or premium, if any, or interest on any
Senior Indebtedness when the same becomes due and payable, whether at maturity
or at a date fixed for prepayment or declaration or otherwise or (ii) an event
of default occurs with respect to any Senior Indebtedness permitting the holders
thereof to accelerate the maturity thereof and written notice of such event of
default (requesting that payments on the Securities cease) is given to the
Company by the
69
<PAGE>
holders of Senior Indebtedness, then unless and until such default in payment or
event of default shall have been cured or waived or shall have ceased to exist
no direct or indirect payment (in cash, property or securities, by set-off or
otherwise) shall be made or agreed to be made on account of the Securities or
interest thereon or in respect of any repayment, redemption, retirement,
purchase or other acquisition of the Securities. This Article 12 shall not apply
to any payments to be made on the Securities from funds held in trust pursuant
to Article 4 provided that this Article 12 did not prohibit the deposit of such
funds into trust at the time of such deposit.
Section 12.5. When Distribution Must Be Paid Over. If a distribution
is made to the Trustee or any Holder at a time when a Responsible Officer of the
Trustee or such Holder, respectively, has actual knowledge that because of this
Article 12 such distribution should not have been made to it, the Trustee or
such Holder who receives the distribution shall hold it in trust for the benefit
of, and, upon written request, shall pay it over to, the holders of Senior
Indebtedness as their interests may appear, or their agent or representative or
the trustee under the indenture or other agreement (if any) pursuant to which
Senior Indebtedness may have been issued, as their respective interests may
appear, for application to the payment of all principal, premium, if any, and
interest then payable with respect to any Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 12 and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness, and shall not be
liable to any such holders if the Trustee shall pay over or distribute to or on
behalf of Holders or the Company or any other Person money or assets to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
12, except if such payment is made as a result of the willful misconduct or
gross negligence of the Trustee.
Section 12.6. Notice By Company. The Company shall promptly notify
in writing the Trustee and any Paying Agent of any facts known to the Company
that would cause a payment with respect to the Securities to violate this
Article 12, but failure to give such notice shall not affect the subordination
of the Securities to the Senior Indebtedness provided in this Article 12.
Section 12.7. Subrogation. Senior Indebtedness shall not be deemed
to have been paid in full unless the holders thereof shall have received cash,
securities or other property equal to the amount of such Senior Indebtedness
then outstanding. After all Senior Indebtedness is paid in full and until the
Securities are paid in full, Holders shall be subrogated (equally and ratably
with all other indebtedness as to which the right to receive payment is pari
passu with the Securities) to the rights of holders of Senior Indebtedness to
receive distributions applicable to Senior Indebtedness to the extent that
distributions otherwise payable to the Holders have been applied to the payment
of Senior Indebtedness, and such payments or distributions received by any
Holder of Securities, by reason of such subrogation, of cash, securities or
other property which otherwise would be paid or distributed to the holders of
Senior Indebtedness, shall, as
70
<PAGE>
between the Company and its creditors other than the holders of Senior
Indebtedness on the one hand, and the Holders of Securities, on the other, be
deemed to be a payment by the Company on account of Senior Indebtedness, and not
on account of Securities.
Section 12.8. Relative Rights. This Article 12 defines the relative
rights of Holders and holders of Senior Indebtedness. Nothing in this Indenture
shall:
(i) impair as between the Company and Holders, the obligation of
the Company, which is absolute and unconditional to pay principal of
and interest on the Securities in accordance with their terms;
(ii) affect the relative rights of Holders and creditors of the
Company other than their rights in relation to holders of Senior
Indebtedness; or
(iii) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders and owners of Senior Indebtedness to receive
distributions and payments otherwise payable to Holders. If the
Company fails because of this Article 12 to pay principal of premium,
if any, or interest on a Security on the due date, the failure is
still a Default or Event of Default.
Section 12.9. Subordination May Not Be Impaired By Company. No
present or future holder of any Senior Indebtedness shall be prejudiced in the
right to enforce subordination of the indebtedness constituting the Securities
by any act or failure to act on the part of the Company.
Section 12.10. Distribution. Upon any payment or distribution of
assets of the Company referred to in this Article 12, the Trustee and the
Holders shall be entitled to rely upon an order or decree made by any court of
competent jurisdiction or upon any certificate of the liquidating trustee or
agent or other person making any Distribution to the Trustee or to the Holders
for the purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other Debt of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other acts pertinent thereto or to this Article 12
and the Trustee and the Holders shall not be required to take any action with
respect to such payment or distribution in the absence of such order, decree or
certificate.
Section 12.11. Rights Of Trustee And Paying Agent. Notwithstanding
the provisions of this Article 12 or any other provision of this Indenture,
neither the Trustee nor any Paying Agent shall be charged with knowledge of the
existence of any facts which would prohibit the making of any payment or
distribution by the Trustee or such Paying Agent, or the taking of any action by
the Trustee or such Paying Agent, and the Trustee or such Paying Agent may
continue to make payments on the Securities unless, in the case of the Trustee,
and in the case of such Paying Agent as long as the Trustee is such Paying
Agent, a Responsible Officer shall have received at the Corporate Trust Office
of the Trustee, and in the case of a Paying Agent other than the Trustee it
shall have received, in each case at least two Business Days prior
71
<PAGE>
to the date of such payment, written notice of facts that would cause any such
payment with respect to the Securities to violate this Article 12 which notice
must specifically refer to this Article 12. The Trustee or any Paying Agent, as
applicable, shall promptly provide a copy of such notice to the Holders. Nothing
in this Article 12 shall limit the right of the holders of Senior Indebtedness
to recover payments as contemplated elsewhere in this Article 12 or impair the
claims of, or payments to, the Trustee under or pursuant to Section 6.9 hereof.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee, subject
to Trust Indenture Act Sections 310(b) and 311. Any Agent may do the same with
like rights.
Section 12.12. Authorization To Effect Subordination. Each Holder of
a Security by his acceptance thereof authorizes and directs the Trustee on his
behalf to take such action as may be necessary or appropriate to effectuate the
subordination as provided in this Article 12, and appoints the Trustee his
attorney-in-fact for any and all such purposes.
* * *
This Indenture may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute but
one instrument.
72
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
FEDERAL-MOGUL CORPORATION
by: _________________________________
Name:
Title:
THE BANK OF NEW YORK, as Trustee
by: _________________________________
Name:
Title:
73
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" in
Amendment No. 1 to the Registration Statement on Form S-3 (No. 333-50413) and
related Prospectuses and Prospectus Supplements of Federal-Mogul Corporation
for the registration of its common stock, debt securities, and preferred
stock, and to the inclusion and incorporation by reference therein of our
report dated January 30, 1998 (except for note 20, as to which the date is
February 24, 1998) with respect to the consolidated financial statements and
to the incorporation by reference of our report dated January 30, 1998 (except
for note 20, as to which the date is February 24, 1998) with respect to the
financial statement schedule of Federal-Mogul Corporation included in its
Annual Report on Form 10-K for the year ended December 31, 1997 and the
inclusion and incorporation by reference of our report dated February 13, 1998
with respect to the financial statements of The Operating Businesses of the
Fel-Pro Group included in Federal-Mogul Corporation's Form 8-K/A dated April
7, 1998, and the incorporation by reference therein of our report dated
February 13, 1998, with respect to the financial statements of The Operating
Business of Felt Products Mfg. Co. and subsidiaries included in Federal-Mogul
Corporation's Form 8-K dated April 17, 1998, filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
May 14, 1998
Detroit, Michigan
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
Dear Sirs
S-3 Registration Statement
We consent to the inclusion in the Registration Statement (Form S-3),
Registration No. 333-50413, and related prospectus and prospectus supplements
for the registration of common stock, debt securities and preferred stock of
Federal-Mogul Corporation, all of which are dated 14 May 1998 and the
incorporation by reference and inclusion therein of our report dated 17
February 1998 in respect of the consolidated balance sheets of T&N plc and its
subsidiaries at 31 December 1997 and 31 December 1996, and the related
consolidated profit and loss accounts, reconciliations of movements in
shareholders' funds and consolidated cash flow statements for each of the
years in the three year period ended 31 December 1997 and to the references to
our firm under the heading "Experts" in the registration statement and related
prospectus and prospectus supplements, registration number 333-50413.
Yours faithfully
/s/ KPMG Audit Plc
KPMG Audit Plc
<PAGE>
Exhibit 23.4
May 11, 1998
Federal-Mogul Corporation
26555 Northwestern Highway
Southfield, MI 48034
To Whom It May concern:
I hereby consent to being named as a nominee to the Board of Directors of
Federal-Mogul Corporation on its Registration Statement on Form S-3. I further
consent to act as a Director of Federal-Mogul Corporation if duly elected.
Sincerely,
/s/ Paul S. Lewis
Paul Scott Lewis
<PAGE>
Exhibit 23.5
May 11, 1998
Federal-Mogul Corporation
26555 Northwestern Highway
Southfield, MI 48034
To Whom It May concern:
I hereby consent to being named as a nominee to the Board of Directors of
Federal-Mogul Corporation on its Registration Statement on Form S-3. I further
consent to act as a Director of Federal-Mogul Corporation if duly elected.
Sincerely,
/s/ Sir Geoffrey Whalen
Sir Geoffrey Whalen
<PAGE>
Exhibit 25
THIS CONFORMING PAPER FORMAT DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901(d)
OF REGULATION S-T
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
FEDERAL-MOGUL CORPORATION
(Exact name of obligor as specified in its charter)
Michigan 38-0533580
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
26555 Northwestern Highway
Southfield, Michigan 48034
(Address of principal executive offices) (Zip code)
______________________
Debt Securities
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
- ---------------------------------------------------------------------------
Name Address
- ---------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17 C.F.R.
229.10(d).
1. A copy of the Organization Certificate of The Bank of New York (formerly
Irving Trust Company) as now in effect, which contains the authority to
commence business and a grant of powers to exercise corporate trust
powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration
Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with
Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a
corporation organized and existing under the laws of the State of New York, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 5th day of May, 1998.
THE BANK OF NEW YORK
By: /s/ JAMES W.P. HALL
---------------------------
Name: James W.P. Hall
Title: Vice President
-4-
<PAGE>
Exhibit 7
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business December 31,
1997, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin.................... $ 5,742,986
Interest-bearing balances............. 1,342,769
Securities:
Held-to-maturity securities........... 1,099,736
Available-for-sale securities......... 3,882,686
Federal funds sold and Securities pur-
chased under agreements to resell..... 2,568,530
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................35,019,608
LESS: Allowance for loan and
lease losses ..............627,350
LESS: Allocated transfer risk
reserve..........................0
Loans and leases, net of unearned
income, allowance, and reserve 34,392,258
Assets held in trading accounts......... 2,521,451
Premises and fixed assets (including
capitalized leases)................... 659,209
Other real estate owned................. 11,992
Investments in unconsolidated
subsidiaries and associated
companies............................. 226,263
Customers' liability to this bank on
acceptances outstanding............... 1,187,449
Intangible assets....................... 781,684
Other assets............................ 1,736,574
-----------
Total assets............................ $56,153,587
===========
LIABILITIES
Deposits:
In domestic offices................... $27,031,362
Noninterest-bearing ......11,899,507
Interest-bearing .........15,131,855
In foreign offices, Edge and
Agreement subsidiaries, and IBFs...... 13,794,449
Noninterest-bearing .........590,999
Interest-bearing .........13,203,450
Federal funds purchased and Securities
sold under agreements to repurchase... 2,338,881
Demand notes issued to the U.S.
Treasury.............................. 173,851
Trading liabilities..................... 1,695,216
Other borrowed money:
With remaining maturity of one year
or less............................. 1,905,330
With remaining maturity of more than
one year through three years........ 0
With remaining maturity of more than
three years......................... 25,664
Bank's liability on acceptances exe-
cuted and outstanding................. 1,195,923
Subordinated notes and debentures....... 1,012,940
Other liabilities....................... 2,018,960
-----------
Total liabilities....................... 51,192,576
-----------
EQUITY CAPITAL
Common stock............................ 1,135,284
Surplus................................. 731,319
Undivided profits and capital
reserves.............................. 3,093,726
Net unrealized holding gains
(losses) on available-for-sale
securities............................ 36,866
Cumulative foreign currency transla-
tion adjustments...................... ( 36,184)
-----------
Total equity capital.................... 4,961,011
-----------
Total liabilities and equity
capital .............................. $56,153,587
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Renyi )
Alan R. Griffith ) Directors
J. Carter Bacot )
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